by Ray Poirier | There really wasn’t much money to be made operating a state-owned casino in Cherokee County, Kansas, so that is why there was only one bidder for the contract, Penn National Gaming Inc. (PENN).
But, the operators of Penn National had a bigger plan in mind. The company would attempt to influence the Kansas decision makers by offering to take on the Cherokee County facility provided it was successful in being given the contract for a bigger money maker in Sumner County.
The plan failed. Harrah’s won the Sumner County contract, despite facing a lawsuit from a tribe whose casino was operated for a decade by Harrah’s. Once a judge decided that Harrah’s could go forward with the Sumner County plans, Penn National backed out of the Cherokee County award.
Penn National officials said they decided the Cherokee County facility could not compete with a tribal casino that is so close to the Kansas state line in Oklahoma that its parking lot is in Kansas.
But analysts had observed that Penn National had embarked on a plan that linked its Cherokee County proposal to its bigger proposal in Sumner County. Without both contracts, it was expected that the company would back away from the other.
Following the announcement, Gov. Kathleen Sebelius expressed disappointment in the turn of events and directed the Lottery Division to immediately reopen the application process for the Cherokee County license.
Meanwhile, the Cherokee County officials have filed suit against Penn National saying their development agreement obligates the company to build and operate the casino. The county suit seeks $52 million in damages.
Also, Penn National, which recently terminated its contract with two private equity firms to take the company private, is the subject of a class action lawsuit. The suit was filed on behalf of persons who purchased the company’s stock during a period when the company said it agreed to be bought for the equivalent of $67 per share.
The suit charges that Penn National issued false and materially misleading statements regarding the takeover.