Penn National Gaming Inc. said Thursday that its proposed casino in Cherokee County could not compete with a casino so close to the state line in Oklahoma that its parking lot is in Kansas. That venture, operated by the Quapaw Tribe, opened this summer.

Penn blamed provisions of a Kansas law enacted last year to allow a single state-owned casino in each of four counties, arguing it required too large an investment. The company said another factor was its failure to also win a contract for a Sumner County casino.

Last month, a state casino review board approved a contract for the Cherokee County casino between Penn, based in Wyomissing, Pa., and the Kansas Lottery, which would own the new gambling. Penn would have invested $225 million over 12 years.

Eric Schippers, a Penn vice president, said the Quapaw Tribe already enjoyed significant competitive advantages, including lower tax rates and opening its casino first.

"The Legislature did not envision the speed with which their project was developed or even the fact that their project could be developed," Schippers said, referring to the Kansas lawmakers who wrote last year's law. "We were looking for a way to try to make it work despite the competition across the street."

Penn had embarked upon a "southern strategy," linking its proposal in Cherokee County to its proposal to open a casino near Wellington in Sumner County. Penn argued having two casinos would make the Cherokee County operation stronger financially.

But for Sumner County, the casino review board picked a group headed by Harrah's Entertainment Inc., with a site near Mulvane. Penn then hinted that it might pull out of Cherokee County.

"This is simply not viable on a stand-alone basis," Schippers said.

Southeast Kansas legislators and officials have advocated casinos since the early 1990s. Last year's law not only allowed the casinos, but slot machines at dog and horse racing tracks, including the long-closed Camptown Greyhound Park outside Pittsburg.

Camptown and the Lottery have been unable to agree on a contract for slots at the track. Phil Ruffin Sr., whose company owns Camptown, also has blamed the law, which requires that 40 percent of the slots revenue go to the state.

Schippers noted that under the same law, at least 22 percent of casino revenues must go to the state, with an additional 5 percent going to local governments and a fund for programs to combat gambling addictions. He said the Quapaw's compact with Oklahoma requires it to give up only 6 percent of its casino revenues.

Furthermore, Schippers said, the $225 million investment required of Penn was too large, even when phased in. He said given competition from the Quapaw, the requirement should be closer to that for Ford County -- where it is only $50 million.

But Penn's decision to withdraw frustrated state Rep. Doug Gatewood, a Democrat from Columbus. Gatewood and other supporters of the law hoped that eventually the state would receive $200 million a year from the casinos and slots at the tracks.

"They gave their word, and the people of southeast Kansas worked for them," Gatewood said. "We did everything that was expected of us, only to see Penn National bail out."

Gov. Kathleen Sebelius expressed disappointment and directed the Lottery to reopen the application process. Under last year's law, the Lottery Commission can approve contracts with multiple applicants for each casino and the review board will pick one.

Gatewood said he believes another company may come forward, arguing that the Cherokee County Commission's support for Penn discouraged other firms from proposing a casino plan. He also doubted that the Quapaw casino doomed a Cherokee County casino.

"There's a lot synergies that you get when you have like businesses located so close together," Gatewood said. "I think they're just making excuses right now."

Still, Ed Van Petten, the Lottery's executive director, said the business climate has changed substantially since legislators approved the gambling law last year. He said consultants once told the state that slot machines at the southeast Kansas casino could average $250 a day in revenues each, and the latest figures were half that.

One reason is the national economic slump, he said.

"Things in the southeast zone are extremely marginal," Van Petten said.

Van Petten and Matt All, the casino review board's chairman, said the Quapaw casino is a significant factor.

"Penn has to do what's best for itself and its shareholders," All said. "Even in a healthy gaming market, the numbers down there are substantially different than when that legislation was drafted."