Penn National (NASDAQ:PENN) didn't report anything surprising in today's first-quarter earnings announcement, but it also didn't report much of an improvement in the regional gaming market that's been struggling since the recession began. As a result, the stock took a nosedive today.

Penn National's St. Louis resort is just another expansion diluting revenue in the industry. Source: Penn National.

Quarterly revenue came in at $641.1 million, which was slightly ahead of expectations, and EBITDA was $70.4 million, which was just below expectations. EBITDA was down from $220.7 million a year ago, primarily because Penn National is now paying rent for properties it operates in.

One of the drivers of Penn National over the last two years was the spinoff of a real estate investment trust called Gaming and Leisure Properties, which now holds most of Penn National's real estate assets. But that also transferred a lot of the value to the new entity and $174.7 million in rent last quarter as well. With that payment, Penn National had just $4.5 million in net income left for shareholders.  

The big takeaway is that gaming conditions in the regional gaming market simply aren't improving, and there are reasons to think they'll get worse.

Investors interested in gaming should focus their attention on Macau, where table games are packed. Source: Las Vegas Sands.

Making its own problems worse
While trends weren't good last quarter, I don't think they'll get better anytime soon. Penn National touted construction currently taking place in New Mexico, Massachusetts, California, and two locations in Ohio as drivers of growth. These will further expand gaming offerings in the U.S., and it's that expansion of gaming that's hurt profits in the industry, including Penn National.

As states have legalized gaming across the country, new casinos have gone up, but the number of gaming dollars they're splitting hasn't kept pace with supply growth. The result is falling profits, something we're seeing across the industry.

Foolish bottom line
If you're interested in getting exposure to gaming, the U.S. regional market simply isn't the place to do it. Profits are low, if they exist at all, and competition is only increasing. Instead, focus your attention on Macau, where competition is limited by the government and gaming revenue is increasing far more quickly than it is in the U.S.