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Item 2. Management’s Discussion and Analysis

2023-05-09 compared with 2022-11-09 · 159 added, 284 removed, 203 unchanged (69% of the section changed)

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Important factors beyond those that apply to most businesses, some of which are beyond our control, that could cause actual results to differ materially from our expectations and assumptions include, without limitation:

• unexpected costs, difficulties integrating and other events impacting our recently completed and proposed acquisitions and our ability to realize anticipated benefits;

• unexpected costs, difficulties integrating and other events impacting our completed acquisitions and our ability to realize anticipated benefits;

• risks associated with our rapid growth, including those affecting customer and employee retention, integration and controls;

• risks associated with the impact of the digitalization of gaming on our casino operations, our expansion into iGaming and sports betting and the highly competitive and rapidly changing aspects of our businesses generally;

• uncertainties surrounding the COVID-19 pandemic, including limitations on our operations, increased costs, changes in customer behaviors, impact on our employees and the ongoing impact of COVID-19 on general economic conditions

• risks associated with the impact of the digitalization of gaming on our casino operations, our expansion into sports betting and iGaming and the highly competitive and rapidly changing aspects of our businesses generally;

• the very substantial regulatory restrictions applicable to us, including costs of compliance;

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We are a global gaming, hospitality and entertainment company with a portfolio of casinos and resorts and online gaming businesses.

We provide our customers with physical and interactive entertainment and gaming experiences, including traditional casino offerings, iCasino, online bingo, sportsbook, daily fantasy sports (“DFS”) and free-to-play (“F2P”) games.

As of September 30, 2022, we own and manage 15 land-based casinos and one horse racetrack in ten states across the United States (“US”) operating under Bally’s brand.

We provide our customers with physical and interactive entertainment and gaming experiences, including traditional casino offerings, iCasino, online bingo, sportsbook and free-to-play (“F2P”) games.

As of March 31, 2023, we own and manage 15 land-based casinos and one horse racetrack in ten states across the United States (“US”) operating under the Bally’s brand.

Our land-based casino operations include approximately 14,700 slot machines, 500 table games and 5,300 hotel rooms, along with various restaurants, entertainment venues and other amenities.

Certain of our properties are leased under a master lease agreement with Gaming and Leisure Properties, Inc.

(“GLPI”), a publicly traded gaming-focused real estate investment trust (“REIT”).

With our acquisition of London-based Gamesys Group Ltd.

(“Gamesys”) on October 1, 2021, we expanded our geographical and product footprints to include an iGaming business with well-known brands providing iCasino and online bingo experiences to our global online customer base with concentrations in Europe and Asia and a growing presence in North America.

Our iCasino and online bingo platforms and games content, sportsbook and F2P games are provided on a business-to-business (“B2B”) as well as a business-to-consumer (“B2C”) basis.

In 2021, we acquired London-based Gamesys Group Ltd.

(“Gamesys”) to expand our geographical and product footprints to include an iGaming business with well-known brands providing iCasino and online bingo experiences to our global online customer base with concentrations in Europe and Asia and a growing presence in North America.

Our revenues are primarily generated by these gaming and entertainment offerings.

We own and operate our proprietary software and technology stack designed to allow us to provide consumers differentiated offerings and exclusive content.

We own and operate our proprietary software and technology stack, which is designed to allow us to provide consumers differentiated offerings and exclusive content.

Our Strategy and Business Developments

We seek to continue to grow our business by actively pursuing the acquisition and development of new gaming opportunities and reinvesting in our existing operations.

We believe that interactive gaming represents a significant strategic opportunity for the future growth of Bally’s.

We believe that interactive gaming represents a significant strategic opportunity for the future growth of Bally’s and we will continue to actively focus resources in markets that we believe will regulate iGaming.

We seek to increase revenues at our casinos and resorts through enhancing the guest experience by providing popular games, restaurants, hotel accommodations, entertainment and other amenities in attractive surroundings with high-quality guest service.

We believe that our recent acquisitions have expanded and diversified us from financial and market exposure perspectives, while continuing to mitigate our susceptibility to regional economic downturns, idiosyncratic regulatory changes and increases in regional competition.

In 2021, we acquired three casino and resort properties - Bally’s Lake Tahoe, Bally’s Evansville and Bally’s Quad Cities.

We also announced plans to construct a land-based casino in Centre County, Pennsylvania, adding to our land-based casino presence.

In 2022, we signed an agreement with the City of Chicago to develop a destination casino resort in downtown Chicago, Illinois and we completed the acquisition of Tropicana Las Vegas.

Upon the completion of construction in both Centre County, Pennsylvania and Chicago, Illinois, we will own and manage 17 land-based casinos across 11 states.

In addition, we also expanded our interactive business by:

• launching our Bally Sports Network through our partnership with Sinclair, which combines our sports betting technology with Sinclair’s expansive footprint.

With Bally’s brand, the media partnership and the unencumbered skins (gaming licenses) that we have acquired and reserved in our portfolio, we can now provide our customers omni-channel gaming and entertainment across our various physical properties while having a singular online and mobile presence with a brand that is synonymous with gaming, hospitality and entertainment;

• acquiring Gamesys, a leading international online gaming operator that provides gaming entertainment to a global customer base;

• acquiring Bally’s Interactive, formerly Bet.Works, and its proprietary technology stack and turnkey solutions, which include marketing, operations, customer service, risk management and compliance.

We believe that the Bet.Works acquisition provides us with a suite of advanced omni-channel products, platforms, software and content solutions positioning us to deliver competitive sports betting and iCasino offerings to customers on a national scale.

These steps have positioned us to become a leading, full-service, vertically integrated sports betting and iGaming company in the US with physical casinos and online gaming solutions united under a single, leading brand.

Gamesys Acquisition

On October 1, 2021, we acquired Gamesys, a leading UK-based global online gaming operator.

In connection with the acquisition, Gamesys shareholders received, in the aggregate, 9,773,537 shares of our common stock and $2.08 billion in cash.

We believe that Gamesys’ proven technology platform will foster our continued buildout of our interactive offerings in North America, including real-money gaming options in online sports betting and iGaming.

Additionally, unifying Bally’s and Gamesys’ player databases and technologies provides us with one of the largest portfolios of omni-channel cross-selling opportunities, consisting of land-based gaming, online sports betting, iCasino, poker, bingo, daily fantasy sports and free-to-play games.

We believe that these offerings, coupled with our media partnership with Sinclair Broadcast Group, position the Company to capitalize on significant growth opportunities in the rapidly expanding US online entertainment and sports betting markets.

We continue to make progress on the integration of our acquired assets and deploying capital on our strategic growth projects.

These steps have positioned us as a prominent, full-service, vertically integrated iGaming company, with physical casinos and online gaming solutions united under a single, leading brand.

Operating Structure

Our business is organized into three reportable segments:

(1) Casinos & Resorts, (2) North America Interactive, and (3) International Interactive.

(i) Casinos & Resorts, (ii) North America Interactive, and (iii) International Interactive.

Casinos & Resorts - includes our 15 land-based casino properties and one horse racetrack:

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Bally’s Atlantic City Casino Resort (“Bally’s Atlantic City”) Atlantic City, New Jersey

Bally’s Black Hawk Black Hawk, Colorado

Bally’s Black Hawk (1)

Black Hawk, Colorado

Bally’s Dover Casino Resort (“Bally’s Dover”) Dover, Delaware

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North America Interactive - includes the following North America businesses:

• Bally’s Interactive, a business-to-business-to-consumer (“B2B2C”) sportsbook and iCasino platform provider and operator;

• Horses Mouth Limited (“SportCaller”), a B2B and F2P game provider for sports betting companies;

• Monkey Knife Fight (“MKF”), a B2C 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;

• Association of Volleyball Professionals (“AVP”), a professional beach volleyball organization and host of the longest-running domestic beach volleyball tour;

• Telescope, Inc.

(“Telescope”), a provider of real-time audience engagement solutions for live events, gamified second screen experiences and interactive livestreams;

• Degree 53, a United Kingdom (“UK”)-based creative agency that specializes in multi-channel website and personalized mobile app and software development for online gambling and sports industries.

The North America Interactive reportable segment also includes the North American operations of Gamesys.

International Interactive - includes the following businesses in Europe and Asia:

• Gamesys, a B2B2C iCasino and online bingo platform provider and operator;

• Solid Gaming, a games content aggregation business.

• Bally’s Interactive, primarily a business-to-consumer (“B2C”) online iCasino operator;

• Consumer facing service and marketing engines, including SportCaller, a B2B and F2P game provider for sports betting companies;

Live at the Bike, an online subscription streaming service featuring livestream and on-demand poker videos and podcasts;

and the Association of Volleyball Professionals (“AVP”), a professional beach volleyball organization and host of the longest-running domestic beach volleyball tour.

The North America Interactive reportable segment also includes the North American operations of Gamesys, a B2C iCasino operator.

International Interactive - includes Gamesys.

Refer to Note 19 “ Segment Reporting ” to our condensed consolidated financial statements for additional information on our segment reporting structure.

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On February 17, 2022, certain of our subsidiaries, the Rhode Island Department of Business Regulation (“DBR”) and the Division of Lotteries (“DoL”) of the Rhode Island Department of Revenue amended and restated our Regulatory Agreement (the “Regulatory Agreement”).

The Regulatory Agreement contains financial and other covenants that, among other things, (1) restrict the acquisition of stock and other financial interests in us, (2) relate to the licensing and composition of members of our management and Board of Directors (the “Board”), (3) prohibit certain competitive activities and related-party transactions and (4) restrict our ability to declare or make restricted payments (including dividends), incur additional indebtedness or take certain other actions, if our leverage ratio exceeds 5.50 to 1.00 (in general being gross debt divided by Adjusted EBITDA, each as defined in the Regulatory Agreement).

The Regulatory Agreement contains financial and other covenants that, among other things, (i) restrict the acquisition of stock and other financial interests in us, (ii) relate to the licensing and composition of members of our management and Board of Directors (the “Board”), (iii) prohibit certain competitive activities and related-party transactions and (iv) restrict our ability to declare or make restricted payments (including dividends), incur additional indebtedness or take certain other actions, if our leverage ratio exceeds 5.50 to 1.00 (in general being gross debt divided by Adjusted EBITDA, each as defined in the Regulatory Agreement).

The Regulatory Agreement also provides affirmative obligations, including setting a minimum number of employees that we must employ in Rhode Island and providing the DBR and DoL with periodic information updates about us.

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A failure to comply with the Regulatory Agreement could subject us to injunctive or monetary relief, payments to the Rhode Island regulatory agencies and ultimately the revocation or suspension of our licenses to operate in Rhode Island.

In addition, our master contracts with Rhode Island were extended through June 30, 2043, and allow for consolidation of promotional points between Bally’s Twin River and Bally’s Tiverton, obligate Bally’s Twin River to build a 50,000 square foot expansion, obligate Bally’s Twin River to lease at least 20,000 square feet of commercial space in the city of Providence, and commit us to invest $100 million in Rhode Island over this extended term, including an expansion and the addition of new amenities at Bally’s Twin River.

June 2021 legislation enacted in Rhode Island authorized a joint venture with International Gaming Technology PLC (“IGT”) to become a licensed technology provider and supply the State of Rhode Island with all Video Lottery Terminals (“VLTs”) at both Bally’s Twin River and Bally’s Tiverton for a 20.5-year period starting January 1, 2023.

IGT will own 60% of the joint venture.

As of July 1, 2021, until the joint venture is operating, we will supply 23% of all VLTs in return for 7% net terminal income from the machines.

COVID-19 Pandemic

The COVID-19 pandemic significantly impacted, and could continue to impact, our business in a material manner.

Currently, all of our properties are open and operating with minimal restrictions.

The pandemic and its consequences dramatically reduced travel and demand for hotel rooms and other casino resort amenities, which had a negative impact on our results.

While many restrictions have been relaxed at this point, there is no assurance that a resurgence of future COVID-19 variants will not cause disruption to our business, including the closure of our facilities.

In addition, future demand for gaming activities may be negatively impacted by the adverse changes in the perceived or actual economic climate due to the impact of the COVID-19 pandemic.

Our business could also be impacted if the disruptions from the COVID-19 pandemic impact construction projects, including our projects in Centre County, Pennsylvania and Chicago, Illinois, described above.

In addition, our master contracts with Rhode Island were extended through June 30, 2043, and allow for consolidation of promotional points between Bally’s Twin River and Bally’s Tiverton, obligate Bally’s Twin River to build a 50,000 square foot expansion, obligate Bally’s to lease at least 20,000 square feet of commercial space in Providence, and commit us to invest $100 million in Rhode Island over this extended term, including an expansion and the addition of new amenities at Bally’s Twin River.

The June 2021 legislation authorized Bally’s Twin River to become a licensed technology provider, which it did on July 1, 2021.

As a licensed Technology Provider, Bally’s Twin River was entitled to an additional share of net terminal income on Video Lottery Terminals (“VLTs”) which they owned or leased.

This June 2021 legislation also authorized a joint venture between Bally’s and International Gaming Technology PLC (“IGT”) to become a licensed technology provider and supply the State of Rhode Island with all VLTs at both Bally’s Twin River and Bally’s Tiverton for a 20.5-year period starting January 1, 2023.

The joint venture was organized as the Rhode Island VLT Company, LLC, with IGT owning 60% of the membership interests and Bally’s or its affiliates owning 40% of the membership interests.

On December 30, 2022 Bally’s Twin River and Bally’s Tiverton purchased additional machines directly from IGT to effectively own 40% of the machines.

On January 1, 2023 Bally’s Twin River and Bally’s Tiverton contributed all of their machines to Rhode Island VLT Company, LLC in return for an aggregate 40% membership interest, and IGT contributed all of their machines at Bally’s Twin River and Bally’s Tiverton to the Rhode Island VLT Company, LLC in return for a 60% membership interest.

Macroeconomic and Other Factors

Our business is subject to risks caused by global economic challenges, including those caused by the COVID-19 pandemic, the impact of the war in Ukraine, rising inflation, rising interest rates and supply-chain disruptions, that can cause economic uncertainty and volatility.

These challenges can negatively impact discretionary consumer spending and could result in a reduction in visitors to our properties, including those that stay in our hotels, or discretionary spending by our customers on entertainment and leisure activities.

In addition, inflation generally affects our business by increasing our cost of labor.

In periods of sustained inflation, it may be difficult to effectively control such increases to our costs and retain key personnel.

Key Performance Indicators

The main key performance indicator used in managing our business is Adjusted EBITDA.

Adjusted EBITDA is defined as earnings for the Company, or where noted its reporting segments, before, in each case, interest expense, net of interest income, provision (benefit) for income taxes, depreciation and amortization, non-operating income, 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.

The key performance indicator used in managing our business is Adjusted EBITDA, a non-GAAP measure.

Adjusted EBITDA is defined as earnings for the Company, or where noted its reporting segments, before, in each case, interest expense, net of interest income, provision (benefit) for income taxes, depreciation and amortization, non-operating income, acquisition and other transaction related costs, 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.

We use Adjusted EBITDA to analyze the performance of our business and it is used as a determining factor for performance based compensation for members of our management team.

We have historically used Adjusted EBITDA when evaluating operating performance because we believe that the inclusion or exclusion of certain recurring and non-recurring items is necessary to provide a full understanding of our core operating results and as a means to evaluate period-to-period performance.

We have historically used Adjusted EBITDA when evaluating operating performance because we believe that the inclusion or exclusion of certain recurring and non-recurring items is necessary to provide a more fulsome understanding of our core operating results and as a means to evaluate period-to-period performance.

Also, we present Adjusted EBITDA because it is used by some investors and creditors as an indicator of the strength and performance of ongoing business operations, including our ability to service debt, and to fund capital expenditures, acquisitions and operations.

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Adjusted EBITDAR is used outside of our financial statements solely as a valuation metric.

Adjusted EBITDAR is defined as Adjusted EBITDA (as defined above) for our Casinos & Resorts segment plus rent expense associated with triple net operating leases.

Management believes Adjusted EBITDAR is an additional metric traditionally used by analysts in valuing gaming companies subject to triple net leases since it eliminates the effects of variability in leasing methods and capital structures.

This metric is included as supplemental disclosure because (i) we believe Adjusted EBITDAR is traditionally used by gaming operator analysts and investors to determine the equity value of gaming operators and (ii) Adjusted EBITDAR is one of the metrics used by other financial analysts in valuing our business.

Adjusted EBITDAR is defined as Adjusted EBITDA for our Casinos & Resorts segment plus rent expense associated with triple net operating leases.

Adjusted EBITDAR is an additional metric used by analysts in valuing gaming companies subject to triple net leases since it eliminates the effects of variability in leasing methods and capital structures.

This metric is included as supplemental disclosure because (i) we believe Adjusted EBITDAR is used by gaming operator analysts and investors to determine the equity value of gaming operators and (ii) financial analysts refer to Adjusted EBITDAR when valuing our business.

We believe Adjusted EBITDAR is useful for equity valuation purposes because (i) its calculation isolates the effects of financing real estate, and (ii) using a multiple of Adjusted EBITDAR to calculate enterprise value allows for an adjustment to the balance sheet to recognize estimated liabilities arising from operating leases related to real estate.

Adjusted EBITDA and Adjusted EBITDAR should not be construed as an alternative to GAAP net income, the most directly comparable GAAP measure, as an indicator of our performance.

Adjusted EBITDA and Adjusted EBITDAR should not be construed as an alternative to net income, the most directly comparable GAAP measure, as an indicator of our performance.

In addition, Adjusted EBITDA and Adjusted EBITDAR as used by us may not be defined in the same manner as other companies in our industry, and, as a result, may not be comparable to similarly titled non-GAAP financial measures of other companies.

Adjusted EBITDAR should not be viewed as a measure of overall operating performance or considered in isolation or as an alternative to net income, because it excludes the rent expense associated with our triple net operating leases with GLPI and the lease for real estate and land underlying the operations of the Bally’s Lake Tahoe property.

Beginning in the third quarter ended September 30, 2022, we have revised our calculation of Adjusted EBITDA to exclude adjustments for launch costs and preopening expenses.

Tables reflected below within “Adjusted EBITDA and Adjusted EBITDAR by Segment” have been revised to reflect this new presentation.

Third Quarter and First Nine Months 2022 Results

We reported revenue and income from operations of $578.2 million and $53.7 million, respectively, for the three months ended September 30, 2022, compared to revenue and income from operations of $314.8 million and $27.7 million, respectively, for the same period last year.

We reported revenue and income from operations of $1.68 billion and $161.5 million, respectively, for the nine months ended September 30, 2022, compared to revenue and income from operations of $774.8 million and $137.7 million, respectively, for the same period last year.

Our properties are at full capacity and are operating under minimal restrictions and we have seen an increase in consumer confidence, which contributed to such increases.

In addition, the increases include incremental revenues and income from our recent acquisitions.

Results of Operations

Beginning in the third quarter ended September 30, 2022, we revised our calculation of Adjusted EBITDA to exclude adjustments for launch costs and preopening expenses.

The tables below within “Adjusted EBITDA and Adjusted EBITDAR by Segment” have been revised to reflect this new presentation for applicable periods.

First Quarter 2023 Results

The following table presents, for the periods indicated, certain revenue and income items:

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

(in millions) 2023 2022

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Income from operations 376.7 22.5

Net income (loss) 0.6 (57.6) 62.0 0.6

Net income 178.3 1.9

The following table presents, for the periods indicated, certain income and expense items expressed as a percentage of total revenue:

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

Total revenue 100.0 % 100.0 %

Gaming, hotel, food and beverage, retail, entertainment and other expenses 43.4 % 37.5 % 45.3 % 35.4 %

Advertising, general and administrative 33.2 % 44.6 % 33.1 % 41.6 %

Goodwill and asset impairment — % — % — % 0.6 %

Gain on sale-leaseback, net — % — % (3.0) % (6.9) %

Other operating costs and expenses 1.4 % (0.2) % 1.5 % 2.8 %

Gaming and non-gaming expenses 45.1 % 47.4 %

General and administrative 42.0 % 34.1 %

Gain from sale-leaseback, net (62.5) % — %

Depreciation and amortization 12.5 % 14.4 %

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Other income (expense)

Interest income — % 0.2 % — % 0.2 %

Interest expense, net of amounts capitalized (10.6) % (8.3) %

Change in value of naming rights liabilities — % 2.2 % 2.0 % (0.2) %

Gain on bargain purchases — % (0.3) % — % 3.0 %

Loss on extinguishment of debt — % (6.2) % — % (2.5) %

Foreign exchange gain (loss) — % (13.6) % 0.1 % (5.6) %

Other, net 0.2 % (1.0) % 0.7 % (0.8) %

Other non-operating income, net 0.4 % 3.6 %

Total other income (expense), net (10.1) % (4.8) %

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Provision (benefit) for income taxes 23.0 % (1.0) %

Net income (loss) 0.1 % (18.3) % 3.7 % 0.1 %

Net income 29.8 % 0.3 %

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Segment Performance

During the fourth quarter of 2021, the Company updated its reportable segments to better align with its strategic growth initiatives in light of recent acquisitions.

As a result of this realignment, the Company determined it had three reportable segments:

Casinos & Resorts, North America Interactive and International Interactive.

Additionally, during the first quarter of 2022 as a result of the segment realignment, 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.

Prior year amounts have been reclassified to conform to the new segment presentation.

The following table sets forth certain financial information associated with results of operations for the three and nine months ended September 30, 2022 and 2021.

Non-gaming revenue includes hotel, food and beverage and retail, entertainment and other revenue.

Non-gaming expenses include hotel, food and beverage and retail, entertainment and other expenses.

All amounts are before any allocation of corporate costs.

The following table sets forth certain financial information associated with results of operations for the three months ended March 31, 2023 and 2022.

Three Months Ended

September 30, Nine Months Ended

September 30,

(in thousands, except percentages) 2022 2021 $ Change 2022 2021 $ Change

(in thousands, except percentages) 2023 2022 $ Change

Casinos & Resorts $ 233,107 $ 217,805 $ 15,302

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Total Non-gaming expenses 52,344 40,637 11,707

Advertising, general and administrative

General and administrative

Casinos & Resorts 128,117 99,587 28,530

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Other 40,634 25,075 15,559

Total Advertising, general and administrative $ 191,953 $ 140,500 $ 51,453 $ 555,276 $ 322,210 $ 233,066

Total General and administrative $ 251,608 $ 187,021 $ 64,587

Gaming expenses as a percentage of Gaming revenue 45 % 47 %

Non-gaming expenses as a percentage of Non-gaming revenue 47 % 48 %

Advertising, general and administrative as a percentage of Total revenue 33 % 45 % 33 % 42 %

Three and Nine Months Ended September 30, 2022 Compared to Three and Nine Months Ended September 30, 2021

General and administrative as a percentage of Total revenue 42 % 34 %

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

Total Revenue

Total revenue for the three and nine months ended September 30, 2022 and 2021 consisted of the following (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 $ Change % Change 2022 2021 $ Change % Change

Total revenue for the three months ended March 31, 2023 and 2022 consisted of the following (in thousands):

Three Months Ended March 31,

2023 2022 $ Change % Change

Gaming $ 486,895 $ 463,702 $ 23,193 5.0 %

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Total revenue $ 598,720 $ 548,271 $ 50,449 9.2 %

Revenue for the three months ended September 30, 2022 increased 83.7%, or $263.5 million, to $578.2 million, from $314.8 million in the same period last year.

Revenue for the nine months ended September 30, 2022 increased 116.7%, or $904.2 million, to $1.68 billion, from $774.8 million in the same period last year.

We saw gaming, hotel, food and beverage, and retail, entertainment and other revenues grow, as we were able to operate with less restrictions across our properties compared to the prior year periods resulting from developments in the COVID-19 pandemic and an increase in consumer confidence.

Incremental revenues from our acquisitions that closed in 2021, which included Bally’s Evansville, Bally’s Lake Tahoe, Bally’s Quad Cities, Gamesys, and the majority of the North America Interactive acquisitions (collectively, the “2021 Acquisitions”), drove the increase in revenue year over year, contributing $232.4 million and $845.5 million to total revenue in the three and nine months ended September 30, 2022, respectively.

Refer to Note 5 “ Acquisitions ” for further information on our recent acquisitions.

Operating costs and expenses

In the three months ended September 30, 2022, we recorded total operating costs and expenses of $524.6 million, up $237.5 million, or 82.8%, from $287.0 million in the same period last year.

Total operating costs and expenses for the nine months ended September 30, 2022 increased $880.5 million, or 138.2%, to $1.52 billion, from $637.0 million in the same period last year.

The change in total operating costs and expenses was driven by fluctuations in our gaming and non-gaming expenses, advertising general and administrative costs, acquisition, integration and restructuring expenses and other operating costs and expenses, each described below.

We expect our total operating costs and expenses to continue to increase in 2022 as compared to 2021 as a result of the inclusion of our recent acquisitions, most notably, Gamesys.

Total revenue for the three months ended March 31, 2023 increased 9.2% to $598.7 million, from $548.3 million in the same period last year.

We saw gaming, hotel, and food and beverage increase, through organic growth at several of our casino properties.

Additionally, we saw incremental revenue from our recent acquisitions of Tropicana Las Vegas and Casino Secret (collectively “Recent Acquisitions”) of $35.1 million.

Gaming and Non-gaming Expenses

Gaming and racing expenses for the three months ended September 30, 2022 increased $118.8 million, or 151.5%, to $197.2 million from $78.4 million in the prior year comparable period and increased $431.5 million, or 228.3%, to $620.5 million for the nine months ended September 30, 2022 from $189.0 million in the prior year comparable period.

These increases were primarily attributable to the inclusion of expenses from our 2021 Acquisitions which contributed, in the aggregate, $116.8 million and $416.3 million, during the three and nine months ended September 30, 2022, respectively.

Non-gaming expenses for the three months ended September 30, 2022 increased $13.9 million, or 35.0%, to $53.5 million from $39.6 million in the same period last year.

Non-gaming expenses for the nine months ended September 30, 2022 increased $55.2 million, or 64.7%, to $140.5 million from $85.3 million in the same period last year.

These increases were primarily attributable to the inclusion of expenses from our 2021 Acquisitions which contributed, in the aggregate, $11.7 million and $44.6 million, during the three and nine months ended September 30, 2022, respectively.

Advertising, general and administrative

Advertising, general and administrative expenses for the three months ended September 30, 2022 increased $51.5 million, or 36.6%, to $192.0 million from $140.5 million in the same period last year.

Advertising, general and administrative expenses for the nine months ended September 30, 2022 increased $233.1 million, or 72.3%, to $555.3 million from $322.2 million in the same period last year.

These increases were primarily attributable to the inclusion of expenses from our 2021 Acquisitions which contributed, in the aggregate, $37.2 million and $192.2 million, during the three and nine months ended September 30, 2022, respectively.

Acquisition, integration and restructuring expense

We incurred $9.3 million and $24.7 million of acquisition, integration and restructuring expenses during the three and nine months ended September 30, 2022, respectively, compared to $6.8 million and $37.5 million in the prior year three and nine month periods, respectively.

The decrease in expense year over year is driven by a reduction in Gamesys acquisition and integration costs offset by an increase in costs attributable to Bally’s Chicago.

Refer to Note 11 “ Acquisition, Integration and Restructuring ” for further information.

Other operating (income), costs and expenses

During the three and nine months ended September 30, 2022, we recorded a gain from insurance recoveries, net of losses of $1.3 million and $1.4 million, respectively, primarily attributable to insurance recoveries related to prior litigation matters.

During the three and nine months ended September 30, 2021, the Company recorded a gain from insurance recoveries, net of losses of $7.9 million and $19.2 million, respectively, primarily attributable to insurance proceeds received due to the effects of Hurricane Zeta.

The Company recorded rebranding expenses of $0.1 million and $0.4 million during the three months ended September 30, 2022 and 2021, respectively, and $0.5 million and $1.7 million during the nine months ended September 30, 2022 and 2021, respectively.

During the nine months ended September 30, 2021, we also recorded asset impairment charges of $4.7 million related to the Dover Downs and Bally’s Black Hawk trade names in connection with our rebranding.

Additionally, during the nine months ended September 30, 2022, we sold our Bally’s Black Hawk and Bally’s Quad Cities properties to GLPI and recorded a gain on sale-leaseback of $50.8 million.

During the nine months ended September 30 2021, we sold our Bally’s Dover property to GLPI and recorded a gain on sale-leaseback of $53.4 million.

Gaming expenses for the three months ended March 31, 2023 decreased $1.6 million, from $219.2 million in 2022.

This decrease was primarily attributable to the decrease in marketing costs directly associated with the Company’s iGaming products and services, included within gaming expenses, compared to prior year.

Non-gaming expenses for the three months ended March 31, 2023 increased $11.7 million to $52.3 million from the same period last year.

This increase was primarily attributable to the addition of our Tropicana Las Vegas casino property, which contributed incremental non-gaming expenses of $10.8 million during the first quarter of 2023.

General and Administrative

General and administrative expense for the three months ended March 31, 2023 increased $64.6 million, or 34.5%, to $251.6 million from $187.0 million in the same period last year.

This increase was primarily attributable to an increase in operating lease expense of $20.8 million from prior year, $16.8 million of restructuring charges related to the Interactive business workforce reduction, increased acquisition and transaction related costs, and the inclusion of the Recent Acquisitions, which contributed incremental general and administrative expenses of $12.2 million.

Depreciation and Amortization

Depreciation and amortization for the three months ended September 30, 2022 was $73.9 million, an increase of $44.9 million, and $227.5 million for the nine months ended September 30, 2022, an increase of $160.0 million, each compared to the same period last year.

The increase in depreciation and amortization is attributable to the inclusion of our 2021 acquisitions, which contributed an aggregate of $46.3 million and $154.7 million in the three and nine months ended September 30, 2022, respectively.

Depreciation and amortization for the three months ended March 31, 2023 was $74.6 million, a decrease of $4.3 million, or 5.5%, compared to the same period last year.

We recorded impairment charges of $232.4 million in the fourth quarter of 2022, resulting in a decrease in depreciation and amortization expense during the first quarter of 2023.

Income From Operations

Income from operations was $53.7 million for the three months ended September 30, 2022, compared to $27.7 million in the comparable period in 2021.

Income from operations was $161.5 million for the nine months ended September 30, 2022 compared to $137.7 million in 2021.

These changes year-over-year were driven by revenue growth resulting from a return in visitation to our properties as COVID-19 restrictions were lifted coupled with a benefit from our 2021 Acquisitions, offset by increased operating expenses.

Income from operations was $376.7 million, or 62.9% as a percentage of total revenue, for the three months ended March 31, 2023 compared to $22.5 million, or 4.1%, in the same period last year.

The change year-over-year was driven by the gain on sale-leaseback recorded during the current period of $374.2 million related to our Hard Rock Biloxi and Bally’s Tiverton properties, coupled with organic revenue growth a benefit from our Recent Acquisitions, offset by increased general and administrative expenses.

Other Income (Expense)

Total other expense for the three months ended September 30, 2022 was $51.9 million, compared to $90.8 million in the same period last year.

This change was driven mainly by a decrease in foreign currency losses of $43.1 million and a loss on extinguishment of debt of $19.4 million incurred during the three months ended September 30, 2022, offset by an increase in interest expense of $21.9 million.

Total other expense for the nine months ended September 30, 2022 decreased $21.9 million to $98.5 million compared to $120.4 million in the same period last year.

During the first nine months of 2022, there was a decrease in foreign currency exchange losses of $45.6 million and a decrease in losses from the extinguishment of debt of $19.4 million, offset by bargain purchase gains described above, and an increase in interest expense of $71.1 million due to increased borrowings and higher interest rates year-over-year.

Total other expense increased $34.4 million to $60.7 million for the first quarter of 2023 from $26.2 million in the same period last year.

The increase in other expense was primarily attributable to an increase in interest expense, net of $17.6 million due to higher interest rates of our borrowings year-over-year, and an increase in the naming rights liability for performance warrants associated with our contracts with Sinclair in the first quarter of 2023, compared to a decrease in the liability in the first quarter of 2022.

These were partially offset by the gain on extinguishment of debt of $4.0 million recorded in the first quarter of 2023, related to the repurchase and retirement of $15.0 million of our 2031 Senior Notes.

Provision (Benefit) for Income Taxes

Provision for income taxes for the three months ended September 30, 2022 was $1.1 million compared to a tax benefit of $5.4 million for the three months ended September 30, 2021.

The effective tax rate for the quarter was 65.7% compared to 8.6% for the three months ended September 30, 2021.

The provision for income taxes for the nine months ended September 30, 2022 was $1.0 million compared to $16.8 million for the nine months ended September 30, 2021.

The effective tax rate for the nine months ended September 30, 2022 was 1.6% compared to 96.6% for the nine months ended September 30, 2021.

The 2022 year to date effective tax rate was lower than the US federal statutory tax rate of 21%, largely due to a tax benefit recorded in foreign jurisdictions during the year, offset by a discrete item related to the gain on sale leaseback transactions in Colorado and Illinois.

The 2021 year to date effective tax rate was higher than the US federal statutory rate of 21%, largely due to discrete items related to the gain on sale leaseback in Delaware and foreign currency translation.

Net income (loss) and earnings per share

Net income for the three months ended September 30, 2022 was $0.6 million, or $0.01 per diluted share, an increase of $58.2 million, or 101.0%, from net loss of $57.6 million, or $(1.16) per diluted share, in the same period last year.

As a percentage of revenue, net income increased from (18.3)% for the three months ended September 30, 2021 to 0.1% for the three months ended September 30, 2022.

Net income for the nine months ended September 30, 2022 was $62.0 million, an increase of $61.4 million, or 10370.1%, from $0.6 million, or $0.01 per diluted share, in the same period last year.

As a percentage of revenue, net income decreased to 3.7% for the nine months ended September 30, 2022 from 0.1% for the nine months ended September 30, 2021.

These changes were impacted by the factors noted above.

Provision for income taxes for the three months ended March 31, 2023 was $137.7 million compared to a benefit of $5.6 million in the prior year.

The effective tax rate for the first quarter of 2023 was 43.6% compared to 151.2% in the prior year.

The 2023 year to date effective tax rate was higher than the US federal statutory tax rate of 21%, largely due to an increase in the valuation allowance and a tax liability for a discrete item related to the deferred gain on sale leaseback transactions in Mississippi and Rhode Island.

Net Income and Earnings Per Share

Net income for the three months ended March 31, 2023 was $178.3 million, or $3.24 per diluted share, compared to $1.9 million, or $0.03 per diluted share, for the three months ended March 31, 2022.

Adjusted EBITDA and Adjusted EBITDAR by Segment

Consolidated Adjusted EBITDA was $151.0 million for the three months ended September 30, 2022, up $73.1 million, or 93.9%, from $77.8 million in the same period last year.

Consolidated Adjusted EBITDA was $402.7 million for the nine months ended September 30, 2022, up $191.5 million, or 90.7%, from $211.2 million in the same period last year.

Adjusted EBITDA for the Casinos & Resorts segment for the three months ended September 30, 2022 increased $13.8 million, or 14.8%, to $106.9 million and increased $26.2 million, or 10.8%, to $268.7 million for the nine months ended September 30, 2022, each compared to the same prior year periods.

Casinos & Resorts Adjusted EBITDAR was $118.7 million and $303.4 million in the three and nine months ended September 30, 2022, respectively, which further adjusts Adjusted EBITDA for rent expense associated with our operating leases, as defined below.

Adjusted EBITDA for the North America Interactive segment for the three months ended September 30, 2022 decreased $14.1 million to $(19.7) million and decreased $55.8 million to $(59.9) million for the nine months ended September 30, 2022, each compared to the same prior year periods, mainly due to increased operating costs.

Adjusted EBITDA for the International Interactive segment for the three and nine months ended September 30, 2022 was $76.3 million and $232.3 million, respectively, directly attributable to our acquisition of Gamesys on October 1, 2021.

Consolidated Adjusted EBITDA was $126.4 million for the three months ended March 31, 2023, an increase of $11.7 million, or 10.2%, from $114.7 million in the same period last year.

Adjusted EBITDA for the Casinos & Resorts segment for the three months ended March 31, 2023 increased $0.1 million to $73.9 million compared to the same prior year period.

Casinos & Resorts Adjusted EBITDAR was $105.1 million for the three months ended March 31, 2023, which further adjusts Adjusted EBITDA for rent expense associated with our operating leases, as defined below.

Adjusted EBITDA for the North America Interactive segment for the three months ended March 31, 2023 increased $8.8 million to $(10.6) million compared to the same prior year period, mainly due to cost-savings in connection with the execution of the restructuring plan of our interactive business.

Adjusted EBITDA for the International Interactive segment for the three months ended March 31, 2023 increased $7.0 million, or 9.5%, to $80.3 million compared to the same prior year period, mainly due to optimized marketing spend and cost-savings in connection with the execution of the restructuring plan of our interactive business.

The following tables reconcile Adjusted EBITDA and Casinos & Resorts Adjusted EBITDAR, non-GAAP measures, to net income, as derived from our financial statements (in thousands):

Three Months Ended September 30, 2022

Three Months Ended March 31, 2023 (in thousands)

Casinos & Resorts North America Interactive International Interactive Other Total

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Foreign exchange (gain) loss (2) 2,066 2,855 (611) 4,308

Acquisition, integration and restructuring — 164 2,713 6,405 9,282

Strategic initiatives (2)

3,061 — — 5,709 8,770

Share-based compensation — — — 6,715 6,715

(698) 338 — (954) (1,314)

Allocation of corporate costs 20,643 657 (7) (21,293) —

Adjusted EBITDA $ 106,905 $ (19,672) $ 76,313 $ (12,578) $ 150,968

Rent expense associated with triple net operating leases (4)

Adjusted EBITDAR $ 118,740

__________________________________

(1) Non-operating (income) expense for the applicable periods include:

(i) change in value of naming rights liabilities and (ii) other (income) expense, net.

(2) Includes costs incurred for financing related transactions including the recent tender offer process and rent expense related to Bally’s Black Hawk and Quad Cities properties, as the Company recently entered into sale lease-back transactions associated with these properties to finance the Tropicana Las Vegas property acquisition.

(3) Other includes the following items:

(i) non-routine legal expenses, net of recoveries for matters outside the normal course of business, (ii) rebranding expenses in connection with Bally’s corporate name change, and (ii) other individually de minimis expenses.

(4) Rent expense associated with triple net leases for the Company's Bally’s Lake Tahoe, Bally’s Evansville and Bally’s Dover properties.

Three Months Ended September 30, 2021

Casinos & Resorts North America Interactive Other Total

Net income (loss) $ 48,777 $ (19,320) $ (87,102) $ (57,645)

Interest expense, net of interest income 5 (10) 31,311 31,306

Provision (benefit) for income taxes 16,294 (5,780) (15,914) (5,400)

Depreciation and amortization 14,110 6,274 8,616 29,000

Non-operating (income) expense (1)

Transaction costs (2)

— 1,233 5,509 15,276 22,018

Foreign exchange loss — 22 42,874 42,896

Acquisition, integration and restructuring — — 6,797 6,797

Strategic initiatives (2)

Restructuring charges (3)

— 5,858 9,332 1,632 16,822

Share-based compensation — — — 6,040 6,040

(4,688) 77 1,009 (3,602)

Allocation of corporate costs 18,604 654 (19,258) —

Adjusted EBITDA $ 93,102 $ (5,583) $ (9,670) $ 77,849

__________________________________

(1) Non-operating (income) expense for the applicable periods include:

(i) change in value of naming rights liabilities, (ii) gain (adjustment) on bargain purchases, (iii) loss on extinguishment of debt and (iv) other (income) expense, net.

(2) Includes costs incurred related to the amended credit agreement and a lump sum one-time contribution of $12.5 million to support a referendum campaign to legalize sports betting in the State of California.

(3) Other includes the following items:

(i) professional fees and other costs incurred to establish the partnership with Sinclair and acquire Bally Interactive, (ii) storm related gains related to insurance recoveries received due to the effects of Hurricane Zeta on the Company’s Hard Rock Biloxi property, (iii) rebranding expenses in connection with Bally’s corporate name change, (iv) business interruption related recoveries, and (v) other individually de minimis expenses.

Nine Months Ended September 30, 2022

Casinos & Resorts North America Interactive International Interactive Other Total

Net income (loss) $ 149,768 $ (72,814) $ 109,433 $ (124,404) $ 61,983

Interest expense, net of interest income (7) (11) (53) 145,156 145,085

Provision (benefit) for income taxes 53,851 (13,325) (15,183) (24,347) 996

Depreciation and amortization 45,646 24,360 132,255 25,246 227,507

Non-operating (income) expense (1)

— (106) (519) (43,690) (44,315)

Foreign exchange (gain) loss — (4,608) 2,381 (21) (2,248)

Acquisition, integration and restructuring — 940 3,938 19,796 24,674

Strategic initiatives (2)

Gain on sale-leaseback, net (374,186) — — — (374,186)

Planned business divestiture (4)

— 1,864 — — 1,864

Share-based compensation — — — 18,132 18,132

Gain on sale-leaseback (50,766) — — — (50,766)

Other, net (5)

(1,182) 564 604 418 404

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(1) Non-operating (income) expense for the applicable periods include:

(i) change in value of naming rights liabilities, (ii) gain (adjustment) on bargain purchases, and (iii) other (income) expense, net.

(2) Includes costs incurred related to financing related transactions including the recent tender offer process, costs incurred to address the Standard General takeover bid, and rent expense related to Bally’s Black Hawk and Quad Cities properties, as the Company recently entered into sale lease-back transactions associated with these properties to finance the Tropicana Las Vegas property acquisition.

(i) change in value of naming rights liabilities, (ii) gain on extinguishment of debt and, (iii) other (income) expense, net.

(2) Includes financing costs incurred in connection with the Hard Rock Biloxi and Tiverton sale lease-back transactions and other acquisition and transaction related costs.

(3) Restructuring costs related to the Interactive business workforce reduction, as described in Note 13.

(4) Losses related to a North America Interactive business that Bally’s is marketing as held-for-sale as of March 31, 2023.

(5) Other includes the following items:

(i) rebranding expenses in connection with Bally’s corporate name change (ii) non-routine legal expenses, net of recoveries for matters outside the normal course of business, and (iii) other individually de minimis expenses.

(4) Rent expense associated with triple net leases for the Company's Bally’s Lake Tahoe, Bally’s Evansville and Bally’s Dover properties.

Nine Months Ended September 30, 2021

Casinos & Resorts North America Interactive Other Total

(i) non-routine legal expenses, net of recoveries for matters outside the normal course of business, (ii) depreciation expense and a gain on assets related to our Rhode Island joint venture, and (iii) other individually de minimis expenses.

(6) Consists of the operating lease components contained within our triple net master lease dated June 4, 2021 with GLPI for the real estate assets used in the operation of Bally’s Evansville, Bally’s Dover, Bally’s Quad Cities, Bally’s Black Hawk, Hard Rock Biloxi and Bally’s Tiverton, the individual triple net lease with GLPI for the land underlying the operations of Tropicana Las Vegas, and the triple net lease assumed in connection with the acquisition of Bally’s Lake Tahoe for real estate and land underlying the operations of the Bally’s Lake Tahoe facility.

Three Months Ended March 31, 2022 (in thousands)

Casinos & Resorts North America Interactive International Interactive Other Total

Net income (loss) $ 28,023 $ (25,373) $ 28,808 $ (29,569) $ 1,889

4 unchanged sentences

— — (305) (18,992) (19,297)

Foreign exchange (gain) loss — (13) 43,366 43,353

Acquisition, integration and restructuring — — 37,457 37,457

Strategic initiatives (2)

Foreign exchange loss — (1,595) 1,420 (7) (182)

Transaction costs (2)

— 289 341 5,393 6,023

Share-based compensation — — — 5,095 5,095

Gain on sale-leaseback (53,425) — — (53,425)

Other, net (3)

(164) 850 — 1,495 2,181

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(1) Non-operating (income) expense for the applicable periods include:

(i) change in value of naming rights liabilities, (ii) gain (adjustment) on bargain purchases, (iii) loss on extinguishment of debt and (iv) other (income) expense, net.

(3) Other includes the following items:

(i) asset impairment charges related to the Dover Downs and Bally’s Black Hawk trade names in connection with Bally's rebranding, (ii) professional fees and other costs incurred to establish the partnership with Sinclair and acquire Bally Interactive, (iii) storm related gains related to insurance recoveries received due to the effects of Hurricane Zeta on the Company’s Hard Rock Biloxi property, (iv) rebranding expenses in connection with Bally’s corporate name change, (v) business interruption related recoveries, and (vi) other individually de minimis expenses.

(i) change in value of naming rights liabilities, (ii) adjustment on bargain purchases and, (iii) other (income) expense, net.

(2) Includes acquisition costs, integration costs related to our Interactive business and financing related expenses.

(3) Other includes the following non-recurring items:

Critical Accounting Estimates

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As such, we have continued to invest in our land-based casino business and build on our interactive/iGaming gaming business.

We believe that existing cash balances, operating cash flows and availability under our Revolving Credit Facility, will be sufficient to meet funding needs for operating, capital expenditure and debt service purposes.

We believe that existing cash balances, operating cash flows and availability under our Revolving Credit Facility, as explained below, will be sufficient to meet funding needs for operating, capital expenditure and debt service purposes.

Cash Flows Summary

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands) 2023 2022

Net cash provided by operating activities $ 225,316 $ 70,843

Net cash used in investing activities (69,455) (302,127)

Net cash (used in) provided by operating activities $ (16,112) $ 20,810

Net cash provided by (used in) investing activities 319,636 (71,955)

Net cash (used in) provided by financing activities (173,568) 4,405

Effect of foreign currency on cash and cash equivalents 2,819 (4,430)

Change in cash and cash equivalents and restricted cash classified as assets held for sale (1,097) —

Net change in cash and cash equivalents and restricted cash 131,678 (51,170)

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Operating Activities

Net cash provided by operating activities for the nine months ended September 30, 2022 was $225.3 million, compared to $70.8 million for the nine months ended September 30, 2021.

The increase in cash provided by operating activities was primarily driven by the $160.0 million increase in depreciation and amortization expense, mainly attributable to the increased amortization of intangible assets acquired through our acquisition of Gamesys in the fourth quarter of 2021.

Net cash used in operating activities for the three months ended March 31, 2023 was $16.1 million, compared to net cash provided by operating activities of $20.8 million for the three months ended March 31, 2022.

The increase in cash used in operating activities was primarily driven by the $374.2 million gain on sale-leaseback recorded during the first quarter of 2023 coupled with negative changes in working capital, offset by an increase in net income of $176.4 million from the prior year.

Investing Activities

Net cash used in investing activities for the nine months ended September 30, 2022 was $69.5 million, a decrease of $232.7 million compared to $302.1 million for the nine months ended September 30, 2021.

The change was primarily driven by a $223.1 million reduction in cash paid for acquisitions year over year coupled with a $200.0 million advance deposit received from GLPI for the sale of our Bally’s Tiverton and Hard Rock Biloxi properties, offset by an increase in capital expenditures of $102.2 million mainly attributable to our expansion and renovation projects at Bally’s Atlantic City, Bally’s Twin River and Bally’s Kansas City, $53.0 million for the acquisition of gaming licenses, primarily for Bally’s Chicago, and $45.8 million paid for internally developed software.

Net cash provided by investing activities for the three months ended March 31, 2023 was $319.6 million, an increase of $391.6 million compared to net cash used in investing activities of $72.0 million for the three months ended March 31, 2022.

The increase in cash provided by investing activities was driven by net proceeds of $411.0 million from the Bally’s Tiverton and Hard Rock Biloxi sale-leaseback transaction in the first quarter of 2023.

Financing Activities

Net cash used in financing activities for the nine months ended September 30, 2022 was $189.9 million compared to net cash provided by financing activities of $2.16 billion for the nine months ended September 30, 2021.

This change was mainly attributable to cash proceeds related to the senior note proceeds of $1.49 billion and equity issuances of $667.9 million received during 2021.

Net cash used in financing activities for the three months ended March 31, 2023 was $173.6 million compared to net cash provided by financing activities of $4.4 million for the three months ended March 31, 2022.

This change was mainly attributable to the increase in repayments of long-term debt of $67.6 million, coupled with the issuance of long-term debt during the first quarter of 2022, as well as the increase in stock repurchases over the same period in prior year.

Capital Return Program

During the nine months ended September 30, 2022, we repurchased 5,718,950 common shares, including 4.7 million shares repurchased in a cash tender offer, for an aggregate price of $132.5 million under our previously announced capital return program.

As of September 30, 2022, there was $215.4 million available for use under the capital return program, subject to regulatory and debt agreements limitations.

In connection with the COVID-19 pandemic, we ceased paying dividends.

We do not currently intend to pay any dividends on our common stock in the foreseeable future.

During the three months ended March 31, 2023, we repurchased 1,026,343 common shares for an aggregate price of $19.8 million under our previously announced capital return program.

As of March 31, 2023, there was $174.8 million available for use under the capital return program, subject to limitations in our regulatory and debt agreements.

We did not pay cash dividends during the three months ended March 31, 2023 or 2022, nor do we currently intend to pay any dividends on our common stock in the foreseeable future.

Any future determinations relating to our dividend policies will be made at the discretion of our Board and will depend on conditions then existing, including our financial condition, results of operations, contractual restrictions, capital and regulatory requirements and other factors our Board may deem relevant.

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On August 20, 2021, we issued $750.0 million aggregate principal amount of 5.625% senior notes due 2029 and $750.0 million aggregate principal amount of 5.875% Senior Notes due 2031 (together, the “Senior Notes”).

The indenture governing the Senior Notes 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.

During the three months ended March 31, 2023, the Company repurchased and retired $15.0 million of the Senior Notes due 2031 at a weighted average price of 70.80% of the principal.

In connection with the repurchase of these Senior Notes due 2031, the Company recorded a gain on extinguishment of debt of $4.0 million.

The indenture governing the Senior Notes contains covenants that limit the ability of the Company and its restricted subsidiaries to, among other things, (i) incur additional indebtedness, (ii) pay dividends on or make distributions in respect of capital stock or make certain other restricted payments or investments, (iii) enter into certain transactions with affiliates, (iv) sell or otherwise dispose of assets, (v) create or incur liens and (vi) 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.

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Refer to Note 14 “ Long-Term Debt ” in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information.

Our GLPI leases are accounted for as operating leases and were $638.4 million as of September 30, 2022.

In connection with the acquisition of Bally’s Evansville, an affiliate of GLPI agreed to acquire the real estate associated with the Evansville Casino for $340.0 million and lease it to us under a master lease agreement (the “Master Lease”).

GLPI has also agreed to acquire the real estate associated with Bally’s Dover for $144.0 million and lease it back to the us 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.

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.

On June 28, 2022, the Company announced that it had entered into a binding term sheet with GLP Capital, L.P., the operating partnership of GLPI (“GLP”), to acquire certain real property assets of Bally’s, subject to customary regulatory approvals, with Bally’s Twin River also subject to lender consent.

GLP will acquire the real property assets of Hard Rock Biloxi along with Bally’s Tiverton for total consideration of $635 million and GLP will also have the option, subject to receipt of required consents, to acquire the real property assets of Bally’s Twin River prior to December 31, 2024 for a purchase price of $771 million.

Pursuant to the terms of the transaction, the Company will immediately lease back both properties and continue to own, control and manage all the gaming operations of the facilities on an uninterrupted basis.

Both properties are expected to be added to the Master Lease with GLPI.

On September 6, 2022, Company received an advance deposit of $200.0 million advanced deposit related to the purchase of Bally’s Tiverton and Hard Rock Biloxi.

We currently anticipate the initial closing will occur in early 2023 and will include the real property assets of Biloxi and Tiverton.

On September 26, 2022, the Company completed its acquisition of the non-land assets of Tropicana Las Vegas from Penn Entertainment, Inc.

and GLPI for $148.3 million, subsequently leasing the land underlying the Tropicana property from GLPI for an initial term of 50 years at an annual rent of $10.5 million.

Operating Leases

In addition to the operating lease components under the GLPI 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.

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.

Minimum rent payable under operating leases was $1.70 billion as of September 30, 2022.

The Company is committed under various operating lease agreements for real estate and property used in operations.

Minimum rent payable under operating leases was $2.37 billion as of March 31, 2023.

Refer to Note 15 “ Leases ” in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information.

As of March 31, 2023, the Company’s Bally’s Evansville, Bally’s Dover, Bally’s Quad Cities, Bally’s Black Hawk, Bally’s Tiverton and Hard Rock Biloxi properties were leased under the terms of a master lease agreement (the “Master Lease”) with GLPI.

The Master Lease has an initial term of 15 years and includes four, five-year options to renew and requires combined minimum annual payments of $100.5 million, subject to a minimum 1% annual escalation or greater escalation dependent on CPI.

The Company’s Bally’s Tiverton and Hard Rock Biloxi properties were added to the master lease on January 3, 2023, as a result of a transaction with GLP Capital, L.P., the operating partnership of GLPI, related to the land and real estate assets for a total consideration of $625.4 million.

The transaction was structured as a tax-free capital contribution and a substantial portion of the proceeds were used to reduce the Company’s debt.

These properties increased the minimum annual payments of the Master Lease by $48.5 million.

In addition to the properties under the Master Lease, the Company leases the non-land assets of Tropicana Las Vegas, which the Company acquired during the fourth quarter of 2022, from GLPI.

This lease has an initial term of 50 years (with a maximum term of 99 years with renewal options) at annual rent of $10.5 million, subject to minimum 1% annual escalation or greater escalation dependent on CPI.

Financing Obligation

Bally’s Chicago Operating Company, LLC, an indirect wholly-owned subsidiary of the Company, leases the land on which Bally’s Chicago will be built.

The lease commenced November 18, 2022 and has a 99-year term followed by ten separate 20-year renewals at the Company’s option.

As of March 31, 2023, the Company has recorded this lease as a corresponding long-term financing obligation of $200.0 million.

Capital Expenditures

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Capitalized software expenditures relate to the creation, production and preparation of software for use in our online gaming operations.

For the nine months ended September 30, 2022, capital expenditures were $167.4 million compared to $65.1 million in the same period last year.

In 2021, as our properties reopened and operations resumed, we commenced spending on maintenance and planned projects at our casino properties though our progress lagged due to nationwide supply chain shortages.

We expect that capital expenditures in 2022 will exceed 2021 amounts as we plan to make significant progress towards project goals, particularly at Bally’s Twin River, Bally’s Atlantic City and Bally’s Kansas City, and increase spending relating to the maintenance and improvements at our other casino properties.

A summary of our planned projects follows:

Bally’s Twin River - In connection with our partnership with IGT, we have committed to invest $100 million in Bally’s Twin River over the term of our master contract with Rhode Island to expand the property and add additional amenities along with other capital improvements.

Plans include adding a 40,000-square-foot gaming area, an additional casino bar, and a 14,000-square-foot spa.

Construction began in September 2021 with a target completion in the fourth quarter of 2022.

Spending in 2022 is estimated at approximately $50 million.

For the three months ended March 31, 2023, capital expenditures were $43.7 million compared to $54.5 million in the same period last year.

In the first quarter of 2023, we continued our spending on maintenance and planned projects at our casino properties, making significant progress on our Bally’s Twin River and Bally’s Atlantic City properties.

Our 2023 capital expenditures are expected to continue to be less than those of 2022 as we focus on generating cash flows to invest in long-term growth opportunities for the entire Bally’s portfolio.

Bally’s Twin River - In connection with our partnership with IGT, we have committed to invest $100 million in Bally’s Twin River over the term of our master contract, ending in 2043, with Rhode Island to expand the property and add additional amenities along with other capital improvements.

As a major component of this, we have constructed and opened a 14,000 square foot Korean-style spa, and a 40,000 square foot casino expansion, for a combined investment of $60 million.

The spa opened in January 2023 and the expanded casino opened in April 2023.

Bally’s Atlantic City - Construction on our Bally’s Atlantic City property commenced in 2021.

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We believe the redevelopment of the property, which includes a 40,000 square foot land-based building, restaurant, bar and retail space, will improve the property and guest experience and drive growth and our return on investment.

Spending on the project is estimated to be approximately $50 million, largely in 2022, with a target completion date in the first half of 2023.

Spending on the project is estimated to be approximately $50 million, with a target completion date in the second half of 2023.

Centre County, PA - On December 31, 2020, we signed a framework agreement with entities affiliated with an established developer to design, develop, construct and manage a Category 4 licensed casino in Centre County, Pennsylvania.

Construction of the casino is expected to begin in the first half of 2023 and will take approximately one year to complete.

Subject to receipt of regulatory approvals, it will house up to 750 slot machines and 30 table games.

The casino will also provide, subject to receipt of separate licenses and certificates, retail sports betting, online sports betting and online gaming.

We estimate the total cost of the project, including construction, licensing and sports betting/iGaming operations, to be approximately $120 million.

We estimate the total cost of the project, including construction, licensing and iGaming/sports betting operations, to be approximately $120 million.

If completed, we will acquire a majority equity interest in the partnership, including 100% of the economic interests of all retail sports betting, online sports betting and iGaming activities associated with the project.

Among other features and amenities, Bally's Chicago will include 3,400 slots, 170 table games, 10 food and beverage venues, a 500-room hotel tower with rooftop bar, a 3,000 seat, 65,000 square foot entertainment center, a 20,000 square foot exhibition and an outdoor green space including an expansive public riverwalk with a water taxi stop.

The project also provides the Developer with the exclusive right to operate a temporary casino for up to three years while the permanent casino resort is constructed.

The temporary casino is expected to open by the end of the first half of 2023, subject to regulatory approval and other customary conditions.

In connection with the entry into the host community agreement with the City of Chicago, the Company made a one-time up-front payment to the City of Chicago equal to $40.0 million, and the Developer will be required to make ongoing payments based on certain performance and time-based thresholds detailed in the host community agreement.

Bally’s Chicago - On June 9, 2022, a wholly-owned indirect subsidiary of the Company, Bally’s Chicago Operating Company, LLC (the “Developer”), signed a host community agreement with the City of Chicago to develop a destination casino resort, to be named Bally’s Chicago, in downtown Chicago, Illinois that will include approximately 3,400 slot machines, 170 table games, 10 food and beverage venues, 500 hotel rooms, a 65,000 square foot entertainment and event center, a 20,000 square foot exhibition, outdoor music venue, 3,300 parking spaces and an outdoor green space.

The project also provides the Company with the exclusive right to operate a temporary casino for up to three years while the permanent casino resort is constructed.

The temporary casino is expected to be situated in the location of the current Medinah Temple and will include approximately 1,000 gaming positions and 2 food and beverage venues.

The Company expects to incur approximately $70.0 million in costs in connection with the design and development of the temporary casino and to open by late summer 2023.

The Company currently estimates the permanent casino construction to be completed by the end of 2026.

In connection with the entry into the host community agreement with the City of Chicago, the Company made a one-time up-front payment to the City of Chicago equal to $40.0 million.

Beginning on the date of operations commencement, the Company will be required to pay annual fixed host community impact fees of $4.0 million.

Additionally, in connection with the host community agreement, the Company provided the City of Chicago with a performance guaranty whereby the Company agreed to have and maintain available financial resources in an amount reasonably sufficient to allow the Developer to complete its obligations under the host community agreement.

In addition, upon notice from the City of Chicago that the Developer has failed to perform various obligations under the host community agreement, the Company has indemnified the City of Chicago against any and all liability, claim or reasonable and documented expense the City of Chicago may suffer or incur by reason of any nonperformance of any of the Developer’s obligations.

Chicago Tribune Lease Termination - Bally’s Chicago Operating Company, LLC entered into a Lease Termination and Short Term License Agreement with Chicago Tribune Company, LLC (“Tribune”), effective March 31, 2023, which among other things provides that the Company will have possession of 777 West Chicago Avenue, Chicago Illinois 60610 (the “Permanent Chicago Site”) on or before July 5, 2024, subject to $150 million in payments by the Company to Tribune payable in full upon Tribune vacating the site on or prior to July 5, 2024 (the “Payment”).

$140 million of the Payment is secured by standby letters of credit, issued by Citizens Bank.

Bally’s Chicago Casino Fees - Under the Illinois Gambling Act, the Company will be responsible to pay various gaming license fees to the Illinois Gaming Board in connection with the Company’s casino operations.

These fees include:

(i) a $250,000 land based gaming fee to operate the casino on land prior to commencing operations, (ii) a $250,000 license fee prior to receiving an owners license and gambling operations commence, (iii) gaming position fees equal to the minimum initial fee of $30,000 per gaming position to be paid within 30 days of issuance of an owners license or Temporary Operating Permit (“TOP”), (iv) a $15 million reconciliation fee upon issuance of a TOP or an owners license, whichever is earlier, and (v) a reconciliation fee payment three years after the date operations commenced (in a temporary or permanent facility) in an amount equal to 75% of the adjusted gross receipt (“AGR”) for the most lucrative 12-month period of operations, minus the amount equal to the initial payment per gaming position paid.

Other Contractual Obligations

Sponsorship Commitments - The Company has entered into several sponsorship agreements, totaling $87.2 million over 15 years, with various professional sports leagues and teams, allowing the Company use of official league marks for branding and promotions, among other rights.

Bally’s Trade Name - We acquired Bally’s brand from Caesars Entertainment, Inc.

on October 13, 2020 for $20.0 million payable in cash in two equal installments of $10.0 million on the first and second anniversary of the purchase date.

The Company made the first installment payment during 2021 and paid the final installment in the fourth quarter of 2022.

Deferred Consideration - In September of 2019, prior to our 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.

We 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.

We paid the deferred consideration in April 2022.

Sponsorship Commitments - The Company has entered into several sponsorship agreements with various professional sports leagues and teams, allowing the Company use of official league marks for branding and promotions, among other rights.

As of March 31, 2023, obligations related to these agreements were $107.5 million, with contracts extending through June 2036.

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Item 2. Management’s Discussion and Analysis