October 3, 2005
At the starting gate | A chat with Jon Johnson of Penn National Gaming's Hollywood Slots, which is slated to open next month in Bangor
By Michaela Cavallaro
Nearly two years ago, Maine residents voted to allow slot machines to be installed at Bangor Raceway. Just a few months later, Wyomissing, Pa.-based Penn National Gaming Inc. bought the harness racing track and began taking the first steps toward opening Maine's first racino.
Now, Penn National stands weeks away from the opening of Hollywood Slots, the temporary facility it has created in the former Miller's Restaurant. With 475 slot machines and a theme built on movie memorabilia, the facility is intended to launch Penn National's Maine operations while the company pursues plans for a permanent facility with 1,500 slot machines at Bass Park, the home of Bangor Raceway. The company, which operates casinos and racinos in Colorado, Louisiana, Mississippi, Illinois, West Virginia, Pennsylvania and New Jersey, had planned to break ground on the permanent facility over the summer, but a range of factors including an ongoing petition drive to overturn the slots legislation has delayed those plans.
In the meantime, Penn National executive Jon Johnson has taken over as general manager of Hollywood Slots. In a few short months on the job, Johnson, who was previously assistant general manager at a Penn National casino in Mississippi, has overseen items ranging from the renovations at Miller's Restaurant, including moving the off-track betting facility formerly located in the restaurant to the grandstand at Bangor Raceway, to navigation of the regulatory process and management of a large-scale hiring process.
Mainebiz recently spoke with Johnson, a graduate of the University of Nevada, Las Vegas who's worked in the gaming industry for 30 years, about Penn National's plans for Maine, the impact of the petition drive on business and the path of his own career. Following is an edited transcript of the conversation.
Mainebiz: What have you been working on since you came to Bangor?
Johnson: When I came up here in June, the only thing that we had was an office at 52 Main St. in downtown Bangor that was being used by our racetrack operation. From that point on, I took that little office area and ordered cubicles and telephones and a copier machine and a fax machine and began hiring my management team. So at this point we have all the management team on board. We hired the last manager about two weeks ago.
We had a job fair the second week in September and are in the process now of making all of our job offers. It's going to be about 130 employees [in total]. We were hiring about 110-115 positions [from the job fair], and we ended up interviewing about 550 people for that month. We were real pleased with the turnout, [and] we were real pleased with the quality of the people that came out. We were able to fill our positions quite easily.
The labor pool must need quite a bit of training, since I would think you're not getting people who have worked in this industry before.
Exactly. We have our training plan in place right now, and we're going to be training the slot attendants, the surveillance agents, the security officers. Our first group of employees comes on board starting Oct. 3.
How is the work going at Miller's? It sounds like a pretty huge project.
It was huge. We actually started construction there on July 5. As of today, we're actually painting walls, laying down carpeting, putting in cabinetry and millwork, so the construction is coming along really well. We're right on target for our November opening.
The state Gambling Control Board recently decided not to give one of your slot machine suppliers a permanent license. How does that affect your plans for opening?
After the meeting, we got on the telephone and talked to [supplier] Bally [Gaming and Systems]'s corporate general counsel, and we feel very comfortable that the issue that prevented them from getting an unconditional license is going to be resolved either prior to or at the Oct. 11 meeting [of the Gambling Control Board]. So we don't think that it's going to be an issue at all.
It seemed to be more of a procedural issue due to Bally's inability to supply its year-end financial reports than any larger concern.
That's all it is. What the board did is protected the state of Maine's interest, which is what they ought to do. And it also allowed us to have Bally ship the slots that we needed. We feel very good that this issue's going to be resolved prior to the next board meeting.
How has that regulatory process been, since it's brand new for Maine?
Maine can be very proud of the commissioners and the chairmen they chose to represent them ˆ these are a group of very intelligent, dedicated people. What has been a pleasure to me is that they're very practical. If a regulation is not going to work or is impractical, they're willing to hear us out, and if they think that what the operator is requesting as a change is appropriate, then they're willing to change it. [For example,] when you win a jackpot, rather than paying you in coins and cash, the slot machine produces a ticket. One of the rules was that you couldn't take [slot machine] tickets as a tip, and we were worried that that was going to potentially negatively impact the earnings of our cocktail servers. So I asked the board if they would consider changing that, and they agreed to it.
We had other issues, also. The board originally required that surveillance video be retained for 365 days; the cost of that kind of computer memory would have been in the low millions of dollars, which is huge. After hearing our side of it and hearing the cost and hearing that many other gaming jurisdictions only require seven to 14 days retention, they agreed to amend the ruling. So they've been practical minded.
Can you explain the breakdown of revenue you'll earn between the slots, the restaurant and bar operations and the off-track betting facility?
Slots are going to count for most of the revenue. The food and beverage operation will be relatively small compared to the revenue that we get from the slot operation. The OTB is going to be ˆ and is ˆ housed at the track, and again, compared to the slot revenue, that is a relatively small piece of the pie.
Where do you think your customers are going to come from?
Obviously, the main market area is in Maine. We're hoping that it's going to attract more people into the area, and give people another reason to come into the greater Bangor area, so that when they're here they'll use the local hotel rooms, eat at the local restaurants, shop here. We're hoping that this is going be an economic engine for other businesses.
What kind of marketing will you be doing to make those customers aware of the fact that you're up and running?
We will be coming out soon with a rollout marketing program, which is going to consist mainly of radio and newspaper. As an industry, we're used to using billboards as a way of advertising, and in Maine there aren't any. So that has been an interesting little challenge. So for the pre-opening rollout it's going to be radio and newspaper and some ads placed in some tour and travel magazines.
Who is the typical customer ˆ who are you trying to reach with those marketing plans?
I don't know if there is a typical customer, but ˆ and this is a real broad generality ˆ the typical casino customer is late 50s and up; a little more weighted toward female than male; most have at least a medium or above-average income. So it's typically a little older crowd with more disposable income and a little more time ˆ probably like your aunt and uncle.
How long do operations like these take to reach profitably?
We're looking at being profitable early on.
Months? Weeks?
That's hard to answer, but it's an industry that historically does not take a long time to ramp up. Another comment, if I may, about the revenue stream ˆ we're a very heavily taxed industry. In Maine, we've calculated, our effective tax rate is about 50% of every dollar that comes in, and that's right off of the top. So every dollar that comes in, half of it is going to go to some sort of gaming revenue tax, and then what's left after that goes to pay our payroll costs, payroll taxes, property taxes and our sales taxes, and then covers our operating costs. And then of course there's always the capital investments to keep the property in good repair and attractive. And then what's left over is profit.
Can you tell me what your revenue projections are?
I can't. We're a publicly traded company, and I just can't do that.
I've read that the initial investment you're making is $17 million. Is that right?
Yes, it is.
And then the number is $75 million for the permanent facility at Bass Park?
At a minimum.
How does the petition campaign to overturn the law allowing this industry to operate affect your plans to do business?
Even in the face of that, we are going ahead with our $17 million investment. And we are planning on moving ahead with the permanent facility, and we'll just have to see how it turns out. Obviously, if gaming is repealed we can't go ahead.
Are you involved in any efforts to combat the petition drive? What's your strategy for dealing with the organized opposition to your industry?
We're not actively campaigning against it. I don't know how you can. We'll just have to wait and see. It's amazing to me. The people have already spoken, so why they keep being asked to speak again and again ˆ I have a hard time understanding that.
You have experience in a number of other states. I'm curious about attitudes toward the gaming industry ˆ are they different in any way in Maine?
I think it's similar, but I've never worked in a place where it continues to be debated politically.
How you did you get into this industry? Tell me about the path your career has taken.
It wasn't part of a plan, I can tell you that. I got into the gaming industry in 1974. The first job that I had was with Caesar's Palace in my last year in college. At that time, they didn't have surveillance cameras; that's how old I am in this industry. But the accounting department used to have a representative in the count room to watch the money being counted, and that's what I did. In college, I majored in accounting , so I got an accounting job and then I worked my way up through accounting and operations. I was a casino controller for many years, and then I got promoted to vice president of finance, and then I got promoted to a chief financial officer position. Then prior to coming here, I was the assistant general manager for Hollywood Casino in Tunica, [Miss.]. I've been with Penn National going on four years now.
Is that unusual, to go from the accounting side to the operations side?
In my case, I kind of straddled [those areas]. Being the casino controller allowed me to be involved in the cage, and I had a lot more dealings with the casino operations. It's interesting ˆ gaming has gone through various evolutions, if you will. At one time, general managers were pulled from the table games operations, then that changed over to general managers were pulled from marketing, and now it appears like more and more general managers are being pulled from the finance area. Because as business has changed over the years, people have realized that you have to have the ability to read a [profit and loss statement], read a balance sheet, know what internal controls are.
Now, Penn National stands weeks away from the opening of Hollywood Slots, the temporary facility it has created in the former Miller's Restaurant. With 475 slot machines and a theme built on movie memorabilia, the facility is intended to launch Penn National's Maine operations while the company pursues plans for a permanent facility with 1,500 slot machines at Bass Park, the home of Bangor Raceway. The company, which operates casinos and racinos in Colorado, Louisiana, Mississippi, Illinois, West Virginia, Pennsylvania and New Jersey, had planned to break ground on the permanent facility over the summer, but a range of factors including an ongoing petition drive to overturn the slots legislation has delayed those plans.
In the meantime, Penn National executive Jon Johnson has taken over as general manager of Hollywood Slots. In a few short months on the job, Johnson, who was previously assistant general manager at a Penn National casino in Mississippi, has overseen items ranging from the renovations at Miller's Restaurant, including moving the off-track betting facility formerly located in the restaurant to the grandstand at Bangor Raceway, to navigation of the regulatory process and management of a large-scale hiring process.
Mainebiz recently spoke with Johnson, a graduate of the University of Nevada, Las Vegas who's worked in the gaming industry for 30 years, about Penn National's plans for Maine, the impact of the petition drive on business and the path of his own career. Following is an edited transcript of the conversation.
Mainebiz: What have you been working on since you came to Bangor?
Johnson: When I came up here in June, the only thing that we had was an office at 52 Main St. in downtown Bangor that was being used by our racetrack operation. From that point on, I took that little office area and ordered cubicles and telephones and a copier machine and a fax machine and began hiring my management team. So at this point we have all the management team on board. We hired the last manager about two weeks ago.
We had a job fair the second week in September and are in the process now of making all of our job offers. It's going to be about 130 employees [in total]. We were hiring about 110-115 positions [from the job fair], and we ended up interviewing about 550 people for that month. We were real pleased with the turnout, [and] we were real pleased with the quality of the people that came out. We were able to fill our positions quite easily.
The labor pool must need quite a bit of training, since I would think you're not getting people who have worked in this industry before.
Exactly. We have our training plan in place right now, and we're going to be training the slot attendants, the surveillance agents, the security officers. Our first group of employees comes on board starting Oct. 3.
How is the work going at Miller's? It sounds like a pretty huge project.
It was huge. We actually started construction there on July 5. As of today, we're actually painting walls, laying down carpeting, putting in cabinetry and millwork, so the construction is coming along really well. We're right on target for our November opening.
The state Gambling Control Board recently decided not to give one of your slot machine suppliers a permanent license. How does that affect your plans for opening?
After the meeting, we got on the telephone and talked to [supplier] Bally [Gaming and Systems]'s corporate general counsel, and we feel very comfortable that the issue that prevented them from getting an unconditional license is going to be resolved either prior to or at the Oct. 11 meeting [of the Gambling Control Board]. So we don't think that it's going to be an issue at all.
It seemed to be more of a procedural issue due to Bally's inability to supply its year-end financial reports than any larger concern.
That's all it is. What the board did is protected the state of Maine's interest, which is what they ought to do. And it also allowed us to have Bally ship the slots that we needed. We feel very good that this issue's going to be resolved prior to the next board meeting.
How has that regulatory process been, since it's brand new for Maine?
Maine can be very proud of the commissioners and the chairmen they chose to represent them ˆ these are a group of very intelligent, dedicated people. What has been a pleasure to me is that they're very practical. If a regulation is not going to work or is impractical, they're willing to hear us out, and if they think that what the operator is requesting as a change is appropriate, then they're willing to change it. [For example,] when you win a jackpot, rather than paying you in coins and cash, the slot machine produces a ticket. One of the rules was that you couldn't take [slot machine] tickets as a tip, and we were worried that that was going to potentially negatively impact the earnings of our cocktail servers. So I asked the board if they would consider changing that, and they agreed to it.
We had other issues, also. The board originally required that surveillance video be retained for 365 days; the cost of that kind of computer memory would have been in the low millions of dollars, which is huge. After hearing our side of it and hearing the cost and hearing that many other gaming jurisdictions only require seven to 14 days retention, they agreed to amend the ruling. So they've been practical minded.
Can you explain the breakdown of revenue you'll earn between the slots, the restaurant and bar operations and the off-track betting facility?
Slots are going to count for most of the revenue. The food and beverage operation will be relatively small compared to the revenue that we get from the slot operation. The OTB is going to be ˆ and is ˆ housed at the track, and again, compared to the slot revenue, that is a relatively small piece of the pie.
Where do you think your customers are going to come from?
Obviously, the main market area is in Maine. We're hoping that it's going to attract more people into the area, and give people another reason to come into the greater Bangor area, so that when they're here they'll use the local hotel rooms, eat at the local restaurants, shop here. We're hoping that this is going be an economic engine for other businesses.
What kind of marketing will you be doing to make those customers aware of the fact that you're up and running?
We will be coming out soon with a rollout marketing program, which is going to consist mainly of radio and newspaper. As an industry, we're used to using billboards as a way of advertising, and in Maine there aren't any. So that has been an interesting little challenge. So for the pre-opening rollout it's going to be radio and newspaper and some ads placed in some tour and travel magazines.
Who is the typical customer ˆ who are you trying to reach with those marketing plans?
I don't know if there is a typical customer, but ˆ and this is a real broad generality ˆ the typical casino customer is late 50s and up; a little more weighted toward female than male; most have at least a medium or above-average income. So it's typically a little older crowd with more disposable income and a little more time ˆ probably like your aunt and uncle.
How long do operations like these take to reach profitably?
We're looking at being profitable early on.
Months? Weeks?
That's hard to answer, but it's an industry that historically does not take a long time to ramp up. Another comment, if I may, about the revenue stream ˆ we're a very heavily taxed industry. In Maine, we've calculated, our effective tax rate is about 50% of every dollar that comes in, and that's right off of the top. So every dollar that comes in, half of it is going to go to some sort of gaming revenue tax, and then what's left after that goes to pay our payroll costs, payroll taxes, property taxes and our sales taxes, and then covers our operating costs. And then of course there's always the capital investments to keep the property in good repair and attractive. And then what's left over is profit.
Can you tell me what your revenue projections are?
I can't. We're a publicly traded company, and I just can't do that.
I've read that the initial investment you're making is $17 million. Is that right?
Yes, it is.
And then the number is $75 million for the permanent facility at Bass Park?
At a minimum.
How does the petition campaign to overturn the law allowing this industry to operate affect your plans to do business?
Even in the face of that, we are going ahead with our $17 million investment. And we are planning on moving ahead with the permanent facility, and we'll just have to see how it turns out. Obviously, if gaming is repealed we can't go ahead.
Are you involved in any efforts to combat the petition drive? What's your strategy for dealing with the organized opposition to your industry?
We're not actively campaigning against it. I don't know how you can. We'll just have to wait and see. It's amazing to me. The people have already spoken, so why they keep being asked to speak again and again ˆ I have a hard time understanding that.
You have experience in a number of other states. I'm curious about attitudes toward the gaming industry ˆ are they different in any way in Maine?
I think it's similar, but I've never worked in a place where it continues to be debated politically.
How you did you get into this industry? Tell me about the path your career has taken.
It wasn't part of a plan, I can tell you that. I got into the gaming industry in 1974. The first job that I had was with Caesar's Palace in my last year in college. At that time, they didn't have surveillance cameras; that's how old I am in this industry. But the accounting department used to have a representative in the count room to watch the money being counted, and that's what I did. In college, I majored in accounting , so I got an accounting job and then I worked my way up through accounting and operations. I was a casino controller for many years, and then I got promoted to vice president of finance, and then I got promoted to a chief financial officer position. Then prior to coming here, I was the assistant general manager for Hollywood Casino in Tunica, [Miss.]. I've been with Penn National going on four years now.
Is that unusual, to go from the accounting side to the operations side?
In my case, I kind of straddled [those areas]. Being the casino controller allowed me to be involved in the cage, and I had a lot more dealings with the casino operations. It's interesting ˆ gaming has gone through various evolutions, if you will. At one time, general managers were pulled from the table games operations, then that changed over to general managers were pulled from marketing, and now it appears like more and more general managers are being pulled from the finance area. Because as business has changed over the years, people have realized that you have to have the ability to read a [profit and loss statement], read a balance sheet, know what internal controls are.
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