UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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| ☑ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20202022
or
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| ☐ | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to __________
Commission file number 0-24206
PENN NATIONAL GAMING, INC.Entertainment, Inc.
(Exact name of registrant as specified in its charter)
| | | | | | | | |
| Pennsylvania | | 23-2234473 |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
825 Berkshire Blvd., Suite 200
Wyomissing, Pennsylvania 19610
(Address of principal executive officers) (Zip Code)
(610) 373-2400
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
| Title of each class | Trading symbol | Name of each exchange on which registered |
| Common Stock, $0.01 par value per share | PENN | The NASDAQ Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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| Large accelerated filer | ☑ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | ☐ | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filedfiled a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firmfirm that prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
As of June 30, 2020,2022, the aggregate market value of the voting common stock held by non-affiliates of the registrant was $4.2$4.8 billion. Such aggregate market value was computed by reference to the closing price of the common stock as reported on the NASDAQ Global Select Market on June 30, 2020.2022. As of February 19, 2021,16, 2023, the number of shares of the registrant’s common stock outstanding was 156,486,487.152,591,359.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive 20212023 proxy statement, anticipated to be filed with the Securities and Exchange Commission within 120 days after the end of the registrant’s fiscal year, are incorporated by reference into Part III of this Form 10-K.
PENN NATIONAL GAMING,ENTERTAINMENT, INC.
TABLE OF CONTENTS
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K includescontains “forward-looking statements” within the meaning of Section 27A of the Private Securities Litigation Reform Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. References to Penn National Gaming, Inc., together with its subsidiaries (“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.1995. These statements are included throughout the document, including within “Item“Item 1A. Risk Factors,” and relate to ourthe business strategy, our prospects and our financial position.position of PENN Entertainment, Inc., together with its subsidiaries (“PENN,” the “Company,” “we,” “our,” or “us”). These statements can be identified by the use of forward-looking terminology such as “expects,” “believes,” “estimates,” “projects,” “intends,” “plans,” “goal,” “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 include, but are not limited to, statements regarding: COVID-19; the length of time the Company’s Zia Park and Valley Race Park properties will remain closed, the expected opening dates, and the impact of these closures on the Company and its stakeholders; demand for gaming as these gaming properties reopen as well as the impact of post-opening restrictions (hours of operations and capacity limitations); continued demand for the gaming properties that have opened and the possibility that our gaming properties may be required to close again in the future due to COVID-19; the impact of COVID-19 on general economic conditions, capital markets, unemployment, and the Company’s liquidity, operations, supply chain and personnel; the potential benefits and expected timing of the Perryville transaction with GLPI; the Company’s estimated cash burn and future liquidity, future revenue and Adjusted EBITDAR, including from our iGaming business in Pennsylvania and Michigan; the continued success of Barstool Sports in Pennsylvania, Michigan and in additional states in the future; the expected benefits and potential challenges of the investment in Barstool Sports, including the anticipated benefits forEBITDAR; the Company’s online and retail sports betting, iGaming and social casino products;anticipated share repurchases; the expected financial returns from the transaction with Barstool Sports; expected future launches of the Barstool-branded mobile sports betting product; the future revenue and profit contributions of the Barstool-branded mobile sports betting product; the impact of shortened or cancelled
sports seasons on our results; ourCompany’s expectations of future results of operations and financial condition, including margins; ourthe scale and timing of the Company’s product and technology investments; the Company’s expectations for our properties; our development projects or our iGaming initiatives; our expectations with regard toregarding results, and the impact of competition;competition in retail/mobile/online sportsbooks, iCasino, online social gaming, and retail operations; the anticipated opening datesCompany’s development and launch of its Interactive segment’s products in new jurisdictions and enhancements to existing Interactive segment products, including the content for the Barstool Sportsbook and theScore Bet Sportsbook and Casino apps and the migration of the Barstool Sportsbook into both our retail sportsbooks inproprietary player account management system and risk and trading platforms; the Company’s expectations regarding its acquisition of Barstool Sports, Inc. (“Barstool”) and the future states and our proposed Pennsylvania Category 4 casinos in York and Berks counties; oursuccess of its products; the Company’s expectations with regardrespect 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; the outcomeCompany’s integration of Score Media and financialGaming, Inc. and Barstool; the continued growth and monetization of the Company’s media business; the Company’s expectations with respect to the ongoing introduction and the
potential benefits of the cashless, cardless and contactless (“3Cs”) technology; the Company’s development projects, including the prospective development projects at Hollywood Casino Aurora, Hollywood Casino Joliet, Hollywood Casino Columbus and the M Resort Spa Casino; our ability to obtain financing for our development projects on attractive terms; and the timing, cost and expected impact of planned capital expenditures on the litigation in which we are or will be periodically involved;Company’s results of operations; the actions of regulatory, legislative, executive or judicial decisions at the federal, state, provincial or local level with regard to our business and the impact of any such actions; our abilityactions.
Such statements are all subject to maintain regulatory approvals for our existing businessesrisks, uncertainties and to receive regulatory approvals for our new business partners; our expectations with regard tochanges in circumstances that could significantly affect the impact of competition in online sports betting, iGamingCompany’s future financial results and retail/mobile sportsbooks as well as the potential impact of this business line on our existing businesses; the performance of our partners in online sports betting, iGaming and retail/mobile sportsbooks, including the risks associated with any new business, the actions of regulatory, legislative, executive or judicial decisions at the federal, state or local level with regard to online sports betting, iGaming and retail/mobile sportsbooks and the impact of any such actions; and our expectations regarding economic and consumer conditions.business. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Form 10-K may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements. All forward-looking statements in this Form 10-K are based on information available to us as of the date hereof, such information may be limited or incomplete, and we assume no obligation to update any such forward-looking statements. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements. The following discussion should be read in conjunction with our consolidated financial statements and the accompanying notes contained in this Form 10-K.
Risk Factor Summary
The following is a summary of some of the risks and uncertainties as of the date of the filing of this Annual Report on Form 10-K that could materially adversely affect our business, financial condition and results of operations. You should read this summary together with the more detailed description of each risk factor contained below.
Risks Related to the COVID-19 Pandemic
•The COVID-19 pandemic has had a material adverse impact on our business and financial performance, and we expect this adverse impact to continue until after the COVID-19 pandemic is contained.
•We are unable to predict the extent to which COVID-19 and its related impacts will continue to adversely affect our business operations, financial performance and the achievement of our strategic objectives.
•As a result of the COVID-19 pandemic, unforeseen events have occurred and may occur in the future that materially adversely affect the number of visitors to our properties, which could adversely disrupt our operations and negatively impact our business.
•Instability in the financial markets and global or regional economic weakness or uncertainty could have a material adverse effect on our stock price.
Risks Related to Our Business and Operations
•We face significant competition from other gaming and entertainment operations and may continue to do so in the future.
•Reductions in discretionary consumer spending have negatively impacted our business and may continue to do in the future.
•We depend on certain properties that generate a significant percentage of our revenues.
•Most of our facilities are leased, and we may face risks associated with leased properties.
•A significant portion of our cash flow is used for rent payments under our Triple Net Leases.
•Inclement weather and other casualty events could negatively impact our business.
•We may be unable to renew or we may have disputes regarding the terms of management agreements and/or leases we have with third parties and local governments.
•We may face additional costs related to the slot machine manufacturing industry.
•We cannot guarantee the recent expansion of our sports betting and iGaming operations or investment in Barstool Sports will be successful.
•Our operations are dependent on retaining experienced management and key personnel.
•The success of certain of our operations depends on our ability to renew our contracts and expand the business.
•Labor problems could negatively impact our future profits.
•We may be unable to protect or enforce our intellectual property rights.
•The market price of our common stock could fluctuate significantly.
•We are currently, or may become, involved in legal proceedings, the results of which could have a material adverse effect on us.
Risks 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 are 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
Overview
On August 4, 2022, Penn National Gaming, Inc. was renamed PENN Entertainment, Inc. PENN Entertainment, Inc., together with its subsidiaries (“Penn National,PENN,” the “Company,” “we,” “our,” or “us”), is North America’s leading provider of integrated entertainment, sports content, and casino gaming experiences. As of December 31, 2022, PENN operated 43 properties in 20 states, online sports betting in 15 jurisdictions and iCasino in five jurisdictions, under a leading, diversified, multi-jurisdictional ownerportfolio of well-recognized brands including Hollywood Casino®, L’Auberge®, Barstool Sportsbook®, and managertheScore Bet Sportsbook and Casino®. As of the issuance date of this report, PENN operates online sports betting in 16 jurisdictions upon the addition of Ohio in January 2023. PENN’s highly differentiated strategy, which is focused on organic cross-sell opportunities, is reinforced by its investments in market-leading retail casinos, sports media assets, technology, including a state-of-the-art, fully integrated digital sports and iCasino betting platform, and an in-house iCasino content studio. The Company’s portfolio is further bolstered by its industry-leading mychoice® customer loyalty program (the “mychoice program”), which offers our approximately 26 million members a unique set of rewards and experiences across business channels.
Reportable Segments
We have five reportable segments: Northeast, South, West, Midwest, and Interactive. Our retail gaming and racing properties retailare grouped into reportable segments by geographic region and each is viewed as an operating segment with the exception of our two properties in Jackpot, Nevada, which are viewed as one operating segment. We also consider our combined Video Gaming Terminal (“VGT”) operations, by state, to be separate operating segments. Interactive includes all of our online sports betting, iCasino and online social gaming operations, and video gaming terminal (“VGT”) operations. Our wholly-owned interactive division, Penn Interactive Ventures, LLC (“Penn Interactive”), operatesmanagement of retail sports betting, across the Company’s portfolio, as well as online sports betting, online social casino, bingomedia, and online casinos (“iGaming”). In February 2020, the Company acquired 36% (inclusiveour proportionate share of 1% on a delayed basis)earnings attributable to our equity interestmethod investment in Barstool Sports, Inc. (“Barstool Sports”Barstool”), 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. See Note 18, “Segment Information,” 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.
Retail Operations
As of December 31,
2020,2022, we owned, managed, or had ownership interests in
4143 gaming and racing properties in
1920 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, operationsoffer live sports betting 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.twelve states.
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. Operating Properties
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%table below summarizes certain features of the common stockproperties owned, operated or managed by us as 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,December 31, 2022, by reportable segment (all area and the existing Barstool Sports stockholders have put rights exercisable beginning threecapacity 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 | | | | | | | | | | | | | |
Ameristar East Chicago (2) | East Chicago, IN | | Pinnacle Master Lease | | Dockside gaming | | 58,500 | | 1,273 | | 46 | | 288 |
| Hollywood Casino Bangor | Bangor, ME | | PENN Master Lease | | Land-based gaming/racing | | 31,750 | | 681 | | 14 | | 152 |
Hollywood Casino at Charles Town Races (2) | Charles Town, WV | | PENN Master Lease | | Land-based gaming/racing | | 115,000 | | 1,900 | | 66 | | 153 |
Hollywood Casino Columbus (3) | Columbus, OH | | PENN Master Lease | | Land-based gaming | | 180,500 | | 1,612 | | 54 | | — |
Hollywood Casino at Greektown (2) | Detroit, MI | | Greektown Lease | | Land-based gaming | | 100,000 | | 2,145 | | 63 | | 400 |
Hollywood Casino Lawrenceburg (2)(4) | Lawrenceburg, IN | | PENN Master Lease | | Dockside gaming | | 149,500 | | 1,350 | | 61 | | 463 |
Hollywood Casino Morgantown (2)(5) | Morgantown, PA | | Morgantown Lease | | Land-based gaming | | 81,000 | | 736 | | 30 | | — |
Hollywood Casino at PENN National Race Course (2) | Grantville, PA | | PENN Master Lease | | Land-based gaming/racing | | 99,500 | | 1,803 | | 55 | | — |
Hollywood Casino Perryville (2)(3) | Perryville, MD | | Perryville Lease | | Land-based gaming | | 34,500 | | 766 | | 13 | | — |
Hollywood Casino at The Meadows (2)(3) | Washington, PA | | Meadows Lease | | Land-based gaming/racing | | 125,000 | | 2,006 | | 96 | | — |
Hollywood Casino Toledo (3) | Toledo, OH | | PENN Master Lease | | Land-based gaming | | 135,000 | | 1,725 | | 47 | | — |
Hollywood Casino York (2) | York, PA | | Operating Lease (not with REIT Landlord) | | Land-based gaming | | 80,000 | | 570 | | 26 | | — |
| Hollywood Gaming at Dayton Raceway | Dayton, OH | | PENN Master Lease | | Land-based gaming/racing | | 43,000 | | 996 | | — | | — |
| Hollywood Gaming at Mahoning Valley Race Course | Youngstown, OH | | PENN Master Lease | | Land-based gaming/racing | | 54,000 | | 1,019 | | — | | — |
Marquee by PENN (6) | Pennsylvania | | N/A | | Land-based gaming | | N/A | | 140 | | — | | — |
| Plainridge Park Casino | Plainville, MA | | Pinnacle Master Lease | | Land-based gaming/racing | | 50,000 | | 939 | | — | | — |
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| South segment | | | | | | | | | | | | | |
1st Jackpot Casino (2) | Tunica, MS | | PENN Master Lease | | Dockside gaming | | 40,000 | | 758 | | 11 | | — |
Ameristar Vicksburg (2) | Vicksburg, MS | | Pinnacle Master Lease | | Dockside gaming | | 70,000 | | 976 | | 19 | | 148 |
Boomtown Biloxi (2) | Biloxi, MS | | PENN Master Lease | | Dockside gaming | | 34,500 | | 563 | | 22 | | — |
Boomtown Bossier City (2) | Bossier City, LA | | Pinnacle Master Lease | | Dockside gaming | | 30,000 | | 765 | | 12 | | 187 |
Boomtown New Orleans (2) | New Orleans, LA | | Pinnacle Master Lease | | Dockside gaming | | 30,000 | | 950 | | 26 | | 150 |
Hollywood Casino Gulf Coast (2) | Bay St. Louis, MS | | PENN Master Lease | | Land-based gaming | | 51,000 | | 777 | | 20 | | 291 |
Hollywood Casino Tunica (2) | Tunica, MS | | PENN Master Lease | | Dockside gaming | | 54,000 | | 783 | | 11 | | 494 |
L’Auberge Baton Rouge (2) | Baton Rouge, LA | | Pinnacle Master Lease | | Dockside gaming | | 71,500 | | 1,019 | | 47 | | 205 |
L’Auberge Lake Charles (2) | Lake Charles, LA | | Pinnacle Master Lease | | Dockside gaming | | 71,200 | | 1,391 | | 80 | | 995 |
Margaritaville Resort Casino (2) | Bossier City, LA | | Margaritaville Lease | | Dockside gaming | | 30,000 | | 991 | | 49 | | 395 |
| | | | | | | | | | | | | |
| West segment | | | | | | | | | | | | | |
Ameristar Black Hawk (2) | Black Hawk, CO | | Pinnacle Master Lease | | Land-based gaming | | 56,000 | | 914 | | 37 | | 536 |
Cactus Petes and Horseshu (2) | Jackpot, NV | | Pinnacle Master Lease | | Land-based gaming | | 29,000 | | 688 | | 14 | | 416 |
M Resort Spa Casino (2)(3) | Henderson, NV | | PENN Master Lease | | Land-based gaming | | 96,000 | | 1,024 | | 37 | | 390 |
| Zia Park Casino | Hobbs, NM | | PENN Master Lease | | Land-based gaming/racing | | 18,000 | | 718 | | — | | 154 |
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| Midwest segment | | | | | | | | | | | | | |
Ameristar Council Bluffs (2)(7) | Council Bluffs, IA | | Pinnacle Master Lease | | Dockside gaming | | 35,000 | | 1,304 | | 20 | | 444 |
Argosy Casino Alton (2)(8) | Alton, IL | | PENN Master Lease | | Dockside gaming | | 23,000 | | 425 | | 9 | | — |
| Argosy Casino Riverside | Riverside, MO | | PENN Master Lease | | Dockside gaming | | 56,000 | | 1,098 | | 37 | | 258 |
Hollywood Casino Aurora (2)(3) | Aurora, IL | | PENN Master Lease | | Dockside gaming | | 53,000 | | 831 | | 27 | | — |
Hollywood Casino Joliet (2)(3) | Joliet, IL | | PENN Master Lease | | Dockside gaming | | 50,000 | | 952 | | 26 | | 100 |
Hollywood Casino at Kansas Speedway (2)(9) | Kansas City, KS | | Owned - joint venture | | Land-based gaming | | 95,000 | | 1,645 | | 28 | | — |
| Hollywood Casino St. Louis | Maryland Heights, MO | | PENN Master Lease | | Dockside gaming | | 120,000 | | 1,646 | | 48 | | 502 |
Prairie State Gaming (6) | Illinois | | N/A | | Land-based gaming | | N/A | | 2,346 | | — | | — |
| River City Casino | St. Louis, MO | | Pinnacle Master Lease | | Dockside gaming | | 90,000 | | 1,741 | | 39 | | 200 |
| | | | | | | | | | | | | |
| Other | | | | | | | | | | | | | |
Freehold Raceway (10) | Freehold, NJ | | Owned - joint venture | | Standardbred racing | | — | | — | | — | | — |
Retama Park Racetrack (11) | Selma, TX | | None - Managed | | Thoroughbred racing | | — | | — | | — | | — |
| Sam Houston Race Park | Houston, TX | | Owned | | Thoroughbred racing | | — | | — | | — | | — |
Sanford-Orlando Kennel Club (12) | Longwood, FL | | Owned | | Simulcasting/restaurant | | — | | — | | — | | — |
Valley Race Park (13) | Harlingen, TX | | Owned | | Greyhound racing | | — | | — | | — | | — |
| | | | | | | 2,540,450 | | 43,966 | | 1,190 | | 7,321 |
years after closing,(1)Excludes poker tables.
(2)Property offers a sportsbook for live sports betting.
(3)Property transferred to 2023 Master Lease (as defined in Note 12, “Leases”, in the notes to our Consolidated Financial Statements), effective January 1, 2023. (4)Includes 168 rooms at our hotel and event center located less than a mile from the gaming facility.
(5)Upon termination of the Morgantown Lease, ownership of the constructed building and all basedtenant improvements will transfer from the Company to GLPI.
(6)VGT route operations.
(7)Includes 284 rooms operated by a third-party and located on a fair market value calculation atland leased by us and subleased to such third-party.
(8)The riverboat is owned by us and not subject to the time of exercise (subjectPENN Master Lease.
(9)Pursuant to a capjoint venture with NASCAR.
(10)Pursuant to a joint venture with Greenwood Limited Jersey, Inc., a subsidiary of $650.0 millionGreenwood Racing, Inc.
(11)Pursuant to a management contract with Retama Development Corporation.
(12)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.
(13)In March 2020 Valley Race Park closed due to COVID-19 and remains non-operational.
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 Barstool Sportsbook for live sports betting, a fitness center, dining venues, and a floorlounge.
Hollywood Casino Bangor is located less than five miles from the annualized revenueBangor airport in Maine. The property features slot machines, table games, 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 a hotel, slot machines, table games and poker tables, the property includes a Barstool Sports, all subjectSportsbook 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. On January 1, 2023, Hollywood Casino Columbus opened a Barstool Sportsbook for live sports betting.
Hollywood Casino at Greektown is located in the Greektown district of Detroit, Michigan, and is one of four casino hotels in the Detroit-Windsor area. In addition to various adjustments). Upon closing, we becameslot machines, table games, poker tables and a Barstool Sports’ exclusiveSportsbook 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 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 Barstool 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 Morgantown is located less than an hour drive west of Philadelphia, Pennsylvania. The property features an outdoor gaming partnerand entertainment area, a Barstool Sportsbook for up to 40 yearslive sports betting, slot machines, table games, and have the sole right to utilize themultiple food and beverage outlets.
On December 15, 2020, the Company entered into a definitive agreement with GLPI to purchase the operations of Hollywood Casino Perryville is a Hollywood-themed casino located near the Susquehanna River in Perryville, Maryland, approximately 45 miles east of Baltimore, Maryland. It features slot machines, table games and poker tables, and a Barstool Sportsbook for $31.1 million.live sports betting, as well as a variety of dining options.
Hollywood Casino at The transaction Meadows is expectedlocated in Washington, Pennsylvania, approximately 25 miles south of Pittsburgh, Pennsylvania. In addition to close duringgaming amenities, the property offers a Barstool Sportsbook for live sports betting, several dining options, as well as an event and banquet center, a simulcast betting parlor, a 5/8th mile harness racetrack and a bowling alley.
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. On January 1, 2023, Hollywood Casino Toledo opened a Barstool Sportsbook for live sports betting.
Hollywood Casino York is a casino located within the York Galleria Mall, approximately an hour drive north of Baltimore, Maryland. It features slot machines, table games, and a Barstool Sportsbook for live sports betting, as well as casual dining options.
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. On January 1, 2023, Hollywood Gaming at Dayton Raceway opened a Barstool Sportsbook for live sports betting.
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. On January 1, 2023, Hollywood Gaming at Mahoning Valley opened a Barstool Sportsbook for live sports betting.
Marquee by PENN is our licensed VGT route operator with a network of 28 truck stop establishments in Pennsylvania.
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. On January 31, 2023, Plainridge Park Casino opened a Barstool Sportsbook for live sports betting.
South Segment
1st Jackpot Casino isthe closest Tunica-area casino to downtown Memphis, Tennessee. It features slot machines, table games, a café, a sportsbook for live betting 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, 1,800 square feet of meeting and event space, a sportsbook for live sports betting and an RV park.
Boomtown Biloxi, located in Biloxi Mississippi, offers slot machines, table games, poker tables and a sportsbook for live sports betting, as well as two distinct 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. The property offers a sportsbook for live sports betting, a variety of dining options 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, approximately 15 minutes from the French Quarter of New Orleans, Louisiana. In addition to gaming amenities and a sportsbook for live sports betting, the property also features a five-story hotel, several restaurants, 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, poker tables and a sportsbook for live sports betting. The property also features a golf course, various dining options, an RV park and a marina amongst other amenities. The waterfront hotel includes a 10,000 square foot ballroom, and six separate meeting rooms offering more than 13,000 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. The property features a 12-story hotel, slots, table games, poker, a Barstool Sportsbook for live sports betting, 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 and a Barstool Sportsbook for live sports betting, 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 gaming amenities, a sportsbook for live sports betting, 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. The resort features slot machines, table games and a Barstool Sportsbook for live sports betting. 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, a sportsbook for live sportsbetting, and meeting and event facilities.
M Resort Spa Casino, 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.
Zia Park Casino is located in Hobbs, New Mexico, and features slot machines, a hotel, restaurants, a one-mile quarter horse/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 Sportsbook viewing 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 sports 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, poker tables and a Barstool Sportsbook for live sports betting, 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 420 bar and/or third quarter of 2021, subject to approvalretail 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.
Interactive Operations
PENN Interactive operates our online sports betting and casino app called Barstool Sportsbook and Casino, which, as of December 31, 2022, is live in 14 states, four of which also offer iCasino. In addition, PENN Interactive operates retail sportsbooks across the Company’s portfolio, including, as of December 31, 2022, 25 internally-branded or Barstool-branded retail sportsbooks located at the Company’s properties in Colorado, Illinois, Indiana, Iowa, Kansas, Louisiana, Maryland, LotteryMichigan, Mississippi, Pennsylvania and West Virginia. As of the issuance date of this report, PENN Interactive operates online sports betting in 15 states and 30 internally-branded or Barstool-branded retail sportsbooks within the Company’s portfolio upon the addition of Ohio and Massachusetts in January 2023. Additionally, as of January 2023, PENN Interactive provides sportsbook management services outside of our Company’s portfolio.
Further, PENN Interactive has entered into multi-year agreements with leading sports betting operators for online sports betting and iCasino market access across our portfolio of properties. Pursuant to these agreements, as of December 31, 2022,
such sports betting and iCasino operators have commenced operations in Indiana, Louisiana, Pennsylvania, and West Virginia. Ohio was added in January 2023. PENN Interactive also creates interactive casino content through its in-house content development arm, PENN Game Studios, and operates multiple additional iGaming platforms across its portfolio.
theScore. On October 19, 2021, we completed the acquisition of Score Media and Gaming, Control CommissionInc. (“theScore”) for a purchase price of approximately $2.1 billion. theScore’s media app delivers users highly-personalized live scores, news, stats, and other customary closing conditions. Simultaneousbetting information from their favorite teams, leagues, and players. theScore Bet Sportsbook and Casino, theScore’s sports betting app, delivers an immersive and holistic mobile sports betting and iCasino gaming experience, leveraging theScore’s proprietary player account management and risk and trading platforms, and is currently available to place wagers on its online sportsbook and iCasino in Ontario, Canada. The acquisition provides us 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 subjecttechnology, resources and audience reach to escalation.accelerate our media and sports betting strategy across North America. 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”Barstool. section below,PENN Entertainment, Inc., through a wholly-owned subsidiary, held a 36% equity interest in Barstool. Under this strategic relationship, Barstool exclusively promotes the “Triple Net Leases”).
In October 2018,Company’s iCasinos and sports betting products, including the
CompanyBarstool Sportsbook and Casino mobile app, as well as our retail gaming and racing properties to its national audience, and granted us the sole right to utilize the Barstool brand for all of our online and retail sports betting and iCasino products. Subsequent to year end, on February 17, 2023, we completed the acquisition of
Pinnacle Entertainment, Inc. (“Pinnacle”), a leading regional gaming operatorall of the outstanding shares of common stock of Barstool not already owned by us for approximately $388 million, excluding transaction expenses, repayment of Barstool indebtedness and other purchase price adjustments (the
“Pinnacle“Barstool Acquisition”).
In connection withWe issued 2,442,809 shares of our common equity to certain former stockholders of Barstool for the
PinnacleBarstool Acquisition
we added 12 gaming properties(see Note 15, “Stockholders’ Equity,” for further information) and utilized approximately $315 million of cash to our portfolio, providing us with greater operational scalecomplete the Barstool Acquisition, inclusive of transaction expenses and geographic diversity. We assumed the Pinnacle Master Lease concurrently withrepayment of Barstool indebtedness. As of the closing of the Pinnacle Acquisition.Barstool Acquisition, Barstool became an indirect wholly owned subsidiary of PENN. See Note 7, “Investments in and Advances to Unconsolidated Affiliates” for additional detail on our acquisition of the remaining Barstool shares.Other
We believe thatThrough our portfoliojoint venture in Pennwood Racing, Inc. (“Pennwood”), we own 50% of assets provides us the benefit of geographically-diversified cash flow from operations. We expect to continue to expandFreehold Raceway. The property features a half-mile standardbred racetrack and a 118,000 square foot grandstand. In addition, through our gaming operations through the implementation and executionPennwood joint venture, we own 50% of a disciplined capital expenditure program at our existing properties,leased off-track wagering (“OTW”) facility in Toms River, New Jersey, and operate another OTW facility, which we constructed, in Gloucester Township, New Jersey.
Retama Park Racetrack.We have a management contract with Retama Development Corporation, a local government corporation of the pursuitCity of strategic acquisitions and investments, andSelma, Texas, to manage the developmentday-to-day operations of new gaming properties.Retama Park Racetrack. In addition, we own 1.0% of the partnership with Barstool Sports reflects our strategyequity of Retama Nominal Holder, LLC, which holds a nominal interest in the racing license used to continue evolvingoperate Retama Park Racetrack. Additionally, we own a 75.5% interest in Pinnacle Retama Partners, LLC, 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.Sam Houston Race Park, which is located 15 miles northwest from downtown Houston, Texas 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 throughout the nation’s largest regional gaming operatoryear. Valley Race Park is a 91,000 square foot property that previously conducted greyhound racing and simulcasting. Valley Race Park has not been open since March 2020. We acquired the remaining 50% of these properties, as well as a license for a racetrack in Manor, Texas, just outside of Austin, on August 1, 2021.
Sanford-Orlando Kennel Club. The former greyhound racetrack and related property was sold to a best-in-class omni-channel providerland developer during the fourth quarter of retail2020. The remaining facility and online gamingparking lot area is owned by the Company and sports betting entertainment.
Triple Net LeasesNortheast Segment
As noted above, the majority of the real estate assets usedAmeristar East Chicago is located less than 25 miles from downtown Chicago, Illinois and offers guests a gaming and entertainment experience in the Company’s operations are subject to either the Penn Master Lease or the Pinnacle Master Lease.Chicago metropolitan area. In addition to gaming amenities, the Penn Master Leaseproperty features a full-service hotel, a Barstool Sportsbook for live sports betting, a fitness center, dining venues, 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, aslounge.
amended, there were 7.5 years remainingHollywood Casino Bangor is located less than five miles from the Bangor airport in Maine. The property features slot machines, table games, 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 initial ten-year term, with five subsequent, five-year renewal periods exercisableBaltimore, Maryland and Washington, D.C. markets. In addition to a hotel, slot machines, table games and poker tables, the property includes a Barstool Sportsbook for live sports betting, as well as a variety of dining options. The complex also features live thoroughbred racing 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 lease3/4-mile all-weather lighted thoroughbred racetrack with a subsidiary3,000-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. On January 1, 2023, Hollywood Casino Columbus opened a Barstool Sportsbook for live sports betting.
Hollywood Casino at Greektown is located in the Greektown district of GLPIDetroit, Michigan, and is one of four casino hotels in the Detroit-Windsor area. In addition to slot machines, table games, poker tables and a Barstool Sportsbook for live sports betting, the land underlyingproperty 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 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 Barstool 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 Morgantown (“Morgantown Lease”).is located less than an hour drive west of Philadelphia, Pennsylvania. The initial termproperty features an outdoor gaming and entertainment area, a Barstool Sportsbook for live sports betting, slot machines, table games, and multiple food and beverage outlets.
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 a Barstool Sportsbook for live 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 Perryville is a Hollywood-themed casino located near the Susquehanna River in Perryville, Maryland, approximately 45 miles east of Baltimore, Maryland. It features slot machines, table games and poker tables, and a Barstool Sportsbook for live sports betting, as well as a variety of dining options.
Hollywood Casino at The Meadows is located in Washington, Pennsylvania, approximately 25 miles south of Pittsburgh, Pennsylvania. In addition to gaming amenities, the property offers a Barstool Sportsbook for live sports betting, several dining options, as well as an event and banquet center, a simulcast betting parlor, a 5/8th mile harness racetrack and a bowling alley.
Hollywood Casino Toledo is a Hollywood-themed casino, located on the bank 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 LeaseMaumee River in Toledo, Ohio. The property features slot machines, table games and Tropicana Lease
In connection with the Pinnacle Acquisition, the Company assumedpoker tables, as well as multiple food and beverage outlets and an entertainment lounge. On January 1, 2023, Hollywood Casino Toledo opened 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 VICIBarstool Sportsbook 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.live sports betting.
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. On January 1, 2023, Hollywood Gaming at Dayton Raceway opened a Barstool Sportsbook for live sports betting.
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. On January 1, 2023, Hollywood Gaming at Mahoning Valley opened a Barstool Sportsbook for live sports betting.
Marquee by PENN is our licensed VGT route operator with a network of 28 truck stop establishments in Pennsylvania.
Operating Properties
The table below summarizes certain featuresPlainridge Park Casino is located 20 miles southwest of the properties owned, operated or managed by usBoston 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. On January 31, 2023, Plainridge Park Casino opened a Barstool Sportsbook for live sports betting.
South Segment
1st Jackpot Casino isthe closest Tunica-area casino to downtown Memphis, Tennessee. It features slot machines, table games, a café, a sportsbook for live betting 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, 1,800 square feet of meeting and event space, a sportsbook for live sports betting and an RV park.
Boomtown Biloxi, located in Biloxi Mississippi, offers slot machines, table games, poker tables and a sportsbook for live sports betting, as well as two distinct 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. The property offers a sportsbook for live sports betting, a variety of December 31, 2020, by reportable segment (alldining options 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, approximately 15 minutes from the French Quarter of New Orleans, Louisiana. In addition to gaming amenities and capacity metricsa sportsbook for live sports betting, the property also features a five-story hotel, several restaurants, 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, poker tables and a sportsbook for live sports betting. The property also features a golf course, various dining options, an RV park and a marina amongst other amenities. The waterfront hotel includes a 10,000 square foot ballroom, and six separate meeting rooms offering more than 13,000 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. The property features a 12-story hotel, slots, table games, poker, a Barstool Sportsbook for live sports betting, 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 and a Barstool Sportsbook for live sports betting, 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 gaming amenities, a sportsbook for live sports betting, 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. The resort features slot machines, table games and a Barstool Sportsbook for live sports betting. 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 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)M Resort Spa CasinoExcludes poker tables., 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.
(2)Zia Park CasinoWe expect that is located in Hobbs, New Mexico, and features slot machines, a hotel, restaurants, a one-mile quarter horse/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 Sportsbook viewing 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 YorkAurora 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 Morgantown will be included within our Northeast segment.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 sports betting, a hotel, 4,600 square feet of meeting space, and an 80-space RV park.
(3)Hollywood Casino at Kansas SpeedwayIncludes 168 rooms at, our 50% joint venture with NASCAR, is located in Kansas City, Kansas. It features slot machines, table games, poker tables and a Barstool Sportsbook for live sports betting, 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 event center located less than a mile from the gaming facility.variety of dining and entertainment venues.
(4)Prairie State Gaming is our licensed VGT route operations.operator in Illinois across a network of over 420 bar and/or retail gaming establishments in seven distinct geographic areas throughout Illinois.
(5)River City Casino Includes 284 rooms operated byis 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 third partyhotel, multiple dining outlets, an entertainment lounge, and over 10,000 square feet of conference space.
Interactive Operations
PENN Interactive operates our online sports betting and casino app called Barstool Sportsbook and Casino, which, as of December 31, 2022, is live in 14 states, four of which also offer iCasino. In addition, PENN Interactive operates retail sportsbooks across the Company’s portfolio, including, as of December 31, 2022, 25 internally-branded or Barstool-branded retail sportsbooks located at the Company’s properties in Colorado, Illinois, Indiana, Iowa, Kansas, Louisiana, Maryland, Michigan, Mississippi, Pennsylvania and West Virginia. As of the issuance date of this report, PENN Interactive operates online sports betting in 15 states and 30 internally-branded or Barstool-branded retail sportsbooks within the Company’s portfolio upon the addition of Ohio and Massachusetts in January 2023. Additionally, as of January 2023, PENN Interactive provides sportsbook management services outside of our Company’s portfolio.
Further, PENN Interactive has entered into multi-year agreements with leading sports betting operators for online sports betting and iCasino market access across our portfolio of properties. Pursuant to these agreements, as of December 31, 2022,
such sports betting and iCasino operators have commenced operations in Indiana, Louisiana, Pennsylvania, and West Virginia. Ohio was added in January 2023. PENN Interactive also creates interactive casino content through its in-house content development arm, PENN Game Studios, and operates multiple additional iGaming platforms across its portfolio.
theScore. On October 19, 2021, we completed the acquisition of Score Media and Gaming, Inc. (“theScore”) for a purchase price of approximately $2.1 billion. theScore’s media app delivers users highly-personalized live scores, news, stats, and betting information from their favorite teams, leagues, and players. theScore Bet Sportsbook and Casino, theScore’s sports betting app, delivers an immersive and holistic mobile sports betting and iCasino gaming experience, leveraging theScore’s proprietary player account management and risk and trading platforms, and is currently available to place wagers on land leased byits online sportsbook and iCasino in Ontario, Canada. The acquisition provides us with the technology, resources and subleasedaudience reach to such third party.accelerate our media and sports betting strategy across North America. For additional information on our acquisitions, see Note 6, “Acquisitions and Dispositions.” (6)Barstool.The riverboat is PENN Entertainment, Inc., through a wholly-owned subsidiary, held a 36% equity interest in Barstool. Under this strategic relationship, Barstool exclusively promotes the Company’s iCasinos and sports betting products, including the Barstool Sportsbook and Casino mobile app, as well as our retail gaming and racing properties to its national audience, and granted us the sole right to utilize the Barstool brand for all of our online and retail sports betting and iCasino products. Subsequent to year end, on February 17, 2023, we completed the acquisition of all of the outstanding shares of common stock of Barstool not already owned by us for approximately $388 million, excluding transaction expenses, repayment of Barstool indebtedness and not subjectother purchase price adjustments (the “Barstool Acquisition”). We issued 2,442,809 shares of our common equity to certain former stockholders of Barstool for the Penn Master Lease.Barstool Acquisition (see Note 15, “Stockholders’ Equity,” for further information) and utilized approximately $315 million of cash to complete the Barstool Acquisition, inclusive of transaction expenses and repayment of Barstool indebtedness. As of the closing of the Barstool Acquisition, Barstool became an indirect wholly owned subsidiary of PENN. See Note 7, “Investments in and Advances to Unconsolidated Affiliates” for additional detail on our acquisition of the remaining Barstool shares.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 racetrack and a 118,000 square foot grandstand. In addition, through our Pennwood joint venture, we own 50% of a leased off-track wagering (“OTW”) facility in Toms River, New Jersey, and operate another OTW facility, which we constructed, in Gloucester Township, New Jersey.
(7)Retama Park Racetrack.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 toWe have a management contract with Retama Development Corporation.Corporation, 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, which owns the contingent gaming rights that may arise if gaming under the existing racing license becomes legal in Texas in the future.
(10)Sam Houston Race Park and Valley Race Park.PursuantSam Houston Race Park, which is located 15 miles northwest from downtown Houston, Texas 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 throughout the year. Valley Race Park is a 91,000 square foot property that previously conducted greyhound racing and simulcasting. Valley Race Park has not been open since March 2020. We acquired the remaining 50% of these properties, as well as a license for a racetrack in Manor, Texas, just outside of Austin, on August 1, 2021.
Sanford-Orlando Kennel Club. The former greyhound racetrack and related property was sold to a joint venture with MAXXAM, Inc. (“MAXXAM”).
(11)Inland developer during the fourth quarter of 2020, we sold2020. The remaining facility and parking lot area is owned by the land underlying the Sanford-Orlando Kennel Club racetrack which discontinued our live racingCompany and operates a restaurant and offers year-round simulcast 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 sportsbookBarstool 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 feetlounge.
Hollywood Casino BangorBangor is located less than five miles from the Bangor airport in Maine. ItThe property features slot machines, table games, and poker tables, as well as a hotel with 5,100 square feet of meeting and multipurpose space;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 a hotel, slot machines, table games and poker tables, the property includes a sportsbookBarstool 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. On January 1, 2023, Hollywood Casino Columbus opened a Barstool Sportsbook for live sports betting.
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 sportsbookBarstool 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 PennPENN 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 a Barstool Sportsbook for live 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 at The Meadows is located in Washington, Pennsylvania, approximately 25 miles south of Pittsburgh, Pennsylvania. In addition to gaming amenities, the property offers a Barstool Sportsbook for live sports betting, several dining options, as well as an event and banquet center, a simulcast betting parlor, a 5/8th mile harness racetrack and a bowling alley.
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. On January 1, 2023, Hollywood Casino Toledo opened a Barstool Sportsbook for live sports betting.
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. On January 1, 2023, Hollywood Gaming at Mahoning Valley opened a Barstool Sportsbook for live sports betting.
Marquee by PennPENN is our licensed VGT route operator with a network of 2328 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 is the closest Tunica-area casino to downtown Memphis, Tennessee. It features slot machines, table games, a café, a sportsbook for live betting 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 sportsbook for live sports bookbetting and an RV park.
Boomtown Biloxi, located in Biloxi Mississippi, offers slot machines, and table games, poker tables and a sportsbook for live sports betting, as well as a variety oftwo distinct 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 alsoThe property offers severala sportsbook for live sports betting, a variety of 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 itand a sportsbook for live sports betting, the property 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, poker tables and a sportsbook for live sports betting. The property also features a golf course, various dining options, and an RV park and a marina amongst other amenities. The waterfront hotel includes a 10,000 square foot ballroom, and ninesix separate meeting rooms offering more than 14,00013,000 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, theThe property features a 12-story hotel, slots, table games, poker, a Barstool Sportsbook for live sports betting, 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 and a Barstool Sportsbook for live sports betting, 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 gaming amenities, a sportsbook for live sports betting, 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. The resort features slot machines, table games and a Barstool Sportsbook for live sports betting. 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, a sportsbook for live sportsbetting, and meeting and event facilities.
M Resort Spa Casino, 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/quarter horse/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 VIPSportsbook viewing 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 sports 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 a Barstool Sportsbook for live sports betting, 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 390420 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.
Interactive Operations
OtherFurther, PENN Interactive has entered into multi-year agreements with leading sports betting operators for online sports betting and iCasino market access across our portfolio of properties. Pursuant to these agreements, as of December 31, 2022,
such sports betting and iCasino operators have commenced operations in Indiana, Louisiana, Pennsylvania, and West Virginia. Ohio was added in January 2023. PENN Interactive also creates interactive casino content through its in-house content development arm, PENN Game Studios, and operates multiple additional iGaming platforms across its portfolio.
theScore. On October 19, 2021, we completed the acquisition of Score Media and Gaming, Inc. (“theScore”) for a purchase price of approximately $2.1 billion. theScore’s media app delivers users highly-personalized live scores, news, stats, and betting information from their favorite teams, leagues, and players. theScore Bet Sportsbook and Casino, theScore’s sports betting app, delivers an immersive and holistic mobile sports betting and iCasino gaming experience, leveraging theScore’s proprietary player account management and risk and trading platforms, and is currently available to place wagers on its online sportsbook and iCasino in Ontario, Canada. The acquisition provides us with the technology, resources and audience reach to accelerate our media and sports betting strategy across North America. For additional information on our acquisitions, see Note 6, “Acquisitions and Dispositions.” Barstool. PENN Entertainment, Inc., through a wholly-owned subsidiary, held a 36% equity interest in Barstool. Under this strategic relationship, Barstool exclusively promotes the Company’s iCasinos and sports betting products, including the Barstool Sportsbook and Casino mobile app, as well as our retail gaming and racing properties to its national audience, and granted us the sole right to utilize the Barstool brand for all of our online and retail sports betting and iCasino products. Subsequent to year end, on February 17, 2023, we completed the acquisition of all of the outstanding shares of common stock of Barstool not already owned by us for approximately $388 million, excluding transaction expenses, repayment of Barstool indebtedness and other purchase price adjustments (the “Barstool Acquisition”). We issued 2,442,809 shares of our common equity to certain former stockholders of Barstool for the Barstool Acquisition (see Note 15, “Stockholders’ Equity,” for further information) and utilized approximately $315 million of cash to complete the Barstool Acquisition, inclusive of transaction expenses and repayment of Barstool indebtedness. As of the closing of the Barstool Acquisition, Barstool became an indirect wholly owned subsidiary of PENN. See Note 7, “Investments in and Advances to Unconsolidated Affiliates” for additional detail on our acquisition of the remaining Barstool shares. 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 trackracetrack and a 118,000 square foot grandstand. In addition, through our Pennwood joint venture, we own 50% of a leased OTWoff-track wagering (“OTW”) facility in Toms River, New Jersey, and operate another OTW facility, 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, Texas 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 featuresis a 91,000 square foot property that previously conducted greyhound racing and simulcasting. Valley Race Park has not been open since March 2020. We acquired the remaining 50% of property square footagethese properties, as well as a dog racing and simulcasting facility.
Sanford-Orlando Kennel Club. The former greyhound racetrack and related facilityproperty was sold to a land developer during the fourth quarter of 2020. The remaining facility and parking lot area is owned by the Company is used to operateand operates a restaurant and to offeroffers year-round simulcast racing operations.
Penn InteractiveTriple Net Leases
Penn Interactive isThe majority of the real estate assets (i.e., land and buildings) used in our interactive gaming division that operates our online sports betting app called Barstool Sportsbook as well as our iGaming platforms,operations are subject to triple net master leases; the most significant of which are currently livethe PENN Master Lease and the Pinnacle Master Lease (as such terms are defined below and collectively referred to as the “Master Leases”), with Gaming and Leisure Properties, Inc. (Nasdaq: GLPI) (“GLPI”), a real estate investment trust (“REIT”). As of December 31, 2022, in Pennsylvaniaaddition to the Master Leases, 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: (i) all facility maintenance; (ii) all insurance required in connection with the leased properties and Michigan. Penn Interactive includesthe business conducted on the leased properties; (iii) taxes levied on or with respect to the leased properties (other than taxes on the income of the lessor); (iv) all tenant capital
improvements; and (v) 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.
On October 9, 2022, the Company entered into a binding term sheet (the “Term Sheet”) with GLPI. Pursuant to the Term Sheet, the Company and GLPI agreed to amend and restate the PENN Master Lease (the “Amended and Restated PENN Master Lease”) to (i) remove the land and buildings for Hollywood Casino Aurora (“Aurora”), Hollywood Casino Joliet (“Joliet”), Hollywood Casino Columbus (“Columbus”), Hollywood Casino Toledo (“Toledo”) and the M Resort Spa Casino (“M Resort”); (ii) make associated adjustments to the rent after which the initial rent in the Amended and Restated PENN Master Lease will be $284.1 million, consisting of $208.2 million of Building Base Rent, $43.0 million of Land Base Rent and $32.9 million of Percentage Rent (as such terms are defined in the Amended and Restated PENN Master Lease); and (iii) terminate the existing leases associated with Hollywood Casino at The Meadows (“Meadows”) and Hollywood Casino Perryville (“Perryville”). This Amended and Restated PENN Master Lease was executed on February 21, 2023 with an effective date of January 1, 2023, subsequent to year end. See Note 12, “Leases”, in the notes to our Consolidated Financial Statements for further discussion. 2023 Master Lease
As part of the Term Sheet and concurrent with the execution of the Amended and Restated PENN Master Lease described above, the Company and GLPI agreed to enter into a new master lease (the “2023 Master Lease”), effective January 1, 2023, specific to the properties associated with Aurora, Joliet, Columbus, Toledo, M Resort, Meadows, and Perryville, and a master development agreement (the “Master Development Agreement”). The 2023 Master Lease has an initial term through October 31, 2033 with three subsequent five-year renewal periods on the same terms and conditions, exercisable at the Company’s option. The 2023 Master Lease will be cross-defaulted, cross-collateralized, and coterminous with the Amended and Restated PENN Master Lease and subject to a parent guarantee.
Pinnacle Master Lease
In connection with the acquisition of Pinnacle Entertainment, Inc. (“Pinnacle”) in 2018, 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 acquisition of Pinnacle, 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.
Perryville Lease
In conjunction with the acquisition of the operations of Absolute Games, LLC, a developer and operator of online social bingo and other casino games. In addition, Penn Interactive hasPerryville on July 1, 2021, the Company entered into multi-year agreementsa triple net lease with leading sports betting operatorsGLPI for online sports betting and iGaming market access across our portfoliothe real estate assets associated with the property (“Perryville Lease”). The initial term 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 locatedthe Perryville Lease is twenty years with three subsequent, five-year renewal periods, exercisable at the Company's propertiesCompany’s option. As part of the Term Sheet and in Colorado, Illinois, Indiana, Iowa, Michigan, Mississippi, Pennsylvaniaconjunction with entering into the 2023 Master Lease as described above, the Perryville Lease was terminated effective January 1, 2023.
Meadows Lease
In connection with the acquisition of Pinnacle, the Company 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 West Virginia.conditions, exercisable at the Company’s option. As part of the Term Sheet and in conjunction with entering into the 2023 Master Lease as described above, the Meadows Lease was terminated effective January 1, 2023.
In connection with the acquisition of the operations of Margaritaville on January 1, 2019, the Company entered into a triple net lease with VICI Properties, Inc. (NYSE: VICI) (“VICI”) for the real estate assets used in the operations of Margaritaville Resort Casino (“Margaritaville”), (the “Margaritaville Lease”). In connection with the acquisition of the membership interests in Greektown Holdings, LLC on May 23, 2019, the Company entered into a triple net lease with VICI for the real estate assets used in the operations of Hollywood Casino at Greektown (“Greektown Lease”). 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.
Tropicana Lease
On April 16, 2020, we sold the real estate assets associated with the operations of the Tropicana Las Vegas Hotel and Casino, Inc. (“Tropicana”) 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 were 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 were sold by GLPI. On January 11, 2022, PENN entered into a definitive purchase agreement to sell its outstanding equity interest in Tropicana, which has the gaming license and operates the Tropicana, to Bally’s Corporation. The transaction closed on September 26, 2022 and the lease terminated.
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®,” “L’Auberge®“L’Auberge®,” “M Resort®Resort®,” and “MYCHOICE®“MyChoice®” among other trademarks. Upon completion of the acquisition of theScore in October 2021, we acquired theScore’s registered trademarks and service marks, including but not limited to, “theScore®,” “theScore Bet®,” and “theScore esports®” among other trademarks. We believe that our rights to our trademarks are well-established and have competitive value to our properties.properties and businesses. We also have a number of trademark applications pending with the USPTO.
Among others, we have a licensing agreement with a third partythird-party to use the “Margaritaville®” trademark in connection with the operations of Margaritaville in Bossier City, Louisiana. Upon closingAs 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 iGamingiCasino products. In addition, subject to certain terms, conditions, and limitations,As a result of the Barstool Acquisition, we haveown the exclusive right to usetrademark for the “Tropicana Las VegasBarstool Sports®” and certain other trademarks within 50 miles of our Tropicana Las Vegas property. brand.
Competition
The gaming, industry ismedia and entertainment industries are 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.participants. In a broaderbroad sense, both our retail and interactive 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.countries we operate in (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 statesthose in which we currently have properties, have recently legalized, implemented, andand/or 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. EachOur online gaming operations and each of our properties isare subject to extensive regulation under the laws, rules and regulations of the jurisdictionjurisdictions where it is located.we operate. 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 international, federal, state, provincial 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, data privacy, anti-money laundering, 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 qualityhigh-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, develop, engage and retain high qualitydiverse and high-quality talent include:
•Executive and High Potential Talent Review Process, expanded to include all salaried team members
•Learning Central, a catalogue of self-paced development opportunities covering a wide range of topics
•Diversity and Veteran Recruitment Initiatives
•AwardCo Recognition Program and Property Engagement Committees
•Emerging Leaders Program
Through the dedicated efforts of our Corporate and property leadership teams, our charitable Foundation and the PENN Diversity Committee, we launched or expanded a number of major new initiatives in 2022 that will help to improve the lives of our team members, their families and those in need in our communities.
Highlights from last year’s efforts include the expansion of our $4 million STEM Scholarship Fund and internship program which now has six Historically Black Colleges and Universities (“HBCU”s) in the program. Also in 2022, we launched two levels of diversity training, company wide.
•Level One includes three e-courses assigned to all team members with 100% completion
•Level Two is in-person training for all leaders of people. A train-the-trainer model was deployed resulting in approximately 150 certified trainers. Several properties began training their leaders in 2022 and will complete in 2023.
•Survey results are strong. For Level One, 86% replied favorably to applying new knowledge and 95% replied favorably for Level Two.
In addition, we will be piloting a structured mentoring program in 2023 for our Emerging Leader graduates, new leaders to PENN, and executives. We also kicked off our annual $1 Million Diversity Scholarship Program for the children of team members and are now reviewing applications for the 2023-2024 school year.
As of December 31, 2020,2022, we had approximately 18,32121,875 full-time and part-time employees. As of December 31, 2020, weWe had 3835 collective bargaining agreements covering approximately 2,7793,873 active employees. NineEight collective bargaining agreements are scheduled to expire in 2021, and we are currently renegotiating three collective bargaining agreements that expired in 2020.2023. 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.
ITEM 1A.RISK FACTORS
You should be aware that the occurrence of any of the events described in this section and elsewhere in this report or in any other of our filings with the SEC could have a material adverse effect on our business, financial position, results of operations and cash flows. In evaluating us, you should consider carefully, among other things, the risks described below.
Summary of Risk Factors
The following is a summary of the principal risks that could adversely affect our business, operations and financial results.
Risks Related to Our Business and Industry
•Our business is sensitive to reductions in discretionary consumer spending as a result of downturns in the economy and other factors outside of our control.
•Intense competition exists in the gaming and entertainment industries, and we expect competition to continue to intensify.
•Our results of operations may fluctuate due to seasonality and other factors and, therefore, our periodic operating results will not be guarantees of future performance.
•Negative events or negative media coverage including relating to, or a declining popularity of, sports betting, the underlying sports, teams or athletes and related talent, and/or online gaming may adversely impact our reputation, which could have an adverse impact on our business.
•Our projections are subject to significant risks, assumptions, estimates and uncertainties, including assumptions regarding future legislation and changes in regulations, both inside and outside of the United States. As a result, our projected revenues and profitability may differ materially from our expectations.
•Consolidation among gaming equipment manufacturers could impose additional costs on us.
•Our business and operations have been, and may in the future, be adversely affected by epidemics, pandemics, outbreaks of disease, and other adverse public health developments, including COVID-19.
Risks Related to Our Operations
•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.
•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.
•Most of our facilities are leased and could experience risks associated with leased property.
•Our operations could be disrupted if management agreements and/or leases with third parties and local governments are not renewed.
•There can be no assurance that we will be able to compete effectively or generate sufficient returns on our recently expanded sports betting and online gaming operations, including our acquisition of Barstool and theScore.
•Our operations and their success are largely dependent on the skill and experience of management and key personnel.
•Our business could suffer if we cannot attract and retain talented team members.
•Collective bargaining activity and strikes could disrupt our operations, increase our labor costs, and interfere with the ability of our management to focus on executing our business strategies.
•If we fail to detect fraud or theft, including by our users and employees, our reputation may suffer which could harm our brand and reputation and negatively impact our business, financial condition and results of operations and can subject us to investigations and litigation.
•We rely on, among other things, copyrights, trademarks, trade secrets, confidentiality procedures, and contractual provisions to protect our intellectual property rights and we may be unable to protect or may not be successful in protecting our intellectual property rights.
•Our commercial success depends upon us avoiding the infringement of intellectual property rights owned by others and any such infringements, including those that are inadvertent, may have a material adverse effect on our business.
•Our technology contains third-party open source software components, and failure to comply with the terms of the underlying open source software licenses could restrict our ability to provide our offerings.
•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 lease facilities that are located in areas that experience extreme weather conditions.
•We rely on third-party payment processors to process deposits and withdrawals made by our online sports betting and iCasino users, and if we cannot manage our relationships with such third parties and other payment-related risks, our business, financial condition and results of operations could be adversely affected.
•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.
•If internet and other technology-based service providers experience service interruptions, our ability to conduct our business may be impaired and our business, financial condition and results of operations could be adversely affected.
•We rely on third party cloud infrastructure services to deliver our offerings to users. Any disruption of, or interference with, our use of these services could adversely affect our business, financial condition, results of operations, and prospects.
•We rely on strategic relationships with casinos, tribes and horse tracks in order to be able to offer our sports betting and online gaming products in certain jurisdictions. If we cannot establish and manage such relationships with such partners, our business, financial condition and results of operations could be adversely affected.
•We rely on other third-party sports data providers for real-time and accurate data for sporting events, and if such third parties 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.
•Our growth will depend, in part, on the success of our strategic relationships with third parties. Overreliance on certain third parties, or our inability to extend existing relationships or agree to new relationships may cause unanticipated costs for us and impact our financial performance in the future.
•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 Interactive segment grows.
•Our growth prospects may suffer if we are unable to develop successful offerings or if we fail to pursue additional offerings. In addition, if we fail to make the right investment decisions in our offerings, we may not attract and retain key users and our revenue and results of operations may decline.
•The growth of our Interactive segment will depend on our ability to attract and retain users.
•Participation in the sports betting industry exposes us to trading, liability management and pricing risk. We may experience lower than expected profitability and potentially significant losses as a result of a failure to determine accurately the odds in relation to any particular event and/or any failure of our sports risk management processes and controls.
•We follow the sports betting industry practice of restricting and managing betting limits at the individual customer level based on individual customer profiles and risk level to the enterprise; however, there is no guarantee that gaming regulatory authorities will allow operators such as us to place limits at the individual customer level.
•We extend credit to a portion of our customers who wager at our retail properties, and we may not be able to collect gaming receivables from our credit customers.
•The success, including win or hold rates, of existing or future retail and online sports betting and online gaming products depends on a variety of factors and is not completely controlled by us.
•We face a number of challenges prior to opening new or upgraded gaming properties or launching new online gaming or sports betting channels, which may lead to increased costs and delays in anticipated revenues.
Risks Related to Our Capital Structure
•Our indebtedness could adversely affect our financial health and prevent us from fulfilling our obligations under our outstanding indebtedness.
•The lack of availability and cost of financing could have an adverse effect on our business.
•To service our indebtedness, we will require a significant amount of cash, which depends on many factors beyond our control.
Legal and Regulatory Risk Factors
•We are or may become involved in legal proceedings that, if adversely adjudicated or settled, could impact our financial condition and results of operations.
•We face extensive regulation from gaming regulatory authorities, which could have a material adverse effect on us.
•We are subject to certain federal, state, provincial 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.
•State and local smoking restrictions have and may continue to negatively affect our business.
•Changes to consumer privacy laws both inside and outside of the United States could adversely affect our ability to market our products effectively and may require us to change our business practices or expend significant amounts on compliance with such laws.
•We are subject to environmental laws and potential exposure to environmental liabilities which could have an adverse effect on us.
•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.
The summary risk factors described above should be read together with the text of the full risk factors below and in the other information set forth in this Annual Report, including our consolidated financial statements and the related notes, as well as in other documents that we file with the SEC. If any such risks and uncertainties actually occur, our business, prospects, financial condition and results of operations could be materially and adversely affected. The risks summarized above or described in full below are not the only risks that we face. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial may also materially adversely affect our business, prospects, financial condition and results of operations.
Risks Related to Our Business and Industry
Our business is sensitive to reductions in discretionary consumer spending as a result of downturns in the economy and other factors outside of our control.
Our business is particularly sensitive to downturns in the economy and the associated impact on discretionary spending on leisure activities. As a regional operator, our in-person customers are predominately local, so we compete for more day-to-day discretionary spending as compared with destination spending. Decreases in discretionary consumer spending or consumer preferences brought about by factors such as perceived or actual general economic conditions, effects of declines in consumer confidence in the economy, any future employment and credit crisis, the impact of high and prolonged inflation, particularly with respect to housing, energy and food costs, the increased cost of travel, decreased disposable consumer income and wealth, fears of war and future acts of terrorism, or widespread illnesses or epidemics, including COVID-19, can have a material adverse effect on discretionary spending and other areas of economic behavior that directly impact the gaming and entertainment industries in general and could further reduce customer demand for the products and amenities that we offer, which may negatively impact our revenues and operating cash flow.
Intense competition exists in the gaming, media, and entertainment industries, and we expect competition to continue to intensify.
The gaming, media and entertainment industries are characterized by an increasingly high degree of competition among a large number of participants.
In a broad sense, both our retail and interactive gaming operations face competition from all manner of leisure and entertainment activities, including shopping, athletic events, television and movies, concerts and travel. It is possible that these secondary competitors could reduce the number of visitors to our facilities or the amount they are willing to wager with us, which could have a material adverse effect on our ability to generate revenue or maintain our profitability and cash flows.
Legalized gaming is currently permitted in various forms throughout countries we operate in (U.S. and Canada.) Other jurisdictions, including states adjacent to those in which we currently have properties, have recently legalized, implemented, and/or expanded gaming. Competition from gaming options such as state and province-sponsored internet lotteries, sweepstakes, charitable gaming, video gaming terminals at bars, restaurants, taverns and truck stops, illegal slot machines and skill games, fantasy sports and third-party internet or mobile-based gaming platforms, including both legal and illegal online gaming and sports betting operations, could divert customers from our properties and our online gaming and sports betting offerings and thus adversely affect our financial condition, results of operations, and cash flows.
In addition, our properties compete with numerous casinos and hotel casinos of varying quality and size in market areas where they are located, including on various lands taken into trust for the benefit of certain Native American tribes. In most markets, we compete directly with other casino facilities operating in the immediate and surrounding market areas. In some markets, we face competition from nearby markets in addition to direct competition within our market areas. We and our competitors have invested in expanding existing facilities, developing new facilities, and acquiring established facilities in existing markets. This expansion of existing casino entertainment properties, the increase in the number of properties and aggressive marketing strategies by many of our competitors have increased competition in many markets in which we compete, and this intense competition can be expected to continue. As competing properties and new markets open, our results of operations may be negatively impacted.
Increased competition may require us to make substantial capital expenditures to maintain and enhance the competitive positions of our properties, including making expenditures to increase the attractiveness and add to the appeal of our facilities, including increasing the manner and frequency in which we refresh, refurbish or replace fixtures and equipment at our properties. After satisfying our obligations under our outstanding indebtedness, there can be no assurance that we will have sufficient funds to undertake these expenditures or that we will be able to obtain sufficient financing to fund such expenditures. If we are unable to make such expenditures, our competitive position could be materially adversely affected.
Similarly, there is intense competition among online gaming and sports betting providers. A number of established, well-financed companies producing sports betting and online gaming and/or interactive entertainment products and services compete with our offerings, and other well-capitalized companies may introduce competitive services. Such competitors may spend more money and time on developing and testing products and services, undertake more extensive marketing campaigns, adopt more aggressive pricing or promotional policies or otherwise develop more commercially successful products or services than ours, which could negatively impact our business. There has also been considerable consolidation among competitors in the interactive gaming sectors and such consolidation and future consolidation could result in the formation of larger competitors with increased financial resources and altered cost structures, which may enable them to offer more competitive products, gain a larger market share, expand offerings and broaden their geographic scope of operations. If we are not able to maintain or improve our market share, or if our offerings do not continue to be popular, our business could suffer.
Our results of operations may fluctuate due to seasonality and other factors and, therefore, our periodic operating results will not be guarantees of future performance.
Our online sportsbook, retail sportsbook and core retail business operations may fluctuate due to seasonal trends and other factors. A majority of our current sports betting revenue occurs in the fourth quarter. This seasonality may cause decreases in our future revenues during the applicable off-seasons. In addition, certain individuals or teams advancing or failing to advance and their scores and other results within specific tournaments, games or events may impact our financial performance. Our retail gaming operations are also subject to seasonality, including seasonality based on the weather in the markets in which they operate, specific holidays, or other significant events.
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 widespread illnesses or epidemics, including COVID-19, and other casualty events, such as hurricanes or tornados. We maintain significant property insurance, including business interruption coverage, for these types of casualty events; however, if any such events occur, there can be no assurances that we will be fully or promptly compensated, if 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 widespread illnesses or epidemics, including COVID-19. In addition, the occurrence of such an event may adversely impact general economic or other conditions in the areas in which our properties are located or from which they draw their patrons, and our business, financial condition and results of operations could be materially adversely affected.
Negative events or negative media coverage including relating to, or a declining popularity of, online gaming, sports betting, or the underlying sports, teams or athletes and related talent, may adversely impact our reputation, 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 online gaming by the public or by politicians, lobbyists or others could affect future legislation of sports betting and online gaming. Negative public perception could also lead to new restrictions on or to the prohibition of online gaming or sports betting in jurisdictions in which we currently operate. Such negative publicity could also adversely affect: (i) the size, demographics, engagement, and loyalty of our customer base and result in decreased revenue or slower user growth rates; (ii) our ability to retain and attract team members; and (iii) investor perception, all of which could seriously harm our business.
Our acquisition of Barstool may result in potential adverse reactions, negative publicity or changes to our business, regulatory or other stakeholder relationships. Our relationships with gaming regulatory authorities, stakeholders and business partners could be adversely affected as a result of our affiliation with Barstool Sports and the individuals, influencers, and/or media personalities connected with Barstool Sports. In addition, our business partners or stakeholders may react negatively to actual or perceived competitive threats from our affiliation with the individuals, influencers, and/or media personalities connected with Barstool.
Our projections are subject to significant risks, assumptions, estimates and uncertainties, including assumptions regarding future legislation and changes in regulations, both inside and outside of the United States. As a result, our projected revenues and profitability may differ materially from our expectations.
We operate in rapidly changing and competitive industries and our projections are subject to the risks and assumptions made by management with respect to our industries. Operating results are difficult to forecast because they can depend, in part, on new or amended legislation and regulations by different states and provinces, the adoption of which is uncertain. Furthermore, if we invest in the development of new products or distribution channels, such as our expanded media business and non-gaming retail entertainment, that do not achieve significant commercial success or deliver projected results, whether
because of competition or otherwise, we may not recover the often substantial “up front” costs of developing and marketing those products and distribution channels, or recover the opportunity cost of diverting management and financial resources away from other products or distribution channels.
Supply chain delays could impose additional costs on us.
Supply chain delays or disruptions could impact our ability to obtain gaming equipment, semiconductor chips and other supplies for our business from our key suppliers on acceptable terms or at all. Any suspension or delay in our suppliers’ ability to provide us adequate equipment or supplies, or in our ability to procure equipment or supplies from other sources in a timely manner or at all, could impair our ability to meet customer demand and therefore could have a material adverse effect on our business, financial condition or results of operations.
Our business and operations have been, and may in the future, be adversely affected by epidemics, pandemics, outbreaks of disease, and other adverse public health developments, including COVID-19.
The closing of our properties due to the COVID-19 pandemic 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. While all our properties are currently open, there remains continuing logistical challenges faced by the entire gaming industry resulting from COVID-19-related labor shortages and supply chain disruptions. Future disruptions, as well as significant negative economic trends, due to the COVID-19 pandemic or other widespread illnesses or epidemics, may adversely affect our stock price.
Epidemics, pandemics, outbreaks of novel diseases, and other adverse public health developments in states where we operate may arise at any time. Such developments, including the COVID-19 pandemic, have had, and in the future may have, an adverse effect on our business, financial condition and results of operations. These effects include a potentially negative impact on the availability of our key personnel, labor shortages and increased turnover, temporary closures of our properties or the facilities of our business partners, customers, suppliers, third-party service providers or other vendors, and interruption of domestic and global supply chains, distribution channels and liquidity and capital or financial markets. In particular, restrictions on or disruptions of transportation may significantly adversely impact our business. The impact of a widespread illnesses or epidemics, including COVID-19, may also have the effect of exacerbating many of the other risks described in this Annual Report on Form 10-K.
Risks Related to our Operations
We have certain retail 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, 2022, we generated 14.9%, 13.1%, and 9.5% of our revenues from our retail properties within the states of Louisiana, Ohio and Missouri, respectively. Additionally, we generated 5.6% of our revenues from our property in Charles Town, West Virginia. Therefore, our results will be dependent on the regional economies and competitive landscapes at these properties. Likewise, our ability to meet our operating and debt service requirements is dependent, in part, upon the continued success of these properties.
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, which were $925.0 million for the year ended December 31, 2022, pursuant to and subject to the terms and conditions of our Master Leases, Meadows Lease, Perryville Lease, Tropicana Lease, which was terminated on September 26, 2022, and Morgantown Lease each with GLPI, and our Margaritaville Lease and Greektown Lease with VICI (as defined previously, collectively, our “Triple Net Leases”). 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 pursuant to the Triple Net Leases. Termination of the PENN Master Lease, Pinnacle Master Lease, or Morgantown 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. In addition, should some of our leased facilities prove to be unprofitable, we could remain obligated for lease payments and other obligations under the Triple Net Leases even if we decide to withdraw from those locations. Further, there can also be no assurance that we will be able to comply with our obligations under the Triple Net Leases in the future or that our landlords will be able to comply with their obligations under the Triple Net Leases with us.
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.
There can be no assurance that we will be able to compete effectively or generate sufficient returns on our recently expanded sports betting and online gaming operations, including our acquisitions of Barstool and theScore.
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. As of December 31, 2022, we have launched the Barstool Sportsbook app in 14 states and theScore Bet app in Ontario, and we expect to launch our Barstool Sportsbook app in additional states throughout 2023. Our sports betting and online gaming operations compete, and will continue to compete, in a rapidly evolving and highly competitive market against an increasing number of competitors.
Additionally, and as described in more detail below, we have entered into agreements with other sports betting and online gaming operators and may enter into additional agreements with strategic partners and other third-party vendors to provide market access in certain jurisdictions. In addition, there can be no assurance that the Barstool and theScore audiences will engage in sports betting and online gaming products to the extent that we expect. Further, the success of our proposed sports betting and online gaming operations is dependent on a number of additional factors, many of which are beyond our control, including the ultimate tax rates and license fees charged by jurisdictions across the United States and Canada; our ability to gain market share in a new 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 matches as a result of events such as player strikes or lockouts; 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.
Any of the factors above could prevent us from receiving the expected returns of our acquisitions of Barstool and theScore, 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 operations and their success are largely dependent on the skill and experience of management and key personnel.
Our success and our competitive position, including as relates to our retail operations, sports betting and online gaming operations, and media businesses, 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.
Our business could suffer if we cannot attract and retain talented team members.
We compete with other companies both within and outside of our industry for talented personnel. If we cannot recruit, train, develop, and retain skilled and experienced personnel to our corporate, retail operations, sports betting and online gaming, and media businesses, we could experience increased employee turnover, decreased guest or user satisfaction, low morale, inefficiency, or internal control failures. Insufficient numbers of talented team members could also limit our ability to grow and
expand our businesses. A shortage of frontline and skilled labor could also result in higher wages that would increase our labor costs, which could reduce our profits. Additionally, the increased ability of employees to work from home or in other remote work arrangements has impacted, and may continue to impact, our ability to attract and retain talented personnel.
Qualified individuals are in high demand, particularly in the technology and media industries, and we may incur significant costs to attract them. We may use equity awards to attract talented employees, influencers and media personalities. If the value of our common stock declines significantly and remains depressed, that may prevent us from recruiting and retaining qualified talent. Our ability to attract, retain, and motivate employees, influencers and media personalities may also be adversely affected by stock price volatility.
Collective bargaining activity and strikes could disrupt our operations, increase our labor costs, and interfere with the ability of our management to focus on executing our business strategies.
A significant number of team members at our properties are currently covered by collective bargaining agreements. Numerous collective bargaining agreements are typically subject to negotiation each year, and our ability in the past to resolve such negotiations does not mean that we will be able to resolve future negotiations without strikes, disruptions, or on terms that we consider reasonable. If relationships with our organized associates or the unions that represent them become adverse, then the properties we operate could experience labor disruptions such as strikes, lockouts, boycotts, and public demonstrations. Labor disputes and disruptions have in the past, and could in the future, result in adverse publicity and negatively affect operations and revenues at affected properties. In addition, labor disputes and disruptions could harm our relationship with our team members, result in increased regulatory inquiries and enforcement by governmental authorities, harm our relationships with our guests and customers, divert management attention, and reduce customer demand for our services, all of which could have an adverse effect on our reputation, business, financial condition, or results of operations.
In addition, labor regulation and the negotiation of new or existing collective bargaining agreements could lead to higher wage and benefit costs, changes in work rules that raise operating expenses and legal costs, and could impose limitations on our ability or the ability of our third-party property owners to take cost saving measures during economic downturns.
Given the large number of employees, labor unions are making a concerted effort to recruit more employees in the gaming industry, and, we have experienced attempts by labor organizations to organize certain of our non-union employees. These efforts have achieved some success to date. We cannot provide any assurance that we will not experience additional and successful union activity in the future. The impact of this union activity is undetermined and could negatively impact our results of operations. Increased unionization of our workforce, new labor legislation or changes in regulations could disrupt our operations, reduce our profitability or interfere with the ability of our management to focus on executing our business strategies.
If we fail to detect fraud or theft, including by our users and employees, our reputation may suffer which could harm our brand and reputation and negatively impact our business, financial condition and results of operations and can subject us to investigations and litigation.
We have in the past incurred, and may in the future incur, losses from various types of financial fraud, including use of stolen or fraudulent payment card or payment instrument data, claims of unauthorized payments by a user and attempted payments by users with insufficient funds. Bad actors use increasingly sophisticated methods to engage in illegal activities involving personal information, such as unauthorized use of another person’s identity, account information or payment information and unauthorized acquisition or use of credit or debit card details, bank account information and mobile phone numbers and accounts. Under current payment industry practices, we may be liable for use of funds on our products with fraudulent payment instrument data, even if the associated financial institution approved the payment transaction.
Acts of fraud may involve various tactics, including collusion. Successful exploitation of our systems could have negative effects on our product offerings, services and user experience and could harm our reputation. Failure to discover such acts or schemes in a timely manner could result in harm to our operations. In addition, negative publicity related to such schemes could have an adverse effect on our reputation, potentially causing a material adverse effect on our business, financial condition, results of operations and prospects. In the event of the occurrence of any such issues with our existing technology or product offerings, substantial engineering and marketing resources and management attention may be diverted from other projects to correct these issues, which may delay other projects and the achievement of our strategic objectives.
In addition, any misappropriation of, or unauthorized access to, proprietary information owned or licensed by us or our users or other breach of our information security could result in legal claims or legal proceedings, including regulatory investigations and actions, or liability for failure to comply with privacy and information security laws, including for failure to protect personal information or for misusing personal information, which could disrupt our operations, force us to modify our
business practices, damage our reputation and expose us to claims from our users, regulators, employees and other persons, any of which could have an adverse effect on our business, financial condition, results of operations and prospects.
Despite measures we have taken to detect and reduce the occurrence of fraudulent or other malicious activity on our offerings, we cannot guarantee that any of our measures will be effective or will scale efficiently with our business or as new methods of engaging in fraudulent activity occur. Our failure to adequately detect or prevent fraudulent transactions could harm our reputation or brand, result in litigation or regulatory action and lead to expenses that could adversely affect our business, financial condition and results of operations.
We rely on, among other things, copyrights, trademarks, trade secrets, confidentiality procedures, and contractual provisions to protect our intellectual property rights and we may be unable to protect or may not be successful in protecting our intellectual property rights.
Our commercial success depends upon our ability to develop new or improved technologies and products, and to successfully obtain or acquire proprietary or statutory protection for our intellectual property rights.
We rely on, among other things, copyrights, trademarks, trade secrets, confidentiality procedures, and contractual provisions to protect our proprietary rights. While we enter license, confidentiality and non-disclosure agreements with our employees and vendors, consultants, users, potential users and others to attempt to limit access to and distribution of proprietary and confidential information, it is possible that:
•some or all of our confidentiality and non-disclosure agreements will not be honored;
•third parties will independently develop equivalent technology or misappropriate our technology or designs;
•disputes will arise with our strategic partners, users or others concerning the ownership of intellectual property;
•unauthorized disclosure or use of our intellectual property, including source code, know-how or trade secrets will occur; or
•contractual provisions may not be enforceable.
There can be no assurance that we will be successful in protecting our intellectual property rights or that we will become aware of third-party infringements that might be occurring. Inability to protect our intellectual property rights could have a material adverse effect on our prospects, business, financial condition or results of operations.
Our commercial success depends upon us avoiding the infringement of intellectual property rights owned by others and any such infringements, including those that are inadvertent, may have a material adverse effect on our business.
The industries in which we compete have many participants that own, or claim to own, intellectual property, including participants that have been issued patents and may have filed patent applications or may obtain additional patents and proprietary rights for technologies similar to those used by us in our products. Some of these patents may grant very broad protection to the third-party owners thereof. Patents can be issued very rapidly and there is often a great deal of secrecy surrounding pending patent applications. We cannot determine with certainty whether any existing third-party patents or the issuance of any new third-party patents would require us to alter our technologies, pay for licenses, challenge the validity or enforceability of the patents, or cease certain activities. Third parties may assert intellectual property infringement claims against us and against our partners and/or suppliers. We may be subject to these types of claims either directly or indirectly through indemnities assuming liability for these claims that we may provide to certain partners. There can be no assurance that our attempts to negotiate favorable intellectual property indemnities in favor of us with our suppliers for infringement of third-party intellectual property rights will be successful or that a supplier’s indemnity will cover all damages and losses suffered by us and our partners and other suppliers due to infringing products, or that we can secure a license, modification or replacement of a supplier’s products with non-infringing products that may otherwise mitigate such damages and losses.
Some of our competitors have, or are affiliated with companies that have, substantially greater resources than us, and these competitors may be able to sustain the costs of complex intellectual property infringement litigation to a greater degree and for longer periods of time than us. Regardless of whether third-party claims of infringement against us have any merit, these claims could:
•adversely affect our relationships with our customers and vendors;
•be time-consuming to evaluate and defend;
•result in costly litigation;
•result in negative publicity for us;
•divert our management’s attention and resources;
•cause product and software delivery delays or stoppages;
•subject us to significant liabilities;
•require us to enter into costly royalty or licensing agreements;
•require us to develop possible workaround solutions that may be costly and disruptive to implement; or
•require us to cease certain activities or to cease distributing our products and delivering our services in certain markets.
In addition to being liable for potentially substantial damages relating to a patent or other intellectual property following an infringement action against us, we may be prohibited from developing or commercializing certain technologies or products unless we obtain a license from the Company establishedholder of the patent or other applicable intellectual property rights, or purchase these rights. There can be no assurance that we will be able to obtain any such license or purchase the patent on commercially reasonable terms, or at all. If we do not obtain such a special COVID-19 Emergency Relief Fund underlicense, our prospects, business, operating results and financial condition could be materially adversely affected and we could be required to cease related business operations in some markets and restructure our business to focus on continuing operations in other markets.
Our technology contains third-party open source software components, and failure to comply with the Penn National Gaming Foundationterms of the underlying open source software licenses could restrict our ability to provide assistanceour offerings.
Our technology contains software modules licensed to us under “open source” licenses from third-party sources. Use and distribution of open source software may entail greater risks than use of third-party commercial or proprietary software, as open source licensors generally do not provide support, warranties, indemnification or other contractual protections regarding infringement claims or the quality of the code. In addition, the public availability of such software may make it easier for others to compromise our technology.
Some open source licenses contain requirements that we make the source code of our software, in which the open source software modules are used or incorporated into, publicly available for third parties to create modifications or derivative works, or grant other licenses to our intellectual property for free. These types of open source licenses are commonly known as “copyleft” licenses. If we combine our proprietary software with open source software subject to copyleft licenses, we could, under certain open source licenses, be required to release the source code of our proprietary software to the public. This would allow our competitors to create similar offerings with lower development effort and time and ultimately could result in a loss of our competitive advantages. Alternatively, to avoid the public release of the affected portions of our source code, we could be required to expend substantial time and resources to re-engineer some or all of our software or remove such copyleft software.
Although we monitor our use of open source software to avoid subjecting our technology to licensing conditions we do not intend, the law surrounding the use of open source software and open source licenses is in a state of evolution and the legal ramifications of such use remain uncertain in the U.S. and other countries. There is a risk that these open source licenses could be construed in a way that could impose unanticipated and undesirable conditions or restrictions on our ability to provide or distribute our technology. From time to time, there have been claims challenging the ownership of open source software against companies that incorporate open source software into their solutions. As a result, we could be subject to lawsuits by parties claiming ownership of what we believe to be open source software.
Moreover, while we have processes for controlling our use of open source software in our technology, there is no assurance that such processes will be effective. If we are held to have breached or failed to fully comply with all the terms and conditions of an open source software license, we could face infringement or other liability, or be required to seek costly licenses from third parties to continue providing our offerings on terms that are not economically feasible, to re-engineer our technology, to discontinue or delay the provision of our offerings if re-engineering could not be accomplished on a timely basis or to make generally available, in source code form, our proprietary code, any of which could adversely affect our business, financial condition and results of operations.
We may face disruption and other difficulties in integrating and managing acquired operations 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 or operations we may develop or acquire, particularly in new competitive markets or business lines, including our recent acquisitions of theScore and the remaining outstanding equity of Barstool. The integration and management of more significant operations that we develop or acquire, such as our ability to (i) integrate the Barstool Sportsbook into theScore’s mobile app in the U.S. and (ii) migrate the Barstool Sportsbook to theScore’s player account management and trading platforms, 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 operations 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 operations may involve regulatory, legal and competitive risks, and, as it relates to property
acquisitions, construction and local opposition risks, as well as the risks attendant to partnership deals on these development opportunities. In particular, local opposition can delay or increase the anticipated cost of a project, and, in projects where we team membersup 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. Finally, given the competitive nature of these types of limited license opportunities, litigation is possible.
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 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.
We lease facilities that are located in areas that experience extreme weather conditions.
Extreme weather conditions may interrupt our operations and reduce the number of customers who visit our facilities in the affected areas. Our properties in Illinois, Iowa, Kansas, Louisiana, Missouri, Ohio, Colorado, Indiana and Pennsylvania are at risk of experiencing snowstorms, tornadoes and/or flooding.
In the past, adverse weather conditions have interrupted our operations, damaged property and reduced the number of customers who visit our facilities in an affected area. For example, we have experienced interrupted operations and property damage due to hurricanes in the areas around the Gulf of Mexico and due to certain snowstorms in the Midwest and Northeast. If any of our properties are damaged or there is a prolonged disruption at any of our properties due to natural disasters or other catastrophic weather events, our business results of operations and financial condition could be materially adversely affected.
Additionally, our retail casino gaming, sports betting and online gaming operations 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 as a result of extreme weather, or otherwise, could result in an immediate, and possibly substantial, loss of revenues due to a shutdown of our retail casino gaming (including slot machines and security systems), sports betting and online gaming operations.
We rely on third-party payment processors to process deposits and withdrawals made by our online sports betting and iCasino users, and if we cannot manage our relationships with such third parties and other payment-related risks, our business, financial condition and results of operations could be adversely affected.
We rely on a limited number of third-party payment processors to process deposits and withdrawals made by our users. If any of our third-party payment processors terminate their relationship with us or refuse to renew their agreements with us on commercially reasonable terms, we would need to find alternate payment processors, and may not be able to secure similar terms or replace such payment processor in an acceptable time frame. Further, the software and services provided by our third-party payment processors may not meet our expectations, contain errors or vulnerabilities, be compromised or experience outages. Any of these risks could cause us to lose our ability to accept online payments or other payment transactions or make timely payments to our users, any of which could make our technology less trustworthy and convenient and adversely affect our ability to attract and retain our users.
A majority of user deposits are made with payment cards or through other third-party payment services, which subjects us to certain regulations and to the risk of fraud. We may in the future offer new payment options to users that may be subject to additional regulations and risks. We are also subject to a number of other laws and regulations relating to the payments we accept from our users, including with respect to money laundering, money transfers, privacy and information security. If we fail to comply with applicable rules and regulations, we may be subject to civil or criminal penalties, fines and/or higher transaction fees and may lose our ability to accept online payments or other payment card transactions, which could make our offerings less convenient and attractive to our users. If any of these events were to occur, our business, financial condition and results of operations could be adversely affected.
Additionally, our payment processors require us to comply with payment card network and sponsoring bank operating rules, which are set and interpreted by the payment card networks and sponsoring banks. The payment card networks and/or
sponsoring banks could adopt new operating rules or interpret or reinterpret existing rules in ways that might prohibit us from providing certain offerings to some users, be costly to implement or difficult to follow. We have agreed to reimburse our payment processors and sponsoring banks for fines they are assessed by payment card networks if we or our users violate these rules. Any of the foregoing risks could adversely affect our business, financial condition and results of operations.
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.
Our success depends in part on our relationships with other third-party service providers. We rely upon third-party distribution platforms, including the Apple App Store and Google Play store, for distribution of our entertainment, media and mobile sports betting and online gaming 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 or violation of Apple or Google rules or codes of conduct, it could have a material negative impact on our business.
Further, the success of our Interactive segment depends in part on our relationships with other third-party service providers for hosting, 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 incorporate technology from third parties throughout our business. 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. Some of our license agreements may be terminated by our licensors for convenience. If we are unable to obtain or maintain rights to any of this technology because of intellectual property infringement claims brought by third parties against our suppliers and licensors or against us, or if we are unable to continue to obtain the technology or enter into new agreements on commercially reasonable terms, our ability to develop our offerings could be severely limited and our business could be harmed.
Additionally, if we are unable to obtain necessary technology from third parties, we may be forced to acquire or develop alternate technology, which may require significant time and effort and may be of lower quality or performance standards. This would limit and delay our ability to provide new or competitive offerings and increase our costs. If alternate technology cannot be obtained or developed, we may not be able to offer certain functionality as part of our offerings, 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 related to our sports betting and online gaming services. 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. Additionally, incorrect or misleading geolocation and identity verification data with respect to current or potential users received from third-party service providers may result in us inadvertently allowing access to our offerings to individuals who should not be permitted to access them, or otherwise inadvertently deny access to individuals who should be able to access our offerings, in each case based on inaccurate identity or geographic location determination. Our third-party geolocation services providers rely on their ability to obtain information necessary to determine geolocation from mobile devices, operating systems, and other sources. Changes, disruptions or temporary or permanent failure to access such sources by our third-party services providers may result in their inability to accurately determine the location of our users. Moreover, our inability to maintain our existing contracts with third-party services providers, or to replace them with equivalent third parties, may result in our inability to access geolocation and identity verification data necessary for our day-to-day operations. If any of these risks materializes, we may be subject to disciplinary action, fines, lawsuits, and our business, financial condition and results of operations could be adversely affected.
If internet and other technology-based service providers experience service interruptions, our ability to conduct our business may be impaired and our business, financial condition and results of operations could be adversely affected.
As described in more detail below, a substantial portion of our network infrastructure is provided by third parties, including internet service providers and other technology-based service providers. We require technology-based service providers to implement cyber-attack-resilient systems and processes. However, if internet service providers experience service interruptions,
because of cyber-attacks, or due to an event causing an unusually high volume of internet use (such as a pandemic or public health emergency), communications over the internet may be interrupted and impair our ability to conduct our business. Internet service providers and other technology-based service providers may in the future roll out upgraded or new mobile or other telecommunications services, such as 5G or 6G services, which may not be successful and thus may impact the ability of our users to access our offerings in a timely fashion or at all. In addition, our ability to process e-commerce transactions depends on payment processing and payment network systems. To prepare for system problems, we continuously seek to strengthen and enhance our current facilities and the capabilities of our system infrastructure and support. Nevertheless, there can be no assurance that the internet infrastructure or our own network systems will continue to be able to meet the demand placed on us by the continued growth of the internet, the overall sports betting and online gaming industry and our users. Any difficulties these providers face, including the potential of certain network traffic receiving priority over other traffic (i.e., lack of net neutrality), may adversely affect our business, and we exercise little control over these providers, which increases our vulnerability to problems with the services they provide. Any system failure as a result of reliance on third parties, such as hosting, network, software or hardware failure, or as a result of cyber-attacks, could cause a loss of our users’ property or personal information, or a delay or interruption in our online services and products and e-commerce services, including our ability to handle existing or increased traffic. Any such failure could result in a loss of anticipated revenue, interruptions to our offerings, cause us to incur significant legal, remediation and notification costs, degrade the customer experience and cause users to lose confidence in our offerings, any of which could have a material adverse effect on our business, financial condition, results of operations and prospects.
We rely on third party cloud infrastructure services to deliver our offerings to users. Any disruption of, or interference with, our use of these services could adversely affect our business, financial condition, results of operations, and prospects.
We currently host our sports betting and online gaming offerings and support our operations using third-party providers of cloud infrastructure services. We do not, and will not, have control over the operations of the facilities or infrastructure of the third-party service providers that we use. Such third party’s facilities are vulnerable to damage or interruption from natural disasters, cyber security attacks, terrorist attacks, power outages and similar events or acts of misconduct. Our technology’s continuing and uninterrupted performance will be critical to our success and is dependent on the use of third-party cloud infrastructure services. We have experienced, and we expect that in the future we will experience, interruptions, delays and outages in service and availability from these third-party service providers from time to time due to a variety of factors, including infrastructure changes, human or software errors, website hosting disruptions and capacity constraints. In addition, any changes in these third parties’ service levels may adversely affect our ability to meet the requirements of our users. Since our technology’s continuing and uninterrupted performance is critical to our success, sustained or repeated system failures would reduce the attractiveness of our offerings. It may become increasingly difficult to maintain and improve our performance, especially during peak usage times, as we expand and the usage of our offerings increases. Any negative publicity arising from these disruptions could harm our reputation and brand and may adversely affect the usage of our offerings.
Any of the above circumstances or events may harm our reputation and brand, reduce the availability or usage of our technology, lead to a significant loss of revenue, increase our costs and impair our ability to attract new users, any of which could adversely affect our business, financial condition and results of operations.
We rely on strategic relationships with casinos, tribes and horse tracks in order to be able to offer our sports betting and online gaming products in certain jurisdictions. If we cannot establish and manage such relationships with such partners, our business, financial condition and results of operations could be adversely affected.
Under the sports betting and online gaming laws of certain jurisdictions, sports betting and online gaming are limited to a finite number of retail operators, such as casinos, tribes or tracks, who own a “skin” or “skins” under that jurisdiction’s law. A “skin” is a legally-authorized license from a gaming regulatory authority to offer sports betting or online gaming services provided by such a retail operator. The “skin” provides a market access opportunity for mobile operators to operate in the jurisdiction pending licensure and other required approvals by the jurisdiction’s gaming regulatory authority. The entities that control those “skins,” and the numbers of “skins” available, are typically determined by a jurisdiction’s law authorizing sports betting or online gaming. In some of the jurisdictions in which we offer sports betting and online gaming, we currently rely on a casino, tribe or track in order to get a “skin.” These “skins” are what allows us to gain access to jurisdictions where online operators are required to have a retail relationship. If we cannot establish, renew or manage these relationships, our market access rights could terminate and we would not be allowed to operate in those jurisdictions until we enter into new ones. As a result, our business, financial condition and results of operations could be adversely affected.
We rely on other third-party sports data providers for real-time and accurate data for sporting events, and if such third parties 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 on third-party sports data providers to obtain accurate information regarding schedules, results, performance and outcomes of sporting events. We rely on this data to determine what sports bets to offer and when and how sports bets are settled. We have experienced, and may continue to experience, errors in these data feeds which may result in us incorrectly offering or settling bets. If we cannot adequately resolve issues with our users that result from such data feed errors, our users may have negative experiences with our offerings, our brand or reputation may be negatively affected and our users may be less inclined to continue or resume utilizing our products or recommend our offerings to other potential users. As such, a failure or significant interruption in our service may harm our reputation, business and operating results.
Furthermore, if any of our sports data partners terminates its relationship with us or refuses to renew its agreement with us on commercially reasonable terms, we would need to find an alternate provider, and may not be able to secure similar terms or replace such providers in an acceptable time frame. Any of these risks could increase our costs and adversely affect our business, financial condition and results of operations. Further, any negative publicity related to any of our third-party partners, including any publicity related to regulatory concerns, could adversely affect our reputation and brand, and could potentially lead to increased regulatory or litigation exposure.
Our growth will depend, in part, on the success of our strategic relationships with third parties. Overreliance on certain third parties, or our inability to extend existing relationships or agree to new relationships may cause unanticipated costs for us and impact our financial performance in the future.
We rely on relationships with sports leagues and teams, professional athletes and athlete organizations, advertisers, casinos and other third parties, including those affiliated with Barstool, in order to attract users to our property and online offerings. These relationships along with providers of online services, search engines, social media, directories and other websites and e-commerce businesses direct consumers to our offerings. In addition, many of the parties with whom we have advertising arrangements provide advertising services to other companies, including other gaming products with whom we compete. While we believe there are other third parties that could drive users to our offerings, adding or transitioning to them may disrupt our business and increase our costs. In the event that any of our existing relationships or our future relationships fails to provide services to us in accordance with the terms of our arrangement, or at all, and we are not able to find suitable alternatives, this could impact our ability to attract consumers cost effectively and harm our business, financial condition, results of operations and prospects.
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 Interactive segment grows.
We increasingly rely on information technology and other systems (particularly as our Interactive segment 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, payment settlements, payment 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 regulatory 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, including our contractors and contractors of our service providers and vendors, 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, company contractors and other third parties including employees and contractors 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 actual or perceived 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.
As our Interactive segment grows, we will face increased cyber risks and threats that seek to damage, exploit, disrupt or gain access to our networks, our products and services, consumer information, and our 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 and services. 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, including gaming regulatory authorities, 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.
Our growth prospects may suffer if we are unable to develop successful offerings or if we fail to pursue additional offerings. In addition, if we fail to make the right investment decisions in our offerings, we may not attract and retain key users and our revenue and results of operations may decline.
The industries in which we operate are subject to rapid and frequent changes in standards, technologies, products and service offerings, as well as in customer demands and expectations and regulations. We must continuously make decisions regarding in which offerings, properties and technology we should invest to meet customer demand in compliance with evolving industry standards and regulatory requirements and must continually introduce and successfully market new and innovative technologies, offerings and enhancements to remain competitive and generate customer demand, acceptance and engagement. Our ability to engage, retain, and increase our user base and to increase our revenue will depend heavily on our ability to successfully create new offerings, both independently and together with third parties, transform properties and invest in innovative technologies. We may introduce significant changes to our existing technology and offerings or develop and introduce new and unproven products and services, with which we have little or no prior development or operating experience. The process of developing new offerings and systems is inherently complex and uncertain, and new offerings may not be well received by users, even if well-reviewed and of high quality. If we are unable to develop technology and products that address users’ needs or enhance and improve our existing technology and offerings in a timely manner, we could experience a material adverse effect on our business, financial condition, results of operations and prospects.
Although we intend to continue investing in our research and development efforts, if new or enhanced offerings fail to engage our users or partners, we may fail to attract or retain users or to generate sufficient revenue, operating margin, or other value to justify our investments, any of which may seriously harm our business. In addition, management may not properly ascertain or assess the risks of new initiatives, and subsequent events may alter the risks that were evaluated at the time we decided to execute any new initiative. Creating additional offerings can also divert our management’s attention from other business issues and opportunities. Even if our new offerings attain market acceptance, those new offerings could exploit the market share of our existing product offerings or share of our users’ wallets in a manner that could negatively impact their ecosystem. Furthermore, such expansion of our business increases the complexity of our business and places an additional burden on our management, operations, technical systems and financial resources and we may not recover the often-substantial up-front costs of developing and marketing new offerings, or recover the opportunity cost of diverting management and financial resources away from other offerings. In the event of continued growth of our operations, products or in the number of third-party relationships, we may not have adequate resources, operationally, technologically or otherwise to support such growth and the quality of our technology, offerings or our relationships with third parties could suffer. In addition, failure to effectively identify, pursue and execute new business initiatives, or to efficiently adapt our processes and infrastructure to meet the needs of our innovations, may adversely affect our business, financial condition, results of operations and prospects.
Any new offerings may also require our users to utilize new skills to use our offerings. This could create a lag in adoption of new offerings and new user additions related to any new offerings. To date, new offerings and enhancements of our existing technology have not been called backhindered our user growth or engagement, but that may be the result of a large portion of our user base being in a younger demographic and more willing to invest the time to learn to use our products most effectively. To the extent that future users, including those in older demographics, are less willing to invest the time to learn to use our products, and if we are unable to make our products easier to learn to use, our user growth or engagement could be affected, and our business could be harmed. We may also develop new products that increase user engagement and costs without increasing revenue.
Additionally, we may make bad or unprofitable decisions regarding these investments. If new or existing competitors offer more attractive offerings, we may lose users or users may decrease their spending on our offerings. New customer demands, superior competitive offerings, new industry standards or changes in the regulatory environment could render our existing offerings unattractive, unmarketable or obsolete and require us to make substantial unanticipated changes to our technology or business model. Our failure to adapt to a rapidly changing market or evolving customer demands could harm our business, financial condition, results of operations and prospects.
The growth of our Interactive segment will depend on our ability to attract and retain users.
Our ability to achieve growth in revenue in the future in our Interactive segment and its Barstool Sportsbook and theScore Bet sports betting and online gaming apps 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 may leverage a broad array of advertising channels, including television, radio, sports teams, social media influencers (brand ambassadors), social media platforms, such as Facebook, Instagram, Twitter and Snapchat, 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 sports betting or online 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 apps or websites are not displayed prominently in online search results, if fewer users click through to the Apple App Store and Google Play Store or our websites, 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 and theScore Bet apps and online gaming in general. Growth in the sportsbook and online gaming 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 platforms 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 platforms, 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.
Participation in the sports betting industry exposes us to trading, liability management and pricing risk. We may experience lower than expected profitability and potentially significant losses as a result of a failure to determine accurately the odds in relation to any particular event and/or any failure of our sports risk management processes and controls.
Our fixed-odds betting products involve betting where winnings are paid on the basis of the stake placed and the odds quoted. Odds are determined with the objective of providing an average return to us over a large number of events. However, there can be significant variation in gross win percentage event-by-event and day-by-day. We have systems and controls that seek to reduce the risk of daily losses occurring on a gross-win basis, but there can be no assurance that these will be effective in reducing our exposure, and consequently our exposure to this risk in the future. As a result, in the short term, there is less certainty of generating a positive gross win, and we may experience (and we have from furloughtime to time experienced) significant losses with respect to individual events or betting outcomes, in particular if large individual bets are placed on an event or betting outcome or series of events or betting outcomes. Odds compilers and risk managers are capable of human error, thus even allowing for the fact that a number of betting products are subject to capped pay-outs, significant volatility can occur. In addition, it is possible that there may be such a high volume of trading during any particular period that even automated systems would be unable to address and eradicate all risks. Any significant losses on a gross- win basis could have a material adverse effect on our business, financial condition and results of operations. In addition, if a jurisdiction where we hold or wish to apply for a license imposes a high turnover tax for betting (as opposed to a gross-win tax), this too would impact profitability, particularly with high value/low margin bets, and likewise have a material adverse effect on our business.
We follow the sports betting industry practice of restricting and managing betting limits at the individual customer level based on individual customer profiles and risk level to the enterprise; however there is no guarantee that gaming regulatory authorities will allow operators such as us to place limits at the individual customer level.
Similar to a credit card company managing individual risk on the customer level through credit limits, it is customary for sports betting operators to manage customer-betting limits at the individual level to manage enterprise risk levels. We believe this practice is beneficial overall, because if it were not possible, the betting options would be restricted globally and limits available to customers would be much lower to insulate overall risk due to the ongoing restrictions associated with COVID-19. The Company has raised $3.7 millionexistence of a very small segment of highly sophisticated syndicates and algorithmic bettors, or bettors looking to take advantage of site errors and omissions. We believe the majority of operators balance taking reasonable action from all customers against the risk of individual customers significantly harming the business viability. We cannot guarantee that all jurisdictions will allow us to execute limits at the individual customer level, or at our sole discretion.
We extend credit to a portion of our customers who wager at our retail properties, and we may not be able to collect gaming receivables from our Boardcredit customers.
We conduct our gaming activities on a credit and cash basis at many of Directors, Chief Executive Officer, seniorour properties, in accordance with applicable laws and regulations. Any such credit we extend is unsecured. Table games players typically are extended more credit than slot players, and high-stakes players typically are extended more credit than customers who tend to wager lower amounts. High-end gaming is more volatile than other forms of gaming, and variances in win-loss results attributable to high-end gaming may have a significant positive or negative impact on cash flow and earnings in a particular period. We extend credit to those customers whose level of play and financial resources warrant, in the opinion of management, an extension of credit. These large receivables could have a significant impact on our results of operations if deemed uncollectible. Gaming debts evidenced by a credit instrument, including what is commonly referred to as a “marker,” and judgments on gaming debts are enforceable under the current laws of the jurisdictions in which we allow play on a credit basis, and judgments on gaming debts in such jurisdictions are enforceable in all U.S. states under the Full Faith and Credit Clause of the U.S. Constitution; however, other jurisdictions may determine that enforcement of gaming debts is against public policy. Although courts of some foreign nations will enforce gaming debts directly and the Penn National assets in the U.S. of foreign debtors may be reached to satisfy a judgment, judgments on gaming debts from U.S. courts are not binding on the courts of many foreign nations.
The success, including win or hold rates, of existing or future retail and online sports betting and online gaming products depends on a variety of factors and is not completely controlled by us.
The retail and online gaming industries are characterized by an element of chance. Accordingly, we employ theoretical win rates to estimate what a certain type of gaming device, table game, sports bet or iCasino game (“Gaming Foundation.Offerings”), on average, will win or lose in the long run. Net win is impacted by variations in the hold percentage (the ratio of net win to total amount wagered), or actual outcome, in Gaming Offerings. We use the hold percentage as an indicator of the performance of the Gaming Offering against its expected outcome. Although each Gaming Offering generally performs within a defined statistical range of outcomes, actual outcomes may vary for any given period. In addition to the element of chance, win rates (hold percentages) may also (depending on the game involved) be affected by the spread of limits and factors that are beyond our control, such as a user’s skill, experience and behavior, the mix of games played, the financial resources of users, the volume of bets placed and the amount of time spent gambling. As a result of the variability in these factors, the actual win rates on our Gaming Offerings may differ from the theoretical win rates we provided $13 million in one-time holiday cash bonuseshave estimated and could result in the fourth quarteruser’s winnings exceeding those anticipated. The variability of win rates (hold rates) also have the potential to negatively impact our financial condition, results of operations, and cash flows.
Our success also depends in part on our ability to anticipate and satisfy user preferences in a timely manner. As we will operate in a dynamic environment characterized by rapidly changing industry and legal standards, our products will be subject to changing consumer preferences that cannot be predicted with certainty. We will need to continually introduce new offerings and identify future product offerings that complement our existing technology, respond to our non-executive team members companywideusers’ needs and improve and enhance our existing technology to helpmaintain or increase our user engagement and growth of our business. We may not be able to compete effectively unless our product selection keeps up with trends in the retail and digital sports entertainment, sports betting and gaming industries in which we compete, or trends in new gaming products.
We face a number of challenges prior to opening new or upgraded gaming properties or launching new online gaming 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 retail gaming properties or launch new online gaming 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 online gaming and sports betting offerings in additional jurisdictions, we will need to hire additional qualified employees, such as engineers, IT professionals, product managers and 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 impactcondition, results of operations, and cash flows.
Risks Related to their familiesOur Capital Structure
Our indebtedness could adversely affect our financial health and prevent us from COVID-19.fulfilling our obligations under our outstanding indebtedness.
As of December 31, 2022, we had indebtedness of $2.8 billion, including $1.5 billion outstanding under our Amended Credit Facilities. We are also created the Hurricane Laura Relief Fund with an initial contribution of $2.5 millionrequired to help our community and team members impacted by the storm, in addition to providing more than $6 million in full wages and benefitsmake annual minimum lease payments to our team members duringREIT Landlords pursuant to 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 thatTriple Net Leases, which we currently expect will be funded with a $1approximately $863.6 million for the year ending December 31, 2023. Additionally, our Triple Net Leases are subject to annual commitment from our Company,escalators, percentage rent, and we launched a series of new inclusion-related initiatives.
We have indebtedness and significant fixed annual lease payments under the Triple Net Leases. Our indebtedness and additional fixed costs under our Lease obligations have important consequences to our financial health.
The lack of availability and cost of financing could have an adverse effect on our business.
We may finance some of our current and future expansion, development and renovation projects and acquisitions with cash flow from operations, borrowings under our Amended Credit Facilities and equity or debt financings. For more information regarding our future development projects, see “Recent Acquisitions, Development Projects and Other” in the Executive Overview within our Management’s Discussion and Analysis. If we are unable to finance our current or future projects, we could have to seek alternative financing. Depending on credit market conditions, including the current high interest rate environment, 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 Amended Revolving Credit Facility is $1.0 billion, of which $977.5 million is available as of December 31, 2022. Our Amended Revolving Credit Facility expires in 2027. There is no certainty that our lenders will continue to remain solvent or fund their respective obligations under our Amended Credit Facilities.
To service our indebtedness, we will require a significant amount of cash, which depends on many factors beyond our control.
There is no assurance that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under our Amended Credit Facilities in amounts sufficient to enable us to fund our liquidity needs, including with respect to our indebtedness. Our variable rate borrowings expose us to interest rate volatility, which could cause our debt service obligations to increase significantly. 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, 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.
Legal and Regulatory Risk Factors
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.
We face extensive regulation from gaming regulatory authorities, which could have a material adverse effect on us.
As owners and managers of retail casino gaming, online gaming, sports betting, video lottery, VGTs, and pari-mutuel wagering operations, we are subject to extensive state, provincial and local regulation. These gaming 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, employees and contractors approved. There is no assurance that we will be able to obtain such renewals or approvals. Gaming regulatory authorities have input into our operations, for instance, hours of operation, location or relocation of a facility, numbers and types of slot machines and table games, and the types of sports events or casino games we may offer as part of our sports betting and online gaming operations. Gaming regulatory authorities may not have extensive experience in the digital media industry, which may present unique challenges in regulating our business. Regulators may also levy substantial fines or penalties against us or our subsidiaries for violations of gaming laws or regulations, or against the people involved in violating such 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.
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, state and provincial laws applicable to retail casino gaming, online gaming, 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 and/or courts in which parties challenge the interpretation or enforcement of 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 or regulation to prohibit, limit, or add burdens to increase taxes on our business may be introduced in the future in jurisdictions 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.
Certain public and private issuances of securities and other transactions that we are party to also require the approval of some gaming regulatory authorities.
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 and sports betting and online gaming businesses. 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, registration, permit or approval in one jurisdiction could trigger the loss of a license, registration, permit or approval or affect our eligibility for a license, registration, permit or approval in another jurisdiction. As we expand our gaming operations in our existing jurisdictions or to new jurisdictions, we may have to meet additional suitability requirements and obtain additional licenses, registrations, permits and approvals from gaming regulatory 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 online gaming and sports betting initiatives because regulations in this area are not as fully developed or established.
Gaming regulatory authorities generally can require that any record holder or beneficial owner of our securities file an application for a license or similar finding of suitability. If a gaming regulatory authority requires a record holder 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 regulatory authority. The gaming regulatory authority also 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 or fails to apply when required to do so, then the owner may be required by law to dispose of our securities.
Our directors, officers, key employees, joint venture partners and vendors must also meet approval standards of certain gaming regulatory authorities. If gaming regulatory authorities were to find a person occupying any such position unsuitable, we may be required to sever our relationship with that person, joint venture partner or vendor. Gaming regulatory authorities may also conduct investigations into the conduct or associations of our directors, officers, key employees, joint venture partners or vendors to ensure compliance with applicable laws, regulations and standards.
We are subject to certain federal, state, provincial 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, provincial 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, online gaming operations, 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 also 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.
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.
Changes to consumer privacy laws could adversely affect our ability to market our products effectively and may require us to change our business practices or expend significant amounts on compliance with such laws.
We rely on a variety of direct marketing techniques, including email marketing, online advertising, and postal mailings in our business. Any further restrictions in laws such as the CAN-SPAM Act, the Telephone Consumer Protection Act, the Do-Not-Call-Implementation Act, applicable Federal Communications Commission telemarketing rules (including the declaratory ruling affirming the blocking of unwanted robocalls), the FTC Privacy Rule, Safeguards Rule, Consumer Report Information Disposal Rule, Telemarketing Sales Rule, Canada’s Anti-Spam Law and various U.S. state and Canadian provincial laws, or new federal, state or provincial laws on marketing and solicitation or international privacy, e-privacy, and anti-spam laws that govern these activities could adversely affect the continuing effectiveness of email, online advertising, and postal mailing techniques and could force further changes in our marketing strategy. If this occurs, we may not be able to develop adequate alternative marketing strategies, which could impact the amount and timing of our sales of certain products.
Further, certain of our products and services depend on the ability to use non-public personal, financial transaction, and or other information relating to patrons, which we may collect and or obtain from travel service providers or other companies with whom we have substantial relationships. To the extent that we collect, control, or process such information, federal, state, provincial and foreign privacy laws and regulations, including without limitation the California Consumer Privacy Act (including the amended California Privacy Rights Act), the EU’s General Data Protection Regulation, Ontario, Canada’s Freedom of Information and Protection of Privacy Act, and Canada’s Personal Information Protection and Electronic Documents Act, require us to make disclosures regarding our privacy and information sharing practices, safeguard and protect the privacy of such information, and, in some cases, provide patrons the opportunity to “opt out” of the use of their information for certain purposes, any of which could limit our ability to leverage existing and future databases of information which could have a material adverse effect on our financial condition, results of operations, and cash flows.
We must comply with federal, state, provincial and foreign requirements regarding notice and consent to obtain, use, share, transmit and store such information, including providing the opportunity and mechanisms to “opt out” from certain uses in some jurisdictions. Furthermore, we may face conflicting obligations arising from the potential concurrent application of laws
of multiple jurisdictions. In the event that we are not able to reconcile such obligations, we may be required to change business practices or face liability or sanction.
To the extent that we fail to comply with applicable consumer protection and data privacy laws, we may become subject to actions by regulatory authorities and/or individuals (including private right of action in some jurisdictions), which may result in the payment of fines or the imposition of other monetary or non-monetary penalties.
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 other 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.
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 generating incremental revenue is one of the primary reasons that jurisdictions permit or expand legalized gaming. As a result, gaming companies are typically subject to revenue-based taxes and fees in addition to normal federal, state, provincial 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, provincial and local legislators and officials have proposed changes in tax laws, or in the administration of such laws, affecting the gaming industry. Worsening economic conditions could intensify the efforts of state, provincial 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.
Available Information
We maintain a website at www.pennentertainment.comwww.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.
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.
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.
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 | | Location | | Description of Owned Real Property | | Acreage of Land | | Description of Leased Real Property | | Acreage of Land | |
| Northeast segment | Northeast segment | | | | | | | | | | Northeast segment | | | | | | | | | | |
| Ameristar East Chicago | Ameristar East Chicago | East Chicago, IN | | — | | — | | Land, buildings, boat | | 22 | Ameristar East Chicago | East Chicago, IN | | — | | — | | Land, buildings, boat | | 22 | |
| Greektown Casino-Hotel | Detroit, MI | | — | | — | | Land, buildings | | 8 | |
| Hollywood Casino Bangor | Hollywood Casino Bangor | Bangor, ME | | — | | — | | Land, racetrack, buildings | | 44 | Hollywood Casino Bangor | Bangor, ME | | — | | — | | Land, racetrack, buildings | | 44 | |
| Hollywood Casino at Charles Town Races | Hollywood Casino at Charles Town Races | Charles Town, WV | | — | | — | | Land, racetrack, buildings | | 299 | Hollywood Casino at Charles Town Races | Charles Town, WV | | — | | — | | Land, racetrack, buildings | | 299 | |
| Hollywood Casino Columbus | Hollywood Casino Columbus | Columbus, OH | | — | | — | | Land, buildings | | 116 | Hollywood Casino Columbus | Columbus, OH | | — | | — | | Land, buildings | | 116 | |
| Hollywood Casino at Greektown | | Hollywood Casino at Greektown | Detroit, MI | | — | | — | | Land, buildings | | 8 | |
| Hollywood Casino Lawrenceburg | Hollywood Casino Lawrenceburg | Lawrenceburg, IN | | Land, buildings | | 3 | | Land, buildings, boat | | 105 | Hollywood Casino Lawrenceburg | Lawrenceburg, IN | | Land, buildings | | — | | Land, buildings, boat | | 108 | |
| Hollywood Casino at Penn National Race Course | Grantville, PA | | — | | — | | Land (1), racetrack, buildings | | 574 | |
| Hollywood Casino Morgantown | | Hollywood Casino Morgantown | Morgantown, PA | | Building | | — | | Land | | 36 | |
| Hollywood Casino at PENN National Race Course | | Hollywood Casino at PENN National Race Course | Grantville, PA | | — | | — | | Land (1), racetrack, buildings | | 574 | |
| Hollywood Casino Perryville | | Hollywood Casino Perryville | Perryville, MD | | — | | — | | Land, buildings | | 36 | |
| Hollywood Casino at The Meadows | | Hollywood Casino at The Meadows | Washington, PA | | — | | — | | Land, racetrack, buildings | | 156 | |
| Hollywood Casino Toledo | Hollywood Casino Toledo | Toledo, OH | | — | | — | | Land, buildings | | 42 | Hollywood Casino Toledo | Toledo, OH | | — | | — | | Land, buildings | | 42 | |
| Hollywood Casino York | | Hollywood Casino York | York, PA | | — | | — | | Building | | — | |
| Hollywood Gaming at Dayton Raceway | Hollywood Gaming at Dayton Raceway | Dayton, OH | | — | | — | | Land, racetrack, buildings | | 120 | Hollywood Gaming at Dayton Raceway | Dayton, OH | | — | | — | | Land, racetrack, buildings | | 120 | |
| Hollywood Gaming at Mahoning Valley Race Course | Hollywood Gaming at Mahoning Valley Race Course | Youngstown, OH | | — | | — | | Land, racetrack, buildings | | 193 | 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 | Plainridge Park Casino | Plainville, MA | | — | | — | | Land, racetrack, buildings | | 88 | Plainridge Park Casino | Plainville, MA | | — | | — | | Land, racetrack, buildings | | 88 | |
| | South segment | South segment | | South segment | | |
1st Jackpot Casino | 1st Jackpot Casino | Tunica, MS | | — | | — | | Land (2), buildings, boat | | 147 | 1st Jackpot Casino | Tunica, MS | | — | | — | | Land (2), buildings, boat | | 147 | |
| Ameristar Vicksburg | Ameristar Vicksburg | Vicksburg, MS | | — | | — | | Land, buildings, boat | | 74 | Ameristar Vicksburg | Vicksburg, MS | | — | | — | | Land, buildings, boat | | 74 | |
| Boomtown Biloxi | Boomtown Biloxi | Biloxi, MS | | — | | — | | Land (3), buildings, boat | | 26 | Boomtown Biloxi | Biloxi, MS | | — | | — | | Land (3), buildings, boat | | 26 | |
| Boomtown Bossier City | Boomtown Bossier City | Bossier City, LA | | — | | — | | Land, buildings, boat | | 22 | Boomtown Bossier City | Bossier City, LA | | — | | — | | Land, buildings, boat | | 22 | |
| Boomtown New Orleans | Boomtown New Orleans | New Orleans, LA | | — | | — | | Land, buildings, boat | | 54 | Boomtown New Orleans | New Orleans, LA | | — | | — | | Land, buildings, boat | | 54 | |
| Hollywood Casino Gulf Coast | Hollywood Casino Gulf Coast | Bay St. Louis, MS | | — | | — | | Land, buildings | | 579 | Hollywood Casino Gulf Coast | Bay St. Louis, MS | | — | | — | | Land, buildings | | 579 | |
| Hollywood Casino Tunica | Hollywood Casino Tunica | Tunica, MS | | — | | — | | Land, buildings, boat | | 68 | Hollywood Casino Tunica | Tunica, MS | | — | | — | | Land, buildings, boat | | 68 | |
| L’Auberge Baton Rouge | L’Auberge Baton Rouge | Baton Rouge, LA | | Undeveloped land | | 478 | | Land, buildings, barge | | 99 | L’Auberge Baton Rouge | Baton Rouge, LA | | Undeveloped land(4) | | 417 | | Land, buildings, barge | | 99 | |
| L’Auberge Lake Charles | L’Auberge Lake Charles | Lake Charles, LA | | Undeveloped land | | 54 | | Land, buildings, barge | | 235 | L’Auberge Lake Charles | Lake Charles, LA | | Undeveloped land | | 54 | | Land, buildings, barge | | 235 | |
| Margaritaville Resort Casino | Margaritaville Resort Casino | Bossier City, LA | | — | | — | | Land, buildings, barge | | 34 | Margaritaville Resort Casino | Bossier City, LA | | — | | — | | Land, buildings, barge | | 34 | |
Resorts Casino Tunica (4) | Tunica, MS | | — | | — | | — | | — | |
| | West segment | West segment | | West segment | | |
| Ameristar Black Hawk | Ameristar Black Hawk | Black Hawk, CO | | — | | — | | Land, buildings | | 104 | Ameristar Black Hawk | Black Hawk, CO | | — | | — | | Land, buildings | | 104 | |
| Cactus Petes and Horseshu | Cactus Petes and Horseshu | Jackpot, NV | | — | | — | | Land, buildings | | 80 | Cactus Petes and Horseshu | Jackpot, NV | | — | | — | | Land, buildings | | 80 | |
| M Resort | M Resort | Henderson, NV | | — | | — | | Land, buildings | | 84 | M Resort | Henderson, NV | | — | | — | | Land, buildings | | 84 | |
| Tropicana Las Vegas | Las Vegas, NV | | — | | — | | Land, buildings | | 35 | |
Tropicana Las Vegas (5) | | Tropicana Las Vegas (5) | Las Vegas, NV | | — | | — | | Land, buildings | | — | |
| Zia Park Casino | Zia Park Casino | Hobbs, NM | | — | | — | | Land, racetrack, buildings | | 317 | Zia Park Casino | Hobbs, NM | | — | | — | | Land, racetrack, buildings | | 317 | |
| | Midwest segment | Midwest segment | | Midwest segment | | |
| Ameristar Council Bluffs | Ameristar Council Bluffs | Council Bluffs, IA | | — | | — | | Land, buildings, boat | | 59 | Ameristar Council Bluffs | Council Bluffs, IA | | — | | — | | Land, buildings, boat | | 59 | |
| Argosy Casino Alton | Argosy Casino Alton | Alton, IL | | Boat | | — | | Land, buildings | | 4 | Argosy Casino Alton | Alton, IL | | Boat | | — | | Land, buildings | | 4 | |
| Argosy Casino Riverside | Argosy Casino Riverside | Riverside, MO | | — | | — | | Land (5), buildings, barge | | 45 | Argosy Casino Riverside | Riverside, MO | | — | | — | | Land (6), buildings, barge | | 45 | |
| Hollywood Casino Aurora | Hollywood Casino Aurora | Aurora, IL | | — | | — | | Land, buildings, barge | | 2 | Hollywood Casino Aurora | Aurora, IL | | — | | — | | Land, buildings, barge | | 2 | |
| Hollywood Casino Joliet | Hollywood Casino Joliet | Joliet, IL | | — | | — | | Land, buildings, barge | | 276 | Hollywood Casino Joliet | Joliet, IL | | — | | — | | Land, buildings, barge | | 276 | |
| Hollywood Casino at Kansas Speedway | Hollywood Casino at Kansas Speedway | Kansas City, KS | | Land, buildings | | 101 | | — | | — | Hollywood Casino at Kansas Speedway | Kansas City, KS | | Land, buildings | | 101 | | — | | — | |
| Hollywood Casino St. Louis | Hollywood Casino St. Louis | Maryland Heights, MO | | — | | — | | Land, buildings, barge | | 221 | Hollywood Casino St. Louis | Maryland Heights, MO | | — | | — | | Land, buildings, barge | | 221 | |
| | River City Casino | River City Casino | St. Louis, MO | | — | | — | | Land (6), buildings, barge | | 83 | River City Casino | St. Louis, MO | | — | | — | | Land (7), buildings, barge | | 83 | |
| | Other | Other | | Other | | |
| Freehold Raceway | Freehold Raceway | Freehold, NJ | | Land, racetrack, buildings | | 51 | | — | | — | Freehold Raceway | Freehold, NJ | | Land, racetrack, buildings | | 51 | | — | | — | |
| | Cherry Hill, NJ | | Undeveloped land | | 10 | | — | | — | | Cherry Hill, NJ | | Undeveloped land | | 10 | | — | | — | |
Retama Park Racetrack (7)(8) | Retama Park Racetrack (7)(8) | Selma, TX | | Undeveloped land | | 14 | | — | | — | Retama Park Racetrack (7)(8) | Selma, TX | | Undeveloped land | | — | | — | | — | |
| Sam Houston Race Park | Sam Houston Race Park | Houston, TX | | Land, racetrack, buildings | | 168 | | — | | — | Sam Houston Race Park | Houston, TX | | Land, racetrack, buildings | | 168 | | — | | — | |
Sanford-Orlando Kennel Club (8)(9) | Sanford-Orlando Kennel Club (8)(9) | Longwood, FL | | Land, building | | 2 | | — | | — | Sanford-Orlando Kennel Club (8)(9) | Longwood, FL | | Land, building | | 2 | | — | | — | |
| Valley Race Park | Valley Race Park | Harlingen, TX | | Land, racetrack, buildings | | 71 | | — | | — | Valley Race Park | Harlingen, TX | | Land, racetrack, buildings | | 71 | | — | | — | |
| | 952 | | 4,415 | | 874 | | 4,455 | |
(1)Of which, 393 acres is undeveloped land surrounding Hollywood Casino at PennPENN National Race CourseCourse.
(2)Of which, 53 acres is wetlands.
(3)Of which, 3 acres is subject to the PennPENN Master Lease.
(4)Resorts Casino Tunica ceasedDuring the year, we sold 61 acres of undeveloped land adjacent to L’Auberge Baton Rouge.
(5)The operations of Tropicana Las Vegas were sold on June 30, 2019, but remains subjectSeptember 26, 2022 and the lease terminated. Prior to the Penn Master Lease.lease termination, we leased 35 acres of land.
(5)(6)Of which, 38 acres is subject to the PennPENN Master Lease.
(6)(7)Of which, 24 acres is land surrounding River City Casino reserved for community and recreational facilities.
(7)(8)The land, racetrack, and buildings used in the operations of Retama Park Racetrack are owned by the City of Selma, Texas. We ownDuring the year, we sold 14 acres of undeveloped land adjacent to the Retama Park Racetrack.
(8)(9)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 86,542 square feet of office space for our shared services center in Las Vegas, Nevada; 52,116Nevada which is currently subleased; 41,016 square feet of executive office and warehouse space in Wyomissing, Pennsylvania; 79,812 square feet of office space in Toronto, Ontario; 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 5,74022,049 square feet of office space in Henderson, Nevada.Hoboken, New Jersey; and 10,000 square feet of warehouse space in Aurora, Illinois.
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.
ITEM 4.MINE SAFETY DISCLOSURES
Not applicable.
PART II
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 19, 2021,16, 2023, there were 1,6471,551 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 SecuredAmended Credit Facilities and senior unsecured notes restrict,limit, 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
During the year ended December 31, 2020, the Company issued 883 shares of Series 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 the
Company's Current ReportSales of Unregistered Equity Securities
We have not sold any equity securities during the year ended December 31, 2022 that were not previously disclosed in a quarterly report on Form 10-Q or a current report on Form 8-K that was filed during the year.
Purchases of Equity Securities
On February 1, 2022, our Board of Directors authorized the repurchase of up to $750.0 million of our common stock from time to time on the open market or in privately negotiated transactions (the “February 2022 Authorization”). The repurchase authorization expires on January 31, 2025. On December 6, 2022, our Board of Directors authorized an additional $750.0 million program for such repurchases, which expires on December 31, 2025 (the “December 2022 Authorization”). Since we have not yet used the full amount under the February 2022 Authorization, the December 2022 Authorization remains at full capacity. Stock repurchases, if any, will be funded using our available liquidity. The timing and amount of stock repurchases will depend on a variety of factors, including the market conditions as well as corporate and regulatory considerations. As of December 31, 2022, we have repurchased a total of 17,561,288 shares of our common stock at an average price of $34.23.
The following table presents the total number of shares of our common stock that we repurchased during the fourth quarter of the year ended December 31, 2022, the average price paid per share, the number of shares that we repurchased as part of our share repurchase program, and the approximate dollar value of shares that still could have been repurchased at the end of the applicable fiscal period pursuant to our share repurchase program:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (dollars in millions, except per share data) | | Total Number of Shares Purchased (1) | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Program | | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Program |
| October 1, 2022 - October 31, 2022 | | 1,037,677 | | | $ | 28.97 | | | 1,005,188 | | | $ | 211.1 | |
| November 1, 2022 – November 30, 2022 | | 605,592 | | | $ | 35.01 | | | 605,422 | | | $ | 189.9 | |
| December 1, 2022 - December 31, 2022 | | 1,260,399 | | | $ | 32.29 | | | 1,260,284 | | | $ | 149.2 | |
| Total | | 2,903,668 | | | $ | 31.67 | | | 2,870,894 | | | |
(1)Includes 32,489, 170 and 115 shares withheld to pay taxes due upon the vesting of employee restricted stock for the months ended October 31, November 30, and December 31, 2022, respectively.
Stock Performance Graph
We have historically presented the performance graph by comparing our cumulative total shareholder return against the cumulative total return of the S&P 500 and the median total shareholder return of a selected group of peer companies. We have decided to change the presentation of our performance graph to replace the selected peer group with the Russell 3000 Casino and Gambling Index because the Company believes that a market index provides a more consistent comparison than the annual Company-selected peer group. In accordance with SEC rules, the performance graph presents both the indices used in the previous year and the newly selected index.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Period Ending December 31, |
| Index | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 |
| PENN Entertainment, Inc. | | $ | 100.00 | | | $ | 60.10 | | | $ | 81.58 | | | $ | 275.68 | | | $ | 165.50 | | | $ | 94.80 | |
| S&P 500 | | $ | 100.00 | | | $ | 95.62 | | | $ | 125.72 | | | $ | 148.85 | | | $ | 191.58 | | | $ | 156.89 | |
| Russell 3000 Casino and Gambling Index | | $ | 100.00 | | | $ | 70.47 | | | $ | 101.85 | | | $ | 114.43 | | | $ | 112.76 | | | $ | 84.39 | |
Peer Group Median (1) | | $ | 100.00 | | | $ | 73.78 | | | $ | 103.93 | | | $ | 96.25 | | | $ | 93.55 | | | $ | 82.10 | |
ITEM 6.RESERVED
ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, 20202022 compared to December 31, 2019.2021. Discussion of our financial condition and results of operations as of and for the year ended December 31, 20192021 compared to December 31, 20182020 can be found in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019,2021, filed with the Securities and Exchange Commission on February 27, 2020.28, 2022.
EXECUTIVE OVERVIEW
Our Business
On August 4, 2022, Penn National Gaming, Inc. was renamed PENN Entertainment, Inc. PENN Entertainment, Inc., together with its subsidiaries (“Penn National,PENN,” the “Company,” “we,” “our,” or “us”), is aNorth America’s 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 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 retailintegrated entertainment, sports content, and onlinecasino 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.
experiences. As of December 31, 2020, we owned, managed, or had ownership interests in 41 gaming and racing2022, PENN operated 43 properties in 1920 states, and were licensed to offer liveonline sports betting atin 15 jurisdictions and iCasino in five jurisdictions, under a portfolio of well-recognized brands including Hollywood Casino®, L’Auberge®, Barstool Sportsbook®, and theScore Bet Sportsbook and Casino®. As of the issuance date of this report, PENN operates online sports betting in 16 jurisdictions upon the addition of Ohio in January 2023. PENN’s highly differentiated strategy, which is focused on organic cross-sell opportunities, is reinforced by its investments in market-leading retail casinos, sports media assets, technology, including a state-of-the-art, fully integrated digital sports and iCasino betting platform, and an in-house iCasino content studio. The Company’s portfolio is further bolstered by its industry-leading mychoice® customer loyalty program (the “mychoice program”), which offers our properties in Colorado, Illinois, Indiana, Iowa, Michigan, Mississippi, Nevada, Pennsylvaniaapproximately 26 million members a unique set of rewards and West Virginia. experiences across business channels.
The majority of the real estate assets (i.e., land and buildings) used in our operations are subject to triple net master leases; the most significant of which are the PennPENN Master Lease and the Pinnacle Master Lease (as such terms are defined in “Liquidity and Capital Resources” 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.
Impact of the COVID-19 Pandemic and Company Response
On March 11, 2020, the World Health Organization declared the novel coronavirus (known as “COVID-19”) outbreak to be a global pandemic. We began temporarily suspendingTo help combat the operationsspread of all of our properties between March 13, 2020COVID-19 and March 19, 2020 pursuant to various orders from state gaming regulatory bodies or governmental authorities, to combat the rapid spreadoperations at all of COVID-19. We began reopening our properties on May 18,were temporarily suspended for single, or multiple, time periods during 2020 and into 2021, and we operated with reduced gaming and hotel capacity andwith limited food and beverage offerings in order to accommodate comprehensive 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 was temporarily closed on November 17, 2020 and reopened December 23, 2020. Our Pennsylvania properties were temporarily closed on December 12, 2020 and reopened on January 4, 2021. Our Illinois properties were 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 various orders from state gaming regulatory bodies or governmental authorities to combat the rapid spread of COVID-19.offerings. As of February 26, 2021, allthe date of this filing, none of our properties were open toare closed.
Although the public with the
exception of Zia Park and Valley Race Park, which remain closed. For a thorough discussion of the operating performance of our properties, see “Results of Operations” below.
Between March 13, 2020 and December 31, 2020, we entered into a series of transactions to improve our financial position and liquidity in lightimpact of the COVID-19 pandemic including: (i) on March 13, 2020,has lessened as of late, we provided notice to our lenders to borrowcould still experience adverse effects from the remaining available amount of $430.0 million under our Revolving Credit Facility; (ii) on March 27, 2020, we entered into a binding term sheet with GLPI (the “Term Sheet”) whereby GLPI agreed to (a) purchase the real estate assets associated with Tropicana Las Vegas (“Tropicana”) in exchange for rent credits of $307.5 million, which closed on April 16, 2020, and (b) a sale-leaseback of the land underlying our Hollywood Casino Morgantown (“Morgantown”) development project in Morgantown, Pennsylvania, in exchange for rent credits of $30.0 million, which closed on October 1, 2020; (iii) on May 14, 2020 (May 19, 2020 with respect to the underwriters’ exercising their options to acquire additional 2.75% Convertible Notes), we completed a public offering of $330.5 million aggregate principal amount of 2.75% Convertible Notes; (iv) on May 14, 2020 (May 19, 2020 with respect to the underwriters’ exercising their options to purchase additional shares), we completed a public offering of 19,166,667 aggregate shares of common stock, par value of $0.01 per share, of the Company (“Penn Common Stock”) for gross proceeds of $345.0 million; and (v) on September 24, 2020 (September 25, 2020 with respect to the underwriters’ exercising their options to purchase additional shares), we completed a public offering of 16,100,000 aggregate shares of Penn Common Stock for gross proceeds of $982.1 million. In addition, on April 14, 2020, the Company entered into an amendment to its Credit Agreement, which, among other things, provides it with relieflingering macroeconomic issues that have resulted from its financial covenants for a period of up to one year. On September 30, 2020, the Company fully repaid $670.0 million of outstanding borrowings under its Revolving Credit Facility. Further, on November 12, 2020 the Company prepaid $115.0 million of outstanding borrowings on its Term Loan B-1 Facility. The terms “Revolving Credit Facility,” “Convertible Notes,” “Credit Agreement” and "Term Loan B-1" are defined in “Liquidity and Capital Resources”.
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 based on (i) the timing and extent of the recovery in visitation and consumer spending at our properties; (ii) the continued impact of implementing social distancing and health and safety guidelines at our properties, including reductions in gaming, hotel capacity, limiting the number of food and beverage options and limiting other amenities; and (iii) whether any of our properties will be required to again temporarily suspend operations in the event that the pandemic significantly worsens. We are currently unable to determine whether, when or how the conditions surrounding the COVID-19 pandemic will change or whether the recovery in visitation and consumer spending is sustainable.
The Companypandemic. These could experience other potential adverse impacts as a result of the COVID-19 pandemic, including, butinclude, though are not limited to, further charges from adjustments to the carrying amountlabor shortages and increased turnover, interruption of goodwilldomestic and other intangible assets, long-lived asset impairment charges, or impairments of investments in joint ventures. In addition, the negative impacts of the COVID-19 pandemic may result in further changes in the amount of valuation allowance required. Actual results may differ materially from the Company’s current estimates as the scope of the COVID-19 pandemic evolves, depending largely, though not exclusively, on the impact of required capacity reductions, social distancing and health and safety guidelines,global supply chains, and the sustainabilityreinstatement of current trends in recovery at our reopened properties.
Recent Acquisitions, Development Projects and Other
InAs previously disclosed, in February 2020, we closed on our investment in Barstool Sports, Inc. (“Barstool”) pursuant to a stock purchase agreement with Barstool Sports and certain stockholders of Barstool, Sports, in which we purchased 36% (inclusive of 1% on a delayed basis) of the common stock, par value $0.0001 per share, of Barstool Sports for a purchase price of $161.2 million. Within three years afterUnder this strategic relationship, Barstool exclusively promotes the closing ofCompany’s retail gaming and racing properties, iCasinos and sports betting products, including the transaction (or earlier at our election), we will increase our ownership in Barstool SportsSportsbook and Casino mobile app, to approximately 50% by purchasing approximately $62 million worth of additional shares of Barstool Sports common stock, consistent with the implied valuation at the time of the initial investment, which was $450.0 million. With respect to the remaining Barstool Sports shares, we have immediately exercisable call rights,its national audience, 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 havegranted us the sole right to utilize the Barstool Sports brandSportsbook for all of our online and retail sports betting and iGamingiCasino products.
As noted above, Penn Interactive launched Subsequent to year end, on February 17, 2023, we completed the acquisition of all of the outstanding shares of common stock of Barstool not already owned by us for approximately $388 million, excluding transaction expenses, repayment of Barstool indebtedness and other purchase price adjustments (the “Barstool Acquisition”). We issued 2,442,809 shares of our common stock to certain former stockholders of Barstool for the Barstool
Sports online sports betting appAcquisition (see Note 15, “Stockholders’ Equity,” for further information) and utilized approximately $315 million of cash to complete the Barstool Acquisition, inclusive of transaction expenses and repayment of Barstool indebtedness. As of the closing of the Barstool Acquisition, Barstool became an indirect wholly owned subsidiary of PENN and accordingly we will consolidate Barstool in Pennsylvaniaour financial statements and no longer account for our interest under the equity method of accounting. See Note 7, “Investments in Septemberand Advances to Unconsolidated Affiliates” to our Consolidated Financial Statements for additional detail on our acquisition of the remaining Barstool shares.On April 16, 2020, we sold the real estate assets associated with the operations of Tropicana Las Vegas Hotel and Casino, Inc. (“Tropicana”) to GLPI in Michiganexchange for rent credits of $307.5 million, and utilized the rent credits to pay rent under our existing Master Leases and the Meadows Lease, beginning in January 2021. In addition, Penn Interactive hasMay 2020. Contemporaneous with the sale, the Company entered into multi-year agreements with leading sports betting operators for online sports bettingthe Tropicana Lease, (as defined and iGaming market access acrossdiscussed in Note 12, “Leases” to our portfolio of properties.
In DecemberJanuary 11, 2022, PENN entered into a definitive purchase agreement to sell its outstanding equity interest in Tropicana, which has the gaming license and operates the Tropicana, to Bally’s Corporation. The transaction closed on September 26, 2022.
On October 1, 2020, we sold the land underlying Hollywood Casino Morgantown (“Morgantown”) to GLPI in exchange for rent credits of $30.0 million. Contemporaneous with the sale, the Company entered into a definitive agreementtriple net lease with GLPI for the land underlying Morgantown (as defined and discussed in Note 12, “Leases” to our Consolidated Financial Statements). On May 11, 2021, we acquired 100% of the outstanding equity of HitPoint Inc. and Lucky Point Inc. (collectively, “Hitpoint”). The purchase from GLPIprice totaled $12.7 million, consisting of $6.2 million in cash, $3.5 million of the Company’s common stock, and a $3.0 million contingent liability.
On July 1, 2021, we completed the acquisition of the operations of Hollywood Casino Perryville (“Perryville”), from GLPI for $31.1 million. The transaction is expected to close during the second or third quartera purchase price of 2021, subject to approval of the Maryland Lottery and Gaming Control Commission and other customary closing conditions.$39.4 million, including working capital adjustments. Simultaneous with the closing, of the transaction, we wouldentered into a lease with GLPI for the real estate assets associated with Hollywood Casino Perryville from GLPI withfor initial annual rent of $7.8 million per year subject to escalation.
In conjunction with entering into the 2023 Master Lease, (as defined within
In May 2019,On August 1, 2021, 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”). In March 2020, in light of the COVID-19 pandemic, we temporarily suspended construction of our development of two Category 4 satellite gaming casinos in Pennsylvania: Hollywood Casino York and Morgantown. We have since restarted construction and expect both casinos to open in late 2021, subject to regulatory approval.
In October 2018, the Company completed the acquisition of Pinnacle Entertainment,the remaining 50% ownership interest in the Sam Houston Race Park in Houston, Texas, the Valley Race Park in Harlingen, Texas, and a license to operate a racetrack in Austin, Texas (collectively, “Sam Houston”), from PM Texas Holdings, LLC for a purchase price of $57.8 million, comprised of $42.0 million in cash and $15.8 million of the Company’s common stock. In conjunction with the acquisition, we recorded a gain of $29.9 million on our equity method investment.
On October 19, 2021, we acquired 100% of Score Media and Gaming, Inc. (“Pinnacle”theScore”) for a purchase price of approximately $2.1 billion. The acquisition provides us with the technology, resources and audience reach to accelerate our media and sports betting strategy across North America. Under the terms of the agreement, 1317774 B.C. Ltd. (the “Purchaser”), an indirectly wholly owned subsidiary of PENN, acquired each of the issued and outstanding theScore shares (other than those held by PENN and its subsidiaries) for US$17.00 per share in cash consideration, totaling $0.9 billion, and either 0.2398 of a leading regional gaming operatorshare of common stock, par value $0.01 of PENN common stock or, if validly elected, 0.2398 of an exchangeable share in the capital of the Purchaser (each whole share, an “Exchangeable Share”), totaling 12,319,340 shares of PENN common stock and 697,539 Exchangeable Shares for approximately $1.0 billion. Each Exchangeable Share will be exchangeable into one share of PENN common stock at the option of the holder, subject to certain adjustments. In addition, Purchaser may redeem all outstanding Exchangeable Shares in exchange for shares of PENN common stock at any time following the fifth anniversary of the closing, or earlier under certain circumstances.
On October 9, 2022, as described in Note 12, “Leases”, the Company entered into a binding term sheet (the “Pinnacle Acquisition”“Term Sheet”) with GLPI. Pursuant to the Term Sheet, the Company and GLPI agreed to amend and restate the PENN Master Lease (the “Amended and Restated PENN Master Lease”) to (i) remove the land and buildings for Hollywood Casino Aurora (“Aurora”), Hollywood Casino Joliet (“Joliet”), Hollywood Casino Columbus (“Columbus”), Hollywood Casino Toledo (“Toledo”) and the M Resort Spa Casino (“M Resort”); (ii) make associated adjustments to the rent after which the initial rent in the Amended and Restated PENN Master Lease will be $284.1 million, consisting of $208.2 million of Building Base Rent, $43.0 million of Land Base Rent and $32.9 million of Percentage Rent (as such terms are defined in the Amended and Restated PENN Master Lease); (iii) terminate the existing leases associated with Hollywood Casino at The Meadows (“Meadows”) and Perryville; and (iv) enter into a new master lease (the “2023 Master Lease”) specific to the properties associated with Aurora, Joliet, Columbus, Toledo, M Resort, Meadows and Perryville. Subsequent to year end, on February 21, 2023, both the Amended and Restated PENN Master Lease and the 2023 Master Lease agreement were executed with an effective date of January 1, 2023, and a master development agreement (the “Master Development Agreement”) was executed on February 22, 2023. The 2023 Master Lease has an initial term through October 31, 2033 with three subsequent five-year renewal periods on the same terms and conditions, exercisable at the Company’s option. The 2023 Master Lease is cross-defaulted, cross-collateralized, and coterminous with the Amended and Restated PENN Master Lease, and subject to a parent guarantee. The 2023 Master Lease includes a base rent (the “2023 Master Lease Base Rent”) equal to $232.2 million and the Master Development Agreement contains additional rent (together with the 2023 Master Lease Base Rent, the “2023 Master Lease Rent”) equal to (i) 7.75% of any project funding received by PENN from GLPI for an anticipated relocation of PENN’s riverboat casino and related developments with respect to Aurora (the “Aurora Project”) and (ii) a percentage based on the then-current GLPI stock price, of any project funding received by PENN from GLPI for certain anticipated development projects with respect to Joliet, Columbus and M Resort (the “Other Development Projects”). The Master Development Agreement provides that GLPI will fund, upon PENN’s request, up to $225 million for the Aurora Project and up to $350 million in the aggregate for the Other Development Projects, in accordance with certain terms and conditions set forth in the Master Development Agreement. These funding obligations of GLPI expire on January 1, 2026. The 2023 Master Lease Rent will be
subject to a one-time increase of $1.4 million, effective the fifth anniversary of the effective date. The 2023 Master Lease Rent will be further subject to a fixed escalator of 1.5% on November 1, 2023 and annually thereafter. The Master Development Agreement provides that PENN may elect not to proceed with a development project prior to GLPI’s commencement of any equity or debt offering or credit facility draw intended to fund such project or after such time in certain instances, provided that GLPI will be reimbursed for all costs and expenses incurred in connection with such discontinued project. The Aurora Project and the Pinnacle Acquisition, we added 12 gaming propertiesOther Development Projects are all subject to our portfolio, providing us with greater operational scalenecessary regulatory and geographic diversity. We assumed the Pinnacle Master Lease concurrently with the closing of the Pinnacle Acquisition to our holdings and has provided us with greater operational scale and geographic diversity.
We believe that our portfolio of assets provides us with 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 withacquisitions of Barstool Sports reflectsand theScore reflect 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.
Operating and Competitive Environment
Most of our properties operate in mature, competitive markets. We expect that the majority of our future growth will come from new business lines or distribution channels, such as retail and online gaming and sports betting; improvements, expansions or relocations of our existing properties; entrance into new jurisdictions; expansions of gaming in existing jurisdictions; and to a lesser extent, improvements/expansions of our existing propertiesstrategic investments and strategic acquisitions of gaming properties.acquisitions. Our portfolio is comprised largely of well-maintained regional gaming facilities, which has allowed us to develop what we believe to be a solid base for future growth opportunities. We have also made investments in joint ventures that we believe will allow us to capitalize on additional gaming opportunities in certain statesjurisdictions 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. In recent years, the proliferation of new gaming properties has impacted the overall domestic gaming industry as well as our results of operations in certain markets. Prior to the COVID-19 pandemic, the economic environment, specifically historically low levels of unemployment, strength in residential real estate prices, and high levels of consumer confidence, had 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 succeed in this new environment will be predicated on our abilityWe continue to adjust operations, offerings and cost structures at our reopened properties to reflect the newchanging economic and health and safety conditions, operating our properties efficiently, realizingconditions. We also continue to focus on 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 by partnering with third-party operators such as Choice Hotels International, Inc. to expand our loyalty program, as well as through accretive acquisitionsinvestments or investments,acquisitions, such as Barstool Sports,and theScore, capitalize on organic growth opportunities from the development of new properties or the expansion of recently-developed business lines, and develop partnerships that allow us to enter new jurisdictions for iGamingiCasino and sports betting.
The gaming industry is characterized by an increasingly high degree of competition among a large number of participants, including riverboat casinos; dockside casinos; land-based casinos; video lottery; iGaming;iCasino and online social casino; online and retail sports betting; sports media companies; gaming at taverns; gaming at truck stop establishments; sweepstakes and poker machines not located in casinos; the potential for increased fantasy sports,sports; significant growth of Native American gaming tribes, historic racing or state-sponsored i-lottery products in or adjacent to states we operate in; and other forms of gaming in the U.S. See the “Segment comparison of the years ended December 31, 20202022 and 2019”2021” section below for discussions of the impact of competition on our results of operations by reportable segment.
Key Performance Indicators
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 or on our online offerings 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, inflation, rising interest rate environments, 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 thatcosts, and the effects of 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.pandemic. 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 87%84%, 92%84% and 92%87% of our gaming revenue in 2020, 20192022, 2021 and 2018,2020, respectively) and, to a lesser extent, table games and online gaming consisting of online slots, online table games, and online sports betting. Aside from gaming revenue, our revenues are primarily derived from our hotel, dining, retail, commissions, media, 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 10%11% of slot handle, and our typical table game hold percentage is in the range of approximately 14%15% to 27%28% 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-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 and cash flows.
Under normal operating conditions, our properties generate significant operating cash flow since most of our revenue is cash-based from slot machines, table games, and pari-mutuel wagering.online gaming, including sports betting. Our business is capital intensive, and we rely on cash flow from our properties to generate sufficient cash to satisfy our obligations under the Triple Net Leases (as defined in "“Liquidity and Capital Resources”), repay debt, fund maintenance capital expenditures, fund new capital projects at existing properties and provide excess cash for future development and acquisitions. Additional information regarding our capital projects is discussed in “Liquidity and Capital Resources” below. Reportable Segments
We have aggregated our operating segments into five reportable segments. Retail operating segments are based on the similar characteristics within the regions in which they operate: Northeast, South, West, and Midwest. Our Interactive segment includes all of our online sports betting, iCasino and online social gaming operations, management of retail sports betting, media, and our proportionate share of earnings attributable to our equity method investment in Barstool. We view each of our gaming and racing properties as an operating segment with the exception of our two properties in Jackpot, Nevada, which we view as one operating segment. We consider our combined VGTVideo Gaming Terminal (“VGT”) operations, by state, to be separate operating segments. We aggregate our operating segments into four reportable segments: Northeast, South, West and Midwest. For a listing of our gaming properties and VGT operations included in each reportable segment, see Note 2, “Significant Accounting Policies,” in the notes to our Consolidated Financial Statements.
RESULTS OF OPERATIONS
The following table highlights our revenues, net income (loss), and Adjusted EBITDA, on a consolidated basis, as well as our revenues and Adjusted EBITDAR by reportable segment. Such segment reporting is on a basis consistent with how we measure our business and allocate resources internally. We consider net income (loss) to be the most directly comparable financial measure calculated in accordance with generally accepted accounting principles in the United States (“GAAP”) to Adjusted EBITDA and Adjusted EBITDAR, which are non-GAAP financial measures. Refer to “Non-GAAP Financial Measures” below for the definitions of Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDAR, and Adjusted EBITDAR margin; as well as a reconciliation of net income (loss) to Adjusted EBITDA and Adjusted EBITDAR and Adjusted EBITDAR margin.related margins. | | | | For the year ended December 31, | | For the year ended December 31, |
| (dollars in millions) | (dollars in millions) | 2020 | | 2019 | | 2018 | (dollars in millions) | 2022 | | 2021 | | 2020 |
| Revenues: | Revenues: | | | | | | Revenues: | | | | | |
| Northeast segment | Northeast segment | $ | 1,639.3 | | $ | 2,399.9 | | $ | 1,891.5 | Northeast segment | $ | 2,695.9 | | $ | 2,552.4 | | $ | 1,639.3 |
| South segment | South segment | 849.6 | | 1,118.9 | | 394.4 | South segment | 1,314.2 | | 1,322.2 | | 849.6 |
| West segment | West segment | 302.5 | | 642.5 | | 437.9 | West segment | 581.9 | | 521.4 | | 302.5 |
| Midwest segment | Midwest segment | 681.4 | | 1,094.5 | | 823.7 | Midwest segment | 1,159.6 | | 1,102.7 | | 681.4 |
| Interactive segment | | Interactive segment | 663.1 | | 432.9 | | 121.1 |
Other (1) | Other (1) | 125.0 | | 47.5 | | 40.4 | Other (1) | 21.3 | | 10.6 | | 3.9 |
Intersegment eliminations (2) | Intersegment eliminations (2) | (19.1) | | (1.9) | | — | Intersegment eliminations (2) | (34.3) | | (37.2) | | (19.1) |
| Total | Total | $ | 3,578.7 | | $ | 5,301.4 | | $ | 3,587.9 | Total | $ | 6,401.7 | | $ | 5,905.0 | | $ | 3,578.7 |
| | Net income (loss) | Net income (loss) | $ | (669.1) | | $ | 43.1 | | $ | 93.5 | Net income (loss) | $ | 221.7 | | $ | 420.5 | | $ | (669.1) |
| | Adjusted EBITDAR: | Adjusted EBITDAR: | | | | | | Adjusted EBITDAR: | | | | | |
| Northeast segment | Northeast segment | $ | 478.9 | | $ | 720.8 | | $ | 583.8 | Northeast segment | $ | 842.5 | | $ | 848.4 | | $ | 478.9 |
| South segment | South segment | 318.9 | | 369.8 | | 118.9 | South segment | 548.1 | | 587.0 | | 318.9 |
| West segment | West segment | 82.2 | | 198.8 | | 114.3 | West segment | 220.1 | | 195.0 | | 82.2 |
| Midwest segment | Midwest segment | 258.3 | | 403.6 | | 294.3 | Midwest segment | 501.2 | | 500.1 | | 258.3 |
| Interactive segment | | Interactive segment | (74.9) | | (35.4) | | 37.2 |
Other (1) | Other (1) | (43.5) | | (87.8) | | (68.1) | Other (1) | (97.6) | | (100.7) | | (80.7) |
| Total (3) | Total (3) | 1,094.8 | | 1,605.2 | | 1,043.2 | Total (3) | 1,939.4 | | 1,994.4 | | 1,094.8 |
Rent expense associated with triple net operating leases (4) | Rent expense associated with triple net operating leases (4) | (419.8) | | (366.4) | | (3.8) | Rent expense associated with triple net operating leases (4) | (149.6) | | (454.4) | | (419.8) |
| Adjusted EBITDA | Adjusted EBITDA | $ | 675.0 | | $ | 1,238.8 | | $ | 1,039.4 | Adjusted EBITDA | $ | 1,789.8 | | $ | 1,540.0 | | $ | 675.0 |
| | Net income (loss) margin | Net income (loss) margin | (18.7) | % | | 0.8 | % | | 2.6 | % | Net income (loss) margin | 3.5 | % | | 7.1 | % | | (18.7) | % |
| Adjusted EBITDAR margin | Adjusted EBITDAR margin | 30.6 | % | | 30.3 | % | | 29.1 | % | Adjusted EBITDAR margin | 30.3 | % | | 33.8 | % | | 30.6 | % |
| Adjusted EBITDA margin | | Adjusted EBITDA margin | 28.0 | % | | 26.1 | % | | 18.9 | % |
|
(1)The Other category consists of the Company’s stand-alone racing operations, namely Sanford-Orlando Kennel Club, Sam Houston and Valley Race Parks (the remaining 50% was acquired by PENN on August 1, 2021), the Company’s joint venture interests in Sam Houston Race Park, Valley Race Park, and Freehold Raceway; and our management contract for Retama Park Racetrack and our live and televised poker tournament series that operates under the trade name, Heartland Poker Tour ("HPT"). The Other category also includes Penn Interactive, which operates our social gaming, internally-branded retail sportsbooks, iGaming and our Barstool Sports online sports betting app. Expenses incurred for corporate and shared services activities that are directly attributable to a property or are otherwise incurred to support a property are allocated to each property.Racetrack. The Other category also includes corporate overhead costs, which consist of certain expenses, such as: payroll expenses, professional fees, travel expenses and other general and administrative expenses that do not directly relate to or have not otherwise been allocated to a property. In addition, Adjusted EBITDAR of the Other category includes our proportionate share of the net income or loss of Barstool Sports after adding back our share of non-operating items (such as interest expense, net; income taxes; depreciation and amortization; and stock-based compensation expense).
(2)RepresentsPrimarily represents the elimination of intersegment revenues associated with Penn Interactive and HPT.our internally-branded retail sportsbooks, which are operated by PENN Interactive.
(3)The total is a mathematical calculation derived from the sum of reportable segments (as well as the Other category). As noted within “Non-GAAP Financial Measures” below, Adjusted EBITDAR, and the related margin, is presented on a consolidated basis outside the financial statements solely as a valuation metric.
(4)Solely comprised of rent expense associated with the operating lease components contained within the Master Leases (primarily land), the Tropicana Lease, the Meadows Lease, the Margaritaville Leaseour triple net master lease dated November 1, 2013 with GLPI and the triple net master lease assumed in connection with our acquisition of Pinnacle Entertainment, Inc., our individual triple net leases with GLPI for the real estate assets used in the operation of Tropicana (terminated on September 26, 2022) and Hollywood Casino at The Meadows, and our individual triple net leases with VICI (“VICI”) for the real estate assets used in the operations of Margaritaville Resort Casino
and Hollywood Casino at Greektown Lease (of which the Tropicana Lease, Meadows Lease, Margaritaville Lease and the Greektown Lease asare defined in “Liquidity and Capital Resources”) and are referred to collectively as our “triple net operating leases”). The finance leaseleases.” As a result of the Lease Modification defined in Note 12, “Leases” to our Consolidated Financial Statements, the land and building components contained within the Master Leases (primarily buildings) and the financing obligation associated with the Morgantown Lease (as defined in “Liquidityoperations of Hollywood Gaming at Dayton Raceway and Capital Resources”) result in interestHollywood Gaming at Mahoning Valley Race Course are classified as operating leases which are recorded to rent expense, as opposedcompared to prior to the Lease Modification, whereby the land components of substantially all of the Master Lease properties were classified as operating leases and recorded to rent expense. Subsequent to the Lease Modification, the land components associated with the Master Lease properties are primarily classified as finance leases.
During the year ended December 31, 2020 and as of February 26, 2021, our properties temporary closure dates pursuant to various orders from state gaming regulatory bodies or governmental authorities to combat the rapid spread of COVID-19 are shown below:
| | | | | | | | | | | | | | | | | |
| Location | | Temporary Closure and Reopening Date | | Temporary Closure and Reopening Date |
Northeast segment | | | | | |
Ameristar East Chicago | East Chicago, IN | | March 16, 2020 - June 15, 2020 | | |
Greektown Casino-Hotel | Detroit, MI | | March 16, 2020 - August 5, 2020 | | November 17, 2020 - December 23, 2020 |
Hollywood Casino Bangor | Bangor, ME | | March 16, 2020 - July 10, 2020 | | |
Hollywood Casino at Charles Town Races | Charles Town, WV | | March 18, 2020 - June 5, 2020 | | |
Hollywood Casino Columbus | Columbus, OH | | March 13, 2020 - June 19, 2020 | | |
Hollywood Casino Lawrenceburg | Lawrenceburg, IN | | March 16, 2020 - June 15, 2020 | | |
Hollywood Casino at Penn National Race Course | Grantville, PA | | March 17, 2020 - June 19, 2020 | | December 12, 2020 - January 4, 2021 |
Hollywood Casino Toledo | Toledo, OH | | March 13, 2020 - June 19, 2020 | | |
Hollywood Gaming at Dayton Raceway | Dayton, OH | | March 13, 2020 - June 19, 2020 | | |
Hollywood Gaming at Mahoning Valley Race Course | Youngstown, OH | | March 13, 2020 - June 19, 2020 | | |
Marquee by Penn (1)
| Pennsylvania | | March 19, 2020 - June 5, 2020 | | December 12, 2020 - January 4, 2021 |
Meadows Racetrack and Casino | Washington, PA | | March 17, 2020 - June 9, 2020 | | December 12, 2020 - January 4, 2021 |
Plainridge Park Casino | Plainville, MA | | March 15, 2020 - July 8, 2020 | | |
| | | | | |
South segment | | | | | |
1st Jackpot Casino
| Tunica, MS | | March 17, 2020 - May 21, 2020 | | |
Ameristar Vicksburg | Vicksburg, MS | | March 17, 2020 - May 21, 2020 | | |
Boomtown Biloxi | Biloxi, MS | | March 17, 2020 - May 21, 2020 | | |
Boomtown Bossier City | Bossier City, LA | | March 17, 2020 - May 20, 2020 | | |
Boomtown New Orleans | New Orleans, LA | | March 17, 2020 - May 18, 2020 | | |
Hollywood Casino Gulf Coast | Bay St. Louis, MS | | March 17, 2020 - May 21, 2020 | | |
Hollywood Casino Tunica | Tunica, MS | | March 17, 2020 - May 21, 2020 | | |
L’Auberge Baton Rouge | Baton Rouge, LA | | March 17, 2020 - May 18, 2020 | | |
L’Auberge Lake Charles | Lake Charles, LA | | March 17, 2020 - May 18, 2020 | | |
Margaritaville Resort Casino | Bossier City, LA | | March 17, 2020 - May 18, 2020 | | |
| | | | | |
West segment | | | | | |
Ameristar Black Hawk | Black Hawk, CO | | March 17, 2020 - June 17, 2020 | | |
Cactus Petes and Horseshu | Jackpot, NV | | March 17, 2020 - June 4, 2020 | | |
M Resort | Henderson, NV | | March 17, 2020 - June 4, 2020 | | |
Tropicana Las Vegas | Las Vegas, NV | | March 17, 2020 - September 17, 2020 | | |
Zia Park Casino | Hobbs, NM | | March 16, 2020 - remains closed | | |
| | | | | |
Midwest segment | | | | | |
Ameristar Council Bluffs | Council Bluffs, IA | | March 17, 2020 - June 1, 2020 | | |
Argosy Casino Alton | Alton, IL | | March 16, 2020 - July 1, 2020 | | November 20, 2020 - January 23, 2021 |
Argosy Casino Riverside | Riverside, MO | | March 18, 2020 - June 1, 2020 | | |
Hollywood Casino Aurora | Aurora, IL | | March 16, 2020 - July 1, 2020 | | November 20, 2020 - January 19, 2021 |
Hollywood Casino Joliet | Joliet, IL | | March 16, 2020 - July 1, 2020 | | November 20, 2020 - January 22, 2021 |
Hollywood Casino at Kansas Speedway | Kansas City, KS | | March 17, 2020 - May 25, 2020 | | |
Hollywood Casino St. Louis | Maryland Heights, MO | | March 18, 2020 - June 16, 2020 | | |
Prairie State Gaming (1)
| Illinois | | March 16, 2020 - July 1, 2020 | | November 20, 2020 - January 16, 2021 |
River City Casino | St. Louis, MO | | March 18, 2020 - June 16, 2020 | | |
| | | | | |
Other | | | | | |
Freehold Raceway | Freehold, NJ | | March 16, 2020 - August 27, 2020 | | |
Retama Park Racetrack | Selma, TX | | March 19, 2020 - June 4, 2020 | | |
Sam Houston Race Park | Houston, TX | | March 19, 2020 - June 4, 2020 | | |
Sanford-Orlando Kennel Club | Longwood, FL | | March 13, 2020 - May 26, 2020 | | |
Valley Race Park | Harlingen, TX | | March 19, 2020 - remains closed | | |
(1)VGT route operations
Consolidated comparison of the years ended December 31, 20202022 and 20192021
Revenues
The following table presents our consolidated revenues:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the year ended December 31, | | $ Change | | % Change |
| (dollars in millions) | 2020 | | 2019 | | 2018 | | 2020 vs. 2019 | | 2019 vs. 2018 | | 2020 vs. 2019 | | 2019 vs. 2018 |
| | | | | | | | | | | | | |
| | | | | |
| Revenues | | | | | | | | | | | | | |
| Gaming | $ | 3,051.1 | | | $ | 4,268.7 | | | $ | 2,894.9 | | | $ | (1,217.6) | | | $ | 1,373.8 | | | (28.5) | % | | 47.5 | % |
| Food, beverage, hotel and other | 527.6 | | | 1,032.7 | | | 629.7 | | | (505.1) | | | 403.0 | | | (48.9) | % | | 64.0 | % |
| Management service and license fees | — | | | — | | | 6.0 | | | — | | | (6.0) | | | — | | | (100.0) | % |
| Reimbursable management costs | — | | | — | | | 57.3 | | | — | | | (57.3) | | | — | | | (100.0) | % |
| Total revenues | $ | 3,578.7 | | | $ | 5,301.4 | | | $ | 3,587.9 | | | $ | (1,722.7) | | | $ | 1,713.5 | | | (32.5) | % | | 47.8 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the year ended December 31, | | $ Change | | % Change |
| (dollars in millions) | 2022 | | 2021 | | 2020 | | 2022 vs. 2021 | | 2021 vs. 2020 | | 2022 vs. 2021 | | 2021 vs. 2020 |
| | | | | | | | | | | | | |
| | | | | |
| Revenues | | | | | | | | | | | | | |
| Gaming | $ | 5,201.7 | | | $ | 4,945.3 | | | $ | 3,051.1 | | | $ | 256.4 | | | $ | 1,894.2 | | | 5.2 | % | | 62.1 | % |
| Food, beverage, hotel and other | 1,200.0 | | | 959.7 | | | 527.6 | | | 240.3 | | | 432.1 | | | 25.0 | % | | 81.9 | % |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Total revenues | $ | 6,401.7 | | | $ | 5,905.0 | | | $ | 3,578.7 | | | $ | 496.7 | | | $ | 2,326.3 | | | 8.4 | % | | 65.0 | % |
Gaming revenues for the year ended December 31, 2022 increased by $256.4 million compared to the prior year primarily due to increases in our Interactive segment resulting from continued growth in our online revenues, partially due to the acquisition of theScore, and the inclusion of the full period operating results of three new properties in our Northeast segment: Perryville, which was acquired on July 1, 2021, Hollywood Casino York, which opened August 12, 2021 and Hollywood Casino Morgantown, which opened December 22, 2021.
food,Food, beverage, hotel and other revenues for the year ended December 31, 2020 decreased2022 increased by $240.3 million compared to the prior year, primarily as a resultdue to increases in food, beverage and hotel revenues across all our segments, due to easing of the COVID-19 pandemic, which caused temporary closures ofrestrictions, strong visitation levels among all of our properties during the year, and upon subsequent property reopenings, our operations were impacted by operating restrictions. Our properties are subject to restrictions on gaming capacity, which depending on the jurisdiction, are generally 50% less gaming devices. Furthermore, due primarily to the implementation of social distancing and health and safety protocols, our properties are subject to reduced hotel capacity, limitations on the number of food and beverageage groups, increased offerings and limitationshours of operations at our outlets, increases in gaming tax reimbursement amounts charged to third-party partners for online sports betting and iCasino market access, the inclusion of operating results from our new properties as discussed above, and media revenues from theScore, which was acquired on other amenities. As a result, upon reopening our properties, gaming revenue now represents a larger portion of our total revenues, which we expect to continue until at least such time that social distancing and health and safety protocols are relaxed or no longer necessary.October 19, 2021.
Since reopening, our properties have generally experienced reduced visitation and higher spend per trip, as compared to pre-closure levels. We largely attribute the higher spend per trip to pent-up demand, visitation from our higher worth customers, and customers’ propensity to spend after a prolonged period of limited domestic commerce and upon receipt of government stimulus payments. In addition, in many of the states in which we operate, leisure alternatives remain partially limited (e.g., bars, concerts, entertainment events, etc.), which may have impacted our operating results upon reopening our properties. See “Segment comparison of the years ended December 31, 2020, 2022, and 2019”2021” below for more detailed explanations of the fluctuations in revenues.Operating expenses
The following table presents our consolidated operating expenses:
| | | | For the year ended December 31, | | $ Change | | % Change | | For the year ended December 31, | | $ Change | | % Change |
| (dollars in millions) | (dollars in millions) | 2020 | | 2019 | | 2018 | | 2020 vs. 2019 | | 2019 vs. 2018 | | 2020 vs. 2019 | | 2019 vs. 2018 | (dollars in millions) | 2022 | | 2021 | | 2020 | | 2022 vs. 2021 | | 2021 vs. 2020 | | 2022 vs. 2021 | | 2021 vs. 2020 |
| Operating expenses | Operating expenses | | | | | | | | | | | | | | Operating expenses | | | | | | | | | | | | | |
| Gaming | Gaming | $ | 1,530.3 | | | $ | 2,281.8 | | | $ | 1,551.4 | | | $ | (751.5) | | | $ | 730.4 | | | (32.9) | % | | 47.1 | % | Gaming | $ | 2,864.4 | | | $ | 2,540.7 | | | $ | 1,530.3 | | | $ | 323.7 | | | $ | 1,010.4 | | | 12.7 | % | | 66.0 | % |
| Food, beverage, hotel and other | Food, beverage, hotel and other | 337.7 | | | 672.7 | | | 439.3 | | | (335.0) | | | 233.4 | | | (49.8) | % | | 53.1 | % | Food, beverage, hotel and other | 767.2 | | | 607.3 | | | 337.7 | | | 159.9 | | | 269.6 | | | 26.3 | % | | 79.8 | % |
| General and administrative | General and administrative | 1,130.8 | | | 1,187.7 | | | 618.9 | | | (56.9) | | | 568.8 | | | (4.8) | % | | 91.9 | % | General and administrative | 1,110.4 | | | 1,352.9 | | | 1,130.8 | | | (242.5) | | | 222.1 | | | (17.9) | % | | 19.6 | % |
| Reimbursable management costs | — | | | — | | | 57.3 | | | — | | | (57.3) | | | — | | | (100.0) | % | |
| | Depreciation and amortization | Depreciation and amortization | 366.7 | | | 414.2 | | | 269.0 | | | (47.5) | | | 145.2 | | | (11.5) | % | | 54.0 | % | Depreciation and amortization | 567.5 | | | 344.5 | | | 366.7 | | | 223.0 | | | (22.2) | | | 64.7 | % | | (6.1) | % |
| Impairment losses | Impairment losses | 623.4 | | | 173.1 | | | 34.9 | | | 450.3 | | | 138.2 | | | 260.1 | % | | 396.0 | % | Impairment losses | 118.2 | | | — | | | 623.4 | | | 118.2 | | | (623.4) | | | N/M | | N/M |
| Recoveries on loan loss and unfunded loan commitments | — | | | — | | | (17.0) | | | — | | | 17.0 | | | — | | | (100.0) | % | |
| | Total operating expenses | Total operating expenses | $ | 3,988.9 | | | $ | 4,729.5 | | | $ | 2,953.8 | | | $ | (740.6) | | | $ | 1,775.7 | | | (15.7) | % | | 60.1 | % | Total operating expenses | $ | 5,427.7 | | | $ | 4,845.4 | | | $ | 3,988.9 | | | $ | 582.3 | | | $ | 856.5 | | | 12.0 | % | | 21.5 | % |
Gaming expenses consist primarily of salaries and wages associated with our gaming operations, gaming taxes, and marketing and promotional costs. Gaming expenses for the year ended December 31, 2022 increased by $323.7 million compared to the prior year primarily due to higher third-party service provider fees from higher online gaming taxes. activity, higher payroll expenses related to volume, an increase in gaming taxes resulting from the increase in gaming revenues, and increased variable marketing and promotional expenses compared to the prior period. Also included in gaming expenses are non-
recurring transaction costs of $26.0 million for the year ended December 31, 2022, related to third-party contract termination fees as we execute on our strategy to deploy our internally built technology stack, consisting of a player account management system and proprietary risk and trading platform, specific to the Interactive segment.
Food, beverage, hotel and other expenses consist principallyprimarily of salaries and wagespayroll expenses and costs of goods sold associated with our food, beverage, hotel, retail, racing, and otherinteractive operations. Gaming, food,Food, beverage, hotel and other expenses for the year ended December 31, 2020 decreased year over2022 increased $159.9 million compared to the prior year, primarily as a result of the temporary closures of all of our properties due to the
COVID-19 pandemic,operations at our outlets, which reduced our salariesresulted in increases in payroll expenses and wages,cost of sales, and increases in gaming taxes, costs of goods sold,tax reimbursement amounts charged to third-party partners for online sports betting and other expenses. As discussed above, our reopened properties are operating with reduced gaming, hotel capacity, limited food and beverage and limited other amenity offerings. As such, our properties are operating with a reduced workforce, which reduced our salaries and wages. In addition, our properties have reduced marketing costs, which reduces gaming expenses.iCasino market access.
General and administrative expenses include items such as compliance, facility maintenance, utilities, property and liability insurance, surveillance and security, and lobbying expenses, and certain housekeeping services, as well as all expenses for administrative departments such as accounting, purchasing, human resources, legal and internal audit. General and administrative expenses also include stock-based compensation expense; pre-opening expenses; acquisition and acquisitiontransaction costs; gains and losses on disposal of assets; insurance recoveries, net of deductible charges; changes in the fair value of our contingent purchase price obligations; expense associated with cash-settled stock-based awards (including changes in fair value thereto); restructuring costs (primarily severance) associated with a company-wide initiative triggered by the COVID-19 pandemic; and rent expense associated with our triple net operating leases.
General and administrative expenses for the year ended December 31, 20202022 decreased by $242.5 million compared to the prior year over year primarily due to a decrease in rent costs associated with our Master Leases of $304.8 million representing changes in lease classifications from operating to finance as a result of the actions taken to reduce our cost structure while our properties were temporarily closed, which included: (i) furloughing the vast majority of our employees and operating with a minimum staffing of less than 850 employees company-wide during the temporary closures; (ii) enacting meaningful compensation reductionsLease Modification as described in Note 12, “Leases” to our remaining property and corporate leadership teams effective April 1, 2020 and through September 30, 2020 (compensationConsolidated Financial Statements. The decrease was fully restored effective October 1, 2020); and (iii) executing substantial reductions in operating expenses. In addition, we recognized a gain on disposalpartially offset by increased payroll costs of assets of $29.2$43.2 million, which reduced general and administrative expenses inreflect the current year. Additionally, the expense associated with the Company’s contingent purchase price obligations and preopening expenses decreased by $8.1operating environment, a $24.2 million and $10.5 million, respectively, as compared to the prior year period. Offsetting these decreases for the year ended December 31, 2020, as compared to the prior year, was an increase in expense associated with the Company’s cash-settled stock-based awards expense of $66.4 million,facility costs due to increased volumes, and a $6.4 million loss on the increase insale of land at our stock price, and an increase in rent expense of $53.4 million, which principally relates to the Greektown Lease. Additionally, we incurred $13.4 million of restructuring costs, primarily related to employee severance as a result of the COVID-19 pandemic as described above.L’Auberge Baton Rouge property. Depreciation and amortization for the year ended December 31, 2020 decreased2022 increased year overover year primarily due to fixedincreased amortization costs associated with our Master Leases of $171.0 million representing changes in lease classifications from operating to finance as a result of the Lease Modification as described in Note 12, “Leases” to our Consolidated Financial Statements. In addition, amortization on other intangible assets becoming fully depreciated since December 31, 2019, a reduction in capital spend in 2020increased by $37.1 million primarily due to the casino closures and a $2.7 million decrease in amortization expense at Penn Interactive. These were offset for the year ended December 31, 2020 by an increase of $3.2 million at Greektown, which was acquired in May 2019.other intangible assets that resulted from our acquisition of theScore. Impairment losses for the year ended December 31, 20202022 primarily relate to impairments taken onimpairment charges at our Hollywood Casino at Greektown property for goodwill and other intangible assets of $113.0$37.4 million and $498.5$65.4 million, respectively, as a result of an interim impairment assessment during the firstthird quarter of 2020. During2022 as well as an impairment charge at our Hollywood Casino at PENN National Race Course (“PNRC”) property for other intangible assets of $13.6 million as a result of our annual impairment assessment during the firstfourth quarter of 2020, we identified an indicator of2022.
The impairment triggered by the COVID-19 pandemic, which caused all of our gaming propertiescharges at Hollywood Casino at Greektown were due to temporarily close. At the time of the interim impairment assessment, we revised our cash flow projections to reflectas the current economic environment, including the uncertaintymajority of the nature, timing and extenthotel was out of reopening our gaming properties. Additionally, we recorded anservice for longer than anticipated during renovations caused by water damage. The impairment charge at PNRC was largely due to the expansion of $7.3 million resultinggaming legislation in the market and increased supply, particularly from an impairment analysisour recent openings of Hollywood Casino York and Hollywood Casino Morgantown, which reduced long-term projections of the long-lived assets atproperty. See Note 9, “Goodwill and Other Intangible Assets” to our Consolidated Financial Statements for further discussion. There were no impairment losses during the Tropicana Las Vegas and an impairment charge of $4.6 million on our investment in the Texas Joint Venture.year ended Other income (expenses)December 31, 2021.
The following table presents our consolidated other income (expenses):
| | | | For the year ended December 31, | | $ Change | | % Change | | For the year ended December 31, | | $ Change | | % Change |
| (dollars in millions) | (dollars in millions) | 2020 | | 2019 | | 2018 | | 2020 vs. 2019 | | 2019 vs. 2018 | | 2020 vs. 2019 | | 2019 vs. 2018 | (dollars in millions) | 2022 | | 2021 | | 2020 | | 2022 vs. 2021 | | 2021 vs. 2020 | | 2022 vs. 2021 | | 2021 vs. 2020 |
| Other income (expenses) | Other income (expenses) | | | | | | | | | | | | | | Other income (expenses) | | | | | | | | | | | | | |
| Interest expense, net | Interest expense, net | $ | (543.2) | | | $ | (534.2) | | | $ | (538.4) | | | $ | (9.0) | | | $ | 4.2 | | | 1.7 | % | | (0.8) | % | Interest expense, net | $ | (758.2) | | | $ | (562.8) | | | $ | (544.1) | | | $ | (195.4) | | | $ | (18.7) | | | 34.7 | % | | 3.4 | % |
| Interest income | | Interest income | $ | 18.3 | | | $ | 1.1 | | | $ | 0.9 | | | $ | 17.2 | | | $ | 0.2 | | | 1,563.6 | % | | 22.2 | % |
| Income from unconsolidated affiliates | Income from unconsolidated affiliates | $ | 13.8 | | | $ | 28.4 | | | $ | 22.3 | | | $ | (14.6) | | | $ | 6.1 | | | (51.4) | % | | 27.4 | % | Income from unconsolidated affiliates | $ | 23.7 | | | $ | 38.7 | | | $ | 13.8 | | | $ | (15.0) | | | $ | 24.9 | | | (38.8) | % | | 180.4 | % |
| Loss on early extinguishment of debt | Loss on early extinguishment of debt | $ | (1.2) | | | $ | — | | | $ | (21.0) | | | $ | (1.2) | | | $ | 21.0 | | | — | | | (100.0) | % | Loss on early extinguishment of debt | $ | (10.4) | | | $ | — | | | $ | (1.2) | | | $ | (10.4) | | | $ | 1.2 | | | N/M | | N/M |
| Other | | Other | $ | (72.1) | | | $ | 2.5 | | | $ | 106.6 | | | $ | (74.6) | | | $ | (104.1) | | | N/M | | (97.7) | % |
| Income tax benefit (expense) | Income tax benefit (expense) | $ | 165.1 | | | $ | (43.0) | | | $ | 3.6 | | | $ | 208.1 | | | $ | (46.6) | | | N/M | | N/M | Income tax benefit (expense) | $ | 46.4 | | | $ | (118.6) | | | $ | 165.1 | | | $ | 165.0 | | | $ | (283.7) | | | N/M | | N/M |
| Other | $ | 106.6 | | | $ | 20.0 | | | $ | (7.1) | | | $ | 86.6 | | | $ | 27.1 | | | 433.0 | % | | N/M | |
N/M - Not meaningful
Interest expense, net increased for the year ended December 31, 2020,2022, as compared to the prior year, primarily due primarily to increasesa $171.3 million net increase in Master Lease interest expense relatedcosts due to changes in lease classifications as a result of the Lease Modification as described in Note 12, “Leases” to our Master Leases of $8.8 million partially offset by an increase in capitalized interest ofConsolidated Financial Statements.
$1.9 million. Additionally,increased for the interest expense associated with our long-term debt increased $1.8 million,year ended December 31, 2022, as compared to the prior year, primarily due primarily to the issuance ofexecuting on our 2.75% Convertible Notes,short term investing strategy utilizing money market funds which offset the reduction in interest expense incurred on the Senior Secured Credit Facilities (as defined in “ Note 11, “Long-term Debt,”) from a decrease in the London Interbank Offered Rate (referred to as "LIBOR")commenced during the corresponding periods.year ended December 31, 2022.Income from unconsolidated affiliates relates principally to Barstool, and our Kansas Entertainment and Freehold Raceway joint venture.ventures. The decrease for the year ended December 31, 2020, as2022, compared to the prior year, was primarilyis due to a decrease in the results of operations of Hollywood Casino at Kansas Speedway, which temporarily closed on March 17, 2020 and reopened on May 25, 2020 and continues to be impacted by COVID-19 capacity restrictions. This decrease was partially offset bylower income earned from Barstool Sports.our investments in these unconsolidated affiliates. We record our proportionate share of Barstool’s net income or loss one quarter in arrears.
Loss on early extinguishment of debt for the year ended December 31, 20202022 related to the refinancing of the previous Senior Secured Credit Facilities in May 2022. See Note 11, “Long-term Debt” the write-offs of previously unamortized debt issuance costs and debt discounts in connection with the prepayment of Term Loan B-1 Facility, (as deto our Consolidated Financial Statements for further discussion. fined inOther Note 11, “Long-term Debt,primarily relates to realized and unrealized gains and losses on equity securities, held by PENN Interactive, unrealized gains or losses resulting from foreign currency translation, unrealized gains and losses related to certain Barstool shares as well as miscellaneous income and expense items. Equity securities were provided to the Company in conjunction with entering into multi-year agreements with sports betting operators for online sports betting and iCasino market access across our portfolio. ”). There were no principal prepayments of our long-term debt duringFor the year ended December 31, 20192022, other income primarily consisted of .unrealized holding losses of
Income tax benefit (expense) for the year ended December 31, 2020,2022, was a $46.4 million benefit, of $165.1 millionas compared to income taxa $118.6 million expense of $43.0 million in the prior year. Our effective tax rate was 19.8% for the year ended December 31, 2020,2021. Our effective tax rate (income taxes as compared to 49.9%a percentage of income from operations before income taxes) was (26.5)% for the year ended December 31, 2019. The Company’s effective tax rate2022, as compared to 22.0% for the year ended December 31, 20202021. The change in the effective rate as compared to the prior year period was lower thanprimarily due to the federal statutory tax ratedecreases to income before taxes coupled with the release of 21%our valuation allowance.
The reversal of our valuation allowance during the third quarter of 2022, was primarily driven bydue to (i) sustained growth in our three-year cumulative pre-tax earnings; (ii) substantial total revenues and earnings growth in our retail business operations, and (iii) lack of significant asset impairment charges expected to be indicative of the increase inCompany’s retail business operations or projections for the foreseeable future. Accordingly, the valuation allowance (seehas been reduced by $113.4 million resulting in a substantial decrease to income tax expense for the year ended December 31, 2022. See Note 14, “Income Taxes”, in the notes to our Consolidated Financial Statements). The Company’s effective tax rateStatements for the year ended December 31, 2019 was higher than the federal statutory tax rate of 21% primarily driven by the effect of the non-deductible goodwill impairment charge, non-deductible officers’ compensation, and higher state taxable income from operations.
Our effective income tax rate can vary each reporting period depending on, among other factors, the geographic and business mix of our earnings, changes to our valuation allowance, and the level of our tax credits. Certain of these and other factors, including our history and projections of pre-tax earnings, are considered in assessing our ability to realize our net deferred tax assets.
Other includes miscellaneous income and expense items. The amount for the years ended December 31, 2020 and 2019 relates primarily to unrealized holding gains of $106.7 million and $19.9 million, respectively, on equity securities (including warrants), which were acquired during the third quarter of 2019 in connection with Penn Interactive entering into multi-year agreements with sports betting operators for online sports betting and related iGaming market access across our portfolio.
Segment comparison of the years ended December 31, 20202022 and 20192021
Northeast Segment
| | | For the year ended December 31, | | $ Change | | % / bps Change | | For the year ended December 31, | | $ Change | | % / bps Change |
| (dollars in millions) | (dollars in millions) | 2020 | | 2019 | | 2018 | | 2020 vs. 2019 | | 2019 vs. 2018 | | 2020 vs. 2019 | | 2019 vs. 2018 | (dollars in millions) | 2022 | | 2021 | | 2020 | | 2022 vs. 2021 | | 2021 vs. 2020 | | 2022 vs. 2021 | | 2021 vs. 2020 |
| Revenues: | Revenues: | | | | | | | | | | | | | | Revenues: | | | | | | | | | | | | | |
| Gaming | Gaming | $ | 1,495.1 | | $ | 2,117.1 | | $ | 1,644.2 | | $ | (622.0) | | | $ | 472.9 | | | (29.4) | % | | 28.8 | % | Gaming | $ | 2,434.0 | | $ | 2,344.2 | | $ | 1,495.1 | | $ | 89.8 | | | $ | 849.1 | | | 3.8 | % | | 56.8 | % |
| Food, beverage, hotel and other | Food, beverage, hotel and other | 144.2 | | 282.8 | | 194.6 | | (138.6) | | | 88.2 | | | (49.0) | % | | 45.3 | % | Food, beverage, hotel and other | 261.9 | | 208.2 | | 144.2 | | 53.7 | | | 64.0 | | | 25.8 | % | | 44.4 | % |
| Management service and licensing fees | — | | | — | | | 5.9 | | — | | | (5.9) | | | — | | | (100.0) | % | |
| Reimbursable management costs | — | | | — | | | 46.8 | | — | | | (46.8) | | | — | | | (100.0) | | |
| | Total revenues | Total revenues | $ | 1,639.3 | | $ | 2,399.9 | | $ | 1,891.5 | | $ | (760.6) | | | $ | 508.4 | | | (31.7) | % | | 26.9 | % | Total revenues | $ | 2,695.9 | | $ | 2,552.4 | | $ | 1,639.3 | | $ | 143.5 | | | $ | 913.1 | | | 5.6 | % | | 55.7 | % |
| | Adjusted EBITDAR | Adjusted EBITDAR | $ | 478.9 | | $ | 720.8 | | $ | 583.8 | | $ | (241.9) | | | $ | 137.0 | | | (33.6) | % | | 23.5 | % | Adjusted EBITDAR | $ | 842.5 | | $ | 848.4 | | $ | 478.9 | | $ | (5.9) | | | $ | 369.5 | | | (0.7) | % | | 77.2 | % |
| Adjusted EBITDAR margin | Adjusted EBITDAR margin | 29.2 | % | | 30.0 | % | | 30.9 | % | | (80) bps | | (90) bps | Adjusted EBITDAR margin | 31.3 | % | | 33.2 | % | | 29.2 | % | | (190) bps | | 400 bps |
The Northeast segment’s results of operationsrevenues for the year ended December 31, 20202022 increased by $143.5 million over the prior year, primarily due to were primarily impacted by the COVID-19 pandemic.inclusion of the operating results of Perryville, which was acquired on July 1, 2021, Hollywood Casino York, which opened August 12, 2021 and Hollywood Casino Morgantown, which opened December 22, 2021, and increased During the year ended December 31, 2020, our properties had temporary closures pursuant to various orders from state gaming regulatory bodies or governmental authorities to combat the rapid spread of COVID-19. All of our properties within the Northeast segment reopened and continue to operate with reduced gaming andfood, beverage, hotel (if applicable) capacity, limited food and beverage and other amenity offerings. In response to the impactrevenues as we operated with increased offerings and extended hours of the COVID-19 pandemic onoperations at our operations, we implemented cost saving initiatives tooutlets. These revenue increases were partially offset inevitable revenue degradation, such as: operating withby a reduceddecrease in gaming revenues at our Ameristar East Chicago, Hollywood Casino at PENN National Race Course, andHollywood Casino at Greektown properties.
workforce, focusing on higher margin gaming offerings, reducing marketing costs, and limiting certain lower margin food and beverage offerings.
For the year ended December 31, 20202022 the Northeast segment’s total revenues, Adjusted EBITDAR and Adjusted EBITDAR margin decreased by $5.9 million as compared to the prior year, primarily due to increased gaming taxes, variable marketing and promotional expenses, which remain below pre-pandemic levels, and payroll expenses, resulting in an Adjusted EBITDAR margin of 31.3%.
South Segment
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the year ended December 31, | | $ Change | | % / bps Change |
| (dollars in millions) | 2022 | | 2021 | | 2020 | | 2022 vs. 2021 | | 2021 vs. 2020 | | 2022 vs. 2021 | | 2021 vs. 2020 |
| Revenues: | | | | | | | | | | | | | |
| Gaming | $ | 1,050.7 | | $ | 1,080.4 | | $ | 684.0 | | $ | (29.7) | | | $ | 396.4 | | | (2.7) | % | | 58.0 | % |
| Food, beverage, hotel and other | 263.5 | | 241.8 | | 165.6 | | 21.7 | | | 76.2 | | | 9.0 | % | | 46.0 | % |
| Total revenues | $ | 1,314.2 | | $ | 1,322.2 | | $ | 849.6 | | $ | (8.0) | | | $ | 472.6 | | | (0.6) | % | | 55.6 | % |
| | | | | | | | | | | | | |
| Adjusted EBITDAR | $ | 548.1 | | $ | 587.0 | | $ | 318.9 | | $ | (38.9) | | | $ | 268.1 | | | (6.6) | % | | 84.1 | % |
| Adjusted EBITDAR margin | 41.7 | % | | 44.4 | % | | 37.5 | % | | | | | | (270) bps | | 690 bps |
The South segment’s revenues for the temporary closures described above. Whileyear ended December 31, 2022 decreased by $8.0 million over the prior year, primarily due to a decrease in gaming revenues driven primarily by record setting results in the second and fourth quarters of 2021 combined with minor disruptions from various capital projects across the South region portfolio in the current year. The decrease in gaming revenues was partially offset by increased food, beverage, hotel and other revenues primarily due to easing of restrictions, strong visitation levels among all age groups, and increased offerings and hours of operations at our outlets.
For the year ended December 31, 2022, the South segment’s Adjusted EBITDAR decreased 31.7%by $38.9 million and 33.6% compared to the prior year, Adjusted EBITDAR margin decreased 80 basis points primarilyto 41.7% as a result of cost cutting measures and other structural changes put in place in response to the COVID-19 pandemic.
South Segment
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 | $ | 684.0 | | $ | 831.1 | | $ | 302.9 | | $ | (147.1) | | | $ | 528.2 | | | (17.7) | % | | 174.4 | % |
| Food, beverage, hotel and other | 165.6 | | 287.8 | | 91.5 | | (122.2) | | | 196.3 | | | (42.5) | % | | 214.5 | % |
| Total revenues | $ | 849.6 | | $ | 1,118.9 | | $ | 394.4 | | $ | (269.3) | | | $ | 724.5 | | | (24.1) | % | | 183.7 | % |
| | | | | | | | | | | | | |
| Adjusted EBITDAR | $ | 318.9 | | $ | 369.8 | | $ | 118.9 | | $ | (50.9) | | | $ | 250.9 | | | (13.8) | % | | 211.0 | % |
| Adjusted EBITDAR margin | 37.5 | % | | 33.1 | % | | 30.1 | % | | | | | | 440 bps | | 300 bps |
The South segment’s results of operations for thecurrent year ended December 31, 2020 were primarilywas negatively impacted by the COVID-19 pandemicdecrease in gaming revenues, discussed above, higher payroll expenses associated with hotel and Hurricane Laura (described below). During the year ended December 31, 2020 our properties had temporary closures pursuant to various orders from state gaming regulatory bodies or governmental authorities to combat the rapid spread of COVID-19. All of our properties within the South segment reopened and continue to operate with reduced gaming, hotel (if applicable) capacity, limited food and beverage offerings, and other amenity offerings. In response to the COVID-19 pandemic on our operations, we implemented cost saving initiatives to offset inevitable revenue degradation, such as: operating with a reduced workforce, focusing on higher margin gaming offerings, reducing variable marketing costs, and limiting certain lower margin food and beverage offerings.
For thepromotional expenses, which remain below pre-pandemic levels. The prior year ended December 31, 2020, the South segment’s totalbenefited from increased gaming revenues and reduced labor costs yielding a higher overall Adjusted EBITDAR decreased, as compared to the prior year, due to the temporary closures, operational restrictions, and social distancing measures described above. The Souths segment’s Adjusted EBITDAR margin increased 440 basis points for the year ended December 31, 2020, as compared to the prior year due to our cost structure savings initiatives described above.
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. The Company maintains insurance, subject to certain deductibles and coinsurance, for the repair or replacement of assets that suffered loss and provides coverage for interruption to our business, including lost profits. The Company received upfront prepayments of $47.5 million from our insurers related to our anticipated policy claim (i.e. an advance) for the year ended December 31, 2020. The insurance proceeds were recorded as an offset to recovery costs incurred (i.e. Receivables within our Consolidated Balance Sheets) and we did not recognize any gain or loss as a result of this event.
West Segment
| | | For the year ended December 31, | | $ Change | | % / bps Change | | For the year ended December 31, | | $ Change | | % / bps Change |
| (dollars in millions) | (dollars in millions) | 2020 | | 2019 | | 2018 | | 2020 vs. 2019 | | 2019 vs. 2018 | | 2020 vs. 2019 | | 2019 vs. 2018 | (dollars in millions) | 2022 | | 2021 | | 2020 | | 2022 vs. 2021 | | 2021 vs. 2020 | | 2022 vs. 2021 | | 2021 vs. 2020 |
| Revenues: | Revenues: | | | | | | | | | | | | | | Revenues: | | | | | | | | | | | | | |
| Gaming | Gaming | $ | 194.2 | | $ | 374.3 | | $ | 228.0 | | $ | (180.1) | | | $ | 146.3 | | | (48.1) | % | | 64.2 | % | Gaming | $ | 387.6 | | $ | 352.7 | | $ | 194.2 | | $ | 34.9 | | | $ | 158.5 | | | 9.9 | % | | 81.6 | % |
| Food, beverage, hotel and other | Food, beverage, hotel and other | 108.3 | | 268.2 | | 199.4 | | (159.9) | | | 68.8 | | | (59.6) | % | | 34.5 | % | Food, beverage, hotel and other | 194.3 | | 168.7 | | 108.3 | | 25.6 | | | 60.4 | | | 15.2 | % | | 55.8 | % |
| Reimbursable management costs | — | | — | | 10.5 | | — | | | (10.5) | | | — | | | (100.0) | % | |
| | Total revenues | Total revenues | $ | 302.5 | | $ | 642.5 | | $ | 437.9 | | $ | (340.0) | | | $ | 204.6 | | | (52.9) | % | | 46.7 | % | Total revenues | $ | 581.9 | | $ | 521.4 | | $ | 302.5 | | $ | 60.5 | | | $ | 218.9 | | | 11.6 | % | | 72.4 | % |
| | Adjusted EBITDAR | Adjusted EBITDAR | $ | 82.2 | | $ | 198.8 | | $ | 114.3 | | $ | (116.6) | | | $ | 84.5 | | | (58.7) | % | | 73.9 | % | Adjusted EBITDAR | $ | 220.1 | | $ | 195.0 | | $ | 82.2 | | $ | 25.1 | | | $ | 112.8 | | | 12.9 | % | | 137.2 | % |
| Adjusted EBITDAR margin | Adjusted EBITDAR margin | 27.2 | % | | 30.9 | % | | 26.1 | % | | (370) bps | | 480 bps | Adjusted EBITDAR margin | 37.8 | % | | 37.4 | % | | 27.2 | % | | 40 bps | | 1,020 bps |
The West segment’s results of operationsrevenues for the year ended December 31, 2020 were2022 increased by $60.5 million over the prior year, primarily impacteddue to increased spend per guest on gaming and increased visitation at our food and beverage outlets, partially offset by the COVID-19 pandemic. sale of our Tropicana Las Vegas property on September 26, 2022. During the year ended December 31, 2020 2021, our West segment’s operating results were negatively impacted by the temporary closure of our Zia Park property due to the COVID-19 pandemic, which remained closed until March 5, 2021 and for an additional thirteen days in April of 2021, and our properties had temporary closures operated within locally restricted gaming and hotel capacpursuant to various orders from state gaming regulatory bodies or governmental authorities to combat the rapid spread of COVID-19. All of our properties within the West segment reopenedity and continue to operate with reduced gaming, hotel (if applicable) capacity, limited food and beverage and other amenity offerings with the exception of Zia Park which remains closed. In response to the COVID-19 pandemic on our operations, we implemented cost saving initiatives to offset inevitable revenue degradation, such as: operating with a reduced workforce, focusing on higher margin gaming offerings, reducing marketing costs, and limiting certain lower margin food and beverage offerings..
For the year ended December 31, 2020,2022, the West segment’s total revenues, Adjusted EBITDAR increased by $25.1 million primarily due to increases in gaming and Adjusted EBITDAR margin decreased, as comparednon-gaming revenues, partially offset by higher payroll expenses related to the prior year, due to the temporary closures, operational restrictions,volume increases and social distancing measures described above.higher variable marketing and promotional expenses, which remain below pre-pandemic levels.
Midwest Segment
| | | For the year ended December 31, | | $ Change | | % / bps Change | | For the year ended December 31, | | $ Change | | % / bps Change |
| (dollars in millions) | (dollars in millions) | 2020 | | 2019 | | 2018 | | 2020 vs. 2019 | | 2019 vs. 2018 | | 2020 vs. 2019 | | 2019 vs. 2018 | (dollars in millions) | 2022 | | 2021 | | 2020 | | 2022 vs. 2021 | | 2021 vs. 2020 | | 2022 vs. 2021 | | 2021 vs. 2020 |
| Revenues: | Revenues: | | | | | | | | | | | | | | Revenues: | | | | | | | | | | | | | |
| Gaming | Gaming | $ | 615.2 | | $ | 938.1 | | $ | 719.8 | | $ | (322.9) | | | $ | 218.3 | | | (34.4) | % | | 30.3 | % | Gaming | $ | 1,045.9 | | $ | 1,009.6 | | $ | 615.2 | | $ | 36.3 | | | $ | 394.4 | | | 3.6 | % | | 64.1 | % |
| Food, beverage, hotel and other | Food, beverage, hotel and other | 66.2 | | 156.4 | | 103.9 | | (90.2) | | | 52.5 | | | (57.7) | % | | 50.5 | % | Food, beverage, hotel and other | 113.7 | | 93.1 | | 66.2 | | 20.6 | | | 26.9 | | | 22.1 | % | | 40.6 | % |
| Total revenues | Total revenues | $ | 681.4 | | $ | 1,094.5 | | $ | 823.7 | | $ | (413.1) | | | $ | 270.8 | | | (37.7) | % | | 32.9 | % | Total revenues | $ | 1,159.6 | | $ | 1,102.7 | | $ | 681.4 | | $ | 56.9 | | | $ | 421.3 | | | 5.2 | % | | 61.8 | % |
| | Adjusted EBITDAR | Adjusted EBITDAR | $ | 258.3 | | $ | 403.6 | | $ | 294.3 | | $ | (145.3) | | | $ | 109.3 | | | (36.0) | % | | 37.1 | % | Adjusted EBITDAR | $ | 501.2 | | $ | 500.1 | | $ | 258.3 | | $ | 1.1 | | | $ | 241.8 | | | 0.2 | % | | 93.6 | % |
| Adjusted EBITDAR margin | Adjusted EBITDAR margin | 37.9 | % | | 36.9 | % | | 35.7 | % | | 100 bps | | 120 bps | Adjusted EBITDAR margin | 43.2 | % | | 45.4 | % | | 37.9 | % | | (220) bps | | 750 bps |
The Midwest segment’s results of operationsrevenues for the year ended December 31, 2020 were2022 increased by $56.9 million over the prior year, primarily impacted by the COVID-19 pandemic. due to increased length of play and increased spend per guest resulting in increased gaming and non-gaming revenues. During the year ended December 31, 20202021, our Midwest segment’s operating results were negatively impacted as our properties had temporary closures pursuant to various orders from stateoperated within locally-restricted gaming regulatory bodies or governmental authorities to combat the rapid spread of COVID-19. All of our properties within the Midwest segment reopenedcapacity and continue to operate with reduced gaming, hotel (if applicable) capacity, limited food and beverage and other amenity offerings. In responseofferings. Additionally, our Illinois properties were temporarily closed for periods between fifteen and twenty-two days in January 2021, due to the COVID-19 pandemic on our operations, we implemented cost saving initiatives to offset inevitable revenue degradation, such as: operating with a reduced workforce, focusing on higher margin gaming offerings, reducing marketing costs, and limiting certain lower margin food and beverage offerings.restrictions.
For the year ended December 31, 2020,2022, the Midwest segment’s total revenues and Adjusted EBITDAR decreased, as compared to the prior year, due to the temporary closures, operational restrictions, and social distancing measures described above. The Midwest segment’s Adjusted EBITDAR margin increased 100 basis points for the year ended December 31, 2020, as compared to the prior yearby $1.1 million primarily due to our cost structure savings initiatives described above.increases in gaming and non-gaming revenues, offset by higher payroll expenses and higher variable marketing and promotional expenses, which remain below pre-pandemic levels, reflected in Adjusted EBITDAR margin, which decreased by 220 bps to 43.2%.
OtherInteractive Segment
| | | For the year ended December 31, | | $ Change | | % / bps Change | | For the year ended December 31, | | $ Change | | % / bps Change |
| (dollars in millions) | (dollars in millions) | 2020 | | 2019 | | 2018 | | 2020 vs. 2019 | | 2019 vs. 2018 | | 2020 vs. 2019 | | 2019 vs. 2018 | (dollars in millions) | 2022 | | 2021 | | 2020 | | 2022 vs. 2021 | | 2021 vs. 2020 | | 2022 vs. 2021 | | 2021 vs. 2020 |
| Revenues: | Revenues: | | | | | | | | | | | | | | Revenues: | | | | | | | | | | | | | |
| Gaming | Gaming | $ | 62.7 | | | $ | 8.8 | | | $ | — | | | $ | 53.9 | | | $ | 8.8 | | | 612.5 | % | | — | | Gaming | $ | 283.5 | | $ | 158.4 | | $ | 62.4 | | $ | 125.1 | | | $ | 96.0 | | | 79.0 | % | | 153.8 | % |
| Food, beverage, hotel and other | Food, beverage, hotel and other | 62.3 | | | 38.7 | | | 40.3 | | | 23.6 | | | (1.6) | | | 61.0 | % | | (4.0) | % | Food, beverage, hotel and other | 379.6 | | 274.5 | | 58.7 | | 105.1 | | | 215.8 | | | 38.3 | % | | 367.6 | % |
| Management service and licensing fees | — | | | — | | | 0.1 | | | — | | | (0.1) | | | — | | | (100.0) | % | |
| Total revenues | Total revenues | $ | 125.0 | | | $ | 47.5 | | | $ | 40.4 | | | $ | 77.5 | | | $ | 7.1 | | | 163.2 | % | | 17.6 | % | Total revenues | $ | 663.1 | | $ | 432.9 | | $ | 121.1 | | $ | 230.2 | | | $ | 311.8 | | | 53.2 | % | | 257.5 | % |
| | Adjusted EBITDAR | Adjusted EBITDAR | $ | (43.5) | | | $ | (87.8) | | | $ | (68.1) | | | $ | 44.3 | | | $ | (19.7) | | | (50.5) | % | | 28.9 | % | Adjusted EBITDAR | $ | (74.9) | | $ | (35.4) | | $ | 37.2 | | $ | (39.5) | | | $ | (72.6) | | | N/M | | N/M |
| Adjusted EBITDAR margin | | Adjusted EBITDAR margin | (11.3) | % | | (8.2) | % | | 30.7 | % | | N/M | | N/M |
N/M - Not meaningful
Total revenues and Adjusted EBITDAR offor the Other category increasedInteractive segment for the year ended December 31, 2020,2022 increased by $230.2 million, as compared to the prior year, primarily due to continued increases in online activity with the launch of theScore Bet Sportsbook and Casino in Ontario and the Barstool Sportsbook in additional states, as well as the inclusion of revenues from theScore, which was acquired on October 19, 2021. Additionally, revenues are inclusive of a tax gross-up of $251.6 million for the year ended December 31, 2022, compared to $180.2 million for year ended December 31, 2021.
For the year ended December 31, 2022, Adjusted EBITDAR and Adjusted EBITDAR margin decreased primarily due to higher payroll expenses stemming from our transition to our proprietary technology platform and integrating employees from theScore acquisition. Additionally, there were increased expenses related to online sports betting launches, ramping and launching theScore Bet Sportsbook and Casino in Ontario, and launching the Barstool Sportsbook in additional states.
Other
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the year ended December 31, | | $ Change | | % / bps Change |
| (dollars in millions) | 2022 | | 2021 | | 2020 | | 2022 vs. 2021 | | 2021 vs. 2020 | | 2022 vs. 2021 | | 2021 vs. 2020 |
| Revenues: | | | | | | | | | | | | | |
| Gaming | $ | — | | | $ | — | | | $ | 0.3 | | | $ | — | | | $ | (0.3) | | | N/M | | (100.0) | % |
| Food, beverage, hotel and other | 21.3 | | | 10.6 | | | 3.6 | | | 10.7 | | | 7.0 | | | 100.9 | % | | 194.4 | % |
| | | | | | | | | | | | | |
| Total revenues | $ | 21.3 | | | $ | 10.6 | | | $ | 3.9 | | | $ | 10.7 | | | $ | 6.7 | | | 100.9 | % | | 171.8 | % |
| | | | | | | | | | | | | |
| Adjusted EBITDAR | $ | (97.6) | | | $ | (100.7) | | | $ | (80.7) | | | $ | 3.1 | | | $ | (20.0) | | | N/M | | N/M |
N/M - Not meaningful
Other consists of the Company’s stand-alone racing operations, as well as corporate overhead costs, which primarily includes certain expenses such as payroll, professional fees, travel expenses and other general and administrative expenses that do not directly relate to or have not otherwise been allocated to a property. Revenues have increased compared to the prior year, primarily as a resultdue to the acquisition of Penn Interactive. Penn Interactive's operations benefited fromSam Houston, the launchremaining 50% 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, andwhich was also positively impacted by the temporary closures of Pennsylvania casinos throughout portions of 2020.acquired on August 1, 2021.
In addition to benefiting from Penn Interactive's operating results, the increaseChanges in Adjusted EBITDAR is driven by decreases in corporate overhead costs of $20.5 million for the year ended December 31, 2020, principally driven by furloughs2022 primarily relate 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 resultchanges in corporate overhead costs, which are reflective of the COVID-19 pandemic, offset by increased expenses related to the ramp up of the Penn Interactive online sportsbook operations.
Non-GAAP Financial Measures
Use and Definitions
In addition to GAAP financial measures, management uses Adjusted EBITDA, Adjusted EBITDAR, Adjusted EBITDA margin, 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; interest income; income taxes; depreciation and amortization; stock-based compensation; debt extinguishment and financing charges; impairment losses; insurance recoveries, andnet of deductible charges; changes in the estimated fair value of our contingent purchase price obligations; gain or loss on disposal of assets,assets; the difference between budget and actual expense for cash-settled stock-based awards; pre-opening expenses; and acquisition costs; and other income or expenses.other. 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; and stock-based compensation expense) added back for Barstool Sports and our Kansas Entertainment, LLC joint venture. Adjusted EBITDA is inclusive of rent expense associated with our triple net operating 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 Leaseour triple net master lease dated November 1, 2013 with GLPI and the triple net master lease assumed in connection with our acquisition of Pinnacle Entertainment, Inc., our individual triple net leases with GLPI for the real estate assets used in the operations of Tropicana Lease)Las Vegas Hotel and Casino, Inc. (terminated on September 26, 2022) and Hollywood Casino at The Meadows, and our individual triple net leases with VICI for the real estate assets used in the operations of Margaritaville Resort Casino and Hollywood Casino at Greektown). 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 of 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 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 a 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, Adjusted EBITDA margin and Adjusted EBITDAR margin, which are non-GAAP financial measures:
| | | | For the year ended December 31, | | For the year ended December 31, |
| (dollars in millions) | (dollars in millions) | 2020 | | 2019 | | 2018 | (dollars in millions) | 2022 | | 2021 | | 2020 |
| Net income (loss) | Net income (loss) | $ | (669.1) | | $ | 43.1 | | $ | 93.5 | Net income (loss) | $ | 221.7 | | $ | 420.5 | | $ | (669.1) |
| Income tax expense (benefit) | Income tax expense (benefit) | (165.1) | | 43.0 | | (3.6) | Income tax expense (benefit) | (46.4) | | 118.6 | | (165.1) |
| Loss on early extinguishment of debt | Loss on early extinguishment of debt | 1.2 | | — | | 21.0 | Loss on early extinguishment of debt | 10.4 | | — | | 1.2 |
| Income from unconsolidated affiliates | Income from unconsolidated affiliates | (13.8) | | (28.4) | | (22.3) | Income from unconsolidated affiliates | (23.7) | | (38.7) | | (13.8) |
| Interest expense, net | Interest expense, net | 543.2 | | 534.2 | | 538.4 | Interest expense, net | 758.2 | | 562.8 | | 544.1 |
| Other expense (income) | (106.6) | | (20.0) | | 7.1 | |
| Interest income | | Interest income | (18.3) | | (1.1) | | (0.9) |
| Other (income) expenses | | Other (income) expenses | 72.1 | | (2.5) | | (106.6) |
| Operating income (loss) | Operating income (loss) | (410.2) | | 571.9 | | 634.1 | Operating income (loss) | 974.0 | | 1,059.6 | | (410.2) |
Stock-based compensation (1) | Stock-based compensation (1) | 14.5 | | 14.9 | | 12.0 | Stock-based compensation (1) | 58.1 | | 35.1 | | 14.5 |
Cash-settled stock-based award variance (1)(2) | Cash-settled stock-based award variance (1)(2) | 67.2 | | 0.8 | | (19.6) | Cash-settled stock-based award variance (1)(2) | (15.5) | | 1.2 | | 67.2 |
(Gain) loss on disposal of assets (1) | (29.2) | | 5.5 | | 3.2 | |
Loss (gain) on disposal of assets (1) | | Loss (gain) on disposal of assets (1) | 7.9 | | 1.1 | | (29.2) |
Contingent purchase price (1) | Contingent purchase price (1) | (1.1) | | 7.0 | | 0.5 | Contingent purchase price (1) | (0.6) | | 1.9 | | (1.1) |
Pre-opening and acquisition costs (1) | 11.8 | | 22.3 | | 95.0 | |
Pre-opening expenses (1)(3) | | Pre-opening expenses (1)(3) | 4.1 | | 5.4 | | 11.8 |
| Depreciation and amortization | Depreciation and amortization | 366.7 | | 414.2 | | 269.0 | Depreciation and amortization | 567.5 | | 344.5 | | 366.7 |
| Impairment losses | Impairment losses | 623.4 | | 173.1 | | 34.9 | Impairment losses | 118.2 | | — | | 623.4 |
| Recoveries on loan loss and unfunded loan commitments | — | | — | | (17.0) | |
| Insurance recoveries, net of deductible charges (1) | Insurance recoveries, net of deductible charges (1) | (0.1) | | (3.0) | | (0.1) | Insurance recoveries, net of deductible charges (1) | (10.7) | | — | | (0.1) |
| Income from unconsolidated affiliates | Income from unconsolidated affiliates | 13.8 | | 28.4 | | 22.3 | Income from unconsolidated affiliates | 23.7 | | 38.7 | | 13.8 |
Non-operating items of equity method investments (3) | 4.7 | | 3.7 | | 5.1 | |
Other expenses (1)(4) | 13.5 | | — | | — | |
Non-operating items of equity method investments (4) | | Non-operating items of equity method investments (4) | 7.9 | | 7.7 | | 4.7 |
Other expenses (1)(3)(5) | | Other expenses (1)(3)(5) | 55.2 | | 44.8 | | 13.5 |
| Adjusted EBITDA | Adjusted EBITDA | 675.0 | | 1,238.8 | | 1,039.4 | Adjusted EBITDA | 1,789.8 | | 1,540.0 | | 675.0 |
Rent expense associated with triple net operating leases (1) | Rent expense associated with triple net operating leases (1) | 419.8 | | 366.4 | | 3.8 | Rent expense associated with triple net operating leases (1) | 149.6 | | 454.4 | | 419.8 |
| Adjusted EBITDAR | Adjusted EBITDAR | $ | 1,094.8 | | $ | 1,605.2 | | $ | 1,043.2 | Adjusted EBITDAR | $ | 1,939.4 | | $ | 1,994.4 | | $ | 1,094.8 |
| | Net income (loss) margin | Net income (loss) margin | (18.7) | % | | 0.8 | % | | 2.6 | % | Net income (loss) margin | 3.5 | % | | 7.1 | % | | (18.7) | % |
| | Adjusted EBITDA margin | | Adjusted EBITDA margin | 28.0 | % | | 26.1 | % | | 18.9 | % |
| Adjusted EBITDAR margin | Adjusted EBITDAR margin | 30.6 | % | | 30.3 | % | | 29.1 | % | Adjusted EBITDAR margin | 30.3 | % | | 33.8 | % | | 30.6 | % |
(1) These items are included in “General and administrative” within the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss).Operations.
(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.
(3) During 2020 and the yearfirst quarter of 2021, acquisition costs were included within pre-opening and acquisition costs. Beginning with the quarter ended December 31, 2020, the priceJune 30, 2021, acquisition costs are presented as part of the Company’s common stock increased significantly, which resulted in unfavorable variances to budget.other expenses.
(3)(4) Consists principally of interest expense, net;net, income taxes;taxes, depreciation and amortization;amortization, and stock-based compensation expense associated with Barstool Sports and our Kansas Entertainment joint venture. We record our portion of Barstool’s net income or loss, including adjustments to arrive at Adjusted EBITDAR, one quarter in arrears.
(4)(5) Consists of non-recurring acquisition and transaction costs, finance transformation costs associated with the implementation of our new Enterprise Resource Management system and non-recurring restructuring charges (primarily severance), specific to the year ended December 31, 2020, 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.area.
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) | (dollars in millions) | 2020 | | 2019 | | 2018 | | 2020 vs. 2019 | | 2019 vs. 2018 | | 2020 vs. 2019 | | 2019 vs. 2018 | (dollars in millions) | 2022 | | 2021 | | 2020 | | 2022 vs. 2021 | | 2021 vs. 2020 | | 2022 vs. 2021 | | 2021 vs. 2020 |
| Net cash provided by operating activities | Net cash provided by operating activities | $ | 338.8 | | | $ | 703.9 | | | $ | 352.8 | | | $ | (365.1) | | | $ | 351.1 | | | (51.9) | % | | 99.5 | % | Net cash provided by operating activities | $ | 878.2 | | | $ | 896.1 | | | $ | 338.8 | | | $ | (17.9) | | | $ | 557.3 | | | (2.0) | % | | 164.5 | % |
| Net cash used in investing activities | Net cash used in investing activities | $ | (233.7) | | | $ | (607.5) | | | $ | (1,423.1) | | | $ | 373.8 | | | $ | 815.6 | | | (61.5) | % | | (57.3) | % | Net cash used in investing activities | $ | (258.6) | | | $ | (1,221.8) | | | $ | (233.7) | | | $ | 963.2 | | | $ | (988.1) | | | (78.8) | % | | 422.8 | % |
| Net cash provided by (used in) financing activities | 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 | Net cash provided by (used in) financing activities | $ | (853.0) | | | $ | 339.9 | | | $ | 1,310.1 | | | $ | (1,192.9) | | | $ | (970.2) | | | N/M | | (74.1) | % |
N/M - Not meaningful
Operating Cash Flow
The decreaseTrends in netour operating cash flows tend to follow trends in operating income, excluding non-cash charges, but can be affected by changes in working capital, the timing of significant interest payments, tax payments or refunds, and distributions from unconsolidated affiliates. Net cash provided by operating activities of $365.1decreased by $17.9 million for the year ended December 31, 2020, is2022 primarily due to the temporary closures of our properties duea negative impact in changes in working capital related to the COVID-19 pandemic, which significantly decreased cash receipts from customers. Offsetting this decrease waspayroll and gaming and racing liabilities, partially offset by a $316.2 million decrease in cash paid for rent and interest payments, in total, under our Triple Net Leases, due primarily to utilizing rent credits to pay rent in the current year under the Master Leases, the Meadows Lease and the Morgantown Lease (offset by the increase in payments under the Greektown Lease due to the timing of the acquisition in the second quarter of 2019).taxes.
Investing Cash Flow
Net cashCash used in investing activities for the year ended December 31, 2020 decreased compared to the prior year2022 of $258.6 million is primarily due to decrease in capital expenditures of $53.6$263.4 million in the current year and the 2019 acquisitionsacquisition of a $15.0 million cost method investment, offset by insurance proceeds received for losses incurred due to Hurricane Laura in 2020. For the operations of Margaritaville and Greektown for $109.1 million and $289.2 million, respectively, both net of 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 netyear ended December 31, 2021, cash used in investing activities forwas primarily related to the year ended December 31, 2019. In addition, during the year ended December 31, 2019, we paid $10.0 million for onlineacquisition of theScore as well as other acquired businesses and retail sports betting licenses in Pennsylvania. The decrease ininterests, and capital expenditures in the current year primarily reflects our efforts to reduce or defer our planned Category 4 project capital expenditures as we mitigate the impact of the COVID-19 pandemic. These decreases were partially offset by our $135.0 million investment in Barstool Sports made during the first quarter of 2020.expenditures.
Capital Expenditures
Capital expenditures are accounted for as either project capital (new facilities or expansions) or maintenance (replacement) capital expenditures.which is inclusive of projects such as our Barstool branded retail sportsbooks, our cashless, cardless and contactless technology and hotel renovations. Cash provided by operating activities, as well as cash available under our Amended Revolving Credit Facility fundedand Revolving Facility, was available to fund our capital expenditures for the years ended December 31, 2022, 2021 and 2020, 2019 and 2018.
During the year ended December 31, 2020,2022, we hadspent $263.4 million on capital expenditures, which consisted of $137.0maintenance capital expenditures (as discussed above), $17.1 million primarilyin capital expenditures for our York and Morgantown development projects and $26.0 million in construction costs related to hurricane damage sustained at our maintenance projects and our Category 4 development projects.Lake Charles property for which insurance proceeds were previously received. For the year ending December 31, 2021,2023, our eanticipatedxpected capital expenditures are $296.8approximately $413 million, which include capital expenditures under our Triple Net Leases, which require us to spend a specified percentage of 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. Hollywood Casino York, which is located in the York Galleria Mall in York County, will represent an overall capital investment of approximately $120.0 million inclusive of the gaming license. Hollywood Casino Morgantown is being built on a previously vacant 36-acre site in Berks County with a capital investment of approximately $111.0 million inclusive of the gaming license. We anticipate that both of these projects will be completed by the end of 2021.revenues.
Financing Cash Flow
Net cash provided by financing activities forFor the year ended December 31, 2020 was $1,310.1 million compared to2022, net cash used in financing activities of $122.4totaled $853.0 million compared to $339.9 million in net cash provided by financing activities in the prior year. The change is drivenDuring the year ended December 31, 2022, net cash used in financing activities primarily related to $601.1 million of common stock repurchases, net debt repayments of $37.5 million, $18.2 million in debt issuance costs, and $173.7 million in principal payments on our finance leases and finance obligations.
During the year ended December 31, 2021, cash provided by the separate public offeringsfinancing activities of Penn Common Stock on May 14, 2020 and September 24, 2020, in which we received$339.9 million was primarily due to net cash proceeds of $331.2$400.0 million and $957.6 million, respectively. Additionally, we received $322.2 million of net proceeds fromrelated to 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 $115.04.125% Notes due 2029.
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.
Debt Issuances, Redemptions and Other Long-term Obligations
On March 13, 2020, we borrowed the remaining 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 outstanding borrowings on its Term Loan B-1 Facility.
On April 14, 2020,In February 2021, the Company entered into a second amendmentfinancing arrangement providing the Company with upfront cash proceeds while permitting us to its participate in future proceeds on certain claims. The financing obligation has been classified as a non-current liability, which is expected to be settled in a future period of which the principal is contingent and predicated on other events. Consistent with an obligor’s accounting under a debt instrument, period interest will be accreted using an effective interest rate of 27.0% and until such time that the claims and related obligation is settled. The amount included in interest expense related to this obligation was $27.6 million and $17.9 million for the years ended December 31, 2022 and 2021, respectively.
On July 1, 2021, the Company completed an offering of $400.0 million aggregate principal amount of 4.125% Senior Unsecured Notes that mature on July 1, 2029 (the “4.125% Notes”). The 4.125% Notes were issued at par and interest is payable semi-annually on January 1st and July 1st of each year.
On May 3, 2022, the Company entered into a Second Amended and Restated Credit Agreement with its various lenders (the(the “Second Amendment”) to provide for certain modifications. During the period beginning on April 14, 2020Amended 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 agentRestated Credit Agreement”). The Second Amended 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 in theRestated Credit Agreement that was amended on January 19, 2017, the "Amended 2017 Credit Agreement"). During the Covenant Relief Period, the Company will be subject toprovides for a minimum liquidity covenant that requires cash and cash equivalents and availability under its$1.0 billion revolving credit facility, undrawn at close, (the “Amended Revolving Credit FacilityFacility”), a five-year $550.0 million term loan A facility (the “Amended Term Loan A Facility”) and a seven-year $1.0 billion term loan B facility (the “Amended Term Loan B Facility”) (together, the “Amended Credit Facilities”). The proceeds from the Amended Credit Facilities were used to be (i) at least $400.0 million through April 30, 2020; (ii) $350.0 million duringrepay 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 (iv) $225.0 million during the period 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 permit the Company to (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 interest coverage ratio of 2.50:1.00, tested quarterly on a PF TTM basis.
In addition, the Second Amendment (i) provides that, during the Covenant Relief Period, loans under the Revolving Credit Facility and theexisting Term Loan A Facility shall bear interest at either a base rate or an adjusted LIBOR rate, in each case, plus an applicable margin, in the case of base rate loans, of 2.00%, and in the case of adjusted LIBOR rate loans, of 3.00%; (ii) provides that, during the Covenant Relief Period, the Company shall pay a commitment fee on the unused portion of the commitments under the Revolving CreditTerm Loan B-1 Facility at a rate of 0.50% per annum; (iii) provides for a 0.75% LIBOR floor applicable to all LIBOR loans under the Senior Secured Credit Facilities; (iv) carves out COVID-19 related effects from certain terms of the Senior Secured Credit Facilities during the Covenant Relief Period; and (v) makes certain other changes to the covenants and other provisions of the Credit Agreement.balances.
In May 2020, the Company completed a public offering of $330.5 million aggregate principal amount of 2.75% unsecured convertible notes that mature, unless earlier converted, redeemed or repurchased, on May 15, 2026 (the “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 Convertible Notes is payable on May 15th and November 15th of each year, beginning on November 15, 2020.
The Convertible Notes are convertible into shares of the Company’s common 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 fourth 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, or a combination thereof. The Company has the option to redeem the Convertible Notes, in whole or in part, beginning November 20, 2023.
In addition, the Convertible 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, 2020,2022, we had $2,431.6 million$2.8 billion in aggregate principal amount of indebtedness, including $1,628.1 million$1.5 billion outstanding under our Senior SecuredAmended Credit Facilities, $330.5 million outstanding under our Convertible Notes, $400.0 million outstanding under our 5.625% senior unsecured notes, $400.0 million outstanding under our 4.125% Notes, and $73.0$156.1 million outstanding in other long-term obligations.obligations. No amounts were drawn on our Amended Revolving Credit Facility. We have no debt maturing prior to 2023.2026. As of December 31, 20202022 we had conditionalconditional obligations under letters of credit issued pursuant to the Senior SecuredAmended Credit Facilities with face amounts aggregating to $28.2$22.5 million resulting in $671.8$977.5 million available borrowing capacity under our Amended Revolving Credit Facility.
Covenants
Our Senior SecuredAmended Credit Facilities, 5.625% Notes and 5.625%4.125% Notes, require us, among other 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).tests. In addition, our Senior SecuredAmended Credit Facilities, 5.625% Notes and 5.625% Notes4.125% notes, restrict, among other things, our ability to incur additional indebtedness, incur guarantee obligations, amend debt instruments,instruments, pay dividends, create liens on assets, make investments, engage in mergers or consolidations, and otherwise restrict corporate activities. Our debt agreements also contain customary events of default, including cross-default provisions that require us to meet certain requirements under the PENN Master Lease and the Pinnacle Master Lease (both of which are defined in Note 12, “Leases”), each with GLPI. If we are unable to meet our financial covenants or in the event of a cross-default, it could trigger an acceleration of payment terms. As of December 31, 2020,2022, the Company was in compliance with all required financial covenants. When our covenant relief period ends, theThe Company is subject to and expects to bebelieves that it will remain in compliance with all of its 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)for at least the next twelve months following the date of filing this Annual Report on Form 10-K with the Company's submission of its compliance certificate for the quarter ending March 31, 2021.
See Note 11, “Long-term Debt,” in the notes to our Consolidated Financial Statements for additional information of the Company'sCompany’s debt and other long-term obligations.
Common Stock OfferingShare Repurchase Authorizations
On May 14, 2020,February 1, 2022, the Board of Directors of PENN authorized a $750 million share repurchase program, which expires on January 31, 2025 (the “February 2022 Authorization”).
On December 6, 2022, a second share repurchase program was authorized for an additional $750 million (the “December 2022 Authorization”). The December 2022 Authorization expires on December 31, 2025.
The Company plans to utilize the remaining capacity under the February 2022 Authorization prior to effecting any repurchases under the December 2022 Authorization. Repurchases by the Company will be subject to available liquidity, general market and economic conditions, alternate uses for the capital and other factors. Share repurchases may be made from time to time through a 10b5-1 trading plan, open market transactions, block trades or in private transactions in accordance with applicable securities laws and regulations and other legal requirements. There is no minimum number of shares that the
Company is required to repurchase and the repurchase authorization may be suspended or discontinued at any time without prior notice.
During the year ended December 31, 2022, the Company repurchased 17,561,288 shares of its common stock in open market transactions for $601.1 million at an average price of $34.23 per share under the February 2022 Authorization. The cost of all repurchased shares is recorded as “Treasury stock” in the Consolidated Balance Sheets.
Subsequent to the year ended December 31, 2022, the Company repurchased 1,065,688 shares of its common stock at an average price of $31.41 per share for an aggregate amount of $33.5 million. As of February 23, 2023, the remaining availability under our February 2022 Authorization and our December 2022 Authorization was $115.8 million and $750 million, respectively.
Barstool Acquisition
On August 17, 2022, the Company exercised its call rights to bring its ownership of Barstool to 100%. Subsequent to year end, on February 17, 2023, the Company completed a public offeringthe acquisition of 16,666,667all of the outstanding shares of Penn Common Stockcommon stock of Barstool not already owned by us for approximately $388 million, excluding transaction expenses, repayment of Barstool indebtedness and on May 19, 2020, the underwriters exercised their right toother purchase an additional 2,500,000price adjustments. We issued 2,442,809 shares of Penn Common Stock, resulting in an aggregate public offeringour common stock to certain former stockholders of 19,166,667 sharesBarstool for the Barstool Acquisition (see Note 15, “Stockholders’ Equity,” for further information) and utilized approximately $315 million of Penn Common Stock. Allcash to complete the Barstool Acquisition, inclusive of the shares were issued at a public offering pricetransaction expenses and repayment of $18.00 per share, resulting in gross proceeds of $345.0 million, and net proceeds of $331.2 million after underwriter fees and discounts of $13.8 million.
On September 24, 2020, the Company 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 shares were 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 PennPENN Master Lease and the Pinnacle Master Lease. Subsequent to the adoption of ASC 842, theThe Company’s Master Leases are accounted for as either operating leases, finance leases, or determined to continue to be financing obligations. Prior to the adoptionAs of ASC 842, all components contained within the Master Leases were accounted for as financing obligations. In addition,December 31, 2022, five of the gaming facilities used in our operations are subject to individual triple net leases. As previously mentioned, weWe refer to the PennPENN Master Lease, the Pinnacle Master Lease, the Perryville Lease, the Meadows Lease, the Margaritaville Lease, the Greektown Lease, the Tropicana Lease and the Morgantown Lease, each of which is defined in Note 12, “Leases” to our Consolidated Financial Statements, collectively, as our Triple“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)(i) all facility maintenance; (2)(ii) all insurance required in connection with the leased properties and the business conducted on the leased properties; (3)(iii) taxes levied on or with respect to the leased properties (other than taxes on the income of the lessor); (4)(iv) all tenant capital improvements; and (5)(v) all utilities and other services necessary or appropriate for the
leased properties and the business conducted on the leased properties. As of December 31, 2020,2022, we are required to make total annual minimum rent payments of $814.6 million.$882.0 million, of which $863.6 million relates to our Triple Net Leases. Additionally, our Triple Net Leases are subject to annual escalators, percentage rent, and periodic percentage rent resets, as applicable. See Note 12, “Leases,” in the notes to our Consolidated Financial Statements for further discussion and disclosure related to the Company'sCompany’s leases. On January 14, 2022, the ninth amendment to the PENN Master Lease between the Company and GLPI became effective. The ninth amendment restates the definition of “Net Revenue” to clarify the inclusion of online-based revenues derived when a patron is physically present at a leased property, establishes a “floor” with respect to the Hollywood Casino at PENN National Race Course Net Revenue amount used in the calculation of the annual rent escalator and PENN Percentage Rent, and modifies the rent calculations upon a lease termination event as defined in the amendment. The lease term and the four five-year optional renewal periods, which if exercised would extend the PENN Master Lease through October 31, 2048, were not modified in the ninth amendment.
We concluded the ninth amendment constituted a modification event under ASC 842, which required us to reassess the classifications of the lease components and remeasure the associated lease liabilities. As a result of our reassessment of the lease classifications, (i) the land components of substantially all of the PENN Master Lease properties, which were previously classified as operating leases, are now primarily classified as finance leases, and (ii) the land and building components associated with the operations of Dayton and Mahoning Valley, which were previously classified as finance leases, are now classified as operating leases. As a result of our measurement of the associated lease liabilities, we recognized additional right-of-use (“ROU”) assets and corresponding lease liabilities of $455.4 million. The building components of substantially all of the PENN Master Lease properties continue to be classified as financing obligations.
On January 14, 2022, the fifth amendment to the Pinnacle Master Lease between the Company and GLPI became effective. The fifth amendment restates the definition of “Net Revenue” to clarify the inclusion of online-based revenues derived when a
patron is physically present at a leased property and modifies the rent calculations upon a lease termination event as defined in the amendment. The lease term and the five five-year optional renewal periods, which if exercised would extend the Pinnacle Master Lease through April 30, 2051, were not modified in the fifth amendment.
We concluded the fifth amendment to the Pinnacle Master Lease constituted a modification event under ASC 842 (collectively with the ninth amendment to the PENN Master Lease, the “Lease Modification”). As a result of the modification, the land components of substantially all of the Pinnacle Master Lease properties, which were previously classified as operating leases, are now primarily classified as finance leases. As a result of our measurement of the associated lease liabilities, we recognized additional ROU assets and corresponding lease liabilities of $937.6 million. The building components of substantially all of the Pinnacle Master Lease properties continue to be classified as financing obligations.
On October 9, 2022, as described in Note 12, “Leases”, the Company entered into the Term Sheet with GLPI. Pursuant to the Term Sheet, the Company and GLPI agreed to amend and restate the PENN Master Lease (the “Amended and Restated PENN Master Lease”) to (i) remove the land and buildings for Aurora, Joliet, Columbus, Toledo and the M Resort; (ii) make associated adjustments to the rent after which the initial rent in the Amended and Restated PENN Master Lease will be $284.1 million, consisting of $208.2 million of Building Base Rent, $43.0 million of Land Base Rent and $32.9 million of Percentage Rent (as such terms are defined in the Amended and Restated PENN Master Lease); (iii) terminate the existing leases associated with Meadows and Perryville; and (iv) enter into the 2023 Master Lease specific to the properties associated with Aurora, Joliet, Columbus, Toledo, M Resort, Meadows and Perryville. Subsequent to year end, on February 21, 2023, both the Amended and Restated PENN Master Lease and the 2023 Master Lease agreement were executed with an effective date of January 1, 2023, and a master development agreement (the “Master Development Agreement”) was executed on February 22, 2023. The 2023 Master Lease has an initial term through October 31, 2033 with three subsequent five-year renewal periods on the same terms and conditions, exercisable at the Company’s option. The 2023 Master Lease will be cross-defaulted, cross-collateralized, and coterminous with the Amended and Restated PENN Master Lease, and subject to a parent guarantee. The 2023 Master Lease includes a 2023 Master Lease Base Rent (the “2023 Master Lease Base Rent”) equal to $232.2 million and the Master Development Agreement contains additional rent (together with the 2023 Master Lease Base Rent, the “2023 Master Lease Rent”) equal to (i) 7.75% of any project funding received by PENN from GLPI for an anticipated relocation of PENN’s riverboat casino and related developments with respect to Aurora (the “Aurora Project”) and (ii) a percentage based on the then-current GLPI stock price, of any project funding received by PENN from GLPI for certain anticipated development projects with respect to Joliet, Columbus, and M Resort (the “Other Development Projects”). The Master Development Agreement provides that GLPI will fund, upon PENN’s request, up to $225 million for the Aurora Project and up to $350 million in the aggregate for the Other Development Projects, in accordance with certain terms and conditions set forth in the Master Development Agreement. These funding obligations of GLPI expire on January 1, 2026. The 2023 Master Lease Rent will be subject to a one-time increase of $1.4 million, effective the fifth anniversary of the effective date. The 2023 Master Lease Rent will be further subject to a fixed escalator of 1.5% on November 1, 2023 and annually thereafter. The Master Development Agreement provides that PENN may elect not to proceed with a development project prior to GLPI’s commencement of any equity or debt offering or credit facility draw intended to fund such project or after such time in certain instances, provided that GLPI will be reimbursed for all costs and expenses incurred in connection with such discontinued project. The Aurora Project and the Other Development Projects are all subject to necessary regulatory and other government approvals.
We concluded the Amended and Restated PENN Master Lease constitutes a modification event under ASC 842 and are currently reassessing, remeasuring, and quantifying the impact of the modification to the Consolidated Financial Statements, which may be material. The modification event is expected to result in (i) a non-cash debt extinguishment charge recorded to our Consolidated Statements of Operations and corresponding change in our financing obligations on our Consolidated Balance Sheets; and (ii) a revaluation of our lease ROU assets and corresponding lease liabilities on our Consolidated Balance Sheets.
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, | | For the year ended December 31, |
| (in millions) | (in millions) | 2020 | | 2019 | | 2018 | (in millions) | 2022 | | 2021 | | 2020 |
Penn Master Lease (1) | $ | 457.9 | | | $ | 457.9 | | | $ | 461.5 | | |
PENN Master Lease (1) | | PENN Master Lease (1) | $ | 480.3 | | | $ | 475.7 | | | $ | 457.9 | |
Pinnacle Master Lease (1) | Pinnacle Master Lease (1) | 326.9 | | | 328.6 | | | 70.3 | | Pinnacle Master Lease (1) | 334.1 | | | 328.3 | | | 326.9 | |
| Perryville Lease | | Perryville Lease | 7.8 | | | 3.9 | | | — | |
Meadows Lease (1) | Meadows Lease (1) | 26.4 | | | 26.4 | | | 5.6 | | Meadows Lease (1) | 24.6 | | | 24.9 | | | 26.4 | |
| Margaritaville Lease | Margaritaville Lease | 23.5 | | | 23.1 | | | — | | Margaritaville Lease | 23.8 | | | 23.5 | | | 23.5 | |
| Greektown Lease | Greektown Lease | 55.6 | | | 33.8 | | | — | | Greektown Lease | 51.3 | | | 53.1 | | | 55.6 | |
Morgantown Lease (1) | Morgantown Lease (1) | 0.8 | | | — | | | — | | Morgantown Lease (1) | 3.1 | | | 3.0 | | | 0.8 | |
Total (2) | Total (2) | $ | 891.1 | | | $ | 869.8 | | | $ | 537.4 | | Total (2) | $ | 925.0 | | | $ | 912.4 | | | $ | 891.1 | |
(1)During the twelve months ended December 31, 2020, we utilized rent credits to pay $190.7 million, $135.5 million, $11.0 million and $0.3 million of rent under the PennPENN Master Lease, Pinnacle Master Lease, Meadows Lease and Morgantown Lease, respectively.
(2)Cash rent payable under the Tropicana Lease is nominal.was nominal prior to the lease termination on September 26, 2022. Therefore, it has been excluded from the table above.
Share Repurchase Programs
In January 2019, the Company announced a share repurchase program pursuant to which the Board of Directors authorized the repurchase of up to $200.0 million of the Company’s common stock, which expired 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. All of the repurchased shares were retired. There were no repurchases of the Company’s common stock for the year ended December 31, 2020.
Other Contractual Cash Obligations
The following table presents our other contractual cash obligations as of December 31, 2020:2022:
| | | | | | Payments Due By Period | | | | Payments Due by Period |
| (in millions) | (in millions) | Total | | 2021 | | 2022-2023 | | 2024-2025 | | 2026 and After | (in millions) | Total | | 2023 | | 2024-2025 | | 2026-2027 | | 2028 and After |
| Purchase obligations | Purchase obligations | $ | 149.1 | | | $ | 59.7 | | | $ | 33.3 | | | $ | 12.9 | | | $ | 43.2 | | Purchase obligations | $ | 405.6 | | | $ | 126.2 | | | $ | 91.1 | | | $ | 73.7 | | | $ | 114.6 | |
Other liabilities reflected within our Consolidated Balance Sheets (1) | Other liabilities reflected within our Consolidated Balance Sheets (1) | 9.4 | | | 0.8 | | | 0.6 | | | 0.6 | | | 7.4 | | Other liabilities reflected within our Consolidated Balance Sheets (1) | 8.3 | | | 0.3 | | | 0.6 | | | 0.6 | | | 6.8 | |
| Total | Total | $ | 158.5 | | | $ | 60.5 | | | $ | 33.9 | | | $ | 13.5 | | | $ | 50.6 | | Total | $ | 413.9 | | | $ | 126.5 | | | $ | 91.7 | | | $ | 74.3 | | | $ | 121.4 | |
(1)Excludes the liability for unrecognized tax benefits of $38.2$46.0 million, as we cannot reasonably estimate the period of cash settlement with the respective taxing authorities. Additionally, it does not include an estimatea total of $125.2 million related to the payments associated with our (i) contingent purchase price obligations of $7.3 millionobligations; and (ii) financing arrangement in which we received upfront cash proceeds permitting us to participate in future claims, as it isthey are not a fixed obligation.obligations.
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 SecuredAmended 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, our ability to generate sufficient cash flow from operations will depend on a range of economic, competitive and business factors, many of which are outside our control, includingsuch as supply chain disruption and resulting inflationary pressures, labor shortages, the ebb and flow of COVID-19 and its impacts on specific North American geographies, and changes in national economic policy. If we are unable to respond to and manage 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 andany such events effectively, our business will recover to 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; (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, whileWhile we anticipatedanticipate that a significant amount of our future growth wouldwill come through the pursuit of opportunities within other distribution channels, such as retail and online sports betting social gaming, retail gaming, and iGaming; fromiCasino, acquisitions of gaming properties at reasonable valuations;valuations, greenfield projects;projects, and jurisdictional expansions and property expansionexpansions 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.occur. If we consummate significant acquisitions in the future or undertake any significant property expansions, our cash requirements may increase significantly and we may need to make additional borrowings or complete equity or debt financings to meet these requirements. 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 in an effortand to maximize our enterprise value for our shareholders. We expect to meetservice our debt obligations as they come due through internally-generatedusing funds from operations and/or by refinancing them through the debt or equity markets prior to their maturity.
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, 2020,2022, the Company had $1,157.1 million$2.7 billion in goodwill and $1,513.5 million$1.7 billion in other intangible assets within its Consolidated Balance Sheet, representing 7.9%15.4% and 10.3%9.9% 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 weOur annual goodwill and other indefinite-lived intangible assets impairment test is performed our annual impairment analysis and the fair valueon October 1st 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,each year, or more frequently if indicators of impairment exist.
During the third quarter of 2022, we identified an indicator of impairment on goodwill and other intangible assets at Hollywood Casino at Greektown and performed tests to assess for impairment, which resulted in impairment charges on our goodwill and gaming licenses of $37.4 million and $65.4 million, respectively. As a result of our annual test completed during the fourth quarter of 2022, we recognized a $13.6 million impairment charge on our gaming licenses specific to PNRC. For further discussion, see Note 9, “Goodwill and Other Intangible Assets” to our Consolidated Financial Statements.For the quantitative goodwill impairment test,tests, 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”)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 statejurisdictional 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;expenses; 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, 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, inflation and/or interest rates can also result in decreased customer visitationsvisitation 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.visitation. Additionally, increases in gaming taxes approved by state regulatory bodies can negatively impact forecasted cash flows.
Assumptions and estimates about future cash flow levels, discount rates 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.
Reporting units with goodwill, gaming licenses
or trademarks which were identified during our 2022 interim and
trademarks, of $113.0 million, $437.0 million and $61.5 million, respectively. Upon reopening of our gaming facilities and throughoutannual impairment assessments as having less than a substantial passing margin were subject to a sensitivity analysis to determine 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 forpotential impairment
as of October 1, 2020, which did not result in any impairment charges to goodwill, gaming licenses and trademarks. See Note 9, “Goodwill and Other Intangible Assets,” in the notes to our Consolidated Financial Statements.losses: | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Amount of impairment loss as a result of: |
| (dollars in millions) | Carrying Amount | | Passing Margin | | Discount Rate
+100 bps | | Terminal Growth Rate -50 bps |
| Goodwill | | | | | | | |
| Hollywood Casino at Greektown | $30.0 | | — | % | | $— | | $— |
| | | | | | | |
| Gaming License | | | | | | | |
| Ameristar East Chicago | $55.6 | | 3.4 | % | | $7.1 | | $0.5 |
| Hollywood Casino at Greektown | $101.0 | | — | % | | $14.0 | | $4.0 |
| PNRC | $74.0 | | — | % | | $11.0 | | $2.5 |
| | | | | | | |
| Trademark | | | | | | | |
| Ameristar Black Hawk | $27.5 | | 7.3 | % | | $0.5 | | $— |
| L’Auberge Lake Charles | $47.5 | | 13.7 | % | | $— | | $— |
| theScore | $89.6 | | 13.8 | % | | $— | | $— |
| | | | | | | | | | | | | | | | | |
| | | | | Amount of impairment loss as a result of: |
| (dollars in millions) | Carrying Amount | | Passing Margin | | a 10% decrease in forecasted revenues and EBITDA |
| Goodwill | | | | | |
| PENN Interactive | $1,600.6 | | 11.8 | % | | $61.2 |
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 basesbasis 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.
ASC 740 suggests that additional scrutiny should be given to deferred tax assets of an entity with cumulative pre‑tax losses during the three most recent years and is widely considered significant negative evidence that is objective and verifiable and therefore, difficult to overcome. ForDuring the third quarter of 2022, the Company determined that a valuation allowance was no longer required against its federal, foreign, and state net deferred tax assets for the portion that will be realized. As such, the Company released $113.4 million of its total valuation allowance for the year ended December 31, 2020, we have cumulative pre‑tax losses and considered this factor in our analysis of deferred taxes. Additionally, we expect2022, due to remain in a three year cumulative loss position in the near future. As a result,positive evidence outweighing the negative evidence thereby allowing 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 excludingachieve 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
We are exposed to market risk from adverse changes in interest rates with respect to the short-term floating interest raterates on borrowings under our Senior SecuredAmended Credit Facilities. As of December 31, 2020,2022, the Company’s Senior SecuredAmended Credit Facilities had a gross outstanding balance of $1,628.1 million,$1.5 billion, consisting of a $636.9$536.2 million Amended Term Loan A Facility and a $991.2$995.0 million Amended Term Loan B-1B Facility, and an Amended Revolving Credit Facility. As of December 31, 2020,2022, we have $671.8$977.5 million of available borrowing capacity under our Amended 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, 20202022 about our long-term debt obligations that are sensitive to changes in interest rates, including the notional amounts maturing during the twelve-month period presented and the related weighted-average interest rates by maturity dates.
| | (dollars in millions) | (dollars in millions) | 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | Thereafter | | Total | | Fair Value | (dollars in millions) | 2023 | | 2024 | | 2025 | | 2026 | | 2027 | | Thereafter | | Total | | Fair Value |
| Fixed rate | Fixed rate | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 400.0 | | | $ | 400.0 | | | $ | 418.0 | | Fixed rate | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 400.0 | | | $ | — | | | $ | 400.0 | | | $ | 371.0 | |
| Average interest rate | Average interest rate | | 5.625 | % | | Average interest rate | | 5.625 | % | |
| Fixed rate | Fixed rate | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 330.5 | | | $ | 330.5 | | | $ | 1,274.5 | | Fixed rate | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 400.0 | | | $ | 400.0 | | | $ | 327.0 | |
| Average interest rate | Average interest rate | | 2.750 | % | | Average interest rate | | 4.125 | % | |
| Fixed rate | | Fixed rate | $ | — | | | $ | — | | | $ | — | | | $ | 330.5 | | | $ | — | | | $ | — | | | $ | 330.5 | | | $ | 550.8 | |
| Average interest rate | | Average interest rate | | 2.750 | % | |
| Variable rate | Variable rate | $ | 64.4 | | | $ | 82.1 | | | $ | 524.4 | | | $ | 11.3 | | | $ | 945.9 | | | $ | — | | | $ | 1,628.1 | | | $ | 1,609.3 | | Variable rate | $ | 37.5 | | | $ | 37.5 | | | $ | 37.5 | | | $ | 37.5 | | | $ | 436.2 | | | $ | 945.0 | | | $ | 1,531.2 | | | $ | 1,514.7 | |
Average interest rate (1) | Average interest rate (1) | 3.62 | % | | 3.65 | % | | 3.73 | % | | 3.13 | % | | 3.27 | % | | — | % | | Average interest rate (1) | 5.142 | % | | 5.154 | % | | 5.162 | % | | 5.171 | % | | 4.902 | % | | 6.045 | % | |
(1)Estimated rate, reflective of forward LIBORSOFR as of December 31, 20202022 plus the spread over LIBORSOFR applicable to variable-rate borrowing.
Foreign Currency Exchange Rate Risk
We are exposed to currency translation risk because the results of our international entities are reported in local currency, which we then translate to U.S. dollars for inclusion in our Consolidated Financial Statements. As a result, changes between the foreign exchange rates, in particular the Canadian dollar compared to the U.S. dollar, affect the amounts we record for our foreign assets, liabilities, revenues and expenses, and could have a negative effect on our financial results. The results of theScore are reported in Canadian dollars, which we then translate to U.S. dollars for inclusion in our Consolidated Financial Statements. We do not currently enter into hedging arrangements to minimize the impact of foreign currency fluctuations on our operations. For the year ended December 31, 2022, we incurred an unrealized foreign currency translation adjustment loss of $114.2 million, as reported in “Foreign currency translation adjustment during the period” within our Consolidated Statements of Comprehensive Income (Loss).
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,PENN Entertainment, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Penn National Gaming,PENN Entertainment, Inc. and subsidiaries (the “Company”) as of December 31, 20202022 and 2019,2021, the related consolidated statements of operations, comprehensive income (loss), changes in stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2020,2022, 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, 20202022 and 2019,2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020,2022, 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, 2020,2022, 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 26, 2021,23, 2023, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 2 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 Matter
The critical audit mattermatters communicated below is a matterare matters arising from the current-period audit of the financial statements that waswere communicated or required to be communicated to the audit committee and that (1) relatesrelate 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 mattermatters below, providing a separate opinionopinions on the critical audit mattermatters or on the accounts or disclosures to which it relates.
Goodwill and Other Intangible Assets -Gaming License – Refer to Notes 2 and 9 to the financial statements
Critical Audit Matter Description
The Company’s goodwill and gaming license and trademarksindefinite-lived intangible assets are tested annually for impairment, or more frequently if indicators of impairment exist, by comparing the fair value of each reporting unit, as it relates to goodwill, or gaming license to their carrying amount for goodwill and by comparing the fair value of each gaming license or trademark to its carrying value.amount. 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 thean income approach, which estimates the fair value of the gaming license using a discounted cash flow model assuming the Company built a new 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 of reporting units and gaming licenses, among others, include projected revenue and operating cash flows discounted to reflect the level of risk associated with receiving future cash flows. Changes in these assumptions could have a significant impact on the determined fair values and a significant change in fair value could cause a significant change in recorded impairment. During the third quarter of 2022, the Company identified an indicator of impairment on goodwill and other intangible assets at the Hollywood Casino at Greektown
(“Greektown”). As a result of the interim assessment for impairment, during the third quarter of 2022, the Company recognized impairment charges on Greektown’s goodwill and gaming licenses of $37.4 million and $65.4 million, respectively. In addition, as a result of the Company’s annual assessment for impairment, the Company recognized a $13.6 million impairment charge on the gaming license of PENN National Race Course (“PNRC”).As of December 31, 2020,2022, the book value of goodwill and gaming licenses are $2.7 billion and $1.2 billion, respectively, of which $30.0 million in goodwill is $1,157.1 million, gaming license is $1,246.1allocated to Greektown and $101.0 million and trademarks is $240.9 million.$74.0 million in gaming licenses are allocated to Greektown and PNRC, respectively.
Auditing the fair value of the Company’sGreektown reporting units,unit and gaming licenses of Greektown and trademarksPNRC 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 reporting units,property and gaming licenses, and trademarkslicense included the following, among others:
•We tested the effectiveness of controls over determining the respective fair value of the Company’s reporting units, gaming licenses, and trademarks,values, 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:
◦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.
Lease Amendments – Refer to Notes 2 and 12 to the financial statements
Critical Audit Matter Description
The Company amended the PENN and Pinnacle Master Lease between the Company and GLPI on January 14, 2022 (collectively the “Lease Amendments”). The Company concluded the Lease Amendments constituted a modification event under Accounting Standards Codification Topic 842, (“ASC 842”).
As a result of the modification, the Company reassessed the lease classifications resulting in: (i) the land components of substantially all of the PENN Master Lease and Pinnacle Master Lease properties, which were previously classified as operating leases, are now primarily classified as finance leases, and (ii) the land and building components associated with the operations of Dayton and Mahoning Valley of the PENN Master Lease, which were previously classified as finance leases, are now classified as operating leases. As a result of the Company’s measurement of the associated lease liabilities, the Company recognized additional ROU assets and corresponding lease liabilities of $455.4 million and $937.6 million for the PENN Master Lease and Pinnacle Master Lease, respectively. The building components of substantially all of the PENN Master Lease and Pinnacle Master Lease properties continue to be classified as financing obligations.
The application of the lease modification framework in ASC 842 to the Lease Amendments was complex with respect to lease modifications conclusions and required an increased extent of effort, including involving professional with expertise in lease accounting.
How the Critical Audit Matter Was Addressed in the Audit
Our procedures related to the Lease Amendments included the following among others:
•We tested the operating effectiveness of internal controls over the initial recognition of balances relating to the Lease Amendments, inclusive of controls over the evaluation of accounting conclusions.
•We tested the accuracy and completeness of contract terms utilized in key accounting determinations through comparison to the underlying lease contracts and supporting documentation.
•With the assistance of professionals with expertise in lease accounting, we evaluated the appropriateness of the accounting conclusions with respect to lease modifications.
| | |
| /s/ Deloitte & Touche LLP |
|
| Philadelphia, Pennsylvania |
February 26, 202123, 2023 |
|
| We have served as the Company’s auditor since 2017. |
PENN NATIONAL GAMING,ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| | | | December 31, | | December 31, |
| (in millions, except share and per share data) | (in millions, except share and per share data) | 2020 | | 2019 | (in millions, except share and per share data) | 2022 | | 2021 |
| Assets | Assets | | | | Assets | | | |
| Current assets | Current assets | | | | Current assets | | | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 1,853.8 | | | $ | 437.4 | | Cash and cash equivalents | $ | 1,624.0 | | | $ | 1,863.9 | |
| Receivables, net of allowance for doubtful accounts of $8.8 and $7.7 | 96.4 | | | 88.7 | | |
| Accounts receivable, net | | Accounts receivable, net | 246.4 | | | 195.0 | |
| Prepaid expenses | Prepaid expenses | 103.5 | | | 76.7 | | Prepaid expenses | 106.1 | | | 132.3 | |
| | Other current assets | Other current assets | 31.3 | | | 40.0 | | Other current assets | 36.9 | | | 32.4 | |
| Total current assets | Total current assets | 2,085.0 | | | 642.8 | | Total current assets | 2,013.4 | | | 2,223.6 | |
| Property and equipment, net | Property and equipment, net | 4,529.3 | | | 5,120.2 | | Property and equipment, net | 4,515.5 | | | 4,582.2 | |
| Investment in and advances to unconsolidated affiliates | Investment in and advances to unconsolidated affiliates | 266.8 | | | 128.3 | | Investment in and advances to unconsolidated affiliates | 248.6 | | | 255.1 | |
| Goodwill | Goodwill | 1,157.1 | | | 1,270.7 | | Goodwill | 2,689.5 | | | 2,822.5 | |
| Other intangible assets, net | Other intangible assets, net | 1,513.5 | | | 2,026.5 | | Other intangible assets, net | 1,738.9 | | | 1,872.6 | |
| | Lease right-of-use assets | Lease right-of-use assets | 4,817.7 | | | 4,837.3 | | Lease right-of-use assets | 6,103.3 | | | 4,853.0 | |
| Other assets | Other assets | 297.9 | | | 168.7 | | Other assets | 192.9 | | | 263.1 | |
| Total assets | Total assets | $ | 14,667.3 | | | $ | 14,194.5 | | Total assets | $ | 17,502.1 | | | $ | 16,872.1 | |
| | Liabilities | Liabilities | | | | Liabilities | | | |
| Current liabilities | Current liabilities | | | | Current liabilities | | | |
| Accounts payable | Accounts payable | $ | 33.2 | | | $ | 40.3 | | Accounts payable | $ | 40.1 | | | $ | 53.3 | |
| Current maturities of long-term debt | Current maturities of long-term debt | 81.4 | | | 62.9 | | Current maturities of long-term debt | 56.2 | | | 99.5 | |
| Current portion of financing obligations | Current portion of financing obligations | 36.0 | | | 40.5 | | Current portion of financing obligations | 63.4 | | | 39.0 | |
| Current portion of lease liabilities | Current portion of lease liabilities | 134.3 | | | 130.6 | | Current portion of lease liabilities | 194.3 | | | 142.9 | |
| Accrued expenses and other current liabilities | Accrued expenses and other current liabilities | 575.1 | | | 631.3 | | Accrued expenses and other current liabilities | 804.7 | | | 798.5 | |
| Total current liabilities | Total current liabilities | 860.0 | | | 905.6 | | Total current liabilities | 1,158.7 | | | 1,133.2 | |
| Long-term debt, net of current maturities, debt discount and debt issuance costs | 2,231.2 | | | 2,322.2 | | |
| 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 | 2,721.3 | | | 2,637.3 | |
| Long-term portion of financing obligations | Long-term portion of financing obligations | 4,096.4 | | | 4,102.2 | | Long-term portion of financing obligations | 3,970.7 | | | 4,057.8 | |
| Long-term portion of lease liabilities | Long-term portion of lease liabilities | 4,578.2 | | | 4,670.0 | | Long-term portion of lease liabilities | 5,903.0 | | | 4,628.6 | |
| Deferred income taxes | Deferred income taxes | 126.3 | | | 244.6 | | Deferred income taxes | 33.9 | | | 189.1 | |
| Other long-term liabilities | Other long-term liabilities | 119.4 | | | 98.0 | | Other long-term liabilities | 117.9 | | | 129.0 | |
| Total liabilities | Total liabilities | 12,011.5 | | | 12,342.6 | | Total liabilities | 13,905.5 | | | 12,775.0 | |
| | 0 | | 0 | | | | |
| Stockholders’ equity | Stockholders’ equity | | | Stockholders’ equity | | |
| 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) | 0 | | | 0 | | |
| 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) | 1.6 | | | 1.2 | | |
| Treasury stock, at cost, (2,167,393 shares held in both periods) | (28.4) | | | (28.4) | | |
| Series B preferred stock ($0.01 par value, 1,000,000 shares authorized, no shares issued and outstanding) | | 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) | | Series C preferred stock ($0.01 par value, 18,500 shares authorized, no shares issued and outstanding) | — | | | — | |
| Series D Preferred stock ($0.01 par value, 5,000 shares authorized, 969 shares issued in both periods, and 581 and 775 shares outstanding) | | Series D Preferred stock ($0.01 par value, 5,000 shares authorized, 969 shares issued in both periods, and 581 and 775 shares outstanding) | 19.4 | | | 25.8 | |
| Common stock ($0.01 par value, 400,000,000 shares authorized in both periods, 172,632,389 and 171,729,276 shares issued, and 152,903,708 and 169,561,883 shares outstanding) | | Common stock ($0.01 par value, 400,000,000 shares authorized in both periods, 172,632,389 and 171,729,276 shares issued, and 152,903,708 and 169,561,883 shares outstanding) | 1.7 | | | 1.7 | |
| Exchangeable shares ($0.01 par value, 697,539 shares authorized and issued in both periods, 620,019 and 653,059 shares outstanding) | | Exchangeable shares ($0.01 par value, 697,539 shares authorized and issued in both periods, 620,019 and 653,059 shares outstanding) | — | | | — | |
| Treasury stock, at cost, (19,728,681 and 2,167,393 shares) | | Treasury stock, at cost, (19,728,681 and 2,167,393 shares) | (629.5) | | | (28.4) | |
| Additional paid-in capital | Additional paid-in capital | 3,167.2 | | | 1,718.3 | | Additional paid-in capital | 4,220.2 | | | 4,239.6 | |
| Retained earnings (accumulated deficit) | Retained earnings (accumulated deficit) | (507.3) | | | 161.6 | | Retained earnings (accumulated deficit) | 154.5 | | | (86.5) | |
| Total Penn National stockholders’ equity | 2,656.2 | | | 1,852.7 | | |
| Accumulated other comprehensive loss | | Accumulated other comprehensive loss | (168.6) | | | (54.4) | |
| Total PENN Entertainment stockholders’ equity | | Total PENN Entertainment stockholders’ equity | 3,597.7 | | | 4,097.8 | |
| Non-controlling interest | Non-controlling interest | (0.4) | | | (0.8) | | Non-controlling interest | (1.1) | | | (0.7) | |
| Total stockholders’ equity | Total stockholders’ equity | 2,655.8 | | | 1,851.9 | | Total stockholders’ equity | 3,596.6 | | | 4,097.1 | |
| Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | $ | 14,667.3 | | | $ | 14,194.5 | | Total liabilities and stockholders’ equity | $ | 17,502.1 | | | $ | 16,872.1 | |
See accompanying notes to the Consolidated Financial Statements.
PENN NATIONAL GAMING,ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
| | | | For the year ended December 31, | | For the year ended December 31, |
| (in millions, except per share data) | (in millions, except per share data) | 2020 | | 2019 | | 2018 | (in millions, except per share data) | 2022 | | 2021 | | 2020 |
| Revenues | Revenues | | | | | | Revenues | | | | | |
| Gaming | Gaming | $ | 3,051.1 | | | $ | 4,268.7 | | | $ | 2,894.9 | | Gaming | $ | 5,201.7 | | | $ | 4,945.3 | | | $ | 3,051.1 | |
| Food, beverage, hotel and other | Food, beverage, hotel and other | 527.6 | | | 1,032.7 | | | 629.7 | | Food, beverage, hotel and other | 1,200.0 | | | 959.7 | | | 527.6 | |
| Management service and license fees | 0 | | | 0 | | | 6.0 | | |
| Reimbursable management costs | 0 | | | 0 | | | 57.3 | | |
| | Total revenues | Total revenues | 3,578.7 | | | 5,301.4 | | | 3,587.9 | | Total revenues | 6,401.7 | | | 5,905.0 | | | 3,578.7 | |
| Operating expenses | Operating expenses | | | | | | Operating expenses | | | | | |
| Gaming | Gaming | 1,530.3 | | | 2,281.8 | | | 1,551.4 | | Gaming | 2,864.4 | | | 2,540.7 | | | 1,530.3 | |
| Food, beverage, hotel and other | Food, beverage, hotel and other | 337.7 | | | 672.7 | | | 439.3 | | Food, beverage, hotel and other | 767.2 | | | 607.3 | | | 337.7 | |
| General and administrative | General and administrative | 1,130.8 | | | 1,187.7 | | | 618.9 | | General and administrative | 1,110.4 | | | 1,352.9 | | | 1,130.8 | |
| Reimbursable management costs | 0 | | | 0 | | | 57.3 | | |
| | Depreciation and amortization | Depreciation and amortization | 366.7 | | | 414.2 | | | 269.0 | | Depreciation and amortization | 567.5 | | | 344.5 | | | 366.7 | |
| Impairment losses | Impairment losses | 623.4 | | | 173.1 | | | 34.9 | | Impairment losses | 118.2 | | | — | | | 623.4 | |
| Recoveries on loan loss and unfunded loan commitments | 0 | | | 0 | | | (17.0) | | |
| | Total operating expenses | Total operating expenses | 3,988.9 | | | 4,729.5 | | | 2,953.8 | | Total operating expenses | 5,427.7 | | | 4,845.4 | | | 3,988.9 | |
| Operating income (loss) | Operating income (loss) | (410.2) | | | 571.9 | | | 634.1 | | Operating income (loss) | 974.0 | | | 1,059.6 | | | (410.2) | |
| Other income (expenses) | Other income (expenses) | | Other income (expenses) | |
| Interest expense, net | Interest expense, net | (543.2) | | | (534.2) | | | (538.4) | | Interest expense, net | (758.2) | | | (562.8) | | | (544.1) | |
| Interest income | | Interest income | 18.3 | | | 1.1 | | | 0.9 | |
| Income from unconsolidated affiliates | Income from unconsolidated affiliates | 13.8 | | | 28.4 | | | 22.3 | | Income from unconsolidated affiliates | 23.7 | | | 38.7 | | | 13.8 | |
| Loss on early extinguishment of debt | Loss on early extinguishment of debt | (1.2) | | | 0 | | | (21.0) | | Loss on early extinguishment of debt | (10.4) | | | — | | | (1.2) | |
| Other | Other | 106.6 | | | 20.0 | | | (7.1) | | Other | (72.1) | | | 2.5 | | | 106.6 | |
| Total other expenses | Total other expenses | (424.0) | | | (485.8) | | | (544.2) | | Total other expenses | (798.7) | | | (520.5) | | | (424.0) | |
| Income (loss) before income taxes | Income (loss) before income taxes | (834.2) | | | 86.1 | | | 89.9 | | Income (loss) before income taxes | 175.3 | | | 539.1 | | | (834.2) | |
| Income tax benefit (expense) | Income tax benefit (expense) | 165.1 | | | (43.0) | | | 3.6 | | Income tax benefit (expense) | 46.4 | | | (118.6) | | | 165.1 | |
| Net income (loss) | Net income (loss) | (669.1) | | | 43.1 | | | 93.5 | | Net income (loss) | 221.7 | | | 420.5 | | | (669.1) | |
| Less: Net (income) loss attributable to non-controlling interest | Less: Net (income) loss attributable to non-controlling interest | (0.4) | | | 0.8 | | | 0 | | Less: Net (income) loss attributable to non-controlling interest | 0.4 | | | 0.3 | | | (0.4) | |
| Net income (loss) attributable to Penn National | $ | (669.5) | | | $ | 43.9 | | | $ | 93.5 | | |
| Net income (loss) attributable to PENN Entertainment | | Net income (loss) attributable to PENN Entertainment | $ | 222.1 | | | $ | 420.8 | | | $ | (669.5) | |
| | Comprehensive income (loss) | $ | (669.1) | | | $ | 43.1 | | | $ | 93.5 | | |
| Less: Comprehensive (income) loss attributable to non-controlling interest | (0.4) | | | 0.8 | | | 0 | | |
| Comprehensive income (loss) attributable to Penn National | $ | (669.5) | | | $ | 43.9 | | | $ | 93.5 | | |
| | | Earnings (loss) per share | Earnings (loss) per share | | | | | | Earnings (loss) per share | |
| Basic earnings (loss) per share | Basic earnings (loss) per share | $ | (5.00) | | | $ | 0.38 | | | $ | 0.96 | | Basic earnings (loss) per share | $ | 1.37 | | | $ | 2.64 | | | $ | (5.00) | |
| Diluted earnings (loss) per share | Diluted earnings (loss) per share | $ | (5.00) | | | $ | 0.37 | | | $ | 0.93 | | Diluted earnings (loss) per share | $ | 1.29 | | | $ | 2.48 | | | $ | (5.00) | |
| | Weighted-average common shares outstanding - basic | 134.0 | | | 115.7 | | | 97.1 | | |
| Weighted-average common shares outstanding - diluted | 134.0 | | | 117.8 | | | 100.3 | | |
| Weighted-average common shares outstanding—basic | | Weighted-average common shares outstanding—basic | 161.2 | | | 158.7 | | | 134.0 | |
| Weighted-average common shares outstanding—diluted | | Weighted-average common shares outstanding—diluted | 176.6 | | | 175.5 | | | 134.0 | |
See accompanying notes to the Consolidated Financial Statements.
PENN NATIONAL GAMING,ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
| | | | | | | | | | | | | | | | | |
| | For the year ended December 31, |
| (in millions) | 2022 | | 2021 | | 2020 |
| Net income (loss) | $ | 221.7 | | | $ | 420.5 | | | $ | (669.1) | |
| Other comprehensive loss: | | | | | |
| Foreign currency translation adjustment during the period | (114.2) | | | (54.4) | | | — | |
| Other comprehensive loss | (114.2) | | | (54.4) | | | — | |
| Total comprehensive income (loss) | 107.5 | | | 366.1 | | | (669.1) | |
| Less: Comprehensive loss (income) attributable to non-controlling interest | 0.4 | | | 0.3 | | | (0.4) | |
| Comprehensive income (loss) attributable to PENN Entertainment | $ | 107.9 | | | $ | 366.4 | | | $ | (669.5) | |
See accompanying notes to the Consolidated Financial Statements.
PENN ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
| | | Preferred Stock | | Common Stock | | Treasury
Stock | | Additional
Paid-In
Capital | | Retained Earnings (Accum-
ulated Deficit) | | Accum-
ulated
Other
Compre-
hensive
Loss | | Total Penn National Stock-holders’
Equity (Deficit) | | Non-Controlling Interest | | Total
Stock-holders’ Equity (Deficit) | | Preferred Stock | | Common Stock | | Treasury Stock | | Additional
Paid-In
Capital | | Retained Earnings (Accumulated Deficit) | | Accumulated
Other
Comprehensive
Income (Loss) | | Total PENN Stock-holders’
Equity (Deficit) | | Non-Controlling Interest | | Total
Stock-holders’ Equity (Deficit) |
| (in millions, except share data) | (in millions, except share data) | Shares | | Amount | | Shares | | Amount | | (in millions, except share data) | Shares | | Amount | | PENN Entertainment Shares | | Amount | | Exchangeable Shares | | Amount | |
| Balance as of January 1, 2018 | 0 | | | $ | 0 | | | 91,225,242 | | | $ | 0.9 | | | $ | (28.4) | | | $ | 1,007.6 | | | $ | (1,051.9) | | | $ | (1.5) | | | $ | (73.3) | | | $ | 0 | | | $ | (73.3) | | |
| Share-based compensation arrangements | — | | | — | | | 1,466,625 | | | — | | | — | | | 19.4 | | | — | | | — | | | 19.4 | | | — | | | 19.4 | | |
| Pinnacle Acquisition | — | | | — | | | 26,295,439 | | | 0.3 | | | — | | | 749.4 | | | — | | | — | | | 749.7 | | | — | | | 749.7 | | |
| Reclassification of accumulated other comprehensive loss to earnings upon termination of management contract | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 1.5 | | | 1.5 | | | — | | | 1.5 | | |
| Cumulative-effect adjustment upon adoption of ASC 606 | — | | | — | | | — | | | — | | | — | | | — | | | (9.6) | | | — | | | (9.6) | | | — | | | (9.6) | | |
| Share repurchases | — | | | — | | | (2,299,498) | | | — | | | — | | | (50.0) | | | — | | | — | | | (50.0) | | | — | | | (50.0) | | |
| Net income | — | | | — | | | — | | | — | | | — | | | — | | | 93.5 | | | — | | | 93.5 | | | — | | | 93.5 | | |
| Balance as of December 31, 2018 | 0 | | | 0 | | | 116,687,808 | | | 1.2 | | | (28.4) | | | 1,726.4 | | | (968.0) | | | 0 | | | 731.2 | | | 0 | | | 731.2 | | |
| Share-based compensation arrangements | — | | | — | | | 542,274 | | | — | | | — | | | 16.8 | | | — | | | — | | | 16.8 | | | — | | | 16.8 | | |
| Cumulative-effect adjustment upon adoption of ASC 842 | — | | | — | | | — | | | — | | | — | | | — | | | 1,085.7 | | | — | | | 1,085.7 | | | — | | | 1,085.7 | | |
| Share repurchases | — | | | — | | | (1,271,823) | | | — | | | — | | | (24.9) | | | — | | | — | | | (24.9) | | | — | | | (24.9) | | |
| Net income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | 43.9 | | | — | | | 43.9 | | | (0.8) | | | 43.1 | | |
| Balance as of December 31, 2019 | 0 | | | 0 | | | 115,958,259 | | | 1.2 | | | (28.4) | | | 1,718.3 | | | 161.6 | | | 0 | | | 1,852.7 | | | (0.8) | | | 1,851.9 | | |
| Balance as of January 1, 2020 | | Balance as of January 1, 2020 | — | | | $ | — | | | 115,958,259 | | | $ | 1.2 | | | — | | | $ | — | | | $ | (28.4) | | | $ | 1,718.3 | | | $ | 161.6 | | | $ | — | | | $ | 1,852.7 | | | $ | (0.8) | | | $ | 1,851.9 | |
| Share-based compensation arrangements | Share-based compensation arrangements | — | | | — | | | 4,475,908 | | | — | | | — | | | 71.0 | | | — | | | — | | | 71.0 | | | — | | | 71.0 | | Share-based compensation arrangements | — | | | — | | | 4,475,908 | | | — | | | — | | | — | | | — | | | 71.0 | | | — | | | — | | | 71.0 | | | — | | | 71.0 | |
| Common stock offerings (Note 15) | Common stock offerings (Note 15) | — | | | — | | | 35,266,667 | | | 0.4 | | | — | | | 1,288.4 | | | — | | | — | | | 1,288.8 | | | — | | | 1,288.8 | | Common stock offerings (Note 15) | — | | | — | | | 35,266,667 | | | 0.4 | | | — | | | — | | | — | | | 1,288.4 | | | — | | | — | | | 1,288.8 | | | — | | | 1,288.8 | |
| Convertible debt offering (Note 11) | Convertible debt offering (Note 11) | — | | | — | | | — | | | — | | | — | | | 88.2 | | | — | | | — | | | 88.2 | | | — | | | 88.2 | | Convertible debt offering (Note 11) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 88.2 | | | — | | | — | | | 88.2 | | | — | | | 88.2 | |
| Barstool Sports investment (Note 7) | Barstool Sports investment (Note 7) | 883 | | | 23.1 | | | — | | | — | | | — | | | — | | | — | | | — | | | 23.1 | | | — | | | 23.1 | | Barstool Sports investment (Note 7) | 883 | | | 23.1 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 23.1 | | | — | | | 23.1 | |
| Cumulative-effect adjustment upon adoption of ASU 2016-13 | Cumulative-effect adjustment upon adoption of ASU 2016-13 | — | | | — | | | — | | | — | | | — | | | — | | | 0.6 | | | — | | | 0.6 | | | — | | | 0.6 | | Cumulative-effect adjustment upon adoption of ASU 2016-13 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 0.6 | | | — | | | 0.6 | | | — | | | 0.6 | |
| Net income (loss) | Net income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | (669.5) | | | — | | | (669.5) | | | 0.4 | | | (669.1) | | Net income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (669.5) | | | — | | | (669.5) | | | 0.4 | | | (669.1) | |
| Other | Other | — | | | — | | | — | | | — | | | — | | | 1.3 | | | — | | | — | | | 1.3 | | | — | | | 1.3 | | Other | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 1.3 | | | — | | | — | | | 1.3 | | | — | | | 1.3 | |
| Balance as of December 31, 2020 | Balance as of December 31, 2020 | 883 | | | $ | 23.1 | | | 155,700,834 | | | $ | 1.6 | | | $ | (28.4) | | | $ | 3,167.2 | | | $ | (507.3) | | | $ | 0 | | | $ | 2,656.2 | | | $ | (0.4) | | | $ | 2,655.8 | | Balance as of December 31, 2020 | 883 | | | 23.1 | | | 155,700,834 | | | 1.6 | | | — | | | — | | | (28.4) | | | 3,167.2 | | | (507.3) | | | — | | | 2,656.2 | | | (0.4) | | | 2,655.8 | |
| Share-based compensation arrangements | | Share-based compensation arrangements | — | | | — | | | 1,061,242 | | | — | | | — | | | — | | | — | | | 35.1 | | | — | | | — | | | 35.1 | | | — | | | 35.1 | |
| Share issuance in connection with acquisitions (Note 15) | | Share issuance in connection with acquisitions (Note 15) | — | | | — | | | 12,561,127 | | | 0.1 | | | 697,539 | | | — | | | — | | | 1,039.5 | | | — | | | — | | | 1,039.6 | | | — | | | 1,039.6 | |
| Preferred stock issuance (Note 15) | | Preferred stock issuance (Note 15) | 86 | | | 8.1 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 8.1 | | | — | | | 8.1 | |
| Preferred stock conversions (Note 15) | | Preferred stock conversions (Note 15) | (194) | | | (5.4) | | | 194,200 | | | — | | | — | | | — | | | — | | | 5.4 | | | — | | | — | | | — | | | — | | | — | |
| Exchangeable shares conversions (Note 15) | | Exchangeable shares conversions (Note 15) | — | | | — | | | 44,480 | | | — | | | (44,480) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Currency translation adjustment | | Currency translation adjustment | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (54.4) | | | (54.4) | | | — | | | (54.4) | |
| Net income (loss) | | Net income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 420.8 | | | — | | | 420.8 | | | (0.3) | | | 420.5 | |
| Other | | Other | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (7.6) | | | — | | | — | | | (7.6) | | | — | | | (7.6) | |
| Balance as of December 31, 2021 | | Balance as of December 31, 2021 | 775 | | | 25.8 | | | 169,561,883 | | | 1.7 | | | 653,059 | | | — | | | (28.4) | | | 4,239.6 | | | (86.5) | | | (54.4) | | | 4,097.8 | | | (0.7) | | | 4,097.1 | |
| Share-based compensation arrangements | | Share-based compensation arrangements | — | | | — | | | 607,818 | | | — | | | — | | | — | | | — | | | 58.1 | | | — | | | — | | | 58.1 | | | — | | | 58.1 | |
| Share repurchases (Note 15) | | Share repurchases (Note 15) | — | | | — | | | (17,561,288) | | | — | | | — | | | — | | | (601.1) | | | — | | | — | | | — | | | (601.1) | | | — | | | (601.1) | |
| Preferred stock conversions (Note 15) | | Preferred stock conversions (Note 15) | (194) | | | (6.4) | | | 194,200 | | | — | | | — | | | — | | | — | | | 6.4 | | | — | | | — | | | — | | | — | | | — | |
| Common stock issuance (Note 15) | | Common stock issuance (Note 15) | — | | | — | | | 68,055 | | | — | | | — | | | — | | | — | | | 2.2 | | | — | | | — | | | 2.2 | | | — | | | 2.2 | |
| Exchangeable shares conversions (Note 15) | | Exchangeable shares conversions (Note 15) | — | | | — | | | 33,040 | | | — | | | (33,040) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Currency translation adjustment | | Currency translation adjustment | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (114.2) | | | (114.2) | | | — | | | (114.2) | |
| Cumulative-effect adjustment upon adoption of ASU 2020-06 | | Cumulative-effect adjustment upon adoption of ASU 2020-06 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (88.2) | | | 18.9 | | | — | | | (69.3) | | | — | | | (69.3) | |
| Net income (loss) | | Net income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 222.1 | | | — | | | 222.1 | | | (0.4) | | | 221.7 | |
| Other | | Other | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 2.1 | | | — | | | — | | | 2.1 | | | — | | | 2.1 | |
| Balance as of December 31, 2022 | | Balance as of December 31, 2022 | 581 | | | $ | 19.4 | | | 152,903,708 | | | $ | 1.7 | | | 620,019 | | | $ | — | | | $ | (629.5) | | | $ | 4,220.2 | | | $ | 154.5 | | | $ | (168.6) | | | $ | 3,597.7 | | | $ | (1.1) | | | $ | 3,596.6 | |
See accompanying notes to the Consolidated Financial Statements.
PENN NATIONAL GAMING,ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | For the year ended December 31, | | For the year ended December 31, |
| (in millions) | (in millions) | 2020 | | 2019 | | 2018 | (in millions) | 2022 | | 2021 | | 2020 |
| Operating activities | Operating activities | | | | | | Operating activities | | | | | |
| Net income (loss) | Net income (loss) | $ | (669.1) | | | $ | 43.1 | | | $ | 93.5 | | Net income (loss) | $ | 221.7 | | | $ | 420.5 | | | $ | (669.1) | |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |
| Depreciation and amortization | Depreciation and amortization | 366.7 | | | 414.2 | | | 269.0 | | Depreciation and amortization | 567.5 | | | 344.5 | | | 366.7 | |
| Amortization of items charged to interest expense | 16.3 | | | 7.7 | | | 6.4 | | |
| Amortization of debt discount and debt issuance costs | | Amortization of debt discount and debt issuance costs | 9.0 | | | 22.8 | | | 16.3 | |
| Noncash interest expense | | Noncash interest expense | 27.6 | | | 17.9 | | | — | |
| Noncash operating lease expense | Noncash operating lease expense | 120.3 | | | 100.4 | | | 0 | | Noncash operating lease expense | 87.5 | | | 160.8 | | | 120.3 | |
| Change in fair values of contingent purchase price | (1.1) | | | 7.0 | | | 0.5 | | |
| Holding gain on equity securities | (106.7) | | | (19.9) | | | 0 | | |
| | Gain on acquisition of Sam Houston | | Gain on acquisition of Sam Houston | — | | | (29.9) | | | — | |
| Holding loss (gain) on equity securities | | Holding loss (gain) on equity securities | 69.9 | | | 24.9 | | | (106.7) | |
| Loss (gain) on sale or disposal of property and equipment | Loss (gain) on sale or disposal of property and equipment | (29.2) | | | 5.5 | | | 3.2 | | Loss (gain) on sale or disposal of property and equipment | 7.9 | | | 1.1 | | | (29.2) | |
| Gain on Hurricane Laura | | Gain on Hurricane Laura | (10.7) | | | — | | | — | |
| Noncash rent and interest expense related to the utilization of rent credits | Noncash rent and interest expense related to the utilization of rent credits | 287.1 | | | 0 | | | 0 | | Noncash rent and interest expense related to the utilization of rent credits | — | | | — | | | 287.1 | |
| Income from unconsolidated affiliates | Income from unconsolidated affiliates | (13.8) | | | (28.4) | | | (22.3) | | Income from unconsolidated affiliates | (23.7) | | | (38.7) | | | (13.8) | |
| Return on investment from unconsolidated affiliates | Return on investment from unconsolidated affiliates | 21.8 | | | 29.0 | | | 27.0 | | Return on investment from unconsolidated affiliates | 33.8 | | | 31.8 | | | 21.8 | |
| Deferred income taxes | Deferred income taxes | (118.3) | | | 21.1 | | | (26.7) | | Deferred income taxes | (150.7) | | | (4.5) | | | (118.3) | |
| Stock-based compensation | Stock-based compensation | 14.5 | | | 14.9 | | | 12.0 | | Stock-based compensation | 58.1 | | | 35.1 | | | 14.5 | |
| Impairment losses | Impairment losses | 623.4 | | | 173.1 | | | 34.9 | | Impairment losses | 118.2 | | | — | | | 623.4 | |
| Recoveries on loan loss and unfunded loan commitments | 0 | | | 0 | | | (17.0) | | |
| Reclassification of accumulated other comprehensive loss to earnings upon termination of management contract | 0 | | | 0 | | | 1.5 | | |
| | Loss on early extinguishment of debt | Loss on early extinguishment of debt | 1.2 | | | 0 | | | 21.0 | | Loss on early extinguishment of debt | 10.4 | | | — | | | 1.2 | |
| Changes in operating assets and liabilities, net of businesses acquired | Changes in operating assets and liabilities, net of businesses acquired | | Changes in operating assets and liabilities, net of businesses acquired | |
| Accounts receivable | Accounts receivable | (16.5) | | | 27.0 | | | (1.8) | | Accounts receivable | (81.2) | | | (82.3) | | | (16.5) | |
| Prepaid expenses and other current assets | Prepaid expenses and other current assets | 13.5 | | | 9.7 | | | 13.3 | | Prepaid expenses and other current assets | (24.1) | | | (32.3) | | | 13.5 | |
| Other assets | Other assets | (12.8) | | | (2.3) | | | 1.5 | | Other assets | (2.2) | | | (21.7) | | | (12.8) | |
| Accounts payable | Accounts payable | (6.6) | | | 4.4 | | | (6.1) | | Accounts payable | (13.4) | | | (30.4) | | | (6.6) | |
| Accrued expenses | Accrued expenses | (40.9) | | | (3.9) | | | (47.0) | | Accrued expenses | 17.4 | | | 138.4 | | | (40.9) | |
| Income taxes | Income taxes | (32.5) | | | (7.2) | | | (3.3) | | Income taxes | 27.3 | | | 10.2 | | | (32.5) | |
| Operating lease liabilities | Operating lease liabilities | (94.8) | | | (139.1) | | | 0 | | Operating lease liabilities | (83.0) | | | (136.5) | | | (94.8) | |
| Other current and long-term liabilities | Other current and long-term liabilities | 16.3 | | | 47.6 | | | (6.8) | | Other current and long-term liabilities | (2.2) | | | 65.2 | | | 16.3 | |
| | Other | | Other | 13.1 | | | (0.8) | | | (1.1) | |
| Net cash provided by operating activities | Net cash provided by operating activities | 338.8 | | | 703.9 | | | 352.8 | | Net cash provided by operating activities | 878.2 | | | 896.1 | | | 338.8 | |
| Investing activities | Investing activities | | | | | | Investing activities | | | | | |
| Capital expenditures | Capital expenditures | (137.0) | | | (190.6) | | | (92.6) | | Capital expenditures | (263.4) | | | (244.1) | | | (137.0) | |
| Dispositions of property and equipment | 16.1 | | | 0.6 | | | 0.4 | | |
| Proceeds from sale of property and equipment | | Proceeds from sale of property and equipment | 4.9 | | | 1.5 | | | 16.1 | |
| Hurricane Laura insurance proceeds | Hurricane Laura insurance proceeds | 32.7 | | | 0 | | | 0 | | Hurricane Laura insurance proceeds | 25.4 | | | — | | | 32.7 | |
| Consideration paid for Barstool Sports investment | Consideration paid for Barstool Sports investment | (135.0) | | | 0 | | | 0 | | Consideration paid for Barstool Sports investment | — | | | — | | | (135.0) | |
| Consideration paid for acquisitions of businesses, net of cash acquired | Consideration paid for acquisitions of businesses, net of cash acquired | (3.0) | | | (1,359.4) | | | (1,945.2) | | Consideration paid for acquisitions of businesses, net of cash acquired | — | | | (877.6) | | | (3.0) | |
| Proceeds from sale-and-leaseback transactions in conjunction with acquisitions | 0 | | | 961.1 | | | — | | |
| Cash received for the sale of the Divested Properties and Belterra Park | 0 | | | 0 | | | 661.7 | | |
| Consideration paid for remaining interest of Sam Houston | | Consideration paid for remaining interest of Sam Houston | — | | | (42.0) | | | — | |
| | Consideration paid for gaming licenses and other intangible assets | Consideration paid for gaming licenses and other intangible assets | (4.8) | | | (11.7) | | | (81.6) | | Consideration paid for gaming licenses and other intangible assets | (9.0) | | | (24.2) | | | (4.8) | |
| Acquisition of equity securities | Acquisition of equity securities | 0 | | | (5.1) | | | 0 | | Acquisition of equity securities | — | | | (26.0) | | | — | |
| Additional contributions from (to) joint ventures | (5.4) | | | (0.4) | | | 18.9 | | |
| Consideration paid for a cost method investment | | Consideration paid for a cost method investment | (15.0) | | | — | | | — | |
| | | | For the year ended December 31, | | For the year ended December 31, |
| (in millions) | (in millions) | 2020 | | 2019 | | 2018 | (in millions) | 2022 | | 2021 | | 2020 |
| Proceeds from sale of loan | 0 | | | 0 | | | 15.2 | | |
| Receipts applied against non-accrual loan | 0 | | | 0 | | | 0.5 | | |
| Additional contributions to joint ventures | | Additional contributions to joint ventures | — | | | (1.4) | | | (5.4) | |
| | Other | Other | 2.7 | | | (2.0) | | | (0.4) | | Other | (1.5) | | | (8.0) | | | 2.7 | |
| Net cash used in investing activities | Net cash used in investing activities | (233.7) | | | (607.5) | | | (1,423.1) | | Net cash used in investing activities | (258.6) | | | (1,221.8) | | | (233.7) | |
| Financing activities | Financing activities | | | | | | Financing activities | | | | | |
| Proceeds from revolving credit facility | Proceeds from revolving credit facility | 540.0 | | | 412.0 | | | 201.0 | | Proceeds from revolving credit facility | — | | | — | | | 540.0 | |
| Repayments on revolving credit facility | Repayments on revolving credit facility | (680.0) | | | (384.0) | | | (89.0) | | Repayments on revolving credit facility | — | | | — | | | (680.0) | |
| Proceeds from issuance of long-term debt, net of discounts | Proceeds from issuance of long-term debt, net of discounts | 322.2 | | | 0 | | | 1,558.9 | | Proceeds from issuance of long-term debt, net of discounts | 1,545.0 | | | 400.0 | | | 322.2 | |
| Repayments on credit facilities (Note 11) | | Repayments on credit facilities (Note 11) | (1,543.2) | | | — | | | — | |
| Principal payments on long-term debt | Principal payments on long-term debt | (161.7) | | | (46.6) | | | (482.5) | | Principal payments on long-term debt | (39.3) | | | (64.4) | | | (161.7) | |
| Prepayment penalties and modification payments incurred with debt refinancing | 0 | | | 0 | | | (11.3) | | |
| | Debt and equity issuance costs | Debt and equity issuance costs | (6.9) | | | 0 | | | (27.3) | | Debt and equity issuance costs | (18.2) | | | (7.5) | | | (6.9) | |
| Proceeds from other long-term obligations | | Proceeds from other long-term obligations | — | | | 72.5 | | | — | |
| Payments of other long-term obligations | Payments of other long-term obligations | (16.2) | | | (15.4) | | | (15.7) | | Payments of other long-term obligations | (17.8) | | | (17.0) | | | (16.2) | |
| Principal payments on financing obligations | Principal payments on financing obligations | (26.7) | | | (51.6) | | | (67.4) | | Principal payments on financing obligations | (63.2) | | | (36.0) | | | (26.7) | |
| Principal payments on finance leases | Principal payments on finance leases | (3.9) | | | (6.2) | | | — | | Principal payments on finance leases | (110.5) | | | (8.5) | | | (3.9) | |
| Proceeds from the sale of real estate assets in conjunction with acquisitions | — | | | — | | | 250.0 | | |
| | Proceeds from common stock offerings, net of discounts and fees | Proceeds from common stock offerings, net of discounts and fees | 1,288.8 | | | 0 | | | 0 | | Proceeds from common stock offerings, net of discounts and fees | — | | | — | | | 1,288.8 | |
| Proceeds from exercise of options | Proceeds from exercise of options | 62.7 | | | 1.9 | | | 7.4 | | Proceeds from exercise of options | 6.9 | | | 10.8 | | | 62.7 | |
| Repurchase of common stock | Repurchase of common stock | 0 | | | (24.9) | | | (50.0) | | Repurchase of common stock | (601.1) | | | — | | | — | |
| Proceeds from insurance financing | Proceeds from insurance financing | 20.2 | | | 16.1 | | | 13.1 | | Proceeds from insurance financing | — | | | 26.6 | | | 20.2 | |
| Payments on insurance financing | Payments on insurance financing | (21.4) | | | (19.4) | | | (11.0) | | Payments on insurance financing | — | | | (26.7) | | | (21.4) | |
| | Other | Other | (7.0) | | | (4.3) | | | (4.1) | | Other | (11.6) | | | (9.9) | | | (7.0) | |
| Net cash provided by (used in) financing activities | Net cash provided by (used in) financing activities | 1,310.1 | | | (122.4) | | | 1,272.1 | | Net cash provided by (used in) financing activities | (853.0) | | | 339.9 | | | 1,310.1 | |
| Effect of currency rate changes on cash, cash equivalents, and restricted cash | | Effect of currency rate changes on cash, cash equivalents, and restricted cash | (2.5) | | | (4.5) | | | — | |
| Change in cash, cash equivalents, and restricted cash | Change in cash, cash equivalents, and restricted cash | 1,415.2 | | | (26.0) | | | 201.8 | | Change in cash, cash equivalents, and restricted cash | (235.9) | | | 9.7 | | | 1,415.2 | |
| Cash, cash equivalents and restricted cash at the beginning of the year | Cash, cash equivalents and restricted cash at the beginning of the year | 455.2 | | | 481.2 | | | 279.4 | | Cash, cash equivalents and restricted cash at the beginning of the year | 1,880.1 | | | 1,870.4 | | | 455.2 | |
| Cash, cash equivalents and restricted cash at the end of the year | Cash, cash equivalents and restricted cash at the end of the year | $ | 1,870.4 | | | $ | 455.2 | | | $ | 481.2 | | Cash, cash equivalents and restricted cash at the end of the year | $ | 1,644.2 | | | $ | 1,880.1 | | | $ | 1,870.4 | |
| | | | For the year ended December 31, | | For the year ended December 31, |
| (in millions) | (in millions) | 2020 | | 2019 | | 2018 | (in millions) | 2022 | | 2021 | | 2020 |
| Reconciliation of cash, cash equivalents and restricted cash: | Reconciliation of cash, cash equivalents and restricted cash: | | | | | | Reconciliation of cash, cash equivalents and restricted cash: | | | | | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 1,853.8 | | | $ | 437.4 | | | $ | 479.6 | | Cash and cash equivalents | $ | 1,624.0 | | | $ | 1,863.9 | | | $ | 1,853.8 | |
| Restricted cash included in Other current assets | Restricted cash included in Other current assets | 15.3 | | | 15.5 | | | 0 | | Restricted cash included in Other current assets | 19.0 | | | 15.0 | | | 15.3 | |
| Restricted cash included in Other assets | Restricted cash included in Other assets | 1.3 | | | 2.3 | | | 1.6 | | Restricted cash included in Other assets | 1.2 | | | 1.2 | | | 1.3 | |
| Total cash, cash equivalents and restricted cash | Total cash, cash equivalents and restricted cash | $ | 1,870.4 | | | $ | 455.2 | | | $ | 481.2 | | Total cash, cash equivalents and restricted cash | $ | 1,644.2 | | | $ | 1,880.1 | | | $ | 1,870.4 | |
| | Supplemental disclosure: | Supplemental disclosure: | | Supplemental disclosure: | |
| Cash paid for interest, net of amounts capitalized | Cash paid for interest, net of amounts capitalized | $ | 355.0 | | | $ | 528.1 | | | $ | 530.4 | | Cash paid for interest, net of amounts capitalized | $ | 721.7 | | | $ | 514.6 | | | $ | 355.0 | |
| Cash payments (refunds) related to income taxes, net | Cash payments (refunds) related to income taxes, net | $ | (15.2) | | | $ | 21.8 | | | $ | 24.4 | | Cash payments (refunds) related to income taxes, net | $ | 72.8 | | | $ | 108.3 | | | $ | (15.2) | |
| | Non-cash investing activities: | | |
| Non-cash activities: | | Non-cash activities: | |
| Rent credits received upon sale of Tropicana land and buildings and Morgantown land | Rent credits received upon sale of Tropicana land and buildings and Morgantown land | $ | 337.5 | | | $ | 0 | | | $ | 0 | | Rent credits received upon sale of Tropicana land and buildings and Morgantown land | $ | — | | | $ | — | | | $ | 337.5 | |
| Commencement of operating leases | Commencement of operating leases | $ | 73.6 | | | $ | 713.5 | | | $ | 0 | | Commencement of operating leases | $ | 58.5 | | | $ | 96.4 | | | $ | 73.6 | |
| Commencement of finance leases | Commencement of finance leases | $ | 0 | | | $ | 4.6 | | | $ | 0 | | Commencement of finance leases | $ | 1,462.1 | | | $ | 106.1 | | | $ | — | |
| Accrued capital expenditures | Accrued capital expenditures | $ | 17.2 | | | $ | 12.6 | | | $ | 7.7 | | Accrued capital expenditures | $ | 21.1 | | | $ | 27.6 | | | $ | 17.2 | |
| Acquisition of equity securities | $ | 0 | | | $ | 16.1 | | | $ | 0 | | |
|
See accompanying notes to the Consolidated Financial Statements
PENN NATIONAL GAMING,ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1—Organization and Basis of Presentation
Organization: On August 4, 2022, Penn National Gaming, Inc. was renamed PENN Entertainment, Inc. PENN Entertainment, Inc., together with its subsidiaries (“Penn National,PENN,” the “Company,” “we,” “our,” or “us”), is aNorth America’s leading diversified, multi-jurisdictional ownerprovider of integrated entertainment, sports content, and managercasino gaming experiences. As of gaming and racingDecember 31, 2022, PENN operated 43 properties retail andin 20 states, online sports betting operations,in 15 jurisdictions and video gaming terminal (“VGT”) operations. Our wholly-owned interactive division, Penn Interactive Ventures, LLC (“Penn Interactive”)iCasino in five jurisdictions, under a portfolio of well-recognized brands including Hollywood Casino®, operates retail sports betting acrossL’Auberge®, Barstool Sportsbook®, and theScore Bet Sportsbook and Casino®. As of the Company’s portfolio, as well asissuance date of this report, PENN operates online sports betting online social casino, bingo and onlinein 16 jurisdictions upon the addition of Ohio in January 2023. PENN’s highly differentiated strategy, which is focused on organic cross-sell opportunities, is reinforced by its investments in market-leading retail casinos, (“iGaming”). In February 2020, the Company acquired 36% (inclusive of 1% onsports media assets, technology, including a delayed basis) equity interest in Barstool Sports, Inc. (“Barstool Sports”), a leadingstate-of-the-art, fully integrated digital sports entertainment, lifestyle and media company,iCasino betting platform, 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, toan in-house iCasino content studio. The Company’s portfolio is further bolstered by 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 MYCHOICEindustry-leading mychoice®customer loyalty program (the "my“mychoice program"program”) currently has over 20, which offers our approximately 26 million members a unique set of rewards 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.experiences across business channels.
As of December 31, 2020, we owned, managed, or had ownership interests in 41 gaming and racing properties in 19 states and were licensed to offer live sports betting at our properties in Colorado, Illinois, Indiana, Iowa, Michigan, Mississippi, Nevada, Pennsylvania and West Virginia. The majority of the real estate assets (i.e., land and buildings) used in our operations are subject to triple net master leases; the most significant of which are the PennPENN Master Lease and the Pinnacle Master Lease (as such terms are defined in Note 12, “Leases,” and collectively referred to as the “Master Leases”), with Gaming and Leisure Properties, Inc. (Nasdaq: GLPI) (“GLPI”), a real estate investment trust (“REIT”).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”). See Note 12, “Leases,” In October 2018, the Company completed the acquisition of Pinnacle Entertainment, Inc. (“Pinnacle”), a leading regional gaming operator (the “Pinnacle Acquisition”), which added 12 gaming properties to our holdings. For more information on our acquisitions, see Note 6, “Acquisitions and Dispositions.”Impact of the COVID-19 Pandemic and Company Response:Pandemic: On March 11, 2020, the World Health Organization declared the novel coronavirus (known as “COVID-19”) outbreak to be a global pandemic. We began temporarily suspendingTo help combat the operationsspread of all of our properties between March 13, 2020COVID-19 and March 19, 2020 pursuant to various orders from state gaming regulatory bodies or governmental authorities, to combat the rapid spreadoperations at all of COVID-19. We began reopening our properties on May 18,were temporarily suspended for single, or multiple, time periods during 2020 and into 2021, and we operated with reduced gaming and hotel capacity andwith limited food and beverage offerings in order to accommodate comprehensive 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 was temporarily closed on November 17, 2020 and reopened December 23, 2020. Our Pennsylvania properties were temporarily closed on December 12, 2020 and reopened on January 4, 2021. Our Illinois properties were 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 various orders from state gaming regulatory bodies or governmental authorities to combat the rapid spread of COVID-19.offerings. As of February 26, 2021, allthe date of this filing, none of our properties were open to the public with the exception of Zia Park and Valley Race Park, which remainare closed.
Between March 13, 2020 and December 31, 2020, we entered into a series of transactions to improve our financial position and liquidity in lightAlthough the impact of the COVID-19 pandemic including: (i) on March 13, 2020,has lessened as of late, we provided notice to our lenders to borrowcould still experience adverse effects from the remaining available amount of $430.0 million under our Revolving Credit Facility; (ii) on March 27, 2020, we entered into a binding term sheet with GLPI (the “Term Sheet”) whereby GLPI agreed to (a) purchase the real estate assets associated with Tropicana Las Vegas (“Tropicana”) in exchange for rent credits of $307.5 million, which closed on April 16, 2020, and (b) a sale-leaseback of the land underlying our Hollywood Casino Morgantown (“Morgantown”) development project in Morgantown, Pennsylvania, in exchange for rent credits of $30.0 million, which closed on October 1, 2020; (iii) on May 14, 2020 (May 19, 2020 with respect to the underwriters’ exercising their options to acquire additional 2.75% Convertible Notes), we completed a public offering of $330.5 million aggregate principal amount of 2.75% Convertible Notes; (iv) on May 14, 2020 (May 19, 2020 with respect to the underwriters’ exercising their options to purchase additional shares), we completed a
public offering of 19,166,667 aggregate shares of common stock, par value of $0.01 per share, of the Company (“Penn Common Stock”) for gross proceeds of $345.0 million; and (v) on September 24, 2020 (September 25, 2020 with respect to the underwriters’ exercising their options to purchase additional shares), we completed a public offering of 16,100,000 aggregate shares of Penn Common Stock for gross proceeds of $982.1 million. In addition, on April 14, 2020, the Company entered into an amendment to its Credit Agreement, which, among other things, provides it with relieflingering macroeconomic issues that have resulted from its financial covenants for a period of up to one year. On September 30, 2020, the Company fully repaid $670.0 million of outstanding borrowings under its Revolving Credit Facility. Further, on November 12, 2020 the Company prepaid $115.0 million of outstanding borrowings on its Term Loan B-1 Facility. The terms “Revolving Credit Facility,” “Convertible Notes”, “Credit Agreement” and "Term Loan B-1" are defined in Note 11, “Long-term Debt.”
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 based on (i) the timing and extent of the recovery in visitation and consumer spending at our properties; (ii) the continued impact of implementing social distancing and health and safety guidelines at our properties, including reductions in gaming, hotel capacity, limiting the number of food and beverage options and limiting other amenities; and (iii) whether any of our properties will be required to again temporarily suspend operations in the event that the pandemic significantly worsens. We are currently unable to determine whether, when or how the conditions surrounding the COVID-19 pandemic will change or whether the recovery in visitation and consumer spending is sustainable.
The Companypandemic. These could experience other potential adverse impacts as a result of the COVID-19 pandemic, including, butinclude, though are not limited to, further charges from adjustments to the carrying amountlabor shortages and increased turnover, interruption of goodwilldomestic and other intangible assets, long-lived asset impairment charges, or impairments of investments in joint ventures. In addition, the negative impacts of the COVID-19 pandemic may result in further changes in the amount of valuation allowance required. Actual results may differ materially from the Company’s current estimates as the scope of the COVID-19 pandemic evolves, depending largely, though not exclusively, on the impact of required capacity reductions, social distancing and health and safety guidelines,global supply chains, and the sustainabilityreinstatement of current trends in recovery at our reopened properties.
As of December 31, 2020, the Company has a strong balance sheet and sufficient liquidity in place, including total cash and cash equivalents, excluding restricted cash, of $1.9 billion and available borrowing capacity of $0.7 billion.mask mandates.
Basis of Presentation: The Consolidated Financial Statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and with the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”).
Note 2—Significant Accounting Policies
Principles of Consolidation: The Consolidated Financial Statements include the accounts of Penn National Gaming,PENN Entertainment, Inc. and its subsidiaries. Investments in and advances to unconsolidated affiliates that do not meet the consolidation criteria of the authoritative guidance for voting interest entities (“VOEs”) or variable interest entities (“VIEs”) are accounted for under the equity method. All intercompany accounts and transactions have been eliminated in consolidation.
Reclassifications: Certain reclassifications have been made to conform the prior period presentation.
Use of Estimates: The preparation of Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions as of the date of the Consolidated Financial Statements that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements, and (iii) the reported amounts of revenues and expenses during the reporting period. Estimates used by us include, among other things, the useful lives for depreciable and amortizable assets, the allowanceprovision for doubtful accounts receivable,credit losses, income tax provisions, the evaluation of the future realization of deferred tax assets, determining the adequacy of reserves for self-insured liabilities, the liabilities associated with our mychoice program, the initial measurements of financing obligations and lease liabilities associated with theour Master Leases, projected cash flows in assessing the recoverability of long-lived assets, asset impairments, goodwill and other intangible assets, projected cash flows in assessing the initial valuation of intangible assets in conjunction with acquisitions, the initial selection of useful lives for depreciable and amortizable assets in conjunction with acquisitions, contingencies and litigation inclusive of financing arrangements in which the Company receives up-front cash proceeds, and stock-based compensation expense. We applied estimation methods consistently for all periods presented within our Consolidated Financial Statements. Actual results may differ from those estimates.
Segment Information: We view each of ourhave five reportable segments: Northeast, South, West, Midwest, and Interactive. Our gaming and racing properties are grouped by geographic location and each is viewed as an operating segment with the exception of our 2two properties in Jackpot, Nevada, which we vieware viewed as 1one operating segment. We consider our combined VGTVideo Gaming Terminal (“VGT”) operations, by state, to be separate operating segments. Interactive includes all of our online sports betting and iCasino operations, management of retail sports betting, media, and our proportionate share of earnings attributable to our equity method investment in Barstool Sports, Inc. (“Barstool”). See Note 18, “Segment Information,” for further information. For financial reporting purposes, we aggregate our operating segments into the following 4 reportable segments: | | | | | | | | | | | |
| Location | | Real Estate Assets Lease or Ownership Structure |
| Northeast segment | | | |
| Ameristar East Chicago | East Chicago, Indiana | | Pinnacle Master Lease |
Greektown Casino-Hotel | Detroit, Michigan | | Greektown Lease |
| Hollywood Casino Bangor | Bangor, Maine | | PennPENN Master Lease |
| Hollywood Casino at Charles Town Races | Charles Town, West Virginia | | PennPENN Master Lease |
| Hollywood Casino Columbus | Columbus, Ohio | | PennPENN Master Lease |
| Hollywood Casino at Greektown | Detroit, Michigan | | Greektown Lease |
| Hollywood Casino Lawrenceburg | Lawrenceburg, Indiana | | PennPENN Master Lease |
| Hollywood Casino Morgantown | Morgantown, Pennsylvania | | Morgantown Lease (1) |
Hollywood Casino at PennPENN National Race Course | Grantville, Pennsylvania | | PennPENN Master Lease |
| Hollywood Casino Perryville | Perryville, Maryland | | Perryville Lease |
| Hollywood Casino at The Meadows | Washington, Pennsylvania | | Meadows Lease |
| Hollywood Casino Toledo | Toledo, Ohio | | PennPENN Master Lease |
| Hollywood Casino York | York, Pennsylvania | | Operating Lease (not with REIT Landlord) |
| Hollywood Gaming at Dayton Raceway | Dayton, Ohio | | PennPENN Master Lease |
| Hollywood Gaming at Mahoning Valley Race Course | Youngstown, Ohio | | PennPENN Master Lease |
Marquee by PennPENN (1)(2) | Pennsylvania | | N/A |
Meadows Racetrack and Casino | Washington, Pennsylvania | | Meadows Lease |
| Plainridge Park Casino | Plainville, Massachusetts | | Pinnacle Master Lease |
| | | |
South segment (2) | | | |
1st Jackpot Casino | Tunica, Mississippi | | PennPENN Master Lease |
| Ameristar Vicksburg | Vicksburg, Mississippi | | Pinnacle Master Lease |
| Boomtown Biloxi | Biloxi, Mississippi | | PennPENN Master Lease |
| Boomtown Bossier City | Bossier City, Louisiana | | Pinnacle Master Lease |
| Boomtown New Orleans | New Orleans, Louisiana | | Pinnacle Master Lease |
| Hollywood Casino Gulf Coast | Bay St. Louis, Mississippi | | PennPENN Master Lease |
| Hollywood Casino Tunica | Tunica, Mississippi | | PennPENN Master Lease |
| L’Auberge Baton Rouge | Baton Rouge, Louisiana | | Pinnacle Master Lease |
| L’Auberge Lake Charles | Lake Charles, Louisiana | | Pinnacle Master Lease |
| Margaritaville Resort Casino | Bossier City, Louisiana | | Margaritaville Lease |
| | | |
| West segment | | | |
| Ameristar Black Hawk | Black Hawk, Colorado | | Pinnacle Master Lease |
| Cactus Petes and Horseshu | Jackpot, Nevada | | Pinnacle Master Lease |
| M Resort Spa Casino | Henderson, Nevada | | PennPENN Master Lease |
Tropicana Las Vegas (3) | Las Vegas, Nevada | | Tropicana Lease |
| Zia Park Casino | Hobbs, New Mexico | | PennPENN Master Lease |
| | | |
| Midwest segment | | | |
| Ameristar Council Bluffs | Council Bluffs, Iowa | | Pinnacle Master Lease |
Argosy Casino Alton (3)(4) | Alton, Illinois | | PennPENN Master Lease |
| Argosy Casino Riverside | Riverside, Missouri | | PennPENN Master Lease |
| Hollywood Casino Aurora | Aurora, Illinois | | PennPENN Master Lease |
| Hollywood Casino Joliet | Joliet, Illinois | | PennPENN Master Lease |
Hollywood Casino at Kansas Speedway (4)(5) | Kansas City, Kansas | | Owned - JVJoint Venture |
| Hollywood Casino St. Louis | Maryland Heights, Missouri | | PennPENN Master Lease |
Prairie State Gaming (1)(2) | Illinois | | N/A |
| River City Casino | St. Louis, Missouri | | Pinnacle Master Lease |
(1)Upon termination of the Morgantown Lease, ownership of the constructed building and all tenant improvements will transfer from the Company to GLPI.
(2)VGT route operations
(2)(3)ResortsOn September 26, 2022, PENN sold its equity interest in the Tropicana Las Vegas Hotel and Casino Tunica ceased operations on June 30, 2019, but remains subjectInc. (“Tropicana”), which consisted of the gaming license to operate the Penn Master Lease.property as described in Note 6, “Acquisitions and Dispositions”, and as a result of the sale, the Tropicana Lease (as defined in Note 12, “Leases”) was terminated.(3)(4)The riverboat is owned by us and not subject to the PennPENN Master Lease.
(4)(5)Pursuant to a joint venture (“JV”) with NASCAR and includes the Company’s 50% investment in Kansas Entertainment, LLC (“Kansas Entertainment”), which owns Hollywood Casino at Kansas Speedway.
Cash and Cash Equivalents: The Company considers all cash balances and highly-liquid investments with original maturities of three months or less at the date of purchase to be cash and cash equivalents.
Concentration of Credit Risk: Financial instruments that subject the Company to credit risk consist of cash and cash equivalents and accounts receivable. The Company’s policy is to limit the amount of credit exposure to any one financial institution, and place investments with financial institutions evaluated as being creditworthy, or in short-term money market and tax-free bond funds which are exposed to minimal interest rate and credit risk. The Company has bank deposits and overnight repurchase agreements that exceed federally-insured limits.
Concentration of credit risk, with respect to casino receivables, is limited through the Company’s credit evaluation process. The Company issues markers to approved casino customers following investigations of creditworthiness.
The Company’s receivables as of December 31, 2020 and 2019 primarily consisted of the following:
| | | | | | | | | | | |
| December 31, |
| (in millions) | 2020 | | 2019 |
| Markers issued to customers | $ | 14.8 | | | $ | 22.9 | |
| Credit card receivables and other advances to customers | 8.9 | | | 16.5 | |
| Receivables from ATM and cash kiosk transactions | 10.9 | | | 14.4 | |
| Hotel and banquet receivables | 2.7 | | | 6.5 | |
| Racing settlements | 7.7 | | | 6.6 | |
| Receivables due from platform providers for social casino games | 10.5 | | | 3.3 | |
| | | |
| Insurance Receivable - Hurricane Laura | 23.0 | | | 0 | |
| Other | 26.7 | | | 26.2 | |
| Allowance for doubtful accounts | (8.8) | | | (7.7) | |
| Accounts receivable, net | $ | 96.4 | | | $ | 88.7 | |
The Company adopted Accounting Standards Codification (“ASC”) No. 2016-13 (“ASC 2016-13”), “Financial Instruments - Credit Losses (Topic 326): Measurements of Credit Losses on Financial Instruments” during the first quarter of 2020 which utilizes a forward-looking current expected credit loss model to measure the allowanceprovision for doubtful accounts.credit losses.Prior to the adoption of ASC 2016-13, accounts were written off when management determined that an account was uncollectible. Recoveries of accounts previously written off were recorded when received. Historically, the Company has not incurred any significant credit-related losses.
| | | | | | | | | | | |
| December 31, |
| (in millions) | 2022 | | 2021 |
| Markers and returned checks | $ | 13.1 | | | $ | 15.1 | |
| Payment processors, credit card, and other advances to customers | 80.2 | | | 17.7 | |
| Receivables from ATM and cash kiosk transactions | 26.1 | | | 20.9 | |
| Hotel and banquet | 4.7 | | | 4.1 | |
| Racing settlements | 8.0 | | | 12.8 | |
| Online gaming and licensing receivables from third party operators, including taxes | 62.7 | | | 66.3 | |
| Media receivables | 15.0 | | | 10.3 | |
| Insurance Receivable - Hurricane Laura | — | | | 28.7 | |
| Other | 45.1 | | | 27.1 | |
| Provision for credit losses | (8.5) | | | (8.0) | |
| Accounts receivable, net | $ | 246.4 | | | $ | 195.0 | |
Property and Equipment: Property and equipment are stated at cost, less accumulated depreciation. Capital expenditures are accounted for as either project capital or maintenance (replacement) capital expenditures.. Project capital expenditures are for fixed asset additions that expand anassociated with constructing new facilities, or expansions of existing facility or create a new facility.facilities. Maintenance capital expenditures (replacement) are expenditures to replace existing fixed assets with a useful life greater than one year that are obsolete, worn out or no longer cost-effective to repair. Maintenance and repairs that neither add materially to the value of the asset nor appreciably prolong its useful life are charged to expense as incurred. Gains or losses on the disposal of property and equipment are included in the determination of income.
The estimated useful lives of property and equipment are determined based on the nature of the assets as well as the Company’s current operating strategy. Depreciation of property and equipment is recorded using the straight-line method over the shorter of the estimated useful life of the asset or the related lease term, if any, as follows:
| | | | | |
| | Years |
| Land improvements | 15 |
| Buildings and improvements | 5 to 31 |
| Vessels | 10 to 3531 |
| Furniture, fixtures, and equipment | 31 to 31 |
All costs funded by the Company considered to be an improvement to the real estate assets subject to any of our Triple Net Leases are recorded as leasehold improvements. Leasehold improvements are depreciated over the shorter of the estimated useful life of the improvement or the related lease term.
The Company reviews the carrying amount of its property and equipment for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable based on undiscounted estimated future cash flows expected to result from its use and eventual disposition. The factors considered by the Company in performing this assessment include current operating results, trends and prospects, as well as the effect of obsolescence, demand, competition, and other regulatory and economic factors. For purposes of recognizing and measuring impairment, assets are grouped at the individual property level representing the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets. In assessing the recoverability of the carrying amount of property and equipment, we must make assumptions regarding future cash flows and other factors. If these estimates or the related assumptions change in the future, we may be required to record an impairment loss for these assets. Such an impairment loss would be recognized as a non-cash component of operating income. See Note 8, “Property and Equipment.” Goodwill and Other Intangible Assets: Goodwill represents the future economic benefits of a business combination measured as the excess of the purchase price over the fair value of net assets acquired and has been allocated to our reporting units. Goodwill is tested for impairment annually on October 1st of each year, 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 (“EBITDA”) 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 our 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. 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 to be indefinite-lived 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. Indefinite-lived intangible assets are tested annually for impairment on October 1st of each year, 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 is recognized. The Company completes its testing of its indefinite-lived intangible assets prior to assessing the realizability of its goodwill.
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 DCF model assuming the Company built a 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. The Company assesses the fair value of its 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.
Our annual goodwill and other indefinite-lived intangible assets impairment test is performed on October 1st of each year. Once an impairment of goodwill or other intangible asset has been recorded, it cannot be reversed. Other intangible assets that have a definite-life, including gaming technology and media technology, 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 theShould events and circumstances indicate amortizing intangible assets may not be recoverable, the Company performs a test for recoverability whereby estimated undiscounted cash flows are compared to the carrying values of the assets. Should the estimated undiscounted cash flows exceed their fairthe carrying value, no impairments are recorded. If the undiscounted cash flows do not exceed the carrying values, an impairment is recognized.recorded based on the fair value of the asset, typically measured using either a discounted cash flow or replacement cost approach.
Equity Securities: The Company’s equity securities (including warrants) are measured at fair value each reporting period with unrealized holding gains and losses included in current period earnings. During the year ended December 31, 2020, theThe Company recognized a holding gain of $106.7 million related to equity securities, which is includedrecords realized and unrealized gains and losses in “Other,” as reported in “Other income (expenses)”“Other” within our Consolidated Statements of Operations and Comprehensive Income (Loss).Operations.
Convertible Debt: Under ASCOur Convertible Notes (as defined in Note 3, “New Accounting Pronouncements”) are accounted for in accordance with Accounting Standards Codification (“ASC”) 470-20, “Debt with Conversion and Other Options” (“ASC 470-20”), an entity must separately account. Prior to January 1, 2022, pursuant to ASC 470‑20, we accounted for the Convertible Notes using the separate liability (debt) and equity (conversion option) components of convertible debt instruments that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest.instrument. The effect of ASC 470-20 on the accounting for our Convertible Notes is that the equity component is required to bewas included in “Additional paid-in capital” within our Consolidated Balance Sheets at the issuance date and the value of the equity component iswas treated as a debt discount. Effective January 1, 2022, we adopted ASU 2020-06 (as defined in Note 3, “New Accounting Pronouncements”), using the modified retrospective approach. As a result, the Convertible Notes are accounted for as a single liability measured at its amortized cost, as no other embedded features require bifurcation. SeeNote 3, “New Accounting Pronouncements” and Note 11, “Long-term Debt,”Debt” for moreadditional information. Financing Obligations: Subsequent to the adoption ofIn accordance with ASC 842, “Leases”“ Leases” (“ASC 842”) on January 1, 2019, certain, for transactions in which the Company enters into a contract to sell an asset and leases it back from the seller under a sale and leaseback transaction, the Company must determine whether control of the components contained within our Master Leases (primarily buildings) are accounted for as financing obligations, rather than leases. Prior toasset has transferred from the adoption of ASC 842, our Master Leases, in their entirety, were accounted for as financing obligations.
On November 1, 2013,Company. In cases whereby control has not transferred from the Company, spun-off its real estate assets into GLPI (the “Spin-Off”)we continue to recognize the underlying asset as “Property and entered intoequipment, net” within the Penn Master Lease. This transaction did not meet allConsolidated Balance Sheets, which is then depreciated over the shorter of the requirements for sale-leaseback accounting treatment under ASC 840, “Leases,” (“ASC 840”); specifically, the Penn Master Lease contains provisions that indicate the Company has prohibited forms of continuing involvement in the leased assets, which are notremaining useful life or lease term. Additionally, a normal leaseback. Accordingly, at lease inception, we calculated a financing obligation based on the future minimum lease payments discounted at our estimated incremental borrowing rate at lease inception over the lease term of 35 years, which was determinedfinancial liability is recognized and referred to be 9.7%. The lease term included renewal options that were reasonably assured of being exercised and the funded construction of certain leased assets in development at the commencement of the Penn Master Lease.
On October 15, 2018, in connection with the Pinnacle Acquisition, we assumed the Pinnacle Master Lease. Within a business combination, an arrangement that previously did not meet all of the requirements for sale-leaseback accounting treatment (and is accounted for as a financing obligation, byin accordance with ASC 470, “Debt” (“ASC 470”). The accounting for financing obligations under ASC 470 is materially consistent with the acquiree) retains its classification as a financing obligationaccounting for finance leases under ASC 842. The Company recognizes interest expense on the acquiring entity’s consolidated balance sheets at the business combination date. As of the date of acquisition, we calculated the financing obligation based on the future minimum lease payments discounted at a rate determined to be fair value at the business combination date, which was determined to be 7.3%, over the remaining lease term of 32.5 years. The remaining lease term included renewal options that were reasonably assured of being exercised. 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 (the “Plainridge Park Casino Sale-Leaseback”). The effective yield used to determine the financing obligation associated with the Plainridge Park Casino Sale-Leaseback was 9.6%.
Subsequent to the adoption of ASC 842, minimum lease payments under our Master Lease are allocated between components that continue to be financing obligations (primarily buildings) and operating lease components (primarily land). Minimum lease payments related to a financing obligations are recorded to interest expense and, in part, as repayments of principal reducingobligation under the associated financing obligations.effective yield method. Contingent payments are recorded as interest expense as incurred. The real estate assets subject to the Master Leases and which are accounted for as failed sales, are included in “Property and equipment, net” within the Company’s Consolidated Balance Sheets and are depreciated over the shorter of their remaining useful lives or lease term. Principal payments associated with financing obligations are presented as financing cash outflows and interest payments associated with financing obligations are presented as operating cash outflows within our Consolidated Statements of Cash Flows. For more information, see Note 8, “Property and Equipment,” and Note 12, “Leases”.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 GLPI for the land underlying Morgantown (as defined and discussed in Note 12, “Leases.”).The sale-leaseback transaction did not meetWe concluded that the requirementscomponents contained within the Master Leases (primarily buildings) and the Morgantown Lease are required to be accounted for sale accountingas financing obligations on our Consolidated Balance Sheets in accordance with ASC 842, as control of the underlying asset as defined in accordance with ASC 842 remains withassets were not considered to have transferred from the Company.Accordingly, at lease inception, we calculated a financing obligation based on the future minimum lease payments discounted at our estimated incremental borrowing rate over the lease term of 50 years, which was determined to be 11.4%. The lease term included renewal options that were reasonably assured of being exercised.
Operating and Finance Leases: The Company determines if a contract is or contains a leasing element at contract inception or the date in which a modification of an existing contract occurs. In order for a contract to be considered a lease, the contract must transfer the right to control the use of an identified asset for a period of time in exchange for consideration. Control is determined to have occurred if the lessee has the right to (i) obtain substantially all of the economic benefits from the use of the identified asset throughout the period of use and (ii) direct the use of the identified asset.
Upon adoption ofIn accordance with ASC 842, we elected the following policies: (a) to account for lease and non-lease components as a single component for all classes of underlying assets and (b) to not recognize short-term leases (i.e., leases that are less than 12 months and do not contain purchase options) within the Consolidated Balance Sheets, with the expense related to these short-term leases recorded in total operating expenses within the Consolidated Statements of Operations and Comprehensive Income (Loss).Operations.
The Company has leasing arrangements that contain both lease and non-lease components. We account for both the lease and non-lease components as a single component for all classes of underlying assets. In determining the present value of lease payments at lease commencement date, the Company utilizes its incremental borrowing rate based on the information available, unless the rate implicit in the lease is readily determinable. The liability for operating and finance leases is based on the present value of future lease payments. Operating lease expenses are primarily recorded as rent expense, which isare included within general and administrative expense, within the Consolidated Statements of Operations and Comprehensive Income (Loss) and presented as operating cash outflows within the Consolidated Statements of Cash Flows. Finance lease expenses are recorded as depreciation expense, which is included within depreciation and amortization expense within the Consolidated Statements of Operations and Comprehensive Income (Loss) and interest expense over the lease term. Principal payments associated with finance leases are
presented as financing cash outflows and interest payments associated with finance leases are presented as operating cash outflows within our Consolidated Statements of Cash Flows.
ROU assets are monitored for potential impairment similar to the Company’s property and equipment, using the impairment model in ASC 360, “Property, Plant and Equipment”. If the Company determines the carrying amount of a ROU asset is not recoverable, it would recognize an impairment charge equivalent to the amount required to reduce the carrying value of the asset to its estimated fair value.
Debt Discount and Debt Issuance Costs: Debt issuance costs that are incurred by the Company in connection with the issuance of debt are deferred and amortized to interest expense using the effective interest method over the contractual term of the underlying indebtedness. These costs are classified as a direct reduction of long-term debt within the Company’s Consolidated Balance Sheets.
Self-Insurance Reserves: The Company is self-insured for employee health coverage, general liability and workers’ compensation up to certain stop-loss amounts (for general liability and workers’ compensation). We use a reserve method for each reported claim plus an allowance for claims incurred but not yet reported to a fully-developed claims reserve method based on an actuarial computation of ultimate liability. Self-insurance reserves are included in “Accrued expenses and other current liabilities” within the Company’s Consolidated Balance Sheets.
Contingent Purchase Price: The consideration for the Company’s acquisitions may include future payments that are contingent upon the occurrence of a particular event. We record an obligation for such contingent payments at fair value as of the acquisition date. We revalue our contingent purchase price obligations each reporting period. Changes in the fair value of the contingent purchase price obligation can result from changes to one or multiple inputs, including adjustments to the discount rate and changes in the assumed probabilities of successful achievement of certain financial targets. The changes in the fair value of contingent purchase price are recognized within our Consolidated Statements of Operations and Comprehensive Income (Loss) as a component of “General and administrative” expense.
Income Taxes: Under ASC 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 (a greater than 50% probability) that some portion or all of the deferred tax assets will not be realized.
The realizability of the net deferred tax assets is evaluated quarterly by assessing the valuation allowance and by adjusting the amount of the allowance, if necessary. The Company considers 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. The evaluation of both positive and negative evidence is a requirement pursuant to ASC 740 in determining more-likely-than-not the net deferred tax assets will be realized. 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.
ASC 740 also creates a single model to address uncertainty in tax positions and clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in an enterprise’s financial statements. It also provides guidance on de-recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. See Note 14, “Income Taxes.”
Revenue Recognition: Our revenue from contracts with customers consists primarily of gaming wagers, inclusive of sports betting and iCasino products, food and beverage transactions, retail transactions, hotel room sales, racing wagers, sports betting wagers, and management services related to the management of external casinos and reimbursable costs associated with management contracts. In May 2018, our management contract was terminated for Hollywood Casino-Jamul San Diego, which is located in San Diego, California. In addition, our management contract was terminated for Casino Rama, which is located in Ontario, Canada, in July 2018.third-party revenue sharing agreements. See Note 5, “Revenue Disaggregation,” for information on our revenue by type and geographic location. The transaction price for a gaming wagering contract is the difference between gaming wins and losses, not the total amount wagered. The transaction price for food and beverage, hotel and retail contracts is the net amount collected from the customer for such goods and services. Sales tax and other taxes collected on behalf of governmental authorities are accounted for on the net basis and are not included in revenues or expenses. The transaction price for our racing operations, inclusive of live racing events conducted at our racing facilities and our import and export arrangements, is the commission received from the pari-mutuel pool less contractual fees and obligations primarily consisting of purse funding requirements, simulcasting fees, tote fees and certain pari-mutuel taxes that are directly related to the racing operations. The transaction price for our former management service contracts wasis the amount collected for services rendered in accordance with the contractual terms. The transaction price for the reimbursable costs associated with our former management contracts was the gross amount of the reimbursable expenditure, which primarily consisted of payroll costs incurred by the Company for the benefit of the managed
entity. Since the Company was the controlling entity to the arrangement, the reimbursement was recorded on a gross basis with an offsetting amount charged to operating expense.
Gaming revenue contracts involve two performance obligations for those customers earning points under our mychoice program and a single performance obligation for customers that do not participate in the mychoice program. The Company applies a practical expedient by accounting for its gaming contracts on a portfolio basis as opposed to an individual wagering contract. For purposes of allocating the transaction price in a gaming contract between the wagering performance obligation and the obligation associated with the loyalty points earned, we allocate an amount to the loyalty point contract liability based on the standalone selling price (“SSP”) of the points earned, which is determined by the value of a point that can be redeemed for slot play and complimentaries such as, food and beverage at our restaurants, lodging at our hotels and products offered at our
mychoice mall and retail stores, less estimated breakage. The allocated revenue for gaming wagers is recognized when the wagering occurs as all such wagers settle immediately. The liability associated with the loyalty points is deferred and recognized as revenue when the customer redeems the loyalty points for slot play and complimentaries and such goods and services are delivered to the customer.
Food and beverage, hotel and retail services have been determined to be separate, standalone performance obligations and the transaction price for such contracts is recorded as revenue as the good or service is transferred to the customer over their stay at the hotel or when the delivery is made for the food and beverage or retail product. Cancellation fees for hotel and meeting space services are recognized upon cancellation by the customer and are included in food, beverage, hotel and other revenue within our Consolidated Statements of Operations and Comprehensive Income (Loss).
Racing revenue contracts, inclusive of our (i) host racing facilities, (ii) import arrangements that permit us to simulcast in live racing events occurring at other racetracks, and (iii) export arrangements that permit our live racing events to be simulcast at other racetracks, provide access to and the processing of wagers into the pari-mutuel pool. The Company has concluded it is not the controlling entity to the arrangement, but rather functions as an agent to the pari-mutuel pool. Commissions earned from the pari-mutuel pool less contractual fees and obligations are recognized on a net basis, which is included within food, beverage, hotel and other revenues within our Consolidated Statements of Operations and Comprehensive Income (Loss).
Management services have been determined to be separate, standalone performance obligations and the transaction price for such contracts wasare recorded as services wereare performed. The Company recordedrecords revenues on a monthly basis calculated by applying the contractual rate called for in the contracts.
In addition to sports betting and iGamingiCasino revenues, PennPENN Interactive generates in-app purchase and advertising revenues from free-to-play social casino games, which can be downloaded to mobile phones and tablets from digital storefronts. Players can purchase virtual playing credits within our social casino games, which allows for increased playing opportunities and functionality. PennPENN Interactive records deferred revenue from the sale of virtual playing credits and recognizes this revenue over the average redemption period of the credits, which is approximately three days.generally one day. Advertising revenues are recognized in the period when the advertising impression, click or install delivery occurs.
PENN Interactive also enters into multi-year agreements with sports betting operators for online sports betting and iCasino market access (“Skins”) across our portfolio, of which the Company generally receives upfront (i) cash or (ii) cash and equity securities. Additionally, in consideration for the use of each Skin, the Company receives a monthly revenue share amount of the revenues earned by the operators less contractual fees and obligations primarily consisting of taxes, promotional credits, data fees and player costs.
The market access provided to operators by jurisdiction and by activity represent separate performance obligations. The transaction price includes fixed fees for access to certain geographic markets and variable consideration in the form of a monthly revenue share, annual minimum guarantee amounts, and reimbursements for out-of-pocket expenses including jurisdictional gaming taxes. The upfront and fixed access fees relate solely to distinct markets and are allocated to the performance obligations specific to those markets. Market access fees are recognized as revenue over the term of the related market access agreement which commences upon the online launch of the activity by the third-party operator. Monthly revenue share and annual minimum guarantee variable consideration relate directly to the Company’s efforts to satisfy each individual performance obligation and, as such, is allocated to each performance obligation. Revenues from monthly revenue shares are recognized in the period in which the revenue was earned by our third-party operators. Minimum guarantee revenue is deferred at the end of the period in which it relates and subsequently recognized as revenue over the remaining term of the market access agreement. The Company also recognizes revenue for reimbursements of certain out-of-pocket expenses, including license fees and jurisdictional gaming taxes. The Company has elected the “right to invoice” practical expedient and recognizes revenue upon incurring reimbursable costs, as appropriate.
Complimentaries Associated with Gaming Contracts
Food, and beverage, hotel, and other services furnished to patrons for free as an inducement to gamble or through the redemption of our customers’ loyalty points are recorded as food, and beverage, hotel, and other revenues, at their estimated SSPsstandalone selling prices with an offset recorded as a reduction to gaming revenues. The cost of providing complimentary goods and services to patrons as an inducement to gamble as well as for the fulfillment of our loyalty point obligation is included in food, beverage, hotel, and other expenses. Revenues recorded to food, beverage, hotel, and other and offset to gaming revenues were as follows:
| | | For the year ended December 31, | | For the year ended December 31, |
| (in millions) | (in millions) | 2020 | | 2019 | | 2018 | (in millions) | 2022 | | 2021 | | 2020 |
| Food and beverage | Food and beverage | $ | 123.6 | | | $ | 261.4 | | | $ | 137.2 | | Food and beverage | $ | 209.5 | | | $ | 173.7 | | | $ | 123.6 | |
| Hotel | Hotel | 79.6 | | | 159.6 | | | 60.8 | | Hotel | 138.3 | | | 125.4 | | | 79.6 | |
| Other | Other | 6.7 | | | 17.6 | | | 8.1 | | Other | 12.3 | | | 10.2 | | | 6.7 | |
| Total complimentaries associated with gaming contracts | Total complimentaries associated with gaming contracts | $ | 209.9 | | | $ | 438.6 | | | $ | 206.1 | | Total complimentaries associated with gaming contracts | $ | 360.1 | | | $ | 309.3 | | | $ | 209.9 | |
Customer-related Liabilities
The Company has three general types of liabilities related to contracts with customers: (i) the obligation associated with its mychoice program (loyalty points and tier status benefits), (ii) advance payments on goods and services yet to be provided and
for unpaid wagers, and (iii) deferred revenue associated with third-party sports betting operators for online sports betting and related iGamingiCasino market access.
Our mychoice program allows members to utilize their reward membership cards to earn loyalty points that are redeemable for slot play and complimentaries, such as food and beverage at our restaurants, lodging at our hotels, mychoice redemption mall, and products offered at our retail stores across the vast majority of our properties. In addition, members of the mychoice program earn credit toward tier status, which entitles them to receive certain other benefits, such as gifts.priority access, discounts, gifts, and free play. The obligation associated with our mychoice program, which is included in “Accrued expenses and other current liabilities” within our Consolidated Balance Sheets, was $35.8$39.3 million and $36.2$37.6 million as of December 31, 20202022 and 2019,2021, respectively, and consisted principally of the obligation associated with the loyalty points. Our loyalty point obligations are generally settled within six months of issuance; however, as a result of the COVID-19 pandemic and resulting temporary closures, loyalty point obligations may take longer to settle.issuance. Changes between the opening and closing balances primarily relate to the timing of our customers’ election to redeem loyalty points as well as the timing of when our customers receive their earned tier status benefits.
The Company’s advance payments on goods and services yet to be provided and for unpaid wagers primarily consist of the following: (i) deposits on rooms and convention space, (ii) money deposited on behalf of a customer in advance of their property visit (referred to as “safekeeping” or “front money”), (iii) money deposited in an online wallet not yet wagered or wagered and not yet withdrawn, (iv) outstanding tickets generated by slot machine play or pari-mutuel wagering, (iv)(v) outstanding chip liabilities, (v)(vi) unclaimed jackpots, and (vi)(vii) gift cards redeemable at our properties. Unpaid wagers primarily relate to the Company’s obligation to settle outstanding slot tickets, pari-mutuel racing tickets and gaming chips with customers and generally represent obligations stemming from prior wagering events, of which revenue was previously recognized. The Company’s advance payments on goods and services yet to be provided and for unpaid wagers were $47.1$125.8 million and $42.2$112.0 million as of December 31, 20202022 and 2019,2021, respectively, of which $0.5 million and $0.6 million were classified as long-term in both periods. The current portion and long-term portion of our advance payments on goods and services yet to be provided and for unpaid wagers are included in “Accrued expenses and other current liabilities” and “Other long-term liabilities” within our Consolidated Balance Sheets, respectively.Sheets.
PennPENN Interactive enters into multi-year agreements with sports betting operators for online sports betting and related iGamingiCasino market access across our portfolio of properties, from which we received cash and equity securities, including ordinary shares and warrants, specific to 2 operator agreements. During the fourth quarter of 2019, certainproperties. Certain of the operations contemplated by these agreements commenced, resulting in the recognition of $5.6$22.4 million, $16.3 million and $0.6$5.6 million of revenue (most of which was previously deferred) during the yearyears ended December 31, 20202022, 2021 and 2019,2020 respectively. Deferred revenue associated with third-party sports betting operators for online sports betting and related iGamingiCasino market access, which is included in “Other long-term liabilities” within our Consolidated Balance Sheets was $52.7$46.2 million and $43.6$52.2 million as of December 31, 2022 and 2021, respectively.
Advertising: The Company expenses advertising costs the first time the advertising takes place or as incurred. Advertising expenses, which generally relate to media placement costs and are primarily included in “Gaming” expenses within the Consolidated Statements of Operations, were $94.8 million, $88.2 million, and $36.7 million, for the years ended December 31, 2022, 2021 and 2020, and 2019, respectively.
Gaming and RacingPari-mutuel Taxes: We are subject to gaming and pari-mutuel taxes based on gross gaming revenue and pari-mutuel revenue in the jurisdictions in which we operate.operate, as well as taxes on revenues derived from arrangements which allow for third-party partners to operate iCasinos and online sportsbooks under our gaming licenses. The Company primarily
recognizes gaming and pari-mutuel tax expense based on the statutorily required percentage of revenue that is required to be paid to state, andprovincial and/or local jurisdictions in the states and provinces where or in which the wagering occurs. For the years ended December 31, 2020, 2019 and 2018, these expenses, which were recorded primarilyAlso, included in gaming and pari-mutuel taxes are costs to support the operations of local regulatory authorities which some jurisdictions require us to pay. Gaming and pari-mutuel taxes are recorded in “Gaming” expense or “Food, beverage, hotel, and other” expenses within the Consolidated Statements of Operations, and were $2.2 billion, $2.0 billion, and $1.1 billion for the years ended December 31, 2022, 2021 and 2020, respectively.
Foreign Currency Translation: The functional currency of the Company’s foreign subsidiaries is the local currency in which the subsidiary operates. Balance sheet accounts are translated at the exchange rate in effect at each balance sheet date. Translation adjustments resulting from this process are recorded to other comprehensive income (loss). Revenues and expenses are translated at the average exchange rates during the year. Gains or losses resulting from foreign currency transactions are included in “Other” within our Consolidated Statements of Operations.
Comprehensive Income (Loss), were $1,098.9 million, $1,590.0 million, and $1,102.3 million, respectively.Accumulated Other Comprehensive Loss: Comprehensive income (loss) includes net income (loss) and all other non-stockholder changes in equity, or other comprehensive income (loss). The balance of accumulated other comprehensive loss consists solely of foreign currency translation adjustments.
Stock-Based Compensation: The cost of employee services received in exchange for an award of equity instruments is based on the grant-date fair value of the award and the expense is recognized ratably over the requisite service period. The Company accounts for forfeitures in the period in which they occur based on actual amounts. The fair value of stock options is estimated at the grant date using the Black-Scholes option-pricing model, which requires us to make assumptions, including the expected term, which is based on the contractual term of the stock option and historical exercise data of the Company’s employees; the risk-free interest rate, which is based on the U.S. Treasury spot rate with a term equal to the expected term assumed at the grant date; the expected volatility, which is estimated based on the historical volatility of the Company’s stock price over the expected term assumed at the grant date; and the expected dividend yield, which is 0zero since we have not historically paid dividends. See Note 16, “Stock-based Compensation.” Earnings Per Share: Basic earnings per share (“EPS”) is computed by dividing net income (loss) applicable to common stock by the weighted-average number of common shares outstanding during the period. Diluted EPS reflects the additional dilution, if any, for all potentially-dilutive securities such as stock options, unvested restricted stock awards (“RSAs”) and restricted stock units (“RSUs”) (collectively with RSAs, “restricted stock”), outstanding convertible preferred stock, and convertible debt.
Holders of the Company’s Series D Preferred Stock (as defined in Note 7, “Investments in and Advances to Unconsolidated Affiliates”) are entitled to participate equally and ratably in all dividends and distributions paid to holders of Penn Common StockPENN common stock irrespective of any vesting requirement. Accordingly, the Series D Preferred Stock shares are considered a
participating security and the Company is required to apply the two-class method to consider the impact of the preferred shares on the calculation of basic and diluted EPS. The holders of the Company’s Series D Preferred Stock are not obligated to absorb losses; therefore, in reporting periods where the Company is in a net loss position, it does not apply the two-class method. In reporting periods where the Company is in a net income position, the two-class method is applied by allocating all earnings during the period to common shares and preferred shares. See Note 17, “Earnings (Loss) per Share,” for more information.
Application of Business Combination Accounting: We utilize the acquisition method of accounting in accordance with ASC 805, “Business Combinations,” which requires us to allocate the purchase price to tangible and identifiable intangible assets based on their fair values. The excess of the purchase price over the fair value ascribed to tangible and identifiable intangible assets is recorded as goodwill. If the fair value ascribed to tangible and identifiable intangible assets changes during the measurement period (due to additional information being available and related Company analysis), the measurement period adjustment is recognized in the reporting period in which the adjustment amount is determined and offset against goodwill. The measurement period for our acquisitions areis no more than one year in duration. See Note 6, “Acquisitions and Dispositions.” Voting Interest Entities and Variable Interest Entities: The Company consolidates all subsidiaries or other entities in which it has a controlling financial interest. The consolidation guidance requires an analysis to determine if an entity should be evaluated for consolidation using the VOE model or the VIE model. Under the VOE model, controlling financial interest is generally defined as a majority ownership of voting rights. Under the VIE model, controlling financial interest is defined as (i) the power to direct activities that most significantly impact the economic performance of the entity and (ii) the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to the entity. For those entities that qualify as a VIE, the primary beneficiary is generally defined as the party who has a controlling financial interest in the VIE. The Company consolidates the financial position and results of operations of every VOE in which it has a controlling
Note 3—New Accounting Pronouncements
Accounting Pronouncements Implemented in 2020
In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurements of Credit Losses on Financial Instruments” (“ASU 2016-13”), which sets forth a “current expected credit loss” (referred to as “CECL”) model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. We adopted ASU 2016-13 during the first quarter of 2020 using a modified retrospective approach, which resulted in a cumulative-effect adjustment to retained earnings of $0.6 million as of January 1, 2020.
In August 2018,2022, the FASB issued ASU No. 2018-15, “Customer’s Accounting for Implementation Cost Incurred in a Cloud Computing Arrangement That Is a Service Contract”2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions” (“ASU 2018-15”2022-03”). Under the new guidance, customers apply the same criteria for capitalizing implementation costs as they would for an arrangement that has a software license. This will result in certain implementation costs being capitalized; the associated amortization charge will, however, be recorded as an operating expense. Under the previous guidance, costs incurred when implementing a cloud computing arrangement deemed to be a service contract were recorded as an operating expense when incurred. We adopted ASU 2018-15 during the first quarter of 2020 using a prospective approach, which did not have a material impact on our Consolidated Financial Statements.
In December 2019, the FASB issued ASU No. 2019-12, “Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), which intends to simplify2022-03 clarifies the guidance by removing certain exceptionson the fair value measurement of an equity security that is subject to a contractual sale restriction and requires specific disclosures related to such an equity security. Specifically, ASU 2022-03 clarifies that a “contractual sale restriction prohibiting the sale of an equity security is a characteristic of the reporting entity holding the equity security” and is not included in the equity security’s unit of account. Accordingly, the Company is no longer permitted to apply a discount related to the general principles and clarifyingcontractual sale restriction, or amending existing guidance.lack of marketability, when measuring the equity security’s fair value. In addition, ASU 2019-12 is2022-03 prohibits an entity from recognizing a contractual sale restriction as a separate unit of account. ASU 2022-03 will be effective for fiscal years beginning after December 15, 2020,2023, including interim periods within those fiscal years. We elected to early adoptEarly adoption is permitted. The Company is currently evaluating the impact of the adoption of ASU 2019-12 during the third quarter of 2020 on a prospective basis, which did not have a material impact2022-03 on our Consolidated Financial Statements.
In January 2020, the FASB issued ASU No. 2020-01, “Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815” (“ASU 2020-01”), which made targeted improvements to accounting for financial instruments, including providing an entity the ability to measure certain equity securities without a readily determinable fair value at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Among other topics, ASU 2020-01 clarifies that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting. ASU 2020-01 is effective for fiscal
years beginning after December 15, 2020, and interim periods within those fiscal years with early adoption permitted. The Company's early adoption of ASU 2020-01 did not have a material impact on our Consolidated Financial Statements.
In October 2020, the FASB issued ASU No. 2020-10, “Codification Improvements,” (“ASU 2020-10”) which updates various codification topics by clarifying or improving disclosure requirements to align with the SEC’s regulations. ASU 2020-10 is effective for fiscal years beginning after December 15, 2020 with early adoption permitted. The Company's early adoption of ASU 2020-10 did not have a material impact on our Consolidated Financial Statements.
Accounting Pronouncements to be Implemented
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”). ASU 2020-04 provides an optional expedient and exceptions for applying generally accepted accounting principlesGAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. In response to the concerns about structural risks of interbank offered rates and, particularly, the risk of cessation of the London Interbank Offered Rate (referred to as “LIBOR”), regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction-based and less susceptible to manipulation. ASU 2020-04 also provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. ASU 2020-04 can be adopted no later than December 1, 2022 with early adoption permitted. The interest rates associated with the Company’s previous borrowings under its Senior Secured Credit Facilities (as defined in Note 11, “Long-term Debt”) were tied to LIBOR. Subsequent to the amendment of the Senior Secured Credit Facilities on May 3, 2022, the Company’s borrowings are tied to LIBOR.SOFR (see Note 11, “Long-term Debt”), upon which the Company adopted ASU 2020-04. The Company is currently evaluating the impact of the adoption of ASU 2020-04 did not have an impact on our Consolidated Financial Statements. In August 2020, Thethe FASB issued ASU No. 2020-06, “Debt—Debt with Conversion and Other Options (Topic 470) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Topic 814): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”). ASU 2020-06 eliminates the number of accounting models used to account for convertible debt instruments and convertible preferred stock. The update also amends the disclosure requirements for convertible instruments and EPS in an effort to increase financial reporting transparency.
The new standard impacts the Company’s existing 2.75% convertible senior notes due May 2026 (“Convertible Notes”) which prior to adoption of the new standard, were accounted for under the cash conversion feature model. The cash conversion feature model is eliminated under the new standard and entities will no longer separately present in stockholders’ equity an embedded conversion feature of a debt instrument.
The new guidance also requires the use of the if-converted method when calculating diluted EPS for convertible instruments and the treasury stock method should no longer be used. Under the new guidance, convertible instruments that may be settled in cash or shares (e.g., the Company’s Convertible Notes) are to be included in the calculation of diluted EPS if the effect is more dilutive, with no option for rebutting the presumption of share settlement based on stated policy or past experience. Each of these requirements are consistent with the Company’s previous method for calculating diluted EPS.
The Company adopted ASU 2020-06 will be effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluatingJanuary 1, 2022, using the impactmodified retrospective approach. Adoption of ASU 2020-06 resulted in reclassification of the $88.2 million cash conversion feature related to the Company’s Convertible Notes, from stockholders’ equity to liabilities. As a result of the adoption, the Company recognized as a cumulative effect adjustment an increase to the January 1, 2022 opening balance of ASU 2020-06 on our Consolidated Financial Statements.
A varietyretained earnings of proposed or otherwise potential accounting standards are currently being studied by standard-setting organizations and certain regulatory agencies. Because$18.9 million, net of the tentative and preliminary nature of such proposed standards, we have not yet determined the effect, if any, that the implementation of such proposed standards would have on our Consolidated Financial Statements.
Note 4—Hurricane Laura
On August 27, 2020, Hurricane Laura made landfall in Lake Charles, Louisiana, which caused significant damage to our L’Auberge Lake Charles property and closure of the property for approximately two weeks. The Company maintains insurance, subject to certain deductibles and coinsurance, forthat covers business interruption, including lost profits, and covers the repair or replacement of assets that suffered loss and provides coverage for interruption to our business, including lost profits.losses.
As of December 31, 2020, theThe Company recorded a receivable of $23.0 million relating to our estimate of repairs and maintenance costs which have been incurred as well as identifiedand property and equipment which have been written off, and for which we deem the recovery of such costs and property and
equipment from our insurers to be probable. The insurance recovery receivable iswas included in “Receivables”“Accounts Receivable, net” within the Consolidated Balance Sheets. As we deemdeemed it is probable that the proceeds to be recovered from our insurers exceedswould exceed the total of our insurance recovery recorded and our insurers’ deductible and coinsurance, we did not record any loss associated with the impact of this natural disaster.
Additionally as of December 31, 2020, we continue to be in the process of performing our due diligence in an effort to quantify the claim amount under the policy that will be submitted to the insurers. During the fourth quarter we received $47.5 million of insurance proceeds from our insurers representing upfront payments related to our anticipated policy claim. Timing differences are likely to exist between the recognition of (i) impairment losses and capital expenditures made to repair or restore the assets and (ii) the receipt of insurance proceeds within the Consolidated Financial Statements.
As of December 31, 2021, the receivable was $28.7 million. During the year ended December 31, 2022, we received insurance claim proceeds totaling $39.4 million, resulting in a gain of $10.7 million, which is included in “General and administrative” within our Consolidated Statements of Operations. No proceeds were received from our insurers during the year ended December 31, 2021.
As of February 23, 2023, the insurance claim remains open, and we expect to receive additional future proceeds.
We will record proceeds in excess of the recognized losses and lost profits under our business interruption insurance as a gain contingency in accordance with ASC 450, “Contingencies,” which we expect to recognize at the time of final settlement or when nonrefundable cash advances are made in a period subsequent to December 31, 2020.
The following table summarizestables summarize the financial impact of Hurricane Laura related matters:
| | | | | | | | |
(in millions) | | For the year ended December 31, 2020 |
Insurance Proceeds | | $ | 47.5 | |
Deductible | | $ | 15.0 | |
Coinsurance | | $ | 2.5 | |
Clean-up and Restoration Costs | | $ | 47.1 | |
Fixed Asset Write-off | | $ | 23.2 | |
Inventory Write-off | | $ | 0.2 | |
Insurance Receivable | | $ | 23.0 | |
| | | | | | | | | | | |
| Life to date through December 31, |
| (in millions) | 2022 | | 2021 |
| Insurance proceeds received through the end of the period | $ | 86.9 | | | $ | 47.5 | |
| Deductible | $ | 15.0 | | | $ | 15.0 | |
| Coinsurance | $ | 2.5 | | | $ | 2.5 | |
| Clean-up, restoration, and other costs | $ | 52.8 | | | $ | 52.8 | |
| Fixed asset write-off | $ | 23.2 | | | $ | 23.2 | |
| Inventory write-off | $ | 0.2 | | | $ | 0.2 | |
| | | |
| | | | | | | | | | | |
| December 31, |
| (in millions) | 2022 | | 2021 |
| Insurance receivable | $ | — | | | $ | 28.7 | |
Note 5—Revenue Disaggregation
We generateOur revenues at our owned, managed or operated propertiesare generated principally by providing the following types of services: (i) gaming, including iGamingiCasino, retail and online sportsbook;sports betting; (ii) food and beverage; (iii) hotel; (iv) reimbursable management costs; and (v)(iv) other. Other revenues are principally comprised of ancillary gaming-related activities, such as commissions received on ATM transactions, racing, and PennPENN Interactive’s social gaming. In addition, we assess our revenues based ongaming, and revenue from third-party sports betting operators and the related gross-up for taxes. Our revenue is disaggregated by type of revenue and geographic location of the related properties, which is consistent with our reportable segments, (seeNote 18, “Segment Information,” for further information). Our revenue disaggregation by type of revenue and geographic location was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the year ended December 31, 2022 |
| (in millions) | Northeast | | South | | West | | Midwest | | Interactive (1) | | Other | | Intersegment Eliminations (2) | | Total |
| Revenues: | | | | | | | | | | | | | | | |
| Gaming | $ | 2,434.0 | | | $ | 1,050.7 | | | $ | 387.6 | | | $ | 1,045.9 | | | $ | 283.5 | | | $ | — | | | $ | — | | | $ | 5,201.7 | |
| Food and beverage | 132.4 | | | 126.8 | | | 80.3 | | | 53.7 | | | — | | | 3.5 | | | — | | | 396.7 | |
| Hotel | 43.4 | | | 96.3 | | | 89.0 | | | 33.3 | | | — | | | — | | | — | | | 262.0 | |
| Other | 86.1 | | | 40.4 | | | 25.0 | | | 26.7 | | | 379.6 | | | 17.8 | | | (34.3) | | | 541.3 | |
| Total revenues | $ | 2,695.9 | | | $ | 1,314.2 | | | $ | 581.9 | | | $ | 1,159.6 | | | $ | 663.1 | | | $ | 21.3 | | | $ | (34.3) | | | $ | 6,401.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the year ended December 31, 2021 |
| (in millions) | Northeast | | South | | West | | Midwest | | Interactive (1) | | Other | | Intersegment Eliminations (2) | | Total |
| Revenues: | | | | | | | | | | | | | | | |
| Gaming | $ | 2,344.2 | | | $ | 1,080.4 | | | $ | 352.7 | | | $ | 1,009.6 | | | $ | 158.4 | | | $ | — | | | $ | — | | | $ | 4,945.3 | |
| Food and beverage | 103.3 | | | 110.6 | | | 69.0 | | | 39.4 | | | — | | | 1.0 | | | — | | | 323.3 | |
| Hotel | 28.1 | | | 93.3 | | | 80.1 | | | 29.6 | | | — | | | — | | | — | | | 231.1 | |
| Other | 76.8 | | | 37.9 | | | 19.6 | | | 24.1 | | | 274.5 | | | 9.6 | | | (37.2) | | | 405.3 | |
| Total revenues | $ | 2,552.4 | | | $ | 1,322.2 | | | $ | 521.4 | | | $ | 1,102.7 | | | $ | 432.9 | | | $ | 10.6 | | | $ | (37.2) | | | $ | 5,905.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the year ended December 31, 2020 |
| (in millions) | Northeast | | South | | West | | Midwest | | Other | | Intersegment Eliminations (1) | | Total |
| Revenues: | | | | | | | | | | | | | |
| Gaming | $ | 1,495.1 | | | $ | 684.0 | | | $ | 194.2 | | | $ | 615.2 | | | $ | 62.7 | | | $ | (0.1) | | | $ | 3,051.1 | |
| Food and beverage | 68.9 | | | 76.9 | | | 46.0 | | | 32.0 | | | 0.6 | | | 0 | | | 224.4 | |
| Hotel | 17.4 | | | 64.3 | | | 46.4 | | | 18.7 | | | 0 | | | 0 | | | 146.8 | |
| Other | 57.9 | | | 24.4 | | | 15.9 | | | 15.5 | | | 61.7 | | | (19.0) | | | 156.4 | |
| Total revenues | $ | 1,639.3 | | | $ | 849.6 | | | $ | 302.5 | | | $ | 681.4 | | | $ | 125.0 | | | $ | (19.1) | | | $ | 3,578.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the year ended December 31, 2019 |
| (in millions) | Northeast | | South | | West | | Midwest | | Other | | Intersegment Eliminations (1) | | Total |
| Revenues: | | | | | | | | | | | | | |
| Gaming | $ | 2,117.1 | | | $ | 831.1 | | | $ | 374.3 | | | $ | 938.1 | | | $ | 8.8 | | | $ | (0.7) | | | $ | 4,268.7 | |
| Food and beverage | 155.1 | | | 154.1 | | | 116.7 | | | 84.7 | | | 1.4 | | | 0 | | | 512.0 | |
| Hotel | 43.5 | | | 98.2 | | | 125.9 | | | 43.4 | | | 0 | | | 0 | | | 311.0 | |
| Other | 84.2 | | | 35.5 | | | 25.6 | | | 28.3 | | | 37.3 | | | (1.2) | | | 209.7 | |
| Total revenues | $ | 2,399.9 | | | $ | 1,118.9 | | | $ | 642.5 | | | $ | 1,094.5 | | | $ | 47.5 | | | $ | (1.9) | | | $ | 5,301.4 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the year ended December 31, 2018 |
| (in millions) | Northeast | | South | | West | | Midwest | | Other | | Total |
| Revenues: | | | | | | | | | | | |
| Gaming | $ | 1,644.2 | | | $ | 302.9 | | | $ | 228.0 | | | $ | 719.8 | | | $ | 0 | | | $ | 2,894.9 | |
| Food and beverage | 109.6 | | | 56.6 | | | 89.6 | | | 57.9 | | | 1.1 | | | 314.8 | |
| Hotel | 23.2 | | | 23.3 | | | 90.8 | | | 26.3 | | | 0 | | | 163.6 | |
| Reimbursable management costs | 46.8 | | | 0 | | | 10.5 | | | 0 | | | 0 | | | 57.3 | |
| Other | 67.7 | | | 11.6 | | | 19.0 | | | 19.7 | | | 39.3 | | | 157.3 | |
| Total revenues | $ | 1,891.5 | | | $ | 394.4 | | | $ | 437.9 | | | $ | 823.7 | | | $ | 40.4 | | | $ | 3,587.9 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the year ended December 31, 2020 |
| (in millions) | Northeast | | South | | West | | Midwest | | Interactive | | Other | | Intersegment Eliminations (2) | | Total |
| Revenues: | | | | | | | | | | | | | | | |
| Gaming | $ | 1,495.1 | | | $ | 684.0 | | | $ | 194.2 | | | $ | 615.2 | | | $ | 62.4 | | | $ | 0.3 | | | $ | (0.1) | | | $ | 3,051.1 | |
| Food and beverage | 68.9 | | | 76.9 | | | 46.0 | | | 32.0 | | | — | | | 0.6 | | | — | | | 224.4 | |
| Hotel | 17.4 | | | 64.3 | | | 46.4 | | | 18.7 | | | — | | | — | | | — | | | 146.8 | |
| Other | 57.9 | | | 24.4 | | | 15.9 | | | 15.5 | | | 58.7 | | | 3.0 | | | (19.0) | | | 156.4 | |
| Total revenues | $ | 1,639.3 | | | $ | 849.6 | | | $ | 302.5 | | | $ | 681.4 | | | $ | 121.1 | | | $ | 3.9 | | | $ | (19.1) | | | $ | 3,578.7 | |
(1) RepresentsOther revenues within the Interactive segment are inclusive of gaming tax reimbursement amounts charged to third-party partners for online sports betting and iCasino market access of $251.6 million and $180.2 million for the years ended December 31, 2022 and 2021, respectively.
(2) Primarily represents the elimination of intersegment revenues associated with our Barstool-branded and internally-branded retail sportsbooks, which are operated by Penn Interactive, and our live and televised poker tournament series that operates under the trade name, Heartland Poker Tour (“HPT”).
Note 6—Acquisitions and Dispositions
Greektown Casino-Hotel
On May 23, 2019, the Company acquired all of the membership interests of Greektown Holdings, L.L.C., for a net purchase price of $320.3 million, after working capital and other adjustments, pursuant to a transaction agreement among the Company, VICI Properties L.P., a wholly-owned subsidiary of VICI, and Greektown Mothership LLC. In connection with the acquisition, the real estate assets relating to Greektown were acquired by a subsidiary of VICI for an aggregate sales price of $700.0 million and the Company entered into the Greektown Lease, which has an initial annual rent of $55.6 million and an initial term of 15 years, with 4 five-year renewal options. The acquisition of the operations was financed through a combination of cash on hand and incremental borrowings under the Company’s Revolving Credit Facility (as defined in Note 11, “Long-term Debt”).During the first quarter of 2020, the Company finalized the allocation of the purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed which resulted in no measurement period adjustments for the year ended December 31, 2020. The fair value is as follows:
| | | | | | | | |
(in millions) | | Fair value |
Cash and cash equivalents | | $ | 31.1 | |
Receivables, prepaid expenses, and other current assets | | 14.5 | |
Property and equipment | | 28.4 | |
Goodwill (1)
| | 67.4 | |
Other intangible assets | | |
Gaming license | | 166.4 | |
Trademark | | 24.4 | |
Customer relationships | | 3.3 | |
Operating lease right-of-use assets | | 516.1 | |
Finance lease right-of-use assets | | 4.1 | |
Other assets | | 0 | |
Total assets | | $ | 855.7 | |
| | |
Accounts payable, accrued expenses and other current liabilities | | $ | 15.2 | |
Operating lease liabilities | | 516.1 | |
Finance lease liabilities | | 4.1 | |
Total liabilities | | 535.4 | |
Net assets acquired | | $ | 320.3 | |
(1)The goodwill has been assigned to our Northeast segment. The entire $67.4 million goodwill amount is deductible for tax purposes.
The Company used the income, market, or cost approach (or a combination thereof) for the valuation, as appropriate, and used valuation inputs in these models and analyses that were based on market participant assumptions. Market participants are considered to be buyers and sellers unrelated to the Company in the principal or most advantageous market for the asset or liability. Property and equipment acquired consists of non-REIT assets (e.g., equipment for use in gaming operations, furniture and other equipment). We determined that the land and buildings subject to the Greektown Lease, which was entered into at the time of the acquisition, represented operating lease ROU assets with a corresponding operating lease liability calculated based on the present value of the future lease payments at the acquisition date in accordance with GAAP. Management determined the fair value of its office equipment, computer equipment and slot machine gaming devices based on the market approach and other personal property based on the cost approach, supported where available by observable market data, which includes consideration of obsolescence.
Acquired identifiable intangible assets consist of a gaming license and a trademark, which are both indefinite-lived intangible assets, and customer relationships, which is an amortizing intangible asset with an assigned useful life of 2 years. Management valued (i) the gaming license using the Greenfield Method under the income approach; (ii) the trademark using the relief-from-royalty method under the income approach; and (iii) customer relationships (rated player databases) using the
with-and-without method of the income approach. All valuation methods are forms of the income approach supported by observable market data for peer casino operator companies. See Note 2, “Significant Accounting Policies,” for more information.The following table includes the financial results of Greektown from the acquisition date through December 31, 2019, which is included within our Consolidated Statements of Operations and Comprehensive Income (Loss) for the year ended December 31, 2019:
| | | | | |
(in millions) | Period from May 23, 2019 through December 31, 2019 |
Revenues | $ | 195.9 | |
Net income | $ | 10.9 | |
Margaritaville Resort Casino
On January 1, 2019, the Company acquired the operations of Margaritaville for a net purchase price of $122.9 million, after working capital and other adjustments, pursuant to (i) an agreement and plan of merger (the “Margaritaville Merger Agreement”) among the Company, VICI, Bossier Casino Venture (HoldCo), Inc. (“Holdco”), and Silver Slipper Gaming, LLC, and (ii) a membership interest purchase agreement (the “MIPA”) among VICI and the Company.
Pursuant to the MIPA, HoldCo sold its interests in its sole direct subsidiary and owner of the Margaritaville operating assets, to the Company. In connection with the acquisition, the real estate assets used in the operations of Margaritaville were acquired by VICI for $261.1 million and the Company entered into the Margaritaville Lease, which has an initial annual rent of $23.2 million and an initial term of 15 years, with 4 five-year renewal options. The acquisition of the operations was financed through incremental borrowings under the Company’s Revolving Credit Facility.
During the fourth quarter of 2019, the Company finalized the allocation of the purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed, with the excess recorded as goodwill as follows:
| | | | | | | | |
(in millions) | | Fair value |
Cash and cash equivalents | | $ | 10.7 | |
Receivables, prepaid expenses, and other current assets | | 7.0 | |
Property and equipment | | 20.7 | |
Goodwill (1)
| | 44.2 | |
Other intangible assets | | |
Gaming license | | 48.1 | |
Customer relationships | | 2.3 | |
Operating lease right-of-use assets | | 196.2 | |
Total assets | | $ | 329.2 | |
| | |
Accounts payable, accrued expenses and other current liabilities | | $ | 10.1 | |
Operating lease liabilities | | 196.2 | |
Total liabilities | | 206.3 | |
Net assets acquired | | $ | 122.9 | |
(1)The goodwill has been assigned to our South segment. The entire $44.2 million goodwill amount is deductible for tax purposes.
The Company used the income, market, or cost approach (or a combination thereof) for the valuation, as appropriate, and used valuation inputs in these models and analyses that were based on market participant assumptions. Market participants are considered to be buyers and sellers unrelated to the Company in the principal or most advantageous market for the asset or liability. Property and equipment acquired consists of non-REIT assets (e.g., equipment for use in gaming operations, furniture and other equipment). We determined that the land and buildings subject to the Margaritaville Lease, which was entered into at the time of the acquisition, represented operating lease ROU assets with a corresponding operating lease liability calculated based on the present value of the future lease payments at the acquisition date in accordance with GAAP. Management determined the fair value of its office equipment, computer equipment and slot machine gaming devices based on the market
approach and other personal property based on the cost approach, supported where available by observable market data, which includes consideration of obsolescence.
Acquired identifiable intangible assets consist of a gaming license, which is an indefinite-lived intangible asset, and a customer relationship, which is an amortizing intangible asset with an assigned useful life of 2 years. Management valued (i) the gaming license using the Greenfield Method under the income approach and (ii) the customer relationships using the with-and-without method of the income approach. All valuation methods are forms of the income approach supported by observable market data for peer casino operator companies. See Note 2, “Significant Accounting Policies,” for more information.The following table includes the financial results of Margaritaville from the acquisition date through December 31, 2019, which is included within our Consolidated Statements of Operations and Comprehensive Income (Loss) for the year ended December 31, 2019:
| | | | | |
(in millions) | For the year ended December 31, 2019 |
Revenues | $ | 157.6 | |
Net income | $ | 13.7 | |
Pinnacle Acquisition
On October 15, 2018, the Company acquired all of the outstanding shares of Pinnacle, for a total purchase price of $2,816.2 million, which consisted of (i) a cash payment of $20.00 per share of Pinnacle common stock, totaling $1,252.2 million; (ii) issuance of Penn National common stock in the amount of $749.7 million; and (iii) the retirement of $814.3 million of Pinnacle debt obligations. In conjunction 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 Resort 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. In connection with the sale of the Divested Properties and the Plainridge Park Casino Sale-Leaseback, the Pinnacle Master Lease, which was assumed by the Company concurrent with the closing of the Pinnacle Acquisition, was amended. The Pinnacle Acquisition added 12 gaming properties to our holdings and provided us with greater operational scale and geographic diversity. For more information on the Pinnacle Master Lease and related amendment, see Note 12, “Leases.”
During the third quarter of 2019, the Company finalized the allocation of the purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed, with the excess recorded as goodwill as follows:
| | | | | |
(in millions) | Fair value |
Cash and restricted cash | $ | 124.2 | |
Assets held for sale | 667.5 | |
Other current assets | 81.1 | |
Property and equipment - non-Pinnacle Master Lease | 318.6 | |
Property and equipment - Pinnacle Master Lease (1)
| 3,954.9 | |
Goodwill (2)
| 238.2 | |
Other intangible assets | |
Gaming licenses | 1,067.6 | |
Trademarks | 298.0 | |
Customer relationships | 22.4 | |
Other long-term assets | 38.9 | |
Total assets | $ | 6,811.4 | |
| |
Long-term financing obligation, including current portion (3)
| $ | 3,432.5 | |
Current liabilities | 206.1 | |
Deferred income taxes | 340.0 | |
Other long-term liabilities | 16.6 | |
Total liabilities | 3,995.2 | |
Net assets acquired | $ | 2,816.2 | |
(1)Includes buildings, boats, vessels, barges, and implied land and land use rights. Land use rights represent the intangible value of the Company’s ability to utilize and access land associated with long term ground lease agreements that give the Company the exclusive rights to operate the casino gaming facilities associated with such agreements.
(3)Long-term financing obligation, including current portion represents the financing obligation associated with Pinnacle Master Lease, as amended.
Pro Forma Financial Information - Greektown, Margaritaville, and Pinnacle
The following table includes unaudited pro forma consolidated financial information assuming our acquisitions of Greektown and Margaritaville had occurred as of January 1, 2018 and Pinnacle had occurred as of January 1, 2017. The pro forma financial information does not represent the anticipated future results of the combined company. The pro forma amounts include the historical operating results of Penn National, Greektown, Margaritaville, and Pinnacle, prior to the acquisition, with adjustments directly attributable to the acquisitions, inclusive of adjustments for acquisition costs. The below pro forma results do not include any adjustments related to synergies.
| | | | | | | | | | | | | | |
| For the year ended December 31, |
| (in millions) | 2019 | | 2018 | |
| Revenues | $ | 5,434.9 | | | $ | 5,552.2 | | |
| Net income (loss) | $ | 64.9 | | | $ | 101.9 | | |
1st Jackpot Casino and Resorts Casino Tunica
On May 1, 2017, the Company acquired the operations of 1st Jackpot Casino and Resorts Casino Tunica, for a net purchase price of $47.0 million. In connection with the acquisitions, the real estate assets relating to 1st Jackpot Casino and Resorts Casino Tunica were acquired by GLPI for an aggregate sales price of $82.6 million and included in the Penn Master Lease. Resorts Casino Tunica ceased operations on June 30, 2019.
Jamul Indian Village Development Corporation
In April 2013, the Company and the Jamul Tribe, a federally recognized Indian Tribe holding a government-to-government relationship with the U.S., entered into definitive agreements to assist the Jamul Tribe in the development of a Hollywood
Casino-branded casino on the Jamul Tribe’s trust land in San Diego County, California. In addition, the definitive agreements and a related loan commitment letter set forth the terms and conditions under which the Company would provide loans to the Jamul Indian Village Development Corporation (the “JIVDC”) to fund certain development costs. Following the opening, the Company also managed the property.
In October 2016, the JIVDC obtained long-term secured financing, consisting of a revolving credit facility, a term loan B facility and a term loan C facility (the “Term Loan C Facility” and collectively with the revolving credit facility and the term loan B facility, the “Credit Facilities”) totaling approximately $460.0 million. The Company was the lender under the Term Loan C Facility in the amount of $98.0 million.
As of December 31, 2017, the JIVDC breached one of the financial covenants contained within the Credit Facilities, resulting in default. Consequently, the Company performed an analysis of the expected future cash flows it would receive based on forecasted operations of the property, discounted at the Term Loan C Facility’s effective interest rate, as well as any concessions it would grant to the JIVDC. As a result of such analysis, the Company recorded a charge of $86.0 million for the year ended December 31, 2017, of which $64.0 million pertained to the Term Loan C Facility and $22.0 million was a reserve for unfunded loan commitments. In addition, the Company recorded charges of $3.8 million related to certain advances made to the JIVDC.
In February 2018, the Company and the Jamul Tribe mutually agreed that the Company would no longer manage the property nor provide branding and development services as of May 28, 2018. On May 25, 2018, the Company entered into a purchase agreement with the senior lender under the Credit Facilities for the property to sell them all of the Company’s outstanding rights and obligations under the Term Loan C Facility and the JIVDC commitments. As a result, the Company received cash proceeds of $15.2 million from the sale and was relieved of all rights and obligations with respect to the JIVDC. The sale of the loan resulted in a recovery of loan losses and unfunded loan commitments of $17.0 million for the year ended December 31, 2018.
Tropicana Las Vegas
On April 16, 2020, we sold the real estate assets associated with ourthe operations of Tropicana property to GLPI in exchange for rent credits of $307.5 million, that we began utilizingand utilized the rent credits to pay rent under our existing Master Leases and the Meadows Lease, (as defined and discussed in Note 12, “Leases”), beginning in May 2020. Contemporaneous with the sale, the Company entered into the Tropicana Lease, (as defined and discussed in Note 12, “Leases”). Pursuant to the purchase agreement, GLPI will conduct a sale process with respect to both the real estate assets and the operations of Tropicana for up to 24 months (the “Sale Period”), with the Company receiving (i) 75% of the proceeds above $307.5 million plus certain taxes, expenses and costs if an agreement for such sale is signed in the first 12 months of the Sale Period or (ii) 50% of the proceeds above $307.5 million plus certain taxes, expenses and costs if an agreement for such sale is signed in the remainder of the Sale Period. We recognized a gain on this transaction of $29.8 million during the year ended December 31, 2020, which is included in “General and administrative” within our Consolidated Statements of OperationsOperations.
On January 11, 2022, PENN entered into a definitive purchase agreement to sell its outstanding equity interest in Tropicana, which has the gaming license and Comprehensive Income (Loss)operates the Tropicana, to Bally’s Corporation (“Bally’s”). The transaction closed on September 26, 2022.
Morgantown
On October 1, 2020, we sold the land underlying ourHollywood Casino Morgantown development project(“Morgantown”) to GLPI in exchange for rent credits of $30.0 million. Contemporaneous with the sale, the Company entered into a triple net lease with GLPI for the land underlying Morgantown (as defined and discussed in Note 12, “Leases”). As of December 31, 2020, we had utilized all of the rent credits pertaining to the Tropicana and Morgantown transactions which totaled $337.5 million (see Note 12, “Leases”). HitPoint Inc. and LuckyPoint Inc.
On May 11, 2021, we acquired 100% of the outstanding equity of HitPoint Inc. and Lucky Point Inc. (collectively, “Hitpoint”). The purchase price totaled $12.7 million, consisting of $6.2 million in cash, $3.5 million of the Company’s common stock, and a $3.0 million contingent liability. The contingent liability is payable in annual installments over three years, through a combination of cash and the Company’s common stock, and is based on achievement of certain performance factors. The purchase price allocation resulted in a recognition of $8.8 million of goodwill, $4.0 million in developed technology which is included in “Other intangible assets, net” within the Consolidated Balance Sheets, along with other miscellaneous operating assets and liabilities. The developed technology is an amortizing intangible asset with an assigned useful life of five years, and was valued using the multi-period excess earnings method, a variation of the income approach, which is supported by observable market data for peer companies.
Hollywood Casino Perryville
On December 15, 2020,July 1, 2021, we completed the Company entered into a definitive agreement with GLPI to purchaseacquisition of the operations of Hollywood Casino Perryville (“Perryville”), from GLPI for $31.1 million.a purchase price of $39.4 million, including working capital adjustments. The transaction is expected to close duringpurchase price allocation resulted in the second or third quarterrecognition of 2021, subject to approvala $12.7 million gaming license asset and a $1.0 million customer relationship asset, both of the Maryland Lotterywhich are included in “Other intangible assets, net” within our Consolidated Balance Sheets, $9.2 million of goodwill, $8.2 million of tangible long-term assets, comprised primarily of property and Gaming Control Commissionequipment, and other customary closing conditions.$8.3 million of various operating assets and liabilities. Simultaneous with the closing, of the transaction, we wouldentered into a lease with GLPI for the real estate assets associated with Hollywood Casino Perryville from GLPI withfor initial annual rent of $7.8 million per year subject to escalation.
The gaming license is an indefinite-lived intangible asset, and the customer relationships is an amortizing intangible asset with a useful life of two years. The Company valued (i) the gaming license using the Greenfield Method, a form of the income approach; (ii) the customer relationships using the “with-and-without” method, a form of the income approach, and (iii) the property and equipment and other various operating assets and liabilities primarily utilizing the cost approach. All valuation methods of the income approach are supported by observable market data for peer casino operator companies.
For the period beginning July 1, 2021 through December 31, 2021 Perryville’s revenue and net income included in the Consolidated Statements of Operations were $46.9 million and $2.5 million, respectively.
Sam Houston Race Park and Valley Race Park
On August 1, 2021, we completed the acquisition of the remaining 50% ownership interest in the Sam Houston Race Park in Houston, Texas, the Valley Race Park in Harlingen, Texas, and a license to operate a racetrack in Austin, Texas (collectively, “Sam Houston”), from PM Texas Holdings, LLC for a purchase price of $57.8 million, comprised of $42.0 million in cash and $15.8 million of the Company’s common stock, which was allocated to property and equipment. In conjunction with the acquisition, we recorded a gain of $29.9 million on our equity method investment, which is included in “Other” within our Consolidated Statements of Operations. The property and equipment assets were valued using a combination of the market and cost approaches.
Score Media and Gaming Inc.
On October 19, 2021, we acquired 100% of Score Media and Gaming, Inc. (“theScore”) for a purchase price of approximately $2.1 billion. The acquisition provides us with the technology, resources and audience reach to accelerate our media and sports betting strategy across North America. Under the terms of the agreement, 1317774 B.C. Ltd. (the “Purchaser”), an indirectly wholly owned subsidiary of PENN, acquired each of the issued and outstanding theScore shares (other than those held by PENN and its subsidiaries) for US$17.00 per share in cash consideration, totaling $922.8 million, and either 0.2398 of a share of common stock, par value $0.01 of PENN common stock or, if validly elected, 0.2398 of an exchangeable share in the capital of the Purchaser (each whole share, an “Exchangeable Share”), totaling 12,319,340 shares of PENN common stock and 697,539 Exchangeable Shares for approximately $1.0 billion. Each Exchangeable Share will be exchangeable into one share of PENN common stock at the option of the holder, subject to certain adjustments. In addition,
Purchaser may redeem all outstanding Exchangeable Shares in exchange for shares of PENN common stock at any time following the fifth anniversary of the closing, or earlier under certain circumstances. See Note 15, “Stockholders’ Equity” for further information. The Company held shares of theScore common stock prior to the acquisition and, as such, the acquisition date estimated fair value of this previously held investment was a component of the purchase consideration. Based on the acquisition date fair value of this investment of $58.9 million, the Company recorded a gain of $2.9 million related to remeasurement of the equity security investment immediately prior to the acquisition date which was included in “Other” within our Consolidated Statements of Operations.
The following table reflects the allocation of the purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed, with the excess recorded as goodwill. During the year ended December 31, 2022, we made the following purchase price measurement period adjustment:
| | | | | | | | | | | | | | | | | |
| (in millions) | Estimated fair value, as previously reported.(1) | | Measurement period adjustments | | Final fair value |
| Cash and cash equivalents | $ | 160.3 | | $ | — | | $ | 160.3 |
| Other current assets | 22.8 | | — | | 22.8 |
| ROU assets | 2.6 | | — | | 2.6 |
| Property and equipment | 1.8 | | — | | 1.8 |
| Goodwill | 1,690.2 | | 1.5 | | 1,691.7 |
| Other intangible assets | | | | | |
| Gaming technology | 160.0 | | — | | 160.0 |
| Media technology | 57.0 | | — | | 57.0 |
| Tradename | 100.0 | | — | | 100.0 |
| Advertising relationships | 11.0 | | — | | 11.0 |
| Customer relationships | 8.0 | | — | | 8.0 |
| Re-acquired right | 2.6 | | — | | 2.6 |
| Other long-term assets | 5.2 | | — | | 5.2 |
| Total assets | $ | 2,221.5 | | | $ | 1.5 | | | $ | 2,223.0 | |
| | | | | | |
| Accounts payable, accrued expenses and other current liabilities | $ | 67.9 | | | $ | 1.5 | | | $ | 69.4 | |
| Deferred tax liabilities | 69.2 | | | — | | | 69.2 | |
| Other non-current liabilities | 1.7 | | | — | | | 1.7 | |
| Total liabilities | 138.8 | | | 1.5 | | | 140.3 | |
| Net assets acquired | $ | 2,082.7 | | | $ | — | | | $ | 2,082.7 | |
(1)Amounts were initially reported within the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 28, 2022.
The Company used the income, or cost approach for the valuation, as appropriate, and used valuation inputs in these models and analyses that were based on market participant assumptions. Market participants are considered to be buyers and sellers unrelated to the Company in the principal or most advantageous market for the asset or liability.
Acquired identifiable intangible assets consist of gaming technology, media technology, tradename, advertising relationships, customer relationships, and a re-acquired right. Tradename is an indefinite-lived intangible asset. All other intangible assets are definite-lived with assigned useful lives primarily ranging from 1-7 years. The re-acquired right intangible asset was assigned a 17.8 year useful life based on the remaining term of a pre-acquisition market access contract between PENN and theScore.
Goodwill, none of which is deductible under the Canadian Income Tax Act, is approximately 81.2% of the net assets acquired and represents synergies, incremental market share capture and expansion into new markets not existing as of the acquisition date, and future technology development.
The following valuation approaches were utilized to determine the fair value of each intangible asset:
| | | | | |
| Intangible Asset | Valuation Approach |
| Gaming technology | Relief-from-royalty (variation of income approach) |
| Media technology | Replacement cost |
| Tradename | Relief-from-royalty (variation of income approach) |
| Advertising relationships | With-and-without (variation of income approach) |
| Customer relationships | Replacement cost |
| Re-acquired right | Replacement cost |
For the period beginning October 19, 2021 through December 31, 2021 theScore’s revenue and net loss included in the Consolidated Statements of Operations were $7.5 million and $11.9 million, respectively.
Unaudited Pro Forma Financial Information
The following table includes unaudited pro forma consolidated financial information assuming our acquisition of Hitpoint, Perryville, Sam Houston, and theScore had occurred as of January 1, 2020. The pro forma amounts include the historical operating results of PENN and Hitpoint, Perryville, Sam Houston and theScore prior to our acquisitions. The pro forma financial information does not necessarily represent the results that may occur in the future. For the year ended December 31, 2021, pro forma adjustments directly attributable to the acquisitions include acquisition and transaction related costs of $77.1 million incurred by both PENN and the respective acquirees, gains of $51.0 million related to our purchase of the remaining 50% of Sam Houston and a net unrealized gain on the equity security investment in theScore. For the year ended December 31, 2020, pro forma adjustments directly attributable to the acquisitions primarily include a net unrealized gain of $8.3 million on the equity security investment in theScore.
| | | | | | | | | | | |
| For the year ended December 31, |
| (in millions) | 2021 | | 2020 |
| Revenues | $ | 5,978.0 | | | $ | 3,677.4 | |
| Net income (loss) | $ | 347.6 | | | $ | (705.4) | |
Note 7—Investments in and Advances to Unconsolidated Affiliates
As of December 31, 20202022 and 2019,2021, investments in and advances to unconsolidated affiliates primarily consisted of the Company’s approximate 36% interest in Barstool Sports; itsBarstool; our 50% investment in Kansas Entertainment, the JVjoint venture with NASCAR that owns Hollywood Casino at Kansas Speedway; itsand our 50% interest in Freehold Raceway;Raceway. On August 1, 2021, the Company purchased the remaining 50% ownership interest of Sam Houston. Prior to August 1, 2021, the Company had a 50% interest in Sam Houston. See Note 6, “Acquisitions and its 50% JV with MAXXAM, Inc. (“MAXXAM”) that owns and operates racetracks in Texas.Dispositions” for further information, specific to Sam Houston. Investment in Barstool Sports
InAs previously disclosed, in February 2020, we closed on our investment in Barstool Sports pursuant to a stock purchase agreement with Barstool Sports and certain stockholders of Barstool, Sports, in which we purchased 36% (inclusive of 1% on a delayed basis) of the common stock, par value $0.0001 per share, of Barstool Sports for a purchase price of $161.2 million. The purchase price primarily consisted of $135.0 million in cash and $23.1 million in shares of a new class of non-voting convertible preferred stock of the Company (as discussed below). Within the three years after the closing of the transaction or earlier at our election, we willwere required to increase our ownership in Barstool Sports to approximately 50% by purchasing approximately $62.0 million worth of additional shares of Barstool Sports common stock, consistent with the implied valuation at the time of the initial investment, which was $450.0 million. With respect to the remaining Barstool Sports shares, we havehad immediately exercisable call rights, and the existing Barstool Sports stockholders havehad put rights exercisable beginning three years after closing, all based on a fair market value calculation at the time of exercise (subject(originally subject to a cap of $650.0 million, and subject to such cap, a floor of 2.25 times the annualized revenue of Barstool, Sports, all subject to various adjustments).
On October 1, 2021, the terms of the February 2020 stock purchase agreement were amended and restated (“Amended and Restated Stockholders’ Agreement”) to (i) set a definitive purchase price of $325.0 million on the second 50% of Barstool common stock, which eliminated the floor of 2.25 times the annual revenue of Barstool and (ii) fix a number of PENN common shares to be delivered to existing February 2020 employee holders of Barstool common stock, to the extent PENN’s stock price exceeded a specified value defined in the Amended and Restated Stockholders’ Agreement and PENN elected to settle using a combination of cash and equity. Consistent with the February 2020 stock purchase agreement: (i) the Barstool common stock
remained subject to our immediately exercisable call rights and the existing Barstool stockholders put rights beginning in February 2023, (ii) the requirement to increase our ownership in Barstool Sports to approximately 50% by purchasing approximately $62.0 million worth of additional shares in Barstool common stock remained consistent with the implied valuation at the time of the initial investment, which was $450.0 million, and (iii), we may settle the call and put options, at our sole election, using either cash or a combination of cash and equity.
On July 7, 2022, we entered into the first amendment to the Amended and Restated Stockholders’ Agreement (“First Amendment”). The First Amendment updated the share price specified value used to calculate the fixed number of PENN common shares to be delivered to existing February 2020 employee holders of Barstool common stock, to the extent PENN’s stock price exceeded the updated specified value and PENN elected to settle using a combination of cash and equity.
In conjunction with the February 20, 2020 stock purchase agreement, the Company issued 883 shares of Series D Preferred Stock, par value $0.01 per share (the “Series D Preferred Stock”) to certain individual stockholders affiliated with Barstool Sports.Barstool. 1/1,000th of a share of Series D Preferred Stock is convertible into one share of Penn Common Stock.PENN common stock. The Series D Preferred Stock will bestockholders are entitled to participate equally and ratably in all dividends and distributions paid to holders of Penn Common StockPENN common stock based on the number of shares of Penn Common StockPENN common stock into which such Series D Preferred Stock could convert. Series D Preferred Stock is nonvoting stock. The Series D Preferred Stock issued to certain individual stockholders affiliated with Barstool Sports willcontinue to be available for conversion into Penn Common StockPENN common stock in tranches over the next four years as stipulated in the February 2020 stock purchase agreement, with the first and second 20% tranchetranches having been available for conversion into Penn Common StockPENN common stock in the first quarter of 2021.2021 and first quarter of 2022, respectively. As of December 31, 2020, none2022, 51 shares of the Series D Preferred Stock can be converted into Penn Common Stock.PENN common stock.
During the years ended December 31, 2022 and 2021, the Company acquired an additional 0.3%, and 0.6% of Barstool common stock, par value $0.0001 per share, respectively, which represented a partial settlement of the 1% purchase on a delayed basis as noted above. The acquisitions of the acquired Barstool common stock that occurred during the years ended December 31, 2022 and 2021, were settled through a predetermined number of PENN common stock and Series D Preferred Stock, respectively, as contained within the Amended and Restated Stockholders’ Agreement (see Note 15, “Stockholders’ Equity,” for further information). As a part of the stock purchase agreement, we entered into a commercial agreement that provides us with access to Barstool Sports’Barstool’s customer list and exclusive advertising on the Barstool Sports platform over the term of the agreement. The initial term of the commercial agreement iswas ten years and, unless earlier terminated and subject to certain exceptions, willwould have automatically renewrenewed for 3three additional ten-year terms (a total of 40 years assuming all renewals arewere exercised).
As of December 31, 20202022 and 2021, we havehad an amortizing intangible asset pertaining to the customer list of $1.6$0.1 million and $0.8 million, respectively. As of December 31, 2022 and 2021, we had a prepaid expense pertaining to the advertising in the amount of $16.5$14.2 million and $15.4 million, respectively, of which $15.4$13.0 million isand $14.2 million was classified as long-term.long-term, respectively. The long-term portion of the prepaid advertising expense is included in “Other assets” within our Consolidated Balance Sheets.
As of December 31, 2020,2022 and 2021, our investment in Barstool Sports was $147.5$160.9 million which is inclusive of $3.4and $162.5 million, of costs we incurred to close the transaction.respectively. We recordrecorded our proportionate share of Barstool Sports’Barstool’s net income or loss one quarter in arrears.
ThePrior to acquisition of the remaining Barstool shares (which occurred on February 17, 2023) as described below, the Company determined that Barstool Sports qualified as a VIE as of December 31, 2020. The Company did not consolidate its investment in Barstool Sports as of and for the year ended December 31, 2020 asVIE. However, the Company determined that it did not qualify as the primary beneficiary of Barstool Sports either at the commencement date of its investment or for the subsequent period ended December 31, 2020,periods, primarily as a result of the Company not having the power to direct the activities of the VIE that most significantly affect Barstool Sports’Barstool’s economic performance. Therefore, the Company did not consolidate the financial position of Barstool as of December 31, 2022 and 2021, nor the results of operations for the years ended December 31, 2022, 2021, and 2020.
On August 17, 2022, the Company exercised its call rights to bring its ownership of Barstool to 100%. Subsequent to year end, on February 17, 2023, the Company completed the acquisition of all of the outstanding shares of common stock of Barstool not already owned by us for approximately $388 million, excluding transaction expenses, repayment of Barstool indebtedness, and other purchase price adjustments (the “Barstool Acquisition”). We issued 2,442,809 shares of our common stock to certain former stockholders of Barstool for the Barstool Acquisition (see Note 15, “Stockholders’ Equity,” for further information) and utilized approximately $315 million of cash to complete the Barstool Acquisition, inclusive of transaction expenses and repayment of Barstool indebtedness. As of the closing of the Barstool Acquisition, Barstool became an indirect wholly owned subsidiary of PENN. The acquisition of the remaining Barstool shares provides us with a greater ability to execute our organic cross-sell strategy through Barstool’s resources, audience and strong brand recognition. Due to the timing of the acquisition of the remaining 64% interest and its proximity to the date of this report, the preliminary purchase price
allocation has not been completed as the Company is currently in the process of determining the purchase price allocation to tangible and identifiable intangible assets acquired and liabilities assumed.
Kansas Joint Venture
As of December 31, 20202022 and 2019,2021, our investment in Kansas Entertainment was $85.2$81.5 million and $90.8$83.8 million, respectively. During the years ended December 31, 2020, 20192022, 2021 and 2018,2020, the Company received distributions from Kansas Entertainment totaling $33.8 million, $31.8 million and $20.0 million, $29.0 million and $27.0 million, respectively, which therespectively. The Company deemeddeems these distributions to be returns on its investment based on the source of those cash flows from the normal business operations of Kansas Entertainment.
As of the years ended December 31, 2020 and 2019, weThe Company has determined that Kansas Entertainment does not qualify as a VIE. Using the guidance for entities that are not VIEs, the Company determined that it did not have a controlling financial interest in the JV as of and for the years ended December 31, 2020 and 2019,joint venture, primarily as it did not have the ability to direct the activities
of the JVjoint venture that most significantly impacted the JV’sjoint venture’s economic performance without the input of NASCAR. Therefore, the Company did not consolidate its investment in the JVfinancial position of Kansas Entertainment as of December 31, 2022 and 2021, nor the results of operations for the years ended December 31, 20202022, 2021, and 2019.2020.
The following table provides summarized balance sheet and results of operations information related to Kansas Entertainment and our share of income from unconsolidated affiliates from our investment in Kansas Entertainment:
| | | December 31, | | December 31, |
| (in millions) | (in millions) | 2020 | | 2019 | (in millions) | 2022 | | 2021 |
| | | Current assets | Current assets | $ | 14.7 | | | $ | 21.5 | | Current assets | $ | 21.1 | | | $ | 19.1 | |
| Long-term assets | Long-term assets | $ | 151.4 | | | $ | 159.2 | | Long-term assets | $ | 142.4 | | | $ | 145.1 | |
| Current liabilities | Current liabilities | $ | 10.2 | | | $ | 13.5 | | Current liabilities | $ | 15.0 | | | $ | 11.0 | |
| | | For the year ended December 31, | | For the year ended December 31, |
| (in millions) | (in millions) | 2020 | | 2019 | | 2018 | (in millions) | 2022 | | 2021 | | 2020 |
| | | Revenues | Revenues | $ | 104.2 | | | $ | 162.3 | | | $ | 159.0 | | Revenues | $ | 161.9 | | | $ | 149.5 | | | $ | 104.2 | |
| Operating expenses | Operating expenses | 75.5 | | | 101.3 | | | 110.4 | | Operating expenses | 99.0 | | | 88.7 | | | 75.5 | |
| Operating income | Operating income | 28.7 | | | 61.0 | | | 48.6 | | Operating income | 62.9 | | | 60.8 | | | 28.7 | |
| Net income | Net income | $ | 28.7 | | | $ | 61.0 | | | $ | 48.6 | | Net income | $ | 62.9 | | | $ | 60.8 | | | $ | 28.7 | |
| | Net income attributable to Penn National | $ | 14.4 | | | $ | 30.5 | | | $ | 24.3 | | |
| Net income attributable to PENN Entertainment | | Net income attributable to PENN Entertainment | $ | 31.5 | | | $ | 30.4 | | | $ | 14.4 | |
Texas and New Jersey Joint Ventures
Sam Houston
The Company hashad a 50% interest in a JVjoint venture with MAXXAM,Sam Houston, which owns and operates the Sam Houston Race Park in Houston, Texas and the Valley Race Park in Harlingen, Texas, and holds a license for a racetrack in Austin, Texas. On August 1, 2021, we completed the acquisition of the remaining 50% ownership interest in Sam Houston. In conjunction with the acquisition we recorded a gain of $29.9 million on our equity method investment, which is included in “Other” within our Consolidated Statements of Operations. See Note 6, “Acquisitions and Dispositions” for further information. During the first quarter of 2020, principally due to on-going negative operating results of these racetracks, we recorded an other-than-temporary impairment on our investment in the JVjoint venture of $4.6 million, which is included in “Impairment losses” within our Consolidated Statements of OperationsOperations. No further impairment loss was recorded for the years ended December 31, 2021 and Comprehensive Income (Loss).2020.
Prior to the August 1, 2021 acquisition of the remaining 50% interest, the Company determined that our Texas joint venture did not qualify as a VIE. Using the guidance for entities that are not VIEs, the Company determined that it did not have a controlling financial interest in the joint venture, primarily as it did not have the ability to direct the activities of the joint venture that most significantly impacted the joint venture’s economic performance without the input of Sam Houston Race Park hosts thoroughbred and quarter-horse racing and offers daily simulcastHouston. Therefore, the Company did not consolidate the financial position of our Texas joint venture as of December 31, 2020, nor the results of operations and Valley Race Park features dog racing and simulcasting. In addition,for the period of January 1, 2021 through a separate arrangement,July 31, 2021 or for the year ended December 31, 2020.
New Jersey
The Company has a 50% interest in a JVjoint venture with Greenwood, which owns and operates Freehold Raceway, in Freehold, New Jersey. The property features a half-mile standardbred racetrack and a grandstand.
As of December 31, 2020 and 2019, weThe Company has determined that neither our Texas JV nor our New Jersey JVjoint venture does not qualify as a VIE. Using the guidance for entities that are not VIEs, in both cases, the Company determined that it did not have a controlling financial interest in either of the JVs as of and for the years ended December 31, 2020 and 2019,joint venture, primarily as it did not have the ability to direct the activities of either of the JVsjoint venture that most significantly impacted the JVs’joint venture’s economic performance without the input of MAXXAM or Greenwood, respectively.Greenwood. Therefore, the Company did not consolidate eitherthe financial position of its investment in the JVsNew Jersey joint venture as of December 31, 2022 and 2021, nor the results of operations for the years ended December 31, 20202022, 2021, and 2019.2020.
Note 8—Property and Equipment
Property and equipment, net, consisted of the following:
| | | December 31, | | December 31, |
| (in millions) | (in millions) | 2020 | | 2019 | (in millions) | 2022 | | 2021 |
| Property and equipment - Not Subject to Master Leases | Property and equipment - Not Subject to Master Leases | | | | Property and equipment - Not Subject to Master Leases | | | |
Land and improvements (1) | Land and improvements (1) | $ | 105.6 | | | $ | 353.2 | | Land and improvements (1) | $ | 137.1 | | | $ | 147.6 | |
Building, vessels and improvements (1) | Building, vessels and improvements (1) | 205.4 | | | 420.4 | | Building, vessels and improvements (1) | 324.6 | | | 327.3 | |
| Furniture, fixtures and equipment | Furniture, fixtures and equipment | 1,620.4 | | | 1,598.3 | | Furniture, fixtures and equipment | 1,753.6 | | | 1,714.8 | |
| Leasehold improvements | Leasehold improvements | 219.5 | | | 183.6 | | Leasehold improvements | 353.5 | | | 292.0 | |
| Construction in progress | Construction in progress | 89.8 | | | 59.3 | | Construction in progress | 166.8 | | | 70.7 | |
| | | 2,240.7 | | | 2,614.8 | | | 2,735.6 | | | 2,552.4 | |
Less: Accumulated depreciation(1) | (1,559.0) | | | (1,548.3) | | |
| Less: Accumulated depreciation | | Less: Accumulated depreciation | (1,708.3) | | | (1,634.1) | |
| | | 681.7 | | | 1,066.5 | | | 1,027.3 | | | 918.3 | |
| Property and equipment - Subject to Master Leases | Property and equipment - Subject to Master Leases | | | | Property and equipment - Subject to Master Leases | | | |
| Land and improvements | Land and improvements | 1,523.2 | | | 1,525.9 | | Land and improvements | 1,523.2 | | | 1,523.2 | |
| Building, vessels and improvements | Building, vessels and improvements | 3,640.3 | | | 3,664.6 | | Building, vessels and improvements | 3,640.0 | | | 3,640.0 | |
| | | 5,163.5 | | | 5,190.5 | | | 5,163.2 | | | 5,163.2 | |
| Less: Accumulated depreciation | Less: Accumulated depreciation | (1,315.9) | | | (1,136.8) | | Less: Accumulated depreciation | (1,675.0) | | | (1,499.3) | |
| | | 3,847.6 | | | 4,053.7 | | | 3,488.2 | | | 3,663.9 | |
| Property and equipment, net | Property and equipment, net | $ | 4,529.3 | | | $ | 5,120.2 | | Property and equipment, net | $ | 4,515.5 | | | $ | 4,582.2 | |
Depreciation expense was as follows:
| | | | | | | | | | | | | | | | | |
| For the year ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
Depreciation expense (1) | $ | 336.9 | | | $ | 381.6 | | | $ | 251.9 | |
| | | | | | | | | | | | | | | | | |
| For the year ended December 31, |
| (in millions) | 2022 | | 2021 | | 2020 |
Depreciation expense (1) | $ | 329.1 | | | $ | 314.3 | | | $ | 336.9 | |
(1)Of such amounts, $156.1$175.6 million, $158.9$183.4 million, and $112.1$156.1 million, respectively, pertained to real estate assets subject to either of our Master Leases.
Hurricane Laura
In August 2020, Hurricane Laura made landfall in Lake Charles, Louisiana, which caused significant damage to our L’Auberge Lake Charles property. As a result,During the year ended December 31, 2021, we wrote off property and equipment with a net book value of $23.2 million, of which $2.1 million and $21.1 million washad been included in Property and equipment – Not subject to Master Lease,Leases, and Property and equipment – Subject to Master Leases, respectively.
Tropicana
During the year ended December 31, 2020, we recorded $7.3 million of impairment on the property and equipment associated with Tropicana, relating to the operating assets, which is included in “Impairment losses” within our Consolidated Statements of Operations and Comprehensive Income (Loss).Operations. The charge was the result of an impairment assessment performed after reviewing the projected results of this property over the remaining lease term contained within the Tropicana Lease. There were no impairment charges recorded to property and equipment during the years ended December 31, 2022 and 2021.
Note 9—Goodwill and Other Intangible Assets
A reconciliation of goodwill and accumulated goodwill impairment losses, by reportable segment, is as follows:
| | (in millions) | (in millions) | Northeast | | South | | West | | Midwest | | Other | | Total | (in millions) | Northeast | | South | | West | | Midwest | | Interactive | | Other | | Total |
| Balance as of January 1, 2019 | | | | | | | | | | | | |
| Balance as of January 1, 2021 | | Balance as of January 1, 2021 | | | | | | | | | | | | | |
| Goodwill, gross | Goodwill, gross | $ | 848.4 | | | $ | 185.2 | | | $ | 210.4 | | | $ | 1,110.1 | | | $ | 156.1 | | | $ | 2,510.2 | | Goodwill, gross | $ | 914.3 | | | $ | 236.6 | | | $ | 216.8 | | | $ | 1,116.7 | | | $ | 67.8 | | | $ | 87.7 | | | $ | 2,639.9 | |
| Accumulated goodwill impairment losses | Accumulated goodwill impairment losses | (707.6) | | | (34.6) | | | (16.6) | | | (435.3) | | | (87.7) | | | (1,281.8) | | Accumulated goodwill impairment losses | (761.4) | | | (61.0) | | | (16.6) | | | (556.1) | | | — | | | (87.7) | | | (1,482.8) | |
| Goodwill, net | Goodwill, net | 140.8 | | | 150.6 | | | 193.8 | | | 674.8 | | | 68.4 | | | 1,228.4 | | Goodwill, net | $ | 152.9 | | | $ | 175.6 | | | $ | 200.2 | | | $ | 560.6 | | | $ | 67.8 | | | $ | — | | | $ | 1,157.1 | |
| Goodwill acquired during year | Goodwill acquired during year | 67.4 | | | 44.2 | | | 0 | | | 0 | | | 0 | | | 111.6 | | Goodwill acquired during year | 9.2 | | | — | | | — | | | — | | | 1,699.0 | | | — | | | 1,708.2 | |
| Impairment losses during year | (10.3) | | | (17.4) | | | 0 | | | (60.3) | | | 0 | | | (88.0) | | |
Other (1) | (1.5) | | | 7.2 | | | 6.4 | | | 6.6 | | | 0 | | | 18.7 | | |
| Balance as of December 31, 2019 | | |
| Effect of foreign currency exchange rates | | Effect of foreign currency exchange rates | — | | | — | | | — | | | — | | | (42.8) | | | — | | | (42.8) | |
| Balance as of December 31, 2021 | | Balance as of December 31, 2021 | |
| Goodwill, gross | Goodwill, gross | 914.3 | | | 236.6 | | | 216.8 | | | 1,116.7 | | | 156.1 | | | 2,640.5 | | Goodwill, gross | $ | 923.5 | | | $ | 236.6 | | | $ | 216.8 | | | $ | 1,116.7 | | | $ | 1,724.0 | | | $ | 87.7 | | | $ | 4,305.3 | |
| Accumulated goodwill impairment losses | Accumulated goodwill impairment losses | (717.9) | | | (52.0) | | | (16.6) | | | (495.6) | | | (87.7) | | | (1,369.8) | | Accumulated goodwill impairment losses | (761.4) | | | (61.0) | | | (16.6) | | | (556.1) | | | — | | | (87.7) | | | (1,482.8) | |
| Goodwill, net | Goodwill, net | 196.4 | | | 184.6 | | | 200.2 | | | 621.1 | | | 68.4 | | | 1,270.7 | | Goodwill, net | $ | 162.1 | | | $ | 175.6 | | | $ | 200.2 | | | $ | 560.6 | | | $ | 1,724.0 | | | $ | — | | | $ | 2,822.5 | |
| | Effect of foreign currency exchange rates | | Effect of foreign currency exchange rates | — | | | — | | | — | | | — | | | (97.1) | | | — | | | (97.1) | |
| Impairment losses during year | Impairment losses during year | (43.5) | | | (9.0) | | | 0 | | | (60.5) | | | 0 | | | (113.0) | | Impairment losses during year | (37.4) | | | — | | | — | | | — | | | — | | | — | | | (37.4) | |
| Other (2) | 0 | | | 0 | | | 0 | | | 0 | | | (0.6) | | | (0.6) | | |
| Balance as of December 31, 2020 | | |
Other (1) | | Other (1) | — | | | — | | | — | | | — | | | 1.5 | | | — | | | 1.5 | |
| Balance as of December 31, 2022 | | Balance as of December 31, 2022 | |
| Goodwill, gross | Goodwill, gross | 914.3 | | | 236.6 | | | 216.8 | | | 1,116.7 | | | 155.5 | | | 2,639.9 | | Goodwill, gross | $ | 923.5 | | | $ | 236.6 | | | $ | 216.8 | | | $ | 1,116.7 | | | $ | 1,628.4 | | | $ | 87.7 | | | $ | 4,209.7 | |
| Accumulated goodwill impairment losses | Accumulated goodwill impairment losses | (761.4) | | | (61.0) | | | (16.6) | | | (556.1) | | | (87.7) | | | (1,482.8) | | Accumulated goodwill impairment losses | (798.8) | | | (61.0) | | | (16.6) | | | (556.1) | | | — | | | (87.7) | | | (1,520.2) | |
| Goodwill, net | Goodwill, net | $ | 152.9 | | | $ | 175.6 | | | $ | 200.2 | | | $ | 560.6 | | | $ | 67.8 | | | $ | 1,157.1 | | Goodwill, net | $ | 124.7 | | | $ | 175.6 | | | $ | 200.2 | | | $ | 560.6 | | | $ | 1,628.4 | | | $ | — | | | $ | 2,689.5 | |
2022 Annual and Interim Assessment for Impairment
During the third quarter of 2022, we identified an indicator of impairment on goodwill and other intangible assets at the Hollywood Casino at Greektown reporting unit as the majority of the hotel was out of service for longer than anticipated during renovations caused by water damage. As a result, we revised the cash flow projections for the reporting unit to be reflective of current operating results and the related economic environment. As a result of the interim assessment for impairment, during the third quarter of 2022, we recognized impairment charges on our goodwill and gaming licenses of $37.4 million and $65.4 million, respectively. The estimated fair value of the reporting unit was determined through a combination of a discounted cash flow model and a market-based approach, which utilized Level 3 inputs. The estimated fair value of the gaming license was determined by using a discounted cash flow model, which utilized Level 3 inputs.
As a result of our 2022 annual assessment for impairment as of October 1, 2022, we recognized a $13.6 million impairment charge on our gaming licenses. The impairment of gaming licenses is specific to Hollywood Casino at PENN National Race Course (“PNRC”) and was largely due to the preliminary purchase price allocationexpansion of Pinnacle duringgaming legislation in the year ended December 31, 2019, prior to it being finalized.
(2)Amounts relate to the write-offmarket and increased supply, particularly from our recent openings of goodwill related to the land sale at Sanford Orlando Kennel ClubHollywood Casino York and Hollywood Casino Morgantown, which discontinued our racing operations. The write-off of this goodwill balance is included as a componentreduced long-term projections of the gain calculation recorded on the sale.property. The estimated fair values of our gaming licenses were determined by using discounted cash flow models, which utilized Level 3 inputs.
The annual assessment for impairment did not result in any impairment charges to goodwill or trademarks. The estimated fair value of reporting units were determined through a combination of discounted cash flow models and market-based approaches, which utilized Level 3 inputs. The estimated fair values of trademarks were determined by using discounted cash flow models, which utilized Level 3 inputs.
The total 2022 goodwill and gaming license impairment charges of $37.4 million and $79.0 million, respectively, pertained to our Northeast segment.
We completed our annual assessment for impairment as of October 1, 2021, which did not result in any impairment charges to goodwill, gaming licenses or trademarks. The estimated fair value of reporting units were determined through a combination of discounted cash flow models and market-based approaches, which utilized Level 3 inputs. The estimated fair values of our gaming licenses and trademarks were determined by using discounted cash flow models, which utilized Level 3 inputs.
2020 Annual and Interim Assessment for Impairment
During the first quarter of 2020, we identified an indicator of impairment on our goodwill and other intangible assets due to the COVID-19 pandemic. As a result of the COVID-19 pandemic, we revised our cash flow projections to reflect the current economic environment, including the uncertainty surrounding the nature, timing and extent of reopening our gaming properties. As a result of the interim assessment for impairment, during the first quarter of 2020, we recognized impairments on our goodwill, gaming licenses and trademarks of $113.0 million, $437.0 million and $61.5 million, respectively. The estimated fair valuesvalue of the reporting units were determined through a combination of a discounted cash flow modelmodels and a market-based approach,approaches, which utilized Level 3 inputs. The estimated fair values of theour gaming licenses and trademarks were determined by using discounted cash flow models, which utilized Level 3 inputs.
As noted in the table above, theThe goodwill impairments pertained to our Northeast, South and Midwest segments, in the amounts of $43.5 million, $9.0 million and $60.5 million, respectively. The gaming license impairments pertained to our Northeast, South and Midwest segments in the amounts of $177.0 million, $166.0 million and $94.0 million, respectively. The trademark impairments pertained to our Northeast, South, Midwest and West segments, in the amounts of $17.0 million, $17.0 million, $15.0 million and $12.5 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 andor trademarks. The estimated fair valuesvalue of the reporting units were determined through a combination of discounted cash flow models and a market-based approach,approaches, which utilized Level 3 inputs. The estimated fair values of theour gaming licenses and trademarks were determined by using discounted cash flow models, which utilized Level 3 inputs.
2019 Annual Assessment for Impairment
As a result of our 2019 annual assessment for impairment, we recognized impairments on our goodwill, gaming licenses, and trademarks, of $88.0 million, $62.6 million, and $20.0 million, respectively. The impairments of goodwill were largely driven by increases in the carrying amount of certain of our reporting units as a result of decreases in the allocated amount of the financing obligation to such reporting units, which was driven by the adoption of ASC 842. The impairments of gaming licenses and trademarks were largely driven by reductions in the long-term projections for certain of our properties where competition has increased due to expansion of gaming legislation, primarily within the Northeast segment. The estimated fair values of the reporting units were determined through a combination of discounted cash flow models and a market-based approach, which utilized Level 3 inputs. The estimated fair values of the gaming licenses and trademarks were determined by using discounted cash flow models, which utilized Level 3 inputs.
As noted in the table above, the goodwill impairments pertained to our Northeast, South and Midwest segments, in the amounts of $10.3 million, $17.4 million and $60.3 million, respectively. The gaming license impairments pertained to our Northeast and South segments in the amounts of $55.1 million and $7.5 million, respectively. The trademark impairments pertained to our Northeast, South and Midwest segments, in the amounts of $11.5 million, $6.5 million and $2.0 million, respectively.
2018 Annual Assessment for Impairment
During the year ended December 31, 2018, the Company completed its 2018 annual assessment for impairment, which did not result in any impairment charges to goodwill or other intangible assets.
The aforementioned impairments for the years ended December 31, 2020 and 2019 are included in “Impairment losses” within our Consolidated Statements of Operations and Comprehensive Income (Loss). See Note 19, “Fair Value Measurements,” for quantitative information about the significant unobservable inputs used in the fair value measurements of other intangible assets.Carrying Values of Goodwill and Other Intangible Assets
As of October 1, 2020,2022, the date of the most recent annual impairment test, 7seven reporting units had negative carrying amounts. The amount of goodwill at these reporting units was as follows (in millions):
| | | | | |
| Northeast segment | |
Hollywood Casino at Charles Town Races | $ | 8.7 | |
| |
Hollywood Casino Toledo | $ | 5.8 | |
| Plainridge Park Casino | $ | 6.3 | |
| |
| |
| South segment | |
| Ameristar Vicksburg | $ | 19.5 | |
| Boomtown New Orleans | $ | 5.2 | |
| Hollywood Casino Gulf Coast | $ | 2.7 | |
| West segment | |
| Cactus Petes and Horseshu | $ | 10.2 | |
| Midwest segment | |
| Ameristar Council Bluffs | $ | 36.2 | |
| |
| |
The table below presents the gross carrying amount, accumulated amortization, and net carrying amount of each major class of other intangible assets:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| (in millions) | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| Indefinite-lived intangible assets | | | | | | | | | | | |
| Gaming licenses | $ | 1,246.1 | | | $ | — | | | $ | 1,246.1 | | | $ | 1,681.9 | | | $ | — | | | $ | 1,681.9 | |
| Trademarks | 240.9 | | | — | | | 240.9 | | | 302.4 | | | — | | | 302.4 | |
| Other | 0.7 | | | — | | | 0.7 | | | 0.7 | | | — | | | 0.7 | |
| Amortizing intangible assets | | | | | | | | | | | |
| Customer relationships | 106.9 | | | (85.2) | | | 21.7 | | | 104.4 | | | (69.0) | | | 35.4 | |
| Other | 39.6 | | | (35.5) | | | 4.1 | | | 36.1 | | | (30.0) | | | 6.1 | |
| Total other intangible assets | $ | 1,634.2 | | | $ | (120.7) | | | $ | 1,513.5 | | | $ | 2,125.5 | | | $ | (99.0) | | | $ | 2,026.5 | |
During the year ended December 31, 2020 we paid $1.3 million for online and retail sports betting licenses. During the year ended December 31, 2019, we paid $10.0 million for online and retail sports betting licenses in Pennsylvania. During the year ended December 31, 2018, we purchased 2 Category 4 gaming licenses to operate up to 750 slot machines and initially up to 30 table games, under each license, in York County, Pennsylvania for $50.1 million and in Berks County, Pennsylvania for $7.5 million, and iGaming and sports betting licenses in Pennsylvania for $20.0 million, all of which have been classified as indefinite-lived intangible assets. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
| (in millions) | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| Indefinite-lived intangible assets | | | | | | | | | | | |
| Gaming licenses | $ | 1,207.6 | | | $ | — | | | $ | 1,207.6 | | | $ | 1,285.4 | | | $ | — | | | $ | 1,285.4 | |
| Trademarks | 332.2 | | | — | | | 332.2 | | | 338.2 | | | — | | | 338.2 | |
| Other | 0.7 | | | — | | | 0.7 | | | 0.7 | | | — | | | 0.7 | |
| Amortizing intangible assets | | | | | | | | | | | |
| Customer relationships | 114.4 | | | (102.0) | | | 12.4 | | | 114.9 | | | (91.4) | | | 23.5 | |
| Technology | 249.6 | | | (80.4) | | | 169.2 | | | 252.7 | | | (40.5) | | | 212.2 | |
| Other | 27.7 | | | (10.9) | | | 16.8 | | | 19.4 | | | (6.8) | | | 12.6 | |
| Total other intangible assets, net | $ | 1,932.2 | | | $ | (193.3) | | | $ | 1,738.9 | | | $ | 2,011.3 | | | $ | (138.7) | | | $ | 1,872.6 | |
Amortization expense related to our amortizing intangible assets was $21.7$56.7 million, $24.7$19.6 million, and $17.1$21.7 million for the years ended December 31, 2020, 20192022, 2021 and 2018,2020, respectively. The following table presents the estimated amortization expense based on our amortizing intangible assets as of December 31, 20202022 (in millions):
| | | | | |
| Years ending December 31: | |
| 2021 | $ | 7.4 | |
| 2022 | 5.5 | |
| 2023 | 3.9 | |
| 2024 | 3.7 | |
| 2025 | 4.9 | |
| Thereafter | 0.4 | |
| Total | $ | 25.8 | |
| | | | | |
| Years ending December 31: | |
| 2023 | $ | 50.5 | |
| 2024 | 46.2 | |
| 2025 | 30.4 | |
| 2026 | 23.7 | |
| 2027 | 21.7 | |
| Thereafter | 25.9 | |
| Total | $ | 198.4 | |
Note 10—Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following:
| | | December 31, | | December 31, |
| (in millions) | (in millions) | 2020 | | 2019 | (in millions) | 2022 | | 2021 |
| Accrued salaries and wages | Accrued salaries and wages | $ | 120.4 | | | $ | 142.1 | | Accrued salaries and wages | $ | 148.6 | | | $ | 155.5 | |
| Accrued gaming, pari-mutuel, property, and other taxes | Accrued gaming, pari-mutuel, property, and other taxes | 75.0 | | | 103.3 | | Accrued gaming, pari-mutuel, property, and other taxes | 110.2 | | | 103.6 | |
| Accrued interest | Accrued interest | 13.2 | | | 13.0 | | Accrued interest | 20.8 | | | 20.9 | |
Other accrued expenses (1) | Other accrued expenses (1) | 229.1 | | | 225.8 | | Other accrued expenses (1) | 321.4 | | | 317.5 | |
Other current liabilities (2) | Other current liabilities (2) | 137.4 | | | 147.1 | | Other current liabilities (2) | 203.7 | | | 201.0 | |
| Accrued expenses and other current liabilities | Accrued expenses and other current liabilities | $ | 575.1 | | | $ | 631.3 | | Accrued expenses and other current liabilities | $ | 804.7 | | | $ | 798.5 | |
(1)Amounts as of December 31, 2020 and 2019 include $40.8 million and $38.3 million, respectively, pertaining to the Company’s accrued progressive jackpot liability. Additionally, amounts include the obligation associated with its mychoice program and the current portion of advance payments on goods and services yet to be provided and for unpaid wagers, which are discussed in Note 2, “Significant Accounting Policies.” Additionally, amounts as of December 31, 2022 and 2021 include $51.4 million and $47.6 million, respectively, pertaining to the Company’s accrued progressive jackpot liability. (2)Amounts as of December 31, 20202022 and 20192021 include $86.3$70.8 million and $80.1$82.1 million, respectively, pertaining to the Company’s non-qualified deferred compensation plan that covers management and other highly-compensated employees.employees and include $60.2 million and $52.1 million, respectively, pertaining to the Company’s advance deposits.
Note 11—Long-term Debt
Long-termThe table below presents long-term debt, net of current maturities, was as follows:debt discounts and issuance costs:
| | | December 31, | | December 31, |
| (in millions) | (in millions) | 2020 | | 2019 | (in millions) | 2022 | | 2021 |
| Senior Secured Credit Facilities: | Senior Secured Credit Facilities: | | | | Senior Secured Credit Facilities: | | | |
| Revolving Credit Facility due 2023 | $ | 0 | | | $ | 140.0 | | |
| Amended Revolving Credit Facility due 2027 | | Amended Revolving Credit Facility due 2027 | $ | — | | | $ | — | |
| Amended Term Loan A Facility due 2027 | | Amended Term Loan A Facility due 2027 | 536.2 | | | — | |
| Amended Term Loan B Facility due 2029 | | Amended Term Loan B Facility due 2029 | 995.0 | | | — | |
| Term Loan A Facility due 2023 | Term Loan A Facility due 2023 | 636.9 | | | 672.3 | | Term Loan A Facility due 2023 | — | | | 583.8 | |
| Term Loan B-1 Facility due 2025 | Term Loan B-1 Facility due 2025 | 991.2 | | | 1,117.5 | | Term Loan B-1 Facility due 2025 | — | | | 979.9 | |
| 5.625% Notes due 2027 | 5.625% Notes due 2027 | 400.0 | | | 400.0 | | 5.625% Notes due 2027 | 400.0 | | | 400.0 | |
| 4.125% Notes due 2029 | | 4.125% Notes due 2029 | 400.0 | | | 400.0 | |
| 2.75% Convertible Notes due 2026 | 2.75% Convertible Notes due 2026 | 330.5 | | | 0 | | 2.75% Convertible Notes due 2026 | 330.5 | | | 330.5 | |
| Other long-term obligations | Other long-term obligations | 73.0 | | | 89.2 | | Other long-term obligations | 156.1 | | | 146.3 | |
| | 2,431.6 | | | 2,419.0 | | | 2,817.8 | | | 2,840.5 | |
| Less: Current maturities of long-term debt | Less: Current maturities of long-term debt | (81.4) | | | (62.9) | | Less: Current maturities of long-term debt | (56.2) | | | (99.5) | |
| Less: Debt discount | (86.2) | | | (2.4) | | |
| Less: Debt discounts | | Less: Debt discounts | (4.6) | | | (73.1) | |
| Less: Debt issuance costs | Less: Debt issuance costs | (32.8) | | | (31.5) | | Less: Debt issuance costs | (35.7) | | | (30.6) | |
| | $ | 2,231.2 | | | $ | 2,322.2 | | | $ | 2,721.3 | | | $ | 2,637.3 | |
The following is a schedule of future minimum repayments of long-term debt as of December 31, 20202022 (in millions):
| | Year ending December 31: | | |
| 2021 | $ | 81.4 | | |
| 2022 | 99.9 | | |
| Years ending December 31: | | Years ending December 31: | |
| 2023 | 2023 | 543.1 | | 2023 | $ | 56.2 | |
| 2024 | 2024 | 21.3 | | 2024 | 47.6 | |
| 2025 | 2025 | 946.8 | | 2025 | 38.2 | |
| 2026 | | 2026 | 486.8 | |
| 2027 | | 2027 | 837.0 | |
| Thereafter | Thereafter | 739.1 | | Thereafter | 1,352.0 | |
| Total minimum payments | Total minimum payments | $ | 2,431.6 | | Total minimum payments | $ | 2,817.8 | |
Senior Secured Credit Facilities
OnIn January 19, 2017, the Company entered into an agreement to amend and restate its Amendedprevious credit agreement, dated October 30, 2013, Credit Agreementas amended (the “Credit Agreement”), which provided for: (i) a five-year $700.0$700 million revolving credit facility (the “Revolving Credit Facility”); (ii) a five-year $300.0$300 million Term Loan A facility (the “Term Loan A Facility”); and (iii) a seven-year $500.0$500 million Term Loan B facility (the “Term Loan B Facility” and collectively with the Revolving Credit Facility and the Term Loan A Facility, the “Senior Secured Credit Facilities”).
On October 15, 2018, in connection with the acquisition of Pinnacle Acquisition, weEntertainment, Inc. (“Pinnacle”), the Company entered into an incremental joinder agreement (the “Incremental Joinder”), which amended the 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$1.1 billion 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 for 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 for base rate loans, in each case depending on the Consolidated Total Net Leverage Ratio (as defined in the Amended 2017 Credit Agreement) as of the most recent fiscal quarter. The applicable margin for 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 the Amended 2017 Credit Agreement and related extinguishment of the Term Loan B Facility, 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, we pay a commitment fee on the unused portion of the commitments under the Revolving Credit Facility at a rate that ranges from 0.20% to 0.50% per annum, depending on the Consolidated Total Net Leverage Ratio as of the most recent fiscal quarter.
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, 2020modifications to required financial covenants and ending on the earlier of (x) the date that is two business days after the date on which the Company deliversinterest rates during, and subsequent to, a covenant relief period, termination notice to the administrative agent and (y) the datewhich concluded on which the administrative agent receives a compliance certificate for the quarter ending March 31, 2021 (the “Covenant Relief Period”),May 7, 2021.
On May 3, 2022, the Company will not have to complyentered into a Second Amended and Restated Credit Agreement with any Maximum Leverage Ratio or Minimum Interest Coverage Ratio (as such terms are defined inits various lenders (the “Second Amended and Restated Credit Agreement”). The Second Amended and Restated Credit Agreement provides for a
$1.0 billion revolving credit facility, undrawn at close, (the “Amended Revolving Credit Facility”), a five-year $550.0 million term loan A facility (the “Amended Term Loan A Facility”) and a seven-year $1.0 billion term loan B facility (the “Amended Term Loan B Facility”) (together, the “Amended Credit Facilities”). The proceeds from the Amended 2017 Credit Agreement). DuringFacilities were used to repay the Covenant Relief Period, the Company will be subject to a minimum liquidity covenant that requires cashexisting Term Loan A Facility and cash equivalents and availability under its Revolving CreditTerm Loan B-1 Facility to be (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 (iv) $225.0 million during the period from July 1, 2020 through March 31, 2021. We are required to maintain specified financial ratios and to satisfy certain financial tests when our covenant relief period terminates on March 31, 2021.balances.
The Second Amendment also amended the financial covenants that areinterest rates per annum applicable after the Covenant Relief Period to permit the Company to (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 interest coverage ratio of 2.50:1.00, tested quarterly on a PF TTM basis.
In addition, the Second Amendment (i) provides that, during the Covenant Relief Period, loans under the Amended Credit Facilities are, at the Company’s option, equal to either an adjusted secured overnight financing rate (“Term SOFR”) or a base rate, plus an applicable margin. The applicable margin for each of the Amended Revolving Credit Facility and the Amended Term Loan A Facility shall bear interest at eitherwas initially 1.75% for Term SOFR loans and 0.75% for base rate loans until the Company provided financial reports for the first full fiscal quarter following closing and, thereafter, ranges from 2.25% to 1.50% per annum for Term SOFR loans and 1.25% to 0.50% per annum for base rate loans, in each case depending on the Company’s total net leverage ratio (as defined within the Second Amended and Restated Credit Agreement). The applicable margin for the Amended Term Loan B Facility is 2.75% per annum for Term SOFR loans and 1.75% per annum for base rate loans. The Amended Term Loan B Facility is subject to a Term SOFR “floor” of 0.50% per annum and a base rate or an adjusted LIBOR rate, in each case, plus an applicable margin, in the case“floor” of base rate loans, of 2.00%, and in the case of adjusted LIBOR rate loans, of 3.00%; (ii) provides that, during the Covenant Relief Period,1.50% per annum. In addition, the Company shall paypays a commitment fee on the unused portion of the commitments under the Amended Revolving Credit Facility at a rate that was initially 0.25% per annum, until the Company provided financial reports for the first full fiscal quarter following closing, and thereafter, ranges from 0.35% to 0.20% per annum, depending on the Company’s total net leverage ratio.
The Amended Credit Facilities contain customary covenants that, among other things, restrict, subject to certain exceptions, the ability of 0.50% per annum; (iii) provides for a 0.75% LIBOR floor applicablethe Company and certain of its subsidiaries to all LIBOR loansgrant liens on their assets, incur indebtedness, sell assets, make investments, engage in acquisitions, mergers or consolidations, pay dividends and make other restricted payments and prepay certain indebtedness that is subordinated in right of payment to the obligations under the Senior SecuredAmended Credit Facilities; (iv) carves out COVID-19 related effects fromFacilities. The Amended Credit Facilities contain two financial covenants: a maximum total net leverage ratio (as defined within the Second Amended and Restated Credit Agreement) of 4.50 to 1.00, which is subject to a step up to 5.00 to 1.00 in the case of certain termssignificant acquisitions, and a minimum interest coverage ratio (as defined within the Second Amended and Restated Credit Agreement) of 2.00 to 1.00. The Amended Credit Facilities also contain certain customary affirmative covenants and events of default, including the occurrence of a change of control (as defined in the documents governing the Second Amended and Restated Credit Agreement), termination and certain defaults under the PENN Master Lease and the Pinnacle Master Lease (both of which are defined in Note 12, “Leases”). In connection with the repayment of the previous Senior Secured Credit Facilities, during the Covenant Relief Period;year ended December 31, 2022 the Company recorded a $10.4 million loss on the early extinguishment of debt and (v) makes certain other changesadditionally recorded $1.3 million in refinancing costs, which is included in “General and administrative” within our Consolidated Statements of Operations. In addition, we recorded $5.0 million of original issue discount related to the covenants and other provisionsAmended Term Loan B Facility which will be amortized to interest expense over the life of the Credit Agreement.Amended Term Loan B Facility.
As of December 31, 2020 and 2019,2022, the Company had conditional obligations under letters of credit issued pursuant to the Amended Credit Facilities with face amounts aggregating to $22.5 million resulting in $977.5 million of available borrowing capacity under the Amended Revolving Credit Facility.
As of December 31, 2021, the Company had conditional obligations under letters of credit issued pursuant to the Senior SecuredSecurity Credit Facilities with face amounts aggregating to $28.2$26.0 million and $30.0 million, respectively, resulting in $671.8 million and $530.0$674.0 million of available borrowing capacity under the Revolving Credit Facility, respectively.
During the fourth quarter of 2020, in connection with a prepayment of $115.0 million of outstanding borrowings on our Term Loan B-1 Facility, we recorded a $1.2 million loss on early extinguishment of debt, related to the write-off of debt issuance costs and debt discounts.
For the year ended December 31, 2018, in connection with the debt financing transactions relating to the Pinnacle Acquisition and principal repayments on the Term Loan B Facility, the Company recorded $5.5 million in refinancing costs and a $21.0 million loss on early extinguishment of debt, related to refinancing costs on the extinguishment of the Term Loan B Facility and the write-off of debt issuance costs and the discount on the Term Loan B Facility. The refinancing costs are included in “Other,” as reported in ���Other income (expenses)” within our Consolidated Statements of Operations and Comprehensive Income (Loss).
The payment and performance of obligations under the Senior Secured Credit Facilities are guaranteed by a lien on and security interest in substantially all of the assets (other than excluded property, such as gaming licenses) of the Company.
5.625% Senior Unsecured Notes
On January 19, 2017, the Company completed an offering of $400.0 million aggregate principal amount of 5.625% senior unsecured notes that mature on January 15, 2027 (the “5.625% Notes”) at a price of par. Interest on the 5.625% Notes is payable semi-annually on January 15th and July 15th of each year. The 5.625% Notes are not guaranteed by any of the Company’s subsidiaries except in the event that the Company, in the future, issues certain subsidiary-guaranteed debt securities. The Company may redeem the 5.625% Notes at any time on or after January 15, 2022, at the declining redemption premiums set forth in the indenture governing the 5.625% Notes.
4.125% Senior Unsecured Notes
On July 1, 2021, the Company completed an offering of $400.0 million aggregate principal amount of 4.125% senior unsecured notes that mature on July 1, 2029 (the “4.125% Notes”). The 4.125% Notes were issued at par and interest is payable semi-annually on January 1st and July 1st of each year. The 4.125% Notes are not guaranteed by any of the Company’s subsidiaries except in the event that the Company, in the future, issues certain subsidiary-guaranteed debt securities. The Company may redeem the 4.125% Notes at any time on or after July 1, 2024, at the declining redemption premiums set forth in
forth in the indenture governing the 5.625%4.125% Notes, and, prior to January 15, 2022,July 1, 2024, at a “make-whole” redemption premium set forth in the indenture governing the 5.625%4.125% Notes.
2.75% Unsecured Convertible Notes
In May 2020, the Company completed a public offering of $330.5 million aggregate principal amount of 2.75% unsecured convertible notes that mature, unless earlier converted, redeemed or repurchased, on May 15, 2026 (the “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 Convertible Notes is payable on May 15th and November 15th of each year, beginning on November 15, 2020.year.
The Convertible Notes are convertible into shares of the Company’s common 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, 2020,2022, 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$214.8 million.
PriorStarting in the fourth quarter of 2020 and prior to February 15, 2026, at their election, holders of the Convertible Notes may convert outstanding notes starting in the fourth quarter of 2020 if the trading price of the Company’s common stock exceeds 130% of the initial 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, or a combination thereof. TheBeginning November 20, 2023, the Company has the option to redeem the Convertible Notes, in whole or in part, beginning November 20, 2023.part.
In addition, the Convertible 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.
As of December 31, 2022 and 2021, no Convertible Notes have been converted into the Company’s common stock.
The Convertible Notes contain a cash conversion feature, and as a result, the Company has separated it into liability and equity components. The Company valued the liability component based on its borrowing rate for a similar debt instrument that does not contain a conversion feature. The equity component, which is recognized as debt discount, was valued as the difference between the face value of the Convertible Notes and the fair value of the liability component. The equity component was valued at $91.8 million upon issuance of the Convertible Notes.
In connection with the Convertible Notes issuance, the Company incurred debt issuance costs of $10.2 million, which were allocated on a pro rata basis to the liability component and the equity component in the amounts of $6.6 million and $3.6 million, respectively.
On January 1, 2022, the Company adopted ASU 2020-06, which resulted in a reclassification of the $88.2 million cash conversion feature related to the Company’s Convertible Notes, from stockholders’ equity to liabilities as under ASU 2020-06, bifurcation for a cash conversion feature is no longer permitted. As a result of the adoption, the Company recognized, as a cumulative effect adjustment, an increase to the January 1, 2022 opening balance of retained earnings of $18.9 million, net of taxes.
The Convertible Notes consisted of the following components:
| | | | | | | |
(in millions) | December 31,
2020 | | |
Liability component: | | | |
Principal | $ | 330.5 | | | |
Unamortized debt discount | (84.4) | | | |
Unamortized debt issuance costs | (6.2) | | | |
Net carrying amount | $ | 239.9 | | | |
| | | |
Carrying amount of equity component | $ | 88.2 | | | |
| | | | | | | | | | | | | |
| December 31, | | |
| (in millions) | 2022 | | 2021 | | |
| Liability component: | | | | | |
| Principal | $ | 330.5 | | | $ | 330.5 | | | |
| Unamortized debt discount | — | | | (71.7) | | | |
| Unamortized debt issuance costs | (6.2) | | | (5.3) | | | |
| Net carrying amount | $ | 324.3 | | | $ | 253.5 | | | |
| | | | | |
| Carrying amount of equity component | $ | — | | | $ | 88.2 | | | |
Interest expense, net
InterestThe table below presents interest expense, net, was as follows:net:
| | | For the year ended December 31, | | For the year ended December 31, |
| (in millions) | (in millions) | 2020 | | 2019 | | 2018 | (in millions) | 2022 | | 2021 | | 2020 |
| Interest expense | Interest expense | $ | (546.3) | | | $ | (535.9) | | | $ | (539.4) | | Interest expense | $ | 760.1 | | | 566.9 | | | 546.3 | |
| Interest income | 0.9 | | | 1.4 | | | 1.0 | | |
| Capitalized interest | Capitalized interest | 2.2 | | | 0.3 | | | 0 | | Capitalized interest | (1.9) | | | (4.1) | | | (2.2) | |
| Interest expense, net | Interest expense, net | $ | (543.2) | | | $ | (534.2) | | | $ | (538.4) | | Interest expense, net | $ | 758.2 | | | $ | 562.8 | | | $ | 544.1 | |
InterestThe table below presents interest expense related to the Convertible Notes was as follows:Notes:
| | | | | | |
(in millions) | For the year ended December 31, 2020 | |
Coupon interest | $ | 5.7 | | |
Amortization of debt discount | 7.3 | | |
Amortization of debt issuance costs | 0.5 | | |
Convertible Notes interest expense | $ | 13.5 | | |
| | | | | | | | | | | | | | | | | |
| For the year ended December 31, |
| (in millions) | 2022 | | 2021 | | 2020 |
| Coupon interest | $ | 9.1 | | | $ | 9.1 | | | $ | 5.7 | |
| Amortization of debt discount | — | | | 12.7 | | | 7.3 | |
| Amortization of debt issuance costs | 1.7 | | | 0.9 | | | 0.5 | |
| Convertible Notes interest expense | $ | 10.8 | | | $ | 22.7 | | | $ | 13.5 | |
The debt discount andSubsequent to the adoption of ASU 2020-06, the debt issuance costs attributable to the liability component are beingcontinues to be amortized to interest expense over the term of the Convertible Notes at an effective interest rate of 9.23%3.329%. The remaining term of the Convertible Notes was 5.43.4 years as of December 31, 2020.2022.
Covenants
Our Senior SecuredAmended Credit Facilities, 5.625% Notes and 5.625%4.125% Notes, require us, among other obligations, to maintain specified financial ratios and to satisfy certain financial tests. In addition, our Senior SecuredAmended Credit Facilities, 5.625% Notes and 5.625% Notes4.125% 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. Our debt agreements also contain customary events of default, including cross-default provisions that require us to meet certain requirements under the PennPENN Master Lease and the Pinnacle Master Lease (both of which are defined in Note 12, “Leases”), each with GLPI. If we are unable to meet our financial covenants or in the event of a cross-default, it could trigger an acceleration of payment termterms.s. As of December 31, 2020,2022, the Company was in compliance with all required financial covenants. When our covenant relief period ends, theThe Company is subject to and expects to bebelieves that it will remain in compliance with all of its 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)for at least the next twelve months following the date of filing this Annual Report on Form 10-K with the Company's submission of its compliance certificate for the quarter ending March 31, 2021.SEC.
Other Long-Term Obligations
Other Long-term Obligation
In February 2021, we entered into a financing arrangement providing the Company with upfront cash proceeds while permitting us to participate in future proceeds on certain claims. The financing obligation has been classified as a non-current liability, which is expected to be settled in a future period of which the principal is contingent and predicated on other events.
Consistent with an obligor’s accounting under a debt instrument, period interest will be accreted using an effective interest rate of 27.0% and until such time that the claims and related obligation is settled. The amount included in interest expense related to this obligation was $27.6 million and $17.9 million for the years ended December 31, 2022 and 2021, respectively.
Ohio Relocation Fees
AsOther long-term obligations included $27.4 million and $44.5 million as of December 31, 20202022 and 2019, other long-term obligations included $60.9 million and $76.4 million,2021, respectively, related to the relocation fees for Hollywood Gaming at Dayton Raceway (“Dayton”) and Hollywood Gaming at Mahoning Valley Race Course (“Mahoning Valley”), which opened in August 2014 and September 2014, respectively. In June 2013, we finalized the terms of our memorandum of understanding with the State of Ohio, which included an agreement for us to pay aThe 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 feefacility is payable as follows: $7.5 million upon the opening of the facilities and 18eighteen semi-annual payments of $4.8 million beginning one year after opening.the commencement of operations. This obligation is accreted to interest expense at an effective yield of 5.0%. The amount included in interest expense related to this obligation was $3.4 million, $4.1 million and $4.8 million for the years ended December 31, 2020, 2019 and 2018, respectively.
Event Center
As of December 31, 20202022 and 2019,2021, other long-term obligations included $12.0$10.7 million and $12.6$11.4 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. This obligation is accreted to interest expense at its effective yield of 3.0%. The amount included in interest expense related to this obligation was $0.4 million for each of the years ended December 31, 2020, 2019 and 2018.
Note 12—Leases
Lessee
Master Leases
The components contained within the Master Leases are accounted for as either (i) operating leases, (ii) finance leases, or (iii) financing obligations. Changes to future lease payments under the Master Leases (i.e., when future escalators become known or future variable rent resets occur), which are discussed below, require the Company to either (i) increase both the ROU assets and corresponding lease liabilities with respect to operating and finance leases or (ii) record the incremental variable payment associated with the financing obligation to interest expense. In addition, monthly rent associated with Hollywood Casino Columbus (“Columbus”) and monthly rent in excess of the Hollywood Casino Toledo (“Toledo”) rent floor, which are discussed below, are considered contingent rent.
PennPENN Master Lease
Pursuant to the 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. The Company has determined that the lease term is 35 years.
The payment structure under the PennPENN Master Lease includes a fixed component, a portion of which is subject to an annual escalator of up to 2%, depending on the Adjusted Revenue to Rent Ratio (as defined in the PennPENN Master Lease) of 1.8:1, and a component that is based on the performance, 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 PennPENN Master Lease (other than Columbus and Toledo) compared to a contractual baseline during the preceding five years (“PennPENN Percentage Rent”) and (ii) monthly by an amount equal to 20% of the net revenues of Columbus and Toledo in excess of a contractual baseline and subject to a rent floor specific to Toledo (see below).
As a result of the annual escalator, effective as of November 1, 2022 for the lease year ended October 31, 2022, the fixed component of rent increased by $5.7 million, additional ROU assets and corresponding lease liabilities of $3.6 million were recognized associated with the operating lease components, and additional ROU assets and corresponding lease liabilities of $44.8 million were recognized associated with the finance lease components. As a result of the annual escalator, effective as of November 1, 2021 for the lease year ended October 31, 2021, the fixed component of rent increased by $5.6 million, additional ROU assets and corresponding lease liabilities of $34.2 million were recognized associated with the operating lease components, and additional ROU assets and corresponding lease liabilities of $3.1 million were recognized associated with the finance lease components. We did not incur an annual escalator on November 1, 2020 for the lease year ended October 31,
2020. The next annual escalator test date isand the next PENN Percentage Rent reset test date are both scheduled to occur effective November 1, 2021. As a result of the annual escalator, effective as of November 1, 2019 and 2018, the fixed component of rent increased by $5.5 million and $5.4 million, for each respective year. As a result of the annual escalator effective November 1, 2019, an additional ROU asset and corresponding lease liability of $34.4 million were recognized associated with operating lease components and an additional ROU asset and corresponding lease liability of $3.1 million were recognized associated with finance lease components. 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.
The acquisition of Greektown on May 23, 2019 activated a competition clause within the Penn Master Lease, which introduced a rent floor specific to Toledo. As a result, an additional ROU asset and corresponding lease liability of $151.2 million were recognized associated with operating lease components. Lease payments resulting from the rent floor associated with components determined to continue to be financing obligations are included in “Interest expense, net” within our Consolidated Statements of Operations and Comprehensive Income (Loss).
Monthly rent associated with Columbus and monthly rent in excess of the Toledo rent floor are variable and considered contingent rent. Expense related to operating lease components associated with Columbus and Toledo are included in “General and administrative” within our Consolidated Statements of Operations and Comprehensive Income (Loss) and the variable expense related to the financing obligation component isobligations and finance lease components are included in “Interest expense, net” within our Consolidated Statements of Operations and Comprehensive Income (Loss). The entire variable expense related to the year ended December 31, 2018 was included in “Interest expense, net” pursuant to the failed sale-leaseback accounting treatment under ASC 840.Operations. Total monthly variable expenses were as follows:
| | | For the year ended December 31, | | For the year ended December 31, |
| (in millions) | (in millions) | 2020 | | 2019 | | 2018 | (in millions) | 2022 | | 2021 | | 2020 |
| Variable expenses included in “General and administrative” | Variable expenses included in “General and administrative” | $ | 12.9 | | | $ | 16.4 | | | $ | 0 | | Variable expenses included in “General and administrative” | $ | 1.2 | | | $ | 18.7 | | | $ | 12.9 | |
| Variable expenses included in “Interest expense, net” | Variable expenses included in “Interest expense, net” | 11.8 | | | 16.1 | | | 48.9 | | Variable expenses included in “Interest expense, net” | 36.4 | | | 17.1 | | | 11.8 | |
| Total variable expenses | Total variable expenses | $ | 24.7 | | | $ | 32.5 | | | $ | 48.9 | | Total variable expenses | $ | 37.6 | | | $ | 35.8 | | | $ | 24.7 | |
On January 14, 2022, the ninth amendment to the PENN Master Lease between the Company and GLPI became effective. The ninth amendment restates the definition of “Net Revenue” to clarify the inclusion of online-based revenues derived when a patron is physically present at a leased property, establishes a “floor” with respect to the PNRC Net Revenue amount used in the calculation of the annual rent escalator and PENN Percentage Rent, and modifies the rent calculations upon a lease termination event as defined in the amendment. The lease term and the four five-year optional renewal periods, which if exercised would extend the PENN Master Lease through October 31, 2048, were not modified in the ninth amendment.
We concluded the ninth amendment constituted a modification event under ASC 842, which required us to reassess the classifications of the lease components and remeasure the associated lease liabilities. As a result of our reassessment of the lease classifications, (i) the land components of substantially all of the PENN Master Lease properties, which were previously classified as operating leases, are now primarily classified as finance leases, and (ii) the land and building components associated with the operations of Dayton and Mahoning Valley, which were previously classified as finance leases, are now classified as operating leases. As a result of our measurement of the associated lease liabilities, we recognized additional ROU assets and corresponding lease liabilities of $455.4 million. The building components of substantially all of the PENN Master Lease properties continue to be classified as financing obligations.
On October 9, 2022, the Company entered into a binding term sheet (the “Term Sheet”) with GLPI. Pursuant to the Term Sheet, the Company and GLPI agreed to amend and restate the PENN Master Lease (the “Amended and Restated PENN Master Lease”) to (i) remove the land and buildings for Hollywood Casino Aurora (“Aurora”), Hollywood Casino Joliet (“Joliet”), Columbus, Toledo and the M Resort Spa Casino (“M Resort”); (ii) make associated adjustments to the rent after which the initial rent in the Amended and Restated PENN Master Lease will be $284.1 million, consisting of $208.2 million of Building Base Rent, $43.0 million of Land Base Rent and $32.9 million of Percentage Rent (as such terms are defined in the Amended and Restated PENN Master Lease); and (iii) terminate the existing leases associated with Hollywood Casino at The Meadows (“Meadows”) and Perryville. Subsequent to year end, the Amended and Restated PENN Master Lease was executed on February 21, 2023 with an effective date of January 1, 2023.
We concluded the Amended and Restated PENN Master Lease constitutes a modification event under ASC 842 and are currently reassessing, remeasuring, and quantifying the impact of the modification to the Consolidated Financial Statements, which may be material. The modification event is expected to result in (i) a non-cash debt extinguishment charge recorded to our Consolidated Statements of Operations and corresponding change in our financing obligations on our Consolidated Balance Sheets; and (ii) a revaluation of our ROU assets and corresponding lease liabilities on our Consolidated Balance Sheets.
2023 Master Lease
As part of the Term Sheet and concurrent with the execution of the Amended and Restated PENN Master Lease described above, the Company and GLPI agreed to enter into a new master lease (the “2023 Master Lease”), effective January 1, 2023, specific to the properties associated with Aurora, Joliet, Columbus, Toledo, M Resort, Meadows, and Perryville, and a master development agreement (the “Master Development Agreement”). The 2023 Master Lease has an initial term through October 31, 2033 with three subsequent five-year renewal periods on the same terms and conditions, exercisable at the Company’s option. The 2023 Master Lease will be cross-defaulted, cross-collateralized, and coterminous with the Amended and Restated PENN Master Lease, and subject to a parent guarantee. We are currently assessing, measuring, and quantifying the impact of the 2023 Master Lease to the Consolidated Financial Statements, which may be material.
The 2023 Master Lease includes a base rent (the “2023 Master Lease Base Rent”) equal to $232.2 million and the Master Development Agreement contains additional rent (together with the 2023 Master Lease Base Rent, the “2023 Master Lease Rent”) equal to (i) 7.75% of any project funding received by PENN from GLPI for an anticipated relocation of PENN’s riverboat casino and related developments with respect to Aurora (the “Aurora Project”) and (ii) a percentage based on the then-current GLPI stock price, of any project funding received by PENN from GLPI for certain anticipated development projects with respect to Joliet, Columbus and M Resort (the “Other Development Projects”). The Master Development Agreement provides that GLPI will fund, upon PENN’s request, up to $225 million for the Aurora Project and up to $350 million in the aggregate for the Other Development Projects, in accordance with certain terms and conditions set forth in the Master Development Agreement. These funding obligations of GLPI expire on January 1, 2026. The 2023 Master Lease Rent will be subject to a one-time increase of $1.4 million, effective the fifth anniversary of the effective date. The 2023 Master Lease Rent will be further subject to a fixed escalator of 1.5% on November 1, 2023 and annually thereafter. The Master Development Agreement provides that PENN may elect not to proceed with a development project prior to GLPI’s commencement of any equity or debt offering or credit facility draw intended to fund such project or after such time in certain instances, provided that GLPI will be reimbursed for all costs and expenses incurred in connection with such discontinued project. The Aurora Project and the Other Development Projects are all subject to necessary regulatory and other government approvals.
Pinnacle Master Lease
In connection with the acquisition of Pinnacle Acquisition,on October 15, 2018, we assumed a triple net master lease with GLPI (the “Pinnacle Master Lease”), originally effective April 28, 2016, pursuant to which the Company leases real estate assets associated with 12 of the gaming facilities used in its operations. Upon assumption of the Pinnacle Master Lease, as amended, there were 7.5 years remaining of the initial ten-year term, with 5five subsequent, five-year renewal periods, on the same terms and conditions, exercisable at the Company’s option. The Company has determined that the lease term is 32.5 years.
The payment structure under the Pinnacle Master Lease includes a fixed component, a portion of 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 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, 2022, for the lease year ended April 30, 2022, the fixed component of rent increased by $4.6 million, and additional ROU assets and corresponding lease liabilities of $33.2 million were recognized associated with the finance lease components. As a result of the annual escalator, effective as of May 1, 2021, for the lease year ended April 30, 2021, the fixed component of rent increased by $4.5 million, and additional ROU assets and corresponding lease liabilities of $17.2 million were recognized associated with the operating lease components. We did not incur an annual escalator on May 1, 2020 for the lease year ended April 30, 2020. As a result of the annual escalator, effective as of May 1, 2019 for the lease year ended April 30, 2019, the fixed component of rent increased by $1.0 million and an additional ROU asset and corresponding lease liability of $3.8 million were recognized associated with operating lease components of the Pinnacle Master Lease. The next annual escalator test date is scheduled to occur on May 1, 2021.2023.
EffectiveThe May 1, 2020, the2022 Pinnacle Percentage Rent reset resulted in an annual rent reductionincrease of $5.0$1.9 million, which will be in effect until the next Pinnacle Percentage Rent reset, scheduled to occur on May 1, 2022.2024. Upon reset of the Pinnacle Percentage Rent, effective May 1, 2020,2022, we recognized additional finance lease ROU assets and corresponding lease liabilities of $26.1 million. Effective May 1, 2020, the Pinnacle Percentage Rent resulted in an annual rent reduction of $5.0 million, and we recognized additional operating lease ROU assetassets and corresponding lease liabilityliabilities of $14.9 million.
On January 14, 2022, the fifth amendment to the Pinnacle Master Lease between the Company and GLPI became effective. The fifth amendment restates the definition of “Net Revenue” to clarify the inclusion of online-based revenues derived when a patron is physically present at a leased property and modifies the rent calculations upon a lease termination event as defined in the amendment. The lease term and the five five-year optional renewal periods, which if exercised would extend the Pinnacle Master Lease through April 30, 2051, were not modified in the fifth amendment.
We concluded the fifth amendment to the Pinnacle Master Lease constituted a modification event under ASC 842 (collectively with the ninth amendment to the PENN Master Lease, the “Lease Modification”). As a result of the modification, the land components of substantially all of the Pinnacle Master Lease properties, which were previously classified as operating leases, are now primarily classified as finance leases. As a result of our measurement of the associated lease liabilities, we recognized additional ROU assets and corresponding lease liabilities of $937.6 million. The building components of substantially all of the Pinnacle Master Lease properties continue to be classified as financing obligations.
Morgantown Lease
On October 1, 2020, the Company entered into a triple net lease with a subsidiary of GLPI for the land underlying our development projectproperty in Morgantown, Pennsylvania (“Morgantown Lease”) in exchange for $30.0 million in rent credits to be utilized to pay rent under the Master Leases, Meadows Lease, and the Morgantown Lease, as discussed in Note 6, “Acquisitions and Dispositions.”
The initial term of the Morgantown Lease is twenty20 years with 6six subsequent, five-year renewal periods, exercisable at the Company’s option.Annual Initial annual rent under the Morgantown Lease will beis $3.0 million, and is subject to a 1.50% fixed annual escalation in each of the first three years subsequent to the facility opening, and thereafterwhich occurred on December 22, 2021. Thereafter, the lease will be subject to an annual escalator consisting of either (i) 1.25% or (ii) zero depending upon, if the consumer price index beingincrease is greater than 0.50%, or (ii) zero, if the consumer price index increase is less than 0.50%.All improvements made on the land, including the constructed building, currently being constructed, will be owned by the Company while the lease is in effect, however, on the expiration or termination of the Morgantown Lease, ownership of all tenant improvements on the land will transfer to GLPI. We determined the transaction to be a financing arrangement and upon execution of the Morgantown Lease, recorded a $30.0 million financing obligation which is included in “Long-term portion of financing obligations” within our Consolidated Balance Sheets. Lease payments are included in “Interest expense, net” within our Consolidated Statements of OperationsOperations.
Perryville Lease
In conjunction with the acquisition of the operations of Perryville on July 1, 2021, the Company entered into a triple net lease with GLPI for the real estate assets associated with the property (“Perryville Lease”) for initial annual rent of $7.8 million per year subject to escalation, as discussed in Note 6, “Acquisitions and Comprehensive Income (Loss).Dispositions.”
In conjunction with entering into the 2023 Master Lease as described above, the Perryville Lease was terminated effective January 1, 2023.
Operating Leases
In addition to the operating lease components contained within the Master Leases, (primary land), the Company’s operating leases consist mainly of (i) individual triple net leases with GLPI for the real estate assets used in the operations of Tropicana Las Vegas (the “Tropicana Lease”), which was terminated on September 26, 2022, and Meadows Racetrack and Casino (the “Meadows Lease”), (ii) individual triple net leases with VICI for the real estate assets used in the operations of Margaritaville Resort Casino (the “Margaritaville Lease”) and Hollywood Casino at Greektown (the “Greektown Lease” and collectively with the Master Leases operating lease components, (primarily the land), the Meadows Lease, the Margaritaville Lease and the Tropicana Lease, the “Triple Net Operating Leases”), (iii) ground and levee leases to landlords which were not assumed by our REIT Landlords and remain an obligation of the Company, and (iv) building and equipment not subject to the Master Leases. Certain of our lease agreements include rental payments based on a percentage of sales over specified contractual amounts, rental payments adjusted periodically for inflation, and rental payments based on usage. The Company’s leases include options to extend the lease terms. The Company’s operating lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Tropicana Lease
On April 16, 2020, we entered intoPrior to the closing of the sale of PENN’s outstanding equity interest in Tropicana Lease with a subsidiary of GLPI foron September 26, 2022, the Company leased the real estate assets used in the operations of Tropicana for nominal cash rent and will continue to operaterent. The term of the Tropicana Lease was for two years (subject to 3 one-
yearthree one-year extensions at GLPI’s option) or until the real estate assets and the operations of the Tropicana are earlier sold, as discussed in Note 6, “Acquisitions and Dispositions.” In the event that GLPI sells the real estate assets used in the operations of Tropicana, the Tropicana Lease will automatically terminate.were sold. Upon execution of the Tropicana Lease, we recorded an operating lease ROU asset of $61.6 million, which iswas included in “Lease right-of-use assets” within the Consolidated Balance Sheets. See Note 6, “Acquisitions and Dispositions” for further details on the sale of PENN’s outstanding equity interest in Tropicana.
Meadows Lease
In connection with the acquisition of Pinnacle, Acquisition, we assumed the Meadows Lease, originally effective September 9, 2016. Upon assumption of the Meadows Lease, there were eight years remaining of the initial ten-year term, with 3three subsequent, five-year renewal options followed by 1one 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 4.0% of the average annual net revenues of the property during the trailing two-year period.
We did not incur an annual escalator on October 1, 2022, 2021 or 2020, for the lease yearyears ended September 30, 2020. Effective October 1, 2019, as a result of the annual escalator for the lease year ended September 30, 2019, which was determined to be $0.8 million, an additional operating ROU asset2022, 2021 and corresponding operating lease liability of $4.3 million were recognized.2020, respectively.
Effective October 1, 2022 and 2020, the Meadows Percentage Rent resulted in an annual rent reduction of $0.9 million and $2.1 million, which will be in effect until the next Meadows Percentage Rent reset, scheduled to occur on October 1, 2022.respectively. Upon reset of the Meadows Percentage Rent, effective October 1, 2022 and 2020, we recognized an additional operating lease ROU asset and corresponding lease liability of $15.4 million and $17.1 million.million, respectively.
On January 14, 2022, the second amendment to the Meadows Lease between the Company and GLPI became effective.The second amendment restates the definition of “Net Revenue” to clarify the inclusion of online-based revenues derived when a patron is physically present at the facility. This amendment did not result in a modification event under ASC 842.
In conjunction with entering into the 2023 Master Lease as described above, the Meadows Lease was terminated effective January 1, 2023.
Margaritaville Lease
The Margaritaville Lease has an initial term of 15 years, with 4four 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, a portion which was originallythat is subject to an annual escalator of up to 2% depending on an Adjusteda minimum coverage floor ratio of Net Revenue to Rent Ratio (as defined in the Margaritaville Lease) of 1.9:6.1:1, 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 property compared to a contractual baseline during the preceding two years (“Margaritaville Percentage Rent”). On
Subsequent to year end, on February 1, 2020,2023, the Margaritaville Lease was amended to provide for a change in the measurement of the annual escalator fromtest resulted in an Adjusted Revenue to Rent Ratioannual rent increase of 1.9:1 to a minimum coverage floor ratio$0.4 million and the recognition of Net Revenue to Rent of 6.1:1.
As a result of the annual escalator, which was determined to be $0.3 million, effective February 1, 2020 for the lease year ended January 31, 2020, an additional operating lease ROU asset and corresponding lease liability of $2.8 million. On February 1, 2022, the Margaritaville Lease annual escalator test resulted in an annual rent increase of $0.4 million and the recognition of an additional operating lease ROU asset and corresponding lease liability of $2.9 million. We did not incur an annual escalator for the lease year ended January 31, 2021. On February 1, 2020, the annual escalator test resulted in an annual rent increase of $0.3 million and the recognition of an additional operating lease ROU asset and corresponding lease liability of $3.1 million.
Subsequent to year end, on February 1, 2023, the Margaritaville Percentage Rent reset resulted in an annual rent increase of $2.3 million were recognized. The first percentage rentwhich will be in effect until the next Margaritaville Percentage Rent reset, is scheduled to occur on February 1, 2021.2025. Upon reset of the Margaritaville Percentage Rent, effective February 1, 2023, we recognized an additional operating lease ROU asset and corresponding lease liability of $9.8 million. On February 1, 2021, the Margaritaville Percentage Rent reset resulted in an annual rent reduction of $0.1 million which was in effect until the February 1, 2023 Margaritaville Percentage Rent reset. Upon reset of the Margaritaville Percentage Rent, effective February 1, 2021, we recognized an additional operating lease ROU asset and corresponding lease liability of $5.5 million.
Greektown Lease
The Greektown Lease has an initial term of 15 years, with 4four 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, a portion subject to an annual escalator of up to 2% depending on 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 property compared to a contractual baseline during the preceding two years (“Greektown Percentage Rent”).
We did not incur an annual escalator on June 1, 2020 for the lease year ended May 31, 2020.
In May 2020, the lease was amended to remove the escalator for the lease years ending May 31, 20212022 and 20222021 and to provide for a Net Revenue to Rent coverage floor to be mutually agreed upon prior to the commencement of the fourth lease year (June 1, 2022). The firstIn April 2022, the lease was further amended to provide for a Net Revenue to Rent coverage floor to be mutually agreed upon prior to the commencement of the fifth lease year (June 1, 2023). We did not incur an annual escalator on June 1, 2020 for the lease year ended May 31, 2020.
On June 1, 2021, the Greektown Percentage Rent reset isresulted in an annual rent reduction of $4.2 million, which will be in effect until the next Greektown Percentage Rent reset, scheduled to occur on June 1, 2021.
the Greektown Percentage Rent, effective June 1, 2021, we recognized an additional operating lease ROU asset and corresponding lease liability of $4.1 million. Information related to lease term and discount rate was as follows:
| | | | | |
| December 31, 2020 |
Weighted-Average Remaining Lease Term | |
Operating leases | 26.7 years |
Finance leases | 27.8 years |
Financing obligations | 29.5 years |
| |
Weighted-Average Discount Rate | |
Operating leases | 6.7 | % |
Finance leases | 6.9 | % |
Financing obligations | 8.1 | % |
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| Weighted-Average Remaining Lease Term | | | |
| Operating leases | 19.1 years | | 25.7 years |
| Finance leases | 26.7 years | | 24.3 years |
| Financing obligations | 27.5 years | | 28.5 years |
| | | |
| Weighted-Average Discount Rate | | | |
| Operating leases | 5.8 | % | | 6.7 | % |
| Finance leases | 5.2 | % | | 6.4 | % |
| Financing obligations | 7.7 | % | | 8.1 | % |
The components of lease expense were as follows:
| | | | | | | | | | | | | | |
| Location on Consolidated Statements of Operations and Comprehensive Income (Loss) | For the year ended December 31, |
| (in millions) | 2020 | | 2019 |
| Operating Lease Costs | | | | |
Rent expense associated with triple net operating leases (1) | General and administrative | $ | 419.8 | | | $ | 366.4 | |
Operating lease cost (2) | Primarily General and administrative | 15.8 | | | 17.5 | |
| Short-term lease cost | Primarily Gaming expense | 37.7 | | | 56.6 | |
Variable lease cost (2) | Primarily Gaming expense | 2.5 | | | 3.9 | |
| Total | | $ | 475.8 | | | $ | 444.4 | |
| | | | |
| Finance Lease Costs | | | | |
Interest on lease liabilities (3) | Interest expense, net | $ | 15.2 | | | $ | 15.4 | |
Amortization of ROU assets (3) | Depreciation and amortization | 8.0 | | | 7.9 | |
| Total | | $ | 23.2 | | | $ | 23.3 | |
| | | | |
| Financing Obligation Costs | | | | |
Interest expense (4) | Interest expense, net | $ | 403.1 | | | $ | 394.1 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Location on
Consolidated Statements of Operations | | For the year ended December 31, |
| (in millions) | | 2022 | | 2021 | | 2020 |
| Operating Lease Costs | | | | | | | |
Rent expense associated with triple net operating leases (1) | General and administrative | | $ | 149.6 | | | $ | 454.4 | | | $ | 419.8 | |
Operating lease cost (2) | Primarily General and administrative | | 19.7 | | | 16.6 | | | 15.8 | |
| Short-term lease cost | Primarily Gaming expense | | 74.6 | | | 64.9 | | | 37.7 | |
Variable lease cost (2) | Primarily Gaming expense | | 4.3 | | | 4.3 | | | 2.5 | |
| Total | | | $ | 248.2 | | | $ | 540.2 | | | $ | 475.8 | |
| | | | | | | |
| Finance Lease Costs | | | | | | | |
Interest on lease liabilities (3) | Interest expense, net | | $ | 258.4 | | | $ | 17.2 | | | $ | 15.2 | |
Amortization of ROU assets (3) | Depreciation and amortization | | 181.6 | | | 10.6 | | | 8.0 | |
| Total | | | $ | 440.0 | | | $ | 27.8 | | | $ | 23.2 | |
| | | | | | | |
| Financing Obligation Costs | | | | | | | |
Interest expense (4) | Interest expense, net | | $ | 347.0 | | | $ | 416.9 | | | $ | 403.1 | |
(1)Pertains to the operating lease components contained within the Master Leases, (primarily land), the Meadows Lease, the Margaritaville Lease, the Greektown Lease, and the Tropicana Lease, inclusive of the variable expense associated with Columbus and Toledo for the operating lease components, (the land).the Meadows Lease, the Margaritaville Lease, the Greektown Lease, and the Tropicana Lease. The Tropicana Lease was terminated on September 26, 2022.
Prior to the Lease Modification, the operating lease components contained within the Master Leases primarily consisted of the land, inclusive of the variable expense associated with Columbus and Toledo.
Subsequent to the Lease Modification, the operating lease components contained within the Master Leases consist of the land and building components associated with the operations of Dayton and Mahoning Valley.
(2)Excludes the operating lease costs and variable lease costs pertaining to our Triple Net Leases with our REIT landlords classified as operating leases, discussed in footnote (1) above.
(3)Primarily pertainsPertains to the finance lease components contained within the Master Leases, and the Perryville Lease (effective July 1, 2021) which results in interest expense and amortization expense (as opposed to rent expense).
Prior to the Lease Modification, the finance lease components contained within the Master Leases consisted of the land and building components associated with the operations of Dayton and Mahoning ValleyValley.
Subsequent to the Lease Modification, the finance leases.lease components contained within the Master Leases primarily consist of the land, inclusive of the variable expense associated with Columbus and Toledo.
(4)Pertains to the components contained within the Master Leases (primarily buildings) and the Morgantown Lease determined to be a financing obligations,obligation, inclusive of the variable expense associated with Columbus and Toledo for the finance lease components (the buildings).
Total rent expense under all operating lease agreements pursuant to the accounting treatment under ASC 840 was $58.1 million for the year ended December 31, 2018.
Supplemental cash flow information related to leases was as follows:
| | | | | | | | | | | |
| For the year ended December 31, |
| (in millions) | 2020 | | 2019 |
Cash paid for amounts included in the measurement of lease liabilities(1) | | | |
| Operating cash flows from finance leases | $ | 15.2 | | | $ | 15.4 | |
| Operating cash flows from operating leases | $ | 426.7 | | | $ | 403.6 | |
| Financing cash flows from finance leases | $ | 6.3 | | | $ | 6.2 | |
(1)Amounts related to the year ended December 31, 2020 are inclusive of utilized rent credits. | | | | | | | | | | | | | | | | | |
| For the year ended December 31, |
| (in millions) | 2022 | | 2021 | | 2020 |
| Cash paid for amounts included in the measurement of lease liabilities | | | | | |
| Operating cash flows from finance leases | $ | 258.4 | | | $ | 17.2 | | | $ | 15.2 | |
| Operating cash flows from operating leases | $ | 163.2 | | | $ | 428.3 | | | $ | 426.7 | |
| Financing cash flows from finance leases | $ | 110.5 | | | $ | 8.5 | | | $ | 6.3 | |
Total payments made under the Triple Net Leases inclusive of rent credits utilized, were as follows:
| | | For the year ended December 31, | | For the year ended December 31, |
| (in millions) | (in millions) | 2020 | | 2019 | (in millions) | 2022 | | 2021 | | 2020 |
Penn Master Lease (1) | $ | 457.9 | | | $ | 457.9 | | |
PENN Master Lease (1) | | PENN Master Lease (1) | $ | 480.3 | | | $ | 475.7 | | | $ | 457.9 | |
Pinnacle Master Lease (1) | Pinnacle Master Lease (1) | 326.9 | | | 328.6 | | Pinnacle Master Lease (1) | 334.1 | | | 328.3 | | | 326.9 | |
| Perryville Lease | | Perryville Lease | 7.8 | | | 3.9 | | | — | |
Meadows Lease (1) | Meadows Lease (1) | 26.4 | | | 26.4 | | Meadows Lease (1) | 24.6 | | | 24.9 | | | 26.4 | |
| Margaritaville Lease | Margaritaville Lease | 23.5 | | | 23.1 | | Margaritaville Lease | 23.8 | | | 23.5 | | | 23.5 | |
| Greektown Lease | Greektown Lease | 55.6 | | | 33.8 | | Greektown Lease | 51.3 | | | 53.1 | | | 55.6 | |
Morgantown Lease (1) | Morgantown Lease (1) | 0.8 | | | 0 | | Morgantown Lease (1) | 3.1 | | | 3.0 | | | 0.8 | |
Total (2) | Total (2) | $ | 891.1 | | | $ | 869.8 | | Total (2) | $ | 925.0 | | | $ | 912.4 | | | $ | 891.1 | |
(1)During the twelve months ended December 31, 2020, we utilized rent credits to pay $190.7 million, $135.5 million, $11.0 million, and $0.3 million of rent under the PennPENN Master Lease, Pinnacle Master Lease, Meadows Lease and Morgantown Lease, respectively.
(2)Cash rent payable under the Tropicana Lease is nominal.was nominal prior to the lease termination on September 26, 2022. Therefore, it has been excluded from the table above.
The following is a maturity analysis of our operating leases, finance leases, and financing obligations as of December 31, 2020:2022:
| | (in millions) | (in millions) | Operating Leases | | Finance Leases | | Financing Obligations | (in millions) | Operating Leases | | Finance Leases | | Financing Obligations |
| Years ending December 31: | Years ending December 31: | | | | | | Years ending December 31: | | | | | |
| 2021 | $ | 422.6 | | | $ | 21.7 | | | $ | 370.3 | | |
| 2022 | 412.4 | | | 21.6 | | | 370.3 | | |
| 2023 | 2023 | 399.9 | | | 20.8 | | | 370.4 | | 2023 | $ | 133.7 | | | $ | 378.5 | | | $ | 369.8 | |
| 2024 | 2024 | 383.7 | | | 16.7 | | | 370.4 | | 2024 | 126.2 | | | 354.7 | | | 355.3 | |
| 2025 | 2025 | 380.7 | | | 16.7 | | | 370.5 | | 2025 | 116.9 | | | 350.2 | | | 355.4 | |
| 2026 | | 2026 | 112.5 | | | 350.2 | | | 355.4 | |
| 2027 | | 2027 | 99.5 | | | 350.2 | | | 355.4 | |
| Thereafter | Thereafter | 7,779.9 | | | 376.7 | | | 9,095.3 | | Thereafter | 1,245.6 | | | 7,592.7 | | | 7,930.3 | |
| Total lease payments | Total lease payments | 9,779.2 | | | 474.2 | | | 10,947.2 | | Total lease payments | 1,834.4 | | | 9,376.5 | | | 9,721.6 | |
| Less: Imputed interest | Less: Imputed interest | (5,286.1) | | | (254.8) | | | (6,814.8) | | Less: Imputed interest | (787.3) | | | (4,326.3) | | | (5,687.5) | |
| Present value of future lease payments | Present value of future lease payments | 4,493.1 | | | 219.4 | | | 4,132.4 | | Present value of future lease payments | 1,047.1 | | | 5,050.2 | | | 4,034.1 | |
| Less: Current portion of lease obligations | Less: Current portion of lease obligations | (127.4) | | | (6.9) | | | (36.0) | | Less: Current portion of lease obligations | (77.8) | | | (116.5) | | | (63.4) | |
| Long-term portion of lease obligations | Long-term portion of lease obligations | $ | 4,365.7 | | | $ | 212.5 | | | $ | 4,096.4 | | Long-term portion of lease obligations | $ | 969.3 | | | $ | 4,933.7 | | | $ | 3,970.7 | |
Lessor
The Company leases its hotel rooms to patrons and records the corresponding lessor revenue in “Food, beverage, hotel and other revenues” within our Consolidated Statements of Operations and Comprehensive Income (Loss).Operations. For the years ended
December 31, 2020, 2019,2022, 2021, and 2018,2020, the Company recognized $146.8$262.0 million, $311.0$231.1 million, and $163.6$146.8 million of lessor revenues related to the rental of hotel
rooms, respectively. Hotel leasing arrangements vary in duration, but are short-term in nature. The cost and accumulated depreciation of property and equipment associated with hotel rooms is included in “Property and equipment, net” within our Consolidated Balance Sheets.
Note 13—Commitments and Contingencies
Litigation
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 isto 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 believes that it has meritorious defenses, claims and/or counter-claims with respect to these proceedings, and intends to vigorously defend itself or pursue its claims.
Although no assurance can be given, the Company does not believe that the final outcome of these matters including costs to defend itself in such matters, will have a material adverse effect on the Company’s Consolidated Financial Statements. Further, no assurance can be given that the amountits financial position, results of operations, or scope of existing insurance coverage will be sufficient to cover losses arising from such matters.cash flows.
Location Share Agreements
Prairie State Gaming (“PSG”) enters into location share agreements with bar and retail establishments in Illinois. These agreements are contracts which allow PSG to place VGTs in the bar or retail establishment in exchange for a percentage of the variable revenue generated by the VGTs. PSG holds the gaming license with the state of Illinois and the location share percentage is determined by the state of Illinois. For the years ended December 31, 2020, 20192022, 2021, and 2018,2020, the total location share payments made by PSG, which are recorded within our Consolidated Statements of Operations and Comprehensive Income (Loss) as gaming expenses, were $20.2$43.6 million, $33.1$43.3 million, and $34.7$20.2 million, respectively.
Purchase Obligations
The Company has obligations to purchase various goods and services totaling $149.1$405.6 million as of December 31, 2020,2022, of which $59.7$126.2 million will be incurred in 2023. Purchase obligations totaled $255.2 million as of December 31, 2021. The increase over the prior year is primarily due to additional contractual obligations related to theScore.
Capital Expenditure Commitments
Pursuant to each of our Triple Net Leases, with the exception of our Morgantown Lease (which is a land lease we entered into on October 1, 2020 with GLPI as discussed in Note 12, "Leases"“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. Employee Benefit Plans
The Company maintains a qualified retirement plan under the provisions of Section 401(k) of the Internal Revenue Code of 1986, as amended, which covers all eligible employees (the “Penn“PENN 401(k) Plan”). The PennPENN 401(k) Plan enables participating employees to defer a portion of their salary in a retirement fund to be administered by the Company. The Company makes a discretionary match contribution, where applicable, of 50% of employees’ elective salary deferrals, up to a maximum of 6% of eligible employee compensation. The matching contributions to the PennPENN 401(k) Plan for the years ended December 31, 2022, 2021 and 2020 2019 and 2018 were $6.0$12.1 million, $11.7$10.2 million, and $6.5$6.0 million, respectively.
We maintain a non-qualified deferred compensation plan (the “EDC Plan”) that covers most management and other highly-compensated employees. The EDC Plan was effective beginning March 1, 2001. The EDC Plan allows the participants to defer, on a pre-tax basis, a portion of their base annual salary and/or their annual bonus and earn tax-deferred earnings on these deferrals. The EDC Plan also provides for matching Company contributions that vest over a five-year period. The Company has established a trust, and transfers to the trust, on a periodic basis, an amount necessary to provide for its respective future liabilities with respect to participant deferral and Company contribution amounts. The Company’s matching contributions for the EDC Plan for the years ended December 31, 2022, 2021 and 2020 2019 and 2018 were $2.6$4.6 million, $2.3$3.3 million, and $2.3$2.6 million, respectively. Our deferred compensation liability, which is included in “Accrued expenses and other current liabilities” within the Consolidated Balance Sheets, was $86.3$70.8 million and $80.1$82.1 million as of December 31, 20202022 and 2019,2021, respectively.
As part of our initiative to reduce our cost structure while our properties were temporarily closed due to the COVID-19 pandemic, we suspended our matching contributions to the PennPENN 401(k) Plan and the EDC Plan from April 1, 2020 to September 30, 2020.
Labor Agreements
We are required to have agreements with the horsemen at the majority of our racetracks to conduct our live racing and/or simulcasting activities. In addition, in order to operate gaming machines and table games in West Virginia, the Company must maintain agreements with each of the Charles Town horsemen, pari-mutuel clerks and breeders. As of December 31, 2020,2022, we had 3835 collective bargaining agreements covering approximately 2,7793,873 active employees. NaNEight collective bargaining agreements are scheduled to expire in 2021, and we are currently renegotiating 3 collective bargaining agreements that expired in 2020.2023.
Note 14—Income Taxes
The following table summarizes the tax effects of temporary differences between the Consolidated Financial Statements carrying amount of assets and liabilities and their respective tax basis, which are recorded at the prevailing enacted tax rate that will be in effect when these differences are settled or realized. These temporary differences result in taxable or deductible amounts in future years. The Company assessed all available positive and negative evidence to estimate whether sufficient future taxable income will be generated to realize our existing net deferred tax assets. For the year ended December 31, 2020, the Company made a reclassification within the below table to separate the right of use asset from the financing and operating lease obligations. This reclassification change was also made to 2019 for transparency, which has no impact to the net deferred tax amount.
The components of the Company’s deferred tax assets and liabilities were as follows:
| | | December 31, | | December 31, |
| (in millions) | (in millions) | 2020 | | 2019 | (in millions) | 2022 | | 2021 |
| Deferred tax assets: | Deferred tax assets: | | | | Deferred tax assets: | | | |
| Stock-based compensation expense | Stock-based compensation expense | $ | 18.2 | | | $ | 11.7 | | Stock-based compensation expense | $ | 8.1 | | | $ | 10.6 | |
| Accrued expenses | Accrued expenses | 43.3 | | | 37.6 | | Accrued expenses | 86.1 | | | 86.2 | |
| Financing and operating leasing obligations | Financing and operating leasing obligations | 2,336.9 | | | 2,178.0 | | Financing and operating leasing obligations | 2,619.3 | | | 2,351.3 | |
| Unrecognized tax benefits | Unrecognized tax benefits | 7.9 | | | 7.7 | | Unrecognized tax benefits | 9.8 | | | 8.9 | |
| | Investments in and advances to unconsolidated affiliates | | Investments in and advances to unconsolidated affiliates | 13.0 | | | — | |
| Discount on convertible notes | | Discount on convertible notes | 0.4 | | | — | |
| Net operating losses, interest limitation and tax credit carryforwards | Net operating losses, interest limitation and tax credit carryforwards | 153.9 | | | 87.6 | | Net operating losses, interest limitation and tax credit carryforwards | 112.7 | | | 115.7 | |
| Gross deferred tax assets | Gross deferred tax assets | 2,560.2 | | | 2,322.6 | | Gross deferred tax assets | 2,849.4 | | | 2,572.7 | |
| Less: Valuation allowance | Less: Valuation allowance | (101.0) | | | (54.2) | | Less: Valuation allowance | (31.2) | | | (124.3) | |
| Net deferred tax assets | Net deferred tax assets | 2,459.2 | | | 2,268.4 | | Net deferred tax assets | 2,818.2 | | | 2,448.4 | |
| Deferred tax liabilities: | Deferred tax liabilities: | | | | Deferred tax liabilities: | | | |
| Property and equipment, not subject to the Master Leases | Property and equipment, not subject to the Master Leases | (51.1) | | | (53.1) | | Property and equipment, not subject to the Master Leases | (99.1) | | | (65.6) | |
| Property and equipment, subject to the Master Leases | Property and equipment, subject to the Master Leases | (1,051.2) | | | (1,088.9) | | Property and equipment, subject to the Master Leases | (925.0) | | | (992.9) | |
| Investments in and advances to unconsolidated affiliates | Investments in and advances to unconsolidated affiliates | (27.9) | | | (2.9) | | Investments in and advances to unconsolidated affiliates | — | | | (6.8) | |
| Discount on convertible notes | Discount on convertible notes | (20.9) | | | 0 | | Discount on convertible notes | — | | | (18.1) | |
| Undistributed foreign earnings | (0.4) | | | (0.4) | | |
| | Intangible assets | Intangible assets | (183.4) | | | (287.3) | | Intangible assets | (263.7) | | | (284.8) | |
| Lease right of use assets | Lease right of use assets | (1,250.6) | | | (1,080.4) | | Lease right of use assets | (1,564.3) | | | (1,269.3) | |
| Net deferred tax liabilities | Net deferred tax liabilities | (2,585.5) | | | (2,513.0) | | Net deferred tax liabilities | (2,852.1) | | | (2,637.5) | |
| Long-term deferred tax assets (liabilities), net | $ | (126.3) | | | $ | (244.6) | | |
| Long-term deferred tax liabilities, net | | Long-term deferred tax liabilities, net | $ | (33.9) | | | $ | (189.1) | |
The realizability of the net deferred tax assets is evaluated quarterly by assessing the need for a valuation allowance and by adjusting the amount of the allowance, if necessary. The Company gives appropriate consideration to all available positive and negative evidence including statutory carryback periods, projected future taxable income, and available tax planning strategies that could be implemented to realize the net deferred tax assets. The evaluation of both positive and negative evidence is a requirement pursuant to ASC 740 in determining if the net deferred tax assets will be realized. ASC 740 suggests that additional scrutiny should be given to deferred taxes of an entity with cumulative pre‑taxpre-tax book losses during the three most recent years
and is widely considered significant negative evidence that is objective and verifiable and therefore, difficultan entity would need sufficient quality and quantity to support a conclusion to overcome. Due
The Company determined that a valuation allowance was no longer required against its federal, foreign and state deferred tax assets for the portion that is more-likely-than-not to be realized. The most significant evidence that led to the financial resultsreversal of the valuation allowance during the third quarter of 2022, included (i) achievement and sustained growth in our three-year cumulative pre-tax earnings, (ii) substantial total revenue and earnings growth for the retail operating segment over the last
seven quarters and (iii) lack of significant asset impairment charges expected to be indicative of the Company’s retail business operations.
For the three months ended December 31, 2022, there were no material changes to our core business operations that altered our prior interim conclusion to release the valuation allowance against the federal, foreign and state net deferred tax assets for the portion that is more-likely-than-not to be realized. The Company generated three-year cumulative pre-tax income of $67.3 million at December 31, 2022 despite the $118.2 million impairment charges recorded during the year ended December 31, 2020,2022. As such, the Company has a cumulative pre‑tax book lossreleased $113.4 million of $658.2 million, which is significantits total valuation allowance for the year ended December 31, 2022, due to the positive evidence outweighing the negative evidence usedthereby allowing the Company to achieve the “more-likely-than-not” realization standard. This reversal is included in “Income tax benefit (expense)” in our assessment.
Additionally, the Company expects to remain in a three year cumulative loss position in the near future. As a resultConsolidated Statements of these facts, theOperations. The Company has recordedalso maintained a valuation allowance of $31.2 million against its net deferred tax assets primarily related to foreign and state net operating loss carryforwards, excluding net operating losses ("NOLs"(“NOLs”) that can be realized based on statutory carryback periods and the reversal of net deferred taxes related to indefinite‑lived intangibles. The Company intends to continue to maintain a valuation allowance on its net deferred tax assets until there is sufficient objectively verifiable positive evidence to support the realization of all or some portion of these deferred tax assets. In the event the Company determines that the deferred income tax assets would be realized in the future in excess ofmore than their net recorded amount, an adjustment to the valuation allowance would be recorded, which would reduce the provision for income taxes.
During the year endedAs of December 31, 2020,2022, we had federal NOL carryforwards from prior acquisitions of $96.6 million, and various state NOL carryforwards, the majority of which will expire in periods through 2035. Following theScore acquisition, the Company increasedhas the following NOL carryforwards, (i) indefinite gross U.S. federal NOL of $17.9 million, (ii) foreign NOL of $102.1 million that will expire through 2042 and (iii) state NOLs of $24 million that will expire through 2042. The tax benefit associated with these acquired NOLs is $3.8 million, $26.8 million, and $0.2 million respectively, against which a valuation allowance by $46.8was recorded of $0.2 million primarily related tofor U.S. federal and state NOL carryforwards, which substantially increased in the current year as a result of the global pandemic.
Following the ownership changes of the Tropicana, the Company has $120.3 million of total gross federal NOL carryforwardsNOLs that will expire on various dates through 2035.not be recognized. All acquired tax attributes are subject to limitations under the Internal Revenue Code and underlying Treasury Regulations. During
In general, the year endedCompany has not recognized any U.S. tax expense on undistributed foreign earnings, as we intend to reinvest and expand into new markets outside the U.S. for the foreseeable future. If our intent changes or if these earnings are needed for our U.S. operations, we would be required to accrue and pay U.S. taxes on a portion or all these undistributed earnings. It is not practicable to estimate the amount of deferred tax liability related to investments in these foreign subsidiaries. The undistributed foreign earnings were immaterial at December 31, 2020, the Company increased its federal NOL carryforward by $148.1 million due to the current year loss, which resulted in an indefinite federal NOL carryforward. The utilization of the indefinite federal NOL carryforward is limited to 80% of taxable income in any given year.2022.
For state income tax reporting, as of December 31, 2020,2022, the Company had gross state NOL carryforwards aggregating $1,332.0 million$1.2 billion available to reduce future state income taxes, primarily for the Commonwealth of Pennsylvania, and the States of Colorado, Illinois, Iowa, Louisiana, Maryland, Michigan, Missouri, New Mexico, and localities within Ohio localities.and Michigan. The tax benefit associated with these NOL carryforwards was $78.3$56.4 million. Due to statutorily limited NOL carryforwards and income and lossthe level of earnings projections in the applicablerespective jurisdictions, a valuation allowance of $9.0 million has been recorded to reflect the NOLs which are not presently expected to be realized in the amount of $60.2 million.recorded. If not used, the majority of the carryforwards will expire at various dates from December 31, 20212022 through December 31, 2040.2041 with the remaining being carried forward indefinitely.
The domestic and foreign components of income (loss) before income taxes for the years ended December 31, 2020, 20192022, 2021, and 20182020 were as follows:
| | | For the year ended December 31, | | For the year ended December 31, |
| (in millions) | (in millions) | 2020 | | 2019 | | 2018 | (in millions) | 2022 | | 2021 | | 2020 |
| Domestic | Domestic | $ | (834.0) | | | $ | 85.5 | | | $ | 89.6 | | Domestic | $ | 295.3 | | | $ | 606.0 | | | $ | (834.0) | |
| Foreign | Foreign | (0.2) | | | 0.6 | | | 0.3 | | Foreign | (120.0) | | | (66.9) | | | (0.2) | |
| Total | Total | $ | (834.2) | | | $ | 86.1 | | | $ | 89.9 | | Total | $ | 175.3 | | | $ | 539.1 | | | $ | (834.2) | |
The components of income tax benefit (expense) for the years ended December 31, 2020, 20192022, 2021, and 20182020 were as follows:
| | | For the year ended December 31, | | For the year ended December 31, |
| (in millions) | (in millions) | 2020 | | 2019 | | 2018 | (in millions) | 2022 | | 2021 | | 2020 |
| Current tax benefit (expense) | Current tax benefit (expense) | | | | | | Current tax benefit (expense) | | | | | |
| Federal | Federal | $ | 47.0 | | | $ | (12.5) | | | $ | (15.3) | | Federal | $ | (89.0) | | | $ | (100.0) | | | $ | 47.0 | |
| State | State | 0.2 | | | (9.2) | | | (6.4) | | State | (15.3) | | | (23.1) | | | 0.2 | |
| Foreign | Foreign | (0.4) | | | (0.2) | | | (1.4) | | Foreign | — | | | — | | | (0.4) | |
| Total current | Total current | 46.8 | | | (21.9) | | | (23.1) | | Total current | (104.3) | | | (123.1) | | | 46.8 | |
| Deferred tax benefit (expense) | Deferred tax benefit (expense) | | | | | | Deferred tax benefit (expense) | | | | | |
| Federal | Federal | 103.6 | | | (16.7) | | | 14.6 | | Federal | 33.7 | | | (11.9) | | | 103.6 | |
| State | State | 14.7 | | | (4.4) | | | 10.9 | | State | 78.5 | | | 13.3 | | | 14.7 | |
| Foreign | Foreign | 0 | | | 0 | | | 1.2 | | Foreign | 38.5 | | | 3.1 | | | — | |
| Total deferred | Total deferred | 118.3 | | | (21.1) | | | 26.7 | | Total deferred | 150.7 | | | 4.5 | | | 118.3 | |
| Total income tax benefit (expense) | Total income tax benefit (expense) | $ | 165.1 | | | $ | (43.0) | | | $ | 3.6 | | Total income tax benefit (expense) | $ | 46.4 | | | $ | (118.6) | | | $ | 165.1 | |
The following table reconciles the statutory federal income tax rate to the actual effective income tax rate, and related amounts of income tax benefit (expense), for the years ended December 31, 2020, 20192022, 2021, and 2018:2020:
| | | For the year ended December 31, | | For the year ended December 31, |
| | 2020 | | 2019 | | 2018 | | 2022 | | 2021 | | 2020 |
| (in millions, except tax rates) | (in millions, except tax rates) | Percent | | Amount | | Percent | | Amount | | Percent | | Amount | (in millions, except tax rates) | Amount | | Amount | | Amount |
| Percent and amount of pretax income | | | | | | | | | | | | |
| Amount of pre-tax income | | Amount of pre-tax income | | | | | |
| Federal statutory rate | Federal statutory rate | 21.0 | % | | $ | 175.2 | | | 21.0 | % | | $ | (18.1) | | | 21.0 | % | | $ | (18.9) | | Federal statutory rate | $ | (36.8) | | | $ | (113.2) | | | $ | 175.2 | |
| State and local income taxes, net of federal benefits | State and local income taxes, net of federal benefits | 1.4 | | | 12.1 | | | 9.9 | | | (8.5) | | | (6.2) | | | 5.6 | | State and local income taxes, net of federal benefits | (5.2) | | | (7.7) | | | 12.1 | |
| Tax law change | | Tax law change | (10.8) | | | — | | | — | |
| Nondeductible expenses | Nondeductible expenses | (0.3) | | | (2.6) | | | 4.0 | | | (3.5) | | | 6.9 | | | (6.2) | | Nondeductible expenses | (7.8) | | | (13.3) | | | (2.6) | |
| Goodwill impairment losses | Goodwill impairment losses | (2.3) | | | (19.0) | | | 14.4 | | | (12.4) | | | 0 | | | 0 | | Goodwill impairment losses | — | | | — | | | (19.0) | |
| Compensation | Compensation | 2.5 | | | 20.5 | | | 0.3 | | | (0.3) | | | (3.8) | | | 3.4 | | Compensation | (6.2) | | | 6.5 | | | 20.5 | |
| | Foreign | Foreign | 0 | | | (0.4) | | | 0.1 | | | (0.1) | | | (0.1) | | | 0.1 | | Foreign | 0.9 | | | 0.9 | | | (0.4) | |
| Federal valuation allowance | (3.9) | | | (32.7) | | | 0 | | | 0 | | | (20.3) | | | 18.3 | | |
| Valuation allowance | | Valuation allowance | 113.4 | | | (5.9) | | | (32.7) | |
| Tax credits | Tax credits | 1.2 | | | 10.0 | | | 0 | | | 0 | | | 0 | | | 0 | | Tax credits | 4.6 | | | 5.8 | | | 10.0 | |
| Equity investment write-off | | Equity investment write-off | — | | | 11.3 | | | — | |
| Other | Other | 0.2 | | | 2.0 | | | 0.2 | | | (0.1) | | | (1.5) | | | 1.3 | | Other | (5.7) | | | (3.0) | | | 2.0 | |
| Total effective tax rate and income tax benefit (expense) | 19.8 | % | | $ | 165.1 | | | 49.9 | % | | $ | (43.0) | | | (4.0) | % | | $ | 3.6 | | |
| Income tax benefit (expense) | | Income tax benefit (expense) | $ | 46.4 | | | $ | (118.6) | | | $ | 165.1 | |
| Effective Tax Rate | | Effective Tax Rate | (26.5) | % | | 22.0 | % | | 19.8 | % |
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
| | | | | |
| (in millions) | Unrecognized tax benefits |
Unrecognized tax benefits as of January 1, 20182020 | $ | 30.9 | |
Additions based on prior year positions | 0.8 | |
Decreases due to settlements and/or reduction in reserves | (2.0) | |
Unrecognized tax benefits as of December 31, 2018 | 29.7 | |
Additions based on prior year positions | 6.5 | |
Decreases due to settlements and/or reduction in reserves | (0.2) | |
Unrecognized tax benefits as of December 31, 2019 | 36.0 | |
| Additions based on prior year positions | 1.2 | |
| Decreases due to settlements and/or reduction in reserves | (0.9) | |
| Unrecognized tax benefits as of December 31, 2020 | 36.3 | |
| Additions based on prior year positions | 3.8 | |
| Decreases due to settlements and/or reduction in reserves | (0.1) | |
| Unrecognized tax benefits as of December 31, 2021 | 40.0 | |
| Additions based on prior year positions | 2.9 | |
| Decreases due to settlements and/or reduction in reserves | (0.2) | |
| Unrecognized tax benefits as of December 31, 2022 | $ | 36.342.7 | |
During the year ended December 31, 2020,2022, we did 0tnot record any new tax reserves, and accrued interest or penalties related to current year uncertain tax positions. Regarding prior year tax positions, we recorded $1.9$3.7 million of tax reserves and accrued
interest and reversed $1.0$0.2 million of previously recorded tax reserves and accrued interest for uncertain tax positions. As of December 31, 20202022 and 2019,2021, unrecognized tax benefits, inclusive of accruals for income tax related penalties and interest, of $38.2$46.0 million and $37.2$42.3 million, respectively, were included in “Other long-term liabilities” within the Company’s Consolidated Balance Sheets. Overall, the Company recorded a net tax expense of $0.9$3.3 million in connection with its uncertain tax positions for the year ended December 31, 2020.2022.
The liability for unrecognized tax benefits as of December 31, 20202022 and 20192021 included $30.2$36.3 million and $29.4$33.4 million, respectively, of tax positions that, if reversed, would affect the effective tax rate. During the years ended December 31, 2020, 20192022, 2021 and 2018,2020, we recognized $0.5$0.6 million, $0.1$0.7 million and $0.5 million, respectively, of interest and penalties, net of deferred taxes. In addition, due to settlements and/or reductions in previously recorded liabilities, the Company had reductions in previously accrued interest and penalties of $0.1 million, net of deferred taxes. The Company had 0no reductions in previously accrued interest and penalties for the yearyears ended December 31, 2019.2022 and 2021. We classify any income tax related penalties and interest accrued related to unrecognized tax benefits in “Income tax benefit (expense)” within the Consolidated Statements of Operations and Comprehensive Income (Loss).Operations.
The Company is currently in various stages of the examination process in connection with its open audits. Generally, it is difficult to determine when these examinations will be closed, but the Company reasonably expects that its ASC 740 liabilities will not significantly change over the next twelve months. As of December 31, 2020,2022, the Company has open tax years 20172019 through 20192021 that could be subject to examination for U.S. federal income taxes. In addition, we are subject to state and local income tax examinations for various tax years in the taxing jurisdictions in which we operate. Such audits could result in increased tax liabilities, interest and penalties. While the Company believes its tax positions are appropriate, we cannot assure the outcome will remain consistent with our expectation. The Company believes we have adequately reserved for potential audit exposures of uncertain tax positions. In the event the final outcome of these matters is different than the amounts recorded, such differences will impact our income tax provision in the period in which the determination is made. As of December 31, 20202022 and 2019,2021, prepaid income taxes of $52.7$15.2 million and $22.2$42.5 million, respectively, were included in “Prepaid expenses” within the Company’s Consolidated Balance Sheets.
Note 15—Stockholders’ Equity
Common Stock Offerings
The Pennsylvania House Bill 1342. On May 14, 2020,July 8, 2022, the Bill was signed into law that reduces the corporate income tax rate over the next nine years from the current rate of 9.99% to 4.99% by 2031. The Company completed a public offeringassessed the impact of 16,666,667 shares of Penn Common Stockthe law change and on May 19, 2020, the underwriters exercised their right to purchaserecorded an additional 2,500,000 sharesincome tax expense of Penn Common Stock, resulting$10.0 million in an aggregate public offeringits Consolidated Statements of 19,166,667 shares of Penn Common Stock. All ofOperations for the shares were issued at a public offering price of $18.00 per share, resulting in gross proceeds of $345.0 million, and net proceeds of $331.2 million after underwriter fees and discounts of $13.8 million.
On September 24, 2020, the Company 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 shares were 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.
Share Repurchase Program
In January 2019, the Company announced a share repurchase program pursuant to which the Board of Directors authorized the repurchase of up to $200.0 million of the Company’s common stock, which expired on December 31, 2020. During the yearperiod ended December 31, 2019,2022.
Inflation Reduction Act. On August 16, 2022, The Inflation Reduction Act of 2022 (“IRA”) was signed into law. The IRA contains several provisions including a 15% corporate alternative minimum tax (“CAMT”) for certain large corporations that have at least an average of $1.0 billion adjusted financial statement income over a three-year period effective for tax years beginning after December 31, 2022. A CAMT credit would also be allowed to offset regular federal tax in future years. The IRA also includes a 1% excise tax on corporate stock repurchases after January 1, 2023. Although 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. Allis assessing the impact of the repurchased shares were retired. There were no repurchaseslaw change and waiting on further guidance from the Department of Treasury, the Company’s common stock for the year ended December 31, 2020.
Note 15—Stockholders’ Equity
Common and Preferred Stock
On May 11, 2021, as part of the acquisition of Hitpoint, the Company issued 43,684 shares for a total of $3.5 million. On July 8, 2022, the Company issued 4,055 shares, in connection with the achievement of the first of three annual mutual goals established by the Company and Hitpoint for a total of $0.2 million.
On June 17, 2021, the Company filed its Second Amended and Restated Articles of Incorporation with the Department of State of the Commonwealth of Pennsylvania. These Articles of Incorporation, as amended and restated and approved by the Company’s shareholders at the 2021 Annual Meeting of Shareholders, increase the number of authorized shares of common stock from 200,000,000 to 400,000,000.
On August 1, 2021, as part of the acquisition of Sam Houston, the Company issued 198,103 shares for a total of $15.8 million.
On October 19, 2021, as part of the acquisition of theScore, the Company issued 12,319,340 shares of common stock and authorized and issued 697,539 Exchangeable Shares for approximately $1.0 billion, each with a par value of $0.01, as discussed in Note 6, “Acquisitions and Dispositions.” As of December 31, 2022 and 2021, there were 620,019 and 653,059 Exchangeable Shares outstanding, respectively. Subsequent to year end, on February 20,17, 2023, as part of the Barstool Acquisition as discussed in Note 7, “Investments in and Advances to Unconsolidated Affiliates,” the Company issued 2,442,809 shares of common stock to certain former stockholders of Barstool (the “Share Consideration”). The issuance of the Share Consideration was exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof, because such issuance did not involve a public offering. The Share Consideration is subject to transfer restrictions providing that the former Barstool stockholders (i) may not transfer any of their Share Consideration for one year following the closing of the Barstool Acquisition, (ii) may transfer up to one-third of their Share Consideration after the first anniversary of the closing of the Barstool Acquisition, and (iii) may transfer their remaining Share Consideration after the second anniversary of the closing of the Barstool Acquisition, in each case subject to compliance with applicable securities laws. ThereOn each of February 22, 2021 and August 23, 2021, the Company issued 43 shares of Series D Preferred Stock in conjunction with acquiring additional shares of Barstool common stock. On June 1, 2022, the Company issued 64,000 shares of common stock in conjunction with acquiring additional shares of Barstool common stock from certain individual stockholders affiliated with Barstool. The issuances were exempt from registration pursuant to Section 4(a)(2) of the Securities Act. The acquisition of the incremental Barstool common stock represents a partial settlement of the 1% purchase on a delayed basis as described in Note 7, “Investments in and Advances to Unconsolidated Affiliates.”On February 22, 2021 and August 23, 2021, 151 shares of Series D Preferred Stock and 43 shares of Series D Preferred Stock, respectively, were converted to common stock. As a result of the conversion, the Company issued 151,200 shares of common stock and 43,000 shares of common stock, respectively, each with a par value of $0.01. On February 23, 2022 and February 24, 2022, 43 shares of Series D Preferred Stock and 151 shares of Series D Preferred Stock, respectively, were converted to common stock. As a result of the conversion, the Company issued 43,000 shares of common stock and 151,200 shares of common stock, respectively, each with a par value of $0.01. The issuances were exempt from registration pursuant to Section 4(a)(2) of the Securities Act.
As of December 31, 2022 and 2021, there were 5,000 shares authorized of Series D Preferred Stock of which 581 shares and 883775 shares were outstanding, as of December 31, 2020.respectively.
The Company previously issued 2two series of preferred stock, Series B and Series C, each with a par value of $0.01 per share. As of both December 31, 20202022 and 2019,2021, there were 1,000,000 and 18,500 shares authorized of our Series B and Series C preferred stock, respectively. There were 0no shares outstanding of either Series B or Series C preferred stock as of both December 31, 20202022 and 2019.2021.
Share Repurchase Authorizations
On February 1, 2022, the Board of Directors of PENN authorized a $750 million share repurchase program, which expires on January 31, 2025 (the “February 2022 Authorization”).
On December 6, 2022, a second share repurchase program was authorized for an additional $750 million (the “December 2022 Authorization”). The December 2022 Authorization expires on December 31, 2025.
The Company plans to utilize the remaining capacity under the February 2022 Authorization prior to effecting any repurchases under the December 2022 Authorization. Repurchases by the Company will be subject to available liquidity, general market and economic conditions, alternate uses for the capital and other factors. Share repurchases may be made from time to time through a 10b5-1 trading plan, open market transactions, block trades or in private transactions in accordance with applicable securities laws and regulations and other legal requirements. There is no minimum number of shares that the Company is required to repurchase and the repurchase authorization may be suspended or discontinued at any time without prior notice.
During the year ended December 31, 2022, the Company repurchased 17,561,288 shares of its common stock in open market transactions for $601.1 million at an average price of $34.23 per share under the February 2022 Authorization. The cost of all repurchased shares is recorded as “Treasury stock” in the Consolidated Balance Sheets.
Subsequent to the year ended December 31, 2022, the Company repurchased 1,065,688 shares of its common stock at an average price of $31.41 per share for an aggregate amount of $33.5 million. As of February 23, 2023, the remaining availability under our February 2022 Authorization and our December 2022 Authorization was $115.8 million and $750 million, respectively.
Other
Note 16—Stock-Based Compensation
2022 Long Term Incentive Compensation Plan
On June 7, 2022, the Company’s shareholders, upon the recommendation of the Company’s Board of Directors, approved the Company’s 2022 Long Term Incentive Compensation Plan (the “2022 Plan”) to replace our 2018 Plan (as defined below). The 2022 Plan authorizes the Company to issue stock options (incentive and/or non-qualified), stock appreciation rights (“SARs”), restricted stock (shares and/or units), performance awards (shares and/or units), and cash awards to executive officers, non-employee directors, other employees, consultants, and advisors of the Company and its subsidiaries. Non-employee directors and consultants are eligible to receive all such awards, other than incentive stock options. Pursuant to the 2022 Plan, 6,870,000 shares of the Company’s common stock are reserved for issuance, plus any shares of common stock subject to outstanding awards under both the 2018 Plan and theScore Plan (as defined below) as of June 7, 2022 and outstanding awards that are forfeited or settled for cash under each of the prior plans. For purposes of determining the number of shares available for issuance under the 2022 Plan, stock options, restricted stock and all other equity settled awards count against the 6,870,000 limit as one share of common stock for each share granted. Any awards that are not settled in shares of common stock are not counted against the share limit. As of December 31, 2022, there are 6,345,906 shares available for future grants under the 2022 Plan.
2018 Long Term Incentive Compensation Plan
The Company’s 2018 Long Term Incentive Compensation Plan, as amended (the “2018 Plan”) permitsauthorized it to issue stock options (incentive and/or non-qualified), stock appreciation rights (“SARs”),SARs, restricted stock (shares and/or units), performance awards (“RSAs”)(shares and/or units), phantom stock units (“PSUs”) and other equity and cash awards to employees.employees and any consultant or advisor to the Company or subsidiary. Non-employee directors and the chairman emeritus arewere eligible to receive all such awards, other than incentive stock options. Pursuant to the 2018 Plan, 12,700,000 shares of the Company’s common stock arewere reserved for issuance. For purposes of determining the number of shares available for issuance under the 2018 Plan, stock options and SARs count(except cash-settled SARs) counted against the 12,700,000 limit as 1one share of common stock for each share granted and restricted stock or any other full value stock award countare counted as issuing 2.30 shares of common stock for each share granted. Any awards that arewere not settled in shares of common stock arewere not counted against the
share limit. As of December 31, 2020, there were 7,612,054 shares available for future grants underIn connection with the 2018 Plan.
2008 Long Term Incentive Compensation Plan
In November 2008, the Company’s shareholders approved the 2008 Long Term Incentive Compensation Plan (the “2008 Plan”), which permitted the Company to issue stock options (incentive and/or non-qualified), SARs, RSAs, PSUs and other equity and cash awards to employees. Non-employee directors were eligible to receive all such awards, other than incentive stock options. Upon approval of the 20182022 Plan, awards were no longer available to be granted under the 2008 Plan. However, the 20082018 Plan remains in place until all of the awards previously granted thereunder have been paid, forfeited or expired. However, the shares which remained available for issuance under the 2018 Plan are no longer available for issuance and all future equity awards will be granted pursuant to the 2022 Plan.
On April 12, 2021, the Board of Directors granted 600,000 restricted stock units and 300,000 restricted stock awards with market-based and service-based vesting conditions (collectively the “Stock Awards”), solely to the Company’s Chief Executive Officer and President pursuant to the 2018 Plan. The Stock Awards are classified as equity with separate tranches and requisite service periods identified for each separately achievable component. As of the grant date, the fair value of the Stock Awards was $48.7 million and was calculated using a Monte Carlo simulation. The fair value of the restricted stock awards was estimated at $19.4 million and segregated into 15 tranches with expense recognition periods ranging from 2.2 to 6.0 years. The fair value of the restricted stock units was estimated at $29.3 million and segregated into four tranches with expense recognition periods ranging from 6.7 to 8.7 years. We recognized $8.6 million and $6.3 million of stock compensation expense for the Stock Awards during the years ended December 31, 2022 and 2021, respectively.
Score Media And Gaming Inc. Second Amended And Restated Stock Option And Restricted Stock Unit Plan (“theScore Plan”)
In connection with the acquisition of theScore on October 19, 2021, the Company registered theScore Plan. theScore Plan authorized the Company to issue non-qualified stock options and restricted stock units to employees and service providers affiliated with theScore prior to the acquisition date. At the date of acquisition, the Company rolled over all outstanding, non-vested and unexercised stock options and non-vested restricted stock units equivalent to 853,904 shares of the Company. Each rollover option and restricted stock unit were subject to substantially the same terms and conditions applicable to the award immediately prior to the acquisition. In connection with the transaction, the vesting provisions of unvested options and restricted stock unit, awarded under the theScore Plan prior to August 4, 2021, were amended to provide for a new acceleration right for legacy theScore employees and service providers. The amendment provides that, if an involuntary termination without cause occurs at any time prior to April 19, 2023, unvested options and restricted stock units will automatically accelerate and become fully vested on the effective date of termination. In connection with the approval of the 2022 Plan, theScore Plan remains in place until all of the awards previously granted thereunder have been paid, forfeited or expired. However, the shares which remained available for future grants under theScore Plan are no longer available for issuance and all future equity awards will be pursuant to the 2022 Plan.
Stock-based Compensation Expense
Stock-based compensation expense which pertains principally to our stock options and RSAs,restricted stock, including restricted stock with performance conditions. The Company recognized $58.1 million, $35.1 million and $14.5 million stock-based compensation expense for the years ended December 31, 2022, 2021 and 2020, 2019 and 2018 totaled $14.5 million, $14.9 million and $12.0 million, respectively, andwhich is included within the Consolidated Statements of Operations and Comprehensive Income (Loss) under “General and administrative.”
Stock Options
Stock options that expire between February 21, 20219, 2023 and October 31, 20303, 2032 have been granted to officers, directors, employees, and predecessor employees to purchase common stock at prices ranging from $12.65$2.51 to $55.74$117.82 per share.share, including options rolled over from theScore Plan. All options were granted at the fair market value of the common stock on the grant date (as defined in the respective plan document) and have contractual lives ranging from four to ten years. The Company issues new authorized common shares to satisfy stock option exercises.
During the year ended December 31, 2022, the Company granted 398,945 stock options. The Company granted 587,399 stock options during the year ended December 31, 2021, of which 352,768 were rolled over under theScore Plan, and granted 652,733 stock options during the year ended December 31, 2020.
The following table contains information aboutpresents activity related to our stock options:options for the year ended December 31, 2022:
| | | | Number of Option
Shares | | Weighted-Average
Exercise Price | | Weighted-Average Remaining Contractual
Term
(in years) | | Aggregate
Intrinsic Value
(in millions) | | Number of Option
Shares | | Weighted-Average
Exercise Price | | Weighted-Average Remaining Contractual
Term
(in years) | | Aggregate
Intrinsic Value
(in millions) |
| Outstanding as of January 1, 2020 | 7,817,436 | | | $ | 16.30 | | | | | | |
| Outstanding as of January 1, 2022 | | Outstanding as of January 1, 2022 | 3,357,374 | | | $23.69 | | | | |
| Granted | Granted | 652,733 | | | $ | 26.79 | | | | | | Granted | 398,945 | | | $50.43 | | | | |
| Exercised | Exercised | (4,362,654) | | | $ | 14.37 | | | | | | Exercised | (440,170) | | | $15.64 | | | | |
| Forfeited | Forfeited | (508,326) | | | $ | 21.69 | | | | | | Forfeited | (45,386) | | | $34.09 | | | | |
| Outstanding as of December 31, 2020 | 3,599,189 | | | $ | 19.79 | | | 6.46 | | $ | 242.2 | | |
| Exercisable as of December 31, 2020 | 1,343,421 | | | $ | 16.71 | | | 3.94 | | $ | 94.6 | | |
| Outstanding as of December 31, 2022 | | Outstanding as of December 31, 2022 | 3,270,763 | | | $27.89 | | 6.2 | | $ | 26.6 | |
| Exercisable as of December 31, 2022 | | Exercisable as of December 31, 2022 | 1,971,559 | | | $21.37 | | 5.3 | | $ | 19.8 | |
The weighted-average grant-datefollowing table presents information related to the fair value and intrinsic value of our stock options granted duringfor the years ended December 31, 2020, 20192022, 2021 and 2018 were $8.62, $6.39 and $9.88, respectively. The aggregate intrinsic value of stock options exercised during2020:
| | | | | | | | | | | | | | | | | |
| For the year ended December 31, |
| (in millions) | 2022 | | 2021 | | 2020 |
Weighted-average grant-date fair value of options (1) | $30.09 | | $57.70 | | $8.62 |
| Aggregate intrinsic value of stock options exercised | 8.6 | | | 53.1 | | | 128.9 | |
| Fair value of stock options vested | 21.3 | | | 6.2 | | | 9.6 | |
(1)For the yearsyear ended December 31, 2020, 2019 and 2018 was $128.9 million, $2.0 million and $28.7 million, respectively. The total2021, the combined weighted-average grant-date fair valuevalues of stock options that vested during the years ended December 31, 2020, 2019 and 2018 was $9.6 million, $6.2 million and $5.9 million, respectively.
The following table summarizes information about our outstanding stock options as of December 31, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Exercise Price Range | | Total |
| | $12.65 to $18.63 | | $18.81 to $26.14 | | $30.74 to $36.31 | | $55.74 to $55.74 | | $12.65 to $55.74 |
| Outstanding options | | | | | | | | | |
| Number outstanding | 1,045,257 | | | 2,245,484 | | | 303,974 | | | 4,474 | | | 3,599,189 | |
| Weighted-average remaining contractual term (in years) | 2.77 | | 8.44 | | 4.46 | | 9.84 | | 6.46 |
| Weighted-average exercise price | $ | 13.86 | | | $ | 20.88 | | | $ | 31.57 | | | $ | 55.74 | | | $ | 19.79 | |
| Exercisable options | | | | | | | | | |
| Number outstanding | 830,121 | | | 389,945 | | | 123,355 | | | 0 | | | 1,343,421 | |
| Weighted-average exercise price | $ | 13.48 | | | $ | 19.14 | | | $ | 30.74 | | | $ | 0 | | | $ | 16.71 | |
As of December 31, 2020,2022, the unamortized compensation costs not yet recognized related to stock options granted totaled $11.5$18.9 million and the weighted-average period over which the costs are expected to be recognized was 2.51.6 years.
The following are the weighted-average assumptions used in the Black-Scholes option-pricing model for the years ended December 31, 2020, 20192022, 2021 and 2018:2020:
| | | For the year ended December 31, | | For the year ended December 31, |
| | 2020 | | 2019 | | 2018 | | 2022 | | 2021 | | 2020 |
| Risk-free interest rate | Risk-free interest rate | 1.55 | % | | 2.00 | % | | 2.26 | % | Risk-free interest rate | 1.40 | % | | 0.46 | % | | 1.55 | % |
| Expected volatility | Expected volatility | 33.78 | % | | 32.90 | % | | 30.80 | % | Expected volatility | 71.00 | % | | 75.33 | % | | 33.78 | % |
Dividend yield | Dividend yield | 0 | | | 0 | | | 0 | | Dividend yield | — | | | — | | | — | |
| Weighted-average expected life (in years) | Weighted-average expected life (in years) | 5.00 | | 5.30 | | 5.30 | Weighted-average expected life (in years) | 5.2 | | 5.2 | | 5.0 |
(1)The expected dividend yield is zero, as the Company has not historically paid dividends.
Restricted Stock Awards and Restricted Stock Units
As noted above, the Company grants RSAsrestricted stock to our employees and certain non-employee directors. In addition, the Company issues its named executive officers (“NEOs”) and other key executives RSAsrestricted stock with performance conditions, (we refer to our RSAs with performance conditions as “PSAs”), which are discussed in further detail below.
Performance Share Programs
The Company’s Performance Share Programs (as defined below)performance share programs were adopted in order to provide our NEOs and certain other key executives with stock-based compensation tied directly to the Company’s performance, which further aligns their interests with those ofour shareholders and provides compensation only if the designated performance goals are met for the applicable performance periods.
On February 6, 2018,25, 2020, an aggregate of 107,297 restricted shares with performance-based vesting conditions, at target, were granted under our Compensation Committee adopted a performance share program (the “2018 (“Performance Share Program”Program II”) pursuant to the 2018 Plan, which provided for the issuance of 197,727 PSAs, at target,, to be granted in one-third increments.
In February 2019, the Company’s Compensation Committee
On April 12, 2021, in addition to the 2018 Plan.
On February 14, 2019,Stock Awards mentioned above, an aggregate of 278,780 PSAs94,673 restricted shares and units with performance-based vesting conditions, at target, waswere granted under the Performance Share Program II, to be granted in one-third increments.II.
On February 25, 2020,During the year ended December 31, 2022, an aggregate of 107,297 PSAs244,955 restricted units with performance-based vesting conditions, at target, waswere granted under the Performance Share Program II, to be granted in one-third increments.II.
PSAsRestricted stock issued pursuant to the Performance Share ProgramsProgram II consist of 3three one-year performance periods over a three-year service period. The awards have the potential to be earned at between 0% and 200% of the number of shares granted during the years ended December 31, 2020 and 2021, and 0% and 150% of the number of shares granted during the year ended December 31, 2022, depending on achievement of the annual performance goals, butand remain subject to vesting for the full three-year service period.
In addition, during the year ended December 31, 2022, the Company granted key employees of theScore 102,422 restricted units with performance-based vesting conditions that are dependent on the achievement of certain milestones. The awards have the potential to be earned at between 0% and 100% and consist of two, one-year performance periods, each containing an applicable milestone. The awards also contain a one-year vesting requirement and vesting is subject to: (a) the satisfaction of the milestones on or before the applicable expiration date and (b) continued service through the date on which the respective portion of the awards vests.
The grant date fair value of our RSAsfor restricted stock is generally based on the most recent closing stock price of the Company’s shares of common stock.stock on the trading day preceding the grant date. The grant date fair value for the performance awards issued to key employees of theScore was determined using the five-day volume weighted average closing stock price of the Company’s shares of common stock as of the trading day immediately preceding the grant date. The stock-based compensation expense is recognized over the remaining service period at the time of grant, adjusted for the Company’s expectation of the achievement of the performance conditions.
The following table contains information onpresents activity related to our RSAs:restricted stock for the year ended December 31, 2022:
| | | With Performance Conditions | | Without Performance Conditions | | With Performance Conditions | | Without Performance Conditions |
| | | Number of
Shares | | Weighted- Average Grant Date Fair Value | | Number of
Shares | | Weighted- Average Grant Date Fair Value | | Number of
Shares | | Weighted- Average Grant Date Fair Value | | Number of
Shares | | Weighted- Average Grant Date Fair Value |
| Nonvested as of January 1, 2020 | 395,362 | | | $ | 24.35 | | | 298,479 | | | $ | 23.15 | | |
| Nonvested as of January 1, 2022 | | Nonvested as of January 1, 2022 | 1,168,364 | | | $58.89 | | 1,103,013 | | | $66.90 |
| Granted | Granted | 179,045 | | | $ | 28.68 | | | 131,313 | | | $ | 26.18 | | Granted | 428,551 | | | $43.23 | | 704,317 | | | $36.01 |
| Vested | Vested | (352,371) | | | $ | 23.63 | | | (106,666) | | | $ | 22.53 | | Vested | (165,101) | | | $56.20 | | (328,703) | | | $59.42 |
| Forfeited | Forfeited | 0 | | | $ | 0 | | | (39,180) | | | $ | 25.18 | | Forfeited | (5,606) | | | $67.23 | | (136,227) | | | $61.87 |
| Nonvested as of December 31, 2020 | 222,036 | | | $ | 28.73 | | | 283,946 | | | $ | 24.50 | | |
| Nonvested as of December 31, 2022 | | Nonvested as of December 31, 2022 | 1,426,208 | | | $54.68 | | 1,342,400 | | | $53.00 |
As of December 31, 2020,2022, the unamortized compensation costs not yet recognized related to RSAsrestricted stock totaled $6.4$103.7 million and the weighted-average period over which the costs are expected to be recognized is 1.72.7 years. The total fair valuevalues of RSAsrestricted stock that vested during the years ended December 31, 2022, 2021 and 2020 2019were $28.8 million, $28.9 million and 2018 was $16.7 million, $5.5 million and $0.9 million, respectively.
Cash-settled Phantom Stock Units
Our outstanding PSUscash-settled phantom stock units (“CPUs”), are settled in cash and entitle employees, non-employee directors, and the chairman emeritusplan recipients to receive a cash payment based on the fair value of the Company’s common stock which is based on the vestingclosing stock price of the trading day preceding the vest date. Our PSUsCPUs vest over a period of threeone orto four years. The cash-settled PSUsCPUs are accounted for as liability awards and are re-measured at fair value each reporting period until they become vested with compensation expense being recognized over the requisite service period. The Company has a liability, which is included in “Accrued expenses and other current liabilities” within the Consolidated Balance Sheets, associated with its cash-settled PSUsCPUs of $10.1$2.1 million and $3.3$8.6 million as of December 31, 20202022 and 2019,2021 respectively.
For PSUs held by employees, non-employee directors, and the chairman emeritusAs of the Company,December 31, 2022, there was $16.0a total of $3.7 million of total unrecognized compensation cost as of December 31, 2020related to CPUs that will be recognized over the awards remaining weighted-average vesting period of 2.30.7 years. For the years ended December 31, 2020, 20192022, 2021 and 2018,2020, the Company recognized $11.5$4.0 million, $4.1$12.1 million, and $1.1$11.5 million of compensation expense associated with theserelated to CPU awards, respectively. Compensation expense associated with our PSUsCPUs is recorded in “General and administrative” within the Consolidated Statements of
Operations and Comprehensive Income (Loss).Consolidated Statements of Operations. We paid $4.7$10.5 million, $2.5$13.3 million, and $4.2$4.7 million during the years ended December 31, 2020, 20192022, 2021 and 2018,2020, respectively, pertaining to cash-settled PSUs.CPSUs.
Stock Appreciation Rights
Our outstanding cash-settled SARs are settled in cash and are accounted for as liability awards, since they will be settled in cash and generally vest over a period of four years. The fair value of cash-settled SARs is calculated each reporting period and estimated using the Black-Scholes option pricing model. The Company has a liability, which is included in “Accrued expenses and other current liabilities” within the Consolidated Balance Sheets, associated with its cash-settled SARs of $54.6$9.2 million and $14.4$18.5 million as of December 31, 20202022 and 2019,2021 respectively.
For SARs held by employees of the Company, there was $71.2$6.5 million of total unrecognized compensation cost as of December 31, 20202022 that will be recognized over the awards remaining weighted-average vesting period of 2.71.9 years. For the yearsyear ended December 31, 2020 and 2019,2022, the Company recognized a reduction to compensation expense of $5.5 million, as compared to a charge to compensation expense of $69.7$3.1 million and $10.7 million, respectively, associated with these awards, as compared to a reduction to compensation expense of $6.7$69.7 million for the yearyears ended December 31, 2018.2021 and 2020, respectively. Compensation expense associated with theour SARs is recorded in “General and administrative” within the Consolidated Statements of Operations and Comprehensive Income (Loss).Operations. We paid $32.6$3.1 million, $3.5$39.6 million, and $10.5$32.6 million during the years ended December 31, 2020, 20192022, 2021, and 2018,2020, respectively, related to cash-settled SARs.
Note 17—Earnings (Loss) per Share
For the years ended December 31, 2022 and 2021, we recorded net income attributable to PENN. As such, we used diluted weighted-average common shares outstanding when calculating diluted income per share. Stock options, restricted stock, convertible preferred shares and convertible debt that could potentially dilute basic EPS in the future are included in the computation of diluted income per share.
For the year ended December 31, 2020, we recorded a net loss attributable to Penn Common Stock.PENN. As such, because the dilution from potential common shares was antidilutive, we used basic weighted-average common shares outstanding, rather than diluted weighted-average common shares outstanding when calculating diluted loss per share for the year ended December 31, 2020.
On February 20, 2020, the Company issued 883 shares of Series D Preferredshare. Stock to certain individual stockholders affiliated with Barstool Sports which can be converted into 883,000 shares of Penn Common Stock. The Series D Preferred Stock will be entitled to participate equally and ratably in all dividends and distributions paid to holders of Penn Common Stock. Holders of the Company's Series D Preferred Stock are not obligated to absorb losses therefore the two-class method was not applied for the year ended December 31, 2020. (See Note 7 - Investments in and Advances to Unconsolidated Affiliates).Theoptions, restricted stock, options, RSAs, convertible preferred shares and convertible debt that could potentially dilute basic EPS in the future that were not included in the computation of diluted loss per share were as follows:
| | | | | |
| (in millions) | For the year ended December 31, 2020 |
| Assumed conversion of dilutive stock options | 3.0 | |
Assumed conversion of dilutive RSAsrestricted stock | 0.5 | |
| Assumed conversion of convertible preferred shares | 0.7 | |
| Assumed conversion of convertible debt | 9.1 | |
The following table sets forth the allocation of net income for the years ended December 31, 2022 and 2021 under the two-class method. For the year ended December 31, 2020, we did not utilize the two-class method due to incurring a net loss for the period.
| | | | | | | | | | | | | | | | | |
| For the year ended December 31, |
| (in millions) | 2022 | | 2021 | | 2020 |
| Net income (loss) attributable to PENN Entertainment | $ | 222.10 | | | $ | 420.80 | | | $ | (669.50) | |
| Net income applicable to preferred stock | 0.9 | | | 2.1 | | | — | |
| Net income (loss) applicable to common stock | $ | 221.2 | | | $ | 418.7 | | | $ | (669.5) | |
The following table reconciles the weighted-average common shares outstanding used in the calculation of basic EPS to the weighted-average common shares outstanding used in the calculation of diluted EPS for the years ended December 31, 20192022, 2021 and 2018:2020:
| | | For the year ended December 31, | | For the year ended December 31, |
| (in millions) | (in millions) | 2019 | | 2018 | (in millions) | 2022 | | 2021 | | 2020 |
| Weighted-average common shares outstanding—Basic | Weighted-average common shares outstanding—Basic | 115.7 | | | 97.1 | | Weighted-average common shares outstanding—Basic | 161.2 | | | 158.7 | | | 134.0 | |
| Assumed conversion of: | Assumed conversion of: | | Assumed conversion of: | |
| Dilutive stock options | Dilutive stock options | 1.8 | | | 3.0 | | Dilutive stock options | 1.2 | | | 2.3 | | | — | |
| Dilutive RSAs | 0.3 | | | 0.2 | | |
| Dilutive restricted stock | | Dilutive restricted stock | 0.1 | | | 0.4 | | | — | |
| Convertible debt | | Convertible debt | 14.1 | | | 14.1 | | | — | |
| Weighted-average common shares outstanding—Diluted | Weighted-average common shares outstanding—Diluted | 117.8 | | | 100.3 | | Weighted-average common shares outstanding—Diluted | 176.6 | | | 175.5 | | | 134.0 | |
Restricted stock with performance and market based vesting conditions that have not been met as of December 31, 2022 were excluded from the computation of diluted earnings per share.
Options to purchase 0, 2.40.8 million, 0.2 million, and 0.70.0 million shares were outstanding during the years ended December 31, 2020, 20192022, 2021, and 2018,2020, respectively, but were not included in the computation of diluted EPSearnings per share because they were anti-dilutive.
The assumed conversion of 0.6 million and 0.8 million preferred shares were excluded from the computation of diluted earnings per share for the years ended December 31, 2022 and 2021, respectively, because including them would have been antidilutive.
The Company’s calculation of weighted-average common shares outstanding includes the Exchangeable Shares issued in connection with theScore acquisition, as discussed in Note 6, “Acquisitions and Dispositions” and Note 15, “Stockholders’ Equity.”The following table presents the calculation of basic and diluted earnings (loss) per share for the Company’s common stock for the years ended December 31, 2020, 20192022, 2021, and 2018:2020: | | | | | For the year ended December 31, |
| (in millions, except per share data) | (in millions, except per share data) | 2020 | 2019 | | 2018 | (in millions, except per share data) | 2022 | | 2021 | | 2020 |
| Calculation of basic earnings (loss) per share: | Calculation of basic earnings (loss) per share: | | | | Calculation of basic earnings (loss) per share: | | | |
| Net income (loss) applicable to common stock | Net income (loss) applicable to common stock | $ | (669.5) | | $ | 43.9 | | | $ | 93.5 | | Net income (loss) applicable to common stock | $ | 221.2 | | | $ | 418.7 | | | $ | (669.5) | |
| Weighted-average shares outstanding - PENN Entertainment | | Weighted-average shares outstanding - PENN Entertainment | 160.6 | | | 158.6 | | | 134.0 | |
| Weighted-average shares outstanding - Exchangeable Shares | | Weighted-average shares outstanding - Exchangeable Shares | 0.6 | | | 0.1 | | | — | |
| Weighted-average common shares outstanding - basic | Weighted-average common shares outstanding - basic | 134.0 | | 115.7 | | | 97.1 | | Weighted-average common shares outstanding - basic | 161.2 | | | 158.7 | | | 134.0 | |
| Basic earnings (loss) per share | Basic earnings (loss) per share | $ | (5.00) | | $ | 0.38 | | | $ | 0.96 | | Basic earnings (loss) per share | $ | 1.37 | | | $ | 2.64 | | | $ | (5.00) | |
| | Calculation of diluted earnings (loss) per share: | Calculation of diluted earnings (loss) per share: | | Calculation of diluted earnings (loss) per share: | |
| Net income (loss) applicable to common stock | Net income (loss) applicable to common stock | (669.5) | | $ | 43.9 | | | $ | 93.5 | | Net income (loss) applicable to common stock | $ | 221.2 | | | $ | 418.7 | | | $ | (669.5) | |
Interest expense, net of tax (1): | | Interest expense, net of tax (1): | |
| Convertible Notes | | Convertible Notes | 7.2 | | | 17.0 | | | — | |
| Diluted income applicable to common stock | | Diluted income applicable to common stock | $ | 228.4 | | | $ | 435.7 | | | $ | (669.5) | |
| Weighted-average common shares outstanding - diluted | Weighted-average common shares outstanding - diluted | 134.0 | | 117.8 | | | 100.3 | | Weighted-average common shares outstanding - diluted | 176.6 | | | 175.5 | | | 134.0 | |
| Diluted earnings (loss) per share | Diluted earnings (loss) per share | $ | (5.00) | | $ | 0.37 | | | $ | 0.93 | | Diluted earnings (loss) per share | $ | 1.29 | | | $ | 2.48 | | | $ | (5.00) | |
(1)The tax-affected rates were 21% and 22% for the years ended December 31, 2022 and 2021, respectively.
Note 18—Segment Information
We have aggregated our operating segments into 4five reportable segments. Retail operating segments are based on the similar characteristics of the operating segments within the regions in which they operate: Northeast, South, West, and Midwest. Our Interactive segment includes all of our online sports betting, iCasino and online social gaming operations, management of retail sports betting, media, and our proportionate share of earnings attributable to our equity method investment in Barstool. The Other category is included in the following tables in order to reconcile the segment information to the consolidated information.
The Company utilizes Adjusted EBITDAR (as defined below) as its measure of segment profit or loss. The following table highlights our revenues and Adjusted EBITDAR for each reportable segment and reconciles Adjusted EBITDAR on a consolidated basis to net income (loss).
| | | | For the year ended December 31, | | For the year ended December 31, |
| (in millions) | (in millions) | 2020 | | 2019 | | 2018 | (in millions) | 2022 | | 2021 | | 2020 |
| Revenues: | Revenues: | | | | | | Revenues: | | | | | |
| Northeast segment | Northeast segment | $ | 1,639.3 | | | $ | 2,399.9 | | | $ | 1,891.5 | | Northeast segment | $ | 2,695.9 | | | $ | 2,552.4 | | | $ | 1,639.3 | |
| South segment | South segment | 849.6 | | | 1,118.9 | | | 394.4 | | South segment | 1,314.2 | | | 1,322.2 | | | 849.6 | |
| West segment | West segment | 302.5 | | | 642.5 | | | 437.9 | | West segment | 581.9 | | | 521.4 | | | 302.5 | |
| Midwest segment | Midwest segment | 681.4 | | | 1,094.5 | | | 823.7 | | Midwest segment | 1,159.6 | | | 1,102.7 | | | 681.4 | |
| Interactive segment | | Interactive segment | 663.1 | | | 432.9 | | | 121.1 | |
Other (1) | Other (1) | 125.0 | | | 47.5 | | | 40.4 | | Other (1) | 21.3 | | | 10.6 | | | 3.9 | |
Intersegment eliminations (2) | Intersegment eliminations (2) | (19.1) | | | (1.9) | | | 0 | | Intersegment eliminations (2) | (34.3) | | | (37.2) | | | (19.1) | |
| Total | Total | $ | 3,578.7 | | | $ | 5,301.4 | | | $ | 3,587.9 | | Total | $ | 6,401.7 | | | $ | 5,905.0 | | | $ | 3,578.7 | |
| Adjusted EBITDAR (3): | Adjusted EBITDAR (3): | | Adjusted EBITDAR (3): | |
| Northeast segment | Northeast segment | $ | 478.9 | | | $ | 720.8 | | | $ | 583.8 | | Northeast segment | $ | 842.5 | | | $ | 848.4 | | | $ | 478.9 | |
| South segment | South segment | 318.9 | | | 369.8 | | | 118.9 | | South segment | 548.1 | | | 587.0 | | | 318.9 | |
| West segment | West segment | 82.2 | | | 198.8 | | | 114.3 | | West segment | 220.1 | | | 195.0 | | | 82.2 | |
| Midwest segment | Midwest segment | 258.3 | | | 403.6 | | | 294.3 | | Midwest segment | 501.2 | | | 500.1 | | | 258.3 | |
| Interactive segment | | Interactive segment | (74.9) | | | (35.4) | | | 37.2 | |
Other (1) | Other (1) | (43.5) | | | (87.8) | | | (68.1) | | Other (1) | (97.6) | | | (100.7) | | | (80.7) | |
| Total (3) | Total (3) | 1,094.8 | | | 1,605.2 | | | 1,043.2 | | Total (3) | 1,939.4 | | | 1,994.4 | | | 1,094.8 | |
| | Other operating benefits (costs) and other income (expenses): | Other operating benefits (costs) and other income (expenses): | | Other operating benefits (costs) and other income (expenses): | |
Rent expense associated with triple net operating leases (4) | Rent expense associated with triple net operating leases (4) | (419.8) | | | (366.4) | | | (3.8) | | Rent expense associated with triple net operating leases (4) | (149.6) | | | (454.4) | | | (419.8) | |
| Stock-based compensation | Stock-based compensation | (14.5) | | | (14.9) | | | (12.0) | | Stock-based compensation | (58.1) | | | (35.1) | | | (14.5) | |
| Cash-settled stock-based awards variance | Cash-settled stock-based awards variance | (67.2) | | | (0.8) | | | 19.6 | | Cash-settled stock-based awards variance | 15.5 | | | (1.2) | | | (67.2) | |
| Gain (loss) on disposal of assets | Gain (loss) on disposal of assets | 29.2 | | | (5.5) | | | (3.2) | | Gain (loss) on disposal of assets | (7.9) | | | (1.1) | | | 29.2 | |
| Contingent purchase price | Contingent purchase price | 1.1 | | | (7.0) | | | (0.5) | | Contingent purchase price | 0.6 | | | (1.9) | | | 1.1 | |
| Pre-opening and acquisition costs | (11.8) | | | (22.3) | | | (95.0) | | |
Pre-opening expenses (5) | | Pre-opening expenses (5) | (4.1) | | | (5.4) | | | (11.8) | |
| Depreciation and amortization | Depreciation and amortization | (366.7) | | | (414.2) | | | (269.0) | | Depreciation and amortization | (567.5) | | | (344.5) | | | (366.7) | |
| Impairment losses | (623.4) | | | (173.1) | | | (34.9) | | |
| Recoveries on loan loss and unfunded loan commitments | 0 | | | 0 | | | 17.0 | | |
Impairment losses (6) | | Impairment losses (6) | (118.2) | | | — | | | (623.4) | |
| Insurance recoveries, net of deductible charges | Insurance recoveries, net of deductible charges | 0.1 | | | 3.0 | | | 0.1 | | Insurance recoveries, net of deductible charges | 10.7 | | | — | | | 0.1 | |
Non-operating items of equity method investments (5) | (4.7) | | | (3.7) | | | (5.1) | | |
Non-operating items of equity method investments (7) | | Non-operating items of equity method investments (7) | (7.9) | | | (7.7) | | | (4.7) | |
| Interest expense, net | Interest expense, net | (543.2) | | | (534.2) | | | (538.4) | | Interest expense, net | (758.2) | | | (562.8) | | | (544.1) | |
| Interest income | | Interest income | 18.3 | | | 1.1 | | | 0.9 | |
| Loss on early extinguishment of debt | Loss on early extinguishment of debt | (1.2) | | | 0 | | | (21.0) | | Loss on early extinguishment of debt | (10.4) | | | — | | | (1.2) | |
Other (6) | 93.1 | | | 20.0 | | | (7.1) | | |
Other (5)(8) | | Other (5)(8) | (127.3) | | | (42.3) | | | 93.1 | |
| Income (loss) before income taxes | Income (loss) before income taxes | (834.2) | | | 86.1 | | | 89.9 | | Income (loss) before income taxes | 175.3 | | | 539.1 | | | (834.2) | |
| Income tax benefit (expense) | Income tax benefit (expense) | 165.1 | | | (43.0) | | | 3.6 | | Income tax benefit (expense) | 46.4 | | | (118.6) | | | 165.1 | |
| Net income (loss) | Net income (loss) | $ | (669.1) | | | $ | 43.1 | | | $ | 93.5 | | Net income (loss) | $ | 221.7 | | | $ | 420.5 | | | $ | (669.1) | |
(1)The Other category consists of the Company’s stand-alone racing operations, namely Sanford-Orlando Kennel Club, Sam Houston and Valley Race Parks (the remaining 50% was acquired by PENN on August 1, 2021), the Company’s JVjoint venture interests in Sam Houston Race Park, Valley Race Park,Freehold Raceway, and Freehold Raceway; our management contract for Retama Park Racetrack and our live and televised poker tournament series that operates under the trade name, Heartland Poker Tour (“HPT”). The Other category also includes Penn Interactive, which operates social gaming, our internally-branded retail sportsbooks, iGaming and our Barstool Sports online sports betting app.
Expenses incurred for corporate and shared services activities that are directly attributable to a property or are otherwise incurred to support a property are allocated to each property.Racetrack. The Other category also includes corporate overhead costs, which consist of certain expenses, such as: payroll, professional fees, travel expenses and other general and administrative expenses that do not directly relate to or have not otherwise been allocated to a property. In addition, the Other category includes our proportionate share of the Adjusted EBITDAR of Barstool Sports (as determined and discussed in footnotes (3) and (5) below).
(2)RepresentsPrimarily represents the elimination of intersegment revenues associated with Penn Interactive and HPT.our internally-branded retail sportsbooks, which are operated by PENN Interactive.
(3)We define Adjusted EBITDAR as earnings before interest expense, net;net, interest income, taxes;income taxes, depreciation and amortization;amortization, rent expense associated with triple net operating leases (see footnote (4) below);, stock-based compensation;compensation, debt extinguishment and financing charges;charges, impairment losses;losses, insurance recoveries, andnet of deductible charges;charges, changes in the estimated fair value of our contingent purchase price obligations;obligations, gain or loss on disposal of assets;assets, the difference between budget and actual expense for cash-settled stock-based awards;awards, pre-opening expenses (see footnote (5) below), and acquisition costs; and other income or expenses.other. Adjusted EBITDAR is also inclusive of income or loss from unconsolidated affiliates, with our share of non-operating items (see footnote (5)(7) below) added back for Barstool Sports and our Kansas Entertainment JV.joint venture.
(4)The Company’sSolely comprised of rent expense associated with the operating lease components contained within our triple net master lease dated November 1, 2013 with GLPI and the triple net master lease assumed in connection with our acquisition of Pinnacle, our individual triple net leases with GLPI for the real estate assets used in the operation of Tropicana (on September 26, 2022, we sold the equity interests to Bally’s which terminated the Tropicana Lease with GLPI) and Meadows, and our individual triple net leases with VICI for the real estate assets used in the operations of Margaritaville Resort Casino and Hollywood Casino at Greektown (of which the Tropicana Lease, Meadows Lease, Margaritaville Lease and the Greektown Lease are defined in “Note 12, Leases”) and are referred to collectively as our “triple net operating leases”. As a result of the Lease Modification defined in Note 12, “Leases”, the land and building components associated with the operations of Dayton and Mahoning Valley are classified as operating leases include certainwhich is recorded to rent expense, as compared to prior to the Lease Modification, whereby the land components of substantially all of the Master Leases (primarily land),Lease properties were classified as operating leases and recorded to rent expense. Subsequent to the Meadows Lease Modification, the Margaritavilleland components associated with the Master Lease the Greektown Lease,properties are primarily classified as finance leases. (5)During 2020 and the Tropicana Lease.first quarter of 2021, acquisition costs were included within pre-opening and acquisition costs. Beginning with the quarter ended June 30, 2021, acquisition costs are presented as part of other expenses.
(5)(6)Amount for 2022 primarily relates to $116.4 million of impairment charges in the Northeast segment.
(7)Consists principally of interest expense, net;net, income taxes;taxes, depreciation and amortization;amortization, and stock-based compensation expense associated with Barstool Sports and our Kansas Entertainment JV.joint venture. We record our portion of Barstool’s net income or loss, including adjustments to arrive at Adjusted EBITDAR, one quarter in arrears.
(6)(8)Principally includesIncludes unrealized holding losses on our equity securities of $69.9 million, realized and unrealized losses on our equity securities of $24.9 million, and unrealized gains on our equity securities of $106.7 million for the years ended December 31, 2022, 2021, and 2020, respectively, which are discussed in Note 19, “Fair Value Measurements.” Additionally, includes a $29.9 million gain on our equity method investment for the year ended December 31, 2021, which is discussed in Note 7, “Investments in and Advances to Unconsolidated Affiliates.” Also consists of non-recurring restructuring charges (primarily severance)acquisition and transaction costs of $13.4$52.1 million and $43.1 million and finance transformation costs 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 efficiencyimplementation of our Corporate functional support areas.new Enterprise Resource Management system for the years ended December 31, 2022 and 2021, respectively. | | | | | | | | | | | | | | | | | |
| | For the year ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| Capital expenditures: | | | | | |
| Northeast segment | $ | 78.0 | | | $ | 96.2 | | | $ | 38.9 | |
| South segment | 15.8 | | | 29.8 | | | 10.6 | |
| West segment | 8.2 | | | 21.2 | | | 12.8 | |
| Midwest segment | 15.1 | | | 32.7 | | | 25.3 | |
| Other | 19.9 | | | 10.7 | | | 5.0 | |
| Total capital expenditures | $ | 137.0 | | | $ | 190.6 | | | $ | 92.6 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Northeast | | South | | West | | Midwest | | Other | | Total |
| As of December 31, 2020 | | | | | | | | | | | |
Investment in and advances to unconsolidated affiliates (1) | $ | 0.1 | | | $ | 0 | | | $ | 0 | | | $ | 85.2 | | | $ | 181.5 | | | $ | 266.8 | |
Total assets (2) | $ | 1,958.4 | | | $ | 1,165.4 | | | $ | 401.5 | | | $ | 1,161.1 | | | $ | 9,980.9 | | | $ | 14,667.3 | |
| | | | | | | | | | | |
| As of December 31, 2019 | | | | | | | | | | | |
| Investment in and advances to unconsolidated affiliates | $ | 0.1 | | | $ | 0 | | | $ | 0 | | | $ | 90.9 | | | $ | 37.3 | | | $ | 128.3 | |
Total assets (2) | $ | 2,273.7 | | | $ | 1,397.0 | | | $ | 752.1 | | | $ | 1,412.2 | | | $ | 8,359.5 | | | $ | 14,194.5 | |
| | | | | | | | | | | |
| As of December 31, 2018 | | | | | | | | | | | |
| Investment in and advances to unconsolidated affiliates | $ | 0.1 | | | $ | 0 | | | $ | 0 | | | $ | 89.4 | | | $ | 39.0 | | | $ | 128.5 | |
Total assets (3) | $ | 1,330.2 | | | $ | 1,082.3 | | | $ | 755.7 | | | $ | 1,411.5 | | | $ | 6,381.3 | | | $ | 10,961.0 | |
| | | | | | | | | | | | | | | | | |
| | For the year ended December 31, |
| (in millions) | 2022 | | 2021 | | 2020 |
| Capital expenditures: | | | | | |
| Northeast segment | $ | 110.6 | | | $ | 144.8 | | | $ | 78.0 | |
| South segment | 70.7 | | | 39.0 | | | 15.8 | |
| West segment | 11.5 | | | 8.5 | | | 8.2 | |
| Midwest segment | 35.8 | | | 19.8 | | | 15.1 | |
| Interactive segment | 19.7 | | | 6.3 | | | 9.1 | |
| Other | 15.1 | | | 25.7 | | | 10.8 | |
| Total capital expenditures | $ | 263.4 | | | $ | 244.1 | | | $ | 137.0 | |
The table below presents investment in and advances to unconsolidated affiliates and total assets by segment:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Northeast | | South | | West | | Midwest | | Interactive | | Other (1) | | Total |
| Balance sheet as of December 31, 2022 | | | | | | | | | | | | | |
| Investment in and advances to unconsolidated affiliates | $ | 0.1 | | | $ | — | | | $ | — | | | $ | 81.5 | | | $ | 160.9 | | | $ | 6.1 | | | $ | 248.6 | |
| Total assets | $ | 2,231.8 | | | $ | 1,191.9 | | | $ | 372.4 | | | $ | 1,305.5 | | | $ | 4,233.7 | | | $ | 8,166.8 | | | $ | 17,502.1 | |
| | | | | | | | | | | | | |
| Balance sheet as of December 31, 2021 | | | | | | | | | | | | | |
| Investment in and advances to unconsolidated affiliates | $ | 0.1 | | | $ | — | | | $ | — | | | $ | 83.8 | | | $ | 164.4 | | | $ | 6.8 | | | $ | 255.1 | |
| Total assets | $ | 2,283.6 | | | $ | 1,224.6 | | | $ | 394.8 | | | $ | 1,215.8 | | | $ | 2,618.3 | | | $ | 9,135.0 | | | $ | 16,872.1 | |
| | | | | | | | | | | | | |
| Balance sheet as of December 31, 2020 | | | | | | | | | | | | | |
| Investment in and advances to unconsolidated affiliates | $ | 0.1 | | | $ | — | | | $ | — | | | $ | 85.2 | | | $ | 149.3 | | | $ | 32.2 | | | $ | 266.8 | |
| Total assets | $ | 1,958.4 | | | $ | 1,165.4 | | | $ | 401.5 | | | $ | 1,161.1 | | | $ | 434.1 | | | $ | 9,546.8 | | | $ | 14,667.3 | |
(1)Our investment in Barstool Sports is included within the Other category.
(2)As of December 31, 2020 and 2019, total assets of the Other category includesThe real estate assets subject to the Master Leases, which are classified as either property and equipment, operating lease ROU assets, or finance lease ROU assets.
(3)As of December 31, 2018, total assets, ofare included within the Other category includes the real estate assets subject to the Master Leases, which are classified as property and equipment.category.
Note 19—Fair Value Measurements
ASC Topic 820, “Fair Value Measurements and Disclosures,” establishes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques (market approach, income approach and cost approach). The levels of the hierarchy are described below:
•Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities.
•Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; these include quoted prices for similar assets or liabilities in active markets, such as interest rates and yield curves that are observable at commonly quoted intervals.
•Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions, as there is little, if any, related market activity.
The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of assets and liabilities and their placement within the fair value hierarchy. The following methods and assumptions are used to estimate the fair value of each class of financial instruments for which it is practicable to estimate. The fair value of the Company’s trade accounts receivable and payables approximates the carrying amounts.
Cash and Cash Equivalents
The fair value of the Company’s cash and cash equivalents approximates their carrying amount, due to the short maturity of the cash equivalents.
Equity Securities
As of December 31, 20202022 and 2019,2021, we held $143.1$17.1 million and $40.5$84.3 million, respectively, in equity securities respectively, includingof ordinary shares and warrants, which are reported as “Other assets” in our Consolidated Balance Sheets. During the year ended December 31, 2021, all warrants were exercised for ordinary shares which resulted in a loss of $20.1 million included in “Other,” as reported in “Other income (expenses)” within our Consolidated Statements of Operations. These equity securities are the result of PennPENN Interactive entering into multi-year agreements with third-party sports betting operators for online sports betting and related iGamingiCasino market access across our portfolio.
During the yearyears ended December 31, 20202022, 2021, and 2019,2020, we recognized aunrealized holding losses of $69.9 million, realized and unrealized losses of $24.9 million, and an unrealized gain of $106.7 million and $19.9 million, respectively, related to these equity securities, which isare included in “Other,”“Other” as reported in “Other income (expenses)” within our Consolidated Statements of Operations and Comprehensive Income (Loss).Operations.
The fair value of the equity securities was determined using Level 2 inputs, which use market approach valuation techniques. The primary inputs to those techniques include the quoted market price of the equity securities, foreign currency exchange rates, a discount for lack of marketability (“DLOM”) with respect to the ordinary shares, and a Black-Scholes option pricing model previously associated with respect to the exercised warrants. The DLOM is based on the remaining term of the relevant lock-up periods and the volatility associated with the underlying equity securities. The Black-Scholes option pricing model utilizes the exercise price of the warrants, a risk-free rate, volatility associated with the underlying equity securities and the expected life of the warrants.
Held-to-maturity Securities and Promissory Notes
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, located outside of San Antonio, Texas. 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, and 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.
As of December 31, 20202022 and 2019,2021, PRP held $7.9 million and $15.1 million in promissory notes issued by RDC, respectively. As of December 31, 2022 and 2021, PRP held $6.7 million in local government corporation bonds issued by RDC, at amortized cost. The promissory notes and the local government corporation bonds are collateralized by the assets of Retama Park Racetrack. As of December 31, 20202022 and 2019,2021, the promissory notes and the local government corporation bonds which have long-term contractual maturities, arewere included in “Other assets” within our Consolidated Balance Sheets.
During the year ended December 31, 2019, principally due to the lack
The contractual terms of these promissory notes include interest payments due at maturity; however, we have not recorded accrued interest on these promissory notes because uncertainty exists as to RDC’s ability to make interest payments. We have the positive intent and ability to hold the local government corporation bonds to maturity and until the amortized cost is recovered. The estimated fair values of such investments are principally based on appraised values of the land associated with Retama Park Racetrack, which are classified as Level 2 inputs.
Long-term Debt
The fair value of our Term Loan A Facility, Term Loan B-1 Facility, Amended Term Loan A Facility, Amended Term Loan B Facility, 5.625% Notes, 4.125% Notes, and the 2.75% Convertible Notes is estimated based on quoted prices in active markets and is classified as a Level 1 measurement. The fair value of our Revolving Credit Facility approximates its carrying amount as it is revolving, variable rate debt, which we also classify as a Level 1 measurement.
Other long-term obligations as of December 31, 20202022 and 20192021 included a financing arrangement entered in February of 2021, the relocation fees for Dayton and Mahoning Valley, which are discussed in Note 11, “Long-term Debt,” and the repayment obligation of the hotel and event center located near Hollywood Casino Lawrenceburg. See Note 11, “Long-term Debt” for details. The fair values of these long-term obligationsthe Dayton and Mahoning Valley relocation fees and the Lawrenceburg repayment obligation are estimated based on rates consistent with the Company’s credit rating for comparable terms and debt instruments and are classified as Level 2 measurements. Additionally, in February 2021, we entered into a financing arrangement providing the Company with upfront cash proceeds while permitting us to participate in future proceeds on certain claims. The financing obligation has been classified as a non-current liability and the fair value of the financing obligation is based on what we expect to be settled in a future period of which the principal is contingent and predicated on other events, plus accreted period non-cash interest using an effective interest rate of 27.0% until the claims and related obligation is settled. The financing obligation has been classified as a Level 3 measurement and is included within our Consolidated Balance Sheets in “Long-term debt, net of current maturities, debt discount and debt issuance costs.” See Note 11, “Long-term Debt.” Other Liabilities
Other liabilities as of December 31, 2020 principally consisted of2022 includes contingent purchase price liabilities related to Plainridge Park Casino and asHitpoint, of which Hitpoint was acquired on May 11, 2021. The Hitpoint contingent purchase price liability is payable in installments up to a maximum of $1.0 million in the form of cash and equity, on the first three anniversaries of the acquisition close date and is based on the achievement of mutual goals established by the Company and Hitpoint. As of December 31, 2019, principally consisted of contingent purchase price related to Plainridge Park Casino and Absolute Games, LLC, which was acquired by Penn Interactive during the second quarter of 2018.2022, there are two annual achievement periods remaining. The Plainridge Park Casino contingent purchase price liability is calculated based on earnings of the gaming operations over the first ten years of operations, which commenced on June 24, 2015. As of December 31, 2020 and 2019,2022, we were contractually obligated to make 5 and 6three additional annual payments, respectively. During the second quarter of 2020, we made the second and final payment of $8.2 million on the Absolute Games, LLC contingent purchase price, which corresponded to the second year of operations after the acquisition and was calculated based on earnings.payments. The fair value of these liabilities, which arethe Plainridge Park Casino contingent purchase price liability is estimated based on an income approach using a discounted cash flow model andmodel. These contingent purchase price liabilities have been classified as a Level 3 measurements,measurement and are included within our Consolidated Balance Sheets in “Accrued expenses and other current liabilities” or “Other long-term liabilities,” depending on the timing of the next payment.
The carrying amounts and estimated fair values by input level of the Company’s financial instruments were as follows:
| | | December 31, 2020 | | December 31, 2022 |
| (in millions) | (in millions) | Carrying Amount | | Fair Value | | Level 1 | | Level 2 | | Level 3 | (in millions) | Carrying Amount | | Fair Value | | Level 1 | | Level 2 | | Level 3 |
| Financial assets: | Financial assets: | | | | | | | | | | Financial assets: | | | | | | | | | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 1,853.8 | | | $ | 1,853.8 | | | $ | 1,853.8 | | | $ | 0 | | | $ | 0 | | Cash and cash equivalents | $ | 1,624.0 | | | $ | 1,624.0 | | | $ | 1,624.0 | | | $ | — | | | $ | — | |
| Equity securities | Equity securities | $ | 143.1 | | | $ | 143.1 | | | $ | 0 | | | $ | 143.1 | | | $ | 0 | | Equity securities | $ | 17.1 | | | $ | 17.1 | | | $ | — | | | $ | 17.1 | | | $ | — | |
| Held-to-maturity securities | Held-to-maturity securities | $ | 6.7 | | | $ | 6.7 | | | $ | 0 | | | $ | 6.7 | | | $ | 0 | | Held-to-maturity securities | $ | 6.7 | | | $ | 6.7 | | | $ | — | | | $ | 6.7 | | | $ | — | |
| Promissory notes | Promissory notes | $ | 15.1 | | | $ | 15.1 | | | $ | 0 | | | $ | 15.1 | | | $ | 0 | | Promissory notes | $ | 7.9 | | | $ | 7.9 | | | $ | — | | | $ | 7.9 | | | $ | — | |
| Financial liabilities: | Financial liabilities: | | Financial liabilities: | |
| Long-term debt | Long-term debt | | Long-term debt | |
| Senior Secured Credit Facilities | $ | 1,600.3 | | | $ | 1,609.3 | | | $ | 1,609.3 | | | $ | 0 | | | $ | 0 | | |
| Amended Credit Facilities | | Amended Credit Facilities | $ | 1,503.6 | | | $ | 1,514.7 | | | $ | 1,514.7 | | | $ | — | | | $ | — | |
| 5.625% Notes | 5.625% Notes | $ | 399.5 | | | $ | 418.0 | | | $ | 418.0 | | | $ | 0 | | | $ | 0 | | 5.625% Notes | $ | 399.7 | | | $ | 371.0 | | | $ | 371.0 | | | $ | — | | | $ | — | |
| 4.125% Notes | | 4.125% Notes | $ | 393.8 | | | $ | 327.0 | | | $ | 327.0 | | | $ | — | | | $ | — | |
| Convertible Notes | Convertible Notes | $ | 239.8 | | | $ | 1,274.5 | | | $ | 1,274.5 | | | $ | 0 | | | $ | 0 | | Convertible Notes | $ | 324.3 | | | $ | 550.8 | | | $ | 550.8 | | | $ | — | | | $ | — | |
| Other long-term obligations | Other long-term obligations | $ | 73.0 | | | $ | 72.8 | | | $ | 0 | | | $ | 72.8 | | | $ | 0 | | Other long-term obligations | $ | 156.1 | | | $ | 154.4 | | | $ | — | | | $ | 36.4 | | | $ | 118.0 | |
| Other liabilities | Other liabilities | $ | 10.1 | | | $ | 10.1 | | | $ | 0 | | | $ | 2.8 | | | $ | 7.3 | | Other liabilities | $ | 9.9 | | | $ | 9.6 | | | $ | — | | | $ | 2.4 | | | $ | 7.2 | |
| Puts and calls related to certain Barstool Sports shares | $ | 0.3 | | | $ | 0.3 | | | $ | 0 | | | $ | 0.3 | | | $ | 0 | | |
| Puts and calls related to certain Barstool shares | | Puts and calls related to certain Barstool shares | $ | 0.4 | | | $ | 0.4 | | | $ | — | | | $ | 0.4 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| (in millions) | Carrying Amount | | Fair Value | | Level 1 | | Level 2 | | Level 3 |
| Financial assets: | | | | | | | | | |
| Cash and cash equivalents | $ | 1,863.9 | | | $ | 1,863.9 | | | $ | 1,863.9 | | | $ | — | | | $ | — | |
| Equity securities | $ | 84.3 | | | $ | 84.3 | | | $ | — | | | $ | 84.3 | | | $ | — | |
| Held-to-maturity securities | $ | 6.7 | | | $ | 6.7 | | | $ | — | | | $ | 6.7 | | | $ | — | |
| Promissory notes | $ | 15.1 | | | $ | 15.1 | | | $ | — | | | $ | 15.1 | | | $ | — | |
| Puts and calls related to certain Barstool shares | $ | 1.9 | | | $ | 1.9 | | | $ | — | | | $ | 1.9 | | | $ | — | |
| Financial liabilities: | | | | | | | | | |
| Long-term debt | | | | | | | | | |
| Senior Secured Credit Facilities | $ | 1,544.5 | | | $ | 1,559.6 | | | $ | 1,559.6 | | | $ | — | | | $ | — | |
| 5.625% Notes | $ | 399.6 | | | $ | 411.5 | | | $ | 411.5 | | | $ | — | | | $ | — | |
| 4.125% Notes | $ | 392.9 | | | $ | 389.3 | | | $ | 389.5 | | | $ | — | | | $ | — | |
| Convertible Notes | $ | 253.5 | | | $ | 780.0 | | | $ | 780.0 | | | $ | — | | | $ | — | |
| Other long-term obligations | $ | 146.3 | | | $ | 144.3 | | | $ | — | | | $ | 53.9 | | | $ | 90.4 | |
| Other liabilities | $ | 13.3 | | | $ | 13.2 | | | $ | — | | | $ | 2.7 | | | $ | 10.5 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2019 |
| (in millions) | Carrying Amount | | Fair Value | | Level 1 | | Level 2 | | Level 3 |
| Financial assets: | | | | | | | | | |
| Cash and cash equivalents | $ | 437.4 | | | $ | 437.4 | | | $ | 437.4 | | | $ | 0 | | | $ | 0 | |
| Equity securities | $ | 40.5 | | | $ | 40.5 | | | $ | 0 | | | $ | 40.5 | | | $ | 0 | |
| Held-to-maturity securities | $ | 6.7 | | | $ | 6.7 | | | $ | 0 | | | $ | 6.7 | | | $ | 0 | |
| Promissory notes | $ | 15.1 | | | $ | 15.1 | | | $ | 0 | | | $ | 15.1 | | | $ | 0 | |
| Financial liabilities: | | | | | | | | | |
| Long-term debt | | | | | | | | | |
| Senior Secured Credit Facilities | $ | 1,896.5 | | | $ | 1,930.6 | | | $ | 1,930.6 | | | $ | 0 | | | $ | 0 | |
| 5.625% Notes | $ | 399.4 | | | $ | 426.0 | | | $ | 426.0 | | | $ | 0 | | | $ | 0 | |
| Other long-term obligations | $ | 89.2 | | | $ | 89.7 | | | $ | 0 | | | $ | 89.7 | | | $ | 0 | |
| Other liabilities | $ | 20.3 | | | $ | 20.3 | | | $ | 0 | | | $ | 2.8 | | | $ | 17.5 | |
The following table summarizes the changes in fair value of our Level 3 liabilities measured on a recurring basis:
| | | | | |
| (in millions) | Other Liabilities |
(in millions) | Contingent Purchase Price |
Balance as of January 1, 20182020 | $ | 22.7 | |
| |
Payments | (4.2) | |
Included in earnings (1)
| 0.5 | |
Balance as of December 31, 2018 | 19.0 | |
| |
Payments | (8.5) | |
Included in earnings (1)
| 7.0 | |
Balance as of December 31, 2019 | 17.5 | |
| |
| Payments | (9.1) | |
Included in loss (1) | (1.1) | |
| Balance as of December 31, 2020 | 7.3 | |
| Additions | 75.5 | |
| Interest | 17.9 | |
| Payments | (1.7) | |
Included in earnings (1) | 1.9 | |
| Balance as of December 31, 2021 | 100.9 | |
| |
| Interest | 27.6 | |
| Payments | (2.7) | |
Included in earnings (1) | (0.6) | |
| Balance as of December 31, 2022 | $ | 7.3125.2 | |
(1)The expense is included in “General and administrative” within our Consolidated Statements of Operations and Comprehensive Income (Loss).Operations.
The following table sets forth the assets measured at fair value on a non-recurring basis duringas of December 31, 2022, which pertained to our Northeast segment. There were no impairment charges to goodwill, gaming licenses, and trademarks for the yearsyear ended December 31, 2020 and 2019:2021.
| | (in millions) | (in millions) | Valuation Date | | Valuation Technique | | Level 1 | | Level 2 | | Level 3 | | Total Balance | | Total
Reduction in
Fair Value
Recorded | (in millions) | Valuation Date | | Valuation Technique | | Level 1 | | Level 2 | | Level 3 | | Total Balance | | Total
Reduction in
Fair Value
Recorded |
Property and equipment (1) | 12/31/2020 | | Discounted cash flow | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | (7.3) | | |
| Gaming licenses | | Gaming licenses | 10/1/2022 | | Discounted cash flow | | $ | — | | | $ | — | | | $ | 74.0 | | | $ | 74.0 | | | $ | 13.6 | |
Goodwill (2)(1) | Goodwill (2)(1) | 3/31/2020 | | Discounted cash flow and market approach | | $ | 0 | | | $ | 0 | | | $ | 160.5 | | | $ | 160.5 | | | $ | (113.0) | | Goodwill (2)(1) | 9/30/2022 | | Discounted cash flow and market approach | | $ | — | | | $ | — | | | $ | 30.0 | | | $ | 30.0 | | | $ | 37.4 | |
Gaming licenses (2)(1) | Gaming licenses (2)(1) | 3/31/2020 | | Discounted cash flow | | $ | 0 | | | $ | 0 | | | $ | 568.0 | | | $ | 568.0 | | | $ | (437.0) | | Gaming licenses (2)(1) | 9/30/2022 | | Discounted cash flow | | $ | — | | | $ | — | | | $ | 101.0 | | | $ | 101.0 | | | $ | 65.4 | |
Trademarks (2) | 3/31/2020 | | Discounted cash flow | | $ | 0 | | | $ | 0 | | | $ | 216.5 | | | $ | 216.5 | | | $ | (61.5) | | |
| Goodwill | 10/1/2019 | | Discounted cash flow and market approach | | $ | 0 | | | $ | 0 | | | $ | 161.1 | | | $ | 161.1 | | | $ | (88.0) | | |
| Gaming licenses | 10/1/2019 | | Discounted cash flow | | $ | 0 | | | $ | 0 | | | $ | 290.0 | | | $ | 290.0 | | | $ | (62.6) | | |
| Trademarks | 10/1/2019 | | Discounted cash flow | | $ | 0 | | | $ | 0 | | | $ | 87.5 | | | $ | 87.5 | | | $ | (20.0) | | |
(1)The fair value, which was concluded to be zero, of our property and equipment associated with Tropicana was determined using Level 3 inputs. See Note 8, “Property and Equipment,” for more information.
The following table summarizes the significant unobservable inputs used in calculating fair value for our Level 3 liabilities on a recurring basis as of December 31, 2020:2022:
| | | | | | | | | | | | | | | | | |
| | Valuation Technique | | Unobservable Input | | Discount Rate |
| Other long-term obligation | Discounted cash flow | | Discount rate | | 27.0% |
| Contingent purchase price - Plainridge Park Casino | Discounted cash flow | | Discount rate | | 5.05%7.8% |
As discussed in Note 9, “Goodwill and Other Intangible Assets,” we recorded impairments on goodwill and our goodwill, gaming licenses, and trademarkswhich are indefinite-lived intangible assets, at the Hollywood Casino at Greektown reporting unit as a result of the third quarter of 2022 interim assessment for impairment during the first quarter of 2020.impairment. Our annual assessment for impairment as of October 1, 2020, did not result2022, resulted in anyan additional impairment charges to goodwill,charge on the gaming licenses and trademarks.license at PNRC. The following table presents quantitative information about the significant unobservable inputs used in the fair value measurements of other indefinite-lived intangible assets as of the valuation date below: | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Fair Value | | Valuation Technique | | Unobservable Input | | Range or Amount |
As of March 31, 2020 | | | | | | | |
Gaming licenses | $ | 568.0 | | | Discounted cash flow | | Discount rate | | 13.25% - 14.00% |
| | | | | Long-term revenue growth rate | | 2.0 | % |
Trademarks | $ | 216.5 | | | Discounted cash flow | | Discount rate | | 13.25% - 14.00% |
| | | | | Long-term revenue growth rate | | 2.0 | % |
| | | | | Pretax royalty rate | | 1.0% - 2.0% |
| | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Fair Value | | Valuation Technique | | Unobservable Input | | Range or Amount |
| As of December 31, 2022 | | | | | | | |
| Gaming licenses | $ | 74.0 | | | Discounted cash flow | | Discount rate | | 13.0 | % |
| | | | | Long-term revenue growth rate | | 2.0 | % |
| As of September 30, 2022 | | | | | | | |
| Gaming licenses | $ | 101.0 | | | Discounted cash flow | | Discount rate | | 13.0 | % |
| | | | | Long-term revenue growth rate | | 2.0 | % |
Note 20—Related Party Transactions
The Company currently leases executive office buildings in Wyomissing, Pennsylvania from affiliates of its Chairman Emerituschairman emeritus of the Board of Directors. Rent expense was $1.1 million, $1.2 million, and $1.2 million for the years ended December 31, 2022, 2021, and 2020, 2019respectively. One lease was renewed in the current year and 2018 was $1.2 million, $1.2 million and $1.3 million, respectively. Certain of the leases for the office space expiredwill expire in May 2019, but haveDecember 2025. The other long-term lease will expire in August 2026. The remaining lease, which had been extendedpreviously on a month-to-month basis; the remaining long-term lease for the office space expires in August 2024.basis, was terminated as of December 31, 2021. The future minimum lease commitments relating to these leases as of December 31, 2020 were $1.52022 are $2.7 million.
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company’s management, under the supervision and with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of the Company’s disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of December 31, 2020,2022, which is the end of the period covered by this Annual Report on Form 10-K. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well-designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, our principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective as of December 31, 20202022 to ensure that information required to be disclosed by the Company in reports we file or submit under the Exchange Act is (i) recorded, processed, summarized, evaluated and reported, as applicable, within the time periods specified in the United States Securities and Exchange Commission’s rules and forms and (ii) accumulated and communicated to the Company’s management, including the Company’s principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.
Management’s Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting, and concluded that it was effective as of December 31, 2020.2022. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control—Integrated Framework (2013 framework).
Deloitte & Touche LLP (PCAOB ID No. 34), the Company’s independent registered public accounting firm that audited the Consolidated Financial Statements for the year ended December 31, 2020,2022, issued an attestation report on the Company’s internal control over financial reporting which immediately follows this report.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the fiscal quarter ended December 31, 2020,2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Penn National Gaming,PENN Entertainment, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Penn National Gaming,PENN Entertainment, Inc. and subsidiaries (the “Company”) as of December 31, 2020,2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020,2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2020,2022, of the Company and our report dated February 26, 2021,23, 2023, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
| | |
| /s/ Deloitte & Touche LLP |
|
| Philadelphia, Pennsylvania |
February 26, 202123, 2023 |
ITEM 9B.OTHER INFORMATION
None.On October 9, 2022, the Company entered into a binding term sheet (the “Term Sheet”) with GLPI. Pursuant to the Term Sheet, the Company and GLPI agreed to amend and restate the PENN Master Lease (the “Amended and Restated PENN Master Lease”) to (i) remove the land and buildings for Hollywood Casino Aurora (“Aurora”), Hollywood Casino Joliet (“Joliet”), Hollywood Casino Columbus (“Columbus”), Hollywood Casino Toledo (“Toledo”) and the M Resort Spa Casino (“M Resort”); (ii) make associated adjustments to the rent after which the initial rent in the Amended and Restated PENN Master Lease will be $284.1 million, consisting of $208.2 million of Building Base Rent, $43.0 million of Land Base Rent and $32.9 million of Percentage Rent (as such terms are defined in the Amended and Restated PENN Master Lease); (iii) terminate the existing leases associated with Hollywood Casino at The Meadows (“Meadows”) and Perryville; and (iv) enter into a new master lease (the “2023 Master Lease”) specific to the properties associated with Aurora, Joliet, Columbus, Toledo, M Resort, Meadows and Perryville. Subsequent to year end, on February 21, 2023, both the Amended and Restated PENN Master Lease and the 2023 Master Lease agreement were executed with an effective date of January 1, 2023, and a master development agreement (the “Master Development Agreement”) was executed on February 22, 2023.
The 2023 Master Lease has an initial term through October 31, 2033 with three subsequent five-year renewal periods on the same terms and conditions, exercisable at the Company’s option. The 2023 Master Lease is cross-defaulted, cross-collateralized, and coterminous with the Amended and Restated PENN Master Lease, and subject to a parent guarantee. The 2023 Master Lease includes a base rent (the “2023 Master Lease Base Rent”) equal to $232.2 million and the Master Development Agreement contains additional rent (together with the 2023 Master Lease Base Rent, the “2023 Master Lease Rent”) equal to (i) 7.75% of any project funding received by PENN from GLPI for an anticipated relocation of PENN’s riverboat casino and related developments with respect to Aurora (the “Aurora Project”) and (ii) a percentage based on the then-current GLPI stock price, of any project funding received by PENN from GLPI for certain anticipated development projects with respect to Joliet, Columbus and M Resort (the “Other Development Projects”). The Master Development Agreement provides that GLPI will fund, upon PENN’s request, up to $225 million for the Aurora Project and up to $350 million in the aggregate for the Other Development Projects, in accordance with certain terms and conditions set forth in the Master Development Agreement. These funding obligations of GLPI expire on January 1, 2026. The 2023 Master Lease Rent will be subject to a one-time increase of $1.4 million, effective the fifth anniversary of the effective date. The 2023 Master Lease Rent will be further subject to a fixed escalator of 1.5% on November 1, 2023 and annually thereafter. The Master Development Agreement provides that PENN may elect not to proceed with a development project prior to GLPI’s commencement of any equity or debt offering or credit facility draw intended to fund such project or after such time in certain instances, provided that GLPI will be reimbursed for all costs and expenses incurred in connection with such discontinued project. The Aurora Project and the Other Development Projects are all subject to necessary regulatory and other government approvals.
The summary of the material terms of the Amended and Restated PENN Master Lease and the 2023 Master Lease agreements described above is qualified in its entirety by reference to each of the lease agreements, copies of which are attached hereto as Exhibit 10.22 and Exhibit 10.23, respectively, and are incorporated herein by reference.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
Not applicable.
PART III
ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The remaining information required by this item concerning directors and corporate governance is hereby incorporated by reference to the Company’s definitive proxy statement for its Annual Meeting of Shareholders (the “2021“2023 Proxy Statement”), to be filed with the U.S. Securities and Exchange Commission within 120 days after December 31, 2020,2022, pursuant to Regulation 14A under the Securities Act. Information required by this item concerning executive officers is included in Part I of this Annual Report on Form 10-K.
ITEM 11.EXECUTIVE COMPENSATION
The information required by this item is hereby incorporated by reference to the 20212023 Proxy Statement.
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS
The information required by this item is hereby incorporated by reference to the 20212023 Proxy Statement.
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required by this item is hereby incorporated by reference to the 20212023 Proxy Statement.
ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item is hereby incorporated by reference to the 20212023 Proxy Statement.
PART IV
ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES
| | | | | |
| (a) 1. | Financial Statements. |
| The following is a list of the Consolidated Financial Statements of the Company and its subsidiaries and supplementary data included herein under Itemitem 8 of Part II of this report, “Financial Statements and Supplementary Data”Data.”: |
| | | | | |
| 2. | Financial Statement Schedules. |
| All schedules have been omitted because they are not applicable, or not required, or because the required information is included in the Consolidated Financial Statements or notes thereto. |
| | | | | |
| 3. | Exhibits, Including Those Incorporated by Reference. |
| The exhibits to this Report are listed on the accompanying index to exhibits and are incorporated herein by reference or are filed as part of this annual report on Form 10-K. |
ITEM 16. FORM 10-K SUMMARY
We have elected not to disclose the optional summary information.
EXHIBIT INDEX
| | | | | | | | |
| Exhibit | | |
| Number | | Description of Exhibit |
2.1†† | | |
| | |
2.2†† | | Membership Interest Purchase Agreement by and among Boyd Gaming Corporation, Boyd TCIV, LLC, Penn National Gaming, Inc., Pinnacle Entertainment, Inc. and Pinnacle MLS, LLC, dated as of December 17, 2017 is hereby incorporated by reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K filed on December 20, 2017. (SEC File No. 000-24206) |
| | |
2.3†† | | Agreement and Plan of Merger dated as of June 18, 2018, among VICI Properties Inc., Riverview Merger Sub Inc., Penn Tenant II, LLC, Penn National Gaming, Inc., Bossier Casino Venture (HoldCo), Inc. and Silver Slipper Gaming, LLC is hereby incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on June 19, 2018. (SEC File No. 000-24206)
|
| | |
2.4†† | | |
| | |
2.5†† | | Stock Purchase Agreement by and among Penn National Gaming, Inc., Barstool Sports, Inc., TCG XII, LLC, TCG Digital Spots, LLC and the Individuals Set Forth on Schedule A, dated as of January 28, 2020 is hereby incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on January 29, 2020. (SEC File No. 000-24206) |
| | |
2.6†2.2†† | | Purchase Agreement by and among Tropicana Las Vegas, Inc., Penn National Gaming, Inc., GLP Capital, L.P., Gold Merger Sub, LLC, PA Meadows, LLC, Tropicana LV LLC and, solely for the purposes set forth therein, Gaming and Leisure Properties, Inc., dated as of April 16, 2020 is hereby incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on April 20, 2020. (SEC File No. 000-24206) |
| | |
2.7 2.3†† | | | Binding Term Sheet,Arrangement Agreement by and among Penn National Gaming, Inc., 1317774 B.C. LTD. and Score Media and Gaming Inc., dated as of March 27, 2020, by and between Penn National Gaming, Inc. and Gaming and Leisure Properties, Inc.August 4, 2021 is hereby incorporated by reference to Exhibit 2.1 to the Company’s Current Report onof Form 8-K filed on March 30, 2020.August 5, 2021. (SEC File No. 000-24206) |
| | |
| | | | | | | | |
| Exhibit | | |
| Number | | Description of Exhibit |
| 3.1 | | | Second Amended and Restated Articles of Incorporation of Penn National Gaming, Inc., filed with the Pennsylvania Department of State on October 15, 1996, as amended by the Articles of Amendments to the Amended and Restated Articles of Incorporation filed with the Pennsylvania Department of State on November 13, 1996, July 23, 2001 and December 28, 2007 and the Statement with Respect to Shares of Series C Convertible Preferred Stock of Penn National Gaming, Inc. dated as of January 17, 2013, and the Statement with Respect to Shares of Series D Convertible Preferred Stock of Penn National Gaming, Inc. dated as of February 19, 2020, and as further amended and restated by the Second Amended and Restated Articles of Incorporation of Penn National Gaming, Inc. filed with the Pennsylvania Department of State on June 17, 2021 is hereby incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on June 21, 2021. (SEC File No. 000-24206) |
| | |
| 3.1(a) | | |
| | |
| 3.2 | | | |
| | |
| 3.2(a) | | |
| | |
| 3.3 | | | |
| | |
| 3.4 | | | |
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| | | | | | | | |
Exhibit | | |
Number | | Description of Exhibit |
| 4.1 | | | |
| | |
| 4.1(a) | | |
| | |
| 4.2 | | | |
| | |
| 4.2(a) | | |
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| 4.2(b) | | |
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| 4.3 | | | |
| | |
9.1***4.4 | | | FormIndenture, dated as of Trust Agreement of Peter D. Carlino, Peter M. Carlino, Richard J. Carlino, David E. Carlino, Susan F. Harrington, Anne de Lourdes Irwin, Robert M. Carlino, Stephen P. CarlinoJuly 1, 2021, between Penn National Gaming, Inc. and Rosina E. Carlino GilbertWells Fargo Bank, National Association as Trustee, relating to the 4.125% Senior Notes due 2029 is hereby incorporated by reference to Exhibit 4.1 to the Company’s Registration StatementQuarterly Report on Form S-1, dated May 26, 1994.10-Q for the quarterly period ended September 30, 2021. (SEC File No. 33-77758)000-24206) |
| | |
10.1*†4.4(a) | | |
| | |
| | | | | | | | |
| Exhibit | | |
| Number | | Description of Exhibit |
| 10.1† | | Penn National Gaming, Inc. Deferred Compensation Plan , as amended and restated effective April 4, 2013, as amended by those certain amendments effective November 1, 2013, October 1, 2015, January 1, 2017, April 1, 2020 and October 1, 2020, respectively.respectively, is hereby incorporated by reference to Exhibit 10.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. (SEC File No. 000-24206) |
| | |
| 10.2† | | |
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| 10.2(a)† | | |
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10.2(b)† | | |
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10.2(c)† | | |
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10.2(d)† | | |
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10.2(e)†10.3† | | |
| | |
10.2(e)(i)† | | |
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| | | | | | | | |
Exhibit | | |
Number | | Description of Exhibit |
10.3† | | |
| | |
| 10.3(a)† | | |
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10.3(b)† | | |
| | |
10.3(c)† | | |
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10.3(d)† | | |
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10.3(e)† | | |
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10.3(f)† | | |
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10.3(f)(i)† | | |
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10.3(f)(ii)† | | |
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10.3(g)10.3(b)† | | |
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10.3(g)(i)† | | |
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10.3(h)10.3(c)† | | |
| | |
10.3(i)10.3(d)† | | |
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10.3(j)10.3(e)† | | |
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| 10.3(f)† | | |
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| 10.3(g)† | | |
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| 10.3(h)† | | |
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| 10.3(i)† | | |
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| 10.3(j)† | | |
| | | | | | | | |
| Exhibit | | |
| Number | | Description of Exhibit |
| | |
| 10.3(k)† | | |
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10.3(l)† | | |
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10.3(m)† | | |
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10.3(n)† | | |
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| 10.4† | | |
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| 10.4(a)† | | |
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| 10.4(b)† | | |
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| 10.4(c)† | | |
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| 10.4(d)† | | |
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| 10.4(e)† | | |
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| 10.4(f)† | | |
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| 10.5† | | |
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10.5(a)† | | |
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| 10.6† | | |
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| 10.7† | | |
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| 10.7(a)† | | |
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| 10.7(b)† | | |
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| 10.7(c)† | | |
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| | | | | | | | |
| Exhibit | | |
| Number | | Description of Exhibit |
| | |
| 10.8† | | |
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| 10.8(a)† | | |
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| 10.8(b)† | | |
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10.9*†10.9† | | |
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10.10*†10.10† | | |
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10.11† | | |
| | |
10.11(a)10.11*† | | |
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10.11(b)† | | |
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10.11(c)† | | |
| | |
| 10.12† | | Executive Agreement, dated as of January 29, 2019 and effective as of October 15, 2018, by andMarch 10, 2022, between Penn National Gaming,PENN Entertainment, Inc. and Christine LaBombardChristopher Rogers is hereby incorporated by reference to Exhibit 10.1 to the Company’s CurrentQuarterly Report on Form 8-K filed on January 31, 2019.10-Q for the quarterly period ended September 30, 2022. (SEC File No. 000-24206) |
| | |
10.13 10.13* | | | Lease Agreement, dated March 31, 1995 between Wyomissing Professional Center III, LP and Penn National Gaming, Inc., as amended by certain amendments dated April 15, 1997, October 30, 1997, April 23, 1998, November 16, 1999, August 21, 2000, April 5, 2005, November 20, 2007, and May 25, 2012, respectively is hereby incorporated by reference to Exhibit 10.10 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. (SEC File No. 000-24206)May 12, 2021, and November 10, 2022. |
| | |
| 10.14 | | | Lease, dated January 30, 2002 between Wyomissing Professional Center II, LP and Penn National Gaming, Inc. as amended by certain amendments dated May 23, 2002, December 4, 2002, January 29, 2003, October 19, 2010, May 25, 2012, and September 1, 2017, and May 12, 2021, respectively, is hereby incorporated by reference to Exhibit 10.1110.13 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.2021. (SEC File No. 000-24206) |
| | |
10.15 | | | |
| | |
10.16†10.15†† | | |
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| | | | | | | | |
Exhibit | | |
Number | | Description of Exhibit |
10.16(a)10.15(a) | | |
| | |
10.16(b)10.15(b) | | |
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10.16(c)10.15(c) | | |
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10.16(d)10.15(d) | | |
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| | | | | | | | |
10.16(e)Exhibit | | |
| Number | | Description of Exhibit |
| 10.15(e) | | |
| | |
10.16(f)10.15(f) | | |
| | |
10.16(g)10.15(g) | | |
| | |
10.16(h)10.15(h) | | |
| | |
10.17†10.15(i) | | |
| | |
10.16††
| | |
| | |
10.17(a)10.16(a) | | |
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10.17(b)10.16(b) | | |
| | |
10.17(c)10.16(c) | | |
| | |
10.17(d)††10.16(d)
| | |
| | |
10.1810.16(e) | | |
| | |
| 10.17 | | | |
| | |
10.19†10.18†† | | |
| | |
10.19††
| | Second Amended and Restated Credit Agreement, dated as of May 3, 2022, by and among Penn National Gaming, Inc., as borrower, the guarantors from time to time party thereto, the lenders from time to time party thereto, Bank of America, N.A., as administrative agent and as collateral agent., is hereby incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022. (SEC File No. 000-24206) |
| | |
| | | | | | | | |
| Exhibit | | |
| Number | | Description of Exhibit |
| | |
| 10.20 | | | Second Amendment and Refinancing Agreement, dated as of January 19, 2017, by and among Penn National Gaming, Inc., as borrower, the guarantors party thereto, the lenders party thereto, Bank of America, N.A., as swingline lender, Bank of America, N.A., as administrative agent and Bank of America, N.A., as collateral agent, is hereby incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on January 20, 2017. (SEC File No. 000-24206) |
| | |
10.21 | | | Amended and Restated Credit Agreement, dated as of January 19, 2017, by and among Penn National Gaming, Inc., as borrower, the guarantors from time to time party thereto, the lenders from time to time party thereto, Bank of America, N.A., as administrative agent, Bank of America, N.A., as collateral agent and the other parties thereto, is hereby incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on January 20, 2017. (SEC File No. 000-24206) |
| | |
10.21(a) | | First Amendment to Amended and Restated Credit Agreement dated as of February 23, 2018, among Penn National Gaming, Inc., certain subsidiaries of Penn National Gaming, Inc. party thereto as guarantors, each consenting lender and Bank of America, N.A., as letter of credit lender, swingline lender, administrative agent and collateral agent is hereby incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 28, 2018. (SEC File No. 000-24206) |
| | |
10.21(b) | | Second Amendment to Amended and Restated Credit Agreement dated as of April 14, 2020, by and among Penn National Gaming, Inc., the guarantors party thereto, the lenders party thereto and Bank of America, N.A., as letter of credit lender, swingline lender, administrative agent and collateral agent is hereby incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 20, 2020. (SEC File No. 000-24206) |
| | |
10.21(c)††
| | Incremental Joinder Agreement No. 1, dated as of October 15, 2018, by and among Penn National Gaming, Inc., certain subsidiaries of Penn National Gaming, Inc. party thereto as guarantors, Bank of America, N.A., as letter of credit lender, swingline lender, administrative agent and collateral agent and the lenders party thereto is hereby incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 15, 2018. (SEC File No. 000-24206) |
| | |
10.22 | | | |
| | |
10.2310.21 | | | |
| | |
10.24 | | | |
| | |
10.24(a) | | |
| | |
10.24(b) | | |
| | |
10.25†† | | Membership Interest Purchase Agreement,Binding Term Sheet, dated as of June 18, 2018,October 9, 2022, by and among VICIPENN Entertainment, Inc. and Gaming and Leisure Properties, Inc., Riverview Merger Sub Inc., Penn Tenant II, LLC and Penn National Gaming, Inc. is hereby incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 19, 2018.October 11, 2022. (SEC File No. 000-24206) |
| | |
| 10.22 | | | |
| | |
| 10.23 | | | |
| | |
| 21.1* | | |
| | |
| | | | | | | | |
Exhibit | | |
Number | | Description of Exhibit |
| 23.1* | | |
| | |
| 31.1* | | |
| | |
| 31.2* | | |
| | |
| 32.1** | | |
| | |
| 32.2** | | |
| | |
| 99.1* | | |
| | |
| 101.INS | | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
| | |
| 101.SCH | | Inline XBRL Taxonomy Extension Schema Document |
| | |
| 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| | |
| 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| | |
| 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document |
| | |
| 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| | |
| 104 | | Cover Page Inline XBRL File (included in Exhibit 101) |
| | |
| * | | Filed herewith. |
| ** | | Furnished herewith. |
*** | | Paper filing. |
| † | | Management contract or compensatory plan or arrangement. |
| †† | | Annexes, schedules and/or exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Penn National Gaming,PENN Entertainment, Inc. agrees to furnish supplementally a copy of any omitted attachment to the SEC on a confidential basis upon request. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | | | | |
| | | PENN NATIONAL GAMING,ENTERTAINMENT, INC. |
| Dated: | February 26, 202123, 2023 | By: | /s/ Jay A. Snowden |
| | | Jay A. Snowden |
| | | President and Chief Executive Officer and President |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | | | | | | | | | | | |
| Signature | | Title | | Date |
| | | | |
| /s/ Jay A. Snowden | | President, Chief Executive Officer, President and Director
(Principal Executive Officer) | | February 26, 202123, 2023 |
| Jay A. Snowden | | |
| | | | | |
| /s/ Felicia R. Hendrix | | Executive Vice President and Chief Financial Officer (Principal Financial Officer) | | February 23, 2023 |
| Felicia R. Hendrix | | |
| | |
| | | | |
| /s/ Christine LaBombard | | Senior Vice President and Chief Accounting Officer
(Principal Financial Officer and Principal Accounting Officer) | | February 26, 202123, 2023 |
| Christine LaBombard | | |
| | | | |
| /s/ Vimla Black-Gupta | | Director | | February 23, 2023 |
| Vimla Black-Gupta | | |
| | | | |
| /s/ David A. Handler | | Director, Chairman of the Board | | February 26, 202123, 2023 |
| David A. Handler | | |
| | | | |
| /s/ John M. Jacquemin | | Director | | February 26, 202123, 2023 |
| John M. Jacquemin | | |
| | | | |
| /s/ Marla Kaplowitz | | Director | | February 26, 202123, 2023 |
| Marla Kaplowitz | | |
| | | | |
| /s/ Ronald J. Naples | | Director | | February 26, 202123, 2023 |
| Ronald J. Naples | | |
| | | | |
| /s/ Saul V. Reibstein | | Director | | February 26, 202123, 2023 |
| Saul V. Reibstein | | |
| | | | |
/s/ Barbara Z. Shattuck Kohn | | Director | | February 26, 2021 |
Barbara Z. Shattuck Kohn | | |
| | | | |
| /s/ Jane Scaccetti | | Director | | February 26, 202123, 2023 |
| Jane Scaccetti | | |
| | | | |
| /s/ Barbara Z. Shattuck Kohn | | Director | | February 23, 2023 |
| Barbara Z. Shattuck Kohn | | |
