Bally's Corp 10-Q/A

ITEM 1. Financial Statements BALLY’S CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (In thousands, except share data) June 30, 2022 December 31, 2021 Assets Cash and cash equivalents $ 176,158 $ 206,193 Restricted cash 55,198 68,647 Accounts receivable, net 57,709 48,178 Inventory 14,502 11,489 Tax receivable 59,996 128,217 Prepaid expenses and other current assets 89,372 104,463 Total current assets 452,935 567,187 Property and equipment, net 820,454 838,651 Right of use assets, net 642,885 507,843 Goodwill 1,970,058 2,122,653 Intangible assets, net 2,310,249 2,477,952 Deferred tax asset 14,087 11,922 Other assets 25,325 27,009 Total assets $ 6,235,993 $ 6,553,217 Liabilities and Stockholders’ Equity Current portion of long-term debt $ 19,450 $ 19,450 Current portion of lease liabilities 30,753 24,506 Accounts payable 71,419 87,540 Accrued income taxes 40,771 37,208 Accrued liabilities 342,686 401,428 Total current liabilities 505,079 570,132 Long-term debt, net 3,336,617 3,426,777 Long-term portion of lease liabilities 637,949 506,475 Pension benefit obligations 4,165 4,647 Deferred tax liability 185,198 214,467 Naming rights liabilities 129,300 168,929 Contingent consideration payable 8,701 34,931 Other long-term liabilities 11,059 11,057 Total liabilities 4,818,068 4,937,415 Commitments and contingencies Stockholders’ equity: Common stock ($ 0.01 par value, 200,000,000 shares authorized; 52,577,251 and 53,050,055 shares issued; 52,577,251 and 52,254,477 shares outstanding) 525 530 Preferred stock ($ 0.01 par value; 10,000,000 shares authorized; no shares outstanding) — — Additional paid-in-capital 1,838,238 1,849,068 Treasury stock, at cost — ( 29,166 ) Retained deficit ( 127,434 ) ( 181,581 ) Accumulated other comprehensive loss ( 297,164 ) ( 26,809 ) Total Bally’s Corporation stockholders’ equity 1,414,165 1,612,042 Non-controlling interest 3,760 3,760 Total stockholders’ equity 1,417,925 1,615,802 Total liabilities and stockholders’ equity $ 6,235,993 $ 6,553,217 See accompanying notes to condensed consolidated financial statements. 3 BALLY’S CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (In thousands, except per share data) Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Revenue: Gaming $ 455,088 $ 207,490 $ 918,790 $ 362,768 Hotel 33,929 22,315 60,864 35,374 Food and beverage 27,435 23,382 51,423 38,882 Retail, entertainment and other 36,044 14,546 69,690 22,975 Total revenue 552,496 267,733 1,100,767 459,999 Operating (income) costs and expenses: Gaming 204,051 63,350 423,263 110,604 Hotel 9,731 7,506 18,313 12,655 Food and beverage 21,898 17,004 40,854 29,213 Retail, entertainment and other 14,755 2,021 27,854 3,818 Advertising, general and administrative 181,707 101,211 363,323 181,710 Goodwill and asset impairment — 4,675 — 4,675 Expansion and pre-opening 717 937 717 1,540 Acquisition, integration and restructuring 10,112 18,402 15,392 30,660 Gain from insurance recoveries, net of losses 14 ( 579 ) ( 150 ) ( 11,255 ) Rebranding 185 382 474 1,295 Gain on sale-leaseback, net ( 50,766 ) ( 53,425 ) ( 50,766 ) ( 53,425 ) Depreciation and amortization 74,773 25,717 153,654 38,503 Total operating costs and expenses 467,177 187,201 992,928 349,993 Income from operations 85,319 80,532 107,839 110,006 Other income (expense): Interest income 148 530 310 1,054 Interest expense, net of amounts capitalized ( 45,976 ) ( 21,829 ) ( 91,823 ) ( 42,627 ) Change in value of naming rights liabilities 20,032 19,070 33,411 ( 8,336 ) Gain (adjustment) on bargain purchases — 24,114 ( 107 ) 24,114 Other, net 5,412 ( 6,494 ) 11,619 ( 3,823 ) Total other income (expense), net ( 20,384 ) 15,391 ( 46,590 ) ( 29,618 ) Income before income taxes 64,935 95,923 61,249 80,388 Provision (benefit) for income taxes 5,434 26,981 ( 141 ) 22,151 Net income $ 59,501 $ 68,942 $ 61,390 $ 58,237 Basic earnings per share $ 0.98 $ 1.43 $ 1.02 $ 1.39 Weighted average common shares outstanding - basic 60,506 48,156 60,263 42,038 Diluted earnings per share $ 0.98 $ 1.40 $ 1.02 $ 1.37 Weighted average common shares outstanding - diluted 60,541 49,102 60,332 42,374 See accompanying notes to condensed consolidated financial statements. 4 BALLY’S CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME (LOSS) (unaudited) (In thousands) Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Net income $ 59,501 $ 68,942 $ 61,390 $ 58,237 Other comprehensive income (loss): Foreign currency translation adjustment $ ( 198,813 ) $ 419 $ ( 270,355 ) $ ( 633 ) Defined benefit pension plan reclassification adjustment (1) — 41 — 81 Other comprehensive (loss) income ( 198,813 ) 460 ( 270,355 ) ( 552 ) Total comprehensive (loss) income $ ( 139,312 ) $ 69,402 $ ( 208,965 ) $ 57,685 __________________________________ (1) Tax effect of reclassification adjustment was de minimis. See accompanying notes to condensed consolidated financial statements. 5 BALLY’S CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited) (In thousands, except share data) Common Stock Additional Paid-in Capital Treasury Stock Retained (Deficit) Earnings Accumulated Other Comprehensive Loss Non-controlling Interest Total Stockholders’ Equity Shares Outstanding Amount Balance as of December 31, 2021 52,254,477 $ 530 $ 1,849,068 $ ( 29,166 ) $ ( 181,581 ) $ ( 26,809 ) $ 3,760 $ 1,615,802 Release of restricted stock 122,849 1 ( 2,534 ) — — — — ( 2,533 ) Share-based compensation — — 5,095 — — — — 5,095 Retirement of treasury shares — ( 11 ) ( 35,200 ) 42,454 ( 7,243 ) — — — Share repurchases ( 350,616 ) — — ( 13,288 ) — — — ( 13,288 ) Stock options exercised 20,000 — 86 — — — — 86 Penny warrants exercised 383,934 4 — — — — — 4 Issuance of MKF penny warrants — — 12,010 — — — — 12,010 Settlement of consideration to SportCaller 107,832 1 3,699 — — — — 3,700 Other comprehensive loss — — — — — ( 71,542 ) — ( 71,542 ) Net income — — — — 1,889 — — 1,889 Balance as of March 31, 2022 52,538,476 $ 525 $ 1,832,224 $ — $ ( 186,935 ) $ ( 98,351 ) $ 3,760 $ 1,551,223 Release of restricted stock 38,775 — ( 308 ) — — — — ( 308 ) Share-based compensation — — 6,322 — — — — 6,322 Other comprehensive loss — — — — — ( 198,813 ) — ( 198,813 ) Net income — — — — 59,501 — — 59,501 Balance as of June 30, 2022 52,577,251 $ 525 $ 1,838,238 $ — $ ( 127,434 ) $ ( 297,164 ) $ 3,760 $ 1,417,925 6 BALLY’S CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited) (In thousands, except share data) Common Stock Additional Paid-in Capital Treasury Stock Retained Earnings Accumulated Other Comprehensive Loss Non-controlling Interest Total Stockholders’ Equity Shares Outstanding Amount Balance as of December 31, 2020 30,685,938 $ 307 $ 294,643 $ — $ 34,792 $ ( 3,144 ) $ — $ 326,598 Release of restricted stock 23,811 — ( 990 ) — — — — ( 990 ) Share-based compensation — — 4,483 — — — — 4,483 Stock options exercised 30,000 — 129 — — — — 129 Penny warrants exercised 932,949 9 — ( 9 ) — — — — Reclassification of Sinclair options — — 59,724 — — — — 59,724 Issuance of MKF penny warrants — — 64,694 — — — — 64,694 Shares issued for purchase of SportCaller 221,391 2 11,774 — — — — 11,776 Other comprehensive loss — — — — — ( 1,012 ) — ( 1,012 ) Net loss — — — — ( 10,705 ) — — ( 10,705 ) Balance as of March 31, 2021 31,894,089 $ 318 $ 434,457 $ ( 9 ) $ 24,087 $ ( 4,156 ) $ — $ 454,697 Release of restricted stock 9,181 — ( 205 ) ( 116 ) — — — (321) Share-based compensation — — 3,901 — — — — 3,901 Retirement of treasury shares — ( 21 ) ( 28,488 ) 114,842 ( 86,333 ) — — — Common stock offering 12,650,000 127 667,746 — — — — 667,873 Sinclair shares exchanged for penny warrants ( 2,086,908 ) — 114,717 ( 114,717 ) — — — — Sinclair issuance of penny warrants — — 50,000 — — — — 50,000 Bally’s Interactive equity issuance 2,084,765 21 121,479 — — — — 121,500 Stock options exercised 40,000 — 172 — — — — 172 Other comprehensive income — — — — — 460 — 460 Net loss — — — — 68,942 — — 68,942 Balance as of June 30, 2021 44,591,127 $ 445 $ 1,363,779 $ — $ 6,696 $ ( 3,696 ) $ — $ 1,367,224 See accompanying notes to condensed consolidated financial statements. 7 BALLY’S CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Six Months Ended June 30, (in thousands) 2022 2021 Cash flows from operating activities: Net income $ 61,390 $ 58,237 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 153,654 38,503 Non-cash lease expense 14,456 2,409 Share-based compensation 11,417 8,384 Goodwill and asset impairment — 4,675 Amortization of debt discount and debt issuance costs 5,124 3,144 Gain from insurance recoveries — ( 11,160 ) Gain on sale-leaseback, net ( 50,766 ) ( 53,425 ) Deferred income taxes ( 28,879 ) ( 2,525 ) Loss on assets and liabilities measured at fair value 567 15,069 Change in value of naming rights liabilities ( 33,411 ) 8,336 Change in contingent consideration payable ( 10,175 ) ( 11,703 ) Adjustment (gain) on bargain purchase 107 ( 24,114 ) Other operating activities 1,520 2,761 Changes in current operating assets and liabilities 39,540 ( 4,366 ) Net cash provided by operating activities 164,544 34,225 Cash flows from investing activities: Cash paid for acquisitions, net of cash acquired — ( 332,029 ) Proceeds from sale-leaseback 150,000 144,000 Foreign exchange forward contract premiums — ( 22,592 ) Capital expenditures ( 116,081 ) ( 35,785 ) Insurance proceeds from hurricane damage — 11,160 Cash paid for internally developed software ( 31,455 ) — Acquisition of gaming licenses ( 51,560 ) ( 250 ) Purchase of equity securities ( 3,175 ) — Other intangible asset acquisitions ( 1,825 ) — Other investing activities ( 1,738 ) ( 231 ) Net cash used in investing activities ( 55,834 ) ( 235,727 ) Cash flows from financing activities: Issuance of long-term debt 110,000 275,000 Repayments of long-term debt ( 204,725 ) ( 37,875 ) Payment of financing fees — ( 5,840 ) Payment of deferred consideration ( 30,025 ) — Share repurchases ( 13,288 ) — Issuance of common stock, net — 667,872 Issuance of Sinclair penny warrants — 50,000 Other financing activities ( 2,752 ) ( 1,010 ) Net cash (used in) provided by financing activities ( 140,790 ) 948,147 Effect of foreign currency on cash and cash equivalents ( 11,404 ) 483 Net change in cash and cash equivalents and restricted cash ( 43,484 ) 747,128 Cash and cash equivalents and restricted cash, beginning of period 274,840 126,555 Cash and cash equivalents and restricted cash, end of period $ 231,356 $ 873,683 Supplemental disclosure of cash flow information: Cash paid for interest, net of amounts capitalized $ 93,976 $ 36,718 Cash received from income tax refunds, net of cash paid ( 56,224 ) 17,396 Non-cash investing and financing activities: Unpaid property and equipment $ 32,403 $ 6,868 Stock and equity instruments issued for acquisition of SportCaller and Monkey Knife Fight — 197,968 Acquisitions in exchange for contingent liability — 58,685 Deferred purchase price payable — 14,071 Deposit applied to acquisition purchase price — 4,000 See accompanying notes to condensed consolidated financial statements. 8 BALLY’S CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. GENERAL INFORMATION Description of Business Bally’s Corporation (the “Company”, “Bally’s”, “we” or “us”) is a global gaming, hospitality and entertainment company with casinos and resorts and online gaming (“iGaming”) business-to-business-to-consumer (“B2B2C”) businesses. The Company owns and manages the following casino and resort properties: Casinos and Resorts Location Type Built/Acquired Bally’s Twin River Lincoln Casino Resort (“Bally’s Twin River”) Lincoln, Rhode Island Casino and Resort 2004 Bally’s Arapahoe Park Aurora, Colorado Racetrack/OTB Site 2004 Hard Rock Hotel & Casino Biloxi (“Hard Rock Biloxi”) Biloxi, Mississippi Casino and Resort 2014 Bally’s Tiverton Casino & Hotel (“Bally’s Tiverton”) Tiverton, Rhode Island Casino and Hotel 2018 Bally’s Dover Casino Resort (“Bally’s Dover”) (1) Dover, Delaware Casino, Resort and Raceway 2019 Bally’s Black Hawk (1)(2) Black Hawk, Colorado Three Casinos 2020 Bally’s Kansas City Casino (“Bally’s Kansas City”) Kansas City, Missouri Casino 2020 Bally’s Vicksburg Casino (“Bally’s Vicksburg”) Vicksburg, Mississippi Casino and Hotel 2020 Bally’s Atlantic City Casino Resort (“Bally’s Atlantic City”) Atlantic City, New Jersey Casino and Hotel 2020 Bally’s Shreveport Casino & Hotel (“Bally’s Shreveport”) Shreveport, Louisiana Casino and Hotel 2020 Bally’s Lake Tahoe Casino Resort (“Bally’s Lake Tahoe”) Lake Tahoe, Nevada Casino and Resort 2021 Bally’s Evansville Casino & Hotel (“Bally’s Evansville”) (1) Evansville, Indiana Casino and Hotel 2021 Bally’s Quad Cities Casino & Hotel (“Bally’s Quad Cities”) (1) Rock Island, Illinois Casino and Hotel 2021 __________________________________ (1) Properties leased from Gaming and Leisure Properties, Inc. (“GLPI”) under the Master Lease agreement. Refer to Note 13 “ Leases ” for further information. The Company completed its sale-leaseback of Bally’s Quad Cities and Bally’s Black Hawk on April 1, 2022. (2) Includes Bally’s Black Hawk North Casino, Bally’s Black Hawk West Casino and Bally’s Black Hawk East Casino. Under the North America Interactive reportable segment, the Company owns and manages the following businesses: • Bally’s Interactive, a B2B2C sportsbook and iCasino platform provider and operator; • Horses Mouth Limited (“SportCaller”), a business-to-business (“B2B”) free-to-play game provider for sports betting companies; • Monkey Knife Fight (“MKF”), a business-to-consumer daily fantasy sports (“DFS”) platform and operator; • Joker Gaming, known as Live at the Bike, an online subscription streaming service featuring livestream and on-demand poker videos and podcasts; • the Association of Volleyball Professionals (“AVP”), a premier professional beach volleyball organization and host of the longest-running domestic beach volleyball tour in the United States (“US”); • Telescope Inc. (“Telescope”), a leading provider of real-time audience engagement solutions for live events, gamified second screen experiences and interactive livestreams; and • Degree 53, a United Kingdom (“UK”)-based creative agency that specializes in multi-channel website and personalized mobile app and software development for the online gambling and sports industries. The North America Interactive reportable segment also includes the North American operations of Gamesys. The Company’s International Interactive reportable segment includes the interactive activities in Europe and Asia of Gamesys Group Ltd. (“Gamesys”), a B2B2C iCasino and online bingo platform provider and operator, acquired by the Company on October 1, 2021, and Solid Gaming, a games content aggregation business. Refer to Note 18 “ Segment Reportin g” for further information. The Company’s common stock is listed on the New York Stock Exchange (“NYSE”) under the ticker symbol “BALY.” 9 BALLY’S CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Basis of Presentation The accompanying unaudited condensed consolidated financial statements of the Company include the accounts of the Company, its majority-owned subsidiaries and entities the Company identifies as variable interest entities (“VIEs”), of which the Company is determined to be the primary beneficiary. All intercompany transactions and balances have been eliminated in the consolidation. Certain prior year amounts have been reclassified to conform to the current year’s presentation. The financial statements of our foreign subsidiaries are translated into US dollars using exchange rates in effect at period-end for assets and liabilities and average exchange rates during each reporting period for results of operations. Adjustments resulting from financial statement translations are reflected as a separate component of accumulated other comprehensive income (loss). Foreign currency transaction gains and losses are included in net income (loss). The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules of the Securities and Exchange Commission (the “SEC”) for interim financial information, including the instructions to Form 10-Q and Rule 10-01 of the SEC’s Regulation S-X. Accordingly, certain information and note disclosures normally required in complete financial statements prepared in conformity with accounting principles generally accepted in the United States have been condensed or omitted. In the Company’s opinion, these condensed consolidated financial statements include all adjustments necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in Amendment No. 1 on Form 10-K/A to the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. There were no material changes in significant accounting policies from those described in Amendment No. 1 on Form 10-K/A to the Company’s Annual Report on Form 10-K. We have made estimates and judgments affecting the amounts reported in our condensed consolidated financial statements and the accompanying notes. The actual results that we experience may differ materially from our estimates. Correction of Cash Flow Classification Subsequent to the issuance of the Company’s Form 10-Q for the quarterly period ended June 30, 2021, the Company concluded that the $144.0 million in proceeds from the sale-leaseback of the Company’s Dover property were incorrectly classified as cash provided by financing activities rather than cash provided by investing activities within the Company’s unaudited condensed consolidated statement of cash flows for the six months ended June 30, 2021. The accompanying unaudited condensed consolidated statement of cash flows for the six months ended June 30, 2022 correctly reflects such amount as cash provided by investing activities. COVID-19 Pandemic As of June 30, 2022, the Company’s properties are all operating with minimal restrictions. Although the Company is experiencing positive trends as a result of the reopening of its properties, the COVID-19 pandemic is ongoing and future developments, which are uncertain and cannot be predicted at this time, could have a material negative impact on operations. 10 BALLY’S CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 2. SIGNIFICANT ACCOUNTING POLICIES Correction of Previously Reported Consolidated Financial Statements As previously disclosed in Note 23 to the Company’s consolidated financial statements as of and for the year ended December 31, 2021 (the “2021 financial statements”) included in Amendment No. 1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, the Company revised its 2021 financial statements to correct an immaterial accounting error that pertained to a foreign exchange translation loss of approximately $ 42.9 million that was incorrectly recognized as a component of accumulated other comprehensive income (loss) in the Company’s consolidated statement of comprehensive income (loss) rather than as other income/(expense) in the Company’s consolidated statement of operations for the year ended December 31, 2021. As a result, the accompanying consolidated balance sheets as of June 30, 2022 and December 31, 2021 and consolidated statement of stockholders’ equity for the three and six months ended June 30, 2022 have been revised to give effect to the correction of this error by decreasing previously reported accumulated other comprehensive loss and increasing previously reported accumulated deficit as of June 30, 2022 and December 31, 2021 by approximately $ 42.9 million, respectively. Cash and Cash Equivalents and Restricted Cash The Company considers all cash balances and highly liquid investments with an original maturity of three months or less to be cash and cash equivalents. As of June 30, 2022 and December 31, 2021, restricted cash of $ 55.2 million and $ 68.6 million, respectively, consisted primarily of player deposits and payment service provider deposits in connection with the Company’s iGaming operations. Restricted cash also includes Video Lottery Terminal (“VLT”) and table games cash payable to the State of Rhode Island and certain cash accounts at other properties, which are unavailable for the Company’s use. The following table reconciles cash and restricted cash in the condensed consolidated balance sheets to the total shown on the condensed consolidated statements of cash flows. June 30, December 31, (in thousands) 2022 2021 Cash and cash equivalents $ 176,158 $ 206,193 Restricted cash 55,198 68,647 Total cash and cash equivalents and restricted cash $ 231,356 $ 274,840 Accounts Receivable, Net Accounts receivable, net consists of the following: June 30, December 31, (in thousands) 2022 2021 Amounts due from Rhode Island and Delaware (1) $ 13,729 $ 10,575 Gaming receivables 12,110 10,576 Non-gaming receivables 37,485 31,481 Accounts receivable 63,324 52,632 Less: Allowance for doubtful accounts ( 5,615 ) ( 4,454 ) Accounts receivable, net $ 57,709 $ 48,178 __________________________________ (1) Represents the Company’s share of VLT and table games revenue for Bally’s Twin River and Bally’s Tiverton due from the State of Rhode Island and from the State of Delaware for Bally’s Dover. 11 BALLY’S CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Gain from insurance recoveries, net of losses Gain from insurance recoveries, net of losses, relate to losses incurred resulting from storms impacting the Company’s properties, net of insurance recovery proceeds. The Company recorded a gain from insurance recoveries, net of losses, of $ 0.6 million for the three months ended June 30, 2021 and $ 0.2 million and $ 11.3 million for the six months ended June 30, 2022 and 2021, respectively, primarily attributable to insurance proceeds received due to the effects of Hurricane Zeta which made landfall in Louisiana shutting down the Company’s Hard Rock Biloxi property for three days during the fourth quarter of 2020. Gaming Expenses Gaming expenses include, among other things, payroll costs and expenses associated with the operation of VLTs, slots and table games, including gaming taxes payable to jurisdictions in which the Company operates outside of Rhode Island and Delaware, and advertising costs directly associated with the sale of the Company’s interactive gaming products and services. Gaming expenses also includes racing expenses comprised of payroll costs, off track betting (“OTB”) commissions and other expenses associated with the operation of live racing and simulcasting. Advertising Expense The Company expenses advertising costs as incurred. For the three months ended June 30, 2022 and 2021, advertising expense was $ 52.1 million and $ 1.7 million, respectively. For the six months ended June 30, 2022 and 2021, advertising expense was $ 117.4 million and $ 3.0 million, respectively. Advertising expense attributable to the Company’s interactive business included within Gaming expenses for the three and six months ended June 30, 2022 was $ 49.7 million and $ 112.7 million, respectively. There was no advertising expense attributable to the Company’s interactive business included within Gaming expenses for the three and six months ended June 30, 2021. Strategic Partnership - Sinclair Broadcast Group On November 18, 2020, the Company and Sinclair Broadcast Group, Inc. (“Sinclair”) entered into a Framework Agreement (the “Sinclair Agreement”), which provides for a long-term strategic relationship between the Company and Sinclair combining Bally’s integrated, proprietary sports betting technology with Sinclair’s portfolio of local broadcast stations and live regional sports networks and its Tennis Channel, Stadium sports network and STIRR streaming service, whereby the Company will receive naming rights to the regional sports networks and certain integrations to network programming in exchange for annual fees paid in cash, the issuance of warrants and options, and an agreement to share in certain tax benefits resulting from the Tax Receivable Agreement (“TRA”) with Sinclair. The initial term of the agreement is ten years from the commencement date of the re-branded Sinclair regional sports networks and can be renewed for one additional five-year term unless either the Company or Sinclair elect not to renew. Naming Rights Intangible Asset - Under the terms of the Sinclair Agreement, the Company is required to pay annual naming rights fees to Sinclair for naming rights of the regional sports networks which escalate annually and total $ 88.0 million over the 10-year term of the agreement beginning April 1, 2021. The Company accounted for this transaction as an asset acquisition in accordance with the “Acquisition of Assets Rather Than a Business” subsections of Accounting Standards Codification (“ASC”) 805-50, Business Combinations—Related Issues , using a cost accumulation model. The naming rights intangible asset represents the consideration transferred on the acquisition date comprised of the present value of annual naming rights fees, the fair value of the warrants and options and an estimate of the TRA payments, each explained below. The naming rights intangible asset was $ 288.5 million and $ 311.7 million as of June 30, 2022 and December 31, 2021, respectively. Amortization began on April 1, 2021, the commencement date of the re-branded Sinclair regional sports networks, and was $ 8.4 million and $ 8.6 million for the three months ended June 30, 2022 and 2021, respectively, and $ 16.8 million and $ 8.6 million for the six months ended June 30, 2022 and 2021, respectively. Refer to Note 8 “ Goodwill and Intangible Assets ” for further information. 12 BALLY’S CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Naming Rights Fees - The present value of the annual naming rights fees was recorded as part of the cost of the naming rights intangible asset with a corresponding liability which will be accreted through interest expense over the life of the agreement. The total value of the liability as of June 30, 2022 and December 31, 2021 was $ 59.1 million and $ 58.9 million, respectively. The short-term portion of the liability, which was $ 2.0 million as of June 30, 2022 and December 31, 2021, is recorded within “Accrued liabilities” and the long-term portion of the liability, which was $ 57.1 million and $ 56.9 million as of June 30, 2022 and December 31 2021, respectively, is recorded within “Naming rights liabilities” in the condensed consolidated balance sheets. Accretion expense reported in “Interest expense, net of amounts capitalized” in the condensed consolidated statements of operations was $ 1.1 million and $ 1.1 million for the three months ended June 30, 2022 and 2021, respectively, and $ 2.2 million and $ 2.1 million for the six months ended June 30, 2022 and 2021, respectively. Warrants and Options - The Company issued to Sinclair (1) an immediately exercisable warrant to purchase up to 4,915,726 shares of the Company at an exercise price of $ 0.01 per share (“the Penny Warrants”), (2) a warrant to purchase up to a maximum of 3,279,337 additional shares of the Company at a price of $ 0.01 per share subject to the achievement of various performance metrics (the “Performance Warrants”), and (3) an option to purchase up to 1,639,669 additional shares in four tranches with purchase prices ranging from $ 30.00 to $ 45.00 per share, exercisable over a seven-year period beginning on the fourth anniversary of the November 18, 2020 closing (the “Options”). The exercise and purchase prices and the number of shares issuable upon exercise of the warrants and options are subject to customary anti-dilution adjustments. The issuance pursuant to the warrants and options of shares in excess of 19.9 % of the Company’s currently outstanding shares was subject to the approval of the Company’s stockholders in accordance with the rules of the NYSE, which was obtained on January 27, 2021. Penny Warrants & Options . The Penny Warrants and Options are equity classified instruments under ASC 815, Derivatives and Hedging , (“ASC 815”). The fair value of the Penny Warrants approximates the fair value of the underlying shares and was $ 150.4 million on November 18, 2020 at issuance, and was recorded to “Additional paid-in-capital” in the condensed consolidated balance sheets, with an offset to the naming rights intangible asset. The fair value of the Options was $ 59.7 million as of December 31, 2021 and is recorded within “Additional paid-in-capital” in the condensed consolidated balance sheets. Performance Warrants . The Performance Warrants are accounted for as a derivative liability because the underlying performance metrics represent an adjustment to the settlement amount that is not indexed to the Company’s own stock and thus equity classification is precluded under ASC 815. Refer to Note 9 “ Fair Value Measurements ” for further information. Tax Receivable Agreement - The Company is required to share 60 % of the tax benefit the Company receives from the Penny Warrants, Options, Performance Warrants and payments under the TRA with Sinclair over the term of the agreement as tax benefit amounts are determined through the filing of the Company’s annual tax returns. Changes in estimate of the tax benefit to be realized and tax rates in effect at the time, among other changes, are treated as an adjustment to the naming rights intangible asset. The TRA liability was $ 35.8 million and $ 42.2 million as of June 30, 2022 and December 31, 2021, respectively, and is included in “Naming rights liabilities” in the condensed consolidated balance sheets. The change in value of the TRA liability is included in “Change in value of naming rights liabilities” in the condensed consolidated statements of operations. 13 BALLY’S CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Variable Interest Entities The Company evaluates entities for which control is achieved through means other than voting rights to determine if it is the primary beneficiary of a VIE. An entity is a VIE if it has any of the following characteristics : (1) the entity has insufficient equity to permit it to finance its activities without additional subordinated financial support (2) equity holders, as a group, lack the characteristics of a controlling financial interest or (3) the entity is structured with non-substantive voting rights. The primary beneficiary of a VIE is generally the entity that has (a) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (b) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. The Company consolidates its investment in a VIE when it determines that it is the primary beneficiary of such entity. In determining whether it is the primary beneficiary of a VIE, the Company considers qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; and significance of the Company’s investment and other means of participation in the VIE’s expected profits/losses. Significant judgments related to these determinations include estimates about the current and future fair values and performance of assets held by these VIEs and general market conditions. Management analyzed and concluded that Breckenridge Curacao B.V. (“Breckenridge”) is a VIE because it does not have sufficient equity investment at risk. The Company has determined that it is the primary beneficiary and consolidates the VIE because (a) although the Company does not control all decisions of Breckenridge, the Company has the power to direct the activities of Breckenridge that most significantly impact its economic performance through various contracts with the entity and (b) the nature of these agreements between Breckenridge and the Company provides the Company with the obligation to absorb losses and the right to receive benefits based on fees that are based upon off-market rates and commensurate to the level of services provided. The Company receives significant benefits in the form of fees that are not at market and commensurate to the level of services provided. As a result, the Company consolidates all of the assets, liabilities and results of operations of Breckenridge and its subsidiaries in the accompanying consolidated financial statements. As of June 30, 2022 and December 31, 2021 Breckenridge had total assets of $ 73.1 million and $ 85.4 million, respectively, and total liabilities of $ 72.4 million and $ 75.2 million, respectively. Breckenridge had revenues of $ 73.9 million and $ 160.8 million for the three and six months ended June 30, 2022. The Company may change its original assessment of a VIE upon subsequent events such as the modification of contractual arrangements that affect the characteristics or adequacy of the entity’s equity investments at risk and the disposition of all or a portion of an interest held by the primary beneficiary. The Company performs this analysis on an ongoing basis. Related Party Transaction On September 26, 2019, prior to the Company’s acquisition of Gamesys, Gamesys (Holdings) Limited (“GHL”) was acquired by JPJ Group plc (“JPJ”) and subsequently renamed Gamesys. In connection with the JPJ acquisition, £ 10.0 million of the cash consideration was deferred and payable (plus interest) to GHL’s majority shareholders 30 months after closing. The Company recorded deferred consideration of $ 15.1 million within current liabilities of the condensed consolidated balance sheets as of December 31, 2021. Of such amount, approximately $ 7.4 million was payable to related parties as former majority shareholders. The Company paid the deferred consideration in April 2022. Provision (Benefit) for Income Taxes During the three months ended June 30, 2022 and 2021, the Company recorded a provision for income tax of $ 5.4 million, at an effective tax rate of 8.4 %, and a provision for income tax of $ 27.0 million, at an effective tax rate of 28.1 %, respectively. The 2022 effective tax rate was lower than the US federal statutory rate of 21%, largely due to a tax benefit recorded in foreign jurisdictions during the quarter offset by discrete tax item related to gain on sale leaseback transactions in Colorado and Illinois. The 2021 effective tax rate was higher than the US federal statutory rate of 21%, largely due to higher state income tax related to gain on sale leaseback in Delaware. During the six months ended June 30, 2022 and 2021, the Company recorded a benefit for income tax of $ 0.1 million, at an effective tax rate of ( 0.2 )% and a provision for income tax of $ 22.2 million, at an effective tax rate of 27.6 %, respectively. The 2022 effective tax rate was lower than the US federal statutory rate of 21%, largely due to a tax benefit recorded in foreign jurisdictions during the quarter offset by discrete tax item related to gain on sale leaseback transactions in Colorado and Illinois. The 2021 effective tax rate was higher than the US federal statutory rate of 21%, largely due to higher state income tax related to gain on sale leaseback in Delaware. 14 BALLY’S CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) In the second quarter of 2022, the Company has changed its assertion and is no longer permanently reinvest in its undistributed foreign earnings and plans to remit cash back to the United States. The Company has determined, based on certain tax planning strategies available, no deferred taxes were accrued related to unremitted earnings as of the period ending June 30, 2022. 3. RECENTLY ADOPTED AND ISSUED ACCOUNTING PRONOUNCEMENTS Recently Issued Accounting Pronouncements Standards to be implemented In October 2021, the Financial Accounting Standards Board issued Accounting Standards Update No. 2021-08, Business Combinations (Topic 805) - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers . The amendments in this update address diversity in practice and inconsistency related to recognition of an acquired contract liability and the effect of payment terms on subsequent revenue recognition for the acquirer. This update is effective for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years, with early adoption permitted. The Company is currently in the process of evaluating the impact of this amendment on its condensed consolidated financial statements. 4. REVENUE RECOGNITION The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers , which requires companies to recognize revenue in a way that depicts the transfer of promised goods or services. In addition, the standard requires more detailed disclosures to enable readers of the financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company generates revenue from four principal sources: gaming (which includes retail gaming, online gaming, sports betting and racing), hotel, food and beverage and retail entertainment and other. The Company determines revenue recognition through the following steps: • Identify the contract, or contracts, with the customer; • Identify the performance obligations in the contract; • Determine the transaction price; • Allocate the transaction price to performance obligations in the contract; and • Recognize revenue when or as the Company satisfies performance obligations by transferring the promised goods or services The Company is currently engaged in gaming services, which include retail, online and racing. Additional services include hotel, food and beverage. The amount of revenue recognized by the Company is measured at the transaction price or the amount of consideration that the Company expects to receive through satisfaction of the identified performance obligations. Retail gaming, online gaming and sports betting revenue, each as described below, contain a single performance obligation. Retail gaming transactions have an obligation to honor the outcome of a wager and to pay out an amount equal to the stated odds, including the return of the initial wager, if the customer receives a winning hand. These elements of honoring the outcome of the hand of play and generating a payout are considered one performance obligation. Online gaming and sports betting represent a single performance obligation for the Company to operate contests or games and award prizes or payouts to users based on results of the arrangement. Revenue is recognized at the conclusion of each contest, wager or wagering game hand. Incentives can be used across online gaming products. The Company allocates a portion of the transaction price to certain customer incentives that create material future customer rights and are a separate performance obligation. In addition, in the event of a multi-stage contest, the Company will allocate transaction price ratably from contest start to the contest’s final stage. Racing revenue is earned through advance deposit wagering which consists of patrons wagering through an advance deposit account. Each wagering contract contains a single performance obligation. 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 racing operations, inclusive of live racing events conducted at the Company’s racing facilities, 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 food and beverage and hotel is the net amount collected from the customer for such goods 15 BALLY’S CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) and services. Hotel, food and beverage services have been determined to be separate, stand-alone performance obligations and revenue is recognized as the good or service is transferred at the point in time of the transaction. The following contains a description of each of the Company’s revenue streams: Gaming Revenue Retail Gaming The Company recognizes retail gaming revenue as the net win from gaming activities, which is the difference between gaming inflows and outflows, not the total amount wagered. Progressive jackpots are estimated and recognized as revenue at the time the obligation to pay the jackpot is established. Gaming revenues are recognized net of certain cash and free play incentives. Gaming services contracts have two performance obligations for those customers earning incentives under the Company’s player loyalty programs and a single performance obligation for customers who do not participate in the programs. The Company applies a practical expedient to account for its gaming contracts on a portfolio basis as such wagers have similar characteristics and the Company reasonably expects the impact on the consolidated financial statements of applying the revenue recognition guidance to the portfolio would not differ materially from the application of an individual wagering contract. For purposes of allocating the transaction price in a wagering contract between the wagering performance obligation and the obligation associated with incentives earned under loyalty programs, the Company allocates an amount to the loyalty program contract liability based on the stand-alone selling price of the incentive earned for a hotel room stay, food and beverage or other amenity. The performance obligation related to loyalty program incentives are deferred and recognized as revenue upon redemption by the customer. The amount associated with gaming wagers is recognized at the point the wager occurs, as it is settled immediately. Gaming revenue includes the share of VLT revenue for Bally’s Twin River and Bally’s Tiverton, in each case, as determined by each property’s respective master VLT contracts with the State of Rhode Island. Bally’s Twin River is entitled to a 28.85 % share of VLT revenue on the initial 3,002 units and a 26.00 % share on VLT revenue generated from units in excess of 3,002 units. Beginning July 1, 2021, Bally’s Twin River is entitled to an additional 7.00 % share of revenue on VLTs owned by the Company. Bally’s Tiverton is entitled to receive a percentage of VLT revenue that is equivalent to the percentage received by Bally’s Twin River. Gaming revenue also includes Bally’s Twin River’s and Bally’s Tiverton’s share of table games revenue. Bally’s Twin River and Bally’s Tiverton each were entitled to an 83.5 % share of table games revenue generated as of June 30, 2022 and 2021. Revenue is recognized when the wager is settled, which is when the customer has received the benefits of the Company’s gaming services and the Company has a present right to payment. The Company records revenue from its Rhode Island operations on a net basis which is the percentage share of VLT and table games revenue received as the Company acts as an agent in operating the gaming services on behalf of the State of Rhode Island. Gaming revenue also includes Bally’s Dover’s share of revenue as determined under the Delaware State Lottery Code from the date of its acquisition. Bally’s Dover is authorized to conduct video lottery, sports wagering, table game and internet gaming operations as one of three “Licensed Agents” under the Delaware State Lottery Code. Licensing, administration and control of gaming operations in Delaware is under the Delaware State Lottery Office and Delaware’s Department of Safety and Homeland Security, Division of Gaming Enforcement. As of June 30, 2022 and 2021, Bally’s Dover was entitled to an approximate 42 % share of VLT revenue and 80 % share of table games revenue. Revenue is recognized when the wager is complete, which is when the customer has received the benefits of the Company’s gaming services and the Company has a present right to payment. The Company records revenue from its Delaware operations on a net basis, which is the percentage share of VLT and table games revenue received, as the Company acts as an agent in operating the gaming services on behalf of the State of Delaware. Gaming revenue also includes the casino revenue of Hard Rock Biloxi, Bally’s Black Hawk, beginning January 23, 2020, Bally’s Kansas City and Bally’s Vicksburg, beginning July 1, 2020, Bally’s Atlantic City, beginning November 18, 2020, Bally’s Shreveport, beginning December 23, 2020, Bally’s Lake Tahoe, beginning April 6, 2021, Bally’s Evansville, beginning June 3, 2021, and Bally’s Quad Cities, beginning June 14, 2021, which is the aggregate net difference between gaming wins and losses, with deferred revenue recognized for prepaid deposits by prior to play, for chips outstanding and “ticket-in, ticket-out” coupons in the customers’ possession, and for accruals related to the anticipated payout of progressive jackpots. Progressive slot machines, which contain base jackpots that increase at a progressive rate based on the number of credits played, are charged to revenue as the amount of the progressive jackpots increases. 16 BALLY’S CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Online gaming Online gaming refers to digital versions of wagering games available in land-based casinos, such as blackjack, roulette and slot machines. For these offerings, the Company operates similarly to land-based casinos, generating revenue from user wagers net of payouts and incentives awarded to users. Online gaming revenue includes the online bingo and casino revenue of Gamesys, beginning October 1, 2021. The revenue is earned from operating online bingo and casino websites, which consists of the difference between total amounts wagered by players less winnings payable to players, bonuses allocated and jackpot contributions. Online gaming revenue is recognized at the point in time when the player completes a gaming session and payout occurs. There is no significant degree of uncertainty involved in quantifying the amount of gaming revenue earned, including bonuses, jackpot contributions and loyalty points. Bonuses, jackpot contributions and loyalty points are measured at fair value at each reporting date. Sports betting Sports betting involves a user wagering money on an outcome or series of outcomes. If a user wins the wager, the Company pays the user a pre-determined amount known as fixed odds. Sports betting revenue is generated through built-in theoretical margins in each sports wagering opportunity offered to users. Revenue is recognized as total wagers net of payouts made and incentives awarded to users. During 2020, the Company entered into several multi-year agreements with third-party operators for online sports betting and iGaming market access in the states of Colorado and New Jersey from which the Company has received or expects to receive one-time, up front market access fees in cash or equity securities (specific to one operator agreement) and certain other fees in cash generally based on a percentage of the gross gaming revenue generated by the operator, with certain annual minimum guarantees due to the Company. The one-time market access fees received have been recorded as deferred revenue and will be recognized as gaming revenue ratably over the respective contract terms, beginning with the commencement of operations of each respective agreement. The Company recognized commissions in certain states from online sports betting and iGaming which are included in gaming revenue for the six months ended June 30, 2022 and 2021. Deferred revenue associated with third-party operators for online sports betting and iGaming market access was $ 6.6 million and $ 6.8 million as of June 30, 2022 and December 31, 2021, respectively, and is included in “Accrued liabilities” and “Other long-term liabilities” in the condensed consolidated balance sheets. All other revenues, including market access, daily fantasy sports and B2B service revenue generated by the North America Interactive and International Interactive reportable segments, are recognized at the time the goods are sold or the service is provided. Racing Racing revenue includes Bally’s Twin River’s, Bally’s Tiverton’s, Bally’s Arapahoe Park’s and Bally’s Dover’s share of wagering from live racing and the import of simulcast signals. Racing revenue is recognized upon completion of the wager based upon an established take-out percentage. The Company functions as an agent to the pari-mutuel pool. Therefore, fees and obligations related to the Company’s share of purse funding, simulcasting fees, tote fees, pari-mutuel taxes, and other fees directly related to the Company’s racing operations are reported on a net basis and included as a reduction to racing revenue. Hotel, Food and Beverage and Retail, Entertainment and Other Revenue Hotel revenue is recognized at the time of occupancy, which is when the customer obtains control through occupancy of the room. Advance deposits for hotel rooms are recorded as liabilities until revenue recognition criteria are met. Food and beverage revenues are recognized at the time the goods are sold from Company-operated outlets. The estimated standalone selling price of hotel rooms is determined based on observable prices. The standalone selling price of food and beverage as well as retail, entertainment and other goods and services are determined based upon the actual retail prices charged to customers for those items. Cancellation fees for hotel and meeting space services are recognized upon cancellation by the customer and are included in hotel, food and beverage revenue within our consolidated statements of operations. 17 BALLY’S CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) The estimated retail value related to goods and services provided to guests without charge or upon redemption under the Company’s player loyalty programs included in departmental revenues, and therefore reducing gaming revenues, are as follows for the three and six months ended June 30, 2022 and 2021: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2022 2021 2022 2021 Hotel $ 19,423 $ 12,494 $ 35,325 $ 19,403 Food and beverage 18,056 15,380 34,766 25,829 Retail, entertainment and other 2,579 1,459 4,786 2,410 $ 40,058 $ 29,333 $ 74,877 $ 47,642 Sales tax and other taxes collected on behalf of governmental authorities are accounted for on a net basis and are not included in revenue or operating expenses. In the fourth quarter of 2021, the Company changed its reportable segments to better align with its strategic growth initiatives in light of recent and pending acquisitions. Refer to Note 18 “ Segment Reporting ” for further information. The following tables provide a disaggregation of revenue by segment: (in thousands) Casinos & Resorts North America Interactive International Interactive Total Three Months Ended June 30, 2022 Gaming $ 225,716 $ 7,868 $ 221,504 $ 455,088 Hotel 33,929 — — 33,929 Food and beverage 27,435 — — 27,435 Retail, entertainment and other 12,795 10,182 13,067 36,044 Total revenue $ 299,875 $ 18,050 $ 234,571 $ 552,496 Three Months Ended June 30, 2021 Gaming $ 206,699 $ 791 $ — $ 207,490 Hotel 22,315 — — 22,315 Food and beverage 23,382 — — 23,382 Retail, entertainment and other 9,792 4,754 — 14,546 Total revenue $ 262,188 $ 5,545 $ — $ 267,733 Six Months Ended June 30, 2022 Gaming $ 443,521 $ 14,513 $ 460,756 $ 918,790 Hotel 60,864 — — 60,864 Food and beverage 51,423 — — 51,423 Retail, entertainment and other 24,037 18,764 26,889 69,690 Total revenue $ 579,845 $ 33,277 $ 487,645 $ 1,100,767 Six Months Ended June 30, 2021 Gaming $ 361,128 $ 1,640 $ — $ 362,768 Hotel 35,374 — — 35,374 Food and beverage 38,882 — — 38,882 Retail, entertainment and other 16,237 6,738 — 22,975 Total revenue $ 451,621 $ 8,378 $ — $ 459,999 18 BALLY’S CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Revenue included in operations from Bally’s Lake Tahoe from the date of its acquisition, April 6, 2021, Bally’s Evansville from the date of its acquisition, June 3, 2021, and Bally’s Quad Cities from the date of its acquisition, June 14, 2021 are reported in Casinos & Resorts. Revenue included in operations from SportCaller from the date of its acquisition, February 5, 2021, MKF from the date of its acquisition, March 23, 2021, Bally’s Interactive from the date of its acquisition, May 28, 2021, AVP from the date of its acquisition, July 12, 2021, Telescope from the date of its acquisition, August 12, 2021, Degree 53 from the date of its acquisition, October 25, 2021, and the North American operations of Gamesys from the date of its acquisition, October 1, 2021 are reported in North America Interactive. Revenue included in operations from the European and Asian activities from Gamesys is reported in International Interactive. Refer to Note 5 “ Acquisitions ” for further information. Contract Assets and Contract Related Liabilities The Company’s receivables related to contracts with customers are primarily comprised of marker balances and other amounts due from gaming activities, amounts due for hotel stays, and amounts due from tracks and OTB locations. The Company’s receivables related to contracts with customers were $ 40.7 million and $ 35.5 million as of June 30, 2022 and December 31, 2021, respectively. The Company has the following liabilities related to contracts with customers: liabilities for loyalty programs, advance deposits made for goods and services yet to be provided and unpaid wagers. All of the contract liabilities are short-term in nature and are included in “Accrued liabilities” in the condensed consolidated balance sheets. Loyalty program incentives earned by customers are typically redeemed within one year from when they are earned and expire if a customer’s account is inactive for more than 12 months; therefore, the majority of these incentives outstanding at the end of a period will either be redeemed or expire within the next 12 months. While properties were operating at limited capacity, many properties extended the expiration dates for tiered status programs or temporarily suspended periodic purges of unused loyalty points. As properties have resumed operations at full capacity, many have reinstated their pre-COVID-19 practices or put new loyalty programs into place. Advance deposits are typically for future banquet events, hotel room reservations and interactive player deposits. The banquet and hotel reservation deposits are usually received weeks or months in advance of the event or hotel stay. The Company holds restricted cash for interactive player deposits and records a corresponding withdrawal liability. Unpaid wagers include the Company’s outstanding chip liability, unpaid slot and pari-mutuel and sports betting tickets. Liabilities related to contracts with customers as of June 30, 2022 and December 31, 2021 were as follows: June 30, December 31, (in thousands) 2022 2021 Loyalty programs $ 19,612 $ 19,099 Advanced deposits from customers 28,156 36,068 Unpaid wagers 11,204 11,440 Total $ 58,972 $ 66,607 The Company recognized $ 7.7 million and $ 9.4 million of revenue related to loyalty program redemptions for the three months ended June 30, 2022 and 2021, respectively, and $ 15.9 million and $ 12.2 million for the six months ended June 30, 2022 and 2021, respectively. 19 BALLY’S CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 5. ACQUISITIONS Recent Acquisitions The Company accounted for all of the following acquisitions as business combinations using the acquisition method with Bally’s as the accounting acquirer in accordance with ASC 805. Under this method of accounting, the purchase price is allocated to the assets acquired and liabilities assumed of the acquiree based upon their estimated fair values at the acquisition date. The fair value of the identifiable intangible assets acquired are determined by using an income approach. Significant assumptions utilized in the income approach are based on company-specific information and projections, which are not observable in the market and are thus considered Level 3 measurements as defined by authoritative guidance. The purchase price allocation for Gamesys and certain of the Bally’s Interactive Acquisitions, as defined below, are preliminary and will be finalized when valuations are complete and final assessments of the fair value of other acquired assets and assumed liabilities are completed. There can be no assurance that such finalizations will not result in material changes from the preliminary purchase price allocations. The Company’s estimates and assumptions are subject to change during the measurement period (up to one year from the acquisition date), as the Company finalizes the valuations of certain tangible and intangible assets acquired and liabilities assumed. The Company recorded transaction costs related to its recent and pending acquisitions of $ 8.5 million and $ 13.0 million during the three and six months ended June 30, 2022, respectively, and $ 18.4 million and $ 30.7 million during the three and six months ended June 30, 2021. These costs are included in “Acquisition, integration and restructuring” in the condensed consolidated statements of operations. Refer to Note 11 “ Acquisition, Integration and Restructuring ” for further information. Bally’s Lake Tahoe Casino Resort On April 6, 2021, the Company acquired Bally’s Lake Tahoe in Lake Tahoe, Nevada from Eldorado Resorts, Inc. (“Eldorado”) and certain of its affiliates for $ 14.2 million, payable in cash one year from the closing date and subject to customary post-closing adjustments. The deferred purchase price is included within “Accrued liabilities” of the condensed consolidated balance sheet as of December 31, 2021 and was paid in April 2022. The identifiable intangible assets recorded in connection with the closing of the Bally’s Lake Tahoe acquisition include gaming licenses of $ 5.2 million with an indefinite life and a trade name of $ 0.2 million, which was amortized on a straight-line basis over its estimated useful life of approximately six months . The fair value of the identifiable intangible assets acquired was determined by using an income approach. The following table summarizes the consideration paid and the fair values of the assets acquired and liabilities assumed in connection with the acquisition of Bally’s Lake Tahoe on April 6, 2021: As of April 6, 2021 (in thousands) Preliminary as of December 31, 2021 Year to Date Adjustments Final Total current assets $ 4,683 $ — $ 4,683 Property and equipment, net 6,361 — 6,361 Right of use assets, net 57,017 — 57,017 Intangible assets, net 5,430 — 5,430 Accounts payable and accrued liabilities ( 3,402 ) ( 144 ) ( 3,546 ) Lease liabilities ( 52,927 ) — ( 52,927 ) Other long-term liabilities ( 941 ) 37 ( 904 ) Net assets acquired 16,221 ( 107 ) 16,114 Bargain purchase gain ( 2,049 ) 107 ( 1,942 ) Total purchase price $ 14,172 $ — $ 14,172 20 BALLY’S CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) During the year ended December 31, 2021, the Company recorded a bargain purchase gain of $ 2.0 million based on the preliminary purchase price allocation as the fair value of the assets acquired and liabilities assumed exceeded the purchase price consideration. During the six months ended June 30, 2022, based on the final purchase price allocation, an adjustment of $ 0.1 million was recorded reducing the bargain purchase gain to $ 1.9 million. The original agreement to acquire Bally’s Lake Tahoe from Eldorado was made concurrently with the agreement of Bally’s Shreveport and the Company believes that it was able to acquire Bally’s Lake Tahoe for less than fair value as a result of a distressed sale whereby Eldorado was required by the Federal Trade Commission to divest the properties prior to its merger with Caesars coupled with the timing of the agreement to purchase which was in the middle of COVID-19 related shutdowns of casinos in the US. Bally’s Evansville On June 3, 2021, the Company completed the acquisition of the Bally’s Evansville casino operations from Caesars. The total purchase price was $ 139.7 million. Cash paid by the Company at closing, net of $ 9.4 million cash acquired, was $ 130.4 million, excluding transaction costs. In connection with the acquisition of the Bally’s Evansville casino operations, the Company entered into a sale-leaseback arrangement with an affiliate of GLPI for the Bally’s Dover property. Refer to Note 13 “ Leases ” for further information. The identifiable intangible assets recorded in connection with the closing of the Bally’s Evansville acquisition include gaming licenses of $ 153.6 million with an indefinite life and rated player relationships of $ 0.6 million which are being amortized on a straight-line basis over an estimated useful life of approximately eight years . The fair value of the identifiable intangible assets acquired was determined by using an income approach. The following table summarizes the consideration paid and the fair values of the assets acquired and liabilities assumed in connection with the acquisition of Bally’s Evansville on June 3, 2021. There were no purchase accounting adjustments recorded during the six months ended June 30, 2022. As of June 3, 2021 (in thousands) Final Cash and cash equivalents $ 9,355 Accounts receivable, net 1,474 Inventory and prepaid expenses and other current assets 1,202 Property and equipment, net 12,325 Right of use assets, net 285,772 Intangible assets, net 154,210 Other assets 468 Accounts payable and accrued liabilities ( 10,927 ) Lease liabilities ( 285,772 ) Deferred tax liability ( 7,233 ) Other long-term liabilities ( 310 ) Net assets acquired 160,564 Bargain purchase gain ( 20,856 ) Total purchase price $ 139,708 The fair value of the assets acquired and liabilities assumed exceeded the purchase price consideration and therefore, a bargain purchase gain of $ 20.9 million was recorded during the year ended December 31, 2021. The Company believes it was able to acquire Bally’s Evansville for less than fair value as a result of a distressed sale prior to Eldorado’s merger with Caesars, as noted above, coupled with the timing of the agreement to purchase which was in the middle of COVID-19 related shutdowns of casinos in the US. 21 BALLY’S CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Bally’s Quad Cities Casino & Hotel On June 14, 2021, the Company completed its acquisition of Bally’s Quad Cities in Rock Island, Illinois. Pursuant to the terms of the Equity Purchase Agreement, the Company acquired all of the outstanding equity securities of The Rock Island Boatworks, Inc., for a purchase price of $ 118.9 million in cash. Cash paid by the Company, net of $ 2.9 million cash acquired and the $ 4.0 million deposit paid in the third quarter of 2020, was $ 112.0 million, excluding transaction costs. The identifiable intangible assets recorded in connection with the closing of the Bally’s Quad Cities acquisition include gaming licenses of $ 30.3 million with an indefinite life, as well as rated player relationships and a trade name of $ 0.7 million and $ 0.2 million, respectively, which are being amortized on a straight-line basis over their estimated useful lives of approximately nine years and four months , respectively. The fair value of the identifiable intangible assets acquired was determined by using an income approach. Goodwill recognized is deductible for local tax purposes and has been assigned as of the acquisition date to the Company’s Casinos & Resorts reportable segment, which includes the reporting unit expected to benefit from the synergies of the acquisition. Qualitative factors that contribute to the recognition of goodwill include an organized workforce and expected synergies from integrating the property into the Company’s casino portfolio and future development of its omni-channel strategy. The following table summarizes the consideration paid and the fair values of the assets acquired and liabilities assumed in connection with the Bally’s Quad Cities acquisition on June 14, 2021. As of June 14, 2021 (in thousands) Preliminary as of December 31, 2021 Year to Date Adjustments Final Cash and cash equivalents $ 2,933 $ — $ 2,933 Accounts receivable, net 2,986 — 2,986 Inventory and prepaid expenses and other current assets 798 — 798 Property and equipment, net 73,135 — 73,135 Intangible assets, net 31,180 — 31,180 Goodwill 14,593 ( 1,285 ) 13,308 Total current liabilities ( 6,697 ) 1,285 ( 5,412 ) Total purchase price $ 118,928 $ — $ 118,928 North America Interactive Acquisitions SportCaller - On February 5, 2021, the Company acquired SportCaller for total consideration of $ 42.6 million including $ 24.0 million in cash and 221,391 of the Company’s common shares at closing, pending adjustment, and up to $ 12.0 million in value of additional shares if SportCaller meets certain post-closing performance targets (calculated based on a US Dollar (“USD”) to Euro exchange ratio of 0.8334 ). Monkey Knife Fight - On March 23, 2021, the Company acquired Fantasy Sports Shark, LLC (d/b/a/ Monkey Knife Fight) for total consideration of $ 118.6 million including, (1) immediately exercisable penny warrants to purchase up to 984,446 of the Company’s common shares (subject to adjustment) at closing and (2) contingent penny warrants to purchase up to 787,557 additional Company common shares, half of which are issuable on each of the first and second anniversary of closing. The contingency relates to MKF’s continued operations in jurisdictions in which it operates at closing at future dates. The Company paid cash of $ 22.4 million, net of cash acquired, for SportCaller and MKF. Total non-cash consideration transferred for SportCaller and MKF was $ 135.3 million, which included $ 58.7 million of the fair value of contingent consideration as of the SportCaller and MKF acquisition dates. Refer to Note 9 “ Fair Value Measurements ” for further information. 22 BALLY’S CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Bally’s Interactive - On May 28, 2021, the Company acquired Bally’s Interactive, formerly Bet.Works Corp., for total consideration of $ 192.1 million, which consisted of $ 70.4 million in cash, net of cash acquired, and 2,084,765 of the Company’s common shares, subject in each case to customary adjustments. The shareholders of Bally’s Interactive will not transfer any shares of Company common stock received prior to June 1, 2022 and, for the following 12 months, may transfer only up to 1% of the Company’s common stock per every 90 days. AVP - On July 12, 2021, the Company acquired AVP, a premier professional beach volleyball organization and host of the longest-running domestic beach volleyball tour in the US, for $ 10.0 million in cash. Telescope - On August 12, 2021, the Company acquired an 84.16 % controlling interest in Telescope, a leading provider of real-time audience engagement solutions for live events, gamified second screen experiences and interactive livestreams, for $ 25.9 million in cash, net of cash acquired. The remaining 15.84 % of Telescope is owned by certain selling shareholders and is reported as a non-controlling interest. The non-controlling interest is convertible into shares of Bally’s common stock based on a fixed exchange ratio share-settlement feature, valued using the Company’s common stock price, and is classified as permanent equity. Earnings attributable to the non-controlling interest are not material for the three and six months ended June 30, 2022. Degree 53 - On October 25, 2021, the Company acquired Degree 53, a UK-based creative agency that specializes in multi-channel website and personalized mobile app and software development for the online gambling and sports industries, for $ 7.8 million in cash, net of cash acquired. The identifiable intangible assets recorded in connection with the closing of SportCaller, MKF, Bally’s Interactive, AVP, Telescope and Degree 53 (collectively the “North America Interactive Acquisitions”) include customer relationships of $ 41.5 million, which are being amortized over estimated useful lives between three and ten years , developed software of $ 122.4 million, which is being amortized over estimated useful lives between three and ten years , and trade names of $ 3.1 million, which are being amortized over estimated useful lives between ten and 15 years. Total goodwill recorded in connection with the North America Interactive Acquisitions was $ 250.7 million. Qualitative factors that contribute to the recognition of goodwill include certain intangible assets that are not recognized as separate identifiable intangible assets apart from goodwill, which consist primarily of benefits from acquiring a talented technology workforce and management team experienced in the online gaming industry, and securing buyer-specific synergies expected to contribute to the Company’s omni-channel strategy which are expected to increase revenue and profits within the Company’s North America Interactive reportable segment. Goodwill of the Bally’s Interactive Acquisitions has been assigned as of the acquisition date to the Company’s North America Interactive reportable segment. The following table summarizes the consideration paid and the fair values of the assets acquired and liabilities assumed in connection with the North America Interactive Acquisitions. (in thousands) As of June 30, 2022 (1) Cash and cash equivalents $ 8,689 Accounts receivable, net 4,498 Prepaid expenses and other current assets 3,104 Property and equipment, net 596 Intangible assets, net 167,075 Goodwill 250,730 Total current liabilities ( 14,787 ) Deferred tax liability ( 15,811 ) Acquired non-controlling interest ( 3,760 ) Net investment in the North America Interactive Acquisitions $ 400,334 __________________________________ (1) As of June 30, 2022, the purchase price allocations of AVP, Telescope and Degree 53 are preliminary and are final for Bally’s Interactive, SportCaller and MKF. 23 BALLY’S CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) During the three and six months ended June 30, 2022, the Company recorded purchase accounting adjustments for the North America Interactive Acquisitions, increasing both goodwill and accrued liabilities by $ 0.2 million. Gamesys Acquisition On October 1, 2021, the Company completed the acquisition of Gamesys. Total consideration was $ 2.60 billion, which consisted of $ 2.08 billion paid in cash and 9,773,537 shares of Bally’s common stock. Cash paid by the Company at closing, net of cash received of $ 183.3 million and a $ 10.3 million post-acquisition expense, explained below, was $ 1.90 billion, excluding transaction costs. The identifiable intangible assets recorded in connection with the closing of the Gamesys acquisition are based on preliminary valuations and primarily include customer relationships of $ 980.2 million and developed technology of $ 282.0 million, both of which are being amortized over seven years , and trade names of $ 249.8 million, which have indefinite lives. Total goodwill of $ 1.68 billion represents the excess purchase price over the preliminary fair value of the assets acquired and liabilities assumed. Qualitative factors that contribute to the recognition of goodwill include certain intangible assets that are not recognized as separate identifiable intangible assets apart from goodwill, which consist primarily of benefits from acquiring a talented technology workforce and management team experienced in the online gaming industry. Goodwill associated with the Gamesys acquisition is assigned as of the acquisition date to the Company’s International Interactive and North America Interactive reportable segments in the amounts of $ 1.64 billion and $ 33.3 million respectively, which include the reporting units expected to benefit from the synergies arising from the acquisition. The assignment of goodwill to reporting units is based upon preliminary valuations subject to change throughout the measurement period. Goodwill recognized is not deductible for local tax purposes. In connection with the acquisition of Gamesys, certain unvested and outstanding equity options held by Gamesys employees were discretionarily accelerated and vested by the Gamesys Board of Directors, requiring allocation of the fair value of post-acquisition service to purchase consideration, with the remainder allocated to non-recurring post-acquisition expense. The fair value of $ 36.4 million was attributed to pre-acquisition service and included in consideration transferred. In the fourth quarter of 2021, the fair value of $ 10.3 million, attributable to post-acquisition expense was recorded within “Advertising, general, and administrative” expense in the consolidated statements of operations. 24 BALLY’S CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) The following table summarizes the consideration paid and the preliminary fair values of the assets acquired and liabilities assumed in connection with the acquisition of Gamesys as of October 1, 2021. (in thousands) Preliminary as of December 31, 2021 Year to Date Adjustments Preliminary as of June 30, 2022 Cash and cash equivalents and restricted cash $ 183,306 $ — $ 183,306 Accounts receivable, net 35,851 — 35,851 Prepaid expenses and other current assets 27,876 542 28,418 Property and equipment, net 15,230 — 15,230 Right of use assets, net 14,185 — 14,185 Goodwill 1,678,476 ( 542 ) 1,677,934 Intangible assets, net 1,513,023 — 1,513,023 Other assets 17,668 — 17,668 Accounts payable ( 47,881 ) — ( 47,881 ) Accrued income taxes ( 40,250 ) — ( 40,250 ) Accrued liabilities ( 177,109 ) — ( 177,109 ) Long-term debt, net ( 456,469 ) — ( 456,469 ) Lease liabilities ( 14,185 ) — ( 14,185 ) Deferred tax liability ( 143,924 ) — ( 143,924 ) Other long-term liabilities ( 6,680 ) — ( 6,680 ) Total purchase price $ 2,599,117 $ — $ 2,599,117 Pending Acquisitions Tropicana Las Vegas On April 13, 2021, the Company agreed to purchase the Tropicana Las Vegas Hotel and Casino in Las Vegas, Nevada (“Tropicana Las Vegas”) from GLPI valued at approximately $ 300 million. The purchase price for the Tropicana property’s non-land assets is $ 150.0 million. In addition, the Company agreed to lease the land underlying the Tropicana property from GLPI for an initial term of 50 years at an annual rent of $ 10.5 million, subject to increases over time. The Company expects to complete the acquisition of Tropicana Las Vegas during the year ended December 31, 2022. 25 BALLY’S CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Supplemental Pro Forma Consolidated Information The following unaudited pro forma consolidated financial information for the three and six months ended June 30, 2021 combines the Company’s historical results with pro forma amounts for Bally’s Lake Tahoe, Bally’s Evansville and Gamesys. The unaudited pro forma consolidated financial information assumes that the acquisitions of Bally’s Lake Tahoe, Bally’s Evansville and Gamesys had occurred as of January 1, 2020. The pro forma consolidated financial information has been calculated after applying the Company’s accounting policies and includes adjustments related to the issuance of new debt and equity offerings as of January 1, 2020 as well as non-recurring adjustments for amortization of acquired intangible assets, compensation expense for share-based compensation arrangements that were cash settled in conjunction with the acquisitions, interest expense, transaction costs, together with the consequential tax effects. The revenue, earnings and pro forma effects of other acquisitions completed during the year ended December 31, 2021, which include Bally’s Interactive Acquisitions and Bally’s Quad Cities, are not material to results of operations, individually or in the aggregate. These unaudited pro forma financial results are presented for informational purposes only and do not purport to be indicative of the operating results of the Company that would have been achieved had the acquisitions actually taken place on January 1, 2020. In addition, these results are not intended to be a projection of future results and do not reflect events that may occur, including but not limited to revenue enhancements, cost savings or operating synergies that the combined Company may achieve as a result of the acquisitions. Three Months Ended Six Months Ended (in thousands) June 30, 2021 June 30, 2021 Revenue $ 575,116 $ 1,081,731 Net loss $ ( 40,989 ) $ ( 26,319 ) 6. PREPAID EXPENSES AND OTHER CURRENT ASSETS As of June 30, 2022 and December 31, 2021, prepaid expenses and other current assets was comprised of the following: June 30, December 31, (in thousands) 2022 2021 Services and license agreements $ 24,357 $ 21,496 Due from payment service providers 21,425 15,984 Sales tax 9,124 18,308 Deposits 8,028 8,748 Prepaid marketing 5,844 10,066 Convertible loans 5,205 — Purse funds 4,921 8,286 Unbilled revenue 3,004 7,759 Prepaid insurance 2,043 9,637 Other 5,421 4,179 Total prepaid expenses and other current assets $ 89,372 $ 104,463 26 BALLY’S CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 7. PROPERTY AND EQUIPMENT As of June 30, 2022 and December 31, 2021, property and equipment was comprised of the following: June 30, December 31, (in thousands) 2022 2021 Land $ 59,378 $ 75,328 Land improvements 31,170 34,704 Building and improvements 617,080 650,837 Equipment 209,825 182,006 Furniture and fixtures 60,256 47,258 Construction in process 73,407 53,715 Total property, plant and equipment 1,051,116 1,043,848 Less: Accumulated depreciation ( 230,662 ) ( 205,197 ) Property and equipment, net $ 820,454 $ 838,651 Depreciation expense relating to property and equipment for the three months ended June 30, 2022 and 2021 was $ 16.1 million and $ 12.8 million, respectively. Depreciation expense relating to property and equipment for the six months ended June 30, 2022 and 2021 was $ 32.9 million and $ 23.9 million, respectively. During the three and six months ended June 30, 2022 there was $ 0.4 million and $ 0.7 million of capitalized interest, respectively. There was no capitalized interest during the three and six months ended June 30, 2021. 27 BALLY’S CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 8. GOODWILL AND INTANGIBLE ASSETS The change in carrying value of goodwill by reportable segment for the six months ended June 30, 2022 is as follows (in thousands): Casinos & Resorts North America Interactive International Interactive Total Goodwill as of December 31, 2021 (1) $ 201,952 $ 283,358 $ 1,637,343 $ 2,122,653 Effect of foreign exchange — ( 1,223 ) ( 149,784 ) ( 151,007 ) Purchase accounting adjustments on prior year business acquisitions ( 1,285 ) 239 ( 542 ) ( 1,588 ) Goodwill as of June 30, 2022 (1) $ 200,667 $ 282,374 $ 1,487,017 $ 1,970,058 __________________________________ (1) Casinos & Resorts amounts are net of accumulated goodwill impairment charges of $ 5.4 million. The change in intangible assets, net for the six months ended June 30, 2022 is as follows (in thousands): Intangible assets, net as of December 31, 2021 $ 2,477,952 Additions in current period 85,160 Change in TRA ( 6,403 ) Effect of foreign exchange ( 125,342 ) Other ( 319 ) Less: Amortization ( 120,799 ) Intangible assets, net as of June 30, 2022 $ 2,310,249 The Company’s identifiable intangible assets consist of the following: Weighted average remaining life (in years) June 30, 2022 (in thousands, except years) Gross Carrying Amount Accumulated Amortization Net Amortizable intangible assets: Naming rights - Sinclair (1) 8.7 $ 330,988 $ ( 42,497 ) $ 288,491 Trade names 10.6 28,132 ( 18,175 ) 9,957 Hard Rock license 25.0 8,000 ( 1,939 ) 6,061 Customer relationships 6.2 941,010 ( 111,275 ) 829,735 Developed technology 6.7 366,997 ( 43,780 ) 323,217 Internally developed software 4.7 50,167 ( 3,416 ) 46,751 Gaming licenses 8.5 30,764 ( 2,670 ) 28,094 Other 3.4 4,124 ( 1,461 ) 2,663 Total amortizable intangible assets 1,760,182 ( 225,213 ) 1,534,969 Intangible assets not subject to amortization: Gaming licenses Indefinite 528,871 — 528,871 Trade names Indefinite 245,053 — 245,053 Other Indefinite 1,356 — 1,356 Total unamortizable intangible assets 775,280 — 775,280 Total intangible assets, net $ 2,535,462 $ ( 225,213 ) $ 2,310,249 __________________________________ (1) Naming rights intangible asset in connection with Sinclair Agreement. Refer to Note 2 “ Significant Accounting Policies ” for further information. Amortization began on April 1, 2021, the commencement date of the re-branded Sinclair regional sports networks. 28 BALLY’S CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Weighted average remaining life (in years) December 31, 2021 (in thousands, except years) Gross Carrying Amount Accumulated Amortization Net Amortizable intangible assets: Naming rights - Sinclair (2) 9.2 $ 337,391 $ ( 25,721 ) $ 311,670 Trade names 10.6 28,439 ( 17,481 ) 10,958 Hard Rock license 25.5 8,000 ( 1,818 ) 6,182 Customer relationships 6.7 1,026,797 ( 46,789 ) 980,008 Developed technology 7.2 392,481 ( 19,690 ) 372,791 Internally developed software 4.8 20,952 ( 727 ) 20,225 Gaming licenses 10.0 30,409 ( 591 ) 29,818 Other 4.4 2,413 ( 1,121 ) 1,292 Total amortizable intangible assets 1,846,882 ( 113,938 ) 1,732,944 Intangible assets not subject to amortization: Gaming licenses Indefinite 478,171 — 478,171 Trade names Indefinite 265,099 — 265,099 Other Indefinite 1,738 — 1,738 Total unamortizable intangible assets 745,008 — 745,008 Total intangible assets, net $ 2,591,890 $ ( 113,938 ) $ 2,477,952 __________________________________ (2) See note (1) above. Amortization of intangible assets was approximately $ 58.7 million and $ 13.0 million for the three months ended June 30, 2022 and 2021, respectively, and approximately $ 120.8 million and $ 14.7 million for the six months ended June 30, 2022 and 2021, respectively. The following table reflects the remaining amortization expense associated with the finite-lived intangible assets as of June 30, 2022: (in thousands) Remaining 2022 $ 120,799 2023 234,775 2024 231,950 2025 228,097 2026 222,708 Thereafter 496,640 Total $ 1,534,969 9. FAIR VALUE MEASUREMENTS The Company categorizes financial assets and liabilities based on the following fair value hierarchy: Level 1: Observable inputs that reflect quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2: Inputs other than quoted prices included in Level 1 that are observable, either directly or indirectly; Level 3: Unobservable inputs in which little or no market data exists requiring an entity to develop its own assumptions. 29 BALLY’S CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) The following tables summarize the Company’s assets and liabilities measured at fair value on a recurring basis. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement: June 30, 2022 (in thousands) Balance Sheet Location Level 1 Level 2 Level 3 Assets: Other current assets Prepaid expenses and other current assets $ 25 $ — $ — Convertible loans Prepaid expenses and other current assets 5,205 — — Convertible loans Other assets — — 2,486 Investments in equity securities Other assets 2,523 — — Total $ 7,753 $ — $ 2,486 Liabilities: Sinclair Performance Warrants Naming rights liabilities $ — $ — $ 36,153 Contingent consideration Contingent consideration payable — — 8,701 Total $ — $ — $ 44,854 December 31, 2021 (in thousands) Balance Sheet Location Level 1 Level 2 Level 3 Assets: Other current assets Prepaid expenses and other current assets $ 176 $ — $ — Convertible loans Other assets 5,905 — 2,025 Total $ 6,081 $ — $ 2,025 Liabilities: Sinclair Performance Warrants Naming rights liabilities $ — $ — $ 69,564 Contingent consideration Contingent consideration payable — — 34,931 Total $ — $ — $ 104,495 The following table summarizes the changes in fair value of the Company’s Level 3 assets and liabilities: (in thousands) Sinclair Performance Warrants Contingent Consideration Convertible Loans Total Beginning as of December 31, 2021 $ 69,564 $ 34,931 $ 2,025 $ 106,520 Additions in the period (acquisition fair value) — — 667 667 Reductions in the period — ( 15,862 ) — ( 15,862 ) Change in fair value ( 33,411 ) ( 10,368 ) ( 206 ) ( 43,985 ) Ending as of June 30, 2022 $ 36,153 $ 8,701 $ 2,486 $ 47,340 (in thousands) Sinclair Performance Warrants Contingent Consideration Total Beginning as of December 31, 2020 $ 88,119 $ — $ 88,119 Additions in the period (acquisition fair value) — 58,623 58,623 Change in fair value 6,810 ( 11,703 ) ( 4,893 ) Ending as of June 30, 2021 $ 94,929 $ 46,920 $ 141,849 30 BALLY’S CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) The gains (losses) recognized in the condensed consolidated statement of operations for derivatives not designated as hedging instruments during the three and six months ended June 30, 2022 and 2021 are as follows: Condensed Consolidated Statements of Operations Location Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2022 2021 2022 2021 Foreign exchange forward contracts Other, net $ — $ ( 14,773 ) $ — $ ( 14,773 ) Sinclair Performance Warrants Change in value of naming rights liabilities $ 20,032 $ 19,070 $ 33,411 $ ( 6,810 ) Sinclair Options Change in value of naming rights liabilities $ — $ — $ — $ ( 1,526 ) Sinclair Performance Warrants Sinclair Performance Warrants are accounted for as a derivative instrument classified as a liability within Level 3 of the hierarchy as the warrants are not traded in active markets and are subject to certain assumptions and estimates made by management related to the probability of meeting performance milestones. These assumptions and the probability of meeting performance targets may have a significant impact on the value of the warrant. The Performance Warrants are valued using an option pricing model, considering the Company’s estimated probabilities of achieving the performance milestones for each tranche. Inputs to this valuation approach include volatility of 63 %, risk free rates between 1.02 % and 1.24 %, the Company’s common stock price for each period and expected terms between 3.4 and 4.9 years. Sinclair Options As of December 31, 2020, the Options were accounted for as a derivative liability because the Options could have been required to be settled in cash, outside the Company’s control, prior to formal stockholder approval. Upon stockholder approval on January 27, 2021, the Options met the criteria to be classified as equity, at which point, the Options were adjusted to fair value of $ 59.7 million and were reclassified from “Naming rights liabilities” to “Additional paid-in-capital” in the consolidated balance sheet. The increase in fair value of the Options from $ 58.2 million as of December 31, 2020, through January 27, 2021 was $ 1.5 million and resulted in a mark to market loss in the first quarter of 2021, reported within “Change in value of naming rights liabilities” in the consolidated statements of operations. The fair value was based on a Black-Scholes model using Level 2 inputs, including volatility rates, risk free rates, the Company’s common stock price and expected term. Upon stockholder approval on January 27, 2021, the Options met the criteria to be classified as equity. Contingent consideration Contingent consideration related to acquisitions is recorded at fair value as a liability on the acquisition date and is remeasured at each reporting date, based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. In connection with the acquisitions of SportCaller and MKF on February 5, 2021 and March 23, 2021, respectively, the Company recorded contingent consideration at fair value of $ 58.6 million as of the acquisition dates. After the acquisition dates and until the contingencies are resolved, the fair value of contingent consideration payable is adjusted each reporting period based primarily on the expected probability of achievement of the contingency targets which are subject to management’s estimate and the Company’s stock price. These changes in fair value are recognized within “Other, net” of the condensed consolidated statements of operations. During the first quarter of 2022, the Company settled contingent consideration of $ 15.9 million comprised of 393,778 immediately exercisable penny warrants to MKF and 107,832 shares of Bally’s Corporation common stock and $ 0.1 million in cash to SportCaller in satisfaction of contingencies related to the respective acquisition agreements (as described in Note 5 “ Acquisitions ”). Other current assets The Company has agreements with certain third-party sports betting operators for online sports betting and related iGaming market access. Pursuant to one of these agreements, the Company has a present right to payment for a fixed number of equity securities in exchange for market access. The Company recorded these securities as a stock receivable at their fair value based on quoted prices in active markets and classified within Level 1 of the hierarchy with changes to fair value included within “Other, net” of the condensed consolidated statements of operations. 31 BALLY’S CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Convertible loans The Company has certain agreements with vendors to provide a portfolio of games to its customers. Pursuant to these agreements, the Company has issued loans to its vendors and has an option to convert the loans to shares of the vendors’ equity, exercisable within a specified time period. The Company recorded the short-term portion of the instruments within “Prepaid expenses and other current assets” and the long-term portion of the instruments within “Other assets” at their fair value. The fair value of the loans to vendors with share prices quoted on active markets are classified within Level 1 of the hierarchy and the fair value of the loans to vendors with share values based on unobservable inputs are classified within Level 3 of the hierarchy. Investments in equity securities The Company has a long term investment in an unconsolidated entity which it accounts for under the equity method of accounting. The Company has elected the fair value option allowed by ASC 825, Financial Instruments , with respect to this investment. Under the fair value option, the investment is remeasured at fair value at each reporting period through earnings. The Company measures fair value using quoted prices in active markets that are classified within Level 1 of the hierarchy, with changes to fair value included within “Other, net” of the condensed consolidated statements of operations. Long-term debt The fair values of the Company’s Term Loan Facility and senior notes are estimated based on quoted prices in active markets and are classified as a Level 1 measurements. The fair value of the Revolving Credit Facility approximates its carrying amount as it is revolving, variable rate debt, and is also classified as a Level 1 measurement. In the table below, the carrying amount of the Company’s long-term debt is net of debt issuance costs and debt discounts. Refer to Note 12 “ Long-Term Debt ” for further information. June 30, 2022 December 31, 2021 (in thousands) Carrying Amount Fair Value Carrying Amount Fair Value Term Loan Facility $ 1,890,506 $ 1,935,275 $ 1,897,030 $ 1,945,000 5.625 % Senior Notes due 2029 733,443 534,041 732,660 746,250 5.875 % Senior Notes due 2031 732,118 519,693 731,537 754,223 10. ACCRUED LIABILITIES As of June 30, 2022 and December 31, 2021, accrued liabilities consisted of the following: (in thousands) June 30, 2022 December 31, 2021 Gaming liabilities $ 156,800 $ 170,508 Compensation 49,935 49,764 Interest payable 35,196 46,292 Other 100,755 134,864 Total accrued liabilities $ 342,686 $ 401,428 32 BALLY’S CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 11. ACQUISITION, INTEGRATION AND RESTRUCTURING The following table reflects acquisition, integration and restructuring expenses the Company recorded during the three and six months ended June 30, 2022 and 2021: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2022 2021 2022 2021 Acquisition and integration costs: Gamesys $ 800 $ 7,344 $ 1,178 $ 13,571 North America Interactive acquisitions (1) 1,883 834 2,347 3,674 Chicago, Illinois 4,095 — 5,872 — Other (2) 1,698 10,224 3,561 13,415 Total 8,476 18,402 12,958 30,660 Restructuring expense 1,636 — 2,434 — Total acquisition, integration and restructuring $ 10,112 $ 18,402 $ 15,392 $ 30,660 __________________________________ (1) Includes costs associated with the acquisition of Bally’s Interactive, SportCaller, MKF, AVP and Telescope, which are included within the North America Interactive segment. (2) Includes costs in connection with the development of a casino in Centre County, Pennsylvania, the completed acquisitions of Bally’s Atlantic City, Bally’s Black Hawk, Bally’s Dover, Bally’s Evansville, Bally’s Lake Tahoe, Bally’s Quad Cities and Bally’s Shreveport, the pending acquisition of Tropicana Las Vegas and other transactions. Restructuring Expense During the three and six months ended June 30, 2022, the Company incurred restructuring expense of $ 1.6 million and $ 2.4 million, respectively, attributable to severance costs incurred. There was no restructuring expense in the three and six months ended June 30, 2021. The following table summarizes the restructuring liability accrual activity by segment during the six months ended June 30, 2022: (in thousands) North America Interactive International Interactive Total Restructuring liability as of December 31, 2021 $ 142 $ 264 $ 406 Additions 507 1,927 2,434 Payments ( 649 ) ( 2,191 ) ( 2,840 ) Restructuring liability as of June 30, 2022 $ — $ — $ — 33 BALLY’S CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 12. LONG-TERM DEBT As of June 30, 2022 and December 31, 2021, long-term debt consisted of the following: (in thousands) June 30, 2022 December 31, 2021 Term Loan Facility $ 1,935,275 $ 1,945,000 Revolving Credit Facility — 85,000 5.625 % Senior Notes due 2029 750,000 750,000 5.875 % Senior Notes due 2031 750,000 750,000 Less: Unamortized original issue discount ( 29,693 ) ( 31,425 ) Less: Unamortized deferred financing fees ( 49,515 ) ( 52,348 ) Long-term debt, including current portion 3,356,067 3,446,227 Less: Current portion of Term Loan and Revolving Credit Facility ( 19,450 ) ( 19,450 ) Long-term debt, net of discount and deferred financing fees; excluding current portion $ 3,336,617 $ 3,426,777 Senior Notes On August 20, 2021, two unrestricted subsidiaries (together, the “Escrow Issuers”) of the Company issued $ 750.0 million aggregate principal amount of 5.625 % senior notes due 2029 (the “2029 Notes”) and $ 750.0 million aggregate principal amount of 5.875 % Senior Notes due 2031 (the “2031 Notes” and, together with the 2029 Notes, the “Senior Notes”). The Senior Notes were issued pursuant to an indenture, dated as of August 20, 2021, among the Escrow Issuers and U.S. Bank National Association, as trustee. Certain of the net proceeds from the Senior Notes offering were placed in escrow accounts for use in connection with the Gamesys acquisition. On October 1, 2021, upon the closing of the Gamesys acquisition, the Company assumed the issuer obligation under the Senior Notes. The Senior Notes are guaranteed, jointly and severally, by each of the Company’s restricted subsidiaries that guarantees the Company’s obligations under its Credit Agreement. The 2029 Notes mature on September 1, 2029 and the 2031 Notes mature on September 1, 2031. Interest is payable on the Senior Notes in cash semi-annually on March 1 and September 1 of each year, beginning on March 1, 2022. The Company may redeem some or all of the Senior Notes at any time prior to September 1, 2024, in the case of the 2029 Notes, and September 1, 2026, in the case of the 2031 Notes, at prices equal to 100% of the principal amount of the Senior Notes to be redeemed plus certain “make-whole” premiums, plus accrued and unpaid interest. In addition, prior to September 1, 2024, the Company may redeem up to 40 % of the original principal amount of each series of the Senior Notes with proceeds of certain equity offerings at a redemption price equal to 105.625 % of the principal amount, in the case of the 2029 Notes, and 105.875 %, in the case of the 2031 Notes, plus accrued and unpaid interest. The Company may redeem some or all of the Senior Notes at any time on or after September 1, 2024, in the case of the 2029 Notes, and September 1, 2026, in the case of the 2031 Notes, at certain redemption prices set forth in the indenture plus accrued and unpaid interest. The indenture contains covenants that limit the ability of the Company and its restricted subsidiaries to, among other things, (1) incur additional indebtedness, (2) pay dividends on or make distributions in respect of capital stock or make certain other restricted payments or investments, (3) enter into certain transactions with affiliates, (4) sell or otherwise dispose of assets, (5) create or incur liens and (6) merge, consolidate or sell all or substantially all of the Company’s assets. These covenants are subject to exceptions and qualifications set forth in the indenture. Credit Facility On October 1, 2021, the Company and certain of its subsidiaries entered into a credit agreement (the “Credit Agreement”) with Deutsche Bank AG New York Branch, as administrative agent and collateral agent, and the other lenders party thereto, providing for senior secured financing of up to $ 2.565 billion, consisting of a senior secured term loan facility in an aggregate principal amount of $ 1.945 billion (the “Term Loan Facility”), which will mature in 2028, and a senior secured revolving credit facility in an aggregate principal amount of $ 620.0 million (the “Revolving Credit Facility”), which will mature in 2026. 34 BALLY’S CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) The credit facilities allow the Company to increase the size of the Term Loan Facility or request one or more incremental term loan facilities or increase commitments under the Revolving Credit Facility or add one or more incremental revolving facilities in an aggregate amount not to exceed the greater of $ 650 million and 100 % of the Company’s consolidated EBITDA for the most recent four-quarter period plus or minus certain amounts as specified in the Credit Agreement, including an unlimited amount subject to compliance with a consolidated total secured net leverage ratio as set out in the Credit Agreement. The credit facilities are guaranteed by the Company’s restricted subsidiaries, subject to certain exceptions, and secured by a first-priority lien on substantially all of the Company’s and each of the guarantors’ assets, subject to certain exceptions. Borrowings under the credit facilities bear interest at a rate equal to, at the Company’s option, either (1) LIBOR determined by reference to the costs of funds for USD deposits for the interest period relevant to such borrowing, adjusted for certain additional costs and subject to a floor of 0.50 % in the case of term loans and 0.00 % in the case of revolving loans or (2) a base rate determined by reference to the greatest of (a) the federal funds rate plus 0.50 %, (b) the prime rate, (c) the one-month LIBOR rate plus 1.00 %, (d) solely in the case of term loans, 1.50 %, and (e) solely in the case of revolving loans, 1.00 %, in each case of clauses (1) and (2), plus an applicable margin. In addition, on a quarterly basis, the Company is required to pay each lender under the Revolving Credit Facility a 0.50 % or 0.375 % commitment fee in respect of commitments under the Revolving Credit Facility, with the applicable commitment fee determined based on the Company’s total net leverage ratio. The credit facilities contain covenants that limit the ability of the Company and its restricted subsidiaries to, among other things, incur additional indebtedness, pay dividends or make certain other restricted payments, sell assets, make certain investments and grant liens. These covenants are subject to exceptions and qualifications set forth in the Credit Agreement. The Revolving Credit Facility contains a financial covenant regarding a maximum first lien net leverage ratio that applies when borrowings under the Revolving Credit Facility exceed 30 % of the total revolving commitment. As of June 30, 2022, the Company’s borrowings under the Revolving Credit Facility did not exceed 30 % and therefore, financial covenants did not apply. 13. LEASES GLPI Master Lease In connection with the acquisition of Bally’s Evansville, an affiliate of GLPI has agreed to acquire the real estate associated with Bally’s Evansville from the seller for $ 340.0 million and lease it to the Company under a master lease agreement (the “Master Lease”). GLPI also agreed to acquire the real estate associated with Bally’s Dover for $ 144.0 million and lease it back to the Company under the Master Lease. The Master Lease with GLPI has an initial term of 15 years and includes four , five-year options to renew and requires combined minimum annual payments of $ 40.0 million, subject to escalation. The acquisition of Bally’s Evansville and commencement of the Master Lease occurred on June 3, 2021. During the second quarter of 2021, the Company sold the real estate associated with Bally’s Dover to GLPI and recorded a gain of $ 53.4 million representing the difference in the transaction price and the derecognition of assets. During the second quarter of 2021, the Company recognized a lease liability and corresponding right of use asset of $ 117.3 million and $ 276.9 million related to Bally’s Dover and Bally’s Evansville, respectively. On April 1, 2022, the Company completed the sale of its Bally’s Quad Cities and Bally’s Black Hawk properties to GLPI for $ 150.0 million, subsequently leasing the properties back under the above-mentioned Master Lease for combined minimum annual payments of $ 12.0 million, subject to escalation. During the second quarter of 2022, the Company recorded a net gain of $ 50.8 million, representing the difference in the transaction price and the derecognition of assets, and recorded lease liabilities and corresponding right of use assets of $ 82.7 million and $ 21.8 million, respectively. All leases under the Master Lease are accounted for as operating leases within the provisions of ASC 842, Leases (“ASC 842”), over the lease term or until a re-assessment event occurs. 35 BALLY’S CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Operating Leases In addition to the operating lease components under the Master Lease, the Company is committed under various long-term operating lease agreements primarily related to submerged tidelands, property and equipment at Hard Rock Biloxi, Bally’s Kansas City, Bally’s Shreveport and Bally’s Lake Tahoe. These leases include various renewal options which are included in the lease term when the Company has determined it is reasonably certain of exercising the options. Certain of these leases include percentage rent payments based on property revenues and/or rent escalation provisions determined by increases in the consumer price index (“CPI”). These percentage rent and escalation provisions are treated as variable lease payments and recognized as lease expense in the period in which the obligation for those payments are incurred. Discount rates used to determine the present value of the lease payments are based on a credit-adjusted secured borrowing rate commensurate with the term of the lease. In the second quarter of 2021, in connection with the acquisition of Bally’s Lake Tahoe, the Company assumed a lease for the real estate and land underlying the operations of Bally’s Lake Tahoe facility. The original term of the lease expires on December 31, 2035, at which point the Company will have five options to renew the lease for additional periods of five years each. The renewal options have not been included in the calculation of the lease liability or right of use asset as the Company is not reasonably certain to exercise the options. The fixed rent due under the lease can escalate each year based on changes in CPI. Additionally, the Company is obligated to pay an annual percentage rent based on property net revenues. Additionally, certain of the Company’s subsidiaries lease office space, data centers, parking space, memorabilia and equipment under agreements classified as operating leases that expire on various dates through 2030. Variable expenses generally represent the Company’s share of the landlord’s operating expenses, percentage rent and CPI increases. The Company does not have any leases classified as financing leases. The Company had operating lease liabilities of approximately $ 668.7 million and $ 531.0 million as of June 30, 2022 and December 31, 2021, respectively, and right of use assets of approximately $ 642.9 million and $ 507.8 million as of June 30, 2022 and December 31, 2021, respectively, which were included in the condensed consolidated balance sheets. Total lease cost under ASC 842 for the three and six months ended June 30, 2022 and 2021 was as follows: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2022 2021 2022 2021 Operating leases: Operating lease cost $ 17,265 $ 6,363 $ 32,564 $ 7,695 Variable lease cost 2,001 780 3,818 918 Operating lease expense 19,266 7,143 36,382 8,613 Short-term lease expense 4,966 1,769 8,703 2,823 Total lease expense $ 24,232 $ 8,912 $ 45,085 $ 11,436 36 BALLY’S CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Supplemental cash flow and other information for the three and six months ended June 30, 2022 and 2021, related to operating leases was as follows: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2022 2021 2022 2021 Cash paid for amounts included in the lease liability - operating cash flows from operating leases $ 15,820 $ 5,328 $ 29,007 $ 6,137 Right of use assets obtained in exchange for operating lease liabilities $ 148,759 $ 126,235 $ 150,122 $ 126,623 June 30, 2022 December 31, 2021 Weighted average remaining lease term 14.4 years 15.3 years Weighted average discount rate 6.5 % 6.1 % As of June 30, 2022, future minimum rental commitments under noncancelable operating leases are as follows: (in thousands) June 30, 2022 Remaining 2022 $ 36,238 2023 68,298 2024 72,251 2025 75,663 2026 74,797 Thereafter 722,172 Total 1,049,419 Less: present value discount ( 380,717 ) Operating lease liabilities $ 668,702 Future operating lease payments as shown above include $ 87.7 million related to extension options that are reasonably certain of being exercised. The Company also has leasing arrangements with third-party lessees at its properties. Leasing arrangements for which the Company acts as a lessor are not deemed material as of June 30, 2022 and December 31, 2021. 14. EQUITY PLANS Equity Incentive Plans The Company has three equity incentive plans: the 2010 BLB Worldwide Holdings, Inc. Stock Option Plan (the “2010 Option Plan”), the 2015 Stock Incentive Plan (“2015 Incentive Plan”) and the Bally’s Corporation 2021 Equity Incentive Plan (“2021 Incentive Plan”), collectively (the “Equity Incentive Plans”). The 2010 Option Plan provided for options to acquire 2,455,368 shares of the Company’s common stock. Options granted to employees, officers and directors of the Company under the 2010 Option Plan vested on various schedules by individual as defined in the individual participants’ option agreements. Vested options can generally be exercised all or in part at any time until the tenth anniversary of the date of grant. Effective December 9, 2015, it was determined that no new awards would be granted under the 2010 Option Plan. During the three months ended March 31, 2022, there were 20,000 options exercised at a weighted average exercise price of $ 4.31 per share and an aggregate intrinsic value of $ 0.1 million. As of June 30, 2022, there were no unexercised options outstanding. 37 BALLY’S CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) The 2015 Incentive Plan provided for the grant of stock options, time-based restricted stock units (“RSUs”), restricted stock awards (“RSAs”), performance-based restricted stock units (“PSUs”) and other awards (collectively, “restricted awards”) (including those with performance-based vesting criteria) to employees, directors or consultants of the Company. The 2015 Incentive Plan authorized for the issuance of up to 1,700,000 shares of the Company’s common stock pursuant to grants of awards made under the plan. Effective May 18, 2021, no new awards were granted under the 2015 Incentive Plan as a result of the new 2021 Incentive Plan being approved at the Company’s 2021 Annual Shareholder Meeting. The 2021 Incentive Plan provides for the grant of stock options, RSAs, RSUs, PSUs and other awards (including those with performance-based vesting criteria) to employees, directors or consultants of the Company. The 4,250,000 shares of the Company’s common stock, decreased by the number of shares subject to awards granted under the 2015 Incentive Plan between December 31, 2020 and May 18, 2021, or 221,464 shares, plus any shares subject to awards granted under the 2021 Incentive Plan or the 2015 Incentive Plan that are added back to the share pool under the 2021 Incentive Plan pursuant to the plan’s share counting rules, are authorized for issuance under the 2021 Incentive Plan. During the six months ended June 30, 2022, the Company granted 356,709 restricted awards with an aggregate intrinsic value of $ 12.0 million under the 2021 Incentive Plan. As of June 30, 2022, 3,305,029 shares remain available for grant under the 2021 Incentive Plan, which includes shares added back to the share pool based on share counting rules. There were 1,002,043 restricted awards outstanding as of June 30, 2022. Share-Based Compensation The Company recognized total share-based compensation expense of $ 6.3 million and $ 11.4 million for the three and six months ended June 30, 2022, respectively, and $ 3.9 million and $ 8.4 million for the three and six months ended June 30, 2021, respectively. The total income tax benefit for share-based compensation arrangements was $ 1.7 million and $ 1.1 million for the three months ended June 30, 2022 and 2021, respectively, and $ 2.9 million and $ 2.5 million for the six months ended June 30, 2022 and 2021, respectively. 15. BENEFIT PLANS The Company participates in and contributes to a number of multiemployer defined benefit pension plans under the terms of collective-bargaining agreements that cover certain of its union-represented employees. The Company acquired a defined benefit pension plan with the acquisition of Bally’s Dover on March 28, 2019 (“Dover Downs Pension Plan”) which is a non-contributory, tax qualified defined benefit pension plan that has been frozen since July 2011. Dover Downs Defined Benefit Pension Plan The net periodic benefit (income) cost and other changes in plan assets and benefit obligations, excluding service cost, is set forth in the table below for the three and six months ended June 30, 2022 and 2021. Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2022 2021 2022 2021 Service cost $ — $ — $ — $ — Interest cost 202 224 404 448 Expected return on plan assets ( 443 ) ( 357 ) ( 886 ) ( 714 ) Net periodic benefit income $ ( 241 ) $ ( 133 ) $ ( 482 ) $ ( 266 ) Contributions There is no minimum pension contribution required to be made to the Dover Downs Pension Plan under the Employee Retirement Income Security Act of 1974, as amended in 2021, for the year ended December 31, 2022. The Company does no t expect to contribute in 2022. There were no contributions made to the Dover Downs Pension Plan during the three and six months ended June 30, 2022, and $ 0.2 million in contributions made to the Dover Downs Pension Plan during the three and six months ended June 30, 2021. 38 BALLY’S CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Defined Contribution Plans The Company has a retirement savings plan under Section 401(k) of the Internal Revenue Code covering its US non-union employees and certain union employees. The plan allows employees to defer up to the lesser of the Internal Revenue Code prescribed maximum amount or 100 % of their income on a pre-tax basis through contributions to the plan. Gamesys also operates defined contribution retirement benefit plans for their UK, US, Toronto, Isle of Man and Gibraltar offices. Eligible employees are allowed to contribute between 3-5% of their base salary to the various plans and the Company matches all employee contributions. Total employer contribution expense was $ 1.9 million and $ 0.8 million for the three months ended June 30, 2022 and 2021, respectively, and $ 3.9 million and $ 1.3 million for the six months ended June 30, 2022 and 2021, respectively. 16. STOCKHOLDERS’ EQUITY Capital Return Program and Quarterly Cash Dividend The Company had $ 334.6 million available for use under its previously announced capital return program, as of June 30, 2022. As described under Note 20 “ Subsequent Events ”, on July 27, 2022, the Company completed a modified Dutch auction tender offer (the “and repurchased 4.7 million shares of its common stock for cash at a price of $ 22.00 per share for an aggregate purchase price of $ 103.3 million. Future share repurchases may be effected in various ways, which could include open-market or private repurchase transactions, accelerated stock repurchase programs, tender offers or other transactions. The amount, timing and terms of any return of capital transaction will be determined based on prevailing market conditions and other factors. There is no fixed time period to complete share repurchases. Total share repurchase activity during the six months ended June 30, 2022 was as follows: (in thousands, except share and per share data) Six Months Ended June 30, 2022 Number of common shares repurchased 350,616 Total cost $ 13,288 Average cost per share, including commissions $ 37.90 __________________________________ There was no share repurchase activity during the three months ended June 30, 2022 and the three and six months ended June 30, 2021. The Company retired 1,146,194 shares of its common stock held in treasury during the three months ended March 31, 2022. There were no shares retired during the three months ended June 30, 2022. The Company retired 2,089,226 shares of its common stock held in treasury during the three and six months ended June 30, 2021. The shares were returned to the status of authorized but unissued shares. As of June 30, 2022, there were no shares remaining in treasury. There were no cash dividends paid during the six months ended June 30, 2022 and 2021. As of June 30, 2022 and December 31, 2021, $ 334.6 million and $ 347.9 million, respectively, remained available for use under the above-mentioned capital return program. Common Stock Offering On April 20, 2021, the Company completed an underwritten public offering of common stock at a price to the public of $ 55.00 per share. The Company issued a total of 12,650,000 shares of Bally’s common stock in the offering, which included 1,650,000 shares issued pursuant to the full exercise of the underwriters’ over-allotment option. The net proceeds from the offering were approximately $ 671.4 million, after deducting underwriting discounts, but before expenses. On April 20, 2021, the Company issued to affiliates of Sinclair a warrant to purchase 909,090 common shares for an aggregate purchase price of $ 50.0 million, the same price per share as the public offering price in Bally’s common stock public offering ($ 55.00 per share). The net proceeds were used to finance a portion of the purchase price of the Gamesys acquisition. 39 BALLY’S CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) The exercise price of the warrant is nominal, and its exercise is subject to, among other conditions, requisite gaming authority approvals. Sinclair agreed not to acquire more than 4.9 % of Bally’s outstanding common shares without such approvals. In addition, in accordance with the agreements that Bally’s and Sinclair entered into in November 2020, Sinclair exchanged 2,086,908 common shares for substantially identical warrants. Changes to Authorized Shares On May 18, 2021, following receipt of required shareholder approvals, the Company amended its Certificate of Incorporation to increase the number of authorized shares of common stock from 100 million to 200 million, and authorize the issuance of up to 10 million shares of preferred stock. As of June 30, 2022 and December 31, 2021, no shares of preferred stock have been issued. Shares Outstanding As of June 30, 2022, the Company had 52,577,251 common shares issued and outstanding. The Company issued warrants, options and other contingent consideration in acquisitions and strategic partnerships that are expected to result in the issuance of common shares in future periods resulting from the exercise of warrants and options or the achievement of certain performance targets. These incremental shares as of June 30, 2022 are summarized below: Sinclair Penny Warrants (Note 2) 7,911,724 Sinclair Performance Warrants (Note 2) 3,279,337 Sinclair Options (1) (Note 2) 1,639,669 MKF penny warrants (Note 5) 34,455 MKF contingent shares (Note 5) 393,779 Telescope contingent shares (Note 5) 75,678 SportCaller contingent shares (2) (Note 5) 344,620 Outstanding awards under Equity Incentive Plans (Note 14) 1,002,043 14,681,305 __________________________________ (1) Consists of four equal tranches to purchase shares with exercise prices ranging from $ 30.00 to $ 45.00 per share, exercisable over a seven-year period beginning on the fourth anniversary of the November 18, 2020 closing of the Sinclair Agreement. (2) The contingent consideration related to the SportCaller acquisition is 6.5 M EUR as of June 30, 2022, payable in shares subject to certain post-acquisition earn-out targets and based on share price at time of payment. For purposes of this estimate, the Company used the EUR>US Dollar conversion rate of 1.0487 as of June 30, 2022 and the closing share price of Company common shares of $ 19.78 per share to calculate the shares expected to be issued if earn-out targets are met. 40 BALLY’S CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 17. ACCUMULATED OTHER COMPREHENSIVE LOSS The following tables reflect the changes in accumulated other comprehensive loss by component, net of tax, for the six months ended June 30, 2022 and 2021, respectively: (in thousands) Foreign Currency Translation Adjustment Benefit Plans Total Accumulated other comprehensive loss at December 31, 2021 $ ( 25,833 ) $ ( 976 ) $ ( 26,809 ) Current period other comprehensive loss ( 270,355 ) — ( 270,355 ) Accumulated other comprehensive loss at June 30, 2022 $ ( 296,188 ) $ ( 976 ) $ ( 297,164 ) (in thousands) Foreign Currency Translation Adjustment Benefit Plans Total Accumulated other comprehensive loss at December 31, 2020 $ — $ ( 3,144 ) $ ( 3,144 ) Current period other comprehensive loss ( 633 ) — ( 633 ) Reclassification adjustment to net earnings — 81 81 Accumulated other comprehensive loss at June 30, 2021 $ ( 633 ) $ ( 3,063 ) $ ( 3,696 ) 18. SEGMENT REPORTING During the fourth quarter of 2021, the Company updated its operating and reportable segments to better align with its strategic growth initiatives in light of recent acquisitions. The growth and diversification achieved through the Company’s recent acquisitions resulted in a change in the way the Company’s chief operating decision maker makes operating decisions, assesses the performance of the business and allocates resources. As a result of this realignment, the Company determined it had three operating and reportable segments: Casinos & Resorts, North America Interactive and International Interactive. The “Other” category includes interest expense for the Company and certain unallocated corporate operating expenses and other adjustments, including eliminations of transactions among segments to reconcile to the Company’s consolidated results including, among other expenses, share-based compensation, merger and acquisition costs and certain non-recurring charges. During the first quarter of 2022 as a result of the segment realignment noted above, the Company changed its methodology for allocating certain corporate operating expenses within advertising, general and administrative expense previously reported in “Other” to directly apply such costs to the segment supported. The prior year results presented below were reclassified to conform to the new segment presentation. The Company’s three reportable segments as of June 30, 2022 are: Casinos & Resorts - Bally’s Twin River, Bally’s Tiverton, Bally’s Dover, Bally’s Atlantic City, Bally’s Evansville, Hard Rock Biloxi, Bally’s Vicksburg, Bally’s Kansas City, Bally’s Black Hawk, Bally’s Shreveport, Bally’s Lake Tahoe, Bally’s Quad Cities and Bally’s Arapahoe Park. North America Interactive - Bally’s Interactive, SportCaller, MKF, AVP, Telescope, Degree 53, Live at the Bike, Gamesys’ North American operations and online and mobile sports betting operations. International Interactive - Gamesys’ European and Asian operations. The Company is currently evaluating the impact of its pending acquisition of Tropicana Las Vegas and the development of a casino in Centre City, Pennsylvania on its operating and reportable segments; however, it is expected that they will be included within the Casinos & Resorts segment. 41 BALLY’S CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) As of June 30, 2022, the Company’s operations were predominately in the US, Europe and Asia with a less substantive footprint in other countries world-wide. For geographical reporting purposes, revenue generated outside of the US has been aggregated into the International Interactive reporting segment, and consists primarily of revenue from the UK and Japan. The Company does not have any revenues from any individual customers that exceed 10% of total reported revenues. The Company utilizes Adjusted EBITDA (defined below) as a measure of its performance. Management believes Adjusted EBITDA is representative of its ongoing business operations including its ability to service debt and to fund capital expenditures, acquisitions and operations, in addition to it being a commonly used measure of performance in the gaming industry and used by industry analysts to evaluate operations and operating performance. The following tables set forth certain operating data for the Company’s three reportable segments. The Other category is included in the following tables in order to reconcile the segment information to the Company’s condensed consolidated financial statements. Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2022 2021 2022 2021 Revenue Casinos & Resorts $ 299,875 $ 262,188 $ 579,845 $ 451,621 North America Interactive 18,050 5,545 33,277 8,378 International Interactive 234,571 — 487,645 — Total $ 552,496 $ 267,733 $ 1,100,767 $ 459,999 Adjusted EBITDA (1) Casinos & Resorts $ 88,001 $ 91,806 $ 161,791 $ 149,426 North America Interactive ( 16,961 ) 93 ( 36,286 ) 1,490 International Interactive 82,612 — 155,939 — Other ( 12,428 ) ( 9,074 ) ( 25,267 ) ( 16,219 ) Total 141,224 82,825 256,177 134,697 Operating income (expense) Depreciation and amortization ( 74,773 ) ( 25,717 ) ( 153,654 ) ( 38,503 ) Acquisition, integration and restructuring ( 10,112 ) ( 18,402 ) ( 15,392 ) ( 30,660 ) Share-based compensation ( 6,322 ) ( 3,901 ) ( 11,417 ) ( 8,384 ) Gain on sale-leaseback 50,766 53,425 50,766 53,425 Other ( 15,464 ) ( 7,698 ) ( 18,641 ) ( 569 ) Income from operations 85,319 80,532 107,839 110,006 Other income (expense) Interest expense, net of interest income ( 45,828 ) ( 21,299 ) ( 91,513 ) ( 41,573 ) Other 25,444 36,690 44,923 11,955 Total other income (expense), net ( 20,384 ) 15,391 ( 46,590 ) ( 29,618 ) Income before income taxes 64,935 95,923 61,249 80,388 (Provision) benefit for income taxes ( 5,434 ) ( 26,981 ) 141 ( 22,151 ) Net income $ 59,501 $ 68,942 $ 61,390 $ 58,237 __________________________________ (1) Adjusted EBITDA is defined as earnings, or loss, for the Company before interest expense, net of interest income, provision (benefit) for income taxes, depreciation and amortization, non-operating (income) expense, acquisition, integration and restructuring expense, share-based compensation, and certain other gains or losses as well as, when presented for our reporting segments, an adjustment related to the allocation of corporate cost among segments. Adjusted EBITDA should not be construed as an alternative to GAAP net income, its most directly comparable GAAP measure, nor is it directly comparable to similarly titled measures presented by other companies. 42 BALLY’S CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2022 2021 2022 2021 Capital Expenditures Casinos & Resorts $ 55,808 $ 19,659 $ 104,381 $ 34,530 North America Interactive 291 183 466 251 International Interactive 5,426 — 11,108 — Other 40 616 126 1,004 Total $ 61,565 $ 20,458 $ 116,081 $ 35,785 (in thousands) June 30, 2022 December 31, 2021 Total Assets Casinos & Resorts $ 2,615,281 $ 2,437,249 North America Interactive 576,256 528,634 International Interactive 3,209,863 3,429,725 Other ( 165,407 ) 157,609 Total $ 6,235,993 $ 6,553,217 19. EARNINGS (LOSS) PER SHARE Basic earnings (loss) per common share is calculated in accordance with ASC 260, Earnings Per Share , which requires entities that have issued securities other than common stock that participate in dividends with common stock (“participating securities”) to apply the two-class method to compute basic earnings (loss) per common share. The two-class method is an earnings allocation method under which basic earnings (loss) per common share is calculated for each class of common stock and participating security as if all such earnings had been distributed during the period. To calculate basic earnings (loss) per share, the earnings allocated to common shares is divided by the weighted average number of common shares outstanding, contingently issuable warrants, and RSUs, RSAs, and PSUs for which no future service is required as a condition to the delivery of the underlying common stock (collectively, basic shares). Diluted earnings per share includes the determinants of basic earnings per share and, in addition, reflects the dilutive effect of the common stock deliverable for stock options, using the treasury stock method, and for RSUs, RSAs and PSUs for which future service is required as a condition to the delivery of the underlying common stock. Three Months Ended June 30, Six Months Ended June 30, (in thousands, except per share data) 2022 2021 2022 2021 Net income $ 59,501 $ 68,942 $ 61,390 $ 58,237 Weighted average shares outstanding - basic 60,506 48,156 60,263 42,038 Weighted average effect of dilutive securities 35 946 69 336 Weighted average shares outstanding - diluted 60,541 49,102 60,332 42,374 Basic earnings per share $ 0.98 $ 1.43 $ 1.02 $ 1.39 Diluted earnings per share $ 0.98 $ 1.40 $ 1.02 $ 1.37 There were 5,429,361 and 5,247,131 share-based awards that were considered anti-dilutive for the three and six months ended June 30, 2022, respectively. There were 3,288,603 and 3,279,337 share-based awards that were considered anti-dilutive for the three and six months ended June 30, 2021, respectively. 43 BALLY’S CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) On November 18, 2020, the Company issued Penny Warrants, Performance Warrants, and Options which participate in dividends with the Company’s common stock subject to certain contingencies. In the period in which the contingencies are met, those instruments are participating securities to which income will be allocated using the two-class method. The warrants and Options do not participate in net losses. The Penny Warrants were considered exercisable for little to no consideration and are therefore, included in basic shares outstanding at their issuance date. For the three and six months ended June 30, 2022 and 2021, the shares underlying the performance warrants were anti-dilutive as certain contingencies were not met. Refer to Note 2 “ Significant Accounting Policies ” for further information regarding the Sinclair Agreement. 20. SUBSEQUENT EVENTS On July 27, 2022, the Company completed a modified Dutch auction tender offer and repurchased 4.7 million shares of its common stock for cash at a price of $ 22.00 per share for an aggregate purchase price of $ 103.3 million. The Offer was funded with cash on hand and through borrowings on the Company’s revolving credit facility. Shares repurchased will be included in treasury stock.