Labor union wants FTC scrutiny of GLPI-Pinnacle deal

A national labor union wants the Federal Trade Commission to investigate a proposed $4.75 billion gaming industry merger that the group claims is fraught with antitrust implications.

In a letter to the chairwoman of the commission, UNITE HERE said the merger between real estate investment trust Gaming and Leisure Properties and Pinnacle Entertainment, will result in monopolies in at least three casino markets and reduce competition because of language in the management agreements.

The deal, which was announced in July, gives Pennsylvania-based GLPI ownership of the land and buildings associated with 14 casinos currently owned by Las Vegas-based Pinnacle. Under the terms of the transaction, Pinnacle would operate the casinos through a lease agreement with GLPI.

The merger requires various approvals, including shareholders of the two companies and Nevada gaming regulators.

Once the deal closes, GLPI — which was spun off in 2013 by Penn National Gaming — would own 35 casino and hotel facilities in 14 states.

Marty Leary, deputy research director for UNITE HERE, said the transaction creates competitive disadvantages in three markets.

GLPI would own five of the six casinos in St. Louis, accounting for 86 percent of region's annual gaming revenue. Similar situations would take place in Kansas City, Mo., where GLPI would own three of the five casinos that account for 65.6 percent of the total gaming revenue, and in Baton Rouge, La., where two of the three casinos account for 78.1 percent of the revenue.

"The proposed merger in many ways is unprecedented," Andrew Kahn, an attorney for UNITE HERE said in the letter. "GLPI is the first, and so far the only, casino REIT in existence. The proposed transaction is the first in which a REIT seeks to acquire casinos which currently compete directly with casinos it already owns."

Pinnacle will pay GLPI $377 million in rent in the first year under the 10-year lease agreement.

Leary said the lease agreements do not make GLPI a "passive" landlord.

"The leases will allow GLPI to limit competition, with potentially adverse effects on casino customers," Leary said.

The union sent the letter on Aug. 28. GLPI, in its S-4 filing with the Securities and Exchange Commission on Tuesday, said as a REIT, a filing with the FTC was not required under the Hart-Scott-Rodino Antitrust Improvements Act. However, the FTC on Aug. 10 asked GLPI and Pinnacle "to provide on a voluntary basis certain documents and information."

The companies said they "intend to fully cooperate with the FTC in its investigation. Although we cannot predict the outcome of the FTC review, such a review is not unusual for a merger of this size and nature," according to the SEC filing.

In an emailed statement, a spokesman for GLPI said the union's arguments have no merit. "This real estate transaction will not impact competition among operators of casinos."

Pinnacle Executive Vice President of Government Relations & Public Affairs Troy Stremming said "we will continue to work cooperatively with all regulatory bodies to bring this transaction to fruition."

UNITE HERE is the parent organization of Culinary Workers Local 226. Pinnacle does not operate a casino in Las Vegas.

Gaming companies — including MGM Resorts International and Boyd Gaming Corp. — have said they are exploring whether or not a REIT process makes sense for their business model. The idea is to create two public companies — one that owns the real estate and a separate operating company that runs the businesses.

Caesars Entertainment Corp. is asking a bankruptcy judge for permission to split its Caesars Entertainment Operating Co., into a REIT and a management business.

By law, REITs don't pay federal income taxes. With real estate as their primary source of income, REITs are required to distribute 90 percent of their taxable earnings to shareholders.

The FTC has said nongaming REITs, such as office complexes, hotels and retail centers, are not required to make antitrust filings.

However, the union said REITs could halt competition in many gaming states where there are a limited number of casino licenses.

"The casino industry is unique," Leary said. "The FTC can't use the same standard for office buildings or shopping centers."

When it was created, GLPI took ownership of 21 Penn-operated casinos and racetracks. Penn has continued to manage the casinos under a lease. GLPI bought an Illinois riverboat casino in late 2013 but a 2014 deal to acquire a Pennsylvania racetrack casino fell apart and the matter is now a lawsuit.

UNITE HERE said in its FTC letter that GLPI has clauses in its lease with Penn and the proposed lease with Pinnacle where neither operator can develop new casinos that would compete with GLPI-owned casinos without prior permission. Penn is prohibited from involvement with casinos within seven miles of a GLPI-owned property. In the Pinnacle lease, the restricted area is 60 miles.

Pinnacle faced antitrust scrutiny in 2013 when it spent $2.8 billion to buy rival Ameristar Casinos. The FTC required Pinnacle to sell a casino in St. Louis and a casino site in Lake Charles, La. because of competitive concerns.

Contact reporter Howard Stutz at hstutz@reviewjournal.com or 702-477-3871. Find @howardstutz on Twitter.