How Pinnacle Entertainment earns its gaming revenues


Dec. 15 2014, Updated 1:45 p.m. ET

Revenue model

Revenues for Pinnacle Entertainment (PNK) are mostly cash-based. Customers wager with cash or pay for non-gaming services with cash or credit cards. Gaming activities generate most of PNK’s revenues.

PNK’s slot revenue represented about 79% and 78% of gaming revenues in 2013 and 2012, respectively.

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Key performance indicators

The key indicators related to gaming revenues are slot handle, VLT (video lottery terminal) handle, table game drop, and win or hold percentages. Slot and VLT handles represent the total amounts wagered in slot machines and VLT. Table game drop is the total amount of net markers—extensions of credit granted to certain customers—and cash deposited in gaming table drop boxes. Win shows the amount of wagers retained and recorded as casino revenue. Hold represents win as a percentage of slot handle, VLT handle, or table game drop.

Pinnacle Entertainment’s slot and VLT hold percentages are stable, so the company has not experienced any significant impact on its results from changes in that area. PNK’s table game hold percentages are also fairly stable. Therefore, changes in these numbers do not materially affect the company’s earnings.

Since the casino industry is capital-intensive, companies like PNK, Penn National Gaming (PENN), and Boyd Gaming (BYD) rely on their properties to generate operating cash flows mainly to repay debt costs and fund maintenance capital expenditures. ETFs like VanEck Vectors Gaming (BJK) and the Consumer Discretionary Select Sector SPDR Fund (XLY) give investors access to the leisure industry.


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