Investments in and Advances to Unconsolidated Affiliates

3 Months Ended

Mar. 31, 2019

Equity Method Investments and Joint Ventures [Abstract]

Investments in and Advances to Unconsolidated Affiliates

As of March 31, 2019, investment in and advances to unconsolidated affiliates primarily included the Company’s 50% investment in Kansas Entertainment, which is a joint venture with International Speedway, its 50% interest in Freehold Raceway, and its 50% joint venture with MAXXAM, Inc. (“MAXXAM”) that owns and operates racetracks in Texas.

Kansas Joint Venture

The Company has a 50% investment in Kansas Entertainment, which owns the Hollywood Casino at Kansas Speedway. As of March 31, 2019 and December 31, 2018, the Company’s investment balance was $88.9 million and $89.4 million, respectively.

The Company has determined that Kansas Entertainment is a VIE that should not be consolidated since the Company does not qualify as the primary beneficiary. In making this determination, the Company concluded that it does not have the ability to direct the activities of Kansas Entertainment that most significantly impact Kansas Entertainment’s economic performance without the approval of International Speedway. Furthermore, International Speedway has substantive participating rights in Kansas Entertainment.

The following table provides summary income statement information of Kansas Entertainment for the comparative periods that are included within the Company’s unaudited Condensed Consolidated Statements of Operations:



	For the three months ended March 31,
(in thousands)	2019		2018
Revenues	$	39,511	$	39,285
Operating expenses	27,414		27,658
Operating income	12,097		11,627
Net income	$	12,097	$	11,627

Net income attributable to Penn National Gaming, Inc.	$	6,049	$	5,814

Texas and New Jersey Joint Ventures

The Company has a 50% interest in a joint venture with MAXXAM, which owns and operates the Sam Houston Race Park in Houston, Texas and the Valley Race Park in Harlingen, Texas, and holds a license for a racetrack in Austin, Texas. Sam

Houston Race Park hosts thoroughbred and quarter-horse racing and offers daily simulcast operations, and Valley Race Park features dog racing and simulcasting. In addition, through a separate arrangement, the Company has a 50% interest in a joint venture with Greenwood Limited Jersey, Inc. (“Greenwood”), which owns and operates Freehold Raceway, in Freehold, New Jersey. The property features a half-mile standardbred racetrack and a grandstand.

The Company has determined that neither its Texas joint venture nor its New Jersey joint venture qualify as a VIE. Using the guidance for entities that are not VIEs, in both cases, the Company determined that it did not have a controlling financial interest in either of the joint ventures, primarily as it did not have the ability to direct the activities of either of the joint ventures that most significantly impacted the joint ventures’ economic performance without the input of MAXXAM or Greenwood, respectively. Therefore, the Company does not consolidate either of its investments in the joint ventures.