Antitrust Law Daily Wrap Up, ANTITRUST NEWS: FTC Challenges Casino Operator Acquisition, Asserts Harm in Two Geographic Markets, (May 29, 2013)

By William Zale, J.D.

The FTC challenged Pinnacle Entertainment, Inc.’s proposed $2.8 billion acquisition of rival casino operator Ameristar Casinos, Inc., alleging that the proposed deal would reduce competition and lead to higher prices and lower quality for customers in the St. Louis, Missouri and Lake Charles, Louisiana areas (In the Matter of Pinnacle Entertainment, Inc., FTC File No. 131 0064, Docket No. 9355).

The FTC issued an administrative complaint against the two companies alleging that the deal would violate U.S. antitrust law. The FTC also authorized staff to seek a temporary restraining order and preliminary injunction if, and when, necessary to prevent the consummation of the acquisition pending the administrative trial on the merits.

Pinnacle and Ameristar are both Nevada-based companies that own and operate casinos in a number of markets throughout the country. Pinnacle owns and operates nine casinos and horse racing facilities in five states, while Ameristar owns and operates eight casinos in six states and is in the process of building its ninth casino.

The FTC’s complaint alleges that the combination of the two companies will result in increased prices and lower quality for customers in the St. Louis area, where Pinnacle and Ameristar are direct competitors, and in the Lake Charles area, where the parties will directly compete beginning in 2014. In particular, the transaction increases Pinnacle’s ability and incentive to raise prices post-acquisition to the detriment of customers, in the form of less favorable hold rates, rake rates, table game rules and odds, and lower player reinvestments, according to the FTC. The complaint also alleges that the transaction diminishes Pinnacle’s incentive to maintain or improve the quality of services and amenities to the detriment of casino customers in the St. Louis and Lake Charles markets. Additionally, in the St. Louis market, the complaint alleges that the transaction substantially increases the likelihood of coordinated interaction.

In the St. Louis metropolitan area, Pinnacle’s acquisition of Ameristar would reduce the number of casino service providers from four to three. The parties’ combined market share and the post-merger market concentration levels in St. Louis make the transaction presumptively unlawful in that market.

In the Lake Charles market, Pinnacle operates one casino, while Ameristar is building a new casino set to open next year that will be located directly adjacent to the existing Pinnacle casino. The Commission’s complaint alleges that the new casino will be Pinnacle’s closest and most significant competitor in the Lake Charles market and, according to the parties’ own projections, will have a direct and substantial impact on the market share, revenues, and profits of Pinnacle’s existing casino.

The complaint alleges that there are significant barriers to entry for a new casino in each of these markets as there are only a limited number of casino licenses available in each state and that all casino licenses have been issued. In addition, state laws and regulations limit the expansion of existing facilities.

The Commission vote to issue the administrative complaint and to authorize staff to seek a temporary restraining order and preliminary injunction in federal district court was 4-0.

Companies: Pinnacle Entertainment, Inc.; Ameristar Casinos, Inc.

News: Antitrust FederalTradeCommissionNews