PENN NATIONAL GAMING, INC.
PART I
Overview
Penn National Gaming, Inc., together with its subsidiaries (“Penn National,” the “Company,” “we,” “our,” or “us”), is a leading, diversified, multi-jurisdictional owner and manager of gaming and racing properties, retail and online sports betting operations, and video gaming terminal (“VGT”) operations. We currently offer live sports betting at our properties in Indiana, Iowa, Mississippi, Nevada, Pennsylvania and West Virginia. We operate anOur wholly-owned interactive gaming (“iGaming”) division, through our subsidiary, Penn Interactive Ventures, LLC (“Penn Interactive”), which recentlyoperates retail sports betting across the Company’s portfolio, as well as online sports betting, online social casino, bingo and online casinos (“iGaming”). In February 2020, the Company acquired 36% (inclusive of 1% on a delayed basis) equity interest in Barstool Sports, Inc. (“Barstool Sports”), a leading digital sports, entertainment, lifestyle and media company, and entered into a strategic relationship with Barstool Sports, whereby Barstool Sports will exclusively promote the Company's land-based retail sportsbooks, iGaming products and online sports betting products, including the Barstool Sportsbook mobile app, to its national audience. We launched an online casino (“iCasino”)sports betting app called Barstool Sports in Pennsylvania through our HollywoodCasino.com gaming platformin September 2020 and entered into multi-year agreements with leading sports betting operators for online sports bettingin Michigan in January 2021. We also operate iGaming in Pennsylvania and iGaming market access across our portfolio of properties.Michigan. Our MYCHOICE® MYCHOICE® customer loyalty program (the "mychoice program") currently has over 20 million members and provides such members with various benefits, including complimentary goods and/or services. The Company’s strategy has continued to evolve from an owner and manager of gaming and racing properties into an omni-channel provider of retail and online gaming, live racing and sports betting entertainment. We believe our continued evolution into a best-in-class omni-channel provider of retail and online gaming and sports betting entertainment will be a catalyst for our core land-based business, while also providing a platform for significant long-term shareholder value. References in this Annual Report on Form 10-K, to “Penn National,” the “Company,” “we,” “our,” or “us” refer to Penn National Gaming, Inc. and its subsidiaries, except where stated or the context otherwise indicates.
As of December 31, 2019,2020, we owned, managed, or had ownership interests in 41 properties in 19 states. The majority of the real estate assets (i.e., land and buildings) used in the Company’s operations are subject to triple net master leases; the most significant of which are the Penn Master Lease and the Pinnacle Master Lease (as such terms are defined in the “Triple Net Leases” section below and collectively referred to as the “Master Leases”), with Gaming and Leisure Properties, Inc. (NASDAQ: GLPI) (“GLPI”), a real estate investment trust (“REIT”). In addition, we are currently developing two Category 4 satellite gaming casinos in Pennsylvania: Hollywood Casino York and Hollywood Casino Morgantown, both of which are expected to commence operations by the end of 2021. On March 11, 2020, the World Health Organization declared the novel coronavirus (known as “COVID-19”) outbreak to be a global pandemic. To help combat the spread of COVID-19 and pursuant to various orders from state gaming regulatory bodies or governmental authorities, operations at all of our properties were temporarily suspended for single or multiple time periods during the year. Once re-opened, properties operated with reduced gaming and hotel capacity and limited food and beverage offerings in order to accommodate social distancing and health and safety protocols.
During the fourth quarter of 2020, our properties temporarily suspended operations in Pennsylvania, Michigan and Illinois and were subject to increased operational restrictions in Ohio and Massachusetts (among other states). Our Michigan property temporarily closed on November 17, 2020 and reopened on December 23, 2020. Our Pennsylvania properties temporarily closed on December 12, 2020 and reopened on January 4, 2021. Our Illinois properties temporarily closed on November 20, 2020 and began reopening with limited hours of operations beginning January 16, 2021 and throughout the week. The property closures were pursuant to the various orders from state gaming regulatory bodies or governmental authorities to combat the rapid spread of COVID-19. As of February 26, 2021, all of our properties were open to the public with the exception of Zia Park and Valley Race Park, which remain closed.
The COVID-19 pandemic caused significant disruptions to our business and had a material adverse impact on our financial condition, results of operations and cash flows, the magnitude of which continues to develop. During the year, substantial measures were taken to improve our financial position and liquidity as discussed in our Consolidated Financial Statements Note 1, “Organization and Basis of Presentation”. In February 2020, we closed on our investment in Barstool Sports Inc. (“Barstool Sports”), a leading digital sports, entertainment and media platform, pursuant to a stock purchase agreement with Barstool Sports and stockholders of Barstool Sports, in which we purchased approximately 36% of the common stock of Barstool Sports for a purchase price of approximately $163$161.2 million. The purchase price consisted of approximately $135 million in cash and $28 million in shares of non-voting convertible preferred stock. Furthermore,Within three years after the closing of the transaction (oror earlier at our election),election, we will increase our ownership in Barstool Sports to approximately 50% with an incremental investment of approximately $62 million, consistent with the implied valuation at the time of the initial investment. With respect to the remaining Barstool Sports shares, we have immediately exercisable call rights, and the existing Barstool Sports stockholders have put rights exercisable beginning three
years after closing, all based on a fair market value calculation at the time of exercise (subject to a cap of $650.0 million and a floor of 2.25 times the annualized revenue of Barstool Sports, all subject to various adjustments). We also have the option to bring in another partner who would acquire a portion of our share of Barstool Sports. Upon closing, we became Barstool Sports’ exclusive gaming partner for up to 40 years and have the sole right to utilize the Barstool Sports brand for all of our online and retail sports betting and iCasinoiGaming products. We expectFor additional information, see Note 7, "Investments in and Advances to launchUnconsolidated Affiliates". On December 15, 2020, the Company entered into a definitive agreement with GLPI to purchase the operations of Hollywood Casino Perryville for $31.1 million. The transaction is expected to close during the second or third quarter of 2021, subject to approval of the Maryland Lottery and Gaming Control Commission and other customary closing conditions. Simultaneous with the closing of the transaction, we would lease the real estate assets associated with Hollywood Casino Perryville from GLPI with initial annual rent of $7.8 million per year subject to escalation. For additional information on our online sports gaming app called Barstool Sports in August 2020acquisitions, see Note 6, “Acquisitions and anticipate that this transaction will facilitate the Company’s omni-channel growth.Dispositions.” In May 2019, we acquired Greektown Casino-Hotel (“Greektown”) in Detroit, Michigan, subject to a triple net lease with VICI Properties Inc. (NYSE: VICI) (“VICI”, a REIT and collectively with GLPI, our “REIT Landlords”) (the “Greektown Lease”) and, in January 2019, we acquired Margaritaville Casino Resort (“Margaritaville”) in Bossier City, Louisiana, subject to a triple net lease with VICI (the “Margaritaville Lease” and collectively with the Master Leases, the Greektown Lease, and the Meadows Lease, (asthe Tropicana Lease and the Morgantown Lease, of which the Meadows Lease, the Tropicana Lease and Morgantown Lease are defined in the “Triple Net Leases” section below),below, the “Triple Net Leases”).
In October 2018, the Company completed the acquisition of Pinnacle Entertainment, Inc. (“Pinnacle”), a leading regional gaming operator (the “Pinnacle Acquisition”). In conjunctionconnection with the Pinnacle Acquisition, the Company divested the membership interests of certain Pinnacle subsidiaries, which operated the casinos known as Ameristar St. Charles, Ameristar Kansas City, Belterra Resortwe added 12 gaming properties to our portfolio, providing us with greater operational scale and Belterra Park (referred to collectively as the “Divested Properties”), to Boyd Gaming Corporation (NYSE: BYD). Additionally, as a part of the transaction, GLPI acquired the real estate assets associated with Plainridge Park Casino and concurrently leased back such assets to the Company (the “Plainridge Park Casino Sale-Leaseback”). In connection with the sale of the Divested Properties and the Plainridge Park Casino Sale-Leaseback,geographic diversity. We assumed the Pinnacle Master Lease which was assumed by the Company concurrentconcurrently with the closing of the Pinnacle Acquisition, was amended. The Pinnacle Acquisition added 12 gaming properties to our portfolio.Acquisition.
In May 2017, we completed the acquisitions of 1
st Jackpot Casino (f/k/a Bally’s Casino Tunica) and Resorts Casino Tunica (which ceased operations in June 2019). In August 2016, we enhanced our social gaming offerings with the acquisition of Rocket Speed, Inc. (“Rocket Speed”), a leading developer of social casino games. In June 2015, we opened Plainridge Park Casino in Plainville, Massachusetts, and in August 2015, we completed the acquisition of Tropicana Las Vegas. In September
2015, we acquired Illinois Gaming Investors LLC (d/b/a Prairie State Gaming) (“Prairie State Gaming”), one of the largest VGT route operators in Illinois, which has since acquired four small VGT route operators based in Illinois.
We believe that our portfolio of assets provides us the benefit of geographically-diversified cash flow from operations. We expect to continue to expand our gaming operations through the implementation and execution of a disciplined capital expenditure program at our existing properties, the pursuit of strategic acquisitions and investments, and the development of new gaming properties. In addition, the partnership with Barstool Sports reflects our strategy to continue evolving from the nation’s largest regional gaming operator to a best-in-class omni-channel provider of retail and online gaming and sports betting entertainment.
Triple Net Leases
As noted above, the majority of the real estate assets used in the Company’s operations are subject to either the Penn Master Lease or the Pinnacle Master Lease. In addition three ofto the Penn Master Lease and the Pinnacle Master Lease, five individual gaming facilities used in our operations are subject to individual triple net leases. Under triple net leases, in addition to lease payments for the real estate assets, the Company is required to pay the following, among other things: (1) all facility maintenance; (2) all insurance required in connection with the leased properties and the business conducted on the leased properties; (3) taxes levied on or with respect to the leased properties (other than taxes on the income of the lessor); (4) all tenant capital improvements; and (4)(5) all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties.
The following summaries of the Master Leases are qualified in their entirety by reference to either the Penn Master Lease or the Pinnacle Master Lease, as applicable, and subsequent amendments, all of which are incorporated by reference in the exhibits to this Annual Report on Form 10-K.
Penn Master Lease
Pursuant to a triple net master lease with GLPI (the “Penn Master Lease”), which became effective November 1, 2013, the Company leases real estate assets associated with 19 of the gaming facilities used in its operations. The Penn Master Lease has an initial term of 15 years with four subsequent, five-year renewal periods on the same terms and conditions, exercisable at the Company’s option. If we elect to renew the term of the Penn Master Lease, the renewal will be effective as to all of the leased real estate assets then subject to the Penn Master Lease, subject to limitations on the final renewal term with respect to certain of the barge-based facilities.
Pinnacle Master Lease
In connection with the Pinnacle Acquisition, the Company assumed a triple net master lease with GLPI (“Pinnacle Master Lease”), originally effective April 28, 2016. Concurrent with the closing of the Pinnacle Acquisition on October 15, 2018, the Company entered into an amendment to the Pinnacle Master Lease to, among other things, (i) remove Ameristar St. Charles, Ameristar Kansas City and Belterra Resort, and (ii) add Plainridge Park Casino. Pursuant to the Pinnacle Master Lease, the Company leases real estate assets associated with 12 of the gaming facilities used in its operations from GLPI. Upon assumption of the Pinnacle Master Lease, as
amended, there were 7.5 years remaining of the initial ten-year term, with five subsequent, five-year renewal periods exercisable at the Company’s option. Furthermore, in conjunction with the Pinnacle Acquisition, GLPI acquired the real estate assets associated with Plainridge Park Casino and leased back such assets to the Company pursuant to an amendment to the Pinnacle Master Lease.
Morgantown Lease
On October 1, 2020, we sold the land underlying our Morgantown development project to GLPI in exchange for rent credits of $30.0 million. Contemporaneous with the sale, the Company entered into a triple net lease with a subsidiary of GLPI for the land underlying Morgantown (“Morgantown Lease”). The initial term of the Morgantown Lease is twenty years with six subsequent, five-year renewal periods, exercisable at the Company’s option.
Meadows Lease, Margaritaville Lease, Greektown Lease and GreektownTropicana Lease
In connection with the Pinnacle Acquisition, the Company assumed a triple net lease of the real estate assets used in the operations of Meadows Racetrack and Casino (the “Meadows Lease”), originally effective September 9, 2016, with GLPI as the landlord. Upon assumption of the Meadows Lease, there were eight years remaining of the initial ten-year term, with three subsequent, five-year renewal options followed by one four-year renewal option on the same terms and conditions, exercisable at the Company’s option.
As discussed above, in separate acquisitions, the Company entered into the Margaritaville Lease with VICI for the real estate assets used in the operations of Margaritaville and the Greektown Lease with VICI for the real estate assets used in the operations of Greektown. Both the Margaritaville Lease and the Greektown Lease have initial terms of 15 years, with four subsequent five-year renewal options on the same terms and conditions, exercisable at the Company’s option.
On April 16, 2020, we sold the real estate assets associated with our Tropicana Las Vegas ("Tropicana") property to a subsidiary of GLPI in exchange for rent credits of $307.5 million. Contemporaneous with the sale, the Company entered into a leaseback of the real estate assets for nominal cash rent.We are required to continue to operate the Tropicana for two years (subject to three one-year extensions at GLPI’s option) or until the real estate assets and the operations of the Tropicana are earlier sold by GLPI.
Operating Properties
The table below summarizes certain features of the properties owned, operated or managed by us as of December 31, 2019,2020, by reportable segment (all area and capacity metrics are approximate):
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| Location | | Real Estate Assets Lease or Ownership Structure | | Type of Facility | | Gaming Square Footage | | Gaming Machines | | Table Games (1) | | Hotel Rooms |
Northeast segment (2) | | | | | | | | | | | | | |
Ameristar East Chicago | East Chicago, IN | | Pinnacle Master Lease | | Dockside gaming | | 73,000 | | 1,796 | | 75 | | 288 |
Greektown Casino-Hotel | Detroit, MI | | Greektown Lease | | Land-based gaming | | 100,000 | | 2,362 | | 62 | | 400 |
Hollywood Casino Bangor | Bangor, ME | | Penn Master Lease | | Land-based gaming/racing | | 31,750 | | 726 | | 14 | | 152 |
Hollywood Casino at Charles Town Races | Charles Town, WV | | Penn Master Lease | | Land-based gaming/racing | | 115,000 | | 2,292 | | 74 | | 153 |
Hollywood Casino Columbus | Columbus, OH | | Penn Master Lease | | Land-based gaming | | 177,000 | | 2,066 | | 74 | | — |
Hollywood Casino Lawrenceburg (3) | Lawrenceburg, IN | | Penn Master Lease | | Dockside gaming | | 149,500 | | 1,521 | | 58 | | 463 |
Hollywood Casino at Penn National Race Course | Grantville, PA | | Penn Master Lease | | Land-based gaming/racing | | 99,500 | | 1,962 | | 80 | | — |
Hollywood Casino Toledo | Toledo, OH | | Penn Master Lease | | Land-based gaming | | 125,000 | | 1,848 | | 69 | | — |
Hollywood Gaming at Dayton Raceway | Dayton, OH | | Penn Master Lease | | Land-based gaming/racing | | 40,600 | | 814 | | — | | — |
Hollywood Gaming at Mahoning Valley Race Course | Youngstown, OH | | Penn Master Lease | | Land-based gaming/racing | | 50,000 | | 1,127 | | — | | — |
Marquee by Penn (4) | Pennsylvania | | N/A | | Land-based gaming | | N/A | | 115 | | — | | — |
Meadows Racetrack and Casino | Washington, PA | | Meadows Lease | | Land-based gaming/racing | | 125,000 | | 2,463 | | 95 | | — |
Plainridge Park Casino | Plainville, MA | | Pinnacle Master Lease | | Land-based gaming/racing | | 50,000 | | 1,181 | | — | | — |
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South segment | | | | | | | | | | | | | |
1st Jackpot Casino | Tunica, MS | | Penn Master Lease | | Dockside gaming | | 40,000 | | 839 | | 12 | | — |
Ameristar Vicksburg | Vicksburg, MS | | Pinnacle Master Lease | | Dockside gaming | | 70,000 | | 1,102 | | 24 | | 148 |
Boomtown Biloxi | Biloxi, MS | | Penn Master Lease | | Dockside gaming | | 35,500 | | 605 | | 20 | | — |
Boomtown Bossier City | Bossier City, LA | | Pinnacle Master Lease | | Dockside gaming | | 30,000 | | 806 | | 16 | | 187 |
Boomtown New Orleans | New Orleans, LA | | Pinnacle Master Lease | | Dockside gaming | | 30,000 | | 1,132 | | 31 | | 150 |
Hollywood Casino Gulf Coast | Bay St. Louis, MS | | Penn Master Lease | | Land-based gaming | | 51,000 | | 829 | | 20 | | 291 |
Hollywood Casino Tunica | Tunica, MS | | Penn Master Lease | | Dockside gaming | | 54,000 | | 900 | | 10 | | 494 |
L’Auberge Baton Rouge | Baton Rouge, LA | | Pinnacle Master Lease | | Dockside gaming | | 71,500 | | 1,305 | | 49 | | 205 |
L’Auberge Lake Charles | Lake Charles, LA | | Pinnacle Master Lease | | Dockside gaming | | 70,000 | | 1,469 | | 85 | | 995 |
Margaritaville Resort Casino | Bossier City, LA | | Margaritaville Lease | | Dockside gaming | | 30,000 | | 1,109 | | 50 | | 395 |
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West segment | | | | | | | | | | | | | |
Ameristar Black Hawk | Black Hawk, CO | | Pinnacle Master Lease | | Land-based gaming | | 56,000 | | 1,050 | | 38 | | 536 |
Cactus Petes and Horseshu | Jackpot, NV | | Pinnacle Master Lease | | Land-based gaming | | 29,000 | | 743 | | 21 | | 416 |
M Resort | Henderson, NV | | Penn Master Lease | | Land-based gaming | | 96,000 | | 1,073 | | 40 | | 390 |
Tropicana Las Vegas | Las Vegas, NV | | Tropicana Lease | | Land-based gaming | | 72,000 | | 632 | | 20 | | 1,470 |
Zia Park Casino | Hobbs, NM | | Penn Master Lease | | Land-based gaming/racing | | 18,000 | | 754 | | — | | 154 |
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Midwest segment | | | | | | | | | | | | | |
Ameristar Council Bluffs (5) | Council Bluffs, IA | | Pinnacle Master Lease | | Dockside gaming | | 35,000 | | 1,421 | | 22 | | 444 |
Argosy Casino Alton (6) | Alton, IL | | Penn Master Lease | | Dockside gaming | | 23,000 | | 705 | | 12 | | — |
Argosy Casino Riverside | Riverside, MO | | Penn Master Lease | | Dockside gaming | | 56,000 | | 1,200 | | 42 | | 258 |
Hollywood Casino Aurora | Aurora, IL | | Penn Master Lease | | Dockside gaming | | 53,000 | | 976 | | 27 | | — |
Hollywood Casino Joliet | Joliet, IL | | Penn Master Lease | | Dockside gaming | | 50,000 | | 1,100 | | 26 | | 100 |
Hollywood Casino at Kansas Speedway (7) | Kansas City, KS | | Owned - JV | | Land-based gaming | | 95,000 | | 2,000 | | 41 | | — |
Hollywood Casino St. Louis | Maryland Heights, MO | | Penn Master Lease | | Dockside gaming | | 120,000 | | 2,017 | | 63 | | 502 |
Prairie State Gaming (4) | Illinois | | N/A | | Land-based gaming | | N/A | | 2,047 | | — | | — |
River City Casino | St. Louis, MO | | Pinnacle Master Lease | | Dockside gaming | | 90,000 | | 1,945 | | 53 | | 200 |
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Other | | | | | | | | | | | | | |
Freehold Raceway (8) | Freehold, NJ | | Owned - JV | | Standardbred racing | | — | | — | | — | | — |
Retama Park Racetrack (9) | Selma, TX | | None - Managed | | Thoroughbred racing | | — | | — | | — | | — |
Sam Houston Race Park (10) | Houston, TX | | Owned - JV | | Thoroughbred racing | | — | | — | | — | | — |
Sanford-Orlando Kennel Club (11) | Longwood, FL | | Owned | | Greyhound racing/simulcasting | | — | | — | | — | | — |
Valley Race Park (10) | Harlingen, TX | | Owned - JV | | Greyhound racing | | — | | — | | — | | — |
| | | | | | | 2,411,350 | | 48,032 | | 1,323 | | 8,791 |
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| Location | | Real Estate Assets Lease or Ownership Structure | | Type of Facility | | Gaming Square Footage | | Gaming Machines | | Table Games (1) | | Hotel Rooms |
Northeast segment (2) | | | | | | | | | | | | | |
Ameristar East Chicago | East Chicago, IN | | Pinnacle Master Lease | | Dockside gaming | | 70,000 | | 1,790 | | 85 | | 288 |
Greektown Casino-Hotel | Detroit, MI | | Greektown Lease | | Land-based gaming | | 100,000 | | 2,601 | | 62 | | 400 |
Hollywood Casino Bangor | Bangor, ME | | Penn Master Lease | | Land-based gaming/racing | | 31,750 | | 726 | | 14 | | 152 |
Hollywood Casino at Charles Town Races | Charles Town, WV | | Penn Master Lease | | Land-based gaming/racing | | 115,000 | | 2,292 | | 74 | | 153 |
Hollywood Casino Columbus | Columbus, OH | | Penn Master Lease | | Land-based gaming | | 168,000 | | 2,082 | | 70 | | — |
Hollywood Casino Lawrenceburg (3) | Lawrenceburg, IN | | Penn Master Lease | | Dockside gaming | | 146,500 | | 1,521 | | 58 | | 463 |
Hollywood Casino at Penn National Race Course | Grantville, PA | | Penn Master Lease | | Land-based gaming/racing | | 99,500 | | 2,002 | | 79 | | — |
Hollywood Casino Toledo | Toledo, OH | | Penn Master Lease | | Land-based gaming | | 125,000 | | 2,041 | | 69 | | — |
Hollywood Gaming at Dayton Raceway | Dayton, OH | | Penn Master Lease | | Land-based gaming/racing | | 33,500 | | 1,045 | | — | | — |
Hollywood Gaming at Mahoning Valley Race Course | Youngstown, OH | | Penn Master Lease | | Land-based gaming/racing | | 50,000 | | 1,102 | | — | | — |
Marquee by Penn (4) | Pennsylvania | | N/A | | Land-based gaming | | N/A | | 75 | | — | | — |
Meadows Racetrack and Casino | Washington, PA | | Meadows Lease | | Land-based gaming/racing | | 131,000 | | 2,506 | | 88 | | — |
Plainridge Park Casino | Plainville, MA | | Pinnacle Master Lease | | Land-based gaming/racing | | 50,000 | | 1,250 | | — | | — |
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South segment | | | | | | | | | | | | | |
1st Jackpot Casino | Tunica, MS | | Penn Master Lease | | Dockside gaming | | 40,000 | | 840 | | 14 | | — |
Ameristar Vicksburg | Vicksburg, MS | | Pinnacle Master Lease | | Dockside gaming | | 70,000 | | 1,212 | | 27 | | 148 |
Boomtown Biloxi | Biloxi, MS | | Penn Master Lease | | Dockside gaming | | 35,500 | | 653 | | 19 | | — |
Boomtown Bossier City | Bossier City, LA | | Pinnacle Master Lease | | Dockside gaming | | 30,000 | | 726 | | 16 | | 187 |
Boomtown New Orleans | New Orleans, LA | | Pinnacle Master Lease | | Dockside gaming | | 30,000 | | 1,156 | | 31 | | 150 |
Hollywood Casino Gulf Coast | Bay St. Louis, MS | | Penn Master Lease | | Land-based gaming | | 51,000 | | 926 | | 20 | | 291 |
Hollywood Casino Tunica | Tunica, MS | | Penn Master Lease | | Dockside gaming | | 54,000 | | 955 | | 11 | | 494 |
L’Auberge Baton Rouge | Baton Rouge, LA | | Pinnacle Master Lease | | Dockside gaming | | 71,500 | | 1,406 | | 49 | | 205 |
L’Auberge Lake Charles | Lake Charles, LA | | Pinnacle Master Lease | | Dockside gaming | | 70,000 | | 1,522 | | 71 | | 995 |
Margaritaville Resort Casino | Bossier City, LA | | Margaritaville Lease | | Dockside gaming | | 30,000 | | 1,221 | | 50 | | 395 |
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West segment | | | | | | | | | | | | | |
Ameristar Black Hawk | Black Hawk, CO | | Pinnacle Master Lease | | Land-based gaming | | 56,000 | | 1,240 | | 40 | | 536 |
Cactus Petes and Horseshu | Jackpot, NV | | Pinnacle Master Lease | | Land-based gaming | | 29,000 | | 754 | | 24 | | 416 |
M Resort | Henderson, NV | | Penn Master Lease | | Land-based gaming | | 96,000 | | 1,089 | | 40 | | 390 |
Tropicana Las Vegas | Las Vegas, NV | | Owned | | Land-based gaming | | 72,000 | | 640 | | 27 | | 1,470 |
Zia Park Casino | Hobbs, NM | | Penn Master Lease | | Land-based gaming/racing | | 18,000 | | 732 | | — | | 154 |
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Midwest segment | | | | | | | | | | | | | |
Ameristar Council Bluffs (5) | Council Bluffs, IA | | Pinnacle Master Lease | | Dockside gaming | | 35,000 | | 1,526 | | 25 | | 444 |
Argosy Casino Alton (6) | Alton, IL | | Penn Master Lease | | Dockside gaming | | 23,000 | | 741 | | 12 | | — |
Argosy Casino Riverside | Riverside, MO | | Penn Master Lease | | Dockside gaming | | 56,000 | | 1,299 | | 42 | | 258 |
Hollywood Casino Aurora | Aurora, IL | | Penn Master Lease | | Dockside gaming | | 53,000 | | 1,000 | | 27 | | — |
Hollywood Casino Joliet | Joliet, IL | | Penn Master Lease | | Dockside gaming | | 50,000 | | 1,100 | | 26 | | 100 |
Hollywood Casino at Kansas Speedway (7) | Kansas City, KS | | Owned - JV | | Land-based gaming | | 95,000 | | 2,000 | | 41 | | — |
Hollywood Casino St. Louis | Maryland Heights, MO | | Penn Master Lease | | Dockside gaming | | 120,000 | | 2,017 | | 63 | | 502 |
Prairie State Gaming (4) | Illinois | | N/A | | Land-based gaming | | N/A | | 1,904 | | — | | — |
River City Casino | St. Louis, MO | | Pinnacle Master Lease | | Dockside gaming | | 90,000 | | 1,945 | | 53 | | 200 |
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Other | | | | | | | | | | | | | |
Freehold Raceway (8) | Freehold, NJ | | Owned - JV | | Standardbred racing | | — | | — | | — | | — |
Retama Park Racetrack (9) | Selma, TX | | None - Managed | | Thoroughbred racing | | — | | — | | — | | — |
Sam Houston Race Park (10) | Houston, TX | | Owned - JV | | Thoroughbred racing | | — | | — | | — | | — |
Sanford-Orlando Kennel Club | Longwood, FL | | Owned | | Greyhound racing | | — | | — | | — | | — |
Valley Race Park (10) | Harlingen, TX | | Owned - JV | | Greyhound racing | | — | | — | | — | | — |
| | | | | | | 2,395,250 | | 49,637 | | 1,327 | | 8,791 |
(1)Excludes poker tables.
(2)We expect that Hollywood Casino York and Hollywood Casino Morgantown will be included within our Northeast segment.
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(2) | We expect that Hollywood Casino York and Hollywood Casino Morgantown will be included within our Northeast segment. |
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(3) | Includes 168 rooms at our hotel and event center located less than a mile from the gaming facility. |
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(5) | Includes 284 rooms operated by a third party and located on land leased by us and subleased to such third party. |
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(6) | The riverboat is owned by us and not subject to the Penn Master Lease. |
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(7) | Pursuant to a joint venture with International Speedway Corporation (“International Speedway”) |
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(8) | Pursuant to a joint venture with Greenwood Limited Jersey, Inc., a subsidiary of Greenwood Racing, Inc. |
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(9) | Pursuant to a management contract with Retama Development Corporation |
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(10) | Pursuant to a joint venture with MAXXAM, Inc. (“MAXXAM”) |
(3)Includes 168 rooms at our hotel and event center located less than a mile from the gaming facility.
(4)VGT route operations.
(5)Includes 284 rooms operated by a third party and located on land leased by us and subleased to such third party.
(6)The riverboat is owned by us and not subject to the Penn Master Lease.
(7)Pursuant to a joint venture with NASCAR.
(8)Pursuant to a joint venture with Greenwood Limited Jersey, Inc., a subsidiary of Greenwood Racing, Inc.
(9)Pursuant to a management contract with Retama Development Corporation.
(10)Pursuant to a joint venture with MAXXAM, Inc. (“MAXXAM”).
(11)In the fourth quarter of 2020, we sold the land underlying the Sanford-Orlando Kennel Club racetrack which discontinued our live racing operations. We continue to operate our simulcast racing business.
Northeast Segment
Ameristar East Chicago is located less than 25 miles from downtown Chicago, Illinois and offers guests a gaming and entertainment experience in the Chicago metropolitan area. In addition to gaming amenities, the property features a full-service hotel, a sportsbook for live sports betting, a fitness center, dining venues, lounges and 5,400 square feet of meeting and event space.
Greektown Casino-Hotel is located in the Greektown district of Detroit, Michigan, and is one of four casino hotels in the Detroit-Windsor area. In addition to slot machines, table games, and poker tables Greektown Casino-Hoteland a sportsbook for live sports betting, the property features a 30-story hotel, 14,000 square feet of convention and banquet space, and several food and beverage options from casual to fine dining. Further, the property includes a parking structure accommodating 3,400 vehicles.dining, as well as 10,000 square feet of convention and banquet space.
Hollywood Casino Bangor is located less than five miles from the Bangor airport in Maine. It features gaming amenities; including slot machines, table games and poker tables;tables, as well as a hotel with 5,100 square feet of meeting and multipurpose space; a buffet; a casualand dining restaurant; a smalland entertainment stage; and a four-story parking garage.options. Bangor Raceway, which is adjacent to the property, is located at historic Bass Park and includes a one-half mile standardbred racetrack and a 12,000 square foot grandstand capable of seating 3,500 patrons.
Hollywood Casino at Charles Town Races is located within approximately an hour drive of the Baltimore, Maryland and Washington, D.C. markets. In addition to slot machines, table games and poker tables, Hollywood Casino at Charles Town Racesthe property includes a sportsbook for live sports betting.betting, as well as a variety of dining options. The complex also features live thoroughbred racing at a 3/4-mile all-weather lighted thoroughbred racetrack with a 3,000-seat grandstand two parking garages for 5,800 vehicles and simulcast wagering. Hollywood Casino at Charles Town Races dining options include a high-end steakhouse, a sports bar and entertainment lounge, and an Asian-themed restaurant.
Hollywood Casino Columbus is a Hollywood-themed casino featuringlocated in Columbus, Ohio. It features slot machines, table games and 34 poker tables. Hollywood Casino Columbus also includestables as well as multiple food and beverage outlets, and an entertainment lounge, and structured and surface parking for 4,600 spaces.lounge.
Hollywood Casino Lawrenceburg is a Hollywood-themed casino riverboat located along the Ohio River in Lawrenceburg, Indiana, approximately 15 miles west of Cincinnati, Ohio. In addition to slot machines, table games, and poker tables, the Hollywood-themed casino riverboat includesfeatures a hotel;sportsbook for live sports betting, as well as a sportsbook;variety of dining options; including a restaurant, bar, nightclub, sports bar, and two cafés; and meeting space. We own and operate aoptions. The hotel and event center, which was constructed by the City of Lawrenceburg Department of Redevelopment, located within one mile from Hollywood Casino Lawrenceburg. The hotel and event centerthe casino, includes 18,000 square feet of multipurpose space and 19,500 square feet of ballroom and meeting space.
Hollywood Casino at Penn National Race Course is located 15 miles northeast of Harrisburg, Pennsylvania. This gaming facility also includes ana variety of dining and entertainment bar and lounge, a sports bar, a buffet, a high-end steakhouse and various casual dining options, as well as sports betting and a viewing area for live racing. The facility has ample parking, including a five-story self-parking garage, with capacity for 2,200 cars, and 1,500 surface parking spaces for self and valet parking. The property includes a one-mile all-weather lighted thoroughbred racetrack and a 7/8-mile turf track. In addition, the property offers off-track wagering (“OTW”) at separate facilities located in York, Pennsylvania and Lancaster, Pennsylvania.
Hollywood Casino Toledo is a Hollywood-themed casino, featuringlocated on the bank of the Maumee River, in Toledo, Ohio. The property features slot machines, table games and 19 poker tables. Hollywood Casino Toledo also includestables, as well as multiple food and beverage outlets and an entertainment lounge, and structured and surface parking for 3,300 spaces.lounge.
Hollywood Gaming at Dayton Raceway is a Hollywood-themed property featuringcasino and raceway located in Dayton, Ohio. It features video lottery terminals, (“VLTs”) and a 5/8-mile standardbred racetrack. Hollywood Gaming at Dayton Raceway also includesracetrack, as well as various restaurants and bars, surface parking for 1,800 spaces andamongst other amenities.
Hollywood Gaming at Mahoning Valley Race Course is a Hollywood-themed propertycasino and raceway located in Youngstown, Ohio featuring VLTsvideo lottery terminals and a one-mile thoroughbred racetrack. Hollywood Gaming at Mahoning Valley Race CourseThe property also includes various restaurants, and bars, surface parking with 1,250 spaces andamongst other amenities.
Marquee by Penn is our licensed VGT route operator with a network of 1523 truck stop establishments in Pennsylvania.
Meadows Racetrack and Casino is located in Washington, Pennsylvania, approximately 25 miles south of Pittsburgh, Pennsylvania. In addition to gaming amenities, Meadows Racetrack and Casinothe property offers a sportsbook for live sports betting, several dining options, including a steakhouse, food court and a bar. In addition, the property featuresas well as an eventsevent and banquet center, a simulcast betting parlor, a harness racetrack and a bowling alley. The property also offers OTW at a separate facility in Pittsburgh.
Plainridge Park Casino is located 20 miles southwest of the Boston beltway just off interstate 95 in Plainville, Massachusetts. In addition to gaming offerings, Plainridge Park Casino features various restaurants and bars, 1,600 structured and surface parking spaces, and other amenities. Plainridge Park Casino also includesalong with a 5/8-mile live harness racing facility with a two-story clubhouse for simulcast operations, special events, and live racing viewing, which is 55,000 square feet.viewing.
South Segment
1st Jackpot Casino is the closest Tunica-area casino to downtown Memphis, Tennessee,Tennessee. It features slot machines, table games, a steakhouse, a buffet, a café, a sportsbook and a live entertainment venue.
Ameristar Vicksburg, which is the largest dockside casino in central Mississippi, is located along the Mississippi River approximately 45 miles west of Mississippi’s largest city, Jackson. In addition to gaming amenities, the property features a hotel, multiple dining and bar facilities, a club lounge, a sportsbook, a live entertainment venue, andan 1,800 square feet of meeting and event space.space, a sports book and an RV park.
Boomtown Biloxi, located in Biloxi Mississippi, offers slot machines and table games, and a sportsbook for live sports betting, as well as a buffet, a sports bar and grill, a Fat Tuesday, a noodle bar, a sportsbook andvariety of dining options. The property also includes a recreational vehicle (“RV”) park. Boomtown Biloxi also featurespark, and a 3,600 square foot event center and board room and has 1,450 surface parking spaces.room.
Boomtown Bossier City features a hotel adjoining a dockside riverboat casino located less than one mile from the Louisiana Boardwalk. It also offers several dining options, ranging from a high-end steakhouse to casual dining restaurants, including a buffet, and 1,500 square feet of meeting and conference space.
Boomtown New Orleans is located in the West Bank area across the Mississippi River and approximately 15 minutes from the French Quarter of New Orleans, Louisiana. In addition to gaming amenities, it also features a five-story hotel, a fitness center, fourseveral restaurants, a 500-seat entertainment venue, and over 14,000 square feet of meeting and conference space.
Hollywood Casino Gulf Coast is located in Bay St. Louis, Mississippi and features slot machines, table games, and poker tables.a sportsbook for live sports betting. The property also features a golf course, various dining options, and an RV park amongst other amenities. The waterfront Hollywood Hotelhotel includes a 10,000 square foot ballroom, and nine separate meeting rooms offering more than 14,000 square feet of meeting space. Hollywood Casino Gulf Coast offers live concerts and various entertainment on weekends. The property also features The Bridges golf course, a sportsbook, and various dining facilities, including a steakhouse, a buffet, a grill and a clubhouse lounge as well as an entertainment bar. Other amenities include a RV park and gift shop, lazy river, spa, and pool cabanas.
Hollywood Casino Tunicafeatures is a Hollywood-themed casino, located less than 10 miles from Tunica County River Park. In addition to gaming offerings, it features a sportsbook for live sports betting, a hotel, and a 123-space RV park. Entertainment amenities include a steakhouse, a buffet, a grill, an entertainment lounge, a premium players’ club, a themedrecreational vehicle park, various dining and bar a sportsbook, an indoor pool,options, and showroom as well as banquet and meeting facilities. In addition, Hollywood Casino Tunica offers surface parking with more than 1,600 spaces.
L’Auberge Baton Rouge is located approximately ten miles southeast of downtown Baton Rouge, Louisiana. L’Auberge Baton Rouge offers a fully-integrated casino entertainment experience. It alsoIn addition to gaming options, the property features a 12-story hotel, a fitness center, fourvariety of dining outlets, a music bar,choices, and 13,000 square feet of meeting and event space.
L’Auberge Lake Charles offers one of the closest full-scale casino hotel facilities to Houston, Texas, as well as to the Austin, Texas and San Antonio, Texas metropolitan areas. The location is approximately 140 miles from Houston and approximately 300 miles and 335 miles from Austin and San Antonio, respectively. L’Auberge Lake CharlesIn addition to gaming amenities, the property features sixseveral dining outlets, a golf course, a full-service spa, retail shopping, two bars, and more than 26,000 square feet of meeting and event space.
Margaritaville Resort Casino is one of the premier gaming, lodging, dining and entertainment experiences in Northern Louisiana. The property provides an island-style theme and includes a 15,000 square foot 1,000-seat theater, and 9,500 square feet of meeting space, and 1,500 parking spaces.space.
West Segment
Ameristar Black Hawk is located in the center of the Black Hawk gaming district, approximately 40 miles west of Denver, Colorado. In addition to gaming amenities, the resort features a hotel, a full-service day spa, a fitness center, several dining outlets, a live entertainment bar, a 1,500 space parking structure, and 15,000 square feet of meeting and event space.
Cactus Petes and Horseshu (collectively, “the Jackpot Properties”) are located just south of the Idaho border in Jackpot, Nevada. The Jackpot Properties collectively feature two hotels, fourseveral dining options, a 4,000 seat amphitheater, a showroom, a live entertainment lounge, and meeting and event facilities.
M Resort, located approximately ten miles from the Las Vegas strip in Henderson, Nevada, is situated at the southeast corner of Las Vegas Boulevard and St. Rose Parkway. The resort features slot machines, table games and a sportsbook. M Resort also offerssportsbook for live sports betting, as well as a hotel seven restaurants and six destination bars,a variety of dining and bar options. The property also features more than 60,000 square feet of meeting and conference space, a 4,700 space parking structure, a spa and fitness center, a Topgolf Swing Suite, and a 100,000 square foot event center.
Tropicana Las Vegas, located on the strip in Las Vegas, Nevada, is situated at the corner of Tropicana Boulevard and Las Vegas Boulevard. In addition to gaming, the resort features a hotel, a sportsbook kiosk, four full-service restaurants, a brunch buffet, a food court, and a 1,100-seat performance theater, a 300-seat comedy club,variety of bar and lounge options. The property also includes entertainment venues, over 100,000 square feet of exhibition and meeting space, and a five-acre tropical beach event area and spa, and 2,100 parking spaces.spa.
Zia Park Casinoincludes is located in Hobbs, New Mexico, and features slot machines, twoa hotel, restaurants, and a one-mile quarter/thoroughbred racetrack with live racing from September to December, and a year-round simulcast parlor. In addition, Zia Park Casino features a hotel, which includes six suites, a business center, exercise/fitness facility and a breakfast venue.
Midwest Segment
Ameristar Council Bluffs is located across the Missouri River from Omaha, Nebraska and includes the largest riverboat in Iowa. In addition to gaming amenities, the property also features a hotel, a fitness center, fourseveral dining facilities, a sports bar featuring a sportsbook with live sports betting, and a 5,000 square feet of convention and meeting space.
Argosy Casino Alton is located on the Mississippi River in Alton, Illinois, approximately 20 miles northeast of downtown St. Louis.Louis, Missouri. Argosy Casino Alton is a three-deck riverboat featuring slot machines, table games and table games.a sportsbook for live betting. Argosy Casino Alton includes an entertainment pavilion and features a large buffet venue,deli, a restaurant, a deliVIP lounge and a 475-seat main showroom. The facility also includes surface parking areas with 1,350 spaces.
Argosy Casino Riverside is located on the Missouri River, approximately five miles from downtown Kansas City. In addition to gaming amenities, this Mediterranean-themed property features a nine-story hotel, a spa, an entertainment facility featuring various food and beverage areas, including a buffet, a steakhouse, a deli, a coffee bar, a Mexican restaurant, a VIP lounge and a sports/entertainment lounge and 19,000 square feet of banquet/conference facilities. Argosy Casino Riverside also has parking for 3,000 vehicles, including a 1,250 space parking garage.
Hollywood Casino Aurora is located in Aurora, Illinois, the second largest city in Illinois, approximately 35 miles west of Chicago. This single-level dockside casino offers guests with gaming amenities, including a poker room. The facility features a steakhouse with a private dining room a VIP lounge for premium players, a casino bar with video poker, a buffet, and a deli. Hollywood Casino Aurora also has a surface parking lot, two parking garages with 1,500 parking spaces,sportsbook for live sports betting and a gift shop.features multiple dining and bar options.
Hollywood Casino Joliet is located on the Des Plaines River in Joliet, Illinois, approximately 40 miles southwest of Chicago. ThisThe complex includes a barge-based casino which provides guests with two levels of gaming experience, as well as a deli and a VIP lounge. The land-based pavilion with several dining and entertainment options. In addition, the property includes a steakhouse, a buffet and a sports bar. The complex also includessportsbook for live betting, a hotel, 4,600 square feet of meeting space, a 1,100 space parking garage, surface parking areas with 1,500 spaces and an 80-space RV park.
Hollywood Casino at Kansas Speedway, our 50% joint venture with International Speedway,NASCAR, is located in Kansas City, Kansas. It features slot machines, table games and poker tables. Hollywood Casino at Kansas Speedwaytables and offers a variety of dining and entertainment facilities, and a meeting room, and has a 1,250-space parking structure.room.
Hollywood Casino St. Louis is located adjacent to the Missouri River directly off I-70 and approximately 22 miles northwest of downtown St. Louis, Missouri. The facility features slot machines, table games, poker tables, a hotel, nineand a variety of dining and entertainment venues and structured and surface parking with 4,600 spaces.venues.
Prairie State Gaming is our licensed VGT route operator in Illinois across a network of over 400390 bar and/or retail gaming establishments in seven distinct geographic areas throughout Illinois.
River City Casino is located in the St. Louis, Missouri metropolitan area, just south of the confluence of the Mississippi River and the River des Peres in the south St. Louis community of Lemay, Missouri. River City Casino features a hotel, multiple dining outlets, an entertainment lounge, and over 10,000 square feet of conference space.
Other
Freehold Raceway. Through our joint venture in Pennwood Racing, Inc. (“Pennwood”), we own 50% of Freehold Raceway. The property features a half-mile standardbred race track and a 118,000 square foot grandstand. In addition, through our Pennwood joint venture, we own 50% of a leased OTW in Toms River, New Jersey, and operate another OTW, which we constructed, in Gloucester Township, New Jersey.
Retama Park Racetrack. We have a management contract with Retama Development Corporation (“RDC”), a local government corporation of the City of Selma, Texas, to manage the day-to-day operations of Retama Park Racetrack. In addition, we own 1.0% of the equity of Retama Nominal Holder, LLC, which holds a nominal interest in the racing license used to operate Retama Park Racetrack. Additionally, we own a 75.5% interest in Pinnacle Retama Partners, LLC (“PRP”), which owns the contingent gaming rights that may arise if gaming under the existing racing license becomes legal in Texas in the future.
Sam Houston Race Park and Valley Race Park. Our joint venture with MAXXAM owns and operates Sam Houston Race Park and Valley Race Park, and holds a license for a racetrack in Manor, Texas, just outside of Austin. Sam Houston Race Park, which is located 15 miles northwest from downtown Houston along Beltway 8, hosts thoroughbred and quarter horse racing and offers daily simulcast operations, as well as hosts various special events, private parties and meetings, concerts and national touring festivals throughout the year. Valley Race Park features 91,000 of property square footage as a dog racing and simulcasting facility.
Sanford-Orlando Kennel Club. Sanford-Orlando Kennel ClubThe greyhound racetrack and related facility was sold to a land developer during the fourth quarter of 2020. The remaining facility owned by the Company is used to operate a 1/4-mile greyhound facility. The facility has capacity for 6,500 patrons, with seating for 4,000restaurant and surface parking for 2,500 vehicles. The facility conductsto offer year-round greyhoundsimulcast racing and greyhound, thoroughbred, and harness racing simulcasts.operations.
Penn Interactive
Penn Interactive is our interactive gaming division that operates our online sports betting app called Barstool Sportsbook as well as our iGaming division,platforms, which recently launched an iCasinoare currently live in Pennsylvania through our HollywoodCasino.com gaming platform and Michigan. Penn Interactive includes the operations of Absolute Games, LLC, (“Absolute Games”), a developer and operator of online social bingo and other casino games. In addition, Penn Interactive recentlyhas entered into multi-year agreements with leading sports betting operators for online sports betting and iGaming market access across our portfolio of properties. Pursuant to these agreements, such sports betting operators have commenced operations in Indiana, Pennsylvania and West Virginia. Penn Interactive also operates our16 internally-branded or Barstool-branded retail sportsbooks currently located at the Company's properties in Colorado, Illinois, Indiana, Iowa, Michigan, Mississippi, Pennsylvania and West Virginia. We anticipate opening retail sportsbooks at our properties in Colorado, Illinois and Michigan as soon as we receive all necessary regulatory approvals.
Trademarks
We own a number of trademarks and service marks registered with the U.S. Patent and Trademark Office (“USPTO”), including but not limited to, “Ameristar®“Ameristar®,” “Argosy®“Argosy®,” “Boomtown®“Boomtown®,”“Greektown® “Greektown®,” “Hollywood Casino®Casino®,” “Hollywood Gaming®Gaming®,” “Hollywood Poker®,” “L’Auberge®“L’Auberge®,” “M Resort®Resort®,” and “MYCHOICE®“MYCHOICE®,” among other trademarks. We believe that our rights to our trademarks are well-established and have competitive value to our properties. We also have a number of trademark applications pending with the USPTO.
Among others, we have a licensing agreement with a third party to use the “Margaritaville®” trademark in connection with the operations of Margaritaville in Bossier City, Louisiana. Upon closing of the transaction with Barstool Sports in February 2020, we have the sole right to utilize the Barstool Sports® brand for all of our online and retail sports betting and iCasinoiGaming products. In addition, subject to certain terms, conditions, and limitations, we have the exclusive right to use the “Tropicana Las Vegas®” and certain other trademarks within 50 miles of our Tropicana Las Vegas property.
Competition
The gaming industry is characterized by an increasingly high degree of competition among a large number of participants operating from physical locations and/or through online or mobile platforms, including destination casinos, riverboat casinos; dockside casinos; land-based casinos; video lottery; iGaming; sports betting; gaming at taverns in certain states, such as Illinois; gaming at truck stop establishments in certain states, such as Louisiana and Pennsylvania; historical horse racing in certain states, such as Arkansas, Kentucky and Virginia; sweepstakes and poker machines not located in casinos; fantasy sports; Native American gaming; and other forms of gaming in the U.S. In a broader sense, our gaming operations face competition from all manner of leisure and entertainment activities, including shopping, athletic events, television and movies, concerts and travel. Legalized gaming is currently permitted in various forms throughout the U.S. and on various lands taken into trust for the benefit of certain Native Americans inand as well as various land taken into trust for the U.S. andbenefit of certain First Nations people in Canada. Other jurisdictions, including states adjacent to states in which we currently have properties, have recently legalized, implemented and expanded gaming. In addition, established gaming jurisdictions could award additional gaming licenses or permit the expansion or relocation of existing gaming operations (including VGTs, skill games, sports betting and iGaming). Competition is discussed in further detail within “Item 1A. Risk
Government Regulation and Gaming Issues
The gaming and racing industries are highly regulated, and we must maintain our licenses and pay gaming taxes to continue our operations. Each of our properties is subject to extensive regulation under the laws, rules and regulations of the jurisdiction where it is located. These laws, rules and regulations generally concern the responsibility, financial stability and character of the owners, managers, and persons with financial interests in the gaming operations. Violations of laws or regulations in one jurisdiction could result in disciplinary action in other jurisdictions. For a more detailed description of the statutes and regulations to which we are subject, see Exhibit 99.1, “Description of Government Regulations,” to this Annual Report on Form 10-K, which is incorporated herein by reference. Our businesses are subject to various federal, state and local laws and regulations in addition to gaming regulations. These laws and regulations include, but are not limited to, restrictions and conditions concerning alcoholic beverages, environmental matters, employees, health care, currency transactions, taxation, zoning and building codes, and marketing and advertising. Such laws and regulations could change or could be interpreted differently in the future, or new laws and regulations could be enacted. Material changes, new laws or regulations, or material differences in interpretations by courts or governmental authorities could adversely affect our financial condition, results of operations and cash flows.
Information about our Executive Officers
TheAs of February 26, 2021, the persons serving as our executive officers and their positions with us are as follows: |
| | | | | | | | | | | | | |
NAME | | AGE | | POSITION WITH THE COMPANY |
Jay Snowden | | 4344 | | President, and Chief Executive Officer and Director |
William J. FairTodd George | | 5751 | | Executive Vice President, and Chief Financial OfficerOperations |
Carl SottosantiHarper Ko | | 5547 | | Executive Vice President, General CounselChief Legal Officer and Secretary |
Jay Snowden. In August 2019, Mr. Snowden was appointed to the Company’s Board of Directors andelected Mr. Snowden as a Board member. Effective January 1, 2020, Mr. Snowden became our President andthe Company’s Chief Executive Officer in January 2020.Officer. Mr. Snowden joined the Company in October 2011 as Senior Vice President-Regional Operations became ourand was promoted to Chief Operating Officer in January 2014, and2014. In March 2017, Mr. Snowden was ournamed President and Chief Operating Officer from March 2017 through December 2019, where heand was responsible for overseeing all of our operating businesses, as well as human resources, marketing, and information technology. Prior to joining us,the Company, Mr. Snowden was the Senior Vice President and General Manager of Caesars and Harrah’s in Atlantic City, New Jersey, and prior to that, held various leadership positions with them in St. Louis, Missouri;Missouri, San Diego, California;California and Las Vegas, Nevada.
William J. Fair.
Todd George. Mr. Fair joined us in January 2014 as Senior Vice President and Chief Development Officer and became our Executive Vice President and Chief Financial Officer in January 2017. Previously, Mr. Fair worked in development leadership positions for Universal Studios and Disney Development. Most recently, Mr. Fair was the President and Chief Executive Officer of the American Skiing Company, where he had oversight of ten ski mountain resorts which included ski operations, nine hotels, condominium operations, food and beverage operations, retail and rental operations, real estate brokerage and development. Mr. Fair will continue to serveGeorge has served as our Executive Vice President, and Chief Financial Officer until March 3,Operations since January 2020.
Carl Sottosanti. Mr. Sottosanti is currently our Executive Vice President, General Counsel and Secretary. In February 2014, Mr. Sottosanti was appointed to the position of SeniorGeorge joined us in October 2012 as Vice President and General Manager of Hollywood Casino in Lawrenceburg, Indiana, transitioning to the role of Vice President and General Manager of Hollywood Casino St. Louis in 2014. In 2017, he was promoted to his previous role as Senior Vice President, Regional Operations, overseeing nine properties in the Company’s Midwest Region. Prior to joining Penn National, Mr. George spent 12 years in various management positions at Pinnacle Entertainment Inc., including leading the development and launch of Pinnacle’s two St. Louis, Missouri properties.
Harper Ko. Ms. Ko was appointed as the Company’s Executive Vice President, Chief Legal Officer and Secretary on January 1, 2021. Prior to joining Penn, Ms. Ko was the Executive Vice President, Chief Legal Officer – General Counsel and became Secretary in November 2014.of Everi Holdings, Inc., a full-service casino gaming equipment and payment solutions provider from 2017 until December 2020. Prior to this appointment, Mr. Sottosantijoining Everi, Ms. Ko served as Vice President, Deputy General Counsel, since 2003. Before joining us, Mr. SottosantiGaming for Scientific Games Corporation. During her time there from November 2014 to December 2017, Ms. Ko led the legal integration of Bally Gaming, Inc., SHFL entertainment Inc., and WMS Gaming Inc. into the Scientific Games Gaming division and served for five years as General Counsel at publicly traded, Sanchez Computer Associates, Inc.a strategic advisor to their Gaming unit executive management team on all material commercial transactions, customer and had oversight of all legal,third-party issues, and regulatory compliance and intellectual propertylitigation matters. From 1994 to 1998, Mr. Sottosanti was the Assistant General Counsel for Salient 3 Communications, Inc., a publicly traded telecommunications company. Mr. Sottosanti began his legal career in 1989 with the Philadelphia law firm Schnader, Harrison, Segal & Lewis LLP.
Employees and Labor RelationsHuman Capital Resources
The Company’s key human capital management objectives are to attract, retain and develop diverse and high quality talent. Our commitment to an equal-opportunity and respectful workplace characterized by both diversity and inclusion, in which everyone feels valued, respected and supported, is a factor driving our success. Our talent and development programs are designed to develop, support and maintain talent succession pipelines in preparation for key roles and leadership positions;
recognize, reward and support our team members through competitive pay and wellness programs; enhance the Company’s philanthropic culture by encouraging participation and championing programs in the communities in which we work and live; and invest in technology and resources to provide our team members with the most efficient tools to perform their jobs.
Some of the key programs and initiatives developed to attract and retain high quality talent include:
•Executive and High Potential Talent Review Process
•Diversity and Veteran Recruitment Initiatives
•AwardCo Recognition Program and Property Engagement Committees
As of December 31, 2019,2020, we had approximately 28,30018,321 full-time and part-time employees. As of December 31, 2019,2020, we had 3138 collective bargaining agreements covering approximately 5,9002,779 active employees. SevenNine collective bargaining agreements are scheduled to expire in 2020,2021, and we are currently renegotiating three collective bargaining agreements that expired in 2019.2020. Although we believe that we have good employee relations, there can be no assurance that we will be able to extend or enter into replacement agreements. If we are able to extend or enter into replacement agreements, there can be no assurance as to whether the terms will be on comparable terms to the existing agreements.
In addition, the Company established a special COVID-19 Emergency Relief Fund under the Penn National Gaming Foundation to provide assistance to team members who have not been called back from furlough due to the ongoing restrictions associated with COVID-19. The Company has raised $3.7 million from our Board of Directors, Chief Executive Officer, senior management and the Penn National Gaming Foundation. In addition, we provided $13 million in one-time holiday cash bonuses in the fourth quarter to our non-executive team members companywide to help with the financial impact to their families from COVID-19. We also created the Hurricane Laura Relief Fund with an initial contribution of $2.5 million to help our community and team members impacted by the storm, in addition to providing more than $6 million in full wages and benefits to our team members during the L'Auberge Lake Charles property closure. Finally, on the social justice front, our Diversity Committee announced a new scholarship program for disadvantaged team members that will be funded with a $1 million annual commitment from our Company, and we launched a series of new inclusion-related initiatives.
Available InformationRisks Related to Our Indebtedness and Capital Structure
•Our substantial indebtedness could adversely affect our ability to meet our indebtedness obligations.
•The lack of availability and cost of financing could adversely impact our business.
•To service our indebtedness, we will require a significant amount of cash, which depends on many factors beyond our control.
Risks Related to Regulation, Taxes and Compliance
•We were incorporatedare subject to extensive regulation and our business may be adversely impacted by changes in legislation and regulations.
•State and local smoking restrictions have and may continue to negatively affect our business.
•We may face material increases in our current taxes or the adoption of new taxes.
•Failure to comply with certain federal, state and other laws and regulations may have an adverse effect on us.
Risks Related to Technology, Information Security and Penn Interactive
•We rely heavily on technology services and an uninterrupted supply of electrical power.
•Cyber security breaches could affect our operations and harm our reputation.
•If our third-party mobile distribution platforms or service providers fail to perform or terminate their relationship with us, our business could be adversely affected.
•We may be unable to grow Penn Interactive.
Risks Related to Acquisitions
•We may face disruptions, delays and other difficulties related to our recently acquired properties, future acquisitions, or new initiatives.
•In the event we make another acquisition, we may face risks related to our ability to receive regulatory approvals required to complete, or other delays or impediments to completing, such acquisition.
Risks Related to the Spin-Off
•We could be subject to significant tax liabilities if the Spin-Off of Gaming and Leisure Properties, Inc. (“GLPI”) does not qualify as a tax-free transaction.
•In connection with the Spin-Off, GLPI agreed to indemnify us for certain liabilities. However, there can be no assurance that these indemnities will be sufficient to insure us against the full amount of such liabilities, or that GLPI’s ability to satisfy its indemnification obligation will not be impaired in the future.
PART I
ITEM 1.BUSINESS
Overview
Penn National Gaming, Inc., together with its subsidiaries (“Penn National,” the “Company,” “we,” “our,” or “us”), is a leading, diversified, multi-jurisdictional owner and manager of gaming and racing properties, retail and online sports betting operations, and video gaming terminal (“VGT”) operations. Our wholly-owned interactive division, Penn Interactive Ventures, LLC (“Penn Interactive”), operates retail sports betting across the Company’s portfolio, as well as online sports betting, online social casino, bingo and online casinos (“iGaming”). In February 2020, the Company acquired 36% (inclusive of 1% on a delayed basis) equity interest in Barstool Sports, Inc. (“Barstool Sports”), a leading digital sports, entertainment, lifestyle and media company, and entered into a strategic relationship with Barstool Sports, whereby Barstool Sports will exclusively promote the Company's land-based retail sportsbooks, iGaming products and online sports betting products, including the Barstool Sportsbook mobile app, to its national audience. We launched an online sports betting app called Barstool Sports in Pennsylvania in 1982 as PNRC Corp.September 2020 and adoptedin Michigan in January 2021. We also operate iGaming in Pennsylvania and Michigan. Our MYCHOICE® customer loyalty program (the "mychoice program") currently has over 20 million members and provides such members with various benefits, including complimentary goods and/or services. The Company’s strategy has continued to evolve from an owner and manager of gaming and racing properties into an omni-channel provider of retail and online gaming, live racing and sports betting entertainment. We believe our current namecontinued evolution into a best-in-class omni-channel provider of retail and online gaming and sports betting entertainment will be a catalyst for our core land-based business, while also providing a platform for significant long-term shareholder value. References in 1994, when we became a publicly traded company. For more information about us, visit our website at www.pngaming.com. The contents of our website are not part of this Annual Report on Form 10-K.10-K, to “Penn National,” the “Company,” “we,” “our,” or “us” refer to Penn National Gaming, Inc. and its subsidiaries, except where stated or the context otherwise indicates.
As of December 31, 2020, we owned, managed, or had ownership interests in 41 properties in 19 states. The majority of the real estate assets (i.e., land and buildings) used in the Company’s operations are subject to triple net master leases; the most significant of which are the Penn Master Lease and the Pinnacle Master Lease (as such terms are defined in the “Triple Net Leases” section below and collectively referred to as the “Master Leases”), with Gaming and Leisure Properties, Inc. (NASDAQ: GLPI) (“GLPI”), a real estate investment trust (“REIT”). In addition, we are currently developing two Category 4 satellite gaming casinos in Pennsylvania: Hollywood Casino York and Hollywood Casino Morgantown, both of which are expected to commence operations by the end of 2021. On March 11, 2020, the World Health Organization declared the novel coronavirus (known as “COVID-19”) outbreak to be a global pandemic. To help combat the spread of COVID-19 and pursuant to various orders from state gaming regulatory bodies or governmental authorities, operations at all of our properties were temporarily suspended for single or multiple time periods during the year. Once re-opened, properties operated with reduced gaming and hotel capacity and limited food and beverage offerings in order to accommodate social distancing and health and safety protocols.
During the fourth quarter of 2020, our properties temporarily suspended operations in Pennsylvania, Michigan and Illinois and were subject to increased operational restrictions in Ohio and Massachusetts (among other states). Our electronic filingsMichigan property temporarily closed on November 17, 2020 and reopened on December 23, 2020. Our Pennsylvania properties temporarily closed on December 12, 2020 and reopened on January 4, 2021. Our Illinois properties temporarily closed on November 20, 2020 and began reopening with limited hours of operations beginning January 16, 2021 and throughout the week. The property closures were pursuant to the various orders from state gaming regulatory bodies or governmental authorities to combat the rapid spread of COVID-19. As of February 26, 2021, all of our properties were open to the public with the U.S. Securitiesexception of Zia Park and Exchange Commission (“SEC”) (including all Annual ReportsValley Race Park, which remain closed.
The COVID-19 pandemic caused significant disruptions to our business and had a material adverse impact on Form 10-K, Quarterly Reports on Form 10-Q,our financial condition, results of operations and Current Reports on Form 8-K,cash flows, the magnitude of which continues to develop. During the year, substantial measures were taken to improve our financial position and any amendments to these reports), including the exhibits, are available freeliquidity as discussed in our Consolidated Financial Statements Note 1, “Organization and Basis of charge through our website as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC. Our filings are also available through a database maintained by the SEC at www.sec.govPresentation”.
Important Factors Regarding Forward-Looking Statements
This document includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements are included throughout the document, including within “Item 1A. Risk Factors,” and relate to our business strategy, our prospects and our financial position. These statements can be identified by the use of forward-looking terminology such as “expects,” “believes,” “estimates,” “projects,” “intends,” “plans,” “seeks,” “may,” “will,” “should,” or “anticipates” or the negative or other variations of these or similar words, or by discussions of future events, strategies or risks and uncertainties. Specifically, forward-looking statements may include, among others, statements concerning: our expectations of future financial condition and results of operations, including our ability to reduce our debt; expectations for our properties, our development projects, or our iGaming initiatives, including the expected openings of our Pennsylvania Category 4 casino projects; the timing, cost and expected impact of planned capital expendituresIn February 2020, we closed on our results of operations; our expectations regarding the development of interactive gaming technology; our expectations with regard to the impact of competition; our expectations with regard to acquisitions, potential divestitures and development opportunities, as well as the integration of and synergies related to any companies we have acquired or may acquire; our ability to maintain regulatory approvals for our existing businesses and to receive regulatory approvals for our new businesses and partners; our expectations with regard to the impact of competition in online sports betting, iGaming and retail sportsbooks as well as the potential impact of this business line on our existing businesses; the potential benefits and challenges of the investment in Barstool Sports includingpursuant to a stock purchase agreement with Barstool Sports and stockholders of Barstool Sports, in which we purchased approximately 36% of the benefitscommon stock of Barstool Sports for a purchase price of $161.2 million. Within three years after the Company’sclosing or earlier at our election, we will increase our ownership in Barstool Sports to approximately 50% with an incremental investment of approximately $62 million, consistent with the implied valuation at the time of the initial investment. With respect to the remaining Barstool Sports shares, we have immediately exercisable call rights, and the existing Barstool Sports stockholders have put rights exercisable beginning three
years after closing, all based on a fair market value calculation at the time of exercise (subject to a cap of $650.0 million and a floor of 2.25 times the annualized revenue of Barstool Sports, all subject to various adjustments). Upon closing, we became Barstool Sports’ exclusive gaming partner for up to 40 years and have the sole right to utilize the Barstool Sports brand for all of our online and retail sports betting and iCasino products,iGaming products. For additional information, see Note 7, "Investments in and Advances to Unconsolidated Affiliates". On December 15, 2020, the Company entered into a definitive agreement with GLPI to purchase the operations of Hollywood Casino Perryville for $31.1 million. The transaction is expected financial returns fromto close during the second or third quarter of 2021, subject to approval of the Maryland Lottery and Gaming Control Commission and other customary closing conditions. Simultaneous with the closing of the transaction, with Barstool Sports;we would lease the performance of our partners in online sports betting, iGaming and retail/mobile sportsbooks, including the risksreal estate assets associated with any new business,Hollywood Casino Perryville from GLPI with initial annual rent of $7.8 million per year subject to escalation. For additional information on our acquisitions, see Note 6, “Acquisitions and Dispositions.” In May 2019, we acquired Greektown Casino-Hotel (“Greektown”) in Detroit, Michigan, subject to a triple net lease with VICI Properties Inc. (NYSE: VICI) (“VICI”, a REIT and collectively with GLPI, our “REIT Landlords”) (the “Greektown Lease”) and, in January 2019, we acquired Margaritaville Casino Resort (“Margaritaville”) in Bossier City, Louisiana, subject to a triple net lease with VICI (the “Margaritaville Lease” and collectively with the actions of regulatory, legislative, executive or judicial decisions atMaster Leases, the federal, state or local level with regard to online sports betting, iGaming and retail sportsbooksGreektown Lease, the Meadows Lease, the Tropicana Lease and the impactMorgantown Lease, of any such actions;which the Meadows Lease, the Tropicana Lease and our expectations regarding economic and consumer conditions. As a result, actual results may vary materially from expectations.Morgantown Lease are defined in the “Triple Net Leases” section below, the “Triple Net Leases”). Although
In October 2018, the Company completed the acquisition of Pinnacle Entertainment, Inc. (“Pinnacle”), a leading regional gaming operator (the “Pinnacle Acquisition”). In connection with the Pinnacle Acquisition, we added 12 gaming properties to our portfolio, providing us with greater operational scale and geographic diversity. We assumed the Pinnacle Master Lease concurrently with the closing of the Pinnacle Acquisition.
We believe that our expectations are based on reasonable assumptions withinportfolio of assets provides us the boundsbenefit of geographically-diversified cash flow from operations. We expect to continue to expand our knowledgegaming operations through the implementation and execution of a disciplined capital expenditure program at our business, there can be no assurance that actual results will not differ materially from our expectations. Meaningful factors that could cause actual results to differ from expectations include, but are not limited to, risks related to the following: the assumptions included in our financial guidance; the ability of our operating teams to drive revenue and margins; the impact of significant competition from other gaming and entertainment operations; our ability to obtain timely regulatory approvals required to own, develop and/or operate ourexisting properties, or other delays, approvals or impediments to completing our planned acquisitions or projects, construction factors, including delays, and increased costs; the passage of state, federal or local legislation (including referenda) that would expand, restrict, further tax, prevent or negatively impact operations in or adjacent
to the jurisdictions in which we do or seek to do business (such as a smoking ban at any of our properties or the award of additional gaming licenses proximate to our properties, as recently occurred with Illinois and Pennsylvania legislation); the effects of local and national economic, credit, capital market, housing, and energy conditions on the economy in general and on the gaming and lodging industries in particular; the activities of our competitors (commercial and tribal) and the rapid emergence of new competitors (traditional, internet, social, sweepstakes based and VGTs in bars and truck stops); the costs and risks involved in the pursuit of such opportunitiesstrategic acquisitions and our ability to completeinvestments, and the acquisition or development of new gaming properties. In addition, the partnership with Barstool Sports reflects our strategy to continue evolving from the nation’s largest regional gaming operator to a best-in-class omni-channel provider of retail and achieveonline gaming and sports betting entertainment.
Triple Net Leases
As noted above, the expected returns from, such opportunities;majority of the real estate assets used in the Company’s operations are subject to either the Penn Master Lease or the Pinnacle Master Lease. In addition to the Penn Master Lease and the Pinnacle Master Lease, five individual gaming facilities used in our expectationsoperations are subject to individual triple net leases. Under triple net leases, in addition to lease payments for the continued availabilityreal estate assets, the Company is required to pay the following, among other things: (1) all facility maintenance; (2) all insurance required in connection with the leased properties and cost of capital; the impact of weather, including flooding, hurricanes and tornadoes;business conducted on the risk of failing to maintain the integrity of our information technology infrastructure and safeguard our business, employee and customer data (particularly as our iGaming division grows);leased properties; (3) taxes levied on or with respect to our iGamingthe leased properties (other than taxes on the income of the lessor); (4) all tenant capital improvements; and sports betting endeavors,(5) all utilities and other services necessary or appropriate for the impact of significant competition from other companies for online sports betting, iGaming and retail sportsbooks; the Company may not be able to achieve the expected financial returns related to the Barstool Sports transaction; our ability to obtain timely regulatory approvals required to own, develop and/or operate sportsbooks may be delayed and there may be impediments and increased costs to launching the online betting, iGaming and retail sportsbooks, including delays, and increased costs, intellectual property and legal and regulatory challenges, as well as our ability to successfully develop innovative products that attract and retain a significant number of players in order to grow our revenues and earnings, our ability to establish key partnerships, our ability to generate meaningful returnsleased properties and the risks inherentbusiness conducted on the leased properties.
The following summaries of the Master Leasesare qualified in any new business;their entirety by reference to either the passagePenn Master Lease or the Pinnacle Master Lease, as applicable, all of state, federal or local legislation (including referenda) that would expand, restrict, further tax, prevent or negatively impact operations in or adjacent to the jurisdictions in which we do or seek to do business; with respect to our proposed Pennsylvania Category 4 casinos in York and Berks counties, risks relating to construction and our ability to achieve our expected budgets, timelines and investment returns, including the ultimate location of other gaming facilitiesare incorporated by reference in the Commonwealth of Pennsylvania; and the abilityexhibits to realize the anticipated financial results and synergies as a result of such acquisitions, potential adverse reactions or changes to business or employee relationships, including those resulting from the transactions; and other factors included in “Item 1A. Risk Factors,” of this Annual Report on Form 10-K10-K. Penn Master Lease
Pursuant to a triple net master lease with GLPI (the “Penn Master Lease”), which became effective November 1, 2013, the Company leases real estate assets associated with 19 of the gaming facilities used in its operations. The Penn Master Lease has an initial term of 15 years with four subsequent, five-year renewal periods on the same terms and conditions, exercisable at the Company’s option. If we elect to renew the term of the Penn Master Lease, the renewal will be effective as to all of the leased real estate assets then subject to the Penn Master Lease, subject to limitations on the final renewal term with respect to certain of the barge-based facilities.
Pinnacle Master Lease
In connection with the Pinnacle Acquisition, the Company assumed a triple net master lease with GLPI (“Pinnacle Master Lease”), originally effective April 28, 2016. Pursuant to the Pinnacle Master Lease, the Company leases real estate assets associated with 12 of the gaming facilities used in its operations from GLPI. Upon assumption of the Pinnacle Master Lease, as
amended, there were 7.5 years remaining of the initial ten-year term, with five subsequent, five-year renewal periods exercisable at the Company’s option. Furthermore, in conjunction with the Pinnacle Acquisition, GLPI acquired the real estate assets associated with Plainridge Park Casino and leased back such assets to the Company pursuant to an amendment to the Pinnacle Master Lease.
Morgantown Lease
On October 1, 2020, we sold the land underlying our Morgantown development project to GLPI in exchange for rent credits of $30.0 million. Contemporaneous with the sale, the Company entered into a triple net lease with a subsidiary of GLPI for the land underlying Morgantown (“Morgantown Lease”). The initial term of the Morgantown Lease is twenty years with six subsequent, five-year renewal periods, exercisable at the Company’s option.
Meadows Lease, Margaritaville Lease, Greektown Lease and Tropicana Lease
In connection with the Pinnacle Acquisition, the Company assumed a triple net lease of the real estate assets used in the operations of Meadows Racetrack and Casino (the “Meadows Lease”), originally effective September 9, 2016, with GLPI as the landlord. Upon assumption of the Meadows Lease, there were eight years remaining of the initial ten-year term, with three subsequent, five-year renewal options followed by one four-year renewal option on the same terms and conditions, exercisable at the Company’s option.
As discussed above, in separate acquisitions, the Company entered into the Margaritaville Lease with VICI for the real estate assets used in the operations of Margaritaville and the Greektown Lease with VICI for the real estate assets used in the operations of Greektown. Both the Margaritaville Lease and the Greektown Lease have initial terms of 15 years, with four subsequent five-year renewal options on the same terms and conditions, exercisable at the Company’s option.
On April 16, 2020, we sold the real estate assets associated with our Tropicana Las Vegas ("Tropicana") property to a subsidiary of GLPI in exchange for rent credits of $307.5 million. Contemporaneous with the sale, the Company entered into a leaseback of the real estate assets for nominal cash rent.We are required to continue to operate the Tropicana for two years (subject to three one-year extensions at GLPI’s option) or discusseduntil the real estate assets and the operations of the Tropicana are earlier sold by GLPI.
Operating Properties
The table below summarizes certain features of the properties owned, operated or managed by us as of December 31, 2020, by reportable segment (all area and capacity metrics are approximate):
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| Location | | Real Estate Assets Lease or Ownership Structure | | Type of Facility | | Gaming Square Footage | | Gaming Machines | | Table Games (1) | | Hotel Rooms |
Northeast segment (2) | | | | | | | | | | | | | |
Ameristar East Chicago | East Chicago, IN | | Pinnacle Master Lease | | Dockside gaming | | 73,000 | | 1,796 | | 75 | | 288 |
Greektown Casino-Hotel | Detroit, MI | | Greektown Lease | | Land-based gaming | | 100,000 | | 2,362 | | 62 | | 400 |
Hollywood Casino Bangor | Bangor, ME | | Penn Master Lease | | Land-based gaming/racing | | 31,750 | | 726 | | 14 | | 152 |
Hollywood Casino at Charles Town Races | Charles Town, WV | | Penn Master Lease | | Land-based gaming/racing | | 115,000 | | 2,292 | | 74 | | 153 |
Hollywood Casino Columbus | Columbus, OH | | Penn Master Lease | | Land-based gaming | | 177,000 | | 2,066 | | 74 | | — |
Hollywood Casino Lawrenceburg (3) | Lawrenceburg, IN | | Penn Master Lease | | Dockside gaming | | 149,500 | | 1,521 | | 58 | | 463 |
Hollywood Casino at Penn National Race Course | Grantville, PA | | Penn Master Lease | | Land-based gaming/racing | | 99,500 | | 1,962 | | 80 | | — |
Hollywood Casino Toledo | Toledo, OH | | Penn Master Lease | | Land-based gaming | | 125,000 | | 1,848 | | 69 | | — |
Hollywood Gaming at Dayton Raceway | Dayton, OH | | Penn Master Lease | | Land-based gaming/racing | | 40,600 | | 814 | | — | | — |
Hollywood Gaming at Mahoning Valley Race Course | Youngstown, OH | | Penn Master Lease | | Land-based gaming/racing | | 50,000 | | 1,127 | | — | | — |
Marquee by Penn (4) | Pennsylvania | | N/A | | Land-based gaming | | N/A | | 115 | | — | | — |
Meadows Racetrack and Casino | Washington, PA | | Meadows Lease | | Land-based gaming/racing | | 125,000 | | 2,463 | | 95 | | — |
Plainridge Park Casino | Plainville, MA | | Pinnacle Master Lease | | Land-based gaming/racing | | 50,000 | | 1,181 | | — | | — |
| | | | | | | | | | | | | |
South segment | | | | | | | | | | | | | |
1st Jackpot Casino | Tunica, MS | | Penn Master Lease | | Dockside gaming | | 40,000 | | 839 | | 12 | | — |
Ameristar Vicksburg | Vicksburg, MS | | Pinnacle Master Lease | | Dockside gaming | | 70,000 | | 1,102 | | 24 | | 148 |
Boomtown Biloxi | Biloxi, MS | | Penn Master Lease | | Dockside gaming | | 35,500 | | 605 | | 20 | | — |
Boomtown Bossier City | Bossier City, LA | | Pinnacle Master Lease | | Dockside gaming | | 30,000 | | 806 | | 16 | | 187 |
Boomtown New Orleans | New Orleans, LA | | Pinnacle Master Lease | | Dockside gaming | | 30,000 | | 1,132 | | 31 | | 150 |
Hollywood Casino Gulf Coast | Bay St. Louis, MS | | Penn Master Lease | | Land-based gaming | | 51,000 | | 829 | | 20 | | 291 |
Hollywood Casino Tunica | Tunica, MS | | Penn Master Lease | | Dockside gaming | | 54,000 | | 900 | | 10 | | 494 |
L’Auberge Baton Rouge | Baton Rouge, LA | | Pinnacle Master Lease | | Dockside gaming | | 71,500 | | 1,305 | | 49 | | 205 |
L’Auberge Lake Charles | Lake Charles, LA | | Pinnacle Master Lease | | Dockside gaming | | 70,000 | | 1,469 | | 85 | | 995 |
Margaritaville Resort Casino | Bossier City, LA | | Margaritaville Lease | | Dockside gaming | | 30,000 | | 1,109 | | 50 | | 395 |
| | | | | | | | | | | | | |
West segment | | | | | | | | | | | | | |
Ameristar Black Hawk | Black Hawk, CO | | Pinnacle Master Lease | | Land-based gaming | | 56,000 | | 1,050 | | 38 | | 536 |
Cactus Petes and Horseshu | Jackpot, NV | | Pinnacle Master Lease | | Land-based gaming | | 29,000 | | 743 | | 21 | | 416 |
M Resort | Henderson, NV | | Penn Master Lease | | Land-based gaming | | 96,000 | | 1,073 | | 40 | | 390 |
Tropicana Las Vegas | Las Vegas, NV | | Tropicana Lease | | Land-based gaming | | 72,000 | | 632 | | 20 | | 1,470 |
Zia Park Casino | Hobbs, NM | | Penn Master Lease | | Land-based gaming/racing | | 18,000 | | 754 | | — | | 154 |
| | | | | | | | | | | | | |
Midwest segment | | | | | | | | | | | | | |
Ameristar Council Bluffs (5) | Council Bluffs, IA | | Pinnacle Master Lease | | Dockside gaming | | 35,000 | | 1,421 | | 22 | | 444 |
Argosy Casino Alton (6) | Alton, IL | | Penn Master Lease | | Dockside gaming | | 23,000 | | 705 | | 12 | | — |
Argosy Casino Riverside | Riverside, MO | | Penn Master Lease | | Dockside gaming | | 56,000 | | 1,200 | | 42 | | 258 |
Hollywood Casino Aurora | Aurora, IL | | Penn Master Lease | | Dockside gaming | | 53,000 | | 976 | | 27 | | — |
Hollywood Casino Joliet | Joliet, IL | | Penn Master Lease | | Dockside gaming | | 50,000 | | 1,100 | | 26 | | 100 |
Hollywood Casino at Kansas Speedway (7) | Kansas City, KS | | Owned - JV | | Land-based gaming | | 95,000 | | 2,000 | | 41 | | — |
Hollywood Casino St. Louis | Maryland Heights, MO | | Penn Master Lease | | Dockside gaming | | 120,000 | | 2,017 | | 63 | | 502 |
Prairie State Gaming (4) | Illinois | | N/A | | Land-based gaming | | N/A | | 2,047 | | — | | — |
River City Casino | St. Louis, MO | | Pinnacle Master Lease | | Dockside gaming | | 90,000 | | 1,945 | | 53 | | 200 |
| | | | | | | | | | | | | |
Other | | | | | | | | | | | | | |
Freehold Raceway (8) | Freehold, NJ | | Owned - JV | | Standardbred racing | | — | | — | | — | | — |
Retama Park Racetrack (9) | Selma, TX | | None - Managed | | Thoroughbred racing | | — | | — | | — | | — |
Sam Houston Race Park (10) | Houston, TX | | Owned - JV | | Thoroughbred racing | | — | | — | | — | | — |
Sanford-Orlando Kennel Club (11) | Longwood, FL | | Owned | | Greyhound racing/simulcasting | | — | | — | | — | | — |
Valley Race Park (10) | Harlingen, TX | | Owned - JV | | Greyhound racing | | — | | — | | — | | — |
| | | | | | | 2,411,350 | | 48,032 | | 1,323 | | 8,791 |
(1)Excludes poker tables.
(2)We expect that Hollywood Casino York and Hollywood Casino Morgantown will be included within our Northeast segment.
(3)Includes 168 rooms at our hotel and event center located less than a mile from the gaming facility.
(4)VGT route operations.
(5)Includes 284 rooms operated by a third party and located on land leased by us and subleased to such third party.
(6)The riverboat is owned by us and not subject to the Penn Master Lease.
(7)Pursuant to a joint venture with NASCAR.
(8)Pursuant to a joint venture with Greenwood Limited Jersey, Inc., a subsidiary of Greenwood Racing, Inc.
(9)Pursuant to a management contract with Retama Development Corporation.
(10)Pursuant to a joint venture with MAXXAM, Inc. (“MAXXAM”).
(11)In the fourth quarter of 2020, we sold the land underlying the Sanford-Orlando Kennel Club racetrack which discontinued our live racing operations. We continue to operate our simulcast racing business.
Northeast Segment
Ameristar East Chicago is located less than 25 miles from downtown Chicago, Illinois and offers guests a gaming and entertainment experience in the Chicago metropolitan area. In addition to gaming amenities, the property features a full-service hotel, a sportsbook for live sports betting, a fitness center, dining venues, lounges and 5,400 square feet of meeting and event space.
Greektown Casino-Hotel is located in the Greektown district of Detroit, Michigan, and is one of four casino hotels in the Detroit-Windsor area. In addition to slot machines, table games, poker tables and a sportsbook for live sports betting, the property features a 30-story hotel, several food and beverage options from casual to fine dining, as well as 10,000 square feet of convention and banquet space.
Hollywood Casino Bangor is located less than five miles from the Bangor airport in Maine. It features slot machines, table games and poker tables, as well as a hotel with 5,100 square feet of meeting and multipurpose space; and dining and entertainment options. Bangor Raceway, which is adjacent to the property, is located at historic Bass Park and includes a one-half mile standardbred racetrack and a 12,000 square foot grandstand capable of seating 3,500 patrons.
Hollywood Casino at Charles Town Races is located within approximately an hour drive of the Baltimore, Maryland and Washington, D.C. markets. In addition to slot machines, table games and poker tables, the property includes a sportsbook for live sports betting, as well as a variety of dining options. The complex also features live thoroughbred racing at a 3/4-mile all-weather lighted thoroughbred racetrack with a 3,000-seat grandstand and simulcast wagering.
Hollywood Casino Columbus is a Hollywood-themed casino located in Columbus, Ohio. It features slot machines, table games and poker tables as well as multiple food and beverage outlets, and an entertainment lounge.
Hollywood Casino Lawrenceburg is a Hollywood-themed casino riverboat located along the Ohio River in Lawrenceburg, Indiana, approximately 15 miles west of Cincinnati, Ohio. In addition to slot machines, table games, and poker tables, the riverboat features a sportsbook for live sports betting, as well as a variety of dining options. The hotel and event center, located within one mile from the casino, includes 18,000 square feet of multipurpose space and 19,500 square feet of ballroom and meeting space.
Hollywood Casino at Penn National Race Course is located 15 miles northeast of Harrisburg, Pennsylvania. This gaming facility also includes a variety of dining and entertainment options, as well as sports betting and a viewing area for live racing. The property includes a one-mile all-weather lighted thoroughbred racetrack and a 7/8-mile turf track.
Hollywood Casino Toledo is a Hollywood-themed casino, located on the bank of the Maumee River, in Toledo, Ohio. The property features slot machines, table games and poker tables, as well as multiple food and beverage outlets and an entertainment lounge.
Hollywood Gaming at Dayton Raceway is a Hollywood-themed casino and raceway located in Dayton, Ohio. It features video lottery terminals, a 5/8-mile standardbred racetrack, as well as various restaurants and bars, amongst other amenities.
Hollywood Gaming at Mahoning Valley Race Course is a Hollywood-themed casino and raceway located in Youngstown, Ohio featuring video lottery terminals and a one-mile thoroughbred racetrack. The property also includes various restaurants, and bars, amongst other amenities.
Marquee by Penn is our filingslicensed VGT route operator with a network of 23 truck stop establishments in Pennsylvania.
Meadows Racetrack and Casino is located in Washington, Pennsylvania, approximately 25 miles south of Pittsburgh, Pennsylvania. In addition to gaming amenities, the property offers a sportsbook for live sports betting, several dining options, as well as an event and banquet center, a simulcast betting parlor, a harness racetrack and a bowling alley.
Plainridge Park Casino is located 20 miles southwest of the Boston beltway just off interstate 95 in Plainville, Massachusetts. In addition to gaming offerings, Plainridge Park Casino features various restaurants and bars, along with a 5/8-mile live harness racing facility with a two-story clubhouse for simulcast operations, special events, and live racing viewing.
South Segment
1st Jackpot Casino isthe closest Tunica-area casino to downtown Memphis, Tennessee. It features slot machines, table games, a café, a sportsbook and a live entertainment venue.
Ameristar Vicksburg, which is the largest dockside casino in central Mississippi, is located along the Mississippi River approximately 45 miles west of Mississippi’s largest city, Jackson. In addition to gaming amenities, the property features a hotel, multiple dining and bar facilities, an 1,800 square feet of meeting and event space, a sports book and an RV park.
Boomtown Biloxi, located in Biloxi Mississippi, offers slot machines and table games, and a sportsbook for live sports betting, as well as a variety of dining options. The property also includes a recreational vehicle park, and a 3,600 square foot event center and board room.
Boomtown Bossier City features a hotel adjoining a dockside riverboat casino located less than one mile from the Louisiana Boardwalk. It also offers several dining options, ranging from a high-end steakhouse to casual dining restaurants, and 1,500 square feet of meeting and conference space.
Boomtown New Orleans is located in the West Bank area across the Mississippi River and approximately 15 minutes from the French Quarter of New Orleans, Louisiana. In addition to gaming amenities, it also features a five-story hotel, a fitness center, several restaurants, a 500-seat entertainment venue, and over 14,000 square feet of meeting and conference space.
Hollywood Casino Gulf Coast is located in Bay St. Louis, Mississippi and features slot machines, table games, and a sportsbook for live sports betting. The property also features a golf course, various dining options, and an RV park amongst other amenities. The waterfront hotel includes a 10,000 square foot ballroom, and nine separate meeting rooms offering more than 14,000 square feet of meeting space.
Hollywood Casino Tunica is a Hollywood-themed casino, located less than 10 miles from Tunica County River Park. In addition to gaming offerings, it features a sportsbook for live sports betting, a hotel, a 123-space recreational vehicle park, various dining and bar options, and banquet and meeting facilities.
L’Auberge Baton Rouge is located approximately ten miles southeast of downtown Baton Rouge, Louisiana. In addition to gaming options, the property features a 12-story hotel, a variety of dining choices, and 13,000 square feet of meeting and event space.
L’Auberge Lake Charles offers one of the closest full-scale casino hotel facilities to Houston, Texas, as well as to the Austin, Texas and San Antonio, Texas metropolitan areas. The location is approximately 140 miles from Houston and approximately 300 miles and 335 miles from Austin and San Antonio, respectively. In addition to gaming amenities, the property features several dining outlets, a golf course, a full-service spa, and more than 26,000 square feet of meeting and event space.
Margaritaville Resort Casino is one of the premier gaming, lodging, dining and entertainment experiences in Northern Louisiana. The property provides an island-style theme and includes a 15,000 square foot 1,000-seat theater, and 9,500 square feet of meeting space.
West Segment
Ameristar Black Hawk is located in the center of the Black Hawk gaming district, approximately 40 miles west of Denver, Colorado. In addition to gaming amenities, the resort features a hotel, a full-service day spa, several dining outlets, a live entertainment bar, and 15,000 square feet of meeting and event space.
Cactus Petes and Horseshu (collectively, “the Jackpot Properties”) are located just south of the Idaho border in Jackpot, Nevada. The Jackpot Properties collectively feature two hotels, several dining options, a 4,000 seat amphitheater, a showroom, a live entertainment lounge, and meeting and event facilities.
M Resort, located approximately ten miles from the Las Vegas strip in Henderson, Nevada, is situated at the southeast corner of Las Vegas Boulevard and St. Rose Parkway. The resort features slot machines, table games and a sportsbook for live sports betting, as well as a hotel and a variety of dining and bar options. The property also features more than 60,000 square feet of meeting and conference space, a spa and fitness center, and a 100,000 square foot event center.
Tropicana Las Vegas,located on the strip in Las Vegas, Nevada, is situated at the corner of Tropicana Boulevard and Las Vegas Boulevard. In addition to gaming, the resort features a hotel, a sportsbook kiosk, full-service restaurants, a food court, and a variety of bar and lounge options. The property also includes entertainment venues, over 100,000 square feet of exhibition and meeting space, and a five-acre tropical beach event area and spa.
Zia Park Casino is located in Hobbs, New Mexico, and features slot machines, a hotel, restaurants, a one-mile quarter/thoroughbred racetrack with live racing from September to December, and a year-round simulcast parlor.
Midwest Segment
Ameristar Council Bluffs is located across the Missouri River from Omaha, Nebraska and includes the largest riverboat in Iowa. In addition to gaming amenities, the property also features a hotel, a fitness center, several dining facilities, a sports bar featuring a sportsbook with live sports betting, and 5,000 square feet of convention and meeting space.
Argosy Casino Alton is located on the Mississippi River in Alton, Illinois, approximately 20 miles northeast of downtown St. Louis, Missouri. Argosy Casino Alton is a three-deck riverboat featuring slot machines, table games and a sportsbook for live betting. Argosy Casino Alton includes an entertainment pavilion and features a deli, a VIP lounge and a 475-seat main showroom.
Argosy Casino Riverside is located on the Missouri River, approximately five miles from downtown Kansas City. In addition to gaming amenities, this Mediterranean-themed property features a nine-story hotel, a spa, an entertainment facility featuring various food and beverage areas, a VIP lounge and a sports/entertainment lounge and 19,000 square feet of banquet/conference facilities.
Hollywood Casino Aurora is located in Aurora, Illinois, the second largest city in Illinois, approximately 35 miles west of Chicago. This single-level dockside casino offers guests gaming amenities, including a poker room and a sportsbook for live sports betting and features multiple dining and bar options.
Hollywood Casino Joliet is located on the Des Plaines River in Joliet, Illinois, approximately 40 miles southwest of Chicago. The complex includes a barge-based casino which provides guests with two levels of gaming experience, as well as a land-based pavilion with several dining and entertainment options. In addition, the property includes a sportsbook for live betting, a hotel, 4,600 square feet of meeting space, and an 80-space RV park.
Hollywood Casino at Kansas Speedway, our 50% joint venture with NASCAR, is located in Kansas City, Kansas. It features slot machines, table games and poker tables and offers a variety of dining and entertainment facilities, and a meeting room.
Hollywood Casino St. Louis is located adjacent to the Missouri River directly off I-70 and approximately 22 miles northwest of downtown St. Louis, Missouri. The facility features slot machines, table games, poker tables, a hotel, and a variety of dining and entertainment venues.
Prairie State Gaming is our licensed VGT route operator in Illinois across a network of over 390 bar and/or retail gaming establishments in seven distinct geographic areas throughout Illinois.
River City Casino is located in the St. Louis, Missouri metropolitan area, just south of the confluence of the Mississippi River and the River des Peres in the south St. Louis community of Lemay, Missouri. River City Casino features a hotel, multiple dining outlets, an entertainment lounge, and over 10,000 square feet of conference space.
Other
Freehold Raceway.Through our joint venture in Pennwood Racing, Inc. (“Pennwood”), we own 50% of Freehold Raceway. The property features a half-mile standardbred race track and a 118,000 square foot grandstand. In addition, through our Pennwood joint venture, we own 50% of a leased OTW in Toms River, New Jersey, and operate another OTW, which we constructed, in Gloucester Township, New Jersey.
Retama Park Racetrack.We have a management contract with Retama Development Corporation (“RDC”), a local government corporation of the City of Selma, Texas, to manage the day-to-day operations of Retama Park Racetrack. In addition, we own 1.0% of the equity of Retama Nominal Holder, LLC, which holds a nominal interest in the racing license used to operate Retama Park Racetrack. Additionally, we own a 75.5% interest in Pinnacle Retama Partners, LLC (“PRP”), which owns the contingent gaming rights that may arise if gaming under the existing racing license becomes legal in Texas in the future.
Sam Houston Race Park and Valley Race Park.Our joint venture with MAXXAM owns and operates Sam Houston Race Park and Valley Race Park, and holds a license for a racetrack in Manor, Texas, just outside of Austin. Sam Houston Race Park, which is located 15 miles northwest from downtown Houston along Beltway 8, hosts thoroughbred and quarter horse racing and offers daily simulcast operations, as well as hosts various special events, private parties and meetings, concerts and national touring festivals throughout the year. Valley Race Park features 91,000 of property square footage as a dog racing and simulcasting facility.
Sanford-Orlando Kennel Club. The greyhound racetrack and related facility was sold to a land developer during the fourth quarter of 2020. The remaining facility owned by the Company is used to operate a restaurant and to offer year-round simulcast racing operations.
Penn Interactive
Penn Interactive is our interactive gaming division that operates our online sports betting app called Barstool Sportsbook as well as our iGaming platforms, which are currently live in Pennsylvania and Michigan. Penn Interactive includes the operations of Absolute Games, LLC, a developer and operator of online social bingo and other casino games. In addition, Penn Interactive has entered into multi-year agreements with leading sports betting operators for online sports betting and iGaming market access across our portfolio of properties. Pursuant to these agreements, such sports betting operators have commenced operations in Indiana, Pennsylvania and West Virginia. Penn Interactive also operates 16 internally-branded or Barstool-branded retail sportsbooks located at the Company's properties in Colorado, Illinois, Indiana, Iowa, Michigan, Mississippi, Pennsylvania and West Virginia.
Trademarks
We own a number of trademarks and service marks registered with the U.S. SecuritiesPatent and Exchange Commission.Trademark Office (“USPTO”), including but not limited to, “Ameristar®,” “Argosy®,” “Boomtown®,” “Greektown®,” “Hollywood Casino®,” “Hollywood Gaming®,” “L’Auberge®,” “M Resort®,” and “MYCHOICE®,” among other trademarks. We believe that our rights to our trademarks are well-established and have competitive value to our properties. We also have a number of trademark applications pending with the USPTO.
All subsequent writtenAmong others, we have a licensing agreement with a third party to use the “Margaritaville®” trademark in connection with the operations of Margaritaville in Bossier City, Louisiana. Upon closing of the transaction with Barstool Sports in February 2020, we have the sole right to utilize the Barstool Sports® brand for all of our online and oral forward-looking statements attributableretail sports betting and iGaming products. In addition, subject to us or persons acting oncertain terms, conditions, and limitations, we have the exclusive right to use the “Tropicana Las Vegas®” and certain other trademarks within 50 miles of our behalf are expressly qualified in their entirety by the cautionary statements included in this document. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this document may not occur.Tropicana Las Vegas property.
Risks Related to Our BusinessCompetition
We face significant competition from other gaming and entertainment operations.
The gaming industry is characterized by an increasingly high degree of competition among a large number of participants operating from physical locations and/or through online or mobile platforms, including destination casinos, riverboat casinos; dockside casinos; land-based casinos; video lottery; iGaming; sports betting; gaming at taverns in certain states, such as Illinois; gaming at truck stop establishments in certain states, such as Louisiana and Pennsylvania; historical horse racing in certain states, such as Arkansas, Kentucky and Virginia; sweepstakes and poker machines not located in casinos; fantasy sports; Native American gaming; and other forms of gaming in the U.S. Furthermore, competition from internet lotteries, sweepstakes, illegal slot machines and skill games, fantasy sports and internet or mobile-based gaming platforms, which allow their customers to wager on a wide variety of sporting events and/or play Las Vegas-style casino games from home or in non-casino settings could divert customers from our properties and thus adversely affect our financial condition, results of operations and cash flows. Currently, there are proposals that would legalize internet poker, sports betting and other varieties of iGaming in a number of states. Several states, such as Delaware, Mississippi, New Jersey, Nevada and Pennsylvania, have enacted legislation authorizing intrastate iGaming and iGaming operations have begun in these states. Further, there has been recent expansion of sports betting in various states, such as Indiana, Iowa, Mississippi, New Jersey, Pennsylvania and West Virginia, as states have passed legislation legalizing sports betting in casinos. Expansion of land-based and iGaming in other jurisdictions (both regulated and unregulated) could further compete with our traditional and iGaming operations, which could have an adverse impact on our financial condition, results of operations and cash flows.
In a broader sense, our gaming operations face competition from all manner of leisure and entertainment activities, including shopping, athletic events, television and movies, concerts and travel. Legalized gaming is currently permitted in various forms throughout the U.S. and on various lands taken into trust for the benefit of certain Native Americans inand as well as various land taken into trust for the U.S. andbenefit of certain First Nations people in Canada. Other jurisdictions, including states adjacent to states in which we currently have properties, have recently legalized, implemented and expanded gaming. In addition, established gaming jurisdictions could award additional gaming
licenses or permit the expansion or relocation of existing gaming operations (including VGTs, skill games, sports betting and iGaming).
VotersCompetition is discussed in further detail within “Item 1A. Risk
Factors,” of this Annual Report on Form 10-K and state legislatures may seek to supplement traditional tax revenue sources of state governments by authorizing or expanding gaming in the states that we operate in or the states that are adjacent to or near our existing properties. New, relocated or expanded operations by other persons could increase competition for our gaming operations and could have a material adverse impact on us. We face intense competition in the markets in which we operate.
Gaming competition is intense in mostdiscussion of the markets where we operate. Recently, there has been additional significantimpact of competition in our markets as a result of the upgrading or expansion of properties by existing market participants, the entrance of new gaming participants into a market or legislative changes permitting additional forms of gaming. As competing properties and new markets open, our results of operations may be negatively impacted. For example, the recent openings of MGM Springfield in Western Massachusetts in August 2018; Tiverton Casino Hotel in Tiverton, Rhode Island, in September 2018; Encore Boston Harbor in Eastern Massachusetts in June 2019; and the new hotel tower at Twin River Casino Hotel in Lincoln, Rhode Island, which opened in October 2018; have negatively impacted our Plainridge Park Casino. In addition, a new tribal casino in Nebraska opened in November 2018, which competes with Ameristar Council Bluffs, and the launch of historical racing machines in Virginia in May 2019 has impacted our Hollywood Casino at Charles Town Races property. There is also the potential for another new tribal casino in Taunton, Massachusetts (the construction is currently on hold following a judicial ruling in favor of the Taunton property owners who contended that the federal government erred in placing reservation land in trust for the Mashpee Wampanoag tribe).
Hollywood Casino Aurora, Hollywood Casino Joliet, and Ameristar East Chicago have also been negatively impacted by the proliferation of VGTs at numerous locations throughout the state of Illinois, which are in the vicinity of our operations, as well as expanded land-based casinos within the state of Illinois. In addition, some of our direct competitors in certain markets may have superior facilities and/or operating conditions. Pennsylvania also enacted legislation in October 2017 to significantly expand gaming in the state that causes additional competition for Hollywood Casino at Penn National Race Course, Hollywood Gaming at Mahoning Valley Race Course, and Meadows Racetrack and Casino. In addition, Indiana legislators approved a bill that allows new casinos in Gary, Indiana, which will provide more proximate competition to Ameristar East Chicago. We expect each existing or future market in which we participate to be highly competitive.
We may face disruption and other difficulties in integrating and managing properties or other initiatives we have recently acquired, may develop or acquire in the future.
We expect to continue pursuing expansion opportunities, and we regularly evaluate opportunities for acquisition and development of new properties. Such evaluations may include discussions and the review of confidential information after the execution of nondisclosure agreements with potential acquisition candidates, some of which may be potentially significant in relation to our size.
We could face significant challenges in managing and integrating our expanded or combined operations and any other properties we may develop or acquire, particularly in new competitive markets, such as the entry into the Michigan market with the acquisition of Greektown in May 2019. The integration of more significant properties that we may develop or acquire (such as Margaritaville and Greektown) will require the dedication of management resources that may temporarily divert attention from our day-to-day business. In addition, development and integration of new information technology systems that may be required is costly and time-consuming. The process of integrating properties that we may acquire also could interrupt the activities of those businesses, which could have a material adverse effect on our financial condition, results of operations and cash flows. In addition, the development of new properties may involve construction, local opposition, regulatory, legal and competitive risks as well as the risks attendant to partnership deals on these development opportunities. In particular, in projects where we team up with a joint venture partner, if we cannot reach agreement with such partners, or if our relationships otherwise deteriorate, we could face significant increased costs and delays. Local opposition can delay or increase the anticipated cost of a project. Many of these same risks apply to our iGaming initiatives. Finally, given the competitive nature of these types of limited license opportunities, litigation is possible.
Management of new properties, especially in new geographic areas and business lines may require that we increase our management resources or divert the attention of our current management. We cannot assure you that we will be able to manage the combined operations effectively or realize any of the anticipated benefits of our acquisitions or development projects. We also cannot assure you that if acquisitions are completed, that the acquired businesses will generate returns consistent with our expectations.
Our ability to achieve our objectives in connection with any acquisition we may consummate may be highly dependent on, among other things, our ability to retain the senior level property management teams of such acquisition candidates. If, for any
reason, we are unable to retain these management teams following such acquisitions or if we fail to attract new capable executives, our operations after consummation of such acquisitions could be materially adversely affected.
The occurrence of some or all of the above described events could have a material adverse effect on our financial condition, results of operations and cash flows.
In the event we make another acquisition, we may face risks related to our ability to receive regulatory approvals required to complete, or other delays or impediments to completing, such acquisition.
Our growth is fueled, in part, by the acquisition of existing gaming, racing, and development properties, as well as our iGaming initiatives. In addition to standard closing conditions, our acquisitions are often conditioned on the receipt of regulatory approvals and other hurdles that create uncertainty and could increase costs. Such delays could significantly reduce the benefits to us of such acquisitions and could have a material adverse effect on our financial condition, results of operations and cash flows.
We face a number of challenges prior to opening new or upgraded gaming properties.
No assurance can be given that, when we endeavor to open new or upgraded gaming properties or launch new iGaming channels, the expected timetables for opening such properties will be met in light of the uncertainties inherent in the development of the regulatory framework, construction, the licensing process, legislative action and litigation. Delays in opening new or upgraded properties could lead to increased costs and delays in receiving anticipated revenues with respect to such properties and could have a material adverse effect on our financial condition, results of operations and cash flows.
We are required to utilize a significant portion of our cash flow from operations to make our rent payments under our Triple Net Leases, which could adversely affect our ability to fund our operations and growth and limit our ability to react to competitive and economic changes.
We are required to utilize a significant portion of our cash flow from operations to make our rent payments pursuant to and subject to the terms and conditions of our Master Leases with GLPI, our Meadows Lease with GLPI, and our Margaritaville Lease and Greektown Lease with VICI (as defined previously as our “Triple Net Leases”). As a result of these commitments, our ability to fund our own operations or development projects, raise capital, make acquisitions and otherwise respond to competitive and economic changes may be adversely affected. For example, our obligations under the Triple Net Leases may:
make it more difficult for us to satisfy our obligations with respect to our indebtedness and to obtain additional indebtedness;
increase our vulnerability to general or regional adverse economic and industry conditions or a downturn in our business;
require us to dedicate a substantial portion of our cash flow from operations to making lease payments, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes;
limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; and
restrict our ability to raise capital, make acquisitions, divestitures and engage in other significant transactions.
Any of the above listed factors could have a material adverse effect on our financial condition, results of operations and cash flows.
Most of our facilities are leased and could experience risks associated with leased property, including risks relating to lease termination, lease extensions, charges and our relationship with our REIT Landlords, which could have a material adverse effect on our financial position, results of operations and cash flows.
We lease 34 of the facilities we operate pursuant to the Triple Net Leases. The Triple Net Leases provide that our REIT Landlords may terminate each such Lease for a number of reasons, including, subject to applicable cure periods, the default in any payment of rent, taxes or other payment obligations or the breach of any other covenant or agreement in the lease. Termination of any of our Triple Net Leases could result in a default under our debt agreements and could have a material adverse effect on our financial condition, results of operations and cash flows. Moreover, as a lessee, we do not completely control the land and improvements underlying our operations, and our landlords under the Triple Net Leases could take certain actions to disrupt our rights in the facilities leased under the Triple Net Leases that are beyond our control. If one of our landlords chose to disrupt our use either permanently or for a significant period of time, then the value of our assets could be impaired and our business would be adversely affected. There can also be no assurance that we will be able to comply with our obligations under the Triple Net Leases in the future. In addition, if one of our landlords has financial, operational, regulatory
or other challenges, there can be no assurance that the landlord will be able to comply with its obligations under its agreements with us.
Under triple net leases, in addition to rent, we are required to pay, among other things, the following: (1) all facility maintenance, (2) all insurance required in connection with the leased properties and the business conducted on the leased properties, (3) taxes levied on or with respect to the leased properties (other than taxes on the income of the lessor) and (4) all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties. We are responsible for incurring the costs described in the preceding sentence notwithstanding the fact that many of the benefits received in exchange for such costs shall in part accrue to the landlords as owners of the associated facilities. In addition, if some of our leased facilities should prove to be unprofitable, we could remain obligated for lease payments and other obligations under the Triple Net Leases even if we decided to withdraw from those locations. We could incur special charges relating to the closing of such facilities, including lease termination costs, impairment charges and other special charges that would reduce our net income and could have a material adverse effect on our financial condition, results of operations and cash flows.
We may face reductions in discretionary consumer spending as a result of an economic downturn.
Our net revenues are highly dependent upon the volume and spending levels of customers at properties we manage, and as such, our business has been adversely impacted by economic downturns in the past. Decreases in discretionary consumer spending brought about by weakened general economic conditions such as, but not limited to, lackluster recoveries from recessions, high unemployment levels, higher income taxes, low levels of consumer confidence, weakness in the housing market, cultural and demographic changes, high fuel or other transportation costs and increased stock market volatility may negatively impact our revenues and operating cash flow.
We face extensive regulation from gaming authorities, which could have a material adverse effect on us.
As owners and managers of casino gaming, online gaming, sports betting, video lottery, VGTs, and pari-mutuel wagering operations, we are subject to extensive state and local regulation. These regulatory authorities have broad discretion, and may, for any reason set forth in the applicable legislation, rules and regulations, limit, condition, suspend, fail to renew or revoke a license or registration to conduct gaming operations or prevent us from owning the securities of any of our gaming subsidiaries or prevent another person from owning an equity interest in us. Like all gaming operators in the jurisdictions in which we operate, we must periodically apply to renew our gaming licenses or registrations and have the suitability of certain of our directors, officers and employees approved. We cannot assure you that we will be able to obtain such renewals or approvals. Regulatory authorities have input into our operations, for instance, hours of operation, location or relocation of a facility, and numbers and types of machines. Regulators may also levy substantial fines against or seize our assets, the assets of our subsidiaries or the people involved in violating gaming laws or regulations. Any of these events could have a material adverse effect on our financial condition, results of operations and cash flows.
We have demonstrated suitability to obtain and have obtained all governmental licenses, registrations, permits and approvals necessary for us to operate our existing gaming and pari-mutuel properties. There can be no assurance that we will be able to retain those existing licenses or demonstrate suitability to obtain any new licenses, registrations, permits or approvals. In addition, the loss of a license in one jurisdiction could trigger the loss of a license or affect our eligibility for a license in another jurisdiction. As we expand our gaming operations in our existing jurisdictions or to new areas, we may have to meet additional suitability requirements and obtain additional licenses, registrations, permits and approvals from gaming authorities in these jurisdictions. The approval process can be time-consuming and costly, and we cannot be sure that we will be successful. Furthermore, this risk is particularly pertinent to our iGaming initiatives because regulations in this area are not as fully developed or established.
Gaming authorities in the U.S. generally can require that any beneficial owner of our securities file an application for a finding of suitability. If a gaming authority requires a record or beneficial owner of our securities to file a suitability application, the owner must generally apply for a finding of suitability within 30 days or at an earlier time prescribed by the gaming authority. The gaming authority has the power to investigate such an owner’s suitability and the owner must pay all costs of the investigation. If the owner is found unsuitable, then the owner may be required by law to dispose of our securities.
Our directors, officers, key employees, and joint venture partners must also meet approval standards of certain state regulatory authorities. If state gaming regulatory authorities were to find a person occupying any such position or a joint venture partner unsuitable, we would be required to sever our relationship with that person or the joint venture partner. State regulatory agencies may conduct investigations into the conduct or associations of our directors, officers, key employees or joint venture partners to ensure compliance with applicable standards.
Certain public and private issuances of securities and other transactions that we are party to also require the approval of some state regulatory authorities.
Changes in legislation and regulation of our business could have an adverse effect on our financial condition, results of operations and cash flows.
Regulations governing the conduct of gaming activities and the obligations of gaming companies in any jurisdiction in which we have or in the future may have gaming operations are subject to change and could impose additional operating, financial, competitive or other burdens on the way we conduct our business.
In particular, certain areas of law governing new gaming activities, such as the federal and state law applicable to iGaming and sports betting, are new or developing in light of emerging technologies. New and developing areas of law may be subject to the interpretation of the government agencies tasked with enforcing them. In some circumstances, a government agency may interpret a statute or regulation in one manner and then reconsider its interpretation at a later date. No assurance can be provided that government agencies will interpret or enforce new or developing areas of law consistently, predictably, or favorably. Moreover, legislation to prohibit, limit or add burdens to our business may be introduced in the future in states where gaming has been legalized. In addition, from time to time, legislators and special interest groups have proposed legislation that would expand, restrict or prevent gaming operations or which may otherwise adversely impact our operations in the jurisdictions in which we operate. Any expansion of gaming or restriction on or prohibition of our gaming operations or enactment of other adverse regulatory changes could have a material adverse effect on our operating results. For example, in January 2019, legal counsel for the U.S. Department of Justice (“DOJ”) issued a legal opinion on the Interstate Wire Act of 1961 (“Wire Act”), which stated that the Wire Act bans any form of online gambling if it crosses state lines and reversed a 2011 DOJ legal opinion that stated that the Wire Act only applied to interstate sports betting. The validity of the 2019 DOJ legal opinion and the conflicting interpretations of the Wire Act by DOJ is presently the subject of ongoing litigation.
State and local smoking restrictions have and may continue to negatively affect our business.
Legislation in various forms to ban indoor tobacco smoking in public places has been enacted or introduced in many states and local jurisdictions, including several of the jurisdictions in which we operate. We believe the smoking restrictions have significantly impacted business volumes.
Government Regulation and Gaming Issues
The gaming and racing industries are highly regulated, and we must maintain our casinos in St. Louis County. Additionally, in August 2017, the East Baton Rouge Metropolitan Council approved a smoking ban in casinoslicenses and bars that took effect in June 2018. This smoking ban has had and is expected to continue to have an adverse effect on our business at L’Auberge Baton Rouge.
In Pennsylvania, we are currently only permitted to have smoking on up to 50% of the gaming floors of our Meadows Racetrack and Casino and Hollywood Casino at Penn National Race Course properties; and smoking is banned in all other indoor areas. Additionally, in July 2012, a state statute in Indiana became effective that imposes a statewide smoking ban in specified businesses, buildings, public places and other specified locations. The statute specifically exempts riverboat casinos and all other gaming properties in Indiana from the smoking ban. However, the statute allows local government to enact a more restrictive smoking ban than the state statute and also leaves in place any more restrictive local legislation that exists as of the effective date of the statute. To date, our properties in East Chicago and Lawrenceburg, Indiana, are not subject to any such local legislation.
If additional smoking restrictions are enacted within jurisdictions where we operate or seek to do business, our financial condition, results of operations and cash flows could be adversely affected.
Material increases to our taxes or the adoption of new taxes could have a material adverse effect on our future financial results.
We believe that the prospect of significant revenue is one of the primary reasons that jurisdictions permit legalized gaming. As a result, gaming companies are typically subject to significant revenue-based taxes and fees in addition to normal federal, state and local income taxes, and such taxes and fees are subject to increase at any time. We pay substantial taxes and fees with respect to our operations. From time-to-time, federal, state, local and provincial legislators and officials have proposed changes in tax laws, or in the administration of such laws, affecting the gaming industry. In addition, worsening economic conditions could intensify the efforts of state and local governments to raise revenues through increases in gaming taxes, property taxes and/or by authorizing additional gaming properties each subject to payment of a new license fee. It is not possible to determine
with certainty the likelihood of changes in such laws or in the administration of such laws. Such changes, if adopted, could have a material adverse effect on our financial condition, results of operations and cash flows. The large number of state and local governments with significant current or projected budget deficits makes it more likely that those governments that currently permit gaming will seek to fund such deficits with new or increased gaming taxes and/or property taxes, and worsening economic conditions could intensify those efforts. Any material increase, or the adoption of additional taxes or fees, could have a material adverse effect on our future financial results, especially in light of our significant fixed rent payments.
In gaming jurisdictions in which we operate, state and local governments raise considerable revenues from taxes based on casino revenues and operations. We also pay property taxes, admission taxes, occupancy taxes, sales and use taxes, payroll taxes, franchise taxes and income taxes. Our profitability depends on generating enough revenues to pay gaming taxes and other largely variable expenses, such as payroll and marketing, as well as largely fixed expenses, such as rental payments to continue our landlords, property taxes and interest expense. From time-to-time, state and local governments have increased gaming taxes and such increases can significantly impact the profitability of gaming operations. For example, in October 2017, Pennsylvania increased gaming taxes, which adversely impacted our properties in Pennsylvania.
We cannot assure you that governments in jurisdictions in which we operate, or the federal government, will not enact legislation that increases gaming tax rates. Global economic pressures have reduced the revenues of state governments from traditional tax sources, which may cause state legislatures or the federal government to be more inclined to increase gaming tax rates.
We are required to comply with extensive non-gaming laws and regulations.
We are also subject to a variety of other rules and regulations, including zoning, environmental, construction and land-use laws and regulations governing the serving of alcoholic beverages. If we are not in compliance with these laws, it could have a material adverse effect on our financial condition, results of operations and cash flows. We also deal with significant amounts of cash in our operations and are subject to various reporting and anti-money laundering regulations. Any violation of anti-money laundering laws or regulations, or any accusations of money laundering or regulatory investigations into possible money laundering activities, by anyEach of our properties employees or customers could have a material adverse effect on our financial condition, results of operations and cash flows.
We have certain properties that generate a significant percentage of our revenues.
For the year ended December 31, 2019, we generated 14.8%, 11.3%, and 13.6% of our revenues from our properties within the states of Louisiana, Missouri, and Ohio, respectively. Additionally, we generated 6.8% of our revenues from our property in Charles Town, West Virginia. Our ability to meet our operating and debt service requirements is dependent, in part, upon the continued success of our properties in Louisiana, Missouri, Ohio, and West Virginia. Our properties could be adversely affected by numerous factors, including those described in these “Risk Factors” as well as more specifically those described below:
risks related to local and regional economic and competitive conditions, such as a decline in the number of visitors to a facility, a downturn in the overall economy in the market, a decrease in consumer spending on gaming activities in the market or an increase in competition within and outside the state in which each property is located;
changes in local and state governmental laws and regulations (including smoking restrictions and changes in laws and regulations affecting gaming operations and taxes) applicable to a facility;
impeded access to a facility due to weather, road construction or closures of primary access routes;
work stoppages, organizing drives and other labor problems as well as issues arising in connection with agreements with horsemen and pari-mutuel clerks; and
the occurrence of natural disasters or other adverse regional weather trends.
In addition, although to a lesser extent than our properties in Louisiana, Missouri, Ohio, and West Virginia, we anticipate meaningful contributions from Ameristar Black Hawk, Greektown, and our properties in Pennsylvania. Therefore, our results will be dependent on the regional economies and competitive landscapes at these locations as well.
We may continue to experience impairments of our goodwill and other intangible assets and could potentially experience impairment of our long-lived assets, which could adversely affect our financial condition and results of operations.
In recent years, we have recognized a substantial amount of goodwill, gaming licenses and trademarks, in connection with the Pinnacle Acquisition and the acquisitions of Margaritaville and Greektown. We test goodwill and other indefinite-lived intangible assets for impairment annually during the fourth quarter, or more frequently if events or circumstances indicate that the carrying amount may not be recoverable. A significant amount of judgment is involved in performing fair value estimates
for goodwill and other intangible assets since the results are based on estimated future cash flows and assumptions, such as discount rates, expected competition and capital expenditures, among other factors. We base our fair value estimates on projected financial information, which we believe to be reasonable. However, actual results may differ from those projections. As a result of our 2019 annual impairment test, we recognized impairments on our goodwill, gaming licenses and trademarks, of $88.0 million, $62.6 million and $20.0 million, respectively. In the future, we may need to recognize additional amounts of impairment on our goodwill, gaming licenses and trademarks, particularly with regards to the Pinnacle Acquisition and the acquisitions of Margaritaville and Greektown, which could adversely affect our financial condition and results of operations.
We are or may become involved in legal proceedings that, if adversely adjudicated or settled, could impact our financial condition and results of operations.
From time to time, we are defendants in various lawsuits relating to matters incidental to our business. The nature of our business subjects us to the risk of lawsuits filed by customers, past and present employees, competitors, business partners and others in the ordinary course of business (particularly in the case of class actions). As with all litigation, no assurance can be provided as to the outcome of these matters and, in general, litigation can be expensive and time consuming. We may not be successful in these lawsuits, and, especially with increasing class action claims in our industry, could result in costs, settlements or damages that could significantly impact our financial condition, results of operations and cash flows.
Our operations are largely dependent on the skill and experience of our management and key personnel. The loss of management and other key personnel could significantly harm our business, and we may not be able to effectively replace members of management who have left our company, particularly as we enter new channels of iGaming.
Our success and our competitive position are largely dependent upon, among other things, the efforts and skills of our senior executives and management team. Although we enter into employment agreements with certain of our senior executives and key personnel, we cannot guarantee that these individuals will remain employed by us. If we lose the services of any members of our management team or other key personnel, our business may be significantly impaired. We cannot assure you that we will be able to retain our existing senior executive and management personnel or attract additional qualified senior executive and management personnel.
We expect to experience strong competition in hiring and retaining qualified property and corporate management personnel, including competition from numerous Native American gaming casinos that are not subject to the same taxation regimes as we are and therefore may be willing and able to pay higher rates of compensation. From time-to-time, we expect to have a number of vacancies in key corporate and property management positions. If we are unable to successfully recruit and retain qualified management personnel at our properties, iGaming division, or at our corporate level, our financial condition, results of operations and cash flows could be adversely affected.
Inclement weather, acts or threats of terrorism, and other casualty events could seriously disrupt our business and have a material adverse effect on our financial condition, results of operations and cash flows.
The operations of our properties are subject to disruptions or reduced patronage as a result of severe weather conditions, natural disasters, acts or threats of terrorism, concerns about contagious diseases, and other casualty events. Because many of our gaming operations are located on or adjacent to bodies of water, these properties are subject to risks in addition to those associated with land-based casinos, including loss of service due to casualty, forces of nature, mechanical failure, extended or extraordinary maintenance, flood, hurricane or other severe weather conditions. Many of our casinos operate in areas which are subject to periodic flooding that has caused us to experience decreased attendance and increased operating expenses. Any flood or other severe weather condition could lead to the loss of use of a casino facility for an extended period. For instance, Hollywood Casino Toledo was closed for brief periods in 2014, 2015 and 2016 due to harsh winter conditions and Argosy Casino Alton was closed for several days in December 2015, January 2016, May 2017 and May 2019, due to flooding. In 2016, L’Auberge Lake Charles and L’Auberge Baton Rouge were both negatively impacted by lost business volume due to severe rain and flooding. In 2017, visitation to Boomtown New Orleans, L’Auberge Lake Charles and L’Auberge Baton Rouge was negatively impacted by Hurricanes Harvey and Nate. Most recently, adverse winter weather and severe flooding in the first half of 2019 negatively impacted visitation at several of our properties in the Midwest.
Even if adverse weather conditions do not require the closure of our properties, those conditions make it more difficult for our customers to reach our properties for an extended period of time, which can have an adverse impact on our financial condition and results of operations. Casualty events such as, the tragic shootings that occurred on the Las Vegas Strip on October 1, 2017 that affect tourism also impact our business. Following this tragedy, operations at Tropicana Las Vegas were adversely affected.
The extent to which we can recover under our insurance policies for damages sustained at our properties in the event of future inclement weather and other casualty events could adversely affect our business.
We maintain significant property insurance, including business interruption coverage, for these and other properties. However, there can be no assurances that we will be fully or promptly compensated for losses at any of our properties in the event of future inclement weather or casualty events. In addition, our property insurance coverage is in an amount that may be significantly less than the expected and actual replacement cost of rebuilding certain properties “as was” if there was a total loss. The Triple Net Leases require us, in the event of a casualty event, to rebuild a leased property to substantially the same condition as existed immediately before such casualty event. We renew our insurance policies (other than our builder’s risk insurance) on an annual basis. The cost of coverage may become so material that we may need to further reduce our policy limits, further increase our deductibles, or agree to certain exclusions from our coverage.
Our gaming operations rely heavily on technology services and an uninterrupted supply of electrical power. Our security systems and all of our slot machines are controlled by computers and reliant on electrical power to operate.
Any unscheduled disruption in our technology services or interruption in the supply of electrical power could result in an immediate, and possibly substantial, loss of revenues due to a shutdown of our gaming operations. Such interruptions may occur as a result of, for example, a failure of our information technology or related systems, catastrophic events or rolling blackouts. Our systems are also vulnerable to damage or interruption from earthquakes, floods, fires, telecommunication failures, terrorist attacks, computer viruses, computer denial-of-service attacks and similar events. In the event that any of the third-parties we rely on for power experiences a disruption in its ability to provide such services to us (whether due to technological difficulties or power problems), this may result in a material disruption at the casinos that we operate and have a material effect on our financial condition, results of operations and cash flows.
Our information technology and other systems are subject to cyber security risk, including misappropriation of employee information, customer information or other breaches of information security.
We increasingly rely on information technology and other systems, including our own systems and those of service providers and third parties, to manage our business and employee data and maintain and transmit customers’ personal and financial information, credit card settlements, credit card funds transmissions, mailing lists and reservations information. Our collection of such data is subject to extensive regulation by private groups, such asunder the payment card industry, as well as governmental authorities, including gaming authorities. Privacylaws, rules and regulations continue to evolveof the jurisdiction where it is located. These laws, rules and we have taken,regulations generally concern the responsibility, financial stability and will continue to take, steps to comply by implementing processes designed to safeguard our business, employeecharacter of the owners, managers, and customers’ confidential and personal information. In addition, our security measures are reviewed and evaluated regularly. However, our information and processes and those of our service providers and other third parties, are subject to the ever-changing threat of compromised security,persons with financial interests in the formgaming operations. Violations of a risk of potential breach, system failure, computer virus,laws or unauthorized or fraudulent use by customers, company employees, or employees of third party vendors. The steps we take to deter and mitigate the risks of breaches may not be successful, and any resulting compromise or loss of data or systems could adversely impact operations or regulatory compliance andregulations in one jurisdiction could result in remedial expenses, fines, litigation, disclosures,disciplinary action in other jurisdictions. For a more detailed description of the statutes and loss of reputation, potentially impacting our financial results.
Further, as cyber-attacks continue to evolve, we may incur significant costs in our attempts to modify or enhance our protective measures or investigate or remediate any vulnerability. Increased instances of cyber-attacks may also have a negative reputational impact on us and our properties that may result in a loss of customer confidence and, as a result, may have a material adverse effect on our financial condition, results of operations and cash flows.
Our operations in certain jurisdictions depend on management agreements and/or leases with third parties and local governments.
Our operations in several jurisdictions depend on land leases and/or management and development agreements with third parties and local governments. If we, or if GLPI or VICI in the case of leases pursuantregulations to which we are
the sub-lessee,subject, see Exhibit 99.1, “Description of Government Regulations,” to this Annual Report on Form 10-K, which is incorporated herein by reference.Our businesses are unablesubject to renew these leasesvarious federal, state and agreements on satisfactory terms as they expirelocal laws and regulations in addition to gaming regulations. These laws and regulations include, but are not limited to, restrictions and conditions concerning alcoholic beverages, environmental matters, employees, health care, currency transactions, taxation, zoning and building codes, and marketing and advertising. Such laws and regulations could change or if disputes arise regarding the terms of these agreements, our business maycould be disrupted and,interpreted differently in the event of disruptions in multiple jurisdictions, could have a material adverse effect on our financial condition, results of operations and cash flows.
Our planned capital expenditures may not result in our expected improvements in our business.
We regularly expend capital to construct, maintain and renovate our properties to remain competitive, maintain the value and brand standards of our properties and comply with applicablefuture, or new laws and regulations. Our ability to realize the expected returns on our capital investments is dependent on a number of factors, including, general economic conditions;regulations could be enacted. Material changes, to
construction plans and specifications; delaysnew laws or regulations, or material differences in obtaininginterpretations by courts or inability to obtain necessary permits, licenses and approvals; disputes with contractors; disruptions to our business caused by construction; and other unanticipated circumstances or cost increases.
While we believe that the overall budgets for our planned capital expenditures are reasonable, these costs are estimates and the actual costs may be higher than expected. In addition, we can provide no assurance that these investments will be sufficient or that we will realize our expected returns on our capital investments, or any returns at all. A failure to realize our expected returns on capital investmentsgovernmental authorities could materially adversely affect our financial condition, results of operations and cash flows.
Information about our Executive Officers
As of February 26, 2021, the persons serving as our executive officers and their positions with us are as follows:
| | | | | | | | | | | | | | |
NAME | | AGE | | POSITION WITH THE COMPANY |
Jay Snowden | | 44 | | President, Chief Executive Officer and Director |
Todd George | | 51 | | Executive Vice President, Operations |
Harper Ko | | 47 | | Executive Vice President, Chief Legal Officer and Secretary |
Jay Snowden. In August 2019, the Company’s Board of Directors elected Mr. Snowden as a Board member. Effective January 1, 2020, Mr. Snowden became the Company’s Chief Executive Officer. Mr. Snowden joined the Company in October 2011 as Senior Vice President-Regional Operations and was promoted to Chief Operating Officer in January 2014. In March 2017, Mr. Snowden was named President and Chief Operating Officer and was responsible for overseeing all of our operating businesses, as well as human resources, marketing, and information technology. Prior to joining the Company, Mr. Snowden was the Senior Vice President and General Manager of Caesars and Harrah’s in Atlantic City, New Jersey, and prior to that, held various leadership positions with them in St. Louis, Missouri, San Diego, California and Las Vegas, Nevada.
Todd George. Mr. George has served as our Executive Vice President, Operations since January 2020. Mr. George joined us in October 2012 as Vice President and General Manager of Hollywood Casino in Lawrenceburg, Indiana, transitioning to the role of Vice President and General Manager of Hollywood Casino St. Louis in 2014. In 2017, he was promoted to his previous role as Senior Vice President, Regional Operations, overseeing nine properties in the Company’s Midwest Region. Prior to joining Penn National, Mr. George spent 12 years in various management positions at Pinnacle Entertainment Inc., including leading the development and launch of Pinnacle’s two St. Louis, Missouri properties.
Harper Ko. Ms. Ko was appointed as the Company’s Executive Vice President, Chief Legal Officer and Secretary on January 1, 2021. Prior to joining Penn, Ms. Ko was the Executive Vice President, Chief Legal Officer – General Counsel and Secretary of Everi Holdings, Inc., a full-service casino gaming equipment and payment solutions provider from 2017 until December 2020. Prior to joining Everi, Ms. Ko served as Deputy General Counsel, Gaming for Scientific Games Corporation. During her time there from November 2014 to December 2017, Ms. Ko led the legal integration of Bally Gaming, Inc., SHFL entertainment Inc., and WMS Gaming Inc. into the Scientific Games Gaming division and served as a strategic advisor to their Gaming unit executive management team on all material commercial transactions, customer and third-party issues, and regulatory compliance and litigation matters.
Employees and Human Capital Resources
The concentrationCompany’s key human capital management objectives are to attract, retain and evolutiondevelop diverse and high quality talent. Our commitment to an equal-opportunity and respectful workplace characterized by both diversity and inclusion, in which everyone feels valued, respected and supported, is a factor driving our success. Our talent and development programs are designed to develop, support and maintain talent succession pipelines in preparation for key roles and leadership positions;
recognize, reward and support our team members through competitive pay and wellness programs; enhance the Company’s philanthropic culture by encouraging participation and championing programs in the communities in which we work and live; and invest in technology and resources to provide our team members with the most efficient tools to perform their jobs.
Some of the slot machine manufacturing industry could impose additional costs on us.key programs and initiatives developed to attract and retain high quality talent include:
A majority•Executive and High Potential Talent Review Process
•Diversity and Veteran Recruitment Initiatives
•AwardCo Recognition Program and Property Engagement Committees
As of our revenuesDecember 31, 2020, we had approximately 18,321 full-time and part-time employees. As of December 31, 2020, we had 38 collective bargaining agreements covering approximately 2,779 active employees. Nine collective bargaining agreements are attributablescheduled to slot machinesexpire in 2021, and related systems operated by us at our gaming properties. It is important, for competitive reasons,we are currently renegotiating three collective bargaining agreements that expired in 2020. Although we believe that we offer the most popular and up to date slot machine games with the latest technology to our customers.
A substantial majority of the slot machines sold in the U.S. in recent years were manufactured by a few select companies, andhave good employee relations, there has been extensive consolidation activity within the gaming equipment sector in recent years, including the acquisitions of Multimedia Games, Inc. by Everi Holdings, Inc. (formerly known as Global Cash Access), Bally Technologies, Inc. (which had acquired SHFL Entertainment, Inc.) and WMS Industries Inc. by Scientific Games Corporation and International Game Technology by GTECH Holdings.
In recent years, slot machine manufacturers have frequently refused to sell slot machines featuring the most popular games, instead requiring participation lease arrangements in order to acquire the machines. Participation slot machine leasing arrangements typically require the payment of a fixed daily rental. Such agreements may also include a percentage payment of coin-in or net win. Generally, a participation lease is substantially more expensive over the long term than the cost to purchase a new machine.
For competitive reasons, we may be forced to purchase new slot machines or enter into participation lease arrangements that are more expensive than our current costs associated with the continued operation of our existing slot machines. If the newer slot machines do not result in sufficient incremental revenues to offset the increased investment and participation lease costs, it could hurt our profitability.
We have recently expanded our sports betting operations. There can be no assurance that we will be able to compete effectivelyextend or that we will be successful and generate sufficient returns on our investment.
In May 2018, the U.S. Supreme Court struck down the Professional and Amateur Sports Protection Act of 1992 (“PASPA”) as unconstitutional. Prior to the Court’s ruling, PASPA banned sports betting in most U.S. States. In light of the Court’s ruling, certain of the jurisdictions in which we operate legalized intra-state sports wagering and established extensive state licensing and regulatory requirements governing any such intra-state sports wagering, including the payment of license fees and additional taxes by operators. In the second half of 2018, we began accepting wagers on sporting events at Penn National Race Course and our properties in Mississippi and West Virginia; and, in 2019, at Meadows Racetrack and Casino and our properties in Indiana and Iowa. We were already accepting wagers on sporting events in our properties in Nevada. We are also in the process of completing the regulatory application process to offer sports wagering in Colorado, Illinois and Michigan. We continue to engage with state lawmakers in other jurisdictions in which we already operate to advocate for the passage of laws legalizing sports betting within the jurisdiction with reasonable tax rates and license fees, similar to legislation enacted in West Virginia, Mississippi and Nevada. Any further expansion of our sports betting operations is dependent on potential legislation in these other jurisdictions.
Our sports betting operations will compete in a rapidly evolving and highly competitive market against an increasing number of competitors. In order to augment our revenues, we have acquired an approximate 36% interest in Barstool Sports and have the sole right to utilize its brand for all of our online and retail sports betting for up to 40 years. In addition, we have entered into certain market access agreements with certain other sports betting operators, including DraftKings, PointsBet, The Stars Group and the Score and may enter into agreements with additional strategic partners (such as Barstool Sports) and other third-party vendors and we may not be able to do so on terms that are favorable to us. The success of our proposed sports betting operations is dependent on a number of additional factors that are beyond our control, including the ultimate tax rates and license fees charged by jurisdictions across the United States; our ability to gain market share in a newly developing market; the timeliness and the technological and popular viability of our products, our ability to compete with new entrants in the market; changes in consumer demographics and public tastes and preferences; and the availability and popularity of other forms of entertainment. There can be no assurance that we will be able to compete effectively or that our expansion will be successful and generate sufficient returns on our investment.
Our iGaming initiatives may result in increased risk of cyber-attack, hacking, or other security breaches, which could harm our reputation and competitive position and which could result in regulatory actions against us or in other penalties.
As our iGaming business grows, we will face increased cyber risks and threats that seek to damage, disrupt or gain access to our networks, our products and services, and supporting infrastructure. Such cyber risks and threats, including to virtual currencies that may be used in the games, may be difficult to detect. Any failure to prevent or mitigate security breaches or cyber risk could result in interruptions to the services we provide, degrade the user experience, and cause our users to lose confidence in our products. The unauthorized access, acquisition or disclosure of consumer information could compel us to comply with disparate breach notification laws and otherwise subject us to proceedings by governmental entities or others and substantial legal and financial liability. Our key business partners also face these same risks with respect to consumer information they collect, and data security breaches with respect to such information could cause reputational harm to them and negatively impact our ability to offer our products and services through their platforms. This could harm our business and reputation, disrupt our relationships with partners and diminish our competitive position.
In recent years, we announced several initiatives within the social gaming/interactive space, which has been a new line of business for us in a rapidly evolving and highly competitive market. There can be no assurance that we will be able to compete effectively or that our initiatives will be successful.
In recent years, we announced several initiatives in the social gaming space, including the acquisitions of Absolute Games in May 2018 and Rocket Speed in August 2016, and expect to continue to invest in and market social gaming and other mobile gaming platforms to our customers in casinos and beyond and to explore other acquisitions in the space. Social gaming remains a new and growing line of business for us, which makes it difficult to assess its future prospects. Our products will compete in a rapidly evolving and highly competitive market against an increasing number of competitors, including Playtika, Zynga and slot manufacturers. Given the open nature of the development and distribution of games for electronic devices, our business will also compete with developers and distributors who are able to create and launch games and other content for these devices using relatively limited resources and with relatively limited start-up time or expertise. We have limited experience operating in this rapidly evolving marketplace and may not be able to compete effectively.
In addition, our ability to be successful with our social gaming platform is dependent on numerous factors beyond our control that affect the social and mobile gaming industry and the online gaming industry in the United States, including the legalization and expansion of online real money gaming in the United States beyond the states where it is currently permitted; changes to the policies of social gaming distribution channels, including Apple and Google; changes in consumer demographics and public tastes and preferences; changing laws and regulations affecting social and mobile games; the reaction of regulatory bodies to social gaming initiatives by holders of gaming licenses; the availability and popularity of other forms of entertainment; any challenges to the intellectual property rights underlying our games; any advances in technology that we are unable to timely implement; and outages and disruptions of our online services that may harm our business.
Our iGaming initiatives will result in increased operating expense and increased time and attention from our management. In addition, we may be particularly dependent on key personnel in our iGaming business unit. We believe our interactive initiatives are largely complementary to our current operations and offer additional avenues of access and interaction for our customers, and, the interactive business depends on developing and publishing games that consumers will download and spend time and money on consistently. We continue to invest in research and development, analytics and marketing to attract and retain customers for our games. Our success depends, in part, on unpredictable factors beyond our control, including consumer preferences, the viability and popularity of our apps and products, competing games and other forms of entertainment, and the emergence of new platforms. Our inability to ultimately monetize our investment in social gaming/interactive initiatives could have a material adverse effect on our business, financial condition and results of operations.
The success of our VGT operations in Illinois is dependent on our ability to renew our contracts and expand the business.
In September 2015, we completed the acquisition of Prairie State Gaming, one of the largest VGT operators in Illinois and subsequently have completed several smaller acquisitions of VGT operators in the state. We face competition from other VGT operators, as well as from casinos, hotels, taverns and other entertainment venues. Our ability to compete successfully in this line of business depends on our ability to retain existing customers and secure new establishments, both of which are dependent on the level of service and variety of products thatreplacement agreements. If we are able to offer to our customers. VGT contracts are renewable at the option of the owner of the applicable bar and retail gaming establishments and, as our contracts expire, we will be subject to competition for renewals. In addition, VGT operations in Illinois are subject to approval by local municipalities, and therefore our ability to retain and expand our VGT business depends, in part, on such approvals. In addition, there is a risk that the market for VGTs in Illinois could become oversaturated. If we are unable to retain our existing customersextend or their results suffer
as a result of competition or because the market becomes oversaturated or if certain municipalities in Illinois elect to prohibit VGTs, our financial condition, results of operations and cash flows could be adversely impacted.
Work stoppages, organizing drives and other labor problems could negatively impact our future profits.
Some of our employees are currently represented by labor unions. A lengthy strike or other work stoppages at any of our casino properties or construction projects could have an adverse effect on our financial condition, results of operations and cash flows. Given the large number of employees, labor unions are making a concerted effort to recruit more employees in the gaming industry. We cannot provide any assurance that we will not experience additional and more successful union organization activity in the future.
We are subject to environmental laws and potential exposure to environmental liabilities.
We are subject to various federal, state and local environmental laws and regulations that govern our operations, including emissions and dischargesenter into the environment, and the handling and disposal of hazardous and non-hazardous substances and wastes. Failure to comply with such laws and regulations could result in costs for corrective action, penalties or the imposition of other liabilities or restrictions. From time to time, we have incurred and are incurring costs and obligations for correcting environmental noncompliance matters. The extent of such potential conditions cannot be determined definitively. To date, none of these matters have had a material adverse effect on our financial condition, results of operations and cash flows; however,replacement agreements, there can be no assurance that such matters will not have such an effect in the future.
We also are subject to laws and regulations that impose liability and clean-up responsibility for releases of hazardous substances into the environment. Under certain of these laws and regulations, a current or previous owner or operator of the property may be liable for the costs of remediating contaminated soil or groundwater on or from its property, without regardas to whether the owner or operator knew of, or caused,terms will be on comparable terms to the contamination, as well as incur liability to third parties impacted by such contamination. The presence of contamination, or failure to remediate it properly, may adversely affect our ability to use, sell or rent property. Under our contractual arrangementsexisting agreements.
In addition, the Company established a special COVID-19 Emergency Relief Fund under the Triple Net Leases, we will generally be responsible for both past and future environmental liabilitiesPenn National Gaming Foundation to provide assistance to team members who have not been called back from furlough due to the ongoing restrictions associated with COVID-19. The Company has raised $3.7 million from our gaming operations, notwithstanding ownershipBoard of Directors, Chief Executive Officer, senior management and the underlying real property having been transferred. Furthermore, we are aware that there is or may have been soil or groundwater contamination at certain of our properties resulting from current or former operations. By way of further example, portions of Tropicana Las Vegas are known to contain asbestos as well as other environmental conditions, which may include the presence of mold. The environmental conditions may require remediation in isolated areas. The extent of such potential conditions cannot be determined definitely, and may result in additional expense in the event that additional or currently unknown conditions are detected.
Additionally, certain of the gaming chips used at many gaming properties, including some of ours, have been found to contain some level of lead. Analysis by third parties has indicated the normal handling of the chips does not create a health hazard. We have disposed of a majority of these gaming chips. To date, none of these matters or other matters arising under environmental laws has had a material adverse effect on our financial condition, results of operations and cash flows; however, there can be no assurance that such matters will not have such an effect in the future.
We are subject to certain federal, state and other regulations.
We are subject to certain federal, state and local environmental laws, regulations and ordinances that apply to businesses generally, The Bank Secrecy Act, enforced by the Financial Crimes Enforcement Network (“FinCEN”) of the U.S. Treasury Department, requires us to report currency transactions in excess of $10,000 occurring within a gaming day, including identification of the guest by name and social security number, to the IRS. This regulation also requires us to report certain suspicious activity, including any transaction that exceeds $5,000 that we know, suspect or have reason to believe involves funds from illegal activity or is designed to evade federal regulations or reporting requirements and to verify sources of funds, in response to which we have implemented Know Your Customer processes. Periodic audits by the IRS and our internal audit department assess compliance with the Bank Secrecy Act, and substantial penalties can be imposed against us if we fail to comply with this regulation. In recent years the U.S. Treasury Department has increased its focus on Bank Secrecy Act compliance throughout the gaming industry, and public comments by FinCEN suggest that casinos should obtain information on each customer’s sources of income. This could impact our ability to attract and retain casino guests.
The riverboats on which we operate must comply with certain federal and state laws and regulations with respect to boat design, on-board facilities, equipment, personnel and safety.Penn National Gaming Foundation. In addition, we are required to have third parties periodically inspect and certify all of our casino barges for stability and single compartment flooding integrity. The casino barges on which we operate also must meet local fire safety standards. We would incur additional costs if any of the gaming facilities on which we operate were notprovided $13 million in compliance with one or more of these regulations.
We are also subject to a variety of other federal, state and local laws and regulations, including those relating to zoning, construction, land use, employment, marketing and advertising and the production, sale and service of alcoholic beverages. If we are not in compliance with these laws and regulations or we are subject to a substantial penalty, it could have a material adverse effect on our financial condition, results of operations andone-time holiday cash flows.
Climate change, climate change regulations and greenhouse effects may adversely impact our operations and markets.
There is a growing political and scientific consensus that greenhouse gas (“GHG”) emissions continue to alter the composition of the global atmosphere in ways that are affecting and are expected to continue affecting the global climate.
We may become subject to legislation and regulation regarding climate change, and compliance with any new rules could be difficult and costly. Concerned parties, such as legislators and regulators, stockholders and nongovernmental organizations, as well as companies in many business sectors, are considering ways to reduce GHG emissions. Many states have announced or adopted programs to stabilize and reduce GHG emissions andbonuses in the past federal legislation have been proposed in Congress. If such legislation is enacted, we could incur increased energy, environmental and other costs and capital expendituresfourth quarter to complyour non-executive team members companywide to help with the limitations. Unlessfinancial impact to their families from COVID-19. We also created the Hurricane Laura Relief Fund with an initial contribution of $2.5 million to help our community and until legislation is enactedteam members impacted by the storm, in addition to providing more than $6 million in full wages and its terms are known, we cannot reasonably or reliably estimate its impact on our financial condition, operating performance or ability to compete. Further, regulation of GHG emissions may limit our guests’ ability to travelbenefits to our properties asteam members during the L'Auberge Lake Charles property closure. Finally, on the social justice front, our Diversity Committee announced a result of increased fuel costs or restrictions on transport related emissions. Climate change could have a material adverse effect on our financial condition, results of operations and cash flow. We have described the risks to us associated with extreme weather events in the risk factors above.
We depend on agreements with our horsemen and pari-mutuel clerks.
The Federal Interstate Horseracing Act of 1978, as amended, and state law in certain of the states where we operate pari-mutuel wagering requirenew scholarship program for disadvantaged team members that in order to simulcast races, we have certain agreements with the horse owners and trainers at our West Virginia and Pennsylvania racetracks. In addition, West Virginia requires applicants seeking to renew their gaming license to demonstrate they have an agreement regarding the proceeds of the gaming machineswill be funded with a representative of a majority of (i) the horse owners and trainers, (ii) the pari-mutuel clerks, and (iii) the horse breeders.
In jurisdictions where we operate pari-mutuel wagering, if we fail to present evidence of an agreement with the horsemen at a track, we may not be permitted to conduct live racing and to export and import simulcasting at that track and OTWs and, in West Virginia, our video lottery license may not be renewed. In addition, our$1 million annual simulcast export agreements are subject to the horsemen’s approval under the Federal Interstate Horseracing Act of 1978, as amended. Some simulcast import agreements require horsemen approval depending on state law. If we fail to renew or modify existing agreements on satisfactory terms, this failure could have a material adverse effect on our financial condition, results of operations and cash flows.
Risks Related to our Investment in Barstool Sports
We may be unable to realize the anticipated benefits and financial returns of our investment in Barstool Sports.
We may not be able to achieve the expected benefits or financial returns of our investment in Barstool Sports due to fees, costs, taxes, delays or disruptions in connection with our roll out of our online and retail sportsbooks and iCasino products. In addition, there can be no assurance that the Barstool Sports audience will engage in sports betting and iCasino products to the extent that we expect. If additional states do not legalize sports betting, or legalize sports betting with unreasonable tax rates or license fees, this would affect our ability to expand our sports betting operations. Any of the factors above could prevent us from receiving the expected returns of our investment in Barstool Sports, cause the market price of our common stock to decline, and have a material adverse effect on our financial condition, results of operations and cash flows.
Our investment in and partnership with Barstool Sports may result in potential adverse reactions or changes to our business or regulatory relationships.
Our relationships with state gaming regulators and business partners could be adversely affected as a result of our affiliation with Barstool Sports. Gaming regulators may not have extensive experience in the digital media industry, which may present unique challenges in regulating our business. In addition, our business partners may react negatively to actual or perceived competitive threatscommitment from our affiliation with Barstool Sports.Company, and we launched a series of new inclusion-related initiatives.
The success of the Barstool Sports business depends on its ability to attract and retain qualified personnel.
Barstool Sports is dependent upon its ability to attract and retain senior management and key personnel, including content creators, bloggers and marketing personnel. It may be increasingly difficult to attract and retain such personnel after the consummation of the pending transaction. A shortage in the availability of the requisite qualified personnel would limit the
ability of Barstool Sports to grow, to increase sales, and promote our products and services, including retail and online casinos and sportsbooks.
Risks Related to Our Indebtedness and Capital Structure
•Our substantial indebtedness could adversely affect our financial health and prevent us from fulfilling our obligations under our outstanding indebtedness.
As of December 31, 2019, we had indebtedness of $2,419.0 million, including $140.0 million outstanding borrowings under our Revolving Credit Facility and $1,789.8 million in outstanding term loans. In addition, we are required to make significant annual lease payments to our REIT Landlords pursuant to the Triple Net Leases, which we currently expect will be between approximately $901 million and $905 million for the year ended December 31, 2019.
We have a substantial amount of indebtedness and significant fixed annual lease payments under the Triple Net Leases. Our substantial indebtedness and additional fixed costs under our Lease obligations could have important consequences to our financial health. For example, it could:
make it more difficult for us to satisfy our obligations with respect to our indebtedness;
limit our ability to participate in multiple or large development projects, including mergers and acquisitions, absent additional third party financing;
increase our vulnerability to general or regional adverse economic and industry conditions or a downturn in our business;
require us to dedicate a substantial portion of our cash flow from operations to satisfy our financing obligation and debt service, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes;
limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
place us at a competitive disadvantage compared to our competitors that are not as highly leveraged;
limit, along with the financial and other restrictive covenants inmeet our indebtedness among other things, our ability to borrow additional funds; andobligations.
result in an event•The lack of default if we fail to satisfy our obligations under our indebtedness or fail to comply with the financial and other restrictive covenants contained in our debt instruments, which event of default could result in all of our debt becoming immediately due and payable and could permit certain of our lenders to foreclose on any of our assets securing such debt.
In addition, the interest rates of our Senior Secured Credit Facilities are tied to the London Interbank Offered Rate, or LIBOR. In July 2017, the head of the United Kingdom Financial Conduct Authority announced the desire to phase out the use of LIBOR by the end of 2021 (“FCA Announcement”). The FCA Announcement indicates that the continuation of LIBOR on the current basis is not guaranteed after 2021, which may impact our Revolving Credit Facility. It is not possible to predict the effect the FCA Announcement, any discontinuation, modification or other reforms to LIBOR or the establishment of alternative reference rates may have on us, but could include an increase in the cost of our variable rate indebtedness. We continue to monitor developments related to the LIBOR transition and/or identification of an alternative, market-accepted rate.
Any of the above listed factors could have a material adverse effect on our financial condition, results of operations and cash flows. The terms of our debt do not, and any future debt may not, fully prohibit us from incurring additional debt, including debt related to properties we develop or acquire. If new debt is added to our current debt levels, the related risks that we now face could intensify.
Volatility and disruption of the capital and credit markets and adverse changes in the global economy may negatively impact our revenues and our ability to access favorable financing terms.
While we intend to finance expansion and renovation projects with existing cash, cash flow from operations and borrowings under our Senior Secured Credit Facilities, we may require additional financing to support our continued growth. However, depending on then-current economic or capital market conditions, our access to capital may not be available on terms acceptable to us or at all. Further, if adverse regional and national economic conditions persist or worsen, we could experience decreased revenues from our operations attributable to decreases in consumer spending levels and could fail to satisfy the financial and other restrictive covenants to which we are subject under our existing indebtedness.
The availability and cost of financing could have an adverse effect onadversely impact our business.
We intend to finance some of our current and future expansion, development and renovation projects and acquisitions with cash flow from operations, borrowings under our Senior Secured Credit Facilities and equity or debt financings. We are required by the Triple Net Leases, in the case of certain expansion projects, or may choose, in the case of other development projects, to provide GLPI or VICI with the right to finance such projects. Depending on the state of the credit markets, if we are unable to finance our current or future projects, we could have to seek alternative financing, such as through selling assets, restructuring debt, increasing our reliance on equity financing or seeking additional joint venture partners. Depending on credit market conditions, alternative sources of funds may not be sufficient to finance our expansion, development and/or renovation, or such other financing may not be available on acceptable terms, in a timely manner or at all. In addition, our existing indebtedness contains restrictions on our ability to incur additional indebtedness. If we are unable to secure additional financing, we could be forced to limit or suspend expansion, development and renovation projects and acquisitions, which may adversely affect our financial condition, results of operations and cash flows.
The capacity under our Revolving Credit Facility, which expires in 2023, is $700.0 million. If a large percentage of our lenders were to file for bankruptcy or otherwise default on their obligations to us, we could experience decreased levels of liquidity which could have a detrimental impact on our operations. There is no certainty that our lenders will continue to remain solvent or fund their respective obligations under our Senior Secured Credit Facilities.
Our indebtedness imposes restrictive covenants on us that could limit our operations and lead to events of default if we do not comply with those covenants.
Our Senior Secured Credit Facilities require us, among other obligations, to maintain specified financial ratios and to satisfy certain financial tests, including interest coverage, senior secured net leverage and total net leverage ratios. In addition, our Senior Secured Credit Facilities restrict, among other things, our ability to incur additional indebtedness, incur guarantee obligations, repay certain other indebtedness or amend debt instruments, pay dividends, create liens on our assets, make investments, make acquisitions, engage in mergers or consolidations, engage in certain transactions with subsidiaries and affiliates or otherwise restrict corporate activities. In addition, the indenture governing our senior unsecured notes restricts, among other things, our ability to incur additional indebtedness (excluding certain indebtedness under our Senior Secured Credit Facilities), issue certain preferred stock, pay dividends or distributions on our capital stock or repurchase our capital stock, make certain investments, create liens on our assets to secure certain debt, enter into transactions with affiliates, merge or consolidate with another company, transfer and sell assets and designate our subsidiaries as unrestricted subsidiaries. A failure to comply with the restrictions contained in the documentation governing any of our indebtedness, termination of the Triple Net Leases (subject to certain exceptions) or the occurrence of certain defaults under the Triple Net Leases could lead to an event of default thereunder that could result in an acceleration of such indebtedness. Such acceleration would likely constitute an event of default under our other indebtedness, which could result in all of our debt becoming immediately due and payable and could permit certain of our lenders to foreclose on any of our assets securing such debt.
•To service our indebtedness, we will require a significant amount of cash, which depends on many factors beyond our control.
Risks Related to Regulation, Taxes and Compliance
•We cannot assure you thatare subject to extensive regulation and our business will generate sufficient cash flow frommay be adversely impacted by changes in legislation and regulations.
•State and local smoking restrictions have and may continue to negatively affect our business.
•We may face material increases in our current taxes or the adoption of new taxes.
•Failure to comply with certain federal, state and other laws and regulations may have an adverse effect on us.
Risks Related to Technology, Information Security and Penn Interactive
•We rely heavily on technology services and an uninterrupted supply of electrical power.
•Cyber security breaches could affect our operations and harm our reputation.
•If our third-party mobile distribution platforms or that future borrowings willservice providers fail to perform or terminate their relationship with us, our business could be availableadversely affected.
•We may be unable to us under our Senior Secured Credit Facilities in amounts sufficientgrow Penn Interactive.
Risks Related to enable us to fund our liquidity needs, including with respectAcquisitions
•We may face disruptions, delays and other difficulties related to our indebtedness. We also may incur indebtedness related torecently acquired properties, future acquisitions, or new initiatives.
•In the event we develop or acquire in the future prior to generating cash flow from those properties. If those properties do not provide us with cash flow to service that indebtedness, we will need to rely on cash flow from our other properties, which would increase our leverage. In addition, if we consummate significant acquisitions in the future, our cash requirements may increase significantly. As we are required to satisfy amortization requirements under our Senior Secured Credit Facilities or as other debt matures,make another acquisition, we may also needface risks related to raise funds to refinance all or a portion of our debt. We cannot assure you that we will be able to refinance any of our debt, including our Senior Secured Credit Facilities, on attractive terms, commercially reasonable terms or at all. Our future operating performance and our ability to service, extendreceive regulatory approvals required to complete, or refinance our debt will be subjectother delays or impediments to future economic conditions and to financial, business and other factors, many of which are beyond our control.completing, such acquisition.
Risks Related to the Spin-Off
•We could be subject to significant tax liabilities if the Spin-Off of Gaming and Leisure Properties, Inc. (“GLPI”) does not qualify as a tax-free transaction.
•In connection with the Spin-Off, GLPI agreed to indemnify us for certain liabilities. However, there can be no assurance that these indemnities will be sufficient to insure us against the full amount of such liabilities, or that GLPI’s ability to satisfy its indemnification obligation will not be impaired in the future.
PART I
ITEM 1.BUSINESS
Overview
Penn National Gaming, Inc., together with its subsidiaries (“Penn National,” the “Company,” “we,” “our,” or “us”), is a leading, diversified, multi-jurisdictional owner and manager of gaming and racing properties, retail and online sports betting operations, and video gaming terminal (“VGT”) operations. Our wholly-owned interactive division, Penn Interactive Ventures, LLC (“Penn Interactive”), operates retail sports betting across the Company’s portfolio, as well as online sports betting, online social casino, bingo and online casinos (“iGaming”). In February 2020, the Company acquired 36% (inclusive of 1% on a delayed basis) equity interest in Barstool Sports, Inc. (“Barstool Sports”), a leading digital sports, entertainment, lifestyle and media company, and entered into a strategic relationship with Barstool Sports, whereby Barstool Sports will exclusively promote the Company's land-based retail sportsbooks, iGaming products and online sports betting products, including the Barstool Sportsbook mobile app, to its national audience. We launched an online sports betting app called Barstool Sports in Pennsylvania in September 2020 and in Michigan in January 2021. We also operate iGaming in Pennsylvania and Michigan. Our MYCHOICE® customer loyalty program (the "mychoice program") currently has over 20 million members and provides such members with various benefits, including complimentary goods and/or services. The Company’s strategy has continued to evolve from an owner and manager of gaming and racing properties into an omni-channel provider of retail and online gaming, live racing and sports betting entertainment. We believe our continued evolution into a best-in-class omni-channel provider of retail and online gaming and sports betting entertainment will be a catalyst for our core land-based business, while also providing a platform for significant long-term shareholder value. References in this Annual Report on Form 10-K, to “Penn National,” the “Company,” “we,” “our,” or “us” refer to Penn National Gaming, Inc. and its subsidiaries, except where stated or the context otherwise indicates.
As of December 31, 2020, we owned, managed, or had ownership interests in 41 properties in 19 states. The majority of the real estate assets (i.e., land and buildings) used in the Company’s operations are subject to triple net master leases; the most significant of which are the Penn Master Lease and the Pinnacle Master Lease (as such terms are defined in the “Triple Net Leases” section below and collectively referred to as the “Master Leases”), with Gaming and Leisure Properties, Inc. (NASDAQ: GLPI) (“GLPI”), a real estate investment trust (“REIT”). In addition, we are currently developing two Category 4 satellite gaming casinos in Pennsylvania: Hollywood Casino York and Hollywood Casino Morgantown, both of which are expected to commence operations by the end of 2021. On March 11, 2020, the World Health Organization declared the novel coronavirus (known as “COVID-19”) outbreak to be a global pandemic. To help combat the spread of COVID-19 and pursuant to various orders from state gaming regulatory bodies or governmental authorities, operations at all of our properties were temporarily suspended for single or multiple time periods during the year. Once re-opened, properties operated with reduced gaming and hotel capacity and limited food and beverage offerings in order to accommodate social distancing and health and safety protocols.
During the fourth quarter of 2020, our properties temporarily suspended operations in Pennsylvania, Michigan and Illinois and were subject to increased operational restrictions in Ohio and Massachusetts (among other states). Our Michigan property temporarily closed on November 17, 2020 and reopened on December 23, 2020. Our Pennsylvania properties temporarily closed on December 12, 2020 and reopened on January 4, 2021. Our Illinois properties temporarily closed on November 20, 2020 and began reopening with limited hours of operations beginning January 16, 2021 and throughout the week. The property closures were pursuant to the various orders from state gaming regulatory bodies or governmental authorities to combat the rapid spread of COVID-19. As of February 26, 2021, all of our properties were open to the public with the exception of Zia Park and Valley Race Park, which remain closed.
The COVID-19 pandemic caused significant disruptions to our business and had a material adverse impact on our financial condition, results of operations and cash flows, the magnitude of which continues to develop. During the year, substantial measures were taken to improve our financial position and liquidity as discussed in our Consolidated Financial Statements Note 1, “Organization and Basis of Presentation”. In February 2020, we closed on our investment in Barstool Sports pursuant to a stock purchase agreement with Barstool Sports and stockholders of Barstool Sports, in which we purchased approximately 36% of the common stock of Barstool Sports for a purchase price of $161.2 million. Within three years after the closing or earlier at our election, we will increase our ownership in Barstool Sports to approximately 50% with an incremental investment of approximately $62 million, consistent with the implied valuation at the time of the initial investment. With respect to the remaining Barstool Sports shares, we have immediately exercisable call rights, and the existing Barstool Sports stockholders have put rights exercisable beginning three
years after closing, all based on a fair market value calculation at the time of exercise (subject to a cap of $650.0 million and a floor of 2.25 times the annualized revenue of Barstool Sports, all subject to various adjustments). Upon closing, we became Barstool Sports’ exclusive gaming partner for up to 40 years and have the sole right to utilize the Barstool Sports brand for all of our online and retail sports betting and iGaming products. For additional information, see Note 7, "Investments in and Advances to Unconsolidated Affiliates". On December 15, 2020, the Company entered into a definitive agreement with GLPI to purchase the operations of Hollywood Casino Perryville for $31.1 million. The transaction is expected to close during the second or third quarter of 2021, subject to approval of the Maryland Lottery and Gaming Control Commission and other customary closing conditions. Simultaneous with the closing of the transaction, we would lease the real estate assets associated with Hollywood Casino Perryville from GLPI with initial annual rent of $7.8 million per year subject to escalation. For additional information on our acquisitions, see Note 6, “Acquisitions and Dispositions.” In May 2019, we acquired Greektown Casino-Hotel (“Greektown”) in Detroit, Michigan, subject to a triple net lease with VICI Properties Inc. (NYSE: VICI) (“VICI”, a REIT and collectively with GLPI, our “REIT Landlords”) (the “Greektown Lease”) and, in January 2019, we acquired Margaritaville Casino Resort (“Margaritaville”) in Bossier City, Louisiana, subject to a triple net lease with VICI (the “Margaritaville Lease” and collectively with the Master Leases, the Greektown Lease, the Meadows Lease, the Tropicana Lease and the Morgantown Lease, of which the Meadows Lease, the Tropicana Lease and Morgantown Lease are defined in the “Triple Net Leases” section below, the “Triple Net Leases”).
In October 2018, the Company completed the acquisition of Pinnacle Entertainment, Inc. (“Pinnacle”), a leading regional gaming operator (the “Pinnacle Acquisition”). In connection with the Pinnacle Acquisition, we added 12 gaming properties to our portfolio, providing us with greater operational scale and geographic diversity. We assumed the Pinnacle Master Lease concurrently with the closing of the Pinnacle Acquisition.
We believe that our portfolio of assets provides us the benefit of geographically-diversified cash flow from operations. We expect to continue to expand our gaming operations through the implementation and execution of a disciplined capital expenditure program at our existing properties, the pursuit of strategic acquisitions and investments, and the development of new gaming properties. In addition, the partnership with Barstool Sports reflects our strategy to continue evolving from the nation’s largest regional gaming operator to a best-in-class omni-channel provider of retail and online gaming and sports betting entertainment.
Triple Net Leases
As noted above, the majority of the real estate assets used in the Company’s operations are subject to either the Penn Master Lease or the Pinnacle Master Lease. In addition to the Penn Master Lease and the Pinnacle Master Lease, five individual gaming facilities used in our operations are subject to individual triple net leases. Under triple net leases, in addition to lease payments for the real estate assets, the Company is required to pay the following, among other things: (1) all facility maintenance; (2) all insurance required in connection with the leased properties and the business conducted on the leased properties; (3) taxes levied on or with respect to the leased properties (other than taxes on the income of the lessor); (4) all tenant capital improvements; and (5) all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties.
The following summaries of the Master Leasesare qualified in their entirety by reference to either the Penn Master Lease or the Pinnacle Master Lease, as applicable, all of which are incorporated by reference in the exhibits to this Annual Report on Form 10-K.
Penn Master Lease
Pursuant to a triple net master lease with GLPI (the “Penn Master Lease”), which became effective November 1, 2013, the Company leases real estate assets associated with 19 of the gaming facilities used in its operations. The Penn Master Lease has an initial term of 15 years with four subsequent, five-year renewal periods on the same terms and conditions, exercisable at the Company’s option. If we elect to renew the term of the Penn Master Lease, the renewal will be effective as to all of the leased real estate assets then subject to the Penn Master Lease, subject to limitations on the final renewal term with respect to certain of the barge-based facilities.
Pinnacle Master Lease
In connection with the Pinnacle Acquisition, the Company assumed a triple net master lease with GLPI (“Pinnacle Master Lease”), originally effective April 28, 2016. Pursuant to the Pinnacle Master Lease, the Company leases real estate assets associated with 12 of the gaming facilities used in its operations from GLPI. Upon assumption of the Pinnacle Master Lease, as
amended, there were 7.5 years remaining of the initial ten-year term, with five subsequent, five-year renewal periods exercisable at the Company’s option. Furthermore, in conjunction with the Pinnacle Acquisition, GLPI acquired the real estate assets associated with Plainridge Park Casino and leased back such assets to the Company pursuant to an amendment to the Pinnacle Master Lease.
Morgantown Lease
On October 1, 2020, we sold the land underlying our Morgantown development project to GLPI in exchange for rent credits of $30.0 million. Contemporaneous with the sale, the Company entered into a triple net lease with a subsidiary of GLPI for the land underlying Morgantown (“Morgantown Lease”). The initial term of the Morgantown Lease is twenty years with six subsequent, five-year renewal periods, exercisable at the Company’s option.
Meadows Lease, Margaritaville Lease, Greektown Lease and Tropicana Lease
In connection with the Pinnacle Acquisition, the Company assumed a triple net lease of the real estate assets used in the operations of Meadows Racetrack and Casino (the “Meadows Lease”), originally effective September 9, 2016, with GLPI as the landlord. Upon assumption of the Meadows Lease, there were eight years remaining of the initial ten-year term, with three subsequent, five-year renewal options followed by one four-year renewal option on the same terms and conditions, exercisable at the Company’s option.
As discussed above, in separate acquisitions, the Company entered into the Margaritaville Lease with VICI for the real estate assets used in the operations of Margaritaville and the Greektown Lease with VICI for the real estate assets used in the operations of Greektown. Both the Margaritaville Lease and the Greektown Lease have initial terms of 15 years, with four subsequent five-year renewal options on the same terms and conditions, exercisable at the Company’s option.
On April 16, 2020, we sold the real estate assets associated with our Tropicana Las Vegas ("Tropicana") property to a subsidiary of GLPI in exchange for rent credits of $307.5 million. Contemporaneous with the sale, the Company entered into a leaseback of the real estate assets for nominal cash rent.We are required to continue to operate the Tropicana for two years (subject to three one-year extensions at GLPI’s option) or until the real estate assets and the operations of the Tropicana are earlier sold by GLPI.
Operating Properties
The table below summarizes certain features of the properties owned, operated or managed by us as of December 31, 2020, by reportable segment (all area and capacity metrics are approximate):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Location | | Real Estate Assets Lease or Ownership Structure | | Type of Facility | | Gaming Square Footage | | Gaming Machines | | Table Games (1) | | Hotel Rooms |
Northeast segment (2) | | | | | | | | | | | | | |
Ameristar East Chicago | East Chicago, IN | | Pinnacle Master Lease | | Dockside gaming | | 73,000 | | 1,796 | | 75 | | 288 |
Greektown Casino-Hotel | Detroit, MI | | Greektown Lease | | Land-based gaming | | 100,000 | | 2,362 | | 62 | | 400 |
Hollywood Casino Bangor | Bangor, ME | | Penn Master Lease | | Land-based gaming/racing | | 31,750 | | 726 | | 14 | | 152 |
Hollywood Casino at Charles Town Races | Charles Town, WV | | Penn Master Lease | | Land-based gaming/racing | | 115,000 | | 2,292 | | 74 | | 153 |
Hollywood Casino Columbus | Columbus, OH | | Penn Master Lease | | Land-based gaming | | 177,000 | | 2,066 | | 74 | | — |
Hollywood Casino Lawrenceburg (3) | Lawrenceburg, IN | | Penn Master Lease | | Dockside gaming | | 149,500 | | 1,521 | | 58 | | 463 |
Hollywood Casino at Penn National Race Course | Grantville, PA | | Penn Master Lease | | Land-based gaming/racing | | 99,500 | | 1,962 | | 80 | | — |
Hollywood Casino Toledo | Toledo, OH | | Penn Master Lease | | Land-based gaming | | 125,000 | | 1,848 | | 69 | | — |
Hollywood Gaming at Dayton Raceway | Dayton, OH | | Penn Master Lease | | Land-based gaming/racing | | 40,600 | | 814 | | — | | — |
Hollywood Gaming at Mahoning Valley Race Course | Youngstown, OH | | Penn Master Lease | | Land-based gaming/racing | | 50,000 | | 1,127 | | — | | — |
Marquee by Penn (4) | Pennsylvania | | N/A | | Land-based gaming | | N/A | | 115 | | — | | — |
Meadows Racetrack and Casino | Washington, PA | | Meadows Lease | | Land-based gaming/racing | | 125,000 | | 2,463 | | 95 | | — |
Plainridge Park Casino | Plainville, MA | | Pinnacle Master Lease | | Land-based gaming/racing | | 50,000 | | 1,181 | | — | | — |
| | | | | | | | | | | | | |
South segment | | | | | | | | | | | | | |
1st Jackpot Casino | Tunica, MS | | Penn Master Lease | | Dockside gaming | | 40,000 | | 839 | | 12 | | — |
Ameristar Vicksburg | Vicksburg, MS | | Pinnacle Master Lease | | Dockside gaming | | 70,000 | | 1,102 | | 24 | | 148 |
Boomtown Biloxi | Biloxi, MS | | Penn Master Lease | | Dockside gaming | | 35,500 | | 605 | | 20 | | — |
Boomtown Bossier City | Bossier City, LA | | Pinnacle Master Lease | | Dockside gaming | | 30,000 | | 806 | | 16 | | 187 |
Boomtown New Orleans | New Orleans, LA | | Pinnacle Master Lease | | Dockside gaming | | 30,000 | | 1,132 | | 31 | | 150 |
Hollywood Casino Gulf Coast | Bay St. Louis, MS | | Penn Master Lease | | Land-based gaming | | 51,000 | | 829 | | 20 | | 291 |
Hollywood Casino Tunica | Tunica, MS | | Penn Master Lease | | Dockside gaming | | 54,000 | | 900 | | 10 | | 494 |
L’Auberge Baton Rouge | Baton Rouge, LA | | Pinnacle Master Lease | | Dockside gaming | | 71,500 | | 1,305 | | 49 | | 205 |
L’Auberge Lake Charles | Lake Charles, LA | | Pinnacle Master Lease | | Dockside gaming | | 70,000 | | 1,469 | | 85 | | 995 |
Margaritaville Resort Casino | Bossier City, LA | | Margaritaville Lease | | Dockside gaming | | 30,000 | | 1,109 | | 50 | | 395 |
| | | | | | | | | | | | | |
West segment | | | | | | | | | | | | | |
Ameristar Black Hawk | Black Hawk, CO | | Pinnacle Master Lease | | Land-based gaming | | 56,000 | | 1,050 | | 38 | | 536 |
Cactus Petes and Horseshu | Jackpot, NV | | Pinnacle Master Lease | | Land-based gaming | | 29,000 | | 743 | | 21 | | 416 |
M Resort | Henderson, NV | | Penn Master Lease | | Land-based gaming | | 96,000 | | 1,073 | | 40 | | 390 |
Tropicana Las Vegas | Las Vegas, NV | | Tropicana Lease | | Land-based gaming | | 72,000 | | 632 | | 20 | | 1,470 |
Zia Park Casino | Hobbs, NM | | Penn Master Lease | | Land-based gaming/racing | | 18,000 | | 754 | | — | | 154 |
| | | | | | | | | | | | | |
Midwest segment | | | | | | | | | | | | | |
Ameristar Council Bluffs (5) | Council Bluffs, IA | | Pinnacle Master Lease | | Dockside gaming | | 35,000 | | 1,421 | | 22 | | 444 |
Argosy Casino Alton (6) | Alton, IL | | Penn Master Lease | | Dockside gaming | | 23,000 | | 705 | | 12 | | — |
Argosy Casino Riverside | Riverside, MO | | Penn Master Lease | | Dockside gaming | | 56,000 | | 1,200 | | 42 | | 258 |
Hollywood Casino Aurora | Aurora, IL | | Penn Master Lease | | Dockside gaming | | 53,000 | | 976 | | 27 | | — |
Hollywood Casino Joliet | Joliet, IL | | Penn Master Lease | | Dockside gaming | | 50,000 | | 1,100 | | 26 | | 100 |
Hollywood Casino at Kansas Speedway (7) | Kansas City, KS | | Owned - JV | | Land-based gaming | | 95,000 | | 2,000 | | 41 | | — |
Hollywood Casino St. Louis | Maryland Heights, MO | | Penn Master Lease | | Dockside gaming | | 120,000 | | 2,017 | | 63 | | 502 |
Prairie State Gaming (4) | Illinois | | N/A | | Land-based gaming | | N/A | | 2,047 | | — | | — |
River City Casino | St. Louis, MO | | Pinnacle Master Lease | | Dockside gaming | | 90,000 | | 1,945 | | 53 | | 200 |
| | | | | | | | | | | | | |
Other | | | | | | | | | | | | | |
Freehold Raceway (8) | Freehold, NJ | | Owned - JV | | Standardbred racing | | — | | — | | — | | — |
Retama Park Racetrack (9) | Selma, TX | | None - Managed | | Thoroughbred racing | | — | | — | | — | | — |
Sam Houston Race Park (10) | Houston, TX | | Owned - JV | | Thoroughbred racing | | — | | — | | — | | — |
Sanford-Orlando Kennel Club (11) | Longwood, FL | | Owned | | Greyhound racing/simulcasting | | — | | — | | — | | — |
Valley Race Park (10) | Harlingen, TX | | Owned - JV | | Greyhound racing | | — | | — | | — | | — |
| | | | | | | 2,411,350 | | 48,032 | | 1,323 | | 8,791 |
(1)Excludes poker tables.
(2)We expect that Hollywood Casino York and Hollywood Casino Morgantown will be included within our Northeast segment.
(3)Includes 168 rooms at our hotel and event center located less than a mile from the gaming facility.
(4)VGT route operations.
(5)Includes 284 rooms operated by a third party and located on land leased by us and subleased to such third party.
(6)The riverboat is owned by us and not subject to the Penn Master Lease.
(7)Pursuant to a joint venture with NASCAR.
(8)Pursuant to a joint venture with Greenwood Limited Jersey, Inc., a subsidiary of Greenwood Racing, Inc.
(9)Pursuant to a management contract with Retama Development Corporation.
(10)Pursuant to a joint venture with MAXXAM, Inc. (“MAXXAM”).
(11)In the fourth quarter of 2020, we sold the land underlying the Sanford-Orlando Kennel Club racetrack which discontinued our live racing operations. We continue to operate our simulcast racing business.
Northeast Segment
Ameristar East Chicago is located less than 25 miles from downtown Chicago, Illinois and offers guests a gaming and entertainment experience in the Chicago metropolitan area. In addition to gaming amenities, the property features a full-service hotel, a sportsbook for live sports betting, a fitness center, dining venues, lounges and 5,400 square feet of meeting and event space.
Greektown Casino-Hotel is located in the Greektown district of Detroit, Michigan, and is one of four casino hotels in the Detroit-Windsor area. In addition to slot machines, table games, poker tables and a sportsbook for live sports betting, the property features a 30-story hotel, several food and beverage options from casual to fine dining, as well as 10,000 square feet of convention and banquet space.
Hollywood Casino Bangor is located less than five miles from the Bangor airport in Maine. It features slot machines, table games and poker tables, as well as a hotel with 5,100 square feet of meeting and multipurpose space; and dining and entertainment options. Bangor Raceway, which is adjacent to the property, is located at historic Bass Park and includes a one-half mile standardbred racetrack and a 12,000 square foot grandstand capable of seating 3,500 patrons.
Hollywood Casino at Charles Town Races is located within approximately an hour drive of the Baltimore, Maryland and Washington, D.C. markets. In addition to slot machines, table games and poker tables, the property includes a sportsbook for live sports betting, as well as a variety of dining options. The complex also features live thoroughbred racing at a 3/4-mile all-weather lighted thoroughbred racetrack with a 3,000-seat grandstand and simulcast wagering.
Hollywood Casino Columbus is a Hollywood-themed casino located in Columbus, Ohio. It features slot machines, table games and poker tables as well as multiple food and beverage outlets, and an entertainment lounge.
Hollywood Casino Lawrenceburg is a Hollywood-themed casino riverboat located along the Ohio River in Lawrenceburg, Indiana, approximately 15 miles west of Cincinnati, Ohio. In addition to slot machines, table games, and poker tables, the riverboat features a sportsbook for live sports betting, as well as a variety of dining options. The hotel and event center, located within one mile from the casino, includes 18,000 square feet of multipurpose space and 19,500 square feet of ballroom and meeting space.
Hollywood Casino at Penn National Race Course is located 15 miles northeast of Harrisburg, Pennsylvania. This gaming facility also includes a variety of dining and entertainment options, as well as sports betting and a viewing area for live racing. The property includes a one-mile all-weather lighted thoroughbred racetrack and a 7/8-mile turf track.
Hollywood Casino Toledo is a Hollywood-themed casino, located on the bank of the Maumee River, in Toledo, Ohio. The property features slot machines, table games and poker tables, as well as multiple food and beverage outlets and an entertainment lounge.
Hollywood Gaming at Dayton Raceway is a Hollywood-themed casino and raceway located in Dayton, Ohio. It features video lottery terminals, a 5/8-mile standardbred racetrack, as well as various restaurants and bars, amongst other amenities.
Hollywood Gaming at Mahoning Valley Race Course is a Hollywood-themed casino and raceway located in Youngstown, Ohio featuring video lottery terminals and a one-mile thoroughbred racetrack. The property also includes various restaurants, and bars, amongst other amenities.
Marquee by Penn is our licensed VGT route operator with a network of 23 truck stop establishments in Pennsylvania.
Meadows Racetrack and Casino is located in Washington, Pennsylvania, approximately 25 miles south of Pittsburgh, Pennsylvania. In addition to gaming amenities, the property offers a sportsbook for live sports betting, several dining options, as well as an event and banquet center, a simulcast betting parlor, a harness racetrack and a bowling alley.
Plainridge Park Casino is located 20 miles southwest of the Boston beltway just off interstate 95 in Plainville, Massachusetts. In addition to gaming offerings, Plainridge Park Casino features various restaurants and bars, along with a 5/8-mile live harness racing facility with a two-story clubhouse for simulcast operations, special events, and live racing viewing.
South Segment
1st Jackpot Casino isthe closest Tunica-area casino to downtown Memphis, Tennessee. It features slot machines, table games, a café, a sportsbook and a live entertainment venue.
Ameristar Vicksburg, which is the largest dockside casino in central Mississippi, is located along the Mississippi River approximately 45 miles west of Mississippi’s largest city, Jackson. In addition to gaming amenities, the property features a hotel, multiple dining and bar facilities, an 1,800 square feet of meeting and event space, a sports book and an RV park.
Boomtown Biloxi, located in Biloxi Mississippi, offers slot machines and table games, and a sportsbook for live sports betting, as well as a variety of dining options. The property also includes a recreational vehicle park, and a 3,600 square foot event center and board room.
Boomtown Bossier City features a hotel adjoining a dockside riverboat casino located less than one mile from the Louisiana Boardwalk. It also offers several dining options, ranging from a high-end steakhouse to casual dining restaurants, and 1,500 square feet of meeting and conference space.
Boomtown New Orleans is located in the West Bank area across the Mississippi River and approximately 15 minutes from the French Quarter of New Orleans, Louisiana. In addition to gaming amenities, it also features a five-story hotel, a fitness center, several restaurants, a 500-seat entertainment venue, and over 14,000 square feet of meeting and conference space.
Hollywood Casino Gulf Coast is located in Bay St. Louis, Mississippi and features slot machines, table games, and a sportsbook for live sports betting. The property also features a golf course, various dining options, and an RV park amongst other amenities. The waterfront hotel includes a 10,000 square foot ballroom, and nine separate meeting rooms offering more than 14,000 square feet of meeting space.
Hollywood Casino Tunica is a Hollywood-themed casino, located less than 10 miles from Tunica County River Park. In addition to gaming offerings, it features a sportsbook for live sports betting, a hotel, a 123-space recreational vehicle park, various dining and bar options, and banquet and meeting facilities.
L’Auberge Baton Rouge is located approximately ten miles southeast of downtown Baton Rouge, Louisiana. In addition to gaming options, the property features a 12-story hotel, a variety of dining choices, and 13,000 square feet of meeting and event space.
L’Auberge Lake Charles offers one of the closest full-scale casino hotel facilities to Houston, Texas, as well as to the Austin, Texas and San Antonio, Texas metropolitan areas. The location is approximately 140 miles from Houston and approximately 300 miles and 335 miles from Austin and San Antonio, respectively. In addition to gaming amenities, the property features several dining outlets, a golf course, a full-service spa, and more than 26,000 square feet of meeting and event space.
Margaritaville Resort Casino is one of the premier gaming, lodging, dining and entertainment experiences in Northern Louisiana. The property provides an island-style theme and includes a 15,000 square foot 1,000-seat theater, and 9,500 square feet of meeting space.
West Segment
Ameristar Black Hawk is located in the center of the Black Hawk gaming district, approximately 40 miles west of Denver, Colorado. In addition to gaming amenities, the resort features a hotel, a full-service day spa, several dining outlets, a live entertainment bar, and 15,000 square feet of meeting and event space.
Cactus Petes and Horseshu (collectively, “the Jackpot Properties”) are located just south of the Idaho border in Jackpot, Nevada. The Jackpot Properties collectively feature two hotels, several dining options, a 4,000 seat amphitheater, a showroom, a live entertainment lounge, and meeting and event facilities.
M Resort, located approximately ten miles from the Las Vegas strip in Henderson, Nevada, is situated at the southeast corner of Las Vegas Boulevard and St. Rose Parkway. The resort features slot machines, table games and a sportsbook for live sports betting, as well as a hotel and a variety of dining and bar options. The property also features more than 60,000 square feet of meeting and conference space, a spa and fitness center, and a 100,000 square foot event center.
Tropicana Las Vegas,located on the strip in Las Vegas, Nevada, is situated at the corner of Tropicana Boulevard and Las Vegas Boulevard. In addition to gaming, the resort features a hotel, a sportsbook kiosk, full-service restaurants, a food court, and a variety of bar and lounge options. The property also includes entertainment venues, over 100,000 square feet of exhibition and meeting space, and a five-acre tropical beach event area and spa.
Zia Park Casino is located in Hobbs, New Mexico, and features slot machines, a hotel, restaurants, a one-mile quarter/thoroughbred racetrack with live racing from September to December, and a year-round simulcast parlor.
Midwest Segment
Ameristar Council Bluffs is located across the Missouri River from Omaha, Nebraska and includes the largest riverboat in Iowa. In addition to gaming amenities, the property also features a hotel, a fitness center, several dining facilities, a sports bar featuring a sportsbook with live sports betting, and 5,000 square feet of convention and meeting space.
Argosy Casino Alton is located on the Mississippi River in Alton, Illinois, approximately 20 miles northeast of downtown St. Louis, Missouri. Argosy Casino Alton is a three-deck riverboat featuring slot machines, table games and a sportsbook for live betting. Argosy Casino Alton includes an entertainment pavilion and features a deli, a VIP lounge and a 475-seat main showroom.
Argosy Casino Riverside is located on the Missouri River, approximately five miles from downtown Kansas City. In addition to gaming amenities, this Mediterranean-themed property features a nine-story hotel, a spa, an entertainment facility featuring various food and beverage areas, a VIP lounge and a sports/entertainment lounge and 19,000 square feet of banquet/conference facilities.
Hollywood Casino Aurora is located in Aurora, Illinois, the second largest city in Illinois, approximately 35 miles west of Chicago. This single-level dockside casino offers guests gaming amenities, including a poker room and a sportsbook for live sports betting and features multiple dining and bar options.
Hollywood Casino Joliet is located on the Des Plaines River in Joliet, Illinois, approximately 40 miles southwest of Chicago. The complex includes a barge-based casino which provides guests with two levels of gaming experience, as well as a land-based pavilion with several dining and entertainment options. In addition, the property includes a sportsbook for live betting, a hotel, 4,600 square feet of meeting space, and an 80-space RV park.
Hollywood Casino at Kansas Speedway, our 50% joint venture with NASCAR, is located in Kansas City, Kansas. It features slot machines, table games and poker tables and offers a variety of dining and entertainment facilities, and a meeting room.
Hollywood Casino St. Louis is located adjacent to the Missouri River directly off I-70 and approximately 22 miles northwest of downtown St. Louis, Missouri. The facility features slot machines, table games, poker tables, a hotel, and a variety of dining and entertainment venues.
Prairie State Gaming is our licensed VGT route operator in Illinois across a network of over 390 bar and/or retail gaming establishments in seven distinct geographic areas throughout Illinois.
River City Casino is located in the St. Louis, Missouri metropolitan area, just south of the confluence of the Mississippi River and the River des Peres in the south St. Louis community of Lemay, Missouri. River City Casino features a hotel, multiple dining outlets, an entertainment lounge, and over 10,000 square feet of conference space.
Other
Freehold Raceway.Through our joint venture in Pennwood Racing, Inc. (“Pennwood”), we own 50% of Freehold Raceway. The property features a half-mile standardbred race track and a 118,000 square foot grandstand. In addition, through our Pennwood joint venture, we own 50% of a leased OTW in Toms River, New Jersey, and operate another OTW, which we constructed, in Gloucester Township, New Jersey.
Retama Park Racetrack.We have a management contract with Retama Development Corporation (“RDC”), a local government corporation of the City of Selma, Texas, to manage the day-to-day operations of Retama Park Racetrack. In addition, we own 1.0% of the equity of Retama Nominal Holder, LLC, which holds a nominal interest in the racing license used to operate Retama Park Racetrack. Additionally, we own a 75.5% interest in Pinnacle Retama Partners, LLC (“PRP”), which owns the contingent gaming rights that may arise if gaming under the existing racing license becomes legal in Texas in the future.
Sam Houston Race Park and Valley Race Park.Our joint venture with MAXXAM owns and operates Sam Houston Race Park and Valley Race Park, and holds a license for a racetrack in Manor, Texas, just outside of Austin. Sam Houston Race Park, which is located 15 miles northwest from downtown Houston along Beltway 8, hosts thoroughbred and quarter horse racing and offers daily simulcast operations, as well as hosts various special events, private parties and meetings, concerts and national touring festivals throughout the year. Valley Race Park features 91,000 of property square footage as a dog racing and simulcasting facility.
Sanford-Orlando Kennel Club. The greyhound racetrack and related facility was sold to a land developer during the fourth quarter of 2020. The remaining facility owned by the Company is used to operate a restaurant and to offer year-round simulcast racing operations.
Penn Interactive
Penn Interactive is our interactive gaming division that operates our online sports betting app called Barstool Sportsbook as well as our iGaming platforms, which are currently live in Pennsylvania and Michigan. Penn Interactive includes the operations of Absolute Games, LLC, a developer and operator of online social bingo and other casino games. In addition, Penn Interactive has entered into multi-year agreements with leading sports betting operators for online sports betting and iGaming market access across our portfolio of properties. Pursuant to these agreements, such sports betting operators have commenced operations in Indiana, Pennsylvania and West Virginia. Penn Interactive also operates 16 internally-branded or Barstool-branded retail sportsbooks located at the Company's properties in Colorado, Illinois, Indiana, Iowa, Michigan, Mississippi, Pennsylvania and West Virginia.
Trademarks
We own a number of trademarks and service marks registered with the U.S. Patent and Trademark Office (“USPTO”), including but not limited to, “Ameristar®,” “Argosy®,” “Boomtown®,” “Greektown®,” “Hollywood Casino®,” “Hollywood Gaming®,” “L’Auberge®,” “M Resort®,” and “MYCHOICE®,” among other trademarks. We believe that our rights to our trademarks are well-established and have competitive value to our properties. We also have a number of trademark applications pending with the USPTO.
Among others, we have a licensing agreement with a third party to use the “Margaritaville®” trademark in connection with the operations of Margaritaville in Bossier City, Louisiana. Upon closing of the transaction with Barstool Sports in February 2020, we have the sole right to utilize the Barstool Sports® brand for all of our online and retail sports betting and iGaming products. In addition, subject to certain terms, conditions, and limitations, we have the exclusive right to use the “Tropicana Las Vegas®” and certain other trademarks within 50 miles of our Tropicana Las Vegas property.
Competition
The gaming industry is characterized by an increasingly high degree of competition among a large number of participants operating from physical locations and/or through online or mobile platforms, and other forms of gaming in the U.S. In a broader sense, our gaming operations face competition from all manner of leisure and entertainment activities, including shopping, athletic events, television and movies, concerts and travel. Legalized gaming is currently permitted in various forms throughout the U.S. and on various lands taken into trust for the benefit of certain Native Americans and as well as various land taken into trust for the benefit of certain First Nations people in Canada. Other jurisdictions, including states adjacent to states in which we currently have properties, have recently legalized, implemented and expanded gaming. In addition, established gaming jurisdictions could award additional gaming licenses or permit the expansion or relocation of existing gaming operations (including VGTs, skill games, sports betting and iGaming). Competition is discussed in further detail within “Item 1A. Risk
Government Regulation and Gaming Issues
The gaming and racing industries are highly regulated, and we must maintain our licenses and pay gaming taxes to continue our operations. Each of our properties is subject to extensive regulation under the laws, rules and regulations of the jurisdiction where it is located. These laws, rules and regulations generally concern the responsibility, financial stability and character of the owners, managers, and persons with financial interests in the gaming operations. Violations of laws or regulations in one jurisdiction could result in disciplinary action in other jurisdictions. For a more detailed description of the statutes and regulations to which we are subject, see Exhibit 99.1, “Description of Government Regulations,” to this Annual Report on Form 10-K, which is incorporated herein by reference. Our businesses are subject to various federal, state and local laws and regulations in addition to gaming regulations. These laws and regulations include, but are not limited to, restrictions and conditions concerning alcoholic beverages, environmental matters, employees, health care, currency transactions, taxation, zoning and building codes, and marketing and advertising. Such laws and regulations could change or could be interpreted differently in the future, or new laws and regulations could be enacted. Material changes, new laws or regulations, or material differences in interpretations by courts or governmental authorities could adversely affect our financial condition, results of operations and cash flows.
Information about our Executive Officers
As of February 26, 2021, the persons serving as our executive officers and their positions with us are as follows:
| | | | | | | | | | | | | | |
NAME | | AGE | | POSITION WITH THE COMPANY |
Jay Snowden | | 44 | | President, Chief Executive Officer and Director |
Todd George | | 51 | | Executive Vice President, Operations |
Harper Ko | | 47 | | Executive Vice President, Chief Legal Officer and Secretary |
Jay Snowden. In August 2019, the Company’s Board of Directors elected Mr. Snowden as a Board member. Effective January 1, 2020, Mr. Snowden became the Company’s Chief Executive Officer. Mr. Snowden joined the Company in October 2011 as Senior Vice President-Regional Operations and was promoted to Chief Operating Officer in January 2014. In March 2017, Mr. Snowden was named President and Chief Operating Officer and was responsible for overseeing all of our operating businesses, as well as human resources, marketing, and information technology. Prior to joining the Company, Mr. Snowden was the Senior Vice President and General Manager of Caesars and Harrah’s in Atlantic City, New Jersey, and prior to that, held various leadership positions with them in St. Louis, Missouri, San Diego, California and Las Vegas, Nevada.
Todd George. Mr. George has served as our Executive Vice President, Operations since January 2020. Mr. George joined us in October 2012 as Vice President and General Manager of Hollywood Casino in Lawrenceburg, Indiana, transitioning to the role of Vice President and General Manager of Hollywood Casino St. Louis in 2014. In 2017, he was promoted to his previous role as Senior Vice President, Regional Operations, overseeing nine properties in the Company’s Midwest Region. Prior to joining Penn National, Mr. George spent 12 years in various management positions at Pinnacle Entertainment Inc., including leading the development and launch of Pinnacle’s two St. Louis, Missouri properties.
Harper Ko. Ms. Ko was appointed as the Company’s Executive Vice President, Chief Legal Officer and Secretary on January 1, 2021. Prior to joining Penn, Ms. Ko was the Executive Vice President, Chief Legal Officer – General Counsel and Secretary of Everi Holdings, Inc., a full-service casino gaming equipment and payment solutions provider from 2017 until December 2020. Prior to joining Everi, Ms. Ko served as Deputy General Counsel, Gaming for Scientific Games Corporation. During her time there from November 2014 to December 2017, Ms. Ko led the legal integration of Bally Gaming, Inc., SHFL entertainment Inc., and WMS Gaming Inc. into the Scientific Games Gaming division and served as a strategic advisor to their Gaming unit executive management team on all material commercial transactions, customer and third-party issues, and regulatory compliance and litigation matters.
Employees and Human Capital Resources
The Company’s key human capital management objectives are to attract, retain and develop diverse and high quality talent. Our commitment to an equal-opportunity and respectful workplace characterized by both diversity and inclusion, in which everyone feels valued, respected and supported, is a factor driving our success. Our talent and development programs are designed to develop, support and maintain talent succession pipelines in preparation for key roles and leadership positions;
recognize, reward and support our team members through competitive pay and wellness programs; enhance the Company’s philanthropic culture by encouraging participation and championing programs in the communities in which we work and live; and invest in technology and resources to provide our team members with the most efficient tools to perform their jobs.
Some of the key programs and initiatives developed to attract and retain high quality talent include:
•Executive and High Potential Talent Review Process
•Diversity and Veteran Recruitment Initiatives
•AwardCo Recognition Program and Property Engagement Committees
As of December 31, 2020, we had approximately 18,321 full-time and part-time employees. As of December 31, 2020, we had 38 collective bargaining agreements covering approximately 2,779 active employees. Nine collective bargaining agreements are scheduled to expire in 2021, and we are currently renegotiating three collective bargaining agreements that expired in 2020. Although we believe that we have good employee relations, there can be no assurance that we will be able to extend or enter into replacement agreements. If we are able to extend or enter into replacement agreements, there can be no assurance as to whether the terms will be on comparable terms to the existing agreements.
In addition, the Company established a special COVID-19 Emergency Relief Fund under the Penn National Gaming Foundation to provide assistance to team members who have not been called back from furlough due to the ongoing restrictions associated with COVID-19. The Company has raised $3.7 million from our Board of Directors, Chief Executive Officer, senior management and the Penn National Gaming Foundation. In addition, we provided $13 million in one-time holiday cash bonuses in the fourth quarter to our non-executive team members companywide to help with the financial impact to their families from COVID-19. We also created the Hurricane Laura Relief Fund with an initial contribution of $2.5 million to help our community and team members impacted by the storm, in addition to providing more than $6 million in full wages and benefits to our team members during the L'Auberge Lake Charles property closure. Finally, on the social justice front, our Diversity Committee announced a new scholarship program for disadvantaged team members that will be funded with a $1 million annual commitment from our Company, and we launched a series of new inclusion-related initiatives.
Available Information
We maintain a website at www.pngaming.com that includes more information about us. The contents of our website are not part of this Annual Report on Form 10-K. Our electronic filings with the U.S. Securities and Exchange Commission (“SEC”) (including all Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, and any amendments to these reports), including the exhibits, are available free of charge through our website as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC. Our filings are also available through a database maintained by the SEC at www.sec.gov.
ITEM 1A.RISK FACTORS
Risks Related to the COVID-19 Pandemic
The COVID-19 pandemic has significantly impacted the global economy, including the gaming industry, and has had a material adverse effect on our business, financial condition, results of operations, and cash flows, and may continue to do so.
On March 11, 2020, the World Health Organization declared the COVID-19 outbreak to be a global pandemic. The COVID-19 pandemic has significantly impacted health and economic conditions throughout the United States. The global spread of the COVID-19 pandemic has been, and continues to be, complex and rapidly evolving, with governments, public institutions, and other organizations imposing or recommending, and businesses and individuals implementing, restrictions on various activities or other actions to combat its spread, such as restrictions and bans on travel or transportation, stay-at-home directives, social distancing and health and safety guidelines, limitations on the size of gatherings, closures of work facilities, schools, public buildings, and businesses, cancellation of events, including sporting events, concerts, conferences, and meetings, and quarantines and lock-downs. The COVID-19 pandemic and its consequences have also dramatically reduced travel and demand for casino gaming and related amenities. Many jurisdictions where our properties are located required mandatory closures or imposed capacity limitations, health and safety guidelines and other restrictions affecting our operations. The COVID-19 pandemic and these resulting developments caused significant disruptions to our ability to generate revenues, profitability, and cash flows and had a material adverse impact on our financial condition, results of operations, and cash flows. Such impact could worsen and last for an unknown period of time. In addition, these disruptions to us and the gaming industry in general as well as significant negative economic trends due to the COVID-19 pandemic may adversely affect our stock price.
During the first quarter of 2020, all of the Company’s properties were closed pursuant to various orders from state gaming regulatory bodies or governmental authorities to combat the spread of COVID-19. We began reopening our properties on May 18, 2020 with reduced gaming and hotel capacity and limited food and beverage offerings in order to accommodate comprehensive social distancing and health and safety protocols. As of June 30, 2020, we had reopened 31 of our properties and as of September 30, 2020, we had reopened 39 of our properties. During the fourth quarter of 2020, our properties in Illinois, Michigan and Pennsylvania again temporarily suspended operations and as of December 31, 2020, we had reopened 34 of our properties. As of February 26, 2021, the only properties that remain closed are Zia Park and Valley Race Park.
Though virtually all of our properties have reopened, we may be required again to temporarily suspend operations at our properties if ordered by such governmental bodies. Our reopened properties face restrictions on our operations, including hours of operations, capacity limitations, cleaning requirements, restrictions on the number of seats per table game, slot machine spacing, temperature checks, mask protection and social distancing requirements and food and beverage options, which impact our future operations and ability to generate the same level of revenues and cash flows as before the COVID-19 pandemic. The continued operation of our reopened properties, may be affected by our ability to retain our workforce.
Moreover, once restrictions are lifted, it is unclear how quickly customers will return to our properties in numbers comparable to before the COVID-19 pandemic, which may be a function of continued concerns over health and safety, ongoing social distancing measures, perceptions of the efficacy of any vaccines and the ability to achieve herd immunity, or changes in consumer spending behavior due to adverse economic conditions, including job losses. Our properties have large customer-facing footprints and large areas where customers can gather together for personal interaction. As such, some customers may choose for a period of time not to travel or visit our properties for health and safety concerns or due to overall changes in consumer behavior resulting from social distancing. Upon reopening our properties, we have seen weakened visitation, which may have been due to increased level of unemployment, continued travel restrictions or warnings, consumer fears, reduced consumer discretionary spending or general economic uncertainty. Our vendors and other suppliers could also experience potential adverse effects of the pandemic that could impact our ability to operate to the same level as prior to the closures. Cancellations, delays or shortened sports seasons and sporting events due to the COVID-19 pandemic have also had an adverse impact on the revenues of our sports betting operations. If COVID-19 continues to spread significantly in its current form or as a more contagious variant of the virus, governmental agencies or officials may order additional closures or impose further restrictions on the number of people allowed in our properties or in proximity to each other. Any of these events could result in significant further disruption to our operations and a drop in demand for our properties and could have a material adverse effect on us.
We could experience other potential adverse impacts as a result of the COVID-19 pandemic, including, but not limited to, further charges from adjustments to the carrying amount of goodwill and other intangible assets, long-lived asset impairment charges, or impairments of investments in joint ventures.
The ultimate impact of the COVID-19 pandemic on our business, results of operations, financial condition and cash flows will depend on numerous evolving factors that we may not be able to accurately predict or assess, including the duration and scope of the pandemic (including how long the current resurgence may last, and whether there will be multiple resurgences in the future); the duration and impact on overall customer demand; the possibility that governmental bodies may again order temporary suspension of operation at our properties; our ability to again generate revenue and profits capable of supporting our ongoing operations; new information which may emerge concerning the severity of COVID-19 or variants of the virus, or the efficacy of, or adverse reactions to, vaccines; the negative impact it has on global and regional economies and economic activity; the ability of us and our business partners to successfully navigate the impacts of the pandemic; actions governments, businesses, and individuals continue to take in response to the pandemic, including limiting or banning travel and limiting or banning leisure, casino, and entertainment activities (including concerts, sports and similar events); and how quickly economies, travel activity, and demand for gaming, entertainment and leisure activities recovers after the pandemic subsides and an effective vaccine is widely available. The impact of the COVID-19 pandemic may also have the effect of exacerbating many of the other risks described in this Annual Report on Form 10-K. As a result of the foregoing, we cannot predict the ultimate scope, duration, and impact that the COVID-19 pandemic will have on our results of operations, but we expect that it will continue to have a material impact on our business, financial condition, liquidity, results of operations (including revenues and profitability), and stock price.
Risks Related to Our Business and Operations
We face significant competition in the markets in which we operate and from other gaming and entertainment operations, which could have an adverse impact on our financial condition, results of operations, and cash flows.
The gaming industry is characterized by an increasingly high degree of competition among a large number of participants operating from physical locations and/or through online or mobile platforms, and other forms of gaming in the U.S. Recently, there has been additional significant competition in our markets as a result of the upgrading or expansion of properties by existing market participants, the entrance of new gaming participants into a market or legislative changes permitting additional forms of gaming. As competing properties and new markets open, our results of operations may be negatively impacted. We expect each existing or future market in which we participate to be highly competitive.
Furthermore, competition from internet lotteries, sweepstakes, illegal slot machines and skill games, fantasy sports and internet or mobile-based gaming platforms could divert customers from our properties and our online sports betting and iGaming apps and thus adversely affect our financial condition, results of operations, and cash flows. Currently, there are proposals that would legalize internet poker, sports betting and other varieties of iGaming in a number of states. Several states have enacted legislation authorizing intrastate iGaming and iGaming operations have begun or will begin in these states. Further, there has been recent expansion of sports betting in various states, as states have passed legislation legalizing sports betting in casinos and/or online. Expansion of land-based and iGaming in other jurisdictions (both regulated and unregulated) could further compete with our traditional and iGaming operations, which could have an adverse impact on our financial condition, results of operations, and cash flows.
In a broader sense, our gaming operations face competition from all manner of leisure and entertainment activities, including shopping, athletic events, television and movies, concerts and travel. Legalized gaming is currently permitted in various forms throughout the U.S. and on various lands taken into trust for the benefit of certain Native Americans and as well as various land taken into trust for the benefit of certain First Nations people in Canada. Other jurisdictions, including states adjacent to states in which we currently have properties, have recently legalized, implemented and expanded gaming. In addition, established gaming jurisdictions could award additional gaming licenses or permit the expansion or relocation of existing gaming operations (including VGTs, skill games, sports betting and iGaming). Voters and state legislatures may seek to supplement traditional tax revenue sources of state governments or fill COVID-related budget gaps by authorizing or expanding gaming in the states, in which we operate or the states that are adjacent to or near our existing properties. New, relocated, or expanded operations by other persons could increase competition for our gaming operations and could have a material adverse impact on us.
We may face reductions in discretionary consumer spending as a result of economic downturns (including as a result of COVID-19) which have had a material adverse effect on our business.
Our net revenues are highly dependent upon the volume and spending levels of customers at properties we manage, and as such, our business has been adversely impacted by economic downturns in the past and continues to be impacted by the economic downturn resulting from the COVID-19 pandemic. Decreases in discretionary consumer spending brought about by weakened general economic conditions such as, but not limited to, lackluster recoveries from recessions, high unemployment levels, higher income taxes, low levels of consumer confidence, weakness in the housing market, cultural and demographic changes, high fuel or other transportation costs, and increased stock market volatility have negatively impacted our revenues and operating cash flow.
We have certain properties that generate a significant percentage of our revenues and our ability to meet our operating and debt service requirements is dependent, in part, upon the continued success of these properties.
For the year ended December 31, 2020, we generated 16.7%, 10.7%, and 15.6% of our revenues from our properties within the states of Louisiana, Missouri, and Ohio, respectively. Additionally, we generated 6.6% of our revenues from our property in Charles Town, West Virginia. Our ability to meet our operating and debt service requirements is dependent, in part, upon the continued success of these properties.
In addition, we anticipate meaningful contributions from Ameristar Black Hawk, Greektown, and our properties in Pennsylvania. Therefore, our results will be dependent on the regional economies and competitive landscapes at these locations as well.
We are required to utilize a significant portion of our cash flow from operations to make our rent payments under our Triple Net Leases, which could adversely affect our ability to fund our operations and growth and limit our ability to react to competitive and economic changes.
We are required to utilize a significant portion of our cash flow from operations which was $891.1 million inclusive of rent credits utilized for the year ended December 31, 2020, to make our rent payments pursuant to and subject to the terms and conditions of our Master Leases with GLPI, our Meadows Lease and Morgantown Lease with GLPI, our Margaritaville Lease
and Greektown Lease with VICI and our Tropicana Lease (as defined previously as our “Triple Net Leases”), although cash rent under our Tropicana Lease is nominal. In 2020, all of our properties were temporarily closed due to COVID-19 and we were able to obtain rent credits of $337.5 million from GLPI in order to maintain compliance with our Master Leases with GLPI in connection with the sale of Tropicana and the real estate associated with Morgantown. As a result of these commitments under our Triple Net Leases, our ability to fund our own operations or development projects, raise capital, make acquisitions and otherwise respond to competitive and economic changes may be adversely affected. Further, our obligations under the Triple Net Leases may make it more difficult for us to satisfy our obligations with respect to our indebtedness and to obtain additional indebtedness and restrict our ability to raise capital, make acquisitions, divestitures and engage in other significant transactions. Any of the aforementioned factors could have a material adverse effect on our financial condition, results of operations, and cash flows.
Most of our facilities are leased and could experience risks associated with leased property.
We lease 36 of the facilities we operate, or plan to operate, pursuant to the Triple Net Leases. Termination of the Penn Master Lease, Pinnacle Master Lease, Morgantown Lease or Tropicana Lease could result in a default under our debt agreements and could have a material adverse effect on our financial condition, results of operations, and cash flows. Moreover, as a lessee, we do not completely control the land and improvements underlying our operations, and our landlords under the Triple Net Leases could take certain actions to disrupt our rights in the facilities leased under the Triple Net Leases that are beyond our control. There can also be no assurance that we will be able to comply with our obligations under the Triple Net Leases in the future. In addition, there can be no assurance that our landlords will be able to comply with their obligations under the Triple Net Leases with us. In addition, if some of our leased facilities should prove to be unprofitable, we could remain obligated for lease payments and other obligations under the Triple Net Leases even if we decided to withdraw from those locations.
Inclement weather, acts or threats of terrorism, and other casualty events could seriously disrupt our business and have a material adverse effect on our financial condition, results of operations, and cash flows.
The operations of our properties are subject to disruptions or reduced patronage as a result of severe weather conditions, natural disasters, acts or threats of terrorism, concerns about contagious diseases such as the COVID-19 pandemic, and other casualty events, such as hurricanes or tornados. We maintain significant property insurance, including business interruption coverage, for these and other properties. However, there can be no assurances that we will be fully, promptly, or compensated at all for losses at any of our properties in the event of future inclement weather or casualty events or from the closings of our properties due to the COVID-19 pandemic or other contagious disease. For example, on August 27, 2020, Hurricane Laura made landfall in Lake Charles, Louisiana and caused significant damage to L’Auberge Lake Charles forcing it to close for approximately two weeks.
Our operations could be disrupted if management agreements and/or leases with third parties and local governments are not renewed.
Our operations in several jurisdictions depend on land leases and/or management and development agreements with third parties and local governments. If we, or if GLPI or VICI in the case of leases pursuant to which we are the sub-lessee, are unable to renew these leases and agreements on satisfactory terms as they expire or if disputes arise regarding the terms of these agreements, our business may be disrupted and, in the event of disruptions in multiple jurisdictions, could have a material adverse effect on our financial condition, results of operations, and cash flows
The concentration and evolution of the slot machine manufacturing industry could impose additional costs on us.
A majority of our revenues are attributable to slot machines and related systems operated by us at our gaming properties. A substantial majority of the slot machines sold in the U.S. in recent years were manufactured by a few select companies, and there has been extensive consolidation activity within the gaming equipment sector in recent years. In recent years, slot machine manufacturers have frequently refused to sell slot machines featuring the most popular games, instead requiring participation lease arrangements in order to acquire the machines.
For competitive reasons, we may be forced to purchase new slot machines or enter into participation lease arrangements that are more expensive than our current costs associated with the continued operation of our existing slot machines, which could hurt our profitability.
There can be no assurance that we will be able to compete effectively or generate sufficient returns on our recently expanded sports betting operations and investment in Barstool Sports.
Certain of the jurisdictions in which we operate have legalized intra-state sports wagering and have established extensive state licensing and regulatory requirements governing any such intra-state sports wagering. Our sports betting operations compete, and will continue to compete, in a rapidly evolving and highly competitive market against an increasing number of competitors. We launched the Barstool Sportsbook app in Pennsylvania in September 2020 and in Michigan in January 2021, and we expect to launch our Barstool Sportsbook app in additional states throughout 2021. In addition, we have entered into certain market access agreements with certain other sports betting operators and may enter into agreements with additional strategic partners and other third-party vendors. The success of our proposed sports betting operations is dependent on a number of additional factors that are beyond our control, including the ultimate tax rates and license fees charged by jurisdictions across the United States; our ability to gain market share in a newly developing market; the timeliness and the technological and popular viability of our products; our ability to compete with new entrants in the market; changes in consumer demographics and public tastes and preferences; cancellations and delays in sporting seasons and sporting events as a result of the COVID-19 pandemic; and the availability and popularity of other forms of entertainment. There can be no assurance that we will be able to compete effectively or that our expansion will be successful and generate sufficient returns on our investment.
We may not be able to achieve the expected benefits or financial returns of our investment in Barstool Sports due to fees, costs, taxes, delays or disruptions in connection with our roll out of our online and retail sportsbooks, the Barstool Sportsbook app, and iGaming products. In addition, there can be no assurance that the Barstool Sports audience will engage in sports betting and iGaming products to the extent that we expect. Any of the factors above could prevent us from receiving the expected returns of our investment in Barstool Sports, cause the market price of our common stock to decline, and have a material adverse effect on our financial condition, results of operations, and cash flows.
Our investment in and partnership with Barstool Sports may result in potential adverse reactions, negative publicity or changes to our business or regulatory relationships. Our relationships with state gaming regulators and business partners could be adversely affected as a result of our affiliation with Barstool Sports. Gaming regulators may not have extensive experience in the digital media industry, which may present unique challenges in regulating our business. In addition, our business partners may react negatively to actual or perceived competitive threats from our affiliation with Barstool Sports.
Our operations and the success of our investment in Barstool Sports are largely dependent on the skill and experience of management and key personnel.
Our success and our competitive position are largely dependent upon, among other things, the efforts and skills of our senior executives and management team. Although we enter into employment agreements with certain of our senior executives and key personnel, we cannot assure you that we will be able to retain our existing senior executive and management personnel or attract additional qualified senior executive and management personnel. Further, Barstool Sports is dependent upon its ability to attract and retain key personnel, including content creators, bloggers, and marketing personnel. If Barstool Sports loses the services of its senior management team or other key personnel, or if there is a shortage in the availability of the requisite qualified personnel, it would limit the ability of Barstool Sports to grow, to increase sales, and promote our online sports betting and iGaming products and our gaming facilities.
Work stoppages, organizing drives, and other labor problems could negatively impact our future profits.
Some of our employees are currently represented by labor unions. A lengthy strike or other work stoppage at any of our casino properties or construction projects could have an adverse effect on our financial condition, results of operations, and cash flows. Given the large number of employees, labor unions are making a concerted effort to recruit more employees in the gaming industry. We cannot provide any assurance that we will not experience additional and more successful union organization activity in the future.
Further, there has from time to time been a shortage of skilled labor in our markets. In addition to limitations that may otherwise exist in the supply of skilled labor, the continued expansion of gaming near our properties, including the expansion of Native American gaming, may make it more difficult for us to attract qualified individuals. While we believe that we will continue to be able to attract and retain qualified employees, shortages of skilled labor will make it increasingly difficult and expensive to attract and retain the services of a satisfactory number of qualified employees, and we may incur higher costs than expected as a result.
We depend on agreements with our horsemen and pari-mutuel clerks, which if we fail to renew or modify on satisfactory terms, could have a material adverse effect on us.
In jurisdictions where we operate pari-mutuel wagering, if we fail to present evidence of an agreement with the horsemen at a track, we may not be permitted to conduct live racing and to export and import simulcasting at that track and OTWs and, in West Virginia, our video lottery license may not be renewed.
Failure to protect or enforce our intellectual property rights or the costs involved in such enforcement could harm our business, financial condition, and results of operations.
We rely on trademark, copyright, patent, trade secret, and domain-name-protection laws to protect our proprietary rights. Third parties may knowingly or unknowingly infringe our proprietary rights, third parties may challenge proprietary rights held by us, and pending and future trademark and patent applications may not be approved. In any of these cases, we may be required to expend significant time and expense to prevent infringement or to enforce our rights.
The market price of our common stock could fluctuate significantly, which could have a material adverse effect on the stock price or trading volume of our common stock.
The U.S. securities markets in general have experienced significant price fluctuations in recent years, including recently due to the COVID-19 pandemic. The market price of our common stock may be volatile and subject to wide fluctuations, and the trading volume of our common stock may fluctuate and cause significant price variations to occur.
We are or may become involved in legal proceedings that, if adversely adjudicated or settled, could impact our financial condition and results of operations.
From time to time, we are defendants in various lawsuits relating to matters incidental to our business. The nature of our business subjects us to the risk of lawsuits filed by customers, past and present employees, competitors, business partners and others in the ordinary course of business (particularly in the case of class actions). As with all litigation, no assurance can be provided as to the outcome of these matters and, in general, litigation can be expensive and time consuming. We may not be successful in these lawsuits, and, especially with increasing class action claims in our industry, litigation could result in costs, settlements, or damages that could significantly impact our financial condition, results of operations, and cash flows.
Risks Related to Our Indebtedness and Capital Structure
Our substantial indebtedness could adversely affect our financial health and prevent us from fulfilling our obligations under our outstanding indebtedness.
As of December 31, 2020, we had indebtedness of $2,431.6 million, including $1,628.1 million in outstanding term loans. In addition, we are required to make significant annual lease payments to our REIT Landlords pursuant to the Triple Net Leases, which we currently expect will be approximately $814.6 million for the year ending December 31, 2021.
We have a substantial amount of indebtedness and significant fixed annual lease payments under the Triple Net Leases. Our substantial indebtedness and additional fixed costs under our Lease obligations could have important consequences to our financial health.
As noted above, due to the COVID-19 pandemic, our gaming properties had been temporarily closed. The closure of our gaming properties had significantly disrupted our ability to generate revenues. In order to remain in compliance with our debt covenants and meet our payment obligations, on April 14, 2020, we entered into an agreement to amend our Amended Credit Agreement to provide temporary relief from our financial covenants. In addition, our substantial indebtedness could result in an event of default if we fail to satisfy our obligations under our indebtedness or fail to comply with the financial and other restrictive covenants contained in our debt instruments, which event of default could result in all of our debt becoming immediately due and payable and could permit certain of our lenders to foreclose on any of our assets securing such debt.
In addition, the interest rates of our Senior Secured Credit Facilities are tied to the London Interbank Offered Rate, or LIBOR. In July 2017, the head of the United Kingdom Financial Conduct Authority announced the desire to phase out the use of LIBOR by the end of 2021 (“FCA Announcement”). The FCA Announcement indicates that the continuation of LIBOR on the current basis is not guaranteed after 2021, which may impact our Revolving Credit Facility.
The lack of availability and cost of financing could have an adverse effect on our business.
We intend to finance some of our current and future expansion, development and renovation projects and acquisitions with cash flow from operations, borrowings under our Senior Secured Credit Facilities and equity or debt financings. If we are
unable to finance our current or future projects, we could have to seek alternative financing. Depending on credit market conditions, alternative sources of funds may not be sufficient to finance our expansion, development and/or renovation, or such other financing may not be available on acceptable terms, in a timely manner or at all. In addition, our existing indebtedness contains restrictions on our ability to incur additional indebtedness. If we are unable to secure additional financing, we could be forced to limit or suspend expansion, development and renovation projects and acquisitions, which may adversely affect our financial condition, results of operations, and cash flows.
The capacity under our Revolving Credit Facility, which expires in 2023, is $700.0 million. There is no certainty that our lenders will continue to remain solvent or fund their respective obligations under our Senior Secured Credit Facilities.
To service our indebtedness, we will require a significant amount of cash, which depends on many factors beyond our control.
We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under our Senior Secured Credit Facilities in amounts sufficient to enable us to fund our liquidity needs, including with respect to our indebtedness. We also may incur indebtedness related to properties we develop or acquire in the future prior to generating cash flow from those properties. If those properties do not provide us with cash flow to service that indebtedness (including as a result of COVID-19), we will need to rely on cash flow from our other properties, which would increase our leverage. In addition, if we consummate significant acquisitions in the future, our cash requirements may increase significantly.
Risks Related to Regulation, Taxes and Compliance
We face extensive regulation from gaming authorities, which could have a material adverse effect on us.
As owners and managers of casino gaming, online gaming, sports betting, video lottery, VGTs, and pari-mutuel wagering operations, we are subject to extensive state and local regulation. These regulatory authorities have broad discretion, and may, for any reason set forth in the applicable legislation, rules and regulations, limit, condition, suspend, fail to renew or revoke a license or registration to conduct gaming operations or prevent us from owning the securities of any of our gaming subsidiaries or prevent another person from owning an equity interest in us. Like all gaming operators in the jurisdictions in which we operate, we must periodically apply to renew our gaming licenses or registrations and have the suitability of certain of our directors, officers and employees approved. We cannot assure you that we will be able to obtain such renewals or approvals. Regulatory authorities have input into our operations, for instance, hours of operation, location or relocation of a facility, and numbers and types of slot machines and table games. Regulators may also levy substantial fines against us, our subsidiaries, or the people involved in violating gaming laws or regulations and/or seize our assets or the assets of our subsidiaries. Any of these events could have a material adverse effect on our financial condition, results of operations, and cash flows.
We have demonstrated suitability to obtain and have obtained all governmental licenses, registrations, permits, and approvals necessary for us to operate our existing gaming and pari-mutuel properties. There can be no assurance that we will be able to retain and renew those existing licenses or demonstrate suitability to obtain any new licenses, registrations, permits, or approvals. In addition, the loss of a license in one jurisdiction could trigger the loss of a license or affect our eligibility for a license in another jurisdiction. As we expand our gaming operations in our existing jurisdictions or to new areas, we may have to meet additional suitability requirements and obtain additional licenses, registrations, permits and approvals from gaming authorities in these jurisdictions. The approval process can be time-consuming and costly, and we cannot be sure that we will be successful. Furthermore, this risk is particularly pertinent to our iGaming or sports betting initiatives because regulations in this area are not as fully developed or established.
Gaming authorities in the U.S. generally can require that any record or beneficial owner of our securities file an application for a license or similar finding of suitability. If a gaming authority requires a record or beneficial owner of our securities to file a suitability application, the owner must generally apply for a finding of suitability within 30 days or at an earlier time prescribed by the gaming authority. The gaming authority has the power to investigate such an owner’s suitability and the owner must pay all costs of the investigation. If the owner is found unsuitable, then the owner may be required by law to dispose of our securities.
Our directors, officers, key employees, and joint venture partners must also meet approval standards of certain state regulatory authorities. If state gaming regulatory authorities were to find a person occupying any such position or a joint venture partner or one of our vendors unsuitable, we would be required to sever our relationship with that person or the joint
venture partner or vendor. State regulatory agencies may conduct investigations into the conduct or associations of our directors, officers, key employees, joint venture partners or vendors to ensure compliance with applicable standards.
Certain public and private issuances of securities and other transactions that we are party to also require the approval of some state regulatory authorities.
Changes in legislation and regulation of our business could have an adverse effect on our financial condition, results of operations, and cash flows.
Regulations governing the conduct of gaming activities and the obligations of gaming companies in any jurisdiction in which we have or in the future may have gaming operations are subject to change and could impose additional operating, financial, competitive or other burdens on the way we conduct our business.
In particular, certain areas of law governing new gaming activities, such as the federal and state law applicable to iGaming and sports betting, are new or developing in light of emerging technologies. New and developing areas of law may be subject to the interpretation of the government agencies tasked with enforcing them. In some circumstances, a government agency may interpret a statute or regulation in one manner and then reconsider its interpretation at a later date. No assurance can be provided that government agencies will interpret or enforce new or developing areas of law consistently, predictably, or favorably. Moreover, legislation to prohibit, limit or add burdens to our business may be introduced in the future in states where gaming has been legalized. In addition, from time to time, legislators and special interest groups have proposed legislation that would expand, restrict or prevent gaming operations or which may otherwise adversely impact our operations in the jurisdictions in which we operate. Any expansion of gaming or restriction on or prohibition of our gaming operations or enactment of other adverse regulatory changes could have a material adverse effect on our operating results.
State and local smoking restrictions have and may continue to negatively affect our business.
Legislation in various forms to ban or substantially curtail indoor tobacco smoking in public places has been enacted or introduced in many states and local jurisdictions, including several of the jurisdictions in which we operate. We believe the smoking restrictions have significantly impacted business volumes. If additional smoking restrictions are enacted within jurisdictions where we operate or seek to do business, our financial condition, results of operations, and cash flows could be adversely affected.
Material increases to our taxes or the adoption of new taxes or the authorization of new or increased forms of gaming could have a material adverse effect on our future financial results.
We believe that the prospect of significant revenue is one of the primary reasons that jurisdictions permit or expand legalized gaming. As a result, gaming companies are typically subject to significant revenue-based taxes and fees in addition to normal federal, state and local income taxes, and such taxes and fees are subject to increase at any time. We pay substantial taxes and fees with respect to our operations. From time-to-time, federal, state, and local legislators and officials have proposed changes in tax laws, or in the administration of such laws, affecting the gaming industry. In addition, worsening economic conditions could intensify the efforts of state and local governments to raise revenues through increases in gaming taxes, property taxes and/or by authorizing additional gaming properties each subject to payment of a new license fee. It is not possible to determine with certainty the likelihood of changes in such laws or in the administration of such laws. Such changes, if adopted, could have a material adverse effect on our financial condition, results of operations, and cash flows. The large number of state and local governments with significant current or projected budget deficits makes it more likely that those governments that currently permit gaming will seek to fund such deficits with new or increased gaming or new or increased gaming taxes and/or property taxes, and worsening economic conditions could intensify those efforts. Any new or increased gaming or the material increase or adoption of additional taxes or fees, could have a material adverse effect on our future financial results, especially in light of our significant fixed rent payments.
We are subject to environmental laws and potential exposure to environmental liabilities which could have an adverse effect on us.
We are subject to various federal, state, and local environmental laws and regulations that govern our operations, including emissions and discharges into the environment, and the handling and disposal of hazardous and non-hazardous substances and wastes. Failure to comply with such laws and regulations could result in costs for corrective action, penalties or the imposition
of other liabilities or restrictions. From time to time, we have incurred and are incurring costs and obligations for correcting environmental noncompliance matters. The extent of such potential conditions cannot be determined definitively. To date, none of these matters have had a material adverse effect on our financial condition, results of operations, and cash flows; however, there can be no assurance that such matters will not have such an effect in the future.
We also are subject to laws and regulations that impose liability and clean-up responsibility for releases of hazardous substances into the environment. Under certain of these laws and regulations, a current or previous owner or operator of the property may be liable for the costs of remediating contaminated soil or groundwater on or from its property, without regard to whether the owner or operator knew of, or caused, the contamination, as well as incur liability to third parties impacted by such contamination. The presence of contamination, or failure to remediate it properly, may adversely affect our ability to use, sell or rent property. Under our contractual arrangements under the Triple Net Leases, we will generally be responsible for both past and future environmental liabilities associated with our gaming operations, notwithstanding ownership of the underlying real property having been transferred. Furthermore, we are aware that there is or may have been soil or groundwater or other contamination at certain of our properties resulting from current or former operations. These environmental conditions may require remediation in isolated areas. The extent of such potential conditions cannot be determined definitely, and may result in additional expense in the event that additional or currently unknown conditions are detected.
Additionally, certain of the gaming chips used at many gaming properties, including some of ours, have been found to contain some level of lead. Analysis by third parties has indicated the normal handling of the chips does not create a health hazard. We have disposed of a majority of these gaming chips. To date, none of these matters or other matters arising under environmental laws has had a material adverse effect on our financial condition, results of operations, and cash flows; however, there can be no assurance that such matters will not have such an effect in the future.
We are subject to certain federal, state and other regulations, and if we fail to comply with such regulations, it could have a material adverse effect on our financial condition, results of operations, and cash flow.
We are subject to certain federal, state, and local laws, regulations and ordinances that apply to businesses generally. The Bank Secrecy Act, enforced by the Financial Crimes Enforcement Network (“FinCEN”) of the U.S. Treasury Department, requires us to report currency transactions in excess of $10,000 occurring within a gaming day, including identification of the guest by name and social security number, to the IRS. This regulation also requires us to report certain suspicious activity, including any transaction that exceeds $5,000 that we know, suspect or have reason to believe involves funds from illegal activity or is designed to evade federal regulations or reporting requirements and to verify sources of funds, in response to which we have implemented Know Your Customer processes. Periodic audits by the IRS and our internal audit department assess compliance with the Bank Secrecy Act, and substantial penalties can be imposed against us if we fail to comply with this regulation. In recent years the U.S. Treasury Department has increased its focus on Bank Secrecy Act compliance throughout the gaming industry, and public comments by FinCEN suggest that casinos should obtain information on each customer’s sources of income. This could impact our ability to attract and retain casino guests. Further, since we deal with significant amounts of cash in our operations, we are subject to various reporting and anti-money laundering regulations. Any violation of anti-money laundering laws or regulations, or any accusations of money laundering or regulatory investigations into possible money laundering activities, by any of our properties, employees, partners, affiliates, or customers could have a material adverse effect on our financial condition, results of operations, and cash flows.
The riverboats on which we operate must comply with certain federal and state laws and regulations with respect to boat design, on-board facilities, equipment, personnel, and safety. In addition, we are required to have third parties periodically inspect and certify all of our casino barges for stability and single compartment flooding integrity. The casino barges on which we operate also must meet local fire safety standards. We would incur additional costs if any of the gaming facilities on which we operate were not in compliance with one or more of these regulations.
We are also subject to a variety of other federal, state and local laws and regulations, including those relating to zoning, construction, land use, employment, marketing, and advertising and the production, sale and service of alcoholic beverages. If we are not in compliance with these laws and regulations or we are subject to a substantial penalty, it could have a material adverse effect on our financial condition, results of operations, and cash flows.
Climate change, climate change regulations and greenhouse gas effects may adversely impact our operations.
There is a growing political and scientific consensus that greenhouse gas (“GHG”) emissions continue to alter the composition of the global atmosphere in ways that are affecting and are expected to continue affecting the global climate.
We may become subject to legislation and regulation regarding climate change, and compliance with any new rules could be difficult and costly. Concerned parties, such as legislators and regulators, stockholders and nongovernmental organizations, as well as companies in many business sectors, are considering ways to reduce GHG emissions. Many states have announced or adopted programs to stabilize and reduce GHG emissions and in the past federal legislation has been proposed in Congress. If such legislation is enacted, we could incur increased energy, environmental and other costs and capital expenditures to comply with the limitations. Unless and until legislation is enacted and its terms are known, we cannot reasonably or reliably estimate its impact on our financial condition, operating performance, or ability to compete. Further, regulation of GHG emissions may limit our guests’ ability to travel to our properties as a result of increased fuel costs or restrictions on transport related emissions. Climate change could have a material adverse effect on our financial condition, results of operations and cash flow. We have described the risks to us associated with extreme weather events in the risk factors above.
Risks Related to Technology, Information Security, and Penn Interactive
Our gaming operations, online sports betting and iGaming rely heavily on technology services and an uninterrupted supply of electrical power.
Any unscheduled disruption in our technology services or interruption in the supply of electrical power could result in an immediate, and possibly substantial, loss of revenues due to a shutdown of our gaming operations (including slot machines and security systems), online sports betting, and iGaming operations.
Our information technology and other systems are subject to cyber security risk, including misappropriation of employee information, customer information or other breaches of information security, particularly as our iGaming division grows.
We increasingly rely on information technology and other systems (particularly as our iGaming division grows), including our own systems and those of service providers and third parties, to manage our business and employee data and maintain and transmit customers’ personal and financial information, credit card settlements, credit card funds transmissions, mailing lists, and reservations information. Our collection of such data is subject to extensive regulation by private groups, such as the payment card industry, as well as governmental authorities, including gaming authorities. Privacy regulations continue to evolve and we have taken, and will continue to take, steps to comply by implementing processes designed to safeguard the confidential and personal information of our business, employees and customers. In addition, our security measures are reviewed and evaluated regularly. However, our information and processes and those of our service providers and other third parties, are subject to the ever-changing threat of compromised security, in the form of a risk of potential breach, system failure, computer virus, or unauthorized or fraudulent use by customers, company employees, or employees of third party vendors. The steps we take to deter and mitigate the risks of breaches may not be successful, and any resulting compromise or loss of data or systems could adversely impact operations or regulatory compliance and could result in remedial expenses, fines, litigation, disclosures, and loss of reputation, potentially impacting our financial results. Further, as cyber-attacks continue to evolve, we may incur significant costs in our attempts to modify or enhance our protective measures or investigate or remediate any vulnerability. Increased instances of cyber-attacks may also have a negative reputational impact on us and our properties that may result in a loss of customer confidence and, as a result, may have a material adverse effect on our financial condition, results of operations, and cash flows.
Our online sports betting and iGaming initiatives may result in increased risk of cyber-attack, hacking, or other security breaches, which could harm our reputation and competitive position and which could result in regulatory actions against us or in other penalties.
As our online sports betting and iGaming business grows, we will face increased cyber risks and threats that seek to damage, disrupt or gain access to our networks, our products and services, and supporting infrastructure. Any failure to prevent or mitigate security breaches or cyber risk could result in interruptions to the services we provide, degrade the user experience, and cause our users to lose confidence in our products. The unauthorized access, acquisition or disclosure of consumer information could compel us to comply with disparate breach notification laws and otherwise subject us to proceedings by governmental entities or others and substantial legal and financial liability. This could harm our business and reputation, disrupt our relationships with partners and diminish our competitive position.
If our third-party mobile application distribution platforms or service providers do not perform adequately or terminate their relationships with us, our costs may increase and our business, financial condition, and results of operations could be adversely affected.
We rely upon third-party distribution platforms, including the Apple App Store and Google Play store, for distribution of our mobile applications. As such, the promotion, distribution and operation of our mobile applications are subject to the respective distribution platforms’ standard terms and policies, which are very broad and subject to frequent changes and interpretation. If Apple or Google choose to de-list any of our mobile applications due to what they perceive to be objectionable content, it could have a material negative impact on our business.
Further, the success of Penn Interactive depends in part on our relationships with other third-party service providers for content delivery, load balancing and protection against distributed denial-of-service attacks. If those providers do not perform adequately or terminate their relationship with us, our users may experience issues or interruptions with their experiences. We also rely on other software and services supplied by third parties, such as communications and internal software, and our business may be adversely affected to the extent such software and services do not meet our expectations, contain errors or vulnerabilities, are compromised or experience outages. Further, any negative publicity related to any of our third-party partners could adversely affect our reputation and brand.
We also incorporate technology from third parties into our platform. We cannot be certain that our licensors are not infringing the intellectual property rights of others or that the suppliers and licensors have sufficient rights to the technology in all jurisdictions in which we may operate, which could adversely affect our business, financial condition and results of operations.
Further, we rely on third-party geolocation and identity verification systems to ensure we are in compliance with certain laws and regulations. There is no guarantee that the third-party geolocation and identity verification systems will perform adequately, or be effective, and any service disruption to those systems would prohibit us from operating our platform, and would adversely affect our business.
The growth of Penn Interactive will depend on our ability to attract and retain users.
Our ability to achieve growth in revenue in the future in Penn Interactive and Barstool Sports sports betting app will depend, in large part, upon our ability to attract new users to our offerings, retain existing users of our offerings and reactivate users in a cost-effective manner. Achieving growth in our community of users may require us to increasingly engage in sophisticated and costly sales and marketing and promotional efforts, which may not make sense in terms of return on investment. We have used and expect to continue to use a variety of free and paid marketing channels, in combination with compelling offers and exciting games to achieve our objectives. For paid marketing, we intend to leverage a broad array of advertising channels, including television, radio, social media influencers (brand ambassadors), social media platforms, such as Facebook, Instagram, Twitter and Snap, affiliates and paid and organic search, and other digital channels, such as mobile display. If the search engines on which we rely modify their algorithms, change their terms around gaming, or if the prices at which we may purchase listings increase, then our costs could increase, and fewer users may click through to our website. If links to our website are not displayed prominently in online search results, if fewer users click through to our website, if our other digital marketing campaigns are not effective, if the costs of attracting users using any of our current methods significantly increase, then our ability to efficiently attract new users could be reduced, our revenue could decline and our business, financial condition and results of operations could be harmed.
In addition, our ability to increase the number of users of our offerings will depend on continued user adoption of the Barstool Sportsbook app and iGaming. Growth in the sportsbook and iGaming industries and the level of demand for and market acceptance of our product offerings will be subject to a high degree of uncertainty. We cannot assure that consumer adoption of our product offerings will continue or exceed current growth rates, or that the industry will achieve more widespread acceptance.
Additionally, as technological or regulatory standards change and we modify our platform to comply with those standards, we may need users to take certain actions to continue playing, such as performing age verification checks or accepting new terms and conditions. Users may stop using our product offerings at any time, including if the quality of the user experience on our platform, including our support capabilities in the event of a problem, does not meet their expectations or keep pace with the quality of the customer experience generally offered by competitive offerings.
We face a number of challenges prior to opening new or upgraded gaming properties or launching new iGaming or sports betting channels, which may lead to increased costs and delays in anticipated revenues.
No assurance can be given that, when we endeavor to open new or upgraded gaming properties or launch new iGaming or sports betting channels, the expected timetables for opening such properties or channels will be met in light of the uncertainties inherent in the development of the regulatory framework, construction, the licensing process, legislative action and litigation. In
addition, as we seek to launch iGaming and sports betting apps in additional states, we will need to hire additional qualified employees, such as engineers, IT professionals and other compliance personnel. Given the significant competition in this area for qualified candidates, we may be unable to hire qualified candidates. Delays in opening new or upgraded properties could lead to increased costs and delays in receiving anticipated revenues with respect to such properties or channels and could have a material adverse effect on our financial condition, results of operations, and cash flows.
Negative events or negative media coverage relating to, or a declining popularity of, sports betting, the underlying sports or athletes, online sports betting, or iGaming may adversely impact our ability to retain or attract users, which could have an adverse impact on our business.
Public opinion can significantly influence our business. Unfavorable publicity regarding us or regarding the actions of third parties with whom we have relationships or the underlying sports (including declining popularity of the sports or athletes) could seriously harm our reputation. In addition, a negative shift in the perception of sports betting and iGaming by the public or by politicians, lobbyists or others could affect future legislation of sports betting and iGaming. Negative public perception could also lead to new restrictions on or to the prohibition of iGaming or sports betting in jurisdictions in which we currently operate. Such negative publicity could also adversely affect the size, demographics, engagement, and loyalty of our customer base and result in decreased revenue or slower user growth rates, which could seriously harm our business.
Risks Related to Acquisitions
We may face disruption and other difficulties in integrating and managing properties or other initiatives we have recently acquired, may develop, or may acquire in the future.
We could face significant challenges in managing and integrating our expanded or combined operations and any other properties we may develop or acquire, particularly in new competitive markets. The integration of more significant properties that we may develop or acquire (such as Morgantown, Perryville, and York) will require the dedication of management resources that may temporarily divert attention from our day-to-day business. In addition, development and integration of new information technology systems that may be required is costly and time-consuming. The process of integrating properties that we may acquire also could interrupt the activities of those businesses, which could have a material adverse effect on our financial condition, results of operations, and cash flows. In addition, the development of new properties may involve construction, local opposition, regulatory, legal and competitive risks as well as the risks attendant to partnership deals on these development opportunities. In particular, in projects where we team up with a joint venture partner, if we cannot reach agreement with such partners, or if our relationships otherwise deteriorate, we could face significant increased costs and delays. Local opposition can delay or increase the anticipated cost of a project. Many of these same risks apply to our iGaming and sports betting initiatives. Finally, given the competitive nature of these types of limited license opportunities, litigation is possible.
Management of new properties, especially in new geographic areas and business lines may require that we increase our management resources or divert the attention of our current management. We cannot assure you that we will be able to manage the combined operations effectively or realize any of the anticipated benefits of our acquisitions or development projects. We also cannot assure you that if acquisitions are completed, that the acquired businesses will generate returns consistent with our expectations.
Our ability to achieve our objectives in connection with any acquisition we may consummate may be highly dependent on, among other things, our ability to retain the senior level property management teams of such acquisition candidates. If, for any reason, we are unable to retain these management teams following such acquisitions or if we fail to attract new capable executives, our operations after consummation of such acquisitions could be materially adversely affected.
The occurrence of some or all of the above described events could have a material adverse effect on our financial condition, results of operations, and cash flows.
In the event we make another acquisition, we may face risks related to our ability to receive regulatory approvals required to complete, or other delays or impediments to completing, such acquisition.
Our growth is fueled, in part, by the acquisition of existing gaming, racing, and development properties, as well as our iGaming and sports betting initiatives. In addition to standard closing conditions, our acquisitions are often conditioned on the receipt of regulatory approvals and other hurdles that create uncertainty and could increase costs. Such delays could significantly reduce the benefits to us of such acquisitions and could have a material adverse effect on our financial condition, results of operations, and cash flows.
Risks Related to the Spin-Off
If the Spin-Off, together with certain related transactions, does not qualify as a transaction that is generally tax-free for U.S. federal income tax purposes, we could be subject to significant tax liabilities.
We received a private letter ruling (the “IRS Ruling”) from the IRS substantially to the effect that, among other things, the Spin-Off, together with certain related transactions, will qualify as a transaction that is generally tax-free for U.S. federal
income tax purposes under Sections 355 and/or 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended (the “Code”). The IRS Ruling does not address certain requirements for tax-free treatment of the Spin-Off under Section 355, and we received from our tax advisors a tax opinion substantially to the effect that, with respect to such requirements on which the IRS will not rule, such requirements will be satisfied. The IRS Ruling, and the tax opinions that we received from our tax advisors, relied on and will rely on, among other things, certain representations, assumptions and undertakings, including those relating to the past and future conduct of GLPI’s business, and the IRS Ruling and the opinions would not be valid if such representations, assumptions and undertakings were incorrect in any material respect.
Notwithstanding the IRS Ruling and the tax opinions, the IRS could determine the Spin-Off should be treated as a taxable transaction for U.S. federal income tax purposes if it determines any of the representations, assumptions or undertakings that were included in the request for the IRS Ruling are false or have been violated or if it disagrees with the conclusions in the opinions that are not covered by the IRS Ruling. If the Spin-Off fails to qualify for tax-free treatment, in general, we would be subject to tax as if we had sold the GLPI common stock in a taxable sale for its fair market value.
Under the tax matters agreement that GLPI entered into with us, GLPI generally is required to indemnify us against any tax resulting from the Spin-Off to the extent that such tax resulted from (1) an acquisition of all or a portion of the equity securities or assets of GLPI, whether by merger or otherwise, (2) other actions or failures to act by GLPI, or (3) any of GLPI’s representations or undertakings being incorrect or violated. GLPI’s indemnification obligations to Penn and its subsidiaries, officers and directors will not be limited by any maximum amount. If GLPI is required to indemnify Penn or such other persons under the circumstance set forth in the tax matters agreement, GLPI may be subject to substantial liabilities and there can be no assurance that GLPI will be able to satisfy such indemnification obligations. On September 27, 2017, the IRS finalized the audit examination of the 2013 U.S. federal income tax return with no adjustments related to the Spin-Off including the tax-free treatment. Although the 2013 examination is finalized, the statute of limitation was extended to June 30, 2018.
In connection with the Spin-Off, GLPI agreed to indemnify us for certain liabilities. However, there can be no assurance that these indemnities will be sufficient to insure us against the full amount of such liabilities, or that GLPI’s ability to satisfy its indemnification obligation will not be impaired in the futurefuture.
.
Pursuant to the separation and distribution agreement, GLPI has agreed to indemnify us for certain liabilities. However, third parties could seek to hold us responsible for any of the liabilities that GLPI agreed to retain, and there can be no assurance that GLPI will be able to fully satisfy its indemnification obligations. Moreover, even if we ultimately succeed in recovering from GLPI any amounts for which we are held liable, we may be temporarily required to bear these losses while seeking recovery from GLPI.
A court could deem the distribution in the Spin-Off to be a fraudulent conveyance and void the transaction or impose substantial liabilities upon us.
If the transaction is challenged by a third-party, a court could deem the distribution of GLPI common shares or certain internal restructuring transactions undertaken by us in connection with the Spin-Off to be a fraudulent conveyance or transfer. Fraudulent conveyances or transfers are defined to include transfers made or obligations incurred with the actual intent to hinder, delay, or defraud current or future creditors or transfers made or obligations incurred for less than reasonably equivalent value when the debtor was insolvent, or that rendered the debtor insolvent, inadequately capitalized or unable to pay its debts as they become due. In such circumstances, a court could void the transactions or impose substantial liabilities upon us, which could adversely affect our financial condition and our results of operations. Among other things, the court could require our shareholders to return to us some or all of the shares of our common stock issued in the distribution or require us to fund liabilities of other companies involved in the restructuring transactions for the benefit of creditors. Whether a transaction is a fraudulent conveyance or transfer will vary depending upon the laws of the applicable jurisdiction.
If we and GLPI are treated by the IRS as being under common control, both we and GLPI could experience adverse tax consequences.
If we and GLPI are treated by the IRS as being under common control, the IRS will be authorized to reallocate income and deductions between us and GLPI to reflect arm’s length terms. If the IRS were to successfully establish that rents paid by us to
GLPI are excessive, we would be (i) denied a deduction for the excessive portion and (ii) subject to a penalty on the portion deemed excessive, each of which could have a material adverse effect on our financial condition, results of operations, and cash flows. Also, our shareholders would be deemed to have received a distribution that was then contributed to the capital of GLPI.
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ITEM 1B. | UNRESOLVED STAFF COMMENTS |
ITEM 1B.UNRESOLVED STAFF COMMENTS
None.
ITEM 2.PROPERTIES
As detailed in Item 1. Business, “Operating Properties,” the majority of our facilities are subject to leases of the underlying real estate assets, which, among other things, includes the land underlying the facility and the buildings used in the operations of the casino and the hotel, if applicable. The following describes the principal real estate associated with our properties by reportable segment (all area metrics are approximate): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Location | | Description of Owned Real Property | | Acreage of Land | | Description of Leased Real Property | | Acreage of Land |
Northeast segment | | | | | | | | | |
Ameristar East Chicago | East Chicago, IN | | — | | — | | Land, buildings, boat | | 22 |
Greektown Casino-Hotel | Detroit, MI | | — | | — | | Land, buildings | | 8 |
Hollywood Casino Bangor | Bangor, ME | | — | | — | | Land, racetrack, buildings | | 44 |
Hollywood Casino at Charles Town Races | Charles Town, WV | | — | | — | | Land, racetrack, buildings | | 299 |
Hollywood Casino Columbus | Columbus, OH | | — | | — | | Land, buildings | | 116 |
Hollywood Casino Lawrenceburg | Lawrenceburg, IN | | Land, buildings | | 3 | | Land, buildings, boat | | 105 |
Hollywood Casino at Penn National Race Course | Grantville, PA | | — | | — | | Land (1), racetrack, buildings | | 574 |
Hollywood Casino Toledo | Toledo, OH | | — | | — | | Land, buildings | | 42 |
Hollywood Gaming at Dayton Raceway | Dayton, OH | | — | | — | | Land, racetrack, buildings | | 120 |
Hollywood Gaming at Mahoning Valley Race Course | Youngstown, OH | | — | | — | | Land, racetrack, buildings | | 193 |
Meadows Racetrack and Casino | Washington, PA | | — | | — | | Land, racetrack, buildings | | 156 |
| | | | | | | | | |
Plainridge Park Casino | Plainville, MA | | — | | — | | Land, racetrack, buildings | | 88 |
| | | | | | | | | |
South segment | | | | | | | | | |
1st Jackpot Casino | Tunica, MS | | — | | — | | Land (2), buildings, boat | | 147 |
Ameristar Vicksburg | Vicksburg, MS | | — | | — | | Land, buildings, boat | | 74 |
Boomtown Biloxi | Biloxi, MS | | — | | — | | Land (3), buildings, boat | | 26 |
Boomtown Bossier City | Bossier City, LA | | — | | — | | Land, buildings, boat | | 22 |
Boomtown New Orleans | New Orleans, LA | | — | | — | | Land, buildings, boat | | 54 |
Hollywood Casino Gulf Coast | Bay St. Louis, MS | | — | | — | | Land, buildings | | 579 |
Hollywood Casino Tunica | Tunica, MS | | — | | — | | Land, buildings, boat | | 68 |
L’Auberge Baton Rouge | Baton Rouge, LA | | Undeveloped land | | 478 | | Land, buildings, barge | | 99 |
L’Auberge Lake Charles | Lake Charles, LA | | Undeveloped land | | 54 | | Land, buildings, barge | | 235 |
Margaritaville Resort Casino | Bossier City, LA | | — | | — | | Land, buildings, barge | | 34 |
Resorts Casino Tunica (4) | Tunica, MS | | — | | — | | — | | — |
| | | | | | | | | |
West segment | | | | | | | | | |
Ameristar Black Hawk | Black Hawk, CO | | — | | — | | Land, buildings | | 104 |
Cactus Petes and Horseshu | Jackpot, NV | | — | | — | | Land, buildings | | 80 |
M Resort | Henderson, NV | | — | | — | | Land, buildings | | 84 |
Tropicana Las Vegas | Las Vegas, NV | | — | | — | | Land, buildings | | 35 |
Zia Park Casino | Hobbs, NM | | — | | — | | Land, racetrack, buildings | | 317 |
| | | | | | | | | |
Midwest segment | | | | | | | | | |
Ameristar Council Bluffs | Council Bluffs, IA | | — | | — | | Land, buildings, boat | | 59 |
Argosy Casino Alton | Alton, IL | | Boat | | — | | Land, buildings | | 4 |
Argosy Casino Riverside | Riverside, MO | | — | | — | | Land (5), buildings, barge | | 45 |
Hollywood Casino Aurora | Aurora, IL | | — | | — | | Land, buildings, barge | | 2 |
Hollywood Casino Joliet | Joliet, IL | | — | | — | | Land, buildings, barge | | 276 |
Hollywood Casino at Kansas Speedway | Kansas City, KS | | Land, buildings | | 101 | | — | | — |
Hollywood Casino St. Louis | Maryland Heights, MO | | — | | — | | Land, buildings, barge | | 221 |
| | | | | | | | | |
River City Casino | St. Louis, MO | | — | | — | | Land (6), buildings, barge | | 83 |
| | | | | | | | | |
Other | | | | | | | | | |
Freehold Raceway | Freehold, NJ | | Land, racetrack, buildings | | 51 | | — | | — |
| Cherry Hill, NJ | | Undeveloped land | | 10 | | — | | — |
Retama Park Racetrack (7) | Selma, TX | | Undeveloped land | | 14 | | — | | — |
Sam Houston Race Park | Houston, TX | | Land, racetrack, buildings | | 168 | | — | | — |
Sanford-Orlando Kennel Club (8) | Longwood, FL | | Land, building | | 2 | | — | | — |
Valley Race Park | Harlingen, TX | | Land, racetrack, buildings | | 71 | | — | | — |
| | | | | 952 | | | | 4,415 |
(1)Of which, 393 acres is undeveloped land surrounding Hollywood Casino at Penn National Race Course
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| | | | | | | | | |
| Location | | Description of Owned Real Property | | Acreage of Land | | Description of Leased Real Property | | Acreage of Land |
Northeast segment | | | | | | | | | |
Ameristar East Chicago | East Chicago, IN | | — | | — | | Land, buildings, boat | | 22 |
Greektown Casino-Hotel | Detroit, MI | | — | | — | | Land, buildings | | 8 |
Hollywood Casino Bangor | Bangor, ME | | — | | — | | Land, racetrack, buildings | | 44 |
Hollywood Casino at Charles Town Races | Charles Town and Ranson, WV | | — | | — | | Land, racetrack, buildings | | 299 |
Hollywood Casino Columbus | Columbus, OH | | — | | — | | Land, buildings | | 116 |
Hollywood Casino Lawrenceburg | Lawrenceburg, IN | | Land, buildings | | 3 | | Land, buildings, boat | | 105 |
Hollywood Casino at Penn National Race Course | Grantville, PA | | — | | — | | Land (1), racetrack, buildings | | 574 |
Hollywood Casino Toledo | Toledo, OH | | — | | — | | Land, buildings | | 42 |
Hollywood Gaming at Dayton Raceway | Dayton, OH | | — | | — | | Land, racetrack, buildings | | 120 |
Hollywood Gaming at Mahoning Valley Race Course | Youngstown, OH | | — | | — | | Land, racetrack, buildings | | 193 |
Meadows Racetrack and Casino | Washington, PA | | — | | — | | Land, racetrack, buildings | | 156 |
Plainridge Park Casino | Plainville, MA | | — | | — | | Land, racetrack, buildings | | 88 |
| | | | | | | | | |
South segment | | | | | | | | | |
1st Jackpot Casino | Tunica, MS | | — | | — | | Land (2), buildings, boat | | 147 |
Ameristar Vicksburg | Vicksburg, MS | | — | | — | | Land, buildings, boat | | 74 |
Boomtown Biloxi | Biloxi, MS | | — | | — | | Land (3), buildings, boat | | 26 |
Boomtown Bossier City | Bossier City, LA | | — | | — | | Land, buildings, boat | | 22 |
Boomtown New Orleans | New Orleans, LA | | — | | — | | Land, buildings, boat | | 54 |
Hollywood Casino Gulf Coast | Bay St. Louis, MS | | — | | — | | Land, buildings | | 579 |
Hollywood Casino Tunica | Tunica, MS | | — | | — | | Land, buildings, boat | | 68 |
L’Auberge Baton Rouge | Baton Rouge, LA | | Undeveloped land | | 478 | | Land, buildings, barge | | 99 |
L’Auberge Lake Charles | Lake Charles, LA | | Undeveloped land | | 54 | | Land, buildings, barge | | 235 |
Margaritaville Resort Casino | Bossier City, LA | | — | | — | | Land, buildings, barge | | 34 |
Resorts Casino Tunica (4) | Tunica, MS | | — | | — | | Land, buildings, boat | | 87 |
| | | | | | | | | |
West segment | | | | | | | | | |
Ameristar Black Hawk | Black Hawk, CO | | — | | — | | Land, buildings | | 104 |
Cactus Petes and Horseshu | Jackpot, NV | | — | | — | | Land, buildings | | 80 |
M Resort | Henderson, NV | | — | | — | | Land, buildings | | 84 |
Tropicana Las Vegas | Las Vegas, NV | | Land, buildings | | 35 | | — | | — |
Zia Park Casino | Hobbs, NM | | — | | — | | Land, racetrack, buildings | | 317 |
| | | | | | | | | |
Midwest segment | | | | | | | | | |
Ameristar Council Bluffs | Council Bluffs, IA | | — | | — | | Land, buildings, boat | | 59 |
Argosy Casino Alton | Alton, IL | | Boat | | — | | Land, buildings | | 4 |
Argosy Casino Riverside | Riverside, MO | | — | | — | | Land (5), buildings, barge | | 45 |
Hollywood Casino Aurora | Aurora, IL | | — | | — | | Land, buildings, barge | | 2 |
Hollywood Casino Joliet | Joliet, IL | | — | | — | | Land, buildings, barge | | 276 |
Hollywood Casino at Kansas Speedway | Kansas City, KS | | Land, buildings | | 101 | | — | | — |
Hollywood Casino St. Louis | Maryland Heights, MO | | — | | — | | Land, buildings, barge | | 221 |
River City Casino | St. Louis, MO | | — | | — | | Land (6), buildings, barge | | 83 |
| | | | | | | | | |
Other | | | | | | | | | |
Freehold Raceway | Freehold, NJ | | Land, racetrack, buildings | | 51 | | — | | — |
| Cherry Hill, NJ | | Undeveloped land | | 10 | | — | | — |
Retama Park Racetrack (7) | Selma, TX | | Undeveloped land | | 28 | | — | | — |
Sam Houston Race Park | Houston, TX | | Land, racetrack, buildings | | 168 | | — | | — |
Sanford-Orlando Kennel Club | Longwood, FL | | Land, racetrack, buildings | | 26 | | — | | — |
Valley Race Park | Harlingen, TX | | Land, racetrack, buildings | | 71 | | — | | — |
| | | | | 1,025 | | | | 4,467 |
(2)Of which, 53 acres is wetlands. | |
(1) | Of which, 393 acres is undeveloped land surrounding Hollywood Casino at Penn National Race Course |
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(2) | Of which, 53 acres is wetlands. |
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(3) | Of which, 3 acres is subject to the Penn Master Lease. |
(3)Of which, 3 acres is subject to the Penn Master Lease.
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(4) | Resorts Casino Tunica ceased operations on June 30, 2019, but remains subject to the Penn Master Lease. |
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(5) | Of which, 38 acres is subject to the Penn Master Lease. |
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(6) | Of which, 24 acres is land surrounding River City Casino reserved for community and recreational facilities. |
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(7) | The land, racetrack, and buildings used in the operations of Retama Park Racetrack are owned by the City of Selma, Texas. We own undeveloped land adjacent to the Retama Park Racetrack. |
(4)Resorts Casino Tunica ceased operations on June 30, 2019, but remains subject to the Penn Master Lease.
(5)Of which, 38 acres is subject to the Penn Master Lease.
(6)Of which, 24 acres is land surrounding River City Casino reserved for community and recreational facilities.
(7)The land, racetrack, and buildings used in the operations of Retama Park Racetrack are owned by the City of Selma, Texas. We own undeveloped land adjacent to the Retama Park Racetrack.
(8)In the fourth quarter of 2020, we sold the land related to the Sanford-Orlando Kennel Club due to state regulation prohibiting greyhound racing. We continue to offer simulcast racing at our existing facility.
We lease office and warehouse space in various locations outside of our operating properties, including 52,116 square
feet of executive office and warehouse space in Wyomissing, Pennsylvania; 86,542 square feet of office space for our shared services center in Las Vegas, Nevada; 52,116 square feet of executive office and warehouse space in Wyomissing, Pennsylvania; 32,212 square feet of office space in Cherry Hill, New Jersey; 29,609 square feet of office space in Philadelphia, Pennsylvania; 7,787 square feet of executive office space in Conshohocken, Pennsylvania; and 5,740 square feet of office space in Henderson, Nevada; and approximately 1,000 square feet of office space in Philadelphia, Pennsylvania.Nevada.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to various legal and administrative proceedings relating to personal injuries, employment matters, commercial transactions, development agreements and other matters arising in the ordinary course of business. Although the Company maintains what it believes to be adequate insurance coverage to mitigate the risk of loss pertaining to covered matters, legal and administrative proceedings can be costly, time-consuming and unpredictable. The Company does not believe that the final outcome of these matters will have a material adverse effect on its results of operations, financial position or cash flows.
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ITEM 4. | MINE SAFETY DISCLOSURES |
ITEM 4.MINE SAFETY DISCLOSURES
Not applicable.
PART II
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ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Ticker Symbol and Holders of Record
Our common stock is quoted on the NASDAQ Global Select Market under the symbol “PENN.” As of February 21, 2020,19, 2021, there were 1,7561,647 holders of record of our common stock.
Dividends
Since our initial public offering of common stock in May 1994, we have not paid any cash dividends on our common stock. We intend to retain all of our earnings to finance the development of our business, and thus, do not anticipate paying cash dividends on our common stock for the foreseeable future. Payment of any cash dividends in the future will be at the discretion of our Board of Directors and will depend upon, among other things, our future earnings, operations and capital requirements, our general financial condition and general business conditions. In addition, our Senior Secured Credit Facilities and senior notes restrict, among other things, our ability to pay dividends. Future financing arrangements may also prohibit the payment of dividends under certain conditions.
Sales of Unregistered Equity Securities
We did not issue or sell any unregistered equity securities during the years ended December 31, 2019, 2018, and 2017.
Share Repurchase Program
On January 9, 2019, the Company announced a share repurchase program pursuant to which the Board of Directors authorized to repurchase up to $200.0 million of the Company’s common stock, which expires on December 31, 2020. During the year ended December 31, 2019,2020, the Company repurchased 1,271,823issued 883 shares of its common stockSeries D Preferred Stock, par value $0.01 per share (the “Series D Preferred Stock”), to certain individual stockholders affiliated with Barstool Sports as disclosed in open market transactions for $24.9 million at an average pricethe
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ITEM 6. | SELECTED FINANCIAL DATA |
The following discussion and analysis of financial condition, results of operations, liquidity and capital resources should be read in conjunction with, and is qualified in its entirety by, our Consolidated Financial Statements and the notes thereto, included in this Annual Report on Form 10-K, and other filings with the Securities and Exchange Commission. This management’s discussion and analysis of financial condition and results of operations includes discussion as of and for the year ended December 31, 2020 compared to December 31, 2019. Discussion of our financial condition and results of operations as of and for the year ended December 31, 2019 compared to December 31, 2018 can be found in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the Securities and Exchange Commission on February 27, 2020.
We believe that our portfolio of assets provides us the benefit of geographically-diversified cash flow from operations. We expect to continue to expand our gaming operations through the implementation and execution of a disciplined capital expenditure program at our existing properties, the pursuit of strategic acquisitions and investments, and the development of new gaming properties. In addition, the partnership with Barstool Sports reflects our strategy to continue evolving from the nation’s largest regional gaming operator to a best-in-class omni-channel provider of retail and online gaming and sports betting entertainment.
Most of our properties operate in mature, competitive markets. Consequently, weWe expect a significant amountthat the majority of our future growth towill come from new growth opportunities,business lines or distribution channels, such as retail and online gaming and sports betting; entrance into new jurisdictions; expansions of gaming in existing jurisdictions; and, to a lesser extent, improvements/expansions of our existing properties;properties and strategic acquisitions of gaming properties. Our portfolio is comprised largely of well-maintained regional gaming facilities. Thisfacilities, which has allowed us to develop what we believe to be a solid base for future growth opportunities supported by a flexible and attractively-priced capital structure.opportunities. We have also made investments in joint ventures that we believe will allow us to capitalize on additional gaming opportunities in certain states if legislation or referenda are passed that permit and/or expand gaming in these jurisdictions and we are selected as a licensee.
As reported by most jurisdictions, regional gaming industry trends have shown little revenue growth the last several years as numerous jurisdictions now permit gaming or have expanded their gaming offerings. TheIn recent years, the proliferation of new gaming properties continues to impacthas impacted the overall domestic gaming industry as well as our results of operations in certain markets. However,Prior to the currentCOVID-19 pandemic, the economic environment, specifically historically low levels of unemployment, strength in residential real estate prices, and high levels of consumer confidence, hashad resulted in a stable operating environment in recent years. The COVID-19 pandemic has increased the level of unemployment and decreased the level of consumer confidence. Our ability to continue to succeed in this new environment will be predicated on our ability to adjust operations and cost structures at our reopened properties to reflect the new economic and health and safety conditions, operating our existing properties efficiently, realizing revenue and cost synergies from recent acquisitions, and offering our customers additional gaming experiences through our omni-channel distribution strategy. We seek to continue to expand our customer database through accretive acquisitions or investments, such as Barstool Sports, and capitalize on organic growth opportunities from the development of new properties or the expansion of recently-developed business lines.lines, and develop partnerships that allow us to enter new jurisdictions for iGaming and sports betting.
In our business, revenue is driven by discretionary consumer spending. We have no certain mechanism for determining why consumers choose to spend more or less money at our properties from period-to-period; therefore, we are unable to quantify a dollar amount for each factor that impacts our customers’ spending behaviors. However, based on our experience, we can generally offer some insight into the factors that we believe are likely to account for such changes and which factors may have a greater impact than others. For example, decreases in discretionary consumer spending have historically been brought about by weakened general economic conditions, such as lackluster recoveries from recessions, high unemployment levels, higher income taxes, low levels of consumer confidence, weakness in the housing market, and high fuel or other transportation costs. We believe that the COVID-19 pandemic has led to and will continue to lead to meaningful decreases in discretionary consumer spending and will continue to negatively impact visitation at our properties and the volume of play for the foreseeable future. In addition, visitation and the volume of play have historically been negatively impacted by significant construction surrounding our properties, adverse regional weather conditions and natural disasters. In all instances, such insights are based solely on our judgment and professional experience, and no assurance can be given as to the accuracy of our judgments.
The vast majority of our revenues is gaming revenue, which is highly dependent upon the volume and spending levels of customers at our properties. Our gaming revenue is derived primarily from slot machines (which represented approximately 92%87%, 92% and 87%92% of our gaming revenue in 2020, 2019 2018 and 2017,2018, respectively) and, to a lesser extent, table games and sports
betting. Aside from gaming revenue, our revenues are derived from our hotel, dining, retail, commissions, program sales, admissions, concessions and certain other ancillary activities, and our racing operations.
Key performance indicators related to gaming revenue are slot handle and table game drop, which are volume indicators, and “win” or “hold” percentage. Our typical property slot win percentage is in the range of approximately 7% to 9%10% of slot handle, and our typical table game hold percentage is in the range of approximately 16%14% to 25%27% of table game drop.
Slot handle is the gross amount wagered during a given period.
The win or hold percentage is the net amount of gaming wins and losses, with liabilities recognized for accruals related to the anticipated payout of progressive jackpots. Given the stability in our slot hold percentages on a historical basis, we have not experienced significant impacts to net income from changes in these percentages. For table games, customers usually purchase chips at the gaming tables. The cash and markers (extensions of credit granted to certain credit worthycredit-worthy customers) are deposited in the gaming table’s drop box. Table game hold is the amount of drop that is retained and recorded as gaming revenue, with liabilities recognized for funds deposited by customers before gaming play occurs and for unredeemed gaming chips. As we are primarily focused on regional gaming markets, our table game hold percentages are fairly stable as the majority of these markets do not regularly experience high-end play, which can lead to volatility in hold percentages. Therefore, changes in table game hold percentages do not typically have a material impact to our results of operations.operations and cash flows.
Other
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the year ended December 31, | | $ Change | | % / bps Change |
(dollars in millions) | 2020 | | 2019 | | 2018 | | 2020 vs. 2019 | | 2019 vs. 2018 | | 2020 vs. 2019 | | 2019 vs. 2018 |
Revenues: | | | | | | | | | | | | | |
Gaming | $ | 62.7 | | | $ | 8.8 | | | $ | — | | | $ | 53.9 | | | $ | 8.8 | | | 612.5 | % | | — | |
Food, beverage, hotel and other | 62.3 | | | 38.7 | | | 40.3 | | | 23.6 | | | (1.6) | | | 61.0 | % | | (4.0) | % |
Management service and licensing fees | — | | | — | | | 0.1 | | | — | | | (0.1) | | | — | | | (100.0) | % |
Total revenues | $ | 125.0 | | | $ | 47.5 | | | $ | 40.4 | | | $ | 77.5 | | | $ | 7.1 | | | 163.2 | % | | 17.6 | % |
| | | | | | | | | | | | | |
Adjusted EBITDAR | $ | (43.5) | | | $ | (87.8) | | | $ | (68.1) | | | $ | 44.3 | | | $ | (19.7) | | | (50.5) | % | | 28.9 | % |
Total revenues and Adjusted EBITDAR of the Other category were $47.5 million and $(87.8) million, respectively,increased for the year ended December 31, 2019. Total revenues increased2020, as compared to the prior year, primarily as a result of Penn Interactive. Penn Interactive's operations benefited from the launch of the online Barstool Sportsbook in Pennsylvania in September 2020 and increases in online social and real-money gaming revenue. Real-money online gaming revenue benefited from an improved conversion of the mychoice database to our real-money gaming platform, and was also positively impacted by $7.1the temporary closures of Pennsylvania casinos throughout portions of 2020.
In addition to benefiting from Penn Interactive's operating results, the increase in Adjusted EBITDAR is driven by decreases in corporate overhead costs of $20.5 million for the year ended December 31, 2019,2020, principally driven by furloughs to team members, compensation reductions effective April 1, 2020 through September 30, 2020, and the overall reduction of expenses due to the temporary closures, as well as an overall permanent reduction to our workforce as a result of the COVID-19 pandemic, offset by increased expenses related to the ramp up of the Penn Interactive which began operating live sports betting at retail sportsbooks at our properties in Indiana, Iowa, and Pennsylvania, as well as an iCasino in Pennsylvania, during the third quarter of 2019. Adjusted EBITDAR decreased by $19.7 million for the year ended December 31, 2019, principally as a result of an increase in corporate overhead costs, largely attributable to payroll and other general and administrative costs associated with the Pinnacle Acquisition.online sportsbook operations.
Total revenues and Adjusted EBITDAR of the Other category were $40.4 million and $(68.1) million, respectively, for the year ended December 31, 2018, representing year-over-year decreases of $11.3 million and $12.9 million, respectively, principally as a result of Penn Interactive operating results and an increase in corporate overhead costs, largely attributable to payroll and other general and administrative costs associated with the Pinnacle Acquisition.
Non-GAAP Financial Measures
Use and Definitions
In addition to GAAP financial measures, management uses Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDAR and Adjusted EBITDAR margin as non-GAAP financial measures. These non-GAAP financial measures should not be considered a substitute for, nor superior to, financial results and measures determined or calculated in accordance with GAAP. Each of these non-GAAP financial measures is not calculated in the same manner by all companies and, accordingly, may not be an appropriate measure of comparing performance among different companies.
We define Adjusted EBITDA as earnings before interest expense, net; income taxes; depreciation and amortization; stock-based compensation; debt extinguishment and financing charges; impairment losses; insurance recoveries and deductible charges; changes in the estimated fair value of our contingent purchase price obligations; gain or loss on disposal of assets, the difference between budget and actual expense for cash-settled stock-based awards; pre-opening and acquisition costs; and other income or expenses. Adjusted EBITDA is inclusive of income or loss from unconsolidated affiliates, with our share of non-operating items (such as interest expense, net; income taxes; depreciation and amortization)amortization; and stock-based compensation expense) added back for Barstool Sports and our Kansas Entertainment joint venture in Kansas Entertainment.venture. Adjusted EBITDA is inclusive of rent expense associated with our triple net operating leases.leases (the operating lease components contained within the Penn Master Lease and Pinnacle Master Lease (primarily land), the Meadows Lease, the Margaritaville Lease, the Greektown Lease and the Tropicana Lease). Although Adjusted EBITDA includes rent expense associated with our triple net operating leases, we believe Adjusted EBITDA is useful as a supplemental measure in evaluating the performance of our consolidated results of operations. We define Adjusted EBITDA margin as Adjusted EBITDA divided by consolidated revenues.
Adjusted EBITDA has economic substance because it is used by management as a performance measure to analyze the performance of our business, and is especially relevant in evaluating large, long-lived casino-hotel projects because it provides a perspective on the current effects of operating decisions separated from the substantial non-operational depreciation charges and financing costs of such projects. We present Adjusted EBITDA because it is used by some investors and creditors as an indicator of the strength and performance of ongoing business operations, including our ability to service debt, and to fund capital expenditures, acquisitions and operations. These calculations are commonly used as a basis for investors, analysts and credit rating agencies to evaluate and compare operating performance and value companies within our industry. In order to view the operations of their casinos on a more stand-alone basis, gaming companies, including us, have historically excluded from their Adjusted EBITDA calculations certain corporate expenses that do not relate to the management of specific casino
properties. However, Adjusted EBITDA is not a measure of performance or liquidity calculated in accordance with GAAP. Adjusted EBITDA information is presented as a supplemental disclosure, as management believes that it is a commonly-usedcommonly used measure of performance in the gaming industry and that it is considered by many to be a key indicator of the Company’s operating results.
We define Adjusted EBITDAR as Adjusted EBITDA (as defined above) plus rent expense associated with triple net operating leases (which is a normal, recurring cash operating expense necessary to operate our business). Adjusted EBITDAR is presented on a consolidated basis outside the financial statements solely as a valuation metric. Management believes that Adjusted EBITDAR is an additional metric traditionally used by analysts in valuing gaming companies subject to triple net leases since it eliminates the effects of variability in leasing methods and capital structures. This metric is included as supplemental disclosure because (i) we believe Adjusted EBITDAR is traditionally used by gaming operator analysts and investors to determine the equity value of gaming operators and (ii) Adjusted EBITDAR is one of the metrics used by other financial analysts in valuing our business. We believe Adjusted EBITDAR is useful for equity valuation purposes because (i) its calculation isolates the effects of financing real estate; and (ii) using a multiple of Adjusted EBITDAR to calculate enterprise value allows for an adjustment to the balance sheet to recognize estimated liabilities arising from operating leases related to real estate. However, Adjusted EBITDAR when presented on a consolidated basis is not a financial measure in accordance with
GAAP and should not be viewed as a measure of overall operating performance or considered in isolation or as an alternative to net income because it excludes the rent expense associated with our triple net operating leases and is provided for the limited purposes referenced herein.
Adjusted EBITDAR margin is defined as Adjusted EBITDAR on a consolidated basis (as defined above) divided by revenues on a consolidated basis. Adjusted EBITDAR margin is presented on a consolidated basis outside the financial statements solely as a valuation metric. We further define Adjusted EBITDAR margin by reportable segment as Adjusted EBITDAR for each segment divided by segment revenues.
Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures
The following table includes a reconciliation of net income (loss), which is determined in accordance with GAAP, to Adjusted EBITDA, Adjusted EBITDAR and Adjusted EBITDAR margin, which are non-GAAP financial measures, as well as related margins:measures:
| | | | | | | | | | | | | | | | | |
| For the year ended December 31, |
(dollars in millions) | 2020 | | 2019 | | 2018 |
Net income (loss) | $ | (669.1) | | $ | 43.1 | | $ | 93.5 |
Income tax expense (benefit) | (165.1) | | 43.0 | | (3.6) |
Loss on early extinguishment of debt | 1.2 | | — | | 21.0 |
Income from unconsolidated affiliates | (13.8) | | (28.4) | | (22.3) |
Interest expense, net | 543.2 | | 534.2 | | 538.4 |
Other expense (income) | (106.6) | | (20.0) | | 7.1 |
Operating income (loss) | (410.2) | | 571.9 | | 634.1 |
Stock-based compensation (1) | 14.5 | | 14.9 | | 12.0 |
Cash-settled stock-based award variance (1)(2) | 67.2 | | 0.8 | | (19.6) |
(Gain) loss on disposal of assets (1) | (29.2) | | 5.5 | | 3.2 |
Contingent purchase price (1) | (1.1) | | 7.0 | | 0.5 |
Pre-opening and acquisition costs (1) | 11.8 | | 22.3 | | 95.0 |
Depreciation and amortization | 366.7 | | 414.2 | | 269.0 |
Impairment losses | 623.4 | | 173.1 | | 34.9 |
Recoveries on loan loss and unfunded loan commitments | — | | — | | (17.0) |
Insurance recoveries, net of deductible charges (1) | (0.1) | | (3.0) | | (0.1) |
Income from unconsolidated affiliates | 13.8 | | 28.4 | | 22.3 |
Non-operating items of equity method investments (3) | 4.7 | | 3.7 | | 5.1 |
Other expenses (1)(4) | 13.5 | | — | | — |
Adjusted EBITDA | 675.0 | | 1,238.8 | | 1,039.4 |
Rent expense associated with triple net operating leases (1) | 419.8 | | 366.4 | | 3.8 |
Adjusted EBITDAR | $ | 1,094.8 | | $ | 1,605.2 | | $ | 1,043.2 |
| | | | | |
Net income (loss) margin | (18.7) | % | | 0.8 | % | | 2.6 | % |
| | | | | |
Adjusted EBITDAR margin | 30.6 | % | | 30.3 | % | | 29.1 | % |
(1) These items are included in “General and administrative” within the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss).
(2) Our cash-settled stock-based awards are adjusted to fair value each reporting period based primarily on the price of the Company’s common stock. As such, significant fluctuations in the price of the Company’s common stock during any reporting period could cause significant variances to budget on cash-settled stock-based awards. During the year ended December 31, 2020, the price of the Company’s common stock increased significantly, which resulted in unfavorable variances to budget.
(3) Consists principally of interest expense, net; income taxes; depreciation and amortization; and stock-based compensation expense associated with Barstool Sports and our Kansas Entertainment joint venture.
(4) Consists of non-recurring restructuring charges (primarily severance) associated with a company-wide initiative, triggered by the COVID-19 pandemic, designed to (i) improve the operational effectiveness across our property portfolio; and (ii) improve the effectiveness and efficiency of our Corporate functional support areas.
|
| | | | | | | | | | | |
| For the year ended December 31, |
(dollars in millions) | 2019 | | 2018 | | 2017 |
Net income | $ | 43.1 |
| | $ | 93.5 |
| | $ | 473.4 |
|
Income tax expense (benefit) | 43.0 |
| | (3.6 | ) | | (498.5 | ) |
Loss on early extinguishment of debt | — |
| | 21.0 |
| | 24.0 |
|
Income from unconsolidated affiliates | (28.4 | ) | | (22.3 | ) | | (18.7 | ) |
Interest expense, net | 534.2 |
| | 538.4 |
| | 463.2 |
|
Other expense (income) | (20.0 | ) | | 7.1 |
| | 2.3 |
|
Operating income | 571.9 |
| | 634.1 |
| | 445.7 |
|
Stock-based compensation (1) | 14.9 |
| | 12.0 |
| | 7.8 |
|
Cash-settled stock-based award variance (1)(2) | 0.8 |
| | (19.6 | ) | | 23.4 |
|
Loss on disposal of assets (1) | 5.5 |
| | 3.2 |
| | 0.2 |
|
Contingent purchase price (1) | 7.0 |
| | 0.5 |
| | (6.8 | ) |
Pre-opening and acquisition costs (1) | 22.3 |
| | 95.0 |
| | 9.7 |
|
Depreciation and amortization | 414.2 |
| | 269.0 |
| | 267.1 |
|
Impairment losses | 173.1 |
| | 34.9 |
| | 18.0 |
|
Provision for (recoveries on) loan loss and unfunded loan commitments | — |
| | (17.0 | ) | | 89.8 |
|
Insurance recoveries, net of deductible charges (1) | (3.0 | ) | | (0.1 | ) | | (0.3 | ) |
Income from unconsolidated affiliates | 28.4 |
| | 22.3 |
| | 18.7 |
|
Non-operating items for Kansas JV (3) | 3.7 |
| | 5.1 |
| | 5.8 |
|
Adjusted EBITDA | 1,238.8 |
| | 1,039.4 |
| | 879.1 |
|
Rent expense associated with triple net operating leases (1) | 366.4 |
| | 3.8 |
| | — |
|
Adjusted EBITDAR | $ | 1,605.2 |
| | $ | 1,043.2 |
| | $ | 879.1 |
|
| | | | | |
Net income margin | 0.8 | % | | 2.6 | % | | 15.0 | % |
Adjusted EBITDA margin | 23.4 | % | | 29.0 | % | | 27.9 | % |
Adjusted EBITDAR margin | 30.3 | % | | 29.1 | % | | 27.9 | % |
| |
(1) | These items are included in “General and administrative” within the Company’s Consolidated Statements of Income. |
| |
(2) | Our cash-settled stock-based awards are adjusted to fair value each reporting period based primarily on the price of the Company’s common stock. As such, significant fluctuations in the price of the Company’s common stock during any reporting period could cause significant variances to budget on cash-settled stock-based awards. During the year ended December 31, 2019, the price of the Company’s common stock increased, which resulted in an unfavorable variance to budget. During the year ended December 31, 2018, the price of the Company’s common stock decreased, which resulted in a favorable variance to budget. |
| |
(3) | Consists principally of depreciation and amortization associated with the operations of Hollywood Casino at Kansas Speedway. |
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity and capital resources have been and will continue to be cash flow from operations, borrowings from banks and proceeds from the issuance of debt and equity securities. Our ongoing liquidity will depend on a number of factors, including available cash resources, cash flow from operations, acquisitions or investments, funding of construction for development projects, and our compliance with covenants contained under our debt agreements.
| | | For the year ended December 31, | | $ Change | | % Change | | For the year ended December 31, | | $ Change | | % Change |
(dollars in millions) | 2019 | | 2018 | | 2017 | | 2019 vs. 2018 | | 2018 vs. 2017 | | 2019 vs. 2018 | | 2018 vs. 2017 | (dollars in millions) | 2020 | | 2019 | | 2018 | | 2020 vs. 2019 | | 2019 vs. 2018 | | 2020 vs. 2019 | | 2019 vs. 2018 |
Net cash provided by operating activities | $ | 703.9 |
| | $ | 352.8 |
| | $ | 477.8 |
| | $ | 351.1 |
| | $ | (125.0 | ) | | 99.5 | % | | (26.2 | )% | Net cash provided by operating activities | $ | 338.8 | | | $ | 703.9 | | | $ | 352.8 | | | $ | (365.1) | | | $ | 351.1 | | | (51.9) | % | | 99.5 | % |
Net cash used in investing activities | $ | (607.5 | ) | | $ | (1,423.1 | ) | | $ | (221.6 | ) | | $ | 815.6 |
| | $ | (1,201.5 | ) | | (57.3 | )% | | 542.2 | % | Net cash used in investing activities | $ | (233.7) | | | $ | (607.5) | | | $ | (1,423.1) | | | $ | 373.8 | | | $ | 815.6 | | | (61.5) | % | | (57.3) | % |
Net cash provided by (used in) financing activities | $ | (122.4 | ) | | $ | 1,272.1 |
| | $ | (207.0 | ) | | $ | (1,394.5 | ) | | $ | 1,479.1 |
| | N/M | | N/M | Net cash provided by (used in) financing activities | $ | 1,310.1 | | | $ | (122.4) | | | $ | 1,272.1 | | | $ | 1,432.5 | | | $ | (1,394.5) | | | N/M | | N/M |
N/M - Not meaningful
Operating Cash Flow
The increase in net cash provided by operating activities of $351.1 million for the year ended December 31, 2019, as compared to the prior year, is primarily due to an increase in cash receipts from customers, offset by increases in cash paid to suppliers and vendors and cash paid to employees, all driven primarily by the acquisitions of Pinnacle, Margaritaville, and Greektown. In addition, during the year ended December 31, 2019, we received an upfront payment of $12.5 million pursuant to a multi-year agreement with a sports betting operator for online sports betting and iGaming market access. Furthermore, net cash provided by operating activities was impacted by year-over-year increases in rent and interest payments made under our Triple Net Leases of $342.0 million, principally due to the Pinnacle Master Lease, and in interest payments made on long-term debt of $54.4 million, primarily due to the debt refinancing in October 2018, which increased our total long-term debt.
The decrease in net cash provided by operating activities of $125.0$365.1 million for the year ended December 31, 2018, as compared2020, is due to the prior year, was primarilytemporary closures of our properties due to an increasethe COVID-19 pandemic, which significantly decreased cash receipts from customers. Offsetting this decrease was a $316.2 million decrease in cash paid for rent and interest payments, madein total, under our Triple Net Leases, due primarily to utilizing rent credits to pay rent in the current year under the Master Leases, of $66.1 million, associated largely with the Pinnacle Master Lease; anMeadows Lease and the Morgantown Lease (offset by the increase in interest payments made on long-term debt of $11.5 million, primarilyunder the Greektown Lease due to the debt refinancingtiming of the acquisition in October 2018, which increased our total long-term debt; and an increase in income tax paidthe second quarter of $67.5 million. Offsetting these items was a net increase in cash provided by operating activities due to the Pinnacle Acquisition.2019).
Investing Cash Flow
Net cash used in investing activities for the year ended December 31, 20192020 decreased compared to the prior year primarily consisteddue to decrease in capital expenditures of $53.6 million in the current year and the 2019 acquisitions of the operations of Margaritaville and Greektown for $109.1 million and $289.2 million, respectively, both net of cash acquired, and $190.6 million in capital expenditures, which principally consisted of maintenance capital expenditures (see below).cash. As a part of the acquisitions of Margaritaville and Greektown, the Company entered into sale-leaseback transactions with VICI in the amounts of $261.1 million and $700.0 million, respectively, which had no net impact on net cash used in investing activities for the year ended December 31, 2019. In addition, during the year ended December 31, 2019, we paid $10.0 million for online and retail sports betting licenses in Pennsylvania. CapitalThe decrease in capital expenditures increased year-over-year principally duein the current year primarily reflects our efforts to reduce or defer our planned Category 4 project capital expenditures as we mitigate the Pinnacle Acquisition, which added twelve gaming properties.
Net cash used in investing activities for the year ended December 31, 2018 primarily included the Pinnacle Acquisition of $1,945.2 million, net of cash acquired, offset partially by the cash received for the saleimpact of the Divested Properties of $661.7 million. In addition,COVID-19 pandemic. These decreases were partially offset by our $135.0 million investment in Barstool Sports made during the year ended December 31, 2018, we spent $92.6 million on capital expenditures, which principally consistedfirst quarter of maintenance capital expenditures, purchased two separate Category 4 gaming licenses in York County, Pennsylvania for $50.1 million and Berks County, Pennsylvania for $7.5 million, and purchased iCasino and sports betting licenses in Pennsylvania for $20.0 million.2020.
Net cash used in investing activities for the year ended December 31, 2017 primarily consisted of acquisitions of 1
st Jackpot Casino and Resorts Casino Tunica in the amount of $127.7 million and capital expenditures of $99.3 million, which principally consisted of maintenance capital expenditures.
Capital Expenditures
Capital expenditures are accounted for as either project capital (new facilities or expansions) or maintenance (replacement) capital expenditures. Cash provided by operating activities as well as cash available under our Revolving Credit Facility funded our capital expenditures for the years ended December 31, 2020, 2019 2018 and 2017.2018.
The following table summarizes our project capital expenditures for the years ended December 31, 2019, 2018 and 2017, by segment:
|
| | | | | | | | | | | |
| For the year ended December 31, |
(in millions) | 2019 | | 2018 | | 2017 |
Northeast | $ | 25.1 |
| | $ | 0.1 |
| | $ | 0.3 |
|
West | — |
| | 2.5 |
| | 24.8 |
|
Other | — |
| | 0.3 |
| | — |
|
Total | $ | 25.1 |
| | $ | 2.9 |
| | $ | 25.1 |
|
During the year ended December 31, 2019,2020, we spent $4.1had capital expenditures of $137.0 million primarily related to our maintenance projects and $21.0our Category 4 development projects. For the year ending December 31, 2021, our expected capital expenditures are $296.8 million onof which $98.9 million relates our Category 4 projects and $197.9 million relates to our maintenance projects. Our Category 4 projects are Hollywood Casino York and Hollywood Casino Morgantown development projects, respectively.Morgantown. Hollywood Casino York, which is located in the York Galleria Mall in Springettsbury Township,York County, will represent an overall capital investment of approximately $120$120.0 million inclusive of the gaming license. Hollywood Casino Morgantown is being built on a previously vacant 36-acre site in Caernarvon TownshipBerks County with a capital investment of approximately $111$111.0 million inclusive of the gaming license. We anticipate that both of these projects will be completecompleted by the end of 2020.
During the year ended December 31, 2017, we made enhancements to Tropicana Las Vegas, including adding a celebrity chef restaurant, the Robert Irvine Public House, which opened on July 27, 2017.
The following table summarizes our expected capital expenditures for the year ending December 31, 2020 by segment:2021. |
| | | | | | | |
(in millions) | Project | | Maintenance |
Northeast | $ | 125.8 |
| | $ | 64.3 |
|
South | — |
| | 28.3 |
|
West | — |
| | 16.1 |
|
Midwest | — |
| | 32.6 |
|
Other | — |
| | 57.2 |
|
Total | $ | 125.8 |
| | $ | 198.5 |
|
Financing Cash Flow
Net cash usedprovided by financing activities for the year ended December 31, 20192020 was $1,310.1 million compared to net cash used in financing activities of $122.4 million in the prior year. The change is driven primarily by the separate public offerings of Penn Common Stock on May 14, 2020 and September 24, 2020, in which we received net proceeds of $331.2 million and $957.6 million, respectively. Additionally, we received $322.2 million of net proceeds from the issuance of the Convertible Notes. These proceeds were partially offset by net repayments under our Senior Secured Credit Facilities of $301.7 million. In the current year we fully repaid $670.0 million of outstanding borrowings under our Revolving Credit Facility and a $115.0
million prepayment of outstanding borrowings on our Term Loan B-1 Facility. In comparison, in the prior year net cash used by financing activities consisted principally of net repayments of long-term debt of $18.6 million despite the borrowing associated with the acquisition of Greektown, $51.6 million of principal payments on our financing obligations, $6.2 million of principal payments on our finance leases, and $24.9 million in payments related to the repurchase of common stock.
Net cash provided by financing activities for
Debt Issuances, Redemptions and Other Long-term Obligations
On March 13, 2020, we borrowed the year ended December 31, 2018 was largely driven by $1,149.8remaining available amount of $430.0 million under our Revolving Credit Facility. The Company elected to draw down the remaining available funds from its Revolving Credit Facility in order to maintain maximum financial flexibility in light of the COVID-19 pandemic. Through the use of our September 2020 equity raise proceeds, we fully repaid $670.0 million outstanding borrowings under our Revolving Credit Facility. Additionally, on November 12, 2020 the Company prepaid $115.0 million of netoutstanding borrowings of long-term debt and $250.0 million in cash received from the Plainridge Park Casino Sale-Leaseback, offset by $67.4 million of principal payments on our financing obligations and $50.0 million in payments related to the repurchase of common stock. The net borrowings of long-term debt is primarily due to the refinancing of our debt in conjunction with the Pinnacle Acquisition and the acquisition of Margaritaville on January 1, 2019.
Net cash used in financing activities for the year ended December 31, 2017 was largely driven by $162.1 million of net repayments of long-term debt, $57.8 million of principal payments on our financing obligations, $24.8 million in payments related to the repurchase of our common stock, $19.6 million of contingent purchase price payments, and the repayment of a loan used to acquire a previously-leased corporate airplane in the amount of $20.8 million, offset by $82.6 million in cash received from the sale of the real estate assets of 1st Jackpot Casino and Resorts Casino Tunica to GLPI.
Senior Secured Credit Facilities
As of December 31, 2019, our Senior Secured Credit Facilities (as defined below) had a gross outstanding balance of $1,929.8 million, consisting of a $672.3 million Term Loan A Facility, a $1,117.5 millionits Term Loan B-1 FacilityFacility.
On April 14, 2020, the Company entered into a second amendment to its Credit Agreement with its various lenders (the “Second Amendment”) to provide for certain modifications. During the period beginning on April 14, 2020 and ending on the earlier of (x) the date that is two business days after the date on which the Company delivers a covenant relief period termination notice to the administrative agent and (y) the date on which the administrative agent receives a compliance certificate for the quarter ending March 31, 2021 (the “Covenant Relief Period”), the Company will not have to comply with any Maximum Leverage Ratio or Minimum Interest Coverage Ratio (as such terms are defined below), and a Revolvingin the Credit Facility, which had $140.0 million drawn as of December 31, 2019. Additionally, as of December 31, 2019 and 2018,Agreement that was amended on January 19, 2017, the "Amended 2017 Credit Agreement"). During the Covenant Relief Period, the Company had conditional obligationswill be subject to a minimum liquidity covenant that requires cash and cash equivalents and availability under letters of credit issued pursuant to the Senior Secured Credit Facilities with face amounts aggregating $30.0 million in both periods, resulting in $530.0 million and $558.0 million of available borrowing capacity under the Revolving Credit Facility, respectively.
On October 30, 2013, the Company entered into a credit agreement (the “2013 Credit Agreement”) providing for: (i) a five-year $500.0 million revolving credit facility (the “2013 Revolving Credit Facility”), (ii) a five-year $500.0 million term loan A facility (the “2013 Term Loan A Facility”) and (iii) a seven-year $250.0 million term loan B facility (the “2013 Term Loan B Facility” and collectively with the 2013 Revolving Credit Facility and the 2013 Term Loan A Facility, the “2013 Senior Secured Credit Facilities”).
On April 28, 2015, the Company entered into an agreement to amend its 2013 Credit Agreement (the “Amended 2013 Credit Agreement”). In August 2015, the Amended 2013 Credit Agreement went into effect, which increased the capacity under the 2013 Revolving Credit Facility to $633.2be (i) at least $400.0 million through April 30, 2020; (ii) $350.0 million during the period from May 1, 2020 through May 31, 2020; (iii) $300.0 million during the period from June 1, 2020 through June 30, 2020; and increased(iv) $225.0 million during the 2013 Term Loan A Facilityperiod from July 1, 2020 through March 31, 2021.
The Second Amendment also amended the financial covenants that are applicable after the Covenant Relief Period to $646.7 million. The Amended 2013 Credit Agreement did not impact the 2013 Term Loan B Facility.
On January 19, 2017,permit the Company entered intoto (i) maintain a maximum consolidated total net leverage ratio of up to a ratio that varies by quarter, ranging between 5.50:1.00 and 4.50:1.00 in 2021 and 4.25:1.00 thereafter, tested quarterly on a pro forma trailing twelve month (“PF TTM”) basis; (ii) maintain a maximum senior secured net leverage ratio of up to a ratio that varies by quarter, ranging between 4.50:1.00 and 3.50:1.00 in 2021 and 3.00:1.00 thereafter, tested quarterly on a PF TTM basis; and (iii) maintain an agreement to amend and restate its Amended 2013 Credit Agreement (the “2017 Credit Agreement”), which provided for:interest coverage ratio of 2.50:1.00, tested quarterly on a PF TTM basis.
In addition, the Second Amendment (i) a five-year $700.0 million revolving credit facility (the “Revolving Credit Facility”), a five-year $300.0 million term loan A facility (the “Term Loan A Facility”), and a seven-year $500.0 million Term Loan B facility (the “Term Loan B Facility” and collectively withprovides that, during the Covenant Relief Period, loans under the Revolving Credit Facility and the Term Loan A Facility the “Senior Secured Credit Facilities”).
On October 15, 2018,shall bear interest at either a base rate or an adjusted LIBOR rate, in connection with the Pinnacle Acquisition, we entered intoeach case, plus an incremental joinder agreement (the “Incremental Joinder”), which amended the 2017 Credit Agreement (the “Amended 2017 Credit Agreement”). The Incremental Joinder provided for an additional $430.2 million of incremental loans having the same terms as the existing Term Loan A Facility, with the exception of extending the maturity date, and an additional $1,128.8 million of loans as a new tranche having new terms (the “Term Loan B-1 Facility”). The proceeds resulting from the Incremental Joinder were used; together with cash on hand and proceeds received from (i) newly-issued shares of the Company’s common stock, (ii) the sale of the Divested Properties, (iii) the Plainridge Park Casino Sale-Leaseback, and (iv) the sale of the real estate assets associated with Belterra Park; to (a) acquire all of the issued and outstanding equity interests of Pinnacle, (b) repay in full Pinnacle’s existing senior secured credit facilities at the time of the acquisition, (c) redeem, repurchase, defease or satisfy and discharge in full Pinnacle’s outstanding 5.625% senior notes due 2024, (d) repay in full the Company’s outstanding borrowings under its Term Loan B Facility at the time of the acquisition, and (e) pay fees, costs and expenses associated with the foregoing. With the exception of extending the maturity date, the Incremental Joinder did not impact the Revolving Credit Facility.
The final maturity dates for the Term Loan A Facility and Term Loan B-1 Facility are October 19, 2023 and October 15, 2025, respectively. The applicable margin, forin the Term Loan A Facility ranges from 1.25% to 3.00% per annum for LIBOR loans and 0.25% to 2.00% per annum forcase of base rate loans, in each case depending on the Consolidated Total Net Leverage Ratio (as definedof 2.00%, and in the Amended 2017 Credit Agreement) ascase of adjusted LIBOR rate loans, of 3.00%; (ii) provides that, during the most recent fiscal quarter. The applicable margin forCovenant Relief Period, the Term Loan B-1 Facility is 2.25% per annum for LIBOR loans and 1.25% per annum for base rate loans. The Term Loan B-1 Facility is subject to a LIBOR “floor” of 0.75%. Prior to extinguishment, the applicable margin for the Term Loan B Facility was 2.50% per annum for LIBOR loans and 1.50% per annum for base rate loans. In addition, weCompany shall pay a commitment fee on the unused portion of the commitments under the Revolving Credit Facility at a rate that ranges from 0.20% toof 0.50% per annum, depending on the Consolidated Total Net Leverage Ratio as of the most recent fiscal quarter.
The payment and performance of obligationsannum; (iii) provides for a 0.75% LIBOR floor applicable to all LIBOR loans under the Senior Secured Credit Facilities are guaranteed by a lien on and security interest in substantially allFacilities; (iv) carves out COVID-19 related effects from certain terms of the assets (other than excluded property, such as gaming licenses)Senior Secured Credit Facilities during the Covenant Relief Period; and (v) makes certain other changes to the covenants and other provisions of the Company.
5.625% Senior Unsecured NotesCredit Agreement.
On January 19, 2017,In May 2020, the Company completed ana public offering of $400.0$330.5 million aggregate principal amount of 5.625% senior2.75% unsecured convertible notes that mature, unless earlier converted, redeemed or repurchased, on JanuaryMay 15, 20272026 (the “5.625%“Convertible Notes”) at a price of par. After lender fees and discounts, net proceeds received by the Company were $322.2 million. Interest on the 5.625%Convertible Notes is payable on JanuaryMay 15th and JulyNovember 15th of each year. year, beginning on November 15, 2020.
The 5.625%Convertible Notes are not guaranteed by anyconvertible into shares of the Company’s subsidiaries exceptcommon stock at an initial conversion price of $23.40 per share, or 42.7350 shares, per $1,000 principal amount of notes, subject to adjustment if certain corporate events occur. However, in no event will the conversion exceed 55.5555 shares of common stock per $1,000 principal amount of notes. As of December 31, 2020, the maximum number of shares that could be issued to satisfy the conversion feature of the Convertible Notes is 18,360,815 and the amount by which the Convertible Notes if-converted value exceeded its principal amount was $1,255.3 million.
Prior to February 15, 2026, at their election, holders of the Convertible Notes may convert outstanding notes starting in the event thatfourth quarter of 2020 if the trading price of the Company’s common stock exceeds 130% of the conversion price or, starting shortly after the issuance of the Convertible Notes, if the trading price per $1,000 principal amount of notes is less than 98% of the product of the trading price of the Company’s common stock and the conversion rate then in effect. The Convertible Notes may, at the Company’s election, be settled in cash, shares of common stock of the Company, in the future issues certain subsidiary-guaranteed debt securities.or a combination thereof. The Company mayhas the option to redeem the 5.625%Convertible Notes, at any time onin whole or after January 15, 2022, atin part, beginning November 20, 2023.
In addition, the declining redemption premiums set forth inConvertible Notes convert into shares of the
Company’s common stock upon the occurrence of certain corporate events that constitute a fundamental change under the indenture governing the Convertible Notes at a purchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to, but excluding, the date of repurchase. In connection with certain corporate events or if the Company issues a notice of redemption, it will, under certain circumstances, increase the conversion rate for holders who elect to convert their Convertible Notes in connection with such corporate events or during the relevant redemption period for such Convertible Notes.
At December 31, 2020, we had $2,431.6 million in aggregate principal amount of indebtedness, including $1,628.1 million outstanding under our Senior Secured Credit Facilities, $330.5 million outstanding under our Convertible Notes, $400.0 million outstanding under our 5.625% senior unsecured notes, and $73.0 million outstanding in other long-term obligations. No amounts were drawn on our Revolving Credit Facility. We have no debt maturing prior to 2023. As of December 31, 2020 we had conditional obligations under letters of credit issued pursuant to the Senior Secured Credit Facilities with face amounts aggregating to $28.2 million resulting in $671.8 million available borrowing capacity under our Revolving Credit Facility.
Covenants
Our Senior Secured Credit Facilities and 5.625% Notes require us, among other obligations, to maintain specified financial ratios and prior to January 15, 2022, at a “make-whole” redemption premium set forthsatisfy certain financial tests, including the Maximum Consolidated Total Net Leverage Ratio, Maximum Consolidated Senior Secured Net Leverage Ratio and Minimum Interest Coverage Ratio (as such terms are defined in our Amended 2017 Credit Agreement) as well as the Fixed Charge Coverage Ratio (as defined in the indenture governing our 5.625% Notes). In addition, our Senior Secured Credit Facilities and 5.625% Notes restrict, among other things, our ability to incur additional indebtedness, incur guarantee obligations, amend debt instruments, pay dividends, create liens on assets, make investments, engage in mergers or consolidations, and otherwise restrict corporate activities. As of December 31, 2020, the 5.625% Notes.Company was in compliance with all required financial covenants. When our covenant relief period ends, the Company is subject to and expects to be in compliance with all required financial covenants including (i) Maximum Consolidated Total Net Leverage Ratio; (ii) Maximum Consolidated Senior Secured Net Leverage Ratio; and (iii) Minimum Interest Coverage Ratio (as discussed above) with the Company's submission of its compliance certificate for the quarter ending March 31, 2021.
The Company used a portion
See Note 11, “Long-term Debt,” in the notes to our Consolidated Financial Statements for additional information of the proceeds fromCompany's debt and other long-term obligations.
Common Stock Offering
On May 14, 2020, the issuanceCompany completed a public offering of 16,666,667 shares of Penn Common Stock and on May 19, 2020, the underwriters exercised their right to purchase an additional 2,500,000 shares of Penn Common Stock, resulting in an aggregate public offering of 19,166,667 shares of Penn Common Stock. All of the 5.625% Notes to retire allshares were issued at a public offering price of its $300.0$18.00 per share, resulting in gross proceeds of $345.0 million, aggregate principal amountand net proceeds of 5.875% senior subordinated notes due 2021 and, along with loans funded under the 2017 Credit Agreement, repay amounts outstanding under its Amended 2013 Credit Agreement, including to fund related transaction$331.2 million after underwriter fees and expenses. The remaining proceeds fromdiscounts of $13.8 million.
On September 24, 2020, the issuanceCompany completed a public offering of 14,000,000 shares of Penn Common Stock and on September 25, 2020, the underwriters exercised their right to purchase an additional 2,100,000 shares of Penn Common Stock, resulting in an aggregate public offering of 16,100,000 shares of Penn Common Stock. All of the 5.625% Notesshares were used for general corporate purposes.issued at a public offering price of $61.00 per share, resulting in gross proceeds of $982.1 million, and net proceeds of $957.6 million after underwriter fees and discounts of $24.5 million.
Triple Net Leases
The majority of the real estate assets used in the Company’s operations are subject to triple net master leases; the most significant of which are the Penn Master Lease and the Pinnacle Master Lease. Subsequent to the adoption of ASC 842, the Company’s Master Leases are accounted for as either operating leases, finance leases, or determined to continue to be financing obligations. Prior to the adoption of ASC 842, all components contained within the Master Leases were accounted for as financing obligations. In addition, threefive of the gaming facilities used in our operations are subject to individual triple net leases. As previously mentioned, we refer to the Penn Master Lease, the Pinnacle Master Lease, the Meadows Lease, the Margaritaville Lease, the Greektown Lease, the Tropicana Lease and the MeadowsMorgantown Lease, collectively, as our Triple Net Leases.
Under our Triple Net Leases, in addition to lease payments for the real estate assets, we are required to pay the following, among other things: (1) all facility maintenance; (2) all insurance required in connection with the leased properties and the business conducted on the leased properties; (3) taxes levied on or with respect to the leased properties (other than taxes on the income of the lessor); and (4) all tenant capital improvements; and (5) all utilities and other services necessary or appropriate for the
leased properties and the business conducted on the leased properties.
Penn Master Lease
Pursuant As of December 31, 2020, we are required to a triple net master lease with GLPI (the “Penn Master Lease”), which became effective November 1, 2013, the Company leases real estate assets associated with 19make annual minimum rent payments of the gaming facilities used in its operations. The Penn Master Lease has an initial term of 15 years with four subsequent, five-year renewal periods on the same terms and conditions, exercisable at the Company’s option.
The payment structure under the Penn Master Lease includes a fixed component, a portion of which is$814.6 million. Additionally, our Triple Net Leases are subject to
an annual
escalator of up to 2%, depending on the Adjusted Revenue to Rent Ratio (as definedescalators and periodic percentage rent resets, as applicable. See Note 12, “Leases,” in the Penn Master Lease) of 1.8:1,notes to our Consolidated Financial Statements for further discussion and a component that is based on the performance of the properties, which is prospectively adjusted (i) every five years by an amount equal to 4% of the average change in net revenues of all properties under the Penn Master Lease (other than Hollywood Casino Columbus and Hollywood Casino Toledo) compared to a contractual baseline during the preceding five years (“Penn Percentage Rent”) and (ii) monthly by an amount equal to 20% of the net revenues of Hollywood Casino Columbus and Hollywood Casino Toledo in excess of a contractual baseline and subject to a rent floor specific to Hollywood Casino Toledo. As a result of the annual escalator, the fixed component of rent increased by $5.5 million, $5.4 million and $2.4 million effective as of November 1, 2019, 2018 and 2017, respectively. Additionally, effective November 1, 2018, the Penn Percentage Rent reset resulted in an annual rent reduction of $11.3 million, which will be in effect until the next Penn Percentage Rent reset, occurring on November 1, 2023.Pinnacle Master Lease
In connection with the Pinnacle Acquisition, the Company assumed a triple net master lease with GLPI (“Pinnacle Master Lease”), originally effective April 28, 2016. Concurrent with the closing of the Pinnacle Acquisition on October 15, 2018, the Company entered into an amendmentdisclosure related to the Pinnacle Master Lease to, among other things, (i) remove Ameristar St. Charles, Ameristar Kansas City and Belterra Resort and (ii) add Plainridge Park Casino, whose real estate assets were sold to GLPI and concurrently leased back to the Company for a fixed annual rent of $25.0 million. Further, the rent payment under the Pinnacle Master Lease was increased by a fixed annual amount of $13.9 million to adjust the rent to reflect current market conditions. Reflecting this amendment, the CompanyCompany's leases real estate assets associated with twelve of the gaming facilities used in the Company’s operations from GLPI..
Upon assumption of the Pinnacle Master Lease, as amended, there were 7.5 years remaining of the initial ten-year term, with five subsequent, five-year renewal periods exercisable at the Company’s option. The payment structure under the Pinnacle Master Lease includes a fixed component, which is subject to an annual escalator of up to 2%, depending on the Adjusted Revenue to Rent Ratio (as defined in the Pinnacle Master Lease) of 1.8:1, and a component that is based on the performance of the properties, which is prospectively adjusted every two years by an amount equal to 4% of the average change in net revenues of all properties under the Pinnacle Master Lease compared to a contractual baseline during the preceding two years (“Pinnacle
Percentage Rent”). As a result of the annual escalator, effective as of May 1, 2019, the fixed component of rent increased by $1.0 million. The next Pinnacle Percentage Rent reset is scheduled to occur on May 1, 2020.
Meadows Lease, Margaritaville Lease, and Greektown Lease
In connection with the Pinnacle Acquisition, we assumed a triple net lease of the real estate assets used in the operations of Meadows (the “Meadows Lease”), originally effective September 9, 2016, with GLPI as the landlord. Upon assumption of the Meadows Lease, there were eight years remaining of the initial ten-year term, with three subsequent, five-year renewal options followed by one four-year renewal option on the same terms and conditions, exercisable at the Company’s option. The payment structure under the Meadows Lease includes a fixed component (“Meadows Base Rent”), which is subject to an annual escalator of up to 5% for the initial term or until the lease year in which Meadows Base Rent plus Meadows Percentage Rent (as defined below) is a total of $31.0 million, subject to certain adjustments, and up to 2% thereafter, subject to an Adjusted Revenue to Rent Ratio (as defined in the Meadows Lease) of 2.0:1. The “Meadows Percentage Rent” is based on performance, which is prospectively adjusted for the next two-year period equal to 4% of the average annual net revenues of the property during the trailing two-year period. As a result of the annual escalator, effective as of October 1, 2019, the Meadows Base Rent increased by $0.8 million. The next Meadows Percentage Rent reset is scheduled to occur on October 1, 2020.
In connection with the acquisition of Margaritaville, we entered into the Margaritaville Lease with VICI for the real estate assets used in the operations of Margaritaville. The Margaritaville Lease has an initial term of 15 years, with four subsequent five-year renewal options on the same terms and conditions, exercisable at the Company’s option. The payment structure under the Margaritaville Lease includes a fixed component (“Margaritaville Base Rent”), which is subject to an annual escalator of up to 2% subject to an Adjusted Revenue to Rent Ratio (as defined in the Margaritaville Lease) of 1.9:1, and a component that is based on performance, which is prospectively adjusted every two years by an amount equal to 4% of the average change in net revenues of the facility compared to a contractual baseline during the preceding two years (“Margaritaville Percentage Rent”). The first Margaritaville Percentage Rent reset is scheduled to occur on February 1, 2021. On February 1, 2020, the Margaritaville Lease was amended to provide for a change in the measurement of the annual escalator. Under the amendment, the Margaritaville Base Rent is subject to an annual escalator of up to 2% subject to a minimum ratio of net revenue to rent of 6.1:1.
In connection with the acquisition of Greektown, we entered into the Greektown Lease with VICI for the real estate assets used in the operations of Greektown. The Greektown Lease has an initial term of 15 years, with four subsequent five-year renewal options on the same terms and conditions, exercisable at the Company’s option. The payment structure under the Greektown Lease includes a fixed component (“Greektown Base Rent”), which is subject to an annual escalator of up to 2% subject to an Adjusted Revenue to Rent Ratio (as defined in the Greektown Lease) of 1.85:1, and a component that is based on performance, which is prospectively adjusted every two years by an amount equal to 4% of the average change in net revenues of the facility compared to a contractual baseline during the preceding two years (“Greektown Percentage Rent”). The first Greektown Percentage Rent reset is scheduled to occur on June 1, 2021.
Payments to our REIT Landlords under Triple Net Leases
Total payments made to our REIT Landlords, GLPI and VICI, inclusive of rent credits utilized, were as follows:
|
| | | | | | | | | | | |
| For the year ended December 31, |
(in millions) | 2019 | | 2018 | | 2017 |
Penn Master Lease | $ | 457.9 |
| | $ | 461.5 |
| | $ | 455.4 |
|
Pinnacle Master Lease | 328.6 |
| | 70.3 |
| | — |
|
Meadows Lease | 26.4 |
| | 5.6 |
| | — |
|
Margaritaville Lease | 23.1 |
| | — |
| | — |
|
Greektown Lease | 33.8 |
| | — |
| | — |
|
Total | $ | 869.8 |
| | $ | 537.4 |
| | $ | 455.4 |
|
Other Long-Term Obligations | | | | | | | | | | | | | | | | | |
| For the year ended December 31, |
(in millions) | 2020 | | 2019 | | 2018 |
Penn Master Lease (1) | $ | 457.9 | | | $ | 457.9 | | | $ | 461.5 | |
Pinnacle Master Lease (1) | 326.9 | | | 328.6 | | | 70.3 | |
Meadows Lease (1) | 26.4 | | | 26.4 | | | 5.6 | |
Margaritaville Lease | 23.5 | | | 23.1 | | | — | |
Greektown Lease | 55.6 | | | 33.8 | | | — | |
Morgantown Lease (1) | 0.8 | | | — | | | — | |
Total (2) | $ | 891.1 | | | $ | 869.8 | | | $ | 537.4 | |
Ohio Relocation Fees(1)
As ofDuring the twelve months ended December 31, 2019 and 2018, other long-term obligations included $76.42020 we utilized rent credits to pay $190.7 million, $135.5 million, $11.0 million and $91.3$0.3 million respectively, related toof rent under the relocation fees for Hollywood Gaming at Dayton RacewayPenn Master Lease, Pinnacle Master Lease, Meadows Lease and Hollywood Gaming at Mahoning Valley Race Course, which opened in August 2014 and September 2014,Morgantown Lease, respectively. In June 2013, we finalized
(2)Cash rent payable under the terms of our
memorandum of understanding withTropicana Lease is nominal. Therefore, it has been excluded from the State of Ohio, which included an agreement for us to pay a relocation fee in return for being able to relocate our existing racetracks in Toledo and Grove City to Dayton and Mahoning Valley, respectively. Upon opening Dayton and Mahoning Valley, each relocation fee was recorded at the present value of the contractual obligation, which was calculated as $75.0 million based on the 5.0% discount rate included in the agreement. Each relocation fee is payable as follows: $7.5 million upon opening and eighteen semi-annual payments of $4.8 million beginning one year after opening.
Event Center
As of December 31, 2019 and 2018, other long-term obligations included $12.6 million and $13.2 million, respectively, related to the repayment obligation of a hotel and event center located less than a mile away from Hollywood Casino Lawrenceburg, which was constructed by the City of Lawrenceburg Department of Redevelopment. Effective in January 2015, by contractual agreement, we assumed a repayment obligation for the hotel and event center in the amount of $15.3 million, which was financed through a loan with the City of Lawrenceburg Department of Redevelopment, in exchange for conveyance of the property. Beginning in January 2016, the Company was obligated to make annual payments on the loan of $1.0 million for 20 years.table above.
Share Repurchase Programs
On February 3, 2017,In January 2019, the Company announced a share repurchase program pursuant to which the Board of Directors authorized tothe repurchase of up to $100.0$200.0 million of the Company’s common stock, which expired on February 1, 2019. During the years ended December 31, 2018 and 2017, the Company repurchased 2,299,498 and 1,264,149 shares, respectively, of its common stock in open market transactions for $50.0 million at an average price of $21.74 per share and $24.8 million at an average price of $19.59 per share, respectively.
On January 9, 2019, the Company announced a new share repurchase program pursuant to which the Board of Directors authorized to repurchase up to $200.0 million of the Company’s common stock. The new share repurchase program covers an authorization period of two years, expiring on December 31, 2020. During the year ended December 31, 2019, the Company repurchased 1,271,823 shares of its common stock in open market transactions for $24.9 million at an average price of $19.55 per share.
Covenants All of the repurchased shares were retired. There were no repurchases of the Company’s common stock for the year ended December 31, 2020.
Our Senior Secured Credit Facilities and 5.625% Notes require us, amongOther Contractual Cash Obligations
The following table presents our other contractual cash obligations to maintain specified financial ratios and to satisfy certain financial tests, including the Maximum Consolidated Total Net Leverage Ratio, Maximum Consolidated Senior Secured Net Leverage Ratio and Minimum Interest Coverage Ratio (as such terms are defined in our Amended 2017 Credit Agreement) as well as the Fixed Charge Coverage Ratio (as defined in the indenture governing our 5.625% Notes). In addition, our Senior Secured Credit Facilities and 5.625% Notes restrict, among other things, our ability to incur additional indebtedness, incur guarantee obligations, amend debt instruments, pay dividends, create liens on assets, make investments, engage in mergers or consolidations, and otherwise restrict corporate activities. As of December 31, 2019,2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Payments Due By Period |
(in millions) | Total | | 2021 | | 2022-2023 | | 2024-2025 | | 2026 and After |
Purchase obligations | $ | 149.1 | | | $ | 59.7 | | | $ | 33.3 | | | $ | 12.9 | | | $ | 43.2 | |
Other liabilities reflected within our Consolidated Balance Sheets (1) | 9.4 | | | 0.8 | | | 0.6 | | | 0.6 | | | 7.4 | |
Total | $ | 158.5 | | | $ | 60.5 | | | $ | 33.9 | | | $ | 13.5 | | | $ | 50.6 | |
(1)Excludes the Company was in complianceliability for unrecognized tax benefits of $38.2 million, as we cannot reasonably estimate the period of cash settlement with all required financial covenants. the respective taxing authorities. Additionally, it does not include an estimate of the payments associated with our contingent purchase price obligations of $7.3 million as it is not a fixed obligation.
Outlook
Based on our current level of operations, we believe that cash generated from operations and cash on hand, together with amounts available under our Senior Secured Credit Facilities, will be adequate to meet our anticipated obligations under our Triple Net Leases, debt service requirements, capital expenditures and working capital needs for the foreseeable future. However, we cannot be certain that our business willability to generate sufficient cash flow from operations;operations will depend on a range of economic, competitive and business factors, many of which are outside our control, including the impact of the COVID-19 pandemic. We cannot be certain: (i) of the impact of the operating restrictions to accommodate social distancing and health and safety guidelines on our properties; (ii) of the magnitude and duration of the impact of the COVID-19 pandemic (including reoccurrences) on general economic conditions, capital markets, unemployment and our liquidity, operations, supply chain and personnel, including the potential that some or all of our properties may be forced to close or cease operations for a certain period of time; (iii) that the U.S. economy and our business will continuerecover to grow in 2020;levels that existed prior to the COVID-19 pandemic and on what time frame; (iv) that our anticipated earnings projections will be realized; (v) that we will achieve the expected synergies from our acquisitions, principally Pinnacle; or
acquisitions; (vi) that future borrowings will be available under our Senior Secured Credit Facilities or otherwise will be available in the credit markets to enable us to service our indebtedness or to make anticipated capital expenditures. We caution you that the trends seen at our reopened properties (e.g., higher spend per trip) may not continue. In addition, while we expectanticipated that a majoritysignificant amount of our future growth towould come through the pursuit of opportunities within other distribution channels, such as retail and online sports betting, social gaming, retail gaming, and iGaming; from acquisitions of gaming properties; further investment in retail sportsbooks, online sports betting, and iGaming;properties at reasonable valuations; greenfield projects; and jurisdictional expansions;expansions and property expansion in under-penetrated markets.markets; there can be no assurance that this will be the case given the uncertainty arising from the COVID-19 pandemic. If we consummate significant acquisitions in the future or undertake any significant property expansions, or make additional investments in Barstool Sports, our cash requirements may increase significantly and we may need to make additional borrowings or complete equity or debt financings to meet these requirements. Our future operating performance and our ability to service or refinance our debt will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control. See “Risk Factors—Risks Related to Our Indebtedness and Capital Structure” within “Item 1A. Risk Factors,” of this Annual Report on Form 10-K for a discussion of the risks related to our capital structure.
We have historically maintained a capital structure comprised of a mix of equity and debt financing. We vary our leverage to pursue opportunities in the marketplace and in an effort to maximize our enterprise value for our shareholders. We expect to meet our debt obligations as they come due through internally-generated funds from operations and/or refinancing them through the debt or equity markets prior to their maturity.
CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
Contractual Cash Obligations
As of December 31, 2019, there was $530.0 million available for borrowing under our Revolving Credit Facilities. The following table presents our contractual cash obligations as of December 31, 2019:
|
| | | | | | | | | | | | | | | | | | | |
| | | Payments Due By Period |
(in millions) | Total | | 2020 | | 2021-2022 | | 2023-2024 | | 2025 and After |
Senior Secured Credit Facilities | | | | | | | | | |
Principal | $ | 1,929.8 |
| | $ | 46.7 |
| | $ | 146.5 |
| | $ | 675.6 |
| | $ | 1,061.0 |
|
Interest (1) | 347.1 |
| | 71.7 |
| | 137.7 |
| | 103.9 |
| | 33.8 |
|
5.625% Notes | | | | | | | | | |
Principal | 400.0 |
| | — |
| | — |
| | — |
| | 400.0 |
|
Interest | 168.8 |
| | 22.5 |
| | 45.0 |
| | 45.0 |
| | 56.3 |
|
Purchase obligations | 126.4 |
| | 70.4 |
| | 29.1 |
| | 11.6 |
| | 15.3 |
|
Capital expenditure commitments (2) | 54.1 |
| | 54.1 |
| | — |
| | — |
| | — |
|
Operating leases (3) | 10,160.1 |
| | 424.0 |
| | 804.3 |
| | 778.5 |
| | 8,153.3 |
|
Finance leases (3) | 496.0 |
| | 21.7 |
| | 43.3 |
| | 37.5 |
| | 393.5 |
|
Financing obligations (3) | 11,114.5 |
| | 374.7 |
| | 734.6 |
| | 734.6 |
| | 9,270.6 |
|
Ohio relocation fees (4) | 122.5 |
| | 31.2 |
| | 62.4 |
| | 28.9 |
| | — |
|
Other liabilities reflected within our Consolidated Balance Sheets (5) | 26.4 |
| | 1.9 |
| | 3.1 |
| | 2.6 |
| | 18.8 |
|
Total | $ | 24,945.7 |
| | $ | 1,118.9 |
| | $ | 2,006.0 |
| | $ | 2,418.2 |
| | $ | 19,402.6 |
|
| |
(1) | The interest rates are estimated using the forward LIBOR curves plus the applicable spread as of December 31, 2019. The contractual amounts to be paid on our variable rate obligations are affected by changes in market interest rates and changes in our spreads, which are based on our leverage ratios. Future changes in such ratios will impact the contractual amounts to be paid. |
| |
(2) | We anticipate spending $324.3 million for future capital expenditures over the next year, of which we are contractually committed to spend $54.1 million as of December 31, 2019. Pursuant to each of our Triple Net Leases, we are obligated to spend a minimum of 1% of annual net revenues, in the aggregate under each lease, on the maintenance of such facilities. |
| |
(4) | In addition to the Ohio Relocation Fees discussed in Note 10, “Long-term Debt,” in the notes to our Consolidated Financial Statements, the Company agreed to pay $110.0 million (of which $36.0 million remains to be paid) to the State of Ohio over ten years in return for certain clarifications from the State of Ohio with respect to various financial matters and limits on competition within the ten-year time period. |
| |
(5) | Excludes the liability for unrecognized tax benefits of $37.2 million, as we cannot reasonably estimate the period of cash settlement with the respective taxing authorities. Additionally, it does not include an estimate of the payments associated with our contingent purchase price obligations of $17.5 million as it is not a fixed obligation. |
Other Commercial Commitments
The following table presents our material commercial commitments as of December 31, 2019:
|
| | | | | | | | | | | | | | | | | | | |
| | | Payments Due By Period |
(in millions) | Total | | 2020 | | 2021-2022 | | 2023-2024 | | 2025 and After |
Letters of credit (1) | $ | 30.0 |
| | $ | 30.0 |
| | $ | — |
| | $ | — |
| | $ | — |
|
Total | $ | 30.0 |
| | $ | 30.0 |
| | $ | — |
| | $ | — |
| | $ | — |
|
| |
(1) | The available balance under our Revolving Credit Facilities is reduced by outstanding letters of credit. |
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
For information on new accounting pronouncements and the impact of these pronouncements on our Consolidated Financial Statements, see Note 3, “New Accounting Pronouncements,” in the notes to our Consolidated Financial Statements.
CRITICAL ACCOUNTING ESTIMATES
The preparation of the Consolidated Financial Statements in accordance with GAAP requires us to make estimates and judgments that are subject to an inherent degree of uncertainty. The nature of the estimates and assumptions are material due to the levels of subjectivity and judgment necessary to account for highly uncertain factors or the susceptibility of such factors to change. The development and selection of critical accounting estimates, and the related disclosures, have been reviewed with the Audit Committee of our Board of Directors. We believe the current assumptions and other considerations used to estimate amounts reflected in our Consolidated Financial Statements are appropriate. However, if actual experience differs from the assumptions and other considerations used in estimating amounts reflected in our Consolidated Financial Statements, the resulting changes could have a material adverse effect on our financial condition, results of operations and cash flows.
Goodwill and other intangible assets
As of December 31, 2019,2020, the Company had $1,270.7$1,157.1 million in goodwill and $2,026.5$1,513.5 million in other intangible assets within its Consolidated Balance Sheet, representing 9.0%representing 7.9% and 14.3%10.3% of total assets, respectively. The Company’s goodwill and other intangible assets are primarily the result of acquisitions of businesses and payments for gaming licenses. These intangible assets require significant management estimates and judgment pertaining to: (i) the valuation in connection with initial purchase price allocations and (ii) the ongoing evaluation for impairment. During the fourth quarter we performed our annual impairment analysis and the fair value of goodwill for all reporting units exceeded the carrying value by a substantial margin. Therefore, none of our reporting units incurred any goodwill impairment charges as a result of the annual assessment.
In connection with the Company’s acquisitions, valuations are completed to determine the allocation of the purchase price. The factors considered in the valuations include data gathered as a result of the Company’s due diligence in connection with the acquisitions, projections for future operations, and data obtained from third-party valuation specialists, as deemed appropriate. Goodwill represents the future economic benefits of a business combination measured as the excess purchase price over the fair market value of net assets acquired. Goodwill is tested annually, or more frequently if indicators of impairment exist.
For the quantitative goodwill impairment test, an income approach, in which a discounted cash flow (“DCF”) model is utilized, and a market-based approach using guideline public company multiples of earnings before interest, taxes, depreciation, and amortization from the Company’s peer group are utilized in order to estimate the fair market value of the Company’s reporting units. In determining the carrying amount of each reporting unit that utilizes real estate assets subject to the Triple Net Leases, if and as applicable, (i) the Company allocates each reporting unit their pro-rata portion of the right-of-use (“ROU”) assets, lease liabilities, and/or financing obligations, and (ii) pushes down the carrying amount of the property and equipment subject to such leases. In general, as it pertains to the Master Leases, such amounts are allocated based on the reporting unit’s projected Adjusted EBITDA as a percentage of the aggregate estimated Adjusted EBITDA of all reporting units subject to either of the Master Leases, as applicable. The Company compares the fair value of its reporting units to the carrying amounts. If the carrying amount of the reporting unit exceeds the fair value, an impairment is recorded equal to the amount of the excess (not to exceed the amount of goodwill allocated to the reporting unit).
We consider our gaming licenses, trademarks, and certain other intangible assets as indefinite-lived intangible assets that do not require amortization based on our future expectations to operate our gaming properties indefinitely as well as our historical experience in renewing these intangible assets at minimal cost with various state commissions. Rather, these intangible assets are tested annually for impairment, or more frequently if indicators of impairment exist, by comparing the fair value of the recorded assets to their carrying amount. If the carrying amounts of the indefinite-lived intangible assets exceed their fair value, an impairment loss is recognized. We complete the testing of our indefinite-lived intangible assets prior to assessing our goodwill for impairment. Our annual goodwill and other indefinite-lived intangible assets impairment test is performed on October 1st of each year.
We assess the fair value of our gaming licenses using the Greenfield Method under the income approach, which estimates the fair value of the gaming license using a DCF model assuming we built a new casino with similar utility to that of the existing casino. The method assumes a theoretical start-up company going into business without any assets other than the intangible asset being valued. As such, the value of the gaming license is a function of the following assumptions:
•Projected revenues and operating cash flows (including an allocation of the projected payments under any applicable Triple Net Lease);
•Estimated construction costs and duration;
•Pre-opening costs; and
•Discounting that reflects the level of risk associated with receiving future cash flows attributable to the license.
We assess the fair value of our trademarks using the relief-from-royalty method under the income approach. The principle behind this method is that the value of the trademark is equal to the present value of the after-tax royalty savings attributable to the owned trademark. As such, the value of the trademark is a function of the following assumptions:
•Projected revenues;
•Selection of an appropriate royalty rate to apply to projected revenues; and
•Discounting that reflects the level of risk associated with the after-tax revenue stream associated with the trademark.
The evaluation of goodwill and indefinite-lived intangible assets requires the use of estimates about future operating results of each reporting unit to determine the estimated fair value of the reporting unit and the indefinite-lived intangible assets. The Company must make various assumptions and estimates in performing its impairment testing. The implied fair value includes estimates of future cash flows (including an allocation of the projected payments under any applicable Triple Net Lease) that are based on reasonable and supportable assumptions which represent the Company’s best estimates of the cash flows expected to result from the use of the assets including their eventual disposition. Changes in estimates, increases in the Company’s cost of capital, reductions in transaction multiples, changes in operating and capital expenditure assumptions or application of alternative assumptions and definitions could produce significantly different results. Future cash flow estimates are, by their nature, subjective and actual results may differ materially from the Company’s estimates. If our ongoing estimates of future cash flows are not met, we may have to record additional impairment charges in future periods. Our estimates of cash flows are based on the current regulatory and economic climates (including as a result of COVID-19), recent operating information and budgets of the various properties where it conducts operations. These estimates could be negatively impacted by changes in federal, state or local regulations, economic downturns, or other events affecting our properties.
Forecasted cash flows (based on our annual operating plan as determined in the fourth quarter) can be significantly impacted by the local economy in which our reporting units operate. For example, increasesoperate, as illustrated by the COVID-19 pandemic which caused temporary suspension of our operations pursuant to various orders from state gaming regulatory bodies or governmental authorities. Increases in unemployment rates can also result in decreased customer visitations and/or lower customer spend per visit. In addition, the impact of new legislation which approves gaming in nearby jurisdictions or further expands gaming in jurisdictions where our reporting units currently operate can result in opportunities for us to expand our operations. However, it also has the impact of increasing competition for our established properties which generally will have a negative effect on those locations’ profitability once competitors become established as a certain level of cannibalization occurs absent an overall increase in customer visitations. Additionally, increases in gaming taxes approved by state regulatory bodies can negatively impact forecasted cash flows.
Assumptions and estimates about future cash flow levels and multiples by individual reporting units are complex and subjective. They are sensitive to changes in underlying assumptions and can be affected by a variety of factors, including external factors, such as industry, geopolitical and economic trends, and internal factors, such as changes in the Company’s business strategy, which may re-allocate capital and resources to different or new opportunities which management believes will enhance its overall value but may be to the detriment of an individual reporting unit.
Once an impairment of goodwill or other intangible asset has been recorded, it cannot be reversed. Since the Company’s goodwill and other indefinite-lived intangible assets are not amortized, there may be volatility in reported net income or loss because impairment losses, if any, are likely to occur irregularly and in varying amounts. Intangible assets that have a definite life are amortized on a straight-line basis over their estimated useful lives or related service contract. The Company reviews the carrying amount of its amortizing intangible assets for possible impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. If the carrying amount of the amortizing intangible assets exceed their fair value, an impairment loss is recognized.
Revenue and earnings streams within our industry can vary significantly based on various circumstances, which in many cases are outside of the Company’s control, and as such are difficult to predict and quantify. We have disclosed several of these circumstances in “Item 1A. Risk Factors” of this Annual Report on Form 10-K. Circumstances include, for instance, temporary property closures as a result of COVID-19, changes in legislation that approves gaming in nearby jurisdictions, further expansion of gaming in jurisdictions where we currently operate, new state legislation that requires the implementation of smoking restrictions at our casinos or any other events outside of our control that make the customer experience less desirable. AsDuring the first quarter of 2020, we identified an indicator of impairment as a result of our 2019 annual impairment test, wethe COVID-19 pandemic and recognized impairments on our goodwill, gaming licenses and trademarks, of $88.0$113.0 million, $62.6$437.0 million and $20.0$61.5 million, respectively. Upon reopening of our gaming facilities and throughout the fourth quarter of 2020 we undertook various initiatives to mitigate the impact of regulatory restrictions imposed as a result of the COVID-19 pandemic. We completed our annual assessment for impairment as of October 1, 2020, which did not result in any impairment charges to goodwill, gaming licenses and trademarks. See Note 8,9, “Goodwill and Other Intangible Assets,” in the notes to our Consolidated Financial Statements. Goodwill of reporting units and gaming licenses and trademarks of properties recently acquired or impaired are particularly at-risk for future impairment given the fact that they are recorded at fair value as of the date of acquisition or impairment. As of October 1, 2019, the date of the most recent annual impairment test, the reporting units with goodwill and the gaming licenses and trademarks associated with our properties with less than a substantial cushion, including a sensitivity analysis of the impact on the recorded amount of impairment losses, were as follows:
|
| | | | | | | | | | | | | | |
| | | | | Increase in the Recorded Amount of Impairment Loss as a Result of: |
(dollars in millions) | Carrying Amount | | Cushion | | Discount Rate +100 bps | | Terminal Growth Rate -50 bps |
Goodwill | | | | | | | |
Hollywood Casino Aurora | $ | 161.1 |
| | — | % | | $ | 14.0 |
| | $ | 5.9 |
|
Margaritaville Resort Casino | $ | 40.5 |
| | 12.8 | % | | $ | — |
| | $ | — |
|
| | | | | | | |
Gaming licenses | | | | | | | |
Ameristar East Chicago | $ | 115.5 |
| | — | % | | $ | 17.0 |
| | $ | 6.5 |
|
Boomtown Bossier City | $ | 16.0 |
| | — | % | | $ | 3.5 |
| | $ | 1.5 |
|
Boomtown New Orleans | $ | 101.5 |
| | 0.5 | % | | $ | 14.0 |
| | $ | 5.5 |
|
L’Auberge Lake Charles | $ | 304.0 |
| | 22.5 | % | | $ | — |
| | $ | — |
|
Meadows Racetrack and Casino | $ | 158.5 |
| | — | % | | $ | 21.0 |
| | $ | 8.0 |
|
River City Casino | $ | 226.5 |
| | 0.9 | % | | $ | 28.0 |
| | $ | 10.0 |
|
| | | | | | | |
Trademarks | | | | | | | |
Ameristar Black Hawk | $ | 39.0 |
| | 6.4 | % | | $ | 2.0 |
| | $ | — |
|
Ameristar Council Bluffs | $ | 32.5 |
| | — | % | | $ | 3.5 |
| | $ | 1.0 |
|
Ameristar East Chicago | $ | 22.0 |
| | 6.8 | % | | $ | 1.0 |
| | $ | — |
|
Ameristar Vicksburg | $ | 19.0 |
| | — | % | | $ | 2.0 |
| | $ | 0.5 |
|
Boomtown Bossier City | $ | 5.0 |
| | — | % | | $ | 0.5 |
| | $ | 0.5 |
|
L’Auberge Baton Rouge | $ | 20.0 |
| | — | % | | $ | 2.0 |
| | $ | 0.5 |
|
Meadows Racetrack and Casino | $ | 30.0 |
| | — | % | | $ | 3.0 |
| | $ | 0.5 |
|
Income taxes
Under ASC Topic 740, “Income Taxes” (“ASC 740”), deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities and are measured at the prevailing enacted tax rates that will be in effect when these differences are settled or realized. ASC 740 also requires that deferred tax assets be reduced by a valuation allowance if it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. The realizability of the net deferred tax assets is evaluated each reporting period by assessing the valuation allowance and by adjusting the amount of the allowance, if necessary. Pursuant to ASC 740, in evaluating the more-likely-than-not standard, we consider all available positive and negative evidence including projected future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. In the event the Company determines that the deferred income tax assets would be realized in the future in excess of their net recorded amount, an adjustment to the valuation allowance would be recorded, which would reduce the provision for income taxes. During the third quarter of 2017, we determined
ASC 740 suggests that a valuation allowance was no longer required against our federal netadditional scrutiny should be given to deferred tax assets forof an entity with cumulative pre‑tax losses during the portionthree most recent years and is widely considered significant negative evidence that was expectedis objective and verifiable and therefore, difficult to be realized upon the achievement of the “more-likely-than-not” standard. As such, we released $741.9 million of our total valuation allowance duringovercome. For the year ended December 31, 2017.2020, we have cumulative pre‑tax losses and considered this factor in our analysis of deferred taxes. Additionally, we expect to remain in a three year cumulative loss position in the near future. As a result, the Company has recorded a valuation allowance against its net deferred tax assets, excluding assets that can be realized based on our ability to carry back losses to recoup taxes previously paid and excluding the reversal of deferred tax liabilities related to indefinite‑lived intangibles. We intend to continue to maintain a valuation allowance on our net deferred tax assets until there is sufficient positive evidence to support the reversal of all or some portion of these allowances.
| |
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK |
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We are exposed to market risk from adverse changes in interest rates with respect to the short-term floating interest rate on borrowings under our Senior Secured Credit Facilities. As of December 31, 2019,2020, the Company’s Senior Secured Credit Facilities had a gross outstanding balance of $1,929.8$1,628.1 million, consisting of a $672.3$636.9 million Term Loan A Facility and a $1,117.5$991.2 million Term Loan B-1 Facility, and a Revolving Credit Facility, which had $140.0 million drawn asFacility. As of December 31, 2019.2020, we have $671.8 million of available borrowing capacity under our Revolving Credit Facility.
In May 2020, the Company completed a public offering of $330.5 million aggregate principal amount of 2.75% Convertible Notes that mature on May 15, 2026, unless earlier converted, redeemed or repurchased. Interest on the Convertible Notes is payable on May 15th and November 15th of each year, which began on November 15, 2020.
The table below provides information as of December 31, 20192020 about our long-term debt obligations that are sensitive to changes in interest rates, including the notional amounts maturing during the twelve monthtwelve-month period presented and the related weighted-average interest rates by maturity dates.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(dollars in millions) | 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | Thereafter | | Total | | Fair Value |
Fixed rate | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 400.0 | | | $ | 400.0 | | | $ | 418.0 | |
Average interest rate | | | | | | | | | | | 5.625 | % | | | | |
Fixed rate | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 330.5 | | | $ | 330.5 | | | $ | 1,274.5 | |
Average interest rate | | | | | | | | | | | 2.750 | % | | | | |
Variable rate | $ | 64.4 | | | $ | 82.1 | | | $ | 524.4 | | | $ | 11.3 | | | $ | 945.9 | | | $ | — | | | $ | 1,628.1 | | | $ | 1,609.3 | |
Average interest rate (1) | 3.62 | % | | 3.65 | % | | 3.73 | % | | 3.13 | % | | 3.27 | % | | — | % | | | | |
(1)Estimated rate, reflective of forward LIBOR December 31, 2020 plus the spread over LIBOR applicable to variable-rate borrowing.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(dollars in millions) | 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter | | Total | | Fair Value |
Fixed rate | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 400.0 |
| | $ | 400.0 |
| | $ | 426.0 |
|
Average interest rate |
|
| |
|
| |
|
| |
|
| |
|
| | 5.625 | % | | | | |
Variable rate | $ | 46.7 |
| | $ | 64.4 |
| | $ | 82.1 |
| | $ | 664.3 |
| | $ | 11.3 |
| | $ | 1,061.0 |
| | $ | 1,929.8 |
| | $ | 1,930.6 |
|
Average interest rate (1) | 3.65 | % | | 3.66 | % | | 3.67 | % | | 3.70 | % | | 3.98 | % | | 4.04 | % | | | | |
| |
(1) | Estimated rate, reflective of forward LIBOR December 31, 2019 plus the spread over LIBOR applicable to variable-rate borrowing. |
| |
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of
Penn National Gaming, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Penn National Gaming, Inc. and subsidiaries (the “Company”) as of December 31, 20192020 and 2018,2019, the related consolidated statements of income,operations, comprehensive income (loss), changes in stockholders’ equity, (deficit), and cash flows, for each of the three years in the period ended December 31, 2019,2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20192020 and 2018,2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019,2020, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019,2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 27, 2020,26, 2021, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 32 to the financial statements, effective January 1, 2019, the Company adopted FASB ASC Topic 842, Leases, using the modified retrospective approach.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit MattersMatter
The critical audit mattersmatter communicated below are mattersis a matter arising from the current-period audit of the financial statements that werewas communicated or required to be communicated to the audit committee and that (1) relaterelates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit mattersmatter below, providing a separate opinionsopinion on the critical audit mattersmatter or on the accounts or disclosures to which they relate.it relates.
Gaming License
Goodwill and Other Intangible Assets - Refer to Notes 2 and 89 to the financial statements
Critical Audit Matter Description
The Company’s goodwill, gaming license, indefinite-lived intangible assetsand trademarks are tested annually for impairment, or more frequently if indicators of impairment exist, by comparing the fair value of the recorded assetseach reporting unit to their carrying amount.amount for goodwill and by comparing the fair value of each gaming license or trademark to its carrying value. The Company determines the fair value of its reporting units using a combination of income-based and market-based approaches. The Company assesses the fair value of its gaming
licenses using the Greenfield Method under the income approach, which estimates the fair value using a discounted cash flow model assuming the Company built a casino with similar utility to that of the existing casino. The Company assesses the fair value of its trademarks using the relief-from-royalty method under the income approach. The key inputs in determining the fair value, among others, include projected revenue and operating cash flows
discounted to reflect the level of risk associated with receiving future cash flows attributable to the licenses. Total gaming licenses were $1,681.9 million asflows. As of December 31, 2019,2020, the book value of which $115.5goodwill is $1,157.1 million, $101.5 million, $304.0 million, $158.5gaming license is $1,246.1 million, and $226.5 million was allocated to Ameristar East Chicago, Boomtown New Orleans, L’Auberge Lake Charles, Meadows Racetrack and Casino, and River City Casino (the “properties”), respectively.trademarks is $240.9 million.
Auditing the fair value of the properties’Company’s reporting units, gaming licenses, and trademarks involved a high degree of subjectivity in evaluating whether management’s estimates and assumptions of projected revenue and operating cash flows and the selection of the discount rates used to derive the fair value were reasonable, including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to forecasts of future revenue and operating cash flows and the determination of the discount rates used by management to estimate the fair value of the properties’reporting units, gaming licenses, and trademarks included the following, among others:
•We tested the effectiveness of controls over determining the fair value of the Company’s reporting units, gaming licenses, and trademarks, including those over the forecasts of future revenue and operating cash flows and the selection of the discount rates.
•We evaluated management’s ability to accurately forecast future revenues and operating cash flows by comparing actual results to management’s historical forecasts.
•We evaluated the reasonableness of management’s revenue and operating cash flow forecasts by comparing the forecasts to:
| |
◦ | Internal communications to management and the Board of Directors |
| |
◦ | Forecasted information included in the Company’s press release as well as in analyst and industry reports for the Company and certain of its peer companies |
| |
◦ | The impact of changes in the regulatory environment on management’s projections. |
◦Historical results
◦Internal communications to management and the Board of Directors
◦Forecasted information included in the Company’s press release as well as in analyst and industry reports for the Company and certain of its peer companies
◦The impact of changes in the regulatory environment on management’s projections.
•With the assistance of our fair value specialists, we evaluated the reasonableness of the discount rates by:
◦Testing the source information underlying the determination of the discount rates and the mathematical accuracy of the calculations.
◦Developing a range of independent estimates and comparing those to the discount rates selected by management.
| | |
◦ | Testing the source information underlying the determination of the discount rates and the mathematical accuracy of the calculations. |
| |
◦ | Developing a range of independent estimates and comparing those to the discount rates selected by management. |
Adoption of Accounting Standards Codification Topic 842, “Leases” (“ASC 842”) for Master Leases - Refer to Notes 2, 3 and 11 to the financial statements (also see ASC 842 explanatory paragraph above)
Critical Audit Matter Description
On January 1, 2019, the Company adopted ASC 842 and recorded a cumulative-effect adjustment to retained earnings of $1,085.7 million. Under the provisions of ASC 842, the Company was required to evaluate its existing sale-leaseback transactions to determine whether a sale had occurred, and if a sale had occurred, to determine the classification (operating or finance) of each component contained within each of its Master Leases.
The Company assessed each Master Lease component and determined certain land components to be operating leases and certain building components to be financing obligations. The assessment of the classification of each component resulted in the (1) derecognition of certain property and equipment and financing obligations, (2) recognition of an operating lease liability and an operating lease right-of-use (“ROU”) asset for the operating leases, and (3) continued recognition of the financing obligation utilizing the original assumptions as of the date the Company entered into or acquired each Master Lease. The Company also was required to evaluate the components contained within the build-to-suit arrangements, which resulted in the Dayton and Mahoning Valley lease components being classified as finance leases.
The significant complexity of the adoption of ASC 842, which resulted in a material adjustment to opening retained earnings, required significant auditor judgment with respect to evaluating the determination of lease classifications, interpretation of build-to-suit accounting guidance, and assessment of sale lease back accounting, including the need to involve professionals in our firm with expertise in lease accounting.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the adoption of ASC 842 for its Master Leases included the following, among others:
We tested the effectiveness of internal controls over the adoption of ASC 842, inclusive of controls over the evaluation of lease classifications and accounting conclusions.
With the assistance of professionals in our firm with expertise in lease accounting, we evaluated the appropriateness of the accounting conclusions, including;
| |
◦ | Build to suit and sale lease back transactions. |
We evaluated the financial statement impact of (i) the derecognition of the existing financing obligation and the carrying amount of the property and equipment that resulted in a cumulative-effect adjustment to retained earnings, (ii) the recognition of an operating lease liability and an operating lease ROU asset primarily pertaining to the land component, and (iii) the recognition of a ROU asset and financing lease liability relating to certain leases which were previously considered build-to-suit leases.
We tested the leasing components contained within each of the Master Leases that were determined to continue to represent financing obligations (consisting primarily of the building components) at the adoption date, which resulted in the (i) continued recognition of the leased assets in “Property and equipment, net” within the financial statements and (ii) continued recognition of the financing obligation.
We tested the accuracy and completeness of contract terms and key assumptions utilized in key accounting determinations through comparison to the underlying lease contracts and supporting documentation.
|
|
/s/ Deloitte & Touche LLP |
|
Philadelphia, Pennsylvania |
February 27, 202026, 2021 |
|
We have served as the Company’s auditor since 2017. |
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| | | December 31, | | December 31, |
(in millions, except share and per share data) | 2019 | | 2018 | (in millions, except share and per share data) | 2020 | | 2019 |
Assets | | | | Assets | | | |
Current assets | | | | Current assets | | | |
Cash and cash equivalents | $ | 437.4 |
| | $ | 479.6 |
| Cash and cash equivalents | $ | 1,853.8 | | | $ | 437.4 | |
Receivables, net of allowance for doubtful accounts of $7.7 and $3.2 | 88.7 |
| | 106.8 |
| |
Receivables, net of allowance for doubtful accounts of $8.8 and $7.7 | | Receivables, net of allowance for doubtful accounts of $8.8 and $7.7 | 96.4 | | | 88.7 | |
Prepaid expenses | 76.7 |
| | 63.0 |
| Prepaid expenses | 103.5 | | | 76.7 | |
| Other current assets | 40.0 |
| | 28.2 |
| Other current assets | 31.3 | | | 40.0 | |
Total current assets | 642.8 |
| | 677.6 |
| Total current assets | 2,085.0 | | | 642.8 | |
Property and equipment, net | 5,120.2 |
| | 6,868.8 |
| Property and equipment, net | 4,529.3 | | | 5,120.2 | |
Investment in and advances to unconsolidated affiliates | 128.3 |
| | 128.5 |
| Investment in and advances to unconsolidated affiliates | 266.8 | | | 128.3 | |
Goodwill | 1,270.7 |
| | 1,228.4 |
| Goodwill | 1,157.1 | | | 1,270.7 | |
Other intangible assets, net | 2,026.5 |
| | 1,856.9 |
| Other intangible assets, net | 1,513.5 | | | 2,026.5 | |
Deferred income taxes | — |
| | 80.6 |
| |
Operating lease right-of-use assets | 4,613.3 |
| | — |
| |
Finance lease right-of-use assets | 224.0 |
| | — |
| |
| Lease right-of-use assets | | Lease right-of-use assets | 4,817.7 | | | 4,837.3 | |
Other assets | 168.7 |
| | 120.2 |
| Other assets | 297.9 | | | 168.7 | |
Total assets | $ | 14,194.5 |
| | $ | 10,961.0 |
| Total assets | $ | 14,667.3 | | | $ | 14,194.5 | |
| | | | | | | |
Liabilities | | | | Liabilities | | | |
Current liabilities | | | | Current liabilities | | | |
Accounts payable | $ | 40.3 |
| | $ | 30.5 |
| Accounts payable | $ | 33.2 | | | $ | 40.3 | |
Current maturities of long-term debt | 62.9 |
| | 62.1 |
| Current maturities of long-term debt | 81.4 | | | 62.9 | |
Current portion of financing obligations | 40.5 |
| | 67.8 |
| Current portion of financing obligations | 36.0 | | | 40.5 | |
Current portion of operating lease liabilities | 124.1 |
| | — |
| |
Current portion of finance lease liabilities | 6.5 |
| | — |
| |
Current portion of lease liabilities | | Current portion of lease liabilities | 134.3 | | | 130.6 | |
Accrued expenses and other current liabilities | 631.3 |
| | 578.0 |
| Accrued expenses and other current liabilities | 575.1 | | | 631.3 | |
Total current liabilities | 905.6 |
| | 738.4 |
| Total current liabilities | 860.0 | | | 905.6 | |
Long-term debt, net of current maturities and debt issuance costs | 2,322.2 |
| | 2,350.1 |
| |
Long-term debt, net of current maturities, debt discount and debt issuance costs | | Long-term debt, net of current maturities, debt discount and debt issuance costs | 2,231.2 | | | 2,322.2 | |
Long-term portion of financing obligations | 4,102.2 |
| | 7,080.6 |
| Long-term portion of financing obligations | 4,096.4 | | | 4,102.2 | |
Long-term portion of operating lease liabilities | 4,450.6 |
| | — |
| |
Long-term portion of finance lease liabilities | 219.4 |
| | — |
| |
Long-term portion of lease liabilities | | Long-term portion of lease liabilities | 4,578.2 | | | 4,670.0 | |
Deferred income taxes | 244.6 |
| | — |
| Deferred income taxes | 126.3 | | | 244.6 | |
Other long-term liabilities | 98.0 |
| | 60.7 |
| Other long-term liabilities | 119.4 | | | 98.0 | |
Total liabilities | 12,342.6 |
| | 10,229.8 |
| Total liabilities | 12,011.5 | | | 12,342.6 | |
|
| |
| |
| | | 0 | | 0 |
Stockholders’ equity | | | | Stockholders’ equity | | |
Series B preferred stock ($0.01 par value, 1,000,000 shares authorized, no shares issued and outstanding) | — |
| | — |
| |
Series C preferred stock ($0.01 par value, 18,500 shares authorized, no shares issued and outstanding) | — |
| | — |
| |
Common stock ($0.01 par value, 200,000,000 shares authorized, 118,125,652 and 118,855,201 shares issued, and 115,958,259 and 116,687,808 shares outstanding) | 1.2 |
| | 1.2 |
| |
Series B preferred stock ($0.01 par value, 1,000,000 shares authorized, 0 shares issued and outstanding) | | Series B preferred stock ($0.01 par value, 1,000,000 shares authorized, 0 shares issued and outstanding) | 0 | | | 0 | |
Series C preferred stock ($0.01 par value, 18,500 shares authorized, 0 shares issued and outstanding) | | Series C preferred stock ($0.01 par value, 18,500 shares authorized, 0 shares issued and outstanding) | 0 | | | 0 | |
Series D Preferred stock ($0.01 par value, 5,000 shares authorized, 883 shares issued and outstanding) | | Series D Preferred stock ($0.01 par value, 5,000 shares authorized, 883 shares issued and outstanding) | 23.1 | | | 0 | |
Common stock ($0.01 par value, 200,000,000 shares authorized, 157,868,227 and 118,125,652 shares issued, and 155,700,834 and 115,958,259 shares outstanding) | | Common stock ($0.01 par value, 200,000,000 shares authorized, 157,868,227 and 118,125,652 shares issued, and 155,700,834 and 115,958,259 shares outstanding) | 1.6 | | | 1.2 | |
Treasury stock, at cost, (2,167,393 shares held in both periods) | (28.4 | ) | | (28.4 | ) | Treasury stock, at cost, (2,167,393 shares held in both periods) | (28.4) | | | (28.4) | |
Additional paid-in capital | 1,718.3 |
| | 1,726.4 |
| Additional paid-in capital | 3,167.2 | | | 1,718.3 | |
Retained earnings (accumulated deficit) | 161.6 |
| | (968.0 | ) | Retained earnings (accumulated deficit) | (507.3) | | | 161.6 | |
Total Penn National stockholders’ equity | 1,852.7 |
| | 731.2 |
| Total Penn National stockholders’ equity | 2,656.2 | | | 1,852.7 | |
Non-controlling interest | (0.8 | ) | | — |
| Non-controlling interest | (0.4) | | | (0.8) | |
Total stockholders’ equity | 1,851.9 |
| | 731.2 |
| Total stockholders’ equity | 2,655.8 | | | 1,851.9 | |
Total liabilities and stockholders’ equity | $ | 14,194.5 |
| | $ | 10,961.0 |
| Total liabilities and stockholders’ equity | $ | 14,667.3 | | | $ | 14,194.5 | |
See accompanying notes to the Consolidated Financial Statements.
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOMEOPERATIONS AND
COMPREHENSIVE INCOME (LOSS) | | | For the year ended December 31, | | For the year ended December 31, |
(in millions, except per share data) | 2019 | | 2018 | | 2017 | (in millions, except per share data) | 2020 | | 2019 | | 2018 |
Revenues | | | | | | Revenues | | | | | |
Gaming | $ | 4,268.7 |
| | $ | 2,894.9 |
| | $ | 2,692.0 |
| Gaming | $ | 3,051.1 | | | $ | 4,268.7 | | | $ | 2,894.9 | |
Food, beverage, hotel and other | 1,032.7 |
| | 629.7 |
| | 601.7 |
| Food, beverage, hotel and other | 527.6 | | | 1,032.7 | | | 629.7 | |
Management service and license fees | — |
| | 6.0 |
| | 11.7 |
| Management service and license fees | 0 | | | 0 | | | 6.0 | |
Reimbursable management costs | — |
| | 57.3 |
| | 26.1 |
| Reimbursable management costs | 0 | | | 0 | | | 57.3 | |
| 5,301.4 |
| | 3,587.9 |
| | 3,331.5 |
| |
Less: Promotional allowance | — |
| | — |
| | (183.5 | ) | |
Total revenues | 5,301.4 |
| | 3,587.9 |
| | 3,148.0 |
| Total revenues | 3,578.7 | | | 5,301.4 | | | 3,587.9 | |
Operating expenses | | | | | | Operating expenses | | | | | |
Gaming | 2,281.8 |
| | 1,551.4 |
| | 1,365.0 |
| Gaming | 1,530.3 | | | 2,281.8 | | | 1,551.4 | |
Food, beverage, hotel and other | 672.7 |
| | 439.3 |
| | 421.8 |
| Food, beverage, hotel and other | 337.7 | | | 672.7 | | | 439.3 | |
General and administrative | 1,187.7 |
| | 618.9 |
| | 514.5 |
| General and administrative | 1,130.8 | | | 1,187.7 | | | 618.9 | |
Reimbursable management costs | — |
| | 57.3 |
| | 26.1 |
| Reimbursable management costs | 0 | | | 0 | | | 57.3 | |
Depreciation and amortization | 414.2 |
| | 269.0 |
| | 267.1 |
| Depreciation and amortization | 366.7 | | | 414.2 | | | 269.0 | |
Impairment losses | 173.1 |
| | 34.9 |
| | 18.0 |
| Impairment losses | 623.4 | | | 173.1 | | | 34.9 | |
Provision for (recoveries on) loan loss and unfunded loan commitments | — |
| | (17.0 | ) | | 89.8 |
| |
Recoveries on loan loss and unfunded loan commitments | | Recoveries on loan loss and unfunded loan commitments | 0 | | | 0 | | | (17.0) | |
Total operating expenses | 4,729.5 |
| | 2,953.8 |
| | 2,702.3 |
| Total operating expenses | 3,988.9 | | | 4,729.5 | | | 2,953.8 | |
Operating income | 571.9 |
| | 634.1 |
| | 445.7 |
| |
Operating income (loss) | | Operating income (loss) | (410.2) | | | 571.9 | | | 634.1 | |
Other income (expenses) | | | | | | Other income (expenses) | |
Interest expense, net | (534.2 | ) | | (538.4 | ) | | (463.2 | ) | Interest expense, net | (543.2) | | | (534.2) | | | (538.4) | |
Income from unconsolidated affiliates | 28.4 |
| | 22.3 |
| | 18.7 |
| Income from unconsolidated affiliates | 13.8 | | | 28.4 | | | 22.3 | |
Loss on early extinguishment of debt | — |
| | (21.0 | ) | | (24.0 | ) | Loss on early extinguishment of debt | (1.2) | | | 0 | | | (21.0) | |
Other | 20.0 |
| | (7.1 | ) | | (2.3 | ) | Other | 106.6 | | | 20.0 | | | (7.1) | |
Total other expenses | (485.8 | ) | | (544.2 | ) | | (470.8 | ) | Total other expenses | (424.0) | | | (485.8) | | | (544.2) | |
Income (loss) before income taxes | 86.1 |
| | 89.9 |
| | (25.1 | ) | Income (loss) before income taxes | (834.2) | | | 86.1 | | | 89.9 | |
Income tax benefit (expense) | (43.0 | ) | | 3.6 |
| | 498.5 |
| Income tax benefit (expense) | 165.1 | | | (43.0) | | | 3.6 | |
Net income | 43.1 |
| | 93.5 |
| | 473.4 |
| |
Less: Net loss attributable to non-controlling interest | 0.8 |
| | — |
| | — |
| |
Net income attributable to Penn National | $ | 43.9 |
| | $ | 93.5 |
| | $ | 473.4 |
| |
Net income (loss) | | Net income (loss) | (669.1) | | | 43.1 | | | 93.5 | |
Less: Net (income) loss attributable to non-controlling interest | | Less: Net (income) loss attributable to non-controlling interest | (0.4) | | | 0.8 | | | 0 | |
Net income (loss) attributable to Penn National | | Net income (loss) attributable to Penn National | $ | (669.5) | | | $ | 43.9 | | | $ | 93.5 | |
| | | | | | | | | | | |
Earnings per common share | | | | | | |
Basic earnings per common share | $ | 0.38 |
| | $ | 0.96 |
| | $ | 5.21 |
| |
Diluted earnings per common share | $ | 0.37 |
| | $ | 0.93 |
| | $ | 5.07 |
| |
Comprehensive income (loss) | | Comprehensive income (loss) | $ | (669.1) | | | $ | 43.1 | | | $ | 93.5 | |
Less: Comprehensive (income) loss attributable to non-controlling interest | | Less: Comprehensive (income) loss attributable to non-controlling interest | (0.4) | | | 0.8 | | | 0 | |
Comprehensive income (loss) attributable to Penn National | | Comprehensive income (loss) attributable to Penn National | $ | (669.5) | | | $ | 43.9 | | | $ | 93.5 | |
| | | | | | | | | | | |
Weighted-average basic shares outstanding | 115.7 |
| | 97.1 |
| | 90.9 |
| |
Weighted-average diluted shares outstanding | 117.8 |
| | 100.3 |
| | 93.4 |
| |
Earnings (loss) per share | | Earnings (loss) per share | | | | | |
Basic earnings (loss) per share | | Basic earnings (loss) per share | $ | (5.00) | | | $ | 0.38 | | | $ | 0.96 | |
Diluted earnings (loss) per share | | Diluted earnings (loss) per share | $ | (5.00) | | | $ | 0.37 | | | $ | 0.93 | |
| Weighted-average common shares outstanding - basic | | Weighted-average common shares outstanding - basic | 134.0 | | | 115.7 | | | 97.1 | |
Weighted-average common shares outstanding - diluted | | Weighted-average common shares outstanding - diluted | 134.0 | | | 117.8 | | | 100.3 | |
See accompanying notes to the Consolidated Financial Statements.
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
See accompanying notes to the Consolidated Financial Statements.
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES