[Federal Register Volume 78, Number 160 (Monday, August 19, 2013)]
[Notices]
[Pages 50416-50419]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-20058]
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FEDERAL TRADE COMMISSION
[Docket No. 9355]
Pinnacle Entertainment, Inc., and Ameristar Casinos, Inc.;
Analysis of Agreement Containing Consent Orders To Aid Public Comment
AGENCY: Federal Trade Commission.
ACTION: Proposed consent agreement.
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SUMMARY: The consent agreement in this matter settles alleged
violations of federal law prohibiting unfair or deceptive acts or
practices or unfair methods of competition. The attached Analysis to
Aid Public Comment describes both the allegations in the complaint and
the terms of the consent order--embodied in the consent agreement--that
would settle these allegations.
DATES: Comments must be received on or before September 11, 2013.
ADDRESSES: Interested parties may file a comment at https://ftcpublic.commentworks.com/ftc/pinnacleentertainconsent online or on
paper, by following the instructions in the Request for Comment part of
the SUPPLEMENTARY INFORMATION section below. Write ``Pinnacle, Docket
No. 9355'' on your comment and file your comment online at https://ftcpublic.commentworks.com/ftc/pinnacleentertainconsent by following
the instructions on the web-based form. If you prefer to file your
comment on paper, mail or deliver your comment to the following
address: Federal Trade Commission, Office of the Secretary, Room H-113
(Annex D), 600 Pennsylvania Avenue NW., Washington, DC 20580.
FOR FURTHER INFORMATION CONTACT: Alexis Gilman (202-326-2579), FTC,
Bureau of Competition, 600 Pennsylvania Avenue NW., Washington, DC
20580.
SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal
Trade Commission Act, 15 U.S.C. 46(f), and FTC Rule 3.25, 16 CFR 3.25,
notice is hereby given that the above-captioned consent agreement
containing a consent orders to cease and desist, having been filed with
and accepted, subject to final approval, by the Commission, has been
placed on the public record for a period of thirty (30) days. The
following Analysis to Aid Public Comment describes the terms of the
consent agreement, and the allegations in the complaint. An electronic
copy of the full text of the consent agreement package can be obtained
from the FTC Home Page (for August 12, 2013), on the World Wide Web, at
http://www.ftc.gov/os/actions.shtm. A paper copy can be obtained from
the FTC Public Reference Room, Room 130-H, 600 Pennsylvania Avenue NW,
Washington, DC 20580, either in person or by calling (202) 326-2222.
You can file a comment online or on paper. For the Commission to
consider your comment, we must receive it on or before September 11,
2013. Write ``Pinnacle, Docket No. 9355'' on your comment. Your
comment, including your name and your state, will be placed on the
public record of this proceeding, including, to the extent practicable,
on the public Commission Web site, at http://www.ftc.gov/os/publiccomments.shtm. As a matter of
[[Page 50417]]
discretion, the Commission tries to remove individuals' home contact
information from comments before placing them on the Commission Web
site.
Because your comment will be made public, you are solely
responsible for making sure that your comment does not include any
sensitive personal information, like anyone's Social Security number,
date of birth, driver's license number or other state identification
number or foreign country equivalent, passport number, financial
account number, or credit or debit card number. You are also solely
responsible for making sure that your comment does not include any
sensitive health information, like medical records or other
individually identifiable health information. In addition, do not
include any ``[t]rade secret or any commercial or financial information
which . . . is privileged or confidential,'' as discussed in Section
6(f) of the FTC Act, 15 U.S.C. 46(f), and FTC Rule 4.10(a)(2), 16 CFR
4.10(a)(2). In particular, do not include competitively sensitive
information such as costs, sales statistics, inventories, formulas,
patterns, devices, manufacturing processes, or customer names.
If you want the Commission to give your comment confidential
treatment, you must file it in paper form, with a request for
confidential treatment, and you have to follow the procedure explained
in FTC Rule 4.9(c), 16 CFR 4.9(c).\1\ Your comment will be kept
confidential only if the FTC General Counsel, in his or her sole
discretion, grants your request in accordance with the law and the
public interest.
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\1\ In particular, the written request for confidential
treatment that accompanies the comment must include the factual and
legal basis for the request, and must identify the specific portions
of the comment to be withheld from the public record. See FTC Rule
4.9(c), 16 CFR 4.9(c).
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Postal mail addressed to the Commission is subject to delay due to
heightened security screening. As a result, we encourage you to submit
your comments online. To make sure that the Commission considers your
online comment, you must file it at https://ftcpublic.commentworks.com/ftc/pinnacleentertainconsent by following the instructions on the web-
based form. If this Notice appears at http://www.regulations.gov/#!home, you also may file a comment through that Web site.
If you file your comment on paper, write ``Pinnacle, Docket No.
9355'' on your comment and on the envelope, and mail or deliver it to
the following address: Federal Trade Commission, Office of the
Secretary, Room H-113 (Annex D), 600 Pennsylvania Avenue NW.,
Washington, DC 20580. If possible, submit your paper comment to the
Commission by courier or overnight service.
Visit the Commission Web site at http://www.ftc.gov to read this
Notice and the news release describing it. The FTC Act and other laws
that the Commission administers permit the collection of public
comments to consider and use in this proceeding as appropriate. The
Commission will consider all timely and responsive public comments that
it receives on or before September 11, 2013. You can find more
information, including routine uses permitted by the Privacy Act, in
the Commission's privacy policy, at http://www.ftc.gov/ftc/privacy.htm.
Analysis of Agreement Containing Consent Order To Aid Public Comment
I. Introduction and Background
The Federal Trade Commission (``Commission'') has accepted for
public comment, subject to final approval, an Agreement Containing
Consent Order (``Consent Order'') from Pinnacle Entertainment, Inc.
(``Pinnacle''). The purpose of the proposed Consent Order is to remedy
the anticompetitive effects that otherwise would result from Pinnacle's
acquisition of Ameristar Casinos, Inc. (``Ameristar''). Under the terms
of the proposed Consent Order, Pinnacle is required to divest one of
its casinos in St. Louis, Missouri, the Lumi[egrave]re Place Casino
(``Lumi[egrave]re), and all of Ameristar's assets in Lake Charles,
Louisiana, consisting of assets and rights relating to Ameristar's
Mojito Pointe casino (``Mojito Pointe''), which is currently is under
construction and scheduled to open next year. The divestitures must be
completed within six months from the earlier of (1) the date of
Pinnacle's acquisition of Ameristar, or (2) the date the Decision and
Order becomes final.
The proposed Consent Order has been placed on the public record for
30 days to solicit comments from interested persons. Comments received
during this period will become part of the public record. After 30
days, the Commission again will review the proposed Consent Order and
comments received, and decide whether it should withdraw the Consent
Order, modify the Consent Order, or make it final.
On December 21, 2012, Pinnacle agreed to acquire Ameristar for
approximately $2.8 billion, including the assumption of $1.9 billion in
debt. By unanimous vote on May 28, 2013, the Commission issued an
administrative complaint alleging that the proposed acquisition, if
consummated, would violate Section 7 of the Clayton Act, as amended, 15
U.S.C. 18, and Section 5 of the Federal Trade Commission Act, as
amended, 15 U.S.C. 45, by eliminating meaningful and substantial
competition between Pinnacle and Ameristar for casino services in the
St. Louis and Lake Charles area markets. The elimination of this
competition would have caused significant competitive harm,
specifically higher prices and diminished quality and service levels in
both markets. The proposed Consent Order would remedy the alleged
violations by requiring a divestiture in the two affected markets. The
divestitures will establish a new independent competitor to Pinnacle in
both relevant areas, replacing the competition that otherwise would be
lost as a result of the proposed acquisition.
II. The Parties
Based in Las Vegas, Nevada, Pinnacle is a publicly traded casino
operator and developer. Pinnacle owns and operates nine casinos and
horseracing facilities in five states. In addition, Pinnacle owns a 26%
stake in Asian Coast Development, Ltd., a British Columbia-based
corporation that is developing Vietnam's first integrated casino
resort. Two of Pinnacle's casinos are in the St. Louis area. The first,
Lumi[egrave]re, opened in late 2007 and is located in downtown St.
Louis, north of the Gateway Arch. In March 2010, Pinnacle opened its
second St. Louis casino, River City Casino, in the south St. Louis
suburb of Lemay, Missouri. Pinnacle owns and operates one casino,
L'Auberge Lake Charles (``L'Auberge''), in Lake Charles. For fiscal
year 2012, Pinnacle generated nearly $1.2 billion in net revenue, with
EBITDA of $285.2 million
Ameristar is a publicly traded casino operator and developer,
headquartered in Las Vegas, Nevada, with eight properties in six
states. Ameristar owns and operates one casino in the St. Louis area.
Opened in 1994, the Ameristar Casino Resort Spa St. Charles
(``Ameristar St. Charles'') is located in the St. Louis suburb of St.
Charles, Missouri, approximately 22 miles from downtown St. Louis. In
Lake Charles, Ameristar is currently constructing Mojito Pointe, a
casino resort directly adjacent to Pinnacle's L'Auberge, which is
scheduled for completion next year. For fiscal year 2012, Ameristar
generated over $1.2 billion in net revenue, with EBITDA of $361.6
million.
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III. Casino Services in St. Louis and Lake Charles
Pinnacle's proposed acquisition of Ameristar poses substantial
antitrust concerns for casino services. The casino services market
consists of slot, video poker, and table gaming (i.e., gambling) along
with associated amenities that are used to drive gaming revenue, which
typically include some combination of hotel accommodations, food and
beverages, entertainment, and other amenities. Casino operators
typically generate the vast majority of their revenues from gaming.
Other forms of entertainment activities do not meaningfully compete
with casino services and are not in the relevant service market.
Notably, casino operators--including the merging parties--do not track
other leisure activities when assessing their competitors, tracking
market shares, or making business decisions. Casino services differ
significantly from other entertainment activities in a number of
respects. For example, casinos are highly regulated, with a limited
number of casinos licensed to operate in any given state, there are age
restrictions on who can gamble, and, more generally, the casino
experience differs greatly from other entertainment and leisure
activities. Thus, consistent with prior Commission precedent, the
evidence here supports a distinct relevant market consisting of casino
services.
There are two relevant geographic markets in which to analyze the
merger's effects: (1) The St. Louis, Missouri metropolitan statistical
area (``MSA''); and (2) the Lake Charles, Louisiana area. The
conclusion that these are the relevant geographic markets is supported
by party and third-party ordinary-course documents, testimony, and
data, and is consistent with how the state gaming regulators view the
gaming markets. A hypothetical monopolist of casino services in each
relevant area could profitably impose a small but significant non-
transitory increase in price.
Pinnacle and Ameristar are close and vigorous competitors in the
St. Louis area market and--but for the acquisition--soon will be each
other's closest competitor in the Lake Charles area market. Absent
relief, the proposed acquisition would eliminate the significant head-
to-head competition between Pinnacle and Ameristar and would increase
Pinnacle's ability and incentive to raise prices post-acquisition, in
the form of less-customer-favorable hold rates, rake rates, table game
rules and odds, and lower player reinvestments. The proposed
acquisition also would diminish 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. The
evidence of close competition between Pinnacle and Ameristar in both
markets comes from numerous sources: testimony of Pinnacle and
Ameristar executives, ordinary-course documents, data from the parties
and various market participants, and third-party testimony.
Additionally, the evidence suggests that the proposed transaction would
substantially increase the risk of coordinated effects in the St. Louis
market. The acquisition would result in a highly concentrated market
with just two competitors to Pinnacle, only one of which is significant
and has a casino of a similar size and with similar offerings to the
parties' casinos. There is already evidence of information exchange as
well as ``price following'' behavior in the St. Louis market.
In St. Louis, the proposed acquisition would reduce the number of
competitors from four to three, increasing the Herfindahl-Hirschman
Index (``HHI'') 1,667 points to 4,443. Under the Horizontal Merger
Guidelines (``HMG''), such concentration levels trigger the presumption
that the transaction likely enhances Pinnacle's market power in St.
Louis. Additionally, the parties' ordinary-course documents show they
are close competitors, compete vigorously with one another, and respond
to each other on price and non-price terms. For example, Pinnacle
entered the St. Louis market in 2007 with Lumi[egrave]re; shortly
after, in 2010, Pinnacle opened River City. In both instances, Pinnacle
took sales and market share from Ameristar, and Ameristar responded.
In Lake Charles, Ameristar's Mojito Pointe will be located directly
adjacent to Pinnacle's existing casino resort, L'Auberge. Ameristar's
planned casino will be nearly identical to Pinnacle's high-end
L'Auberge casino in gaming and amenities offered. The remaining casino
services competitors in the Lake Charles area are highly differentiated
and not nearly as close substitutes for the merging parties' casinos as
the merging parties' casinos will be for each other. Based on
Ameristar's ordinary-course revenue projections, the proposed
acquisition increases the HHI in the market by 1,306 points to 3,514.
This delta and concentration level triggers the presumption that the
transaction would enhance Pinnacle's market power in Lake Charles. If
the merger is consummated, the significant competitive impact of
Ameristar's entry and close competition with Pinnacle--and the benefits
that competition would generate--will be eliminated.
New entry or expansion is unlikely to deter or counteract the
anticompetitive effects of the proposed acquisition in the St. Louis or
Lake Charles area markets. The two affected markets are insulated from
new entry or expansion by significant regulatory barriers, including
limitations on the number of casino licenses available and the ability
to expand existing gaming operations. In the St. Louis casino services
market, Missouri and Illinois law limit the number of casino licenses
and both states have issued all of their respective licenses. Missouri
and Illinois also have restrictions in their respective gaming license
regulations that make significant expansion by current market
participants extremely unlikely in the St. Louis market.
Entry and expansion is also unlikely in the Lake Charles area
casino services market. Louisiana law limits the number of casino
licenses to fifteen and all fifteen licenses have been issued.
Louisiana law also limits the size of each existing casino's gaming
floor, thus preventing material expansion by current market
participants, except for Native-American tribe-owned Coushatta Casino
Resort. Entry by a casino in Texas is highly unlikely to occur soon as
the Texas Constitution prohibits gambling.
IV. The Proposed Consent Order
A. St. Louis
The proposed Consent Order remedies the likely anticompetitive
effects in the St. Louis market by requiring the divestiture of
Lumi[egrave]re to a Commission-approved buyer within six months. The
divestiture assets include the Lumi[egrave]re casino (including hotels,
restaurants and retail assets) and the set of associated assets--such
as real property, licenses and permits, equipment, customer databases,
intellectual property, contracts, and books and records--necessary for
a Commission-approved acquirer to independently and effectively operate
Lumi[egrave]re. The proposed Consent Order would preserve four
independent casino operators in St Louis. Although the proposed consent
only requires Pinnacle to divest one of its two St. Louis casinos, this
remedy likely will result in a St. Louis casino services market that is
even more competitive than it is today. By requiring a divestiture of
Lumi[egrave]re, the proposed Consent Order will maintain the premerger
competition between Lumi[egrave]re and Ameristar St. Charles and
[[Page 50419]]
will enhance competition between Lumi[egrave]re and River City--which
Pinnacle tries to minimize today. The geographic positioning of the
casinos (i.e., the fact that Lumi[egrave]re is closer to Ameristar St.
Charles and River City than Ameristar St. Charles and River City are to
each other) and the quantitative and qualitative evidence gathered
during the investigation support the conclusion that competition will
be enhanced by the divestiture of Lumi[egrave]re notwithstanding the
competition of Ameristar and River City.
If Pinnacle does not divest Lumi[egrave]re to a Commission-approved
acquirer within six months, the Consent Order provides that a
divestiture trustee may be appointed to sell Lumi[egrave]re, and
includes a crown-jewel provision requiring the divestiture trustee to
divest either Lumi[egrave]re or the Ameristar St. Charles casino. Until
the completion of the divestiture, Pinnacle is required to abide by the
Order to Hold Separate and Maintain Assets, which requires Pinnacle to
hold Lumi[egrave]re separate and maintain its viability, marketability,
and competitiveness until the Lumi[egrave]re divestiture is completed.
The proposed Consent Order appoints a Hold Separate Monitor to manage
Lumi[egrave]re's operations pending the divestiture.
Additionally, the proposed Consent Order requires Pinnacle, upon
request by the acquirer and subject to prior approval of the
Commission, to provide transitional services to the approved acquirer
for one year, as needed, to assist the acquirer with the transfer of
necessary administrative support services. Finally, the proposed
Consent Order contains standard terms regarding the acquirer's access
to employees, protection of Material Confidential Information, and
compliance-reporting requirements, among other things.
B. Lake Charles
In Lake Charles, the proposed Consent Order remedies the likely
anticompetitive effects of the proposed acquisition by requiring
Pinnacle to divest all of the assets associated with Ameristar's
development and construction of Mojito Pointe to a Commission-approved
buyer within six months. The divestiture assets include the Mojito
Pointe real property, licenses and permits, equipment, customer
databases, intellectual property, contracts, books and records,
including construction documents, and other assets necessary for a
Commission-approved acquirer to independently and effectively build,
open, and operate Mojito Pointe. The proposed Consent Order would
preserve five independent casino operators in Lake Charles and ensure
that the owner of the Mojito Pointe assets has the incentive to
expedite construction of Mojito Pointe and to compete vigorously with
Pinnacle's L'Auberge casino.
Under the proposed Consent Order, the potential acquirer of Mojito
Pointe is subject to prior approval by the Commission. If Pinnacle is
unable to find a Commission-approved acquirer for Mojito Pointe within
six months, the Consent Order provides for the appointment of a
divestiture trustee and includes a crown-jewel provision that permits
the divestiture trustee to divest either Mojito Pointe or Pinnacle's
L'Auberge casino. Additionally, the proposed Consent Order requires
Pinnacle, upon request by the acquirer and subject to prior approval of
the Commission, to provide transitional services to the approved
acquirer for one year, as needed, to assist the acquirer with the
transfer of necessary administrative support services. The proposed
Consent Order also contains standard terms regarding the acquirer's
access to employees, protection of Material Confidential Information,
and compliance-reporting requirements, among other things.
The Hold Separate Order requires Pinnacle to hold Mojito Pointe
separate until the Mojito Pointe divestiture is completed. Pinnacle is
also required to maintain the economic viability, marketability, and
competitiveness of Mojito Pointe and L'Auberge, the crown-jewel asset.
The proposed Consent Order appoints a Hold Separate Monitor to oversee
the development and construction of Mojito Pointe prior to divestiture.
* * * * *
The sole purpose of this analysis is to facilitate public comment
on the proposed Consent Order. This analysis does not constitute an
official interpretation of the proposed Consent Order or modify its
terms in any way.
By direction of the Commission.
Richard C. Donohue,
Acting Secretary.
[FR Doc. 2013-20058 Filed 8-16-13; 8:45 am]
BILLING CODE 6750-01-P