Exhibit 10.1

Description of the Penn National Gaming, Inc. Annual Incentive Plan

The Annual Incentive Plan provides for cash bonuses payable upon the attainment
of pre-established performance goals.  The Annual Incentive Plan will enable
Penn National Gaming, Inc. (the “Company”) to claim tax deductions for all
bonuses payable under the Annual Incentive Plan, including bonuses for the 2007
calendar year and bonuses for calendar years through 2011.  Without such Annual
Incentive Plan, Section 162(m) of the Internal Revenue Code of 1986, as amended,
would deny the Company a deduction for bonuses under the Annual Incentive Plan
paid to the Chief Executive Officer and the four other most highly compensated
executive officers, to the extent each officer’s compensation that is subject to
Section 162(m) exceeds $1 million.  The unavailability of this deduction would
cause the Company to pay higher Federal income taxes.

Administration.  The Annual Incentive Plan is administered by the Compensation
Committee.  The Compensation Committee will, among other things, designate
participants from among the eligible employees, establish performance goals
within the parameters described below and administer the Annual Incentive Plan
as it deems necessary or advisable.  The Compensation Committee has the right to
terminate or amend the Annual Incentive Plan, without stockholder approval, at
any time and for any reason.  The Company also may adopt other bonus or
incentive plans.

Eligible Employees.  Employees eligible to participate in the Annual Incentive
Plan include the Chief Executive Officer, the other executive officers of the
Company and other key officers of the Company, which currently consists of
approximately nine individuals.

Performance Goals.  The Annual Incentive Plan is an incentive compensation plan
designed to promote teamwork towards achieving pre-established corporate
performance goals each year.  The Compensation Committee approved a performance
measure of free cash flow compared to the results of a peer group of the
Company’s competitors and a performance measure of earnings before interest,
taxes, depreciation, and amortization (“EBIDTA”) compared to plan as the
business criteria upon which performance goals are based.

Plan Benefits.  Participants in the Annual Incentive Plan may receive a bonus
with a threshold, target and maximum payout.  The annual bonus will be paid
depending on whether the performance criteria established for the year are
achieved.  No bonuses will be paid if performance criteria established for the
year do not meet the threshold.  If the Company’s performance with respect to
any or all of the performance criteria meets or exceeds the threshold, then a
varying amount of cash, up to the maximum, may be achieved.  A maximum of
$6,000,000 may be paid each year to each executive who participates in the
Annual Incentive

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Plan.  The Committee may determine to pay the bonus in shares of the Company’s
common stock, instead of cash, under the Company’s equity-based incentive
compensation plans.  The Compensation Committee may reduce, but may not
increase, any bonus.

 

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