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Item 7. Management’s Discussion and Analysis

2022-02-28 compared with 2021-02-26 · 279 added, 300 removed, 434 unchanged (57% of the section changed)

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EXECUTIVE OVERVIEW

Penn National Gaming, Inc., together with its subsidiaries (“Penn National,” the “Company,” “we,” “our,” or “us”), is a leading, diversified, multi-jurisdictional owner and manager of gaming and racing properties, retail and online sports betting operations, and video gaming terminal (“VGT”) operations.

Our wholly-owned interactive division, Penn Interactive Ventures, LLC (“Penn Interactive”), operates retail sports betting across the Company’s portfolio, as well as online sports betting, online social casino, bingo and online casinos (“iGaming”).

In February 2020, the Company acquired 36% (inclusive of 1% on a delayed basis) equity interest in Barstool Sports, Inc.

(“Barstool Sports”), a leading digital sports, entertainment, lifestyle and media company, and entered into a strategic relationship with Barstool Sports, whereby Barstool Sports will exclusively promote the Company's land-based retail sportsbooks, iGaming products and online sports betting products, including the Barstool Sportsbook mobile app, to its national audience.

We launched an online sports betting app called Barstool Sports in Pennsylvania in September 2020 and in Michigan in January 2021.

We also operate iGaming in Pennsylvania and Michigan.

Our my choice program currently has over 20 million members and provides such members with various benefits, including complimentary goods and/or services.

The Company’s strategy has continued to evolve from an owner and manager of gaming and racing properties into an omni-channel provider of retail and online gaming, live racing and sports betting entertainment.

We believe our continued evolution into a best-in-class omni-channel provider of retail and online gaming and sports betting entertainment will be a catalyst for our core land-based business, while also providing a platform for significant long-term shareholder value.

As of December 31, 2020, we owned, managed, or had ownership interests in 41 gaming and racing properties in 19 states and were licensed to offer live sports betting at our properties in Colorado, Illinois, Indiana, Iowa, Michigan, Mississippi, Nevada, Pennsylvania and West Virginia.

With a gaming footprint that includes 44 properties across 20 states as of December 31, 2021, Penn National Gaming, Inc., together with its subsidiaries (“Penn National,” the “Company,” “we,” “our,” or “us”) is a highly innovative omni-channel provider of retail casino gaming, online gaming, live racing, sports betting, and digital sports content.

Our wholly-owned interactive division, Penn Interactive Ventures, LLC (“Penn Interactive”), operates retail sports betting in the Company’s retail properties, as well as online sports betting and online social casino, bingo, and iCasino products (collectively, “iGaming”).

In October 2021, we acquired Score Media and Gaming, Inc.

(“theScore”), a sports betting and digital media company.

In addition, in February 2020, we entered a strategic partnership with Barstool Sports, Inc.

(“Barstool Sports”), a leading digital sports, entertainment, lifestyle and media company.

Combined with the power of theScore and Barstool Sports, Penn National has evolved into a leading North American digital sports content, gaming and technology company.

The Company's omni-channel approach is further bolstered by its my choice customer loyalty program (the “my choice program”), which rewards and recognizes its over 25 million members for their loyalty to both retail and online gaming and sports betting products with a dynamic set of industry offers, experiences, and service levels.

The majority of the real estate assets (i.e., land and buildings) used in our operations are subject to triple net master leases;

the most significant of which are the Penn Master Lease and the Pinnacle Master Lease (as such terms are defined in “Liquidity and Capital Resources” and collectively referred to as the “Master Leases”), with Gaming and Leisure Properties, Inc.

the most significant of which are the Penn Master Lease and the Pinnacle Master Lease (as such terms are defined in “Liquidity

and Capital Resources” and collectively referred to as the “Master Leases”), with Gaming and Leisure Properties, Inc.

GLPI) (“GLPI”), a real estate investment trust (“REIT”).

In addition, we are currently developing two Category 4 satellite gaming casinos in Pennsylvania:

Hollywood Casino York and Hollywood Casino Morgantown, both of which are expected to commence operations by the end of 2021.

Impact of the COVID-19 Pandemic and Company Response

On March 11, 2020, the World Health Organization declared the novel coronavirus (known as “ COVID-19 ” ) outbreak to be a global pandemic.

We began temporarily suspending the operations of all of our properties between March 13, 2020 and March 19, 2020 pursuant to various orders from state gaming regulatory bodies or governmental authorities to combat the rapid spread of COVID-19.

We began reopening our properties on May 18, 2020 with reduced gaming and hotel capacity and limited food and beverage offerings in order to accommodate comprehensive social distancing and health and safety protocols.

During the fourth quarter of 2020, our properties temporarily suspended operations in Pennsylvania, Michigan and Illinois and were subject to increased operational restrictions in Ohio and Massachusetts (among other states).

Our Michigan property was temporarily closed on November 17, 2020 and reopened December 23, 2020.

Our Pennsylvania properties were temporarily closed on December 12, 2020 and reopened on January 4, 2021.

Our Illinois properties were temporarily closed on November 20, 2020 and began reopening with limited hours of operations beginning January 16, 2021 and throughout the week.

The property closures were pursuant to various orders from state gaming regulatory bodies or governmental authorities to combat the rapid spread of COVID-19.

As of February 26, 2021 , all of our properties were open to the public with the

exception of Zia Park and Valley Race Park, which remain closed.

For a thorough discussion of the operating performance of our properties, see “Results of Operations” below.

Between March 13, 2020 and December 31, 2020, we entered into a series of transactions to improve our financial position and liquidity in light of the COVID-19 pandemic, including:

(i) on March 13, 2020, we provided notice to our lenders to borrow the remaining available amount of $430.0 million under our Revolving Credit Facility;

(ii) on March 27, 2020, we entered into a binding term sheet with GLPI (the “Term Sheet”) whereby GLPI agreed to (a) purchase the real estate assets associated with Tropicana Las Vegas (“Tropicana”) in exchange for rent credits of $307.5 million, which closed on April 16, 2020, and (b) a sale-leaseback of the land underlying our Hollywood Casino Morgantown (“Morgantown”) development project in Morgantown, Pennsylvania, in exchange for rent credits of $30.0 million, which closed on October 1, 2020;

(iii) on May 14, 2020 (May 19, 2020 with respect to the underwriters’ exercising their options to acquire additional 2.75% Convertible Notes), we completed a public offering of $330.5 million aggregate principal amount of 2.75% Convertible Notes;

(iv) on May 14, 2020 (May 19, 2020 with respect to the underwriters’ exercising their options to purchase additional shares), we completed a public offering of 19,166,667 aggregate shares of common stock, par value of $0.01 per share, of the Company (“Penn Common Stock”) for gross proceeds of $345.0 million;

and (v) on September 24, 2020 (September 25, 2020 with respect to the underwriters’ exercising their options to purchase additional shares), we completed a public offering of 16,100,000 aggregate shares of Penn Common Stock for gross proceeds of $982.1 million.

In addition, on April 14, 2020, the Company entered into an amendment to its Credit Agreement, which, among other things, provides it with relief from its financial covenants for a period of up to one year.

On September 30, 2020, the Company fully repaid $670.0 million of outstanding borrowings under its Revolving Credit Facility.

Further, on November 12, 2020 the Company prepaid $115.0 million of outstanding borrowings on its Term Loan B-1 Facility.

The terms “Revolving Credit Facility,” “Convertible Notes,” “Credit Agreement” and "Term Loan B-1" are defined in “Liquidity and Capital Resources ” .

The COVID-19 pandemic caused significant disruptions to our business and had a material adverse impact on our financial condition, results of operations and cash flows, the magnitude of which continues to develop based on (i) the timing and extent of the recovery in visitation and consumer spending at our properties;

(ii) the continued impact of implementing social distancing and health and safety guidelines at our properties, including reductions in gaming, hotel capacity, limiting the number of food and beverage options and limiting other amenities;

and (iii) whether any of our properties will be required to again temporarily suspend operations in the event that the pandemic significantly worsens.

We are currently unable to determine whether, when or how the conditions surrounding the COVID-19 pandemic will change or whether the recovery in visitation and consumer spending is sustainable.

The Company could experience other potential adverse impacts as a result of the COVID-19 pandemic, including, but not limited to, further charges from adjustments to the carrying amount of goodwill and other intangible assets, long-lived asset impairment charges, or impairments of investments in joint ventures.

In addition, the negative impacts of the COVID-19 pandemic may result in further changes in the amount of valuation allowance required.

Actual results may differ materially from the Company’s current estimates as the scope of the COVID-19 pandemic evolves, depending largely, though not exclusively, on the impact of required capacity reductions, social distancing and health and safety guidelines, and the sustainability of current trends in recovery at our reopened properties.

To help combat the spread of COVID-19 and pursuant to various orders from state gaming regulatory bodies or governmental authorities, operations at all of our properties were temporarily suspended for single or multiple time periods during 2020 and into 2021.

Once reopened, properties operated with reduced gaming and hotel capacity and limited food and beverage offerings in order to accommodate social distancing and health and safety protocols.

As of December 31, 2021, the majority of our properties are operating at full capacity while adhering to state mandated health and safety protocols.

The COVID-19 pandemic caused significant disruptions to our business and had a material adverse impact on our financial condition, results of operations and cash flows.

As a consequence, between March 13, 2020 and December 31, 2020, we entered into a series of transactions to improve our financial position and liquidity, as described in the relevant notes to our Consolidated Financial Statements.

Additionally, we completed a $400.0 million offering of senior unsecured notes on July 1, 2021, as discussed in Note 11, “Long term debt.” We could experience further adverse impacts as a result of the COVID-19 pandemic, including, but not limited to, temporarily suspending operations at our properties if ordered by such governmental bodies, or capacity restrictions on our operations.

Recent Acquisitions, Development Projects and Other

In February 2020, we closed on our investment in Barstool Sports pursuant to a stock purchase agreement with Barstool Sports and certain stockholders of Barstool Sports, in which we purchased 36% (inclusive of 1% on a delayed basis) of the common stock of Barstool Sports for a purchase price of $161.2 million.

In February 2020, we closed on our investment in Barstool Sports pursuant to a stock purchase agreement with Barstool Sports and certain stockholders of Barstool Sports, in which we purchased 36% (inclusive of 1% on a delayed basis) of the common stock, par value $0.0001 per share, of Barstool Sports for a purchase price of $161.2 million.

Within three years after the closing of the transaction or earlier at our election, we will increase our ownership in Barstool Sports to approximately 50% by purchasing approximately $62.0 million worth of additional shares of Barstool Sports common stock, consistent with the implied valuation at the time of the initial investment, which was $450.0 million.

With respect to the remaining Barstool Sports shares, we have immediately exercisable call rights, and the existing Barstool Sports stockholders have put rights exercisable beginning three years after closing, all based on a fair market value calculation at the time of exercise (subject to a cap of $650.0 million and a floor of 2.25 times the annualized revenue of Barstool Sports, all subject to various adjustments).

With respect to the remaining Barstool Sports shares, we have immediately exercisable call rights, and the existing Barstool Sports stockholders have put rights exercisable beginning three years after closing, of which the purchase price on the remaining 50% of the shares is defined to be $325.0 million, subject to certain adjustments, which is discussed further within Note 7, “Investments in and Advances to Unconsolidated Affiliates .

Upon closing, we became Barstool Sports’ exclusive gaming partner for up to 40 years and have the sole right to utilize the Barstool Sports brand for all of our online and retail sports betting and iGaming products.

As noted above, Penn Interactive launched the Barstool Sports online sports betting app in Pennsylvania in September 2020 and in Michigan in January 2021.

In addition, Penn Interactive has entered into multi-year agreements with leading sports betting operators for online sports betting and iGaming market access across our portfolio of properties.

In December 2020, the Company entered into a definitive agreement to purchase from GLPI the operations of Hollywood Casino Perryville for $31.1 million.

The transaction is expected to close during the second or third quarter of 2021, subject to approval of the Maryland Lottery and Gaming Control Commission and other customary closing conditions.

Simultaneous with the closing of the transaction, we would lease the real estate assets associated with Hollywood Casino Perryville from GLPI with initial annual rent of $7.8 million per year subject to escalation.

In May 2019, we acquired Greektown Casino-Hotel (“Greektown”) in Detroit, Michigan, subject to a triple net lease with VICI Properties Inc.

VICI) (“VICI”, a REIT and collectively with GLPI, our “REIT Landlords”) (the “Greektown Lease”) and in January 2019, we acquired Margaritaville Casino Resort (“Margaritaville”) in Bossier City, Louisiana, subject to a triple net lease with VICI (the “Margaritaville Lease”).

In March 2020, in light of the COVID-19 pandemic, we temporarily suspended construction of our development of two Category 4 satellite gaming casinos in Pennsylvania:

Hollywood Casino York and Morgantown.

We have since restarted construction and expect both casinos to open in late 2021, subject to regulatory approval.

In October 2018, the Company completed the acquisition of Pinnacle Entertainment, Inc.

(“Pinnacle”), a leading regional gaming operator (the “Pinnacle Acquisition”).

In connection with the Pinnacle Acquisition, we added 12 gaming properties to our portfolio, providing us with greater operational scale and geographic diversity.

We assumed the Pinnacle Master Lease concurrently with the closing of the Pinnacle Acquisition to our holdings and has provided us with greater operational scale and geographic diversity.

We believe that our portfolio of assets provides us the benefit of geographically-diversified cash flow from operations.

In addition, Penn Interactive has entered into multi-year agreements with leading sports betting operators for online sports betting and iCasino market access across our portfolio of properties.

On April 16, 2020, we sold the real estate assets associated with the operations of Tropicana Las Vegas Hotel and Casino, Inc.

(“Tropicana”) property to GLPI in exchange for rent credits of $307.5 million, and utilized the rent credits to pay rent under our existing Master Leases and the Meadows Racetrack and Casino Lease, beginning in May 2020.

Contemporaneous with the sale, the Company entered into the Tropicana Lease, (as defined and discussed in Note 12, “Leases” to our Consolidated Financial Statements).

On January 11, 2022, Penn National entered into a definitive purchase agreement to sell its outstanding equity interest in Tropicana, which has the gaming license and operates the Tropicana, to Bally’s Corporation (“Bally’s”).

This transaction is expected to close within the second half of 2022, subject to Penn National, GLPI, and Bally’s entering into definitive agreements and obtaining regulatory approval.

On October 1, 2020, we sold the land underlying our Morgantown development project to GLPI in exchange for rent credits of $30.0 million.

Contemporaneous with the sale, the Company entered into a triple net lease with GLPI for the land underlying Morgantown (as defined and discussed in Note 12, “Leases” to our Consolidated Financial Statements).

On May 11, 2021, we acquired 100% of the outstanding equity of HitPoint Inc.

and Lucky Point Inc.

(collectively, “Hitpoint”).

The purchase price totaled $12.7 million, consisting of $6.2 million in cash, $3.5 million of the Company’s common equity, and a $3.0 million contingent liability.

On July 1, 2021, we completed the acquisition of the operations of Hollywood Casino Perryville (“Perryville”), from GLPI for a purchase price of $39.4 million, including working capital adjustments.

Simultaneous with the closing, we entered into a

lease with GLPI for the real estate assets associated with Hollywood Casino Perryville for initial annual rent of $7.8 million per year subject to escalation.

On August 1, 2021, we completed the acquisition of the remaining 50% ownership interest in the Sam Houston Race Park in Houston, Texas, the Valley Race Park in Harlingen, Texas, and a license to operate a racetrack in Austin, Texas (collectively, “Sam Houston”), from PM Texas Holdings, LLC for a purchase price of $57.8 million, comprised of $42.0 million in cash and $15.8 million of the Company’s common equity.

In conjunction with the acquisition, we recorded a gain of $29.9 million on our equity method investment.

On October 19, 2021, we acquired 100% of theScore for a purchase price of approximately $2.1 billion.

Under the terms of the agreement, 1317774 B.C.

(the “Purchaser”), an indirectly wholly owned subsidiary of Penn National, acquired each of the issued and outstanding theScore shares (other than those held by Penn National and its subsidiaries) for US$17.00 per share in cash consideration, totaling $0.9 billion, and either 0.2398 of a share of common stock, par value $0.01 of Penn Common Stock or, if validly elected, 0.2398 of an exchangeable share in the capital of the Purchaser (each whole share, an “Exchangeable Share”), totaling 12,319,340 shares of Penn Common Stock and 697,539 Exchangeable Shares for approximately $1.0 billion.

Each Exchangeable Share will be exchangeable into one share of Penn Common Stock at the option of the holder, subject to certain adjustments.

In addition, Purchaser may redeem all outstanding Exchangeable Shares in exchange for shares of Penn Common Stock at any time following the fifth anniversary of the closing, or earlier under certain circumstances.

The acquisition provides us with the technology, resources and audience reach to accelerate our media and sports betting strategy across North America.

We believe that our portfolio of assets provides us with the benefit of geographically-diversified cash flow from operations.

We expect to continue to expand our gaming operations through the implementation and execution of a disciplined capital expenditure program at our existing properties, the pursuit of strategic acquisitions and investments, and the development of new gaming properties.

In addition, the partnership with Barstool Sports reflects our strategy to continue evolving from the nation’s largest regional gaming operator to a best-in-class omni-channel provider of retail and online gaming and sports betting entertainment.

In addition, the partnership with Barstool Sports and the acquisition of theScore reflect our strategy to continue evolving from the nation’s largest regional gaming operator to a best-in-class omni-channel provider of retail and online gaming and sports betting entertainment.

Operating and Competitive Environment

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We have also made investments in joint ventures that we believe will allow us to capitalize on additional gaming opportunities in certain states if legislation or referenda are passed that permit and/or expand gaming in these jurisdictions and we are selected as a licensee.

As reported by most jurisdictions, regional gaming industry trends have shown little revenue growth the last several years as numerous jurisdictions now permit gaming or have expanded their gaming offerings.

In recent years, the proliferation of new gaming properties has impacted the overall domestic gaming industry as well as our results of operations in certain markets.

Prior to the COVID-19 pandemic, the economic environment, specifically historically low levels of unemployment, strength in residential real estate prices, and high levels of consumer confidence, had resulted in a stable operating environment in recent years.

The COVID-19 pandemic has increased the level of unemployment and decreased the level of consumer confidence.

Our ability to succeed in this new environment will be predicated on our ability to adjust operations and cost structures at our reopened properties to reflect the new economic and health and safety conditions, operating our properties efficiently, realizing revenue and cost synergies from recent acquisitions, and offering our customers additional gaming experiences through our omni-channel distribution strategy.

We seek to continue to expand our customer database through accretive acquisitions or investments, such as Barstool Sports, capitalize on organic growth opportunities from the development of new properties or the expansion of recently-developed business lines, and develop partnerships that allow us to enter new jurisdictions for iGaming and sports betting.

As the COVID-19 pandemic evolves, we continue to adjust operations and cost structures at our properties to reflect the changing economic and health and safety conditions.

We also continue to focus on revenue and cost synergies from recent acquisitions, and offering our customers additional gaming experiences through our omni-channel distribution strategy.

We seek to continue to expand our customer database by partnering with third-party operators such as Choice Hotels International, Inc.

to expand our loyalty program, as well as through accretive investments or acquisitions, such as Barstool Sports and theScore, capitalize on organic growth opportunities from the development of new properties or the expansion of recently-developed business lines, and develop partnerships that allow us to enter new jurisdictions for iCasino and sports betting.

The gaming industry is characterized by an increasingly high degree of competition among a large number of participants, including riverboat casinos;

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online and retail sports betting;

sports media companies;

gaming at taverns;

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sweepstakes and poker machines not located in casinos;

the potential for increased fantasy sports, significant growth of Native American gaming tribes, historic racing or state-sponsored i-lottery products in or adjacent to states we operate in;

the potential for increased fantasy sports;

significant growth of Native American gaming tribes, historic racing or state-sponsored i-lottery products in or adjacent to states we operate in;

and other forms of gaming in the U.S.

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therefore, we are unable to quantify a dollar amount for each factor that impacts our customers’ spending behaviors.

However, based on our experience, we can generally offer some insight into the factors that we believe are likely to account for such changes and which factors may have a greater impact than others.

For example, decreases in discretionary consumer spending have historically been brought about by weakened general economic conditions, such as lackluster recoveries from recessions, high unemployment levels, higher income taxes, low levels of consumer confidence, weakness in the housing market, and high fuel or other transportation costs.

We believe that the COVID-19 pandemic has led to and will continue to lead to meaningful decreases in discretionary consumer spending and will continue to negatively impact visitation at our properties and the volume of play for the foreseeable future.

However, based on our experience, we

can generally offer some insight into the factors that we believe are likely to account for such changes and which factors may have a greater impact than others.

In addition, visitation and the volume of play have historically been negatively impacted by significant construction surrounding our properties, adverse regional weather conditions and natural disasters.

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The vast majority of our revenues is gaming revenue, which is highly dependent upon the volume and spending levels of customers at our properties.

Our gaming revenue is derived primarily from slot machines (which represented approximately 87%, 92% and 92% of our gaming revenue in 2020, 2019 and 2018, respectively) and, to a lesser extent, table games and sports betting.

Aside from gaming revenue, our revenues are derived from our hotel, dining, retail, commissions, program sales, admissions, concessions and certain other ancillary activities, and our racing operations.

Our gaming revenue is derived primarily from slot machines (which represented approximately 84%, 87% and 92% of our gaming revenue in 2021, 2020 and 2019, respectively) and, to a lesser extent, table games.

Aside from gaming revenue, our revenues are primarily derived from our hotel, dining, retail, commissions, program sales, admissions, concessions and certain other ancillary activities, and our racing and sports betting operations.

Key performance indicators related to gaming revenue are slot handle and table game drop, which are volume indicators, and “win” or “hold” percentage.

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Reportable Segments

During the fourth quarter of 2021, the Company evaluated its reportable segments and changed them to:

Northeast, South, West, Midwest, and Interactive.

This change reflects management’s belief that the operating results of our Interactive segment represent a strategic and high growth component of our overall operations.

The Interactive segment, which was previously reported within Other, includes the operating results of Penn Interactive, theScore, and the Company’s proportionate share of earnings attributable to its equity method investment in Barstool Sports.

Corporate expense will continue to be reported in Other in addition to stand-alone racing operations, other joint ventures, management contracts, and Heartland Poker Tour.

As a result of the change in reportable segments described above, the Company has recast previously reported segment information to conform to the current management view for all prior periods presented.

The changes to reportable segments had no impact to the Company’s consolidated financial statements.

We view each of our gaming and racing properties as an operating segment with the exception of our two properties in Jackpot, Nevada, which we view as one operating segment.

We consider our combined VGT operations, by state, to be separate operating segments.

We aggregate our operating segments into four reportable segments:

Northeast, South, West and Midwest.

We consider our combined Video Gaming Terminal (“VGT”) operations, by state, to be separate operating segments.

For a listing of our gaming properties and VGT operations included in each reportable segment, see Note 2, “Significant Accounting Policies,” in the notes to our Consolidated Financial Statements.

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We consider net income (loss) to be the most directly comparable financial measure calculated in accordance with generally accepted accounting principles in the United States (“GAAP”) to Adjusted EBITDA and Adjusted EBITDAR, which are non-GAAP financial measures.

Refer to “Non-GAAP Financial Measures” below for the definitions of Adjusted EBITDA, Adjusted EBITDAR, and Adjusted EBITDAR margin;

as well as a reconciliation of net income (loss) to Adjusted EBITDA, Adjusted EBITDAR and Adjusted EBITDAR margin.

Refer to “Non-GAAP Financial Measures” below for the definitions of Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDAR, and Adjusted EBITDAR margin;

as well as a reconciliation of net income (loss) to Adjusted EBITDA and Adjusted EBITDAR and related margins.

For the year ended December 31,

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Midwest segment 1,102.7 681.4 1,094.5

125.0 47.5 40.4

Interactive segment 432.9 121.1 38.3

Intersegment eliminations (2)

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Midwest segment 500.1 258.3 403.6

Interactive segment (35.4) 37.2 11.6

(100.7) (80.7) (99.4)

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Adjusted EBITDAR margin 33.8 % 30.6 % 30.3 %

(1) The Other category consists of the Company’s stand-alone racing operations, namely Sanford-Orlando Kennel Club and the Company’s joint venture interests in Sam Houston Race Park, Valley Race Park, and Freehold Raceway;

Adjusted EBITDA margin 26.1 % 18.9 % 23.4 %

(1) The Other category consists of the Company’s stand-alone racing operations, namely Sanford-Orlando Kennel Club, Sam Houston and Valley Race Parks (the remaining 50% was acquired by Penn National on August 1, 2021), the Company’s joint venture interests in Freehold Raceway;

our management contract for Retama Park Racetrack and our live and televised poker tournament series that operates under the trade name, Heartland Poker Tour (“HPT”).

The Other category also includes Penn Interactive, which operates our social gaming, internally-branded retail sportsbooks, iGaming and our Barstool Sports online sports betting app.

Expenses incurred for corporate and shared services activities that are directly attributable to a property or are otherwise incurred to support a property are allocated to each property.

The Other category also includes corporate overhead costs, which consist of certain expenses, such as:

payroll, professional fees, travel expenses and other general and administrative expenses that do not directly relate to or have not otherwise been allocated to a property.

In addition, Adjusted EBITDAR of the Other category includes our proportionate share of the net income or loss of Barstool Sports after adding back our share of non-operating items (such as interest expense, net;

income taxes;

depreciation and amortization;

and stock-based compensation expense).

(2) Represents the elimination of intersegment revenues associated with Penn Interactive and HPT.

payroll expenses, professional fees, travel expenses and other general and administrative expenses that do not directly relate to or have not otherwise been allocated to a property.

(2) Primarily represents the elimination of intersegment revenues associated with our internally-branded retail sportsbooks, which are operated by Penn Interactive.

(3) The total is a mathematical calculation derived from the sum of reportable segments (as well as the Other category).

As noted within “Non-GAAP Financial Measures” below, Adjusted EBITDAR, and the related margin, is presented on a consolidated basis outside the financial statements solely as a valuation metric.

(4) Solely comprised of rent expense associated with the operating lease components contained within the Master Leases (primarily land), the Tropicana Lease, the Meadows Lease, the Margaritaville Lease and the Greektown Lease (of which the Tropicana Lease, Meadows Lease, Margaritaville Lease and the Greektown Lease as defined in “Liquidity and Capital Resources” and are referred to collectively as our “triple net operating leases”).

The finance lease components contained within the Master Leases (primarily buildings) and the financing obligation associated with the Morgantown Lease (as defined in “Liquidity and Capital Resources” ) result in interest expense, as opposed to rent expense.

During the year ended December 31, 2020 and as of February 26, 2021, our properties temporary closure dates pursuant to various orders from state gaming regulatory bodies or governmental authorities to combat the rapid spread of COVID-19 are shown below:

(4) Solely comprised of rent expense associated with the operating lease components contained within our triple net master lease dated November 1, 2013 with GLPI and the triple net master lease assumed in connection with our acquisition of Pinnacle Entertainment, Inc.

(primarily land), our individual triple net leases with GLPI for the real estate assets used in the operation of Tropicana Las Vegas Hotel and Casino and Hollywood

Casino at Meadows Racetrack, and our individual triple net leases with VICI for the real estate assets used in the operations of Margaritaville Casino Resort and Greektown Casino-Hotel (of which the Tropicana Lease, Meadows Lease, Margaritaville Lease and the Greektown Lease are defined in “Liquidity and Capital Resources” ) and are referred to collectively as our “triple net operating leases.” The finance lease components contained within the Master Leases (primarily buildings), the Perryville Lease determined to be a finance lease (as defined in “Liquidity and Capital Resources” ), and the financing obligation associated with the Morgantown Lease (as defined in “Liquidity and Capital Resources” ) result in interest expense, or interest expense and depreciation expense, as opposed to rent expense.

During the years ended December 31, 2021 and 2020, our properties’ temporary closure dates pursuant to various orders from state gaming regulatory bodies or governmental authorities to combat the rapid spread of COVID-19 are shown below:

Location Temporary Closure and Reopening Date Temporary Closure and Reopening Date

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Pennsylvania March 19, 2020 - June 5, 2020 December 12, 2020 - January 4, 2021

Meadows Racetrack and Casino Washington, PA March 17, 2020 - June 9, 2020 December 12, 2020 - January 4, 2021

Hollywood Casino at Meadows Racetrack Washington, PA March 17, 2020 - June 9, 2020 December 12, 2020 - January 4, 2021

Plainridge Park Casino Plainville, MA March 15, 2020 - July 8, 2020

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M Resort Henderson, NV March 17, 2020 - June 4, 2020

Tropicana Las Vegas Las Vegas, NV March 17, 2020 - September 17, 2020

Zia Park Casino Hobbs, NM March 16, 2020 - remains closed

Tropicana Las Vegas Hotel and Casino Las Vegas, NV March 17, 2020 - September 17, 2020

Zia Park Casino Hobbs, NM March 16, 2020 - March 5, 2021 April 8, 2021 - April 21, 2021

Midwest segment

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Food, beverage, hotel and other 959.7 527.6 1,032.7 432.1 (505.1) 81.9 % (48.9) %

Management service and license fees — — 6.0 — (6.0) — (100.0) %

Reimbursable management costs — — 57.3 — (57.3) — (100.0) %

Total revenues $ 5,905.0 $ 3,578.7 $ 5,301.4 $ 2,326.3 $ (1,722.7) 65.0 % (32.5) %

Gaming revenues and food, beverage, hotel and other revenues for the year ended December 31, 2020 decreased compared to the prior year primarily as a result of the COVID-19 pandemic, which caused temporary closures of all of our properties during the year, and upon subsequent property reopenings, our operations were impacted by operating restrictions.

Our properties are subject to restrictions on gaming capacity, which depending on the jurisdiction, are generally 50% less gaming devices.

Furthermore, due primarily to the implementation of social distancing and health and safety protocols, our properties are subject to reduced hotel capacity, limitations on the number of food and beverage offerings and limitations on other amenities.

As a result, upon reopening our properties, gaming revenue now represents a larger portion of our total revenues, which we expect to continue until at least such time that social distancing and health and safety protocols are relaxed or no longer necessary.

Since reopening, our properties have generally experienced reduced visitation and higher spend per trip, as compared to pre-closure levels.

We largely attribute the higher spend per trip to pent-up demand, visitation from our higher worth customers, and customers’ propensity to spend after a prolonged period of limited domestic commerce and upon receipt of government stimulus payments.

In addition, in many of the states in which we operate, leisure alternatives remain partially limited (e.g., bars, concerts, entertainment events, etc.), which may have impacted our operating results upon reopening our properties.

Gaming revenues for the year ended December 31, 2021 increased by $1.9 billion compared to the prior year primarily due to easing of capacity restrictions, strong visitation levels, increased length of play, revenue-enhancing investment in technology, continued growth in our online and sports betting revenues and the inclusion of the operating results of three new properties:

Hollywood Casino Perryville, which was acquired on July 1, 2021, Hollywood Casino York, which opened August 12, 2021 and Hollywood Casino Morgantown, which opened December 22, 2021.

During the year ended December 31, 2020, gaming revenues were negatively impacted by temporary closures for a portion of the year at all of our properties due to the COVID-19 pandemic.

Additionally, upon reopening occurring mainly in 2020, restrictions on gaming patron capacity were in place across all of our properties.

Food, beverage, hotel and other revenues for the year ended December 31, 2021 increased by $432.1 million compared to the prior year, primarily due to strong visitation levels, lifting of capacity and operational restrictions previously in place in response to the COVID-19 pandemic, as well as the inclusion of the operating results from our three new properties discussed above.

Additionally, other revenues include a gross-up of gaming tax reimbursement amounts derived from arrangements which allow our third-party partners to operate online casinos and online sportsbooks under our gaming licenses of $180.2 million for the year ended December 31, 2021 .

During the year ended December 31, 2020, food, beverage, hotel and other revenues were negatively impacted by temporary closures for a portion of the year at all of our properties due to the COVID-19 pandemic.

Additionally, upon reopening occurring mainly in 2020, our properties were subject to the implementation of social distancing and health and safety protocols, reduced hotel capacity and limitations on the number of food and beverage offerings.

See “Segment comparison of the years ended December 31, 2021, and 2020” below for more detailed explanations of the fluctuations in revenues.

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General and administrative 1,352.9 1,130.8 1,187.7 222.1 (56.9) 19.6 % (4.8) %

Reimbursable management costs — — 57.3 — (57.3) — (100.0) %

Depreciation and amortization 344.5 366.7 414.2 (22.2) (47.5) (6.1) % (11.5) %

Impairment losses — 623.4 173.1 (623.4) 450.3 (100.0) % 260.1 %

Recoveries on loan loss and unfunded loan commitments — — (17.0) — 17.0 — (100.0) %

Total operating expenses $ 4,845.4 $ 3,988.9 $ 4,729.5 $ 856.5 $ (740.6) 21.5 % (15.7) %

Gaming expenses consist primarily of salaries and wages associated with our gaming operations and gaming taxes.

Food, beverage, hotel and other expenses consist principally of salaries and wages and costs of goods sold associated with our food, beverage, hotel, retail, racing, and other operations.

Gaming, food, beverage, hotel and other expenses for the year ended December 31, 2020 decreased year over year primarily as a result of the temporary closures of all of our properties due to the

COVID-19 pandemic, which reduced our salaries and wages, gaming taxes, costs of goods sold, and other expenses.

As discussed above, our reopened properties are operating with reduced gaming, hotel capacity, limited food and beverage and limited other amenity offerings.

As such, our properties are operating with a reduced workforce, which reduced our salaries and wages.

In addition, our properties have reduced marketing costs, which reduces gaming expenses.

Gaming expenses consist primarily of salaries and wages associated with our gaming operations, gaming taxes, and marketing and promotional costs.

Gaming expenses for the year ended December 31, 2021 increased $1.0 billion compared to

the prior year primarily due to an increase in gaming taxes resulting from the increase in gaming revenues, as discussed above, as well as increases in payroll and marketing and promotional expenses due to increased volumes.

During the year ended December 31, 2020, all of our properties were subject to temporary closures for a portion of the year due to the COVID-19 pandemic, and upon reopening, operated under restricted gaming patron capacity.

Food, beverage, hotel and other expenses consist primarily of payroll expenses and costs of goods sold associated with our food, beverage, hotel, retail, racing, and interactive operations.

Also included in other expenses for the year ended December 31, 2021 are gaming taxes of $180.2 million on revenues derived from arrangements which allow for third-party partners to operate online casinos and online sportsbooks under our gaming licenses for which we collect and remit applicable gaming taxes.

Food, beverage, hotel and other expenses for the year ended December 31, 2021 increased $269.6 million compared to the prior year, primarily due to the inclusion of the gaming taxes in the current year periods, discussed above, and increases in cost of sales and payroll expenses due to increased volumes experienced subsequent to reopening.

The prior year was impacted by temporary closures for a portion of the year at all of our properties due to the COVID-19 pandemic and upon reopening occurring mainly in 2020 our properties operated within locally restricted capacity and limited food and beverage and other amenities offerings.

General and administrative expenses include items such as compliance, facility maintenance, utilities, property and liability insurance, surveillance and security, lobbying expenses, and certain housekeeping services, as well as all expenses for administrative departments such as accounting, purchasing, human resources, legal and internal audit.

General and administrative expenses also include stock-based compensation expense;

pre-opening and acquisition costs;

pre-opening expenses;

acquisition and transaction costs;

gains and losses on disposal of assets;

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and rent expense associated with our triple net operating leases.

General and administrative expenses for the year ended December 31, 2020 decreased year over year primarily as a result of the actions taken to reduce our cost structure while our properties were temporarily closed, which included:

(i) furloughing the vast majority of our employees and operating with a minimum staffing of less than 850 employees company-wide during the temporary closures;

(ii) enacting meaningful compensation reductions to our remaining property and corporate leadership teams effective April 1, 2020 and through September 30, 2020 (compensation was fully restored effective October 1, 2020);

and (iii) executing substantial reductions in operating expenses.

In addition, we recognized a gain on disposal of assets of $29.2 million, which reduced general and administrative expenses in the current year.

Additionally, the expense associated with the Company’s contingent purchase price obligations and preopening expenses decreased by $8.1 million and $10.5 million, respectively, as compared to the prior year period.

Offsetting these decreases for the year ended December 31, 2020, as compared to the prior year, was an increase in expense associated with the Company’s cash-settled stock-based awards expense of $66.4 million, due to the increase in our stock price, and an increase in rent expense of $53.4 million, which principally relates to the Greektown Lease.

Additionally, we incurred $13.4 million of restructuring costs, primarily related to employee severance as a result of the COVID-19 pandemic as described above.

Depreciation and amortization for the year ended December 31, 2020 decreased year ove r year primarily due to fixed assets becoming fully depreciated since December 31, 2019, a reduction in capital spend in 2020 due to the casino closures and a $2.7 million decrease in amortization expense at Penn Interactive.

These were offset for the year ended December 31, 2020 by an increase of $3.2 million at Greektown, which was acquired in May 2019.

General and administrative expenses for the year ended December 31, 2021 increased primarily due to an increase of $112.0 million in payroll expenses with lower payroll costs incurred as a result of property closures and limited capacity upon reopening during the year ended December 31, 2020, a $24.2 million increase in general facility costs related to increased property volumes, and a $34.6 million increase in rent expenses associated with our triple net operating leases, principally related to the Tropicana Lease.

Furthermore, general and administrative expenses include legal and other professional costs of $43.1 million associated with acquisitions, primarily related to theScore, additional costs related to stock compensation of $20.6 million, and a $12.5 million political contribution related to the California sports betting initiative.

These increases were offset by a decrease in the Company’s cash-settled stock-based awards expense of $66.0 million, which is primarily driven by the Company’s stock price.

Additionally, general and administrative expenses for year ended December 31, 2020, includes a $29.8 million gain from the sale of our Tropicana property in April 2020.

Depreciation and amortization for the year ended December 31, 2021 decreased year over year primarily due to fixed assets and intangible assets becoming fully depreciated and amortized, and the sale of the real estate assets of Tropicana in April 2020.

Impair ment losses for the year ended December 31, 2020 primarily relate to impairments taken on our goodwill and other intangible assets of $113.0 million and $498.5 million, respectively, as a result of an interim impairment assessment during the first quarter of 2020.

During the first quarter of 2020, we identified an indicator of impairment triggered by the COVID-19 pandemic, which caused all of our gaming properties to temporarily close.

At the time of the interim impairment assessment, we revised our cash flow projections to reflect the current economic environment, including the uncertainty of the nature, timing and extent of reopening our gaming properties.

Additionally, we recorded an impairment charge of $7.3 million resulting from an impairment analysis of the long-lived assets at the Tropicana Las Vegas and an impairment charge of $4.6 million on our investment in the Texas joint venture.

There were no impairment losses for the year ended December 31, 2021 .

Other income (expenses)

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Income from unconsolidated affiliates $ 38.7 $ 13.8 $ 28.4 $ 24.9 $ (14.6) 180.4 % (51.4) %

Loss on early extinguishment of debt $ (1.2) $ — $ (21.0) $ (1.2) $ 21.0 — (100.0) %

Loss on early extinguishment of debt $ — $ (1.2) $ — $ 1.2 $ (1.2) N/M N/M

Other $ 2.5 $ 106.6 $ 20.0 $ (104.1) $ 86.6 (97.7) % 433.0 %

Income tax benefit (expense) $ (118.6) $ 165.1 $ (43.0) $ (283.7) $ 208.1 N/M N/M

Other $ 106.6 $ 20.0 $ (7.1) $ 86.6 $ 27.1 433.0 % N/M

N/M - Not meaningful

Interest expense, net increased for the year ended December 31, 2020, as compared to the prior year, due primarily to increases in interest expense related to our Master Leases of $8.8 million partially offset by an increase in capitalized interest of

$1.9 million.

Additionally, the interest expense associated with our long-term debt increased $1.8 million, as compared to the prior year, due primarily to the issuance of our 2.75% Convertible Notes, which offset the reduction in interest expense incurred on the Senior Secured Credit Facilities (as defined in “ Note 11, “Long-term Debt, ”) from a decrease in the London Interbank Offered Rate (referred to as "LIBOR") during the corresponding periods.

Income from unconsolidated affiliates relates principally to our Kansas Entertainment joint venture.

The decrease for the year ended December 31, 2020, as compared to the prior year, was primarily due to a decrease in the results of operations of Hollywood Casino at Kansas Speedway, which temporarily closed on March 17, 2020 and reopened on May 25, 2020 and continues to be impacted by COVID-19 capacity restrictions.

This decrease was partially offset by income earned from Barstool Sports.

Loss on early extinguishment of debt for the year December 31, 2020 related to the write-offs of previously unamortized debt issuance costs and debt discounts in connection with the prepayment of Term Loan B-1 Facility, (as de fined in N ote 11, “Long-term Debt, ”).

Interest expense, net increased for the year ended December 31, 2021, as compared to the prior year, primarily due to interest expenses related to our Other long-term obligations.

Income from unconsolidated affiliates relates principally to Barstool Sports, and our Kansas Entertainment and Freehold Raceway joint ventures.

The increase for the year ended December 31, 2021, compared to the prior year, was due to ongoing positive results in the operations at Hollywood Casino at Kansas Speedway, which was closed for a period in the prior year, and upon reopening in 2020, operated under capacity restrictions, and increases in income earned from our Barstool Sports investment, which we completed in February 2020.

We record our proportionate share of Barstool Sports’ net income or loss one quarter in arrears.

There were no principal prepayments of our long-term debt during the year ended December 31, 2021 .

Income tax benefit (expense) fo r the year ended December 31, 2020, was a benefit of $165.1 million compared to income tax expense of $43.0 million in the prior year.

Our effective tax rate was 19.8% for the year ended December 31, 2020, as compared to 49.9% for the year ended December 31, 2019.

The Company’s effective tax rate for the year ended December 31, 2020 was lower than the federal statutory tax rate of 21% primarily driven by the increase in the valuation allowance (see Note 14, “Income Taxes” , in the notes to our Consolidated Financial Statements).

The Company’s effective tax rate for the year ended December 31, 2019 was higher than the federal statutory tax rate of 21% primarily driven by the effect of the non-deductible goodwill impairment charge, non-deductible officers’ compensation, and higher state taxable income from operations.

Other includes miscellaneous income and expense items and primarily relates to realized and unrealized gains and losses on equity securities (including warrants), held by Penn Interactive and unrealized gains and losses related to certain Barstool Sports shares.

Equity securities were provided to the Company in conjunction with entering into multi-year agreements with sports betting operators for online sports betting and related iCasino market access across our portfolio.

For the year ended December 31, 2021, other income primarily consisted of a $29.9 million gain related to the valuation of our joint venture investment in Sam Houston and Valley Race Parks prior to the acquisition of the remaining 50% on August 1, 2021, offset by a net $24.9 million loss related to realized and unrealized losses on equity securities.

For the year ended December 31, 2020, other income was comprised primarily of $106.7 million of unrealized gains on equity securities.

Income tax benefit (expense) fo r the year ended December 31, 2021, was a $118.6 million expense, as compared to a $165.1 million benefit for the year ended December 31, 2020.

Our effective tax rate (income taxes as a percentage of income or loss from operations before income taxes) including discrete items was 22.0% for the year ended December 31, 2021, as compared to 19.8% for the year ended December 31, 2020.

The Company’s effective tax rate for the year ended December 31, 2021 was higher than the federal statutory tax rate of 21% primarily driven by state taxes, non-deductible expenses, and the increase in the federal valuation allowance (see Note 14, “Income Taxes” , in the notes to our Consolidated Financial Statements).

The Company’s effective tax rate for the year ended December 31, 2020 was lower than the federal statutory tax rate of 21% primarily driven by the change in the valuation allowance.

Our effective income tax rate can vary each reporting period depending on, among other factors, the geographic and business mix of our earnings, changes to our valuation allowance, and the level of our tax credits.

Certain of these and other factors, including our history and projections of pre-tax earnings, are considered in assessing our ability to realize our net deferred tax assets.

Other includes miscellaneous income and expense items.

The amount for the years ended December 31, 2020 and 2019 relates primarily to unrealized holding gains of $106.7 million and $19.9 million, respectively, on equity securities (including warrants), which were acquired during the third quarter of 2019 in connection with Penn Interactive entering into multi-year agreements with sports betting operators for online sports betting and related iGaming market access across our portfolio.

Segment comparison of the years ended December 31, 2021 and 2020

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Food, beverage, hotel and other 208.2 144.2 282.8 64.0 (138.6) 44.4 % (49.0) %

Management service and licensing fees — — 5.9 — (5.9) — (100.0) %

Reimbursable management costs — — 46.8 — (46.8) — (100.0)

Total revenues $ 2,552.4 $ 1,639.3 $ 2,399.9 $ 913.1 $ (760.6) 55.7 % (31.7) %

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Adjusted EBITDAR margin 33.2 % 29.2 % 30.0 % 400 bps (80) bps

The Northeast segment’s results of operations for the year ended December 31, 2020 were primarily impacted by the COVID-19 pandemic.

During the year ended December 31, 2020, our properties had temporary closures pursuant to various orders from state gaming regulatory bodies or governmental authorities to combat the rapid spread of COVID-19.

All of our properties within the Northeast segment reopened and continue to operate with reduced gaming and hotel (if applicable) capacity, limited food and beverage and other amenity offerings.

In response to the impact of the COVID-19 pandemic on our operations, we implemented cost saving initiatives to offset inevitable revenue degradation, such as:

operating with a reduced

workforce, focusing on higher margin gaming offerings, reducing marketing costs, and limiting certain lower margin food and beverage offerings.

For the year ended December 31, 2020 the Northeast segment’s total revenues, Adjusted EBITDAR and Adjusted EBITDAR margin decreased, as compared to the prior year, due to the temporary closures described above.

While revenues and Adjusted EBITDAR decreased 31.7% and 33.6% compared to the prior year, Adjusted EBITDAR margin decreased 80 basis points primarily as a result of cost cutting measures and other structural changes put in place in response to the COVID-19 pandemic.

The Northeast segment’s revenues for the year ended December 31, 2021 increased by $913.1 million over the prior year, primarily due to easing of capacity restrictions, strong visitation levels, and increased length of play.

In addition, the Northeast segment includes operating results from our three new properties:

Hollywood Casino Perryville, which was acquired on July 1, 2021, Hollywood Casino York, which opened on August 12, 2021 and Hollywood Casino Morgantown, which opened on December 22, 2021.

During the year ended December 31, 2020, our Northeast segment’s operating results were negatively impacted by temporary closures for a portion of the year at all of our properties due to the COVID-19 pandemic.

Additionally, upon reopening, in 2020 (and in the case of our Pennsylvania properties upon a second reopening in January 2021 stemming from a mandated second temporary closure commencing in the fourth quarter of 2020), our properties operated within locally-restricted gaming capacity and limited food and beverage and other amenity offerings.

For the year ended December 31, 2021 the Northeast Adjusted EBITDAR increased by $369.5 million as compared to the prior year, primarily due to temporary property closures for a portion of the prior year period while the current year period benefited from an increase in gaming revenues, as discussed above.

Adjusted EBITDAR margin increased 400 basis points to 33.2% primarily due to our revenue-enhancing investments in technology, comparable marketing and promotional costs, and reduced labor costs i n the current year yielding a higher overall Adjusted EBITDAR margin.

South Segment

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Adjusted EBITDAR margin 44.4 % 37.5 % 33.1 % 690 bps 440 bps

The South segment’s results of operations for the year ended December 31, 2020 were primarily impacted by the COVID-19 pandemic and Hurricane Laura (described below).

During the year ended December 31, 2020 our properties had temporary closures pursuant to various orders from state gaming regulatory bodies or governmental authorities to combat the rapid spread of COVID-19.

All of our properties within the South segment reopened and continue to operate with reduced gaming, hotel (if applicable) capacity, limited food and beverage and other amenity offerings.

In response to the COVID-19 pandemic on our operations, we implemented cost saving initiatives to offset inevitable revenue degradation, such as:

operating with a reduced workforce, focusing on higher margin gaming offerings, reducing marketing costs, and limiting certain lower margin food and beverage offerings.

For the year ended December 31, 2020, the South segment’s total revenues and Adjusted EBITDAR decreased, as compared to the prior year, due to the temporary closures, operational restrictions, and social distancing measures described above.

The Souths segment’s Adjusted EBITDAR margin increased 440 basis points for the year ended December 31, 2020, as compared to the prior year due to our cost structure savings initiatives described above.

On August 27, 2020, Hurricane Laura made landfall in Lake Charles, Louisiana and caused significant damage to L’Auberge Lake Charles, forcing it to close for approximately two weeks.

The Company maintains insurance, subject to certain deductibles and coinsurance, for the repair or replacement of assets that suffered loss and provides coverage for interruption to our business, including lost profits.

The Company received upfront prepayments of $47.5 million from our insurers related to our anticipated policy claim (i.e.

an advance) for the year ended December 31, 2020.

The insurance proceeds were recorded as an offset to recovery costs incurred (i.e.

Receivables within our Consolidated Balance Sheets) and we did not recognize any gain or loss as a result of this event.

The South segment’s revenues for the year ended December 31, 2021 increased by $472.6 million over the prior year, primarily due to easing of capacity restrictions, strong visitation levels, and increased length of play.

During the year ended December 31, 2020 , our South segment’s operating results were negatively impacted by temporary closures for a portion of the year at all of our properties due to the COVID-19 pandemic and temporary closures due to hurricane season.

Additionally, upon reopening our properties operated within locally restricted gaming capacity and limited food and beverage and other amenity offerings.

For the year ended December 31, 2021 , the South segment’s Adjusted EBITDAR increased by $268.1 million primarily due to temporary property closures for a portion of the prior year period while the current year period benefited from an increase in gaming revenues, as discussed above.

Adjusted EBITDAR margin increased 690 basis points to 44.4% primarily due to comparable marketing and promotional costs and reduced labor costs in the current year yielding a higher overall Adjusted EBITDAR margin.

For the year ended December 31, $ Change % / bps Change

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Food, beverage, hotel and other 168.7 108.3 268.2 60.4 (159.9) 55.8 % (59.6) %

Reimbursable management costs — — 10.5 — (10.5) — (100.0) %

Total revenues $ 521.4 $ 302.5 $ 642.5 $ 218.9 $ (340.0) 72.4 % (52.9) %

1 unchanged sentence

Adjusted EBITDAR margin 37.4 % 27.2 % 30.9 % 1,020 bps (370) bps

The West segment’s results of operations for the year ended December 31, 2020 were primarily impacted by the COVID-19 pandemic.

All of our properties within the West segment reopened and continue to operate with reduced gaming, hotel (if applicable) capacity, limited food and beverage and other amenity offerings, with the exception of Zia Park which remains closed.

In response to the COVID-19 pandemic on our operations, we implemented cost saving initiatives to offset inevitable revenue degradation, such as:

operating with a reduced workforce, focusing on higher margin gaming offerings, reducing marketing costs, and limiting certain lower margin food and beverage offerings.

For the year ended December 31, 2020, the West segment’s total revenues, Adjusted EBITDAR and Adjusted EBITDAR margin decreased, as compared to the prior year, due to the temporary closures, operational restrictions, and social distancing measures described above.

The West segment’s revenues for the year ended December 31, 2021 increased by $218.9 million over the prior year, primarily due to easing of capacity restrictions, strong visitation levels, and increased length of play.

During the year ended December 31, 2020, our West segment’s operating results were negatively impacted by temporary closures for a portion of the year at all of our properties due to the COVID-19 pa ndemic, with our Tropicana Las Vegas Hotel and Casino property reopening on September 17, 2020, and Zia Park property remaining temporarily closed, reopening in March 2021.

A dditionally, upon reopening our properties operated within locally restricted gaming and hotel (if applicable) capacity and limited food and beverage and other amenity offerings.

For the year ended December 31, 2021, the West segment’s Adjusted EBITDAR increased by $112.8 million primarily due to temporary property closures for a portion of the prior year period while the current year period benefited from an increase in gaming and non-gaming revenues, as discussed above.

Adjusted EBITDAR margin increased 1,020 basis points to 37.4%, primarily due to our comparable marketing and promotional costs, reduced labor costs and a higher proportionate share of gaming activity in the current year, yielding a higher overall Adjusted EBITDAR margin.

Midwest Segment

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Adjusted EBITDAR margin 45.4 % 37.9 % 36.9 % 750 bps 100 bps

The Midwest segment’s results of operations for the year ended December 31, 2020 were primarily impacted by the COVID-19 pandemic.

All of our properties within the Midwest segment reopened and continue to operate with reduced gaming, hotel (if applicable) capacity, limited food and beverage and other amenity offerings.

In response to the COVID-19 pandemic on our operations, we implemented cost saving initiatives to offset inevitable revenue degradation, such as:

operating with a reduced workforce, focusing on higher margin gaming offerings, reducing marketing costs, and limiting certain lower margin food and beverage offerings.

For the year ended December 31, 2020, the Midwest segment’s total revenues and Adjusted EBITDAR decreased, as compared to the prior year, due to the temporary closures, operational restrictions, and social distancing measures described above.

The Midwest segment’s Adjusted EBITDAR margin increased 100 basis points for the year ended December 31, 2020, as compared to the prior year due to our cost structure savings initiatives described above.

The Midwest segment’s revenues for the year ended December 31, 2021 increased by $421.3 million over the prior year, primarily due to easing of capacity restrictions, strong visitation levels, and increased length of play.

During the year ended December 31, 2020, our Midwest segment ’ s operating results were negatively impacted by temporary closures for a portion of the year at all of our properties due to the COVID-19 pandemic.

Additionally, upon reopening in 2020 (and in the case of our Illinois properties upon a second reopening in January 2021 stemming from a mandated second temporary closure commencing in the fourth quarter of 2020) our properties operated within locally restricted gaming capacity and limited food and beverage and other amenity offerings.

For the year ended December 31, 2021, the Midwest segment’s Adjusted EBITDAR increased by $241.8 million primarily due to temporary property closures for a portion of the prior year period while the current year period benefited from an increase in gaming revenues, as discussed above.

Adjusted EBITDAR margin increased 750 basis points to 45.4% primarily due to our comparable marketing and promotional costs, reduced labor costs, and a higher proportionate share of gaming activity in the current year, yielding a higher overall Adjusted EBITDAR margin.

Interactive Segment

For the year ended December 31, $ Change % / bps Change

5 unchanged sentences

Food, beverage, hotel and other 274.5 58.7 30.5 215.8 28.2 367.6 % 92.5 %

Management service and licensing fees — — 0.1 — (0.1) — (100.0) %

Total revenues $ 432.9 $ 121.1 $ 38.3 $ 311.8 $ 82.8 257.5 % 216.2 %

Adjusted EBITDAR $ (35.4) $ 37.2 $ 11.6 $ (72.6) $ 25.6 N/M 220.7 %

Adjusted EBITDAR margin (8.2) % 30.7 % 30.3 % N/M 40 bps

N/M - Not meaningful

Total revenues for the Interactive segment increased for the year ended December 31, 2021, as compared to the prior year, primarily due to a gross-up of gaming tax reimbursement amounts derived from arrangements which allow for our third-party partners to operate online casinos and online sportsbooks under our gaming licenses of $180.2 million, the expansion of Barstool Sportsbook and Casino app throughout the year, as well as revenues from theScore, which was acquired on October 19, 2021.

Adjusted EBITDAR was a loss for the year ended December 31, 2021 of $35.4 million as compared to positive Adjusted EBITDAR in the prior year of $37.2 million, primarily due to increased expenses related to ramping and launching the Penn Interactive online sportsbook and casino operations in new states, a $12.5 million political contribution related to the California sports betting initiative, and the inclusion of theScore financial results, as indicated above.

For the year ended December 31, $ Change % / bps Change

(dollars in millions) 2021 2020 2019 2021 vs.

2020 2020 vs.

2019 2021 vs.

2020 2020 vs.

Gaming $ — $ 0.3 $ 1.0 $ (0.3) $ (0.7) (100.0) % (70.0) %

Food, beverage, hotel and other 10.6 3.6 8.2 7.0 (4.6) 194.4 % (56.1) %

Total revenues $ 10.6 $ 3.9 $ 9.2 $ 6.7 $ (5.3) 171.8 % (57.6) %

Adjusted EBITDAR $ (100.7) $ (80.7) $ (99.4) $ (20.0) $ 18.7 24.8 % (18.8) %

Total revenues and Adjusted EBITDAR of the Other category increased for the year ended December 31, 2020, as compared to the prior ye ar, primarily as a result of Penn Interactive.

Penn Interactive's operations benefited from the launch of the online Barstool Sportsbook in Pennsylvania in September 2020 and increases in online social and real-money gaming revenue.

Real-money online gaming revenue benefited from an improved conversion of the my choice database to our real-money gaming platform, and was also positively impacted by the temporary closures of Pennsylvania casinos throughout portions of 2020.

In addition to benefiting from Penn Interactive's operating results, the increase in Adjusted EBITDAR is driven by decreases in corporate overhead costs of $20.5 million for the year ended December 31, 2020, principally driven by furloughs to team members, compensation reductions effective April 1, 2020 through September 30, 2020, and the overall reduction of expenses due to the temporary closures, as well as an overall permanent reduction to our workforce as a result of the COVID-19 pandemic, offset by increased expenses related to the ramp up of the Penn Interactive online sportsbook operations.

Other consists of the Company’s stand-alone racing operations, as well as corporate overhead costs, which primarily includes certain expenses such as payroll, professional fees, travel expenses and other general and administrative expenses that do not directly relate to or have not otherwise been allocated to a property.

Revenues have increased primarily due to the acquisition of Sam Houston, the remaining 50% of which was acquired on August 1, 2021.

Adjusted EBITDAR decreased by $20.0 million for the year ended December 31, 2021 as compared to the prior year, primarily due to increases in corporate overhead costs that are reflective of the current operating environment.

For the year ended December 31, 2021 and 2020, corporate overhead costs were $103.3 million and $78.8 million, respectively.

Non-GAAP Financial Measures

Use and Definitions

In addition to GAAP financial measures, management uses Adjusted EBITDA, Adjusted EBITDAR and Adjusted EBITDAR margin as non-GAAP financial measures.

In addition to GAAP financial measures, management uses Adjusted EBITDA, Adjusted EBITDAR, Adjusted EBITDA margin, and Adjusted EBITDAR margin as non-GAAP financial measures.

These non-GAAP financial measures should not be considered a substitute for, nor superior to, financial results and measures determined or calculated in accordance with GAAP.

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impairment losses;

insurance recoveries and deductible charges;

insurance recoveries, net of deductible charges;

changes in the estimated fair value of our contingent purchase price obligations;

gain or loss on disposal of assets, the difference between budget and actual expense for cash-settled stock-based awards;

pre-opening and acquisition costs;

and other income or expenses.

pre-opening expenses;

Adjusted EBITDA is inclusive of income or loss from unconsolidated affiliates, with our share of non-operating items (such as interest expense, net;

1 unchanged sentence

depreciation and amortization;

and stock-based compensation expense) added back for Barstool Sports and our Kansas Entertainment joint venture.

Adjusted EBITDA is inclusive of rent expense associated with our triple net operating leases (the operating lease components contained within the Penn Master Lease and Pinnacle Master Lease (primarily land), the Meadows Lease, the Margaritaville Lease, the Greektown Lease and the Tropicana Lease).

and stock-based compensation expense) added back for Barstool Sports and our Kansas Entertainment, LLC joint venture.

Adjusted EBITDA is inclusive of rent expense associated with our triple net operating leases (the operating lease components contained within our triple net master lease dated November 1, 2013 with GLPI and the triple net master lease assumed in connection with our acquisition of Pinnacle Entertainment, Inc.

(primarily land), our individual triple net leases GLPI for the real estate assets used in the Operation of Tropicana Las Vegas Hotel and Casino, Inc.

and Hollywood Casino at Meadows Racetrack, and our individual triple net leases with VICI for the real estate assets used in the operations of Margaritaville Casino Resort and Greektown Casino-Hotel).

Although Adjusted EBITDA includes rent expense associated with our triple net operating leases, we believe Adjusted EBITDA is useful as a supplemental measure in evaluating the performance of our consolidated results of operations.

Adjusted EBITDA has economic substance because it is used by management as a performance measure to analyze the performance of our business, and is especially relevant in evaluating large, long-lived casino-hotel projects because it provides a perspective on the current effects of operating decisions separated from the substantial non-operational depreciation charges and financing costs of such projects.

We define Adjusted EBITDA margin as Adjusted EBITDA divided by consolidated revenues.

Adjusted EBITDA has economic substance because it is used by management as a performance measure to analyze the performance of our business, and is especially relevant in evaluating large, long-lived casino-hotel projects because it provides a perspective on the current effects of operating decisions separated from the substantial nonoperational depreciation charges and financing costs of such projects.

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

These calculations are commonly used as a basis for investors, analysts and credit rating agencies to evaluate and compare operating performance and value companies within our industry.

In order to view the operations of their casinos on a more stand-alone basis, gaming companies, including us, have historically excluded from their Adjusted EBITDA calculations certain corporate expenses that do not relate to the management of specific casino

However, Adjusted EBITDA is not a measure of performance or liquidity calculated in accordance with GAAP.

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However, Adjusted EBITDAR when presented on a consolidated basis is not a financial measure in accordance with GAAP, and should not be viewed as a measure of overall operating performance or considered in isolation or as an alternative to net income because it excludes the rent expense associated with our triple net operating leases and is provided for the limited purposes referenced herein.

Adjusted EBITDAR margin is defined as Adjusted EBITDAR on a consolidated basis (as defined above) divided by revenues on a consolidated basis.

Adjusted EBITDAR margin is defined as Adjusted EBITDAR on a consolidated basis divided by revenues on a consolidated basis.

Adjusted EBITDAR margin is presented on a consolidated basis outside the financial statements solely as a valuation metric.

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Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures

The following table includes a reconciliation of net income (loss), which is determined in accordance with GAAP, to Adjusted EBITDA, Adjusted EBITDAR and Adjusted EBITDAR margin, which are non-GAAP financial measures:

The following table includes a reconciliation of net income (loss), which is determined in accordance with GAAP, to Adjusted EBITDA, Adjusted EBITDAR, Adjusted EBITDA margin and Adjusted EBITDAR margin, which are non-GAAP financial measures:

For the year ended December 31,

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Interest expense, net 561.7 543.2 534.2

Other expense (income) (106.6) (20.0) 7.1

Other income (2.5) (106.6) (20.0)

Operating income (loss) 1,059.6 (410.2) 571.9

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Cash-settled stock-based award variance (1)(2)

67.2 0.8 (19.6)

(Gain) loss on disposal of assets (1)

Loss (gain) on disposal of assets (1)

1.1 (29.2) 5.5

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1.9 (1.1) 7.0

Pre-opening and acquisition costs (1)

Pre-opening expenses (1)(3)

5.4 11.8 22.3

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Impairment losses — 623.4 173.1

Recoveries on loan loss and unfunded loan commitments — — (17.0)

Insurance recoveries, net of deductible charges (1)

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Net income (loss) margin 7.1 % (18.7) % 0.8 %

Adjusted EBITDA margin 26.1 % 18.9 % 23.4 %

Adjusted EBITDAR margin 33.8 % 30.6 % 30.3 %

(1) These items are included in “General and administrative” within the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss).

(1) These items are included in “General and administrative” within the Company’s Consolidated Statements of Operations.

(2) Our cash-settled stock-based awards are adjusted to fair value each reporting period based primarily on the price of the Company’s common stock.

As such, significant fluctuations in the price of the Company’s common stock during any reporting period could cause significant variances to budget on cash-settled stock-based awards.

During the year ended December 31, 2020, the price of the Company’s common stock increased significantly, which resulted in unfavorable variances to budget.

(3) During 2019, 2020 and during the first quarter of 2021, acquisition costs were included within pre-opening and acquisition costs.

Beginning with the quarter ended June 30, 2021, acquisition costs are presented as part of other expenses.

(4) Consists principally of interest expense, net;

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and stock-based compensation expense associated with Barstool Sports and our Kansas Entertainment joint venture.

(4) Consists of non-recurring restructuring charges (primarily severance) associated with a company-wide initiative, triggered by the COVID-19 pandemic, designed to (i) improve the operational effectiveness across our property portfolio;

and (ii) improve the effectiveness and efficiency of our Corporate functional support areas.

We record our portion of Barstool Sports, Inc.

’ s net income or loss, including adjustments to arrive at Adjusted EBITDAR, one quarter in arrears.

(5) Consists of non-recurring acquisition and transaction costs, finance transformation costs associated with the implementation of our new Enterprise Resource Management system and non-recurring restructuring charges (primarily severance) associated with a company-wide initiative, triggered by the COVID-19 pandemic, designed to (i) improve the operational effectiveness across our property portfolio;

and (ii) improve the effectiveness and efficiency of our Corporate functional support area.

LIQUIDITY AND CAPITAL RESOURCES

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Net cash used in investing activities $ (1,221.8) $ (233.7) $ (607.5) $ (988.1) $ 373.8 422.8 % (61.5) %

Net cash provided by (used in) financing activities $ 1,310.1 $ (122.4) $ 1,272.1 $ 1,432.5 $ (1,394.5) N/M N/M

Net cash provided by (used in) financing activities $ 339.9 $ 1,310.1 $ (122.4) $ (970.2) $ 1,432.5 (74.1) % N/M

N/M - Not meaningful

Operating Cash Flow

The decrease in net cash provided by operating activities of $365.1 million for the year ended December 31, 2020, is due to the temporary closures of our properties due to the COVID-19 pandemic, which significantly decreased cash receipts from customers.

Offsetting this decrease was a $316.2 million decrease in cash paid for rent and interest payments, in total, under our Triple Net Leases, due primarily to utilizing rent credits to pay rent in the current year under the Master Leases, the Meadows Lease and the Morgantown Lease (offset by the increase in payments under the Greektown Lease due to the timing of the acquisition in the second quarter of 2019).

Net cash provided by operating activities increased by $557.3 million for the year ended December 31, 2021 primarily due to increased gaming revenues as operations at our properties benefited from easing of capacity restrictions, strong visitation levels, increased length of play, and higher overall Adjusted EBITDAR margins.

Operating cash flows in the prior year were negatively impacted by the temporary closures of all of our properties due to the COVID-19 pandemic, which significantly decreased cash receipts from customers, offset by the utilization of rent credits resulting from the sales of our Tropicana property and land associated with our Morgantown development project.

Investing Cash Flow

Net cash used in investing activities for the year ended December 31, 2020 decreased compared to the prior year primarily due to decrease in capital expenditures of $53.6 million in the current year and the 2019 acquisitions of the operations of Margaritaville and Greektown for $109.1 million and $289.2 million, respectively, both net of cash.

As a part of the acquisitions of Margaritaville and Greektown, the Company entered into sale-leaseback transactions with VICI in the amounts of $261.1 million and $700.0 million, respectively, which had no net impact on net cash used in investing activities for the year ended December 31, 2019.

In addition, during the year ended December 31, 2019, we paid $10.0 million for online and retail sports betting licenses in Pennsylvania.

The decrease in capital expenditures in the current year primarily reflects our efforts to reduce or defer our planned Category 4 project capital expenditures as we mitigate the impact of the COVID-19 pandemic.

These decreases were partially offset by our $135.0 million investment in Barstool Sports made during the first quarter of 2020.

Cash used in investing activities for the year ended December 31, 2021 of $1.2 billion is primarily due to the acquisition of theScore as well as other acquired businesses and interests, and capital expenditures.

For the year ended December 31, 2020, cash used in investing activities was primarily related to the completion of our investment in Barstool Sports in February of 2020 and capital expenditures.

Capital Expenditures

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Cash provided by operating activities as well as cash available under our Revolving Credit Facility funded our capital expenditures for the years ended December 31, 2021, 2020 and 2019.

During the year ended December 31, 2020, we had capital expenditures of $137.0 million primarily related to our maintenance projects and our Category 4 development projects.

For the year ending December 31, 2021, our e xpected capital expenditures are $296.8 million of which $98.9 million relates our Category 4 projects and $197.9 million relates to our maintenance projects .

Our Category 4 projects are Hollywood Casino York and Hollywood Casino Morgantown.

Hollywood Casino York, which is located in the York Galleria Mall in York County, will represent an overall capital investment of approximately $120.0 million inclusive of the gaming license.

Hollywood Casino Morgantown is being built on a previously vacant 36-acre site in Berks County with a capital investment of approximately $111.0 million inclusive of the gaming license.

We anticipate that both of these projects will be completed by the end of 2021.

During the year ended December 31, 2021, we spent $244.1 million on capital expenditures, primarily related to our two Category 4 development projects, Hollywood Casino York, which is located in the York Galleria Mall in York, Pennsylvania, and Hollywood Casino Morgantown, located in Morgantown, Pennsylvania, both of which opened during the year.

For the year ending December 31, 2022, our e xpected capital expenditures are $312.4 million.

Financing Cash Flow

Net cash provided by financing activities for the year ended December 31, 2020 was $1,310.1 million compared to net cash used in financing activities of $122.4 million in the prior year.

The change is driven primarily by the separate public offerings of Penn Common Stock on May 14, 2020 and September 24, 2020, in which we received net proceeds of $331.2 million and $957.6 million, respectively.

Additionally, we received $322.2 million of net proceeds from the issuance of the Convertible Notes.

These proceeds were partially offset by net repayments under our Senior Secured Credit Facilities of $301.7 million.

In the current year we fully repaid $670.0 million of outstanding borrowings under our Revolving Credit Facility and a $115.0

million prepayment of outstanding borrowings on our Term Loan B-1 Facility.

In comparison, in the prior year net cash used by financing activities consisted principally of net repayments of long-term debt of $18.6 million despite the borrowing associated with the acquisition of Greektown, $51.6 million of principal payments on our financing obligations, $6.2 million of principal payments on our finance leases, and $24.9 million in payments related to the repurchase of common stock.

For the year ended December 31, 2021, net cash provided by financing activities totaled $339.9 million compared to $1.3 billion in net cash provided in the prior year.

During the year ended December 31, 2021, we had net cash proceeds of $400.0 million related to the issuance of our 4.125% Notes due 2029.

During the year ended December 31, 2020, we had net cash proceeds of $331.2 million and $957.6 million related to the issuance of the Company ’ s common equity in May 2020 and September 2020, respectively, and $322.2 million of net proceeds related to the issuance of our Convertible Notes due 2026, with net repayments under our Senior Secured Credit Facilities of $301.7 million, which primarily resulted in a decrease of $970.2 million as compared to the current year.

Debt Issuances, Redemptions and Other Long-term Obligations

On March 13, 2020, we borrowed the remaining available amount of $430.0 million under our Revolving Credit Facility.

The Company elected to draw down the remaining available funds from its Revolving Credit Facility in order to maintain maximum financial flexibility in light of the COVID-19 pandemic.

Through the use of our September 2020 equity raise proceeds, we fully repaid $670.0 million outstanding borrowings under our Revolving Credit Facility.

Additionally, o n November 12, 2020 the Company prepaid $115.0 million of outstanding borrowings on its Term Loan B-1 Facility.

On April 14, 2020, the Company entered into a second amendment to its Credit Agreement with its various lenders ( the “Second Amendment”) to provide for certain modifications.

During the period beginning on April 14, 2020 and ending on the earlier of (x) the date that is two business days after the date on which the Company delivers a covenant relief period termination notice to the administrative agent and (y) the date on which the administrative agent receives a compliance certificate for the quarter ending March 31, 2021 (the “Covenant Relief Period”), the Company will not have to comply with any Maximum Leverage Ratio or Minimum Interest Coverage Ratio (as such terms are defined in the Credit Agreement that was amended on January 19, 2017, the "Amended 2017 Credit Agreement").

During the Covenant Relief Period, the Company will be subject to a minimum liquidity covenant that requires cash and cash equivalents and availability under its Revolving Credit Facility to be (i) at least $400.0 million through April 30, 2020;

(ii) $350.0 million during the period from May 1, 2020 through May 31, 2020;

(iii) $300.0 million during the period from June 1, 2020 through June 30, 2020;

and (iv) $225.0 million during the period from July 1, 2020 through March 31, 2021.

The Second Amendment also amended the financial covenants that are applicable after the Covenant Relief Period to permit the Company to (i) maintain a maximum consolidated total net leverage ratio of up to a ratio that varies by quarter, ranging between 5.50:1.00 and 4.50:1.00 in 2021 and 4.25:1.00 thereafter, tested quarterly on a pro forma trailing twelve month (“PF TTM”) basis;

(ii) maintain a maximum senior secured net leverage ratio of up to a ratio that varies by quarter, ranging between 4.50:1.00 and 3.50:1.00 in 2021 and 3.00:1.00 thereafter, tested quarterly on a PF TTM basis;

and (iii) maintain an interest coverage ratio of 2.50:1.00, tested quarterly on a PF TTM basis.

In addition, the Second Amendment (i) provides that, during the Covenant Relief Period, loans under the Revolving Credit Facility and the Term Loan A Facility shall bear interest at either a base rate or an adjusted LIBOR rate, in each case, plus an applicable margin, in the case of base rate loans, of 2.00%, and in the case of adjusted LIBOR rate loans, of 3.00%;

(ii) provides that, during the Covenant Relief Period, the Company shall pay a commitment fee on the unused portion of the commitments under the Revolving Credit Facility at a rate of 0.50% per annum;

(iii) provides for a 0.75% LIBOR floor applicable to all LIBOR loans under the Senior Secured Credit Facilities;

(iv) carves out COVID-19 related effects from certain terms of the Senior Secured Credit Facilities during the Covenant Relief Period;

and (v) makes certain other changes to the covenants and other provisions of the Credit Agreement.

On April 14, 2020, the Company entered into a second amendment to its Credit Agreement with its various lenders (the “Second Amendment”) to provide for certain modifications to required financial covenants and interest rates during, and subsequent to, a covenant relief period, which concluded on May 7, 2021 (the “Covenant Relief Period”).

In May 2020, the Company completed a public offering of $330.5 million aggregate principal amount of 2.75% unsecured convertible notes that mature, unless earlier converted, redeemed or repurchased, on May 15, 2026 (the “Convertible Notes”) at a price of par.

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Interest on the Convertible Notes is payable on May 15 th and November 15 th of each year, beginning on November 15, 2020.

The Convertible Notes are convertible into shares of the Company’s common stock at an initial conversion price of $23.40 per share, or 42.7350 shares, per $1,000 principal amount of notes, subject to adjustment if certain corporate events occur.

However, in no event will the conversion exceed 55.5555 shares of common stock per $1,000 principal amount of notes.

As of December 31, 2020, the maximum number of shares that could be issued to satisfy the conversion feature of the Convertible Notes is 18,360,815 and the amount by which the Convertible Notes if-converted value exceeded its principal amount was $1,255.3 million.

Prior to February 15, 2026, at their election, holders of the Convertible Notes may convert outstanding notes starting in the fourth quarter of 2020 if the trading price of the Company’s common stock exceeds 130% of the conversion price or, starting shortly after the issuance of the Convertible Notes, if the trading price per $1,000 principal amount of notes is less than 98% of the product of the trading price of the Company’s common stock and the conversion rate then in effect.

The Convertible Notes may, at the Company’s election, be settled in cash, shares of common stock of the Company, or a combination thereof.

The Company has the option to redeem the Convertible Notes, in whole or in part, beginning November 20, 2023.

In addition, the Convertible Notes convert into shares of the Company’s common stock upon the occurrence of certain corporate events that constitute a fundamental change under the indenture governing the Convertible Notes at a purchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to, but excluding, the date of repurchase.

In connection with certain corporate events or if the Company issues a notice of redemption, it will, under certain circumstances, increase the conversion rate for holders who elect to convert their Convertible Notes in connection with such corporate events or during the relevant redemption period for such Convertible Notes.

At December 31, 2020, we had $2,431.6 million in aggregate principal amount of indebtedness, including $1,628.1 million outstanding under our Senior Secured Credit Facilities, $330.5 million outstanding under our Convertible Notes, $400.0 million outstanding under our 5.625% senior unsecured notes, and $73.0 million outstanding in other long-term obligations .

In February 2021, the Company entered into a financing arrangement providing the Company with upfront cash proceeds while permitting us to participate in future proceeds on certain claims.

The financing obligation has been classified as a non-current liability, which is expected to be settled in a future period of which the principal is contingent and predicated on other events.

Consistent with an obligor’s accounting under a debt instrument, period interest will be accreted using an effective interest rate of 27.0% and until such time that the claims and related obligation is settled.

The amount included in interest expense related to this obligation was $17.9 million for the year ended December 31, 2021.

On July 1, 2021, the Company completed an offering of $400.0 million aggregate principal amount of 4.125% Senior Unsecured Notes that mature on July 1, 2029 (the “4.125% Notes”).

The 4.125% Notes were issued at par and interest is payable semi-annually on January 1st and July 1st of each year.

The Company intends to use the proceeds from the 4.125% Notes for general purposes.

At December 31, 2021, we had $2.8 billion in aggregate principal amount of indebtedness, including $1.6 billion outstanding under our Senior Secured Credit Facilities, $330.5 million outstanding under our Convertible Notes, $400.0 million outstanding under our 5.625% senior unsecured notes, $400.0 million outstanding under our 4.125% Notes, and $146.3 million outstanding in other long-term obligations.

No amounts were drawn on our Revolving Credit Facility.

We have no debt maturing prior to 2023.

As of December 31, 2020 we had co nditional obligations under letters of credit issued pursuant to the Senior Secured Credit Facilities with face amounts aggregating to $28.2 million resulting in $671.8 million available borrowing capacity under our Revolving Credit Facility.

Our Senior Secured Credit Facilities and 5.625% Notes require us, among other obligations, to maintain specified financial ratios and to satisfy certain financial tests, including the Maximum Consolidated Total Net Leverage Ratio, Maximum Consolidated Senior Secured Net Leverage Ratio and Minimum Interest Coverage Ratio (as such terms are defined in our Amended 2017 Credit Agreement) as well as the Fixed Charge Coverage Ratio (as defined in the indenture governing our 5.625% Notes).

In addition, our Senior Secured Credit Facilities and 5.625% Notes restrict, among other things, our ability to incur additional indebtedness, incur guarantee obligations, amend debt instrument s, pay dividends, create liens on assets, make investments, engage in mergers or consolidations, and otherwise restrict corporate activities.

As of December 31, 2021 we had conditional obligations under letters of credit issued pursuant to the Senior Secured Credit Facilities with face amounts aggregating to $26.0 million resulting in $674.0 million available borrowing capacity under our Revolving Credit Facility.

Our Senior Secured Credit Facilities, 5.625% Notes and 4.125% Notes require us, among other obligations, to maintain specified financial ratios and to satisfy certain financial tests.

In addition, our Senior Secured Credit Facilities, 5.625% Notes and 4.125% Notes, restrict, among other things, our ability to incur additional indebtedness, incur guarantee obligations, amend debt instruments, pay dividends, create liens on assets, make investments, engage in mergers or consolidations, and otherwise restrict corporate activities.

Our debt agreements also contain customary events of default, including cross-default provisions that require us to meet certain requirements under the Penn Master Lease and the Pinnacle Master Lease (both of which are defined in Note 12, “Leases” to our Consolidated Financial Statements), each with GLPI.

If we are unable to meet our financial covenants or in the event of a cross-default, it could trigger an acceleration of payment terms.

As of December 31, 2021, the Company was in compliance with all required financial covenants.

When our covenant relief period ends, the Company is subject to and expects to be in compliance with all required financial covenants including ( i) Maximum Consolidated Total Net Leverage Ratio;

(ii) Maximum Consolidated Senior Secured Net Leverage Ratio;

and (iii) Minimum Interest Coverage Ratio (as discussed above) with the Company's submission of its compliance certificate for the quarter ending March 31, 2021.

See Note 11, “Long-term Debt,” in the notes to our Consolidated Financial Statements for additional information of the Company ’ s debt and other long-term obligations.

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All of the shares were issued at a public offering price of $61.00 per share, resulting in gross proceeds of $982.1 million, and net proceeds of $957.6 million after underwriter fees and discounts of $24.5 million.

Share Repurchase Program

On February 1, 2022, the Board of Directors of Penn National approved a $750.0 million share repurchase program.

The three year authorization expires on January 31, 2025.

Repurchases by the Company will be subject to available liquidity, general market and economic conditions, alternate uses for the capital and other factors.

Share repurchases may be made from

time to time through a 10b5-1 trading plan, open market transactions, block trades or in private transactions in accordance with applicable securities laws and regulations and other legal requirements.

There is no minimum number of shares that the Company is required to repurchase and the repurchase program may be suspended or discontinued at any time without prior notice.

During February 2022, the Company repurchased 2,195,290 shares of its common stock in open market transactions for $107.1 million at an average price of $48.78 per share.

The cost of all repurchased shares is recorded as “Treasury stock” in the Consolidated Balance Sheets.

The remaining availability under our $750.0 million share repurchase program was $642.9 million as of February 28, 2022.

Triple Net Leases

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the most significant of which are the Penn Master Lease and the Pinnacle Master Lease.

Subsequent to the adoption of ASC 842, the Company’s Master Leases are accounted for as either operating leases, finance leases, or determined to continue to be financing obligations.

Prior to the adoption of ASC 842, all components contained within the Master Leases were accounted for as financing obligations.

In addition, five of the gaming facilities used in our operations are subject to individual triple net leases.

As previously mentioned, we refer to the Penn Master Lease, the Pinnacle Master Lease, the Meadows Lease, the Margaritaville Lease, the Greektown Lease, the Tropicana Lease and the Morgantown Lease, collectively, as our Triple Net Leases.

The Company’s Master Leases are accounted for as either operating leases, finance leases, or financing obligations.

In addition, six of the gaming facilities used in our operations are subject to individual triple net leases.

We refer to the Penn Master Lease, the Pinnacle Master Lease, the Perryville Lease, the Meadows Lease, the Margaritaville Lease, the Greektown Lease, the Tropicana Lease and the Morgantown Lease, each of which is defined in Note 12, “Leases” to our Consolidated Financial Statements, collectively, as our “Triple Net Leases.”

Under our Triple Net Leases, in addition to lease payments for the real estate assets, we are required to pay the following, among other things:

(1) all facility maintenance;

(2) all insurance required in connection with the leased properties and the business conducted on the leased properties;

(3) taxes levied on or with respect to the leased properties (other than taxes on the income of the lessor);

(4) all tenant capital improvements;

and (5) all utilities and other services necessary or appropriate for the

leased properties and the business conducted on the leased properties.

As of December 31, 2020, we are required to make annual minimum rent payments of $814.6 million.

Additionally, our Triple Net Leases are subject to annual escalators and periodic percentage rent resets, as applicable.

(i) all facility maintenance;

(ii) all insurance required in connection with the leased properties and the business conducted on the leased properties;

(iii) taxes levied on or with respect to the leased properties (other than taxes on the income of the lessor);

(iv) all tenant capital improvements;

and (v) all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties.

As of December 31, 2021, we are required to make total annual minimum rent payments of $824.4 million, of which $806.2 million relates to our Triple Net Leases.

Additionally, our Triple Net Leases are subject to annual escalators, percentage rent, and rent resets, as applicable.

See Note 12, “Leases,” in the notes to our Consolidated Financial Statements for further discussion and disclosure related to the Company ’ s leases .

On January 14, 2022, the Penn Master Lease, the Pinnacle Master Lease, and the Meadows Lease between the Company and GLPI were amended.

Although, we concluded the amendments with respect to the Penn Master Lease and the Pinnacle Master Lease constitute a modification event under ASC 842, we do not expect the amendments to have a material impact on our future cash flows, however, the modification event will result in (i) a non-cash debt extinguishment charge recorded to our Consolidated Statements of Operations and corresponding change in our financing obligations on our Consolidated Balance Sheets;

and (ii) a revaluation of our lease right-of-use assets and corresponding lease liabilities on our Consolidated Balance Sheets.

Payments to our REIT Landlords under Triple Net Leases

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328.3 326.9 328.6

Perryville Lease 3.9 — —

Meadows Lease (1)

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Therefore, it has been excluded from the table above.

Share Repurchase Programs

In January 2019, the Company announced a share repurchase program pursuant to which the Board of Directors authorized the repurchase of up to $200.0 million of the Company’s common stock, which expired on December 31, 2020.

During the year ended December 31, 2019, the Company repurchased 1,271,823 shares of its common stock in open market transactions for $24.9 million at an average price of $19.55 per share.

All of the repurchased shares were retired.

There were no repurchases of the Company’s common stock for the year ended December 31, 2020 .

Other Contractual Cash Obligations

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(1) Excludes the liability for unrecognized tax benefits of $42.3 million, as we cannot reasonably estimate the period of cash settlement with the respective taxing authorities.

Additionally, it does not include an estimate of the payments associated with our contingent purchase price obligations of $7.3 million as it is not a fixed obligation.

Additionally, it does not include a total of $100.9 million related to the payments associated with our (i) contingent purchase price obligations;

and (ii) financing arrangement in which we received upfront cash proceeds permitting us to participate in future claims, as they are not fixed obligations.

Based on our current level of operations, we believe that cash generated from operations and cash on hand, together with amounts available under our Senior Secured Credit Facilities, will be adequate to meet our anticipated obligations under our Triple Net Leases, debt service requirements, capital expenditures and working capital needs for the foreseeable future.

However, our ability to generate sufficient cash flow from operations will depend on a range of economic, competitive and business factors, many of which are outside our control, including the impact of the COVID-19 pandemic.

We cannot be certain:

(i) of the impact of the operating restrictions to accommodate social distancing and health and safety guidelines on our properties;

(ii) of the magnitude and duration of the impact of the COVID-19 pandemic (including reoccurrences) on general economic conditions, capital markets, unemployment and our liquidity, operations, supply chain and personnel, including the potential that some or all of our properties may be forced to close or cease operations for a certain period of time;

(iii) that the U.S.

economy and our business will recover to levels that existed prior to the COVID-19 pandemic and on what time frame;

(iv) that our anticipated earnings projections will be realized;

(v) that we will achieve the expected synergies from our

acquisitions;

(vi) that future borrowings will be available under our Senior Secured Credit Facilities or otherwise will be available in the credit markets to enable us to service our indebtedness or to make anticipated capital expenditures.

We caution you that the trends seen at our reopened properties (e.g., higher spend per trip) may not continue.

In addition, while we anticipated that a significant amount of our future growth would come through the pursuit of opportunities within other distribution channels, such as retail and online sports betting, social gaming, retail gaming, and iGaming;

The extent to which the COVID-19 pandemic impacts our business operations in future periods will depend on multiple factors that cannot be accurately predicated at this time, such as the duration and scope of the pandemic, future spikes of COVID-19 infections (including the spread of variants or mutant strains, and the degree of transmissibility and severity thereof), the extent and effectiveness of containment actions such as operating restrictions at our properties, the disruption caused by such actions, and the impact of these and other factors on our team members, customers, partners and vendors.

If we are not able to respond to and manage the impact of such events effectively, our business will be harmed.

In addition, supply chain disruption and resulting inflationary pressures, a global labor shortage, the ebb and flow of COVID-19, including in specific North American geographies, and changes in economic policy could impact our outlook.

We caution you that the trends seen at our reopened properties, such as strong visitation and increased length of play, may not continue.

from acquisitions of gaming properties at reasonable valuations;

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and jurisdictional expansions and property expansion in under-penetrated markets;

there can be no assurance that this will be the case given the uncertainty arising from the COVID-19 pandemic.

there can be no assurance that this will be the case.

If we consummate significant acquisitions in the future or undertake any significant property expansions, our cash requirements may increase significantly and we may need to make additional borrowings or complete equity or debt financings to meet these requirements.

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We have historically maintained a capital structure comprised of a mix of equity and debt financing.

We vary our leverage to pursue opportunities in the marketplace in an effort to maximize our enterprise value for our shareholders.

We vary our leverage to pursue opportunities in the marketplace and in an effort to maximize our enterprise value for our shareholders.

We expect to meet our debt obligations as they come due through internally-generated funds from operations and/or refinancing them through the debt or equity markets prior to their maturity.

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Goodwill and other intangible assets

As of December 31, 2020, the Company had $1,157.1 million in goodwill and $1,513.5 million in other intangible assets within its Consolidated Balance Sheet, represen ting 7.9% and 10.3% of total assets, respectively.

The Company’s goodwill and other intangible assets are primarily the result of acquisitions of businesses and payments for gaming licenses.

As of December 31, 2021, the Company had $2.8 billion in goodwill and $1.9 billion in other intangible assets within its Consolidated Balance Sheet, represen ting 16.7% and 11.1% of total assets, respectively.

These intangible assets require significant management estimates and judgment pertaining to:

(i) the valuation in connection with initial purchase price allocations and (ii) the ongoing evaluation for impairment.

During the fourth quarter we performed our annual impairment analysis and the fair value of goodwill for all reporting units exceeded the carrying value by a substantial margin.

Therefore, none of our reporting units incurred any goodwill impairment charges as a result of the annual assessment.

In connection with the Company’s acquisitions, valuations are completed to determine the allocation of the purchase price.

The factors considered in the valuations include data gathered as a result of the Company’s due diligence in connection with the acquisitions, projections for future operations, and data obtained from third-party valuation specialists, as deemed appropriate.

Goodwill represents the future economic benefits of a business combination measured as the excess purchase price over the fair market value of net assets acquired.

Goodwill is tested annually, or more frequently if indicators of impairment exist.

Our annual goodwill and other indefinite-lived intangible assets impairment test is performed on October 1st of each year, or more frequently if indicators of impairment exist.

As a result of our test completed during the fourth quarter of 2021, we determined the fair value of goodwill and indefinite-lived intangible assets for all reporting units exceeded the carrying value.

Therefore, none of our reporting units incurred any impairment charges as a result of the annual assessment.

For the quantitative goodwill impairment test, an income approach, in which a discounted cash flow (“DCF”) model is utilized, and a market-based approach using guideline public company multiples of earnings before interest, taxes, depreciation, and amortization from the Company’s peer group are utilized in order to estimate the fair market value of the Company’s reporting units.

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If the carrying amounts of the indefinite-lived intangible assets exceed their fair value, an impairment loss is recognized.

We complete the testing of our indefinite-lived intangible assets prior to assessing our goodwill for impairment.

Our annual goodwill and other indefinite-lived intangible assets impairment test is performed on October 1 st of each year.

We assess the fair value of our gaming licenses using the Greenfield Method under the income approach, which estimates the fair value of the gaming license using a DCF model assuming we built a new casino with similar utility to that of the existing casino.

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• Estimated construction costs and duration;

• Pre-opening costs;

• Pre-opening expenses;

• Discounting that reflects the level of risk associated with receiving future cash flows attributable to the license.

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Future cash flow estimates are, by their nature, subjective and actual results may differ materially from the Company’s estimates.

If our ongoing estimates of future cash flows are not met, we may have to record additional impairment charges in future periods.

Our estimates of cash flows are based on the current regulatory and economic climates (including as a result of COVID-19), recent operating information and budgets of the various properties where it conducts operations.

If our ongoing estimates of future cash flows are not met, we may have to record impairment charges in future periods.

Our estimates of cash flows are based on the current regulatory and economic climates (including as a result of COVID-19), recent operating information and budgets of

the various properties where it conducts operations.

These estimates could be negatively impacted by changes in federal, state or local regulations, economic downturns, or other events affecting our properties.

Forecasted cash flows (based on our annual operating plan as determined in the fourth quarter) can be significantly impacted by the local economy in which our reporting units operate, as illustrated by the COVID-19 pandemic which caused temporary suspension of our operations pursuant to various orders from state gaming regulatory bodies or governmental authorities.

Increases in unemployment rates can also result in decreased customer visitations and/or lower customer spend per visit.

Increases in unemployment rates can also result in decreased customer visitation and/or lower customer spend per visit.

In addition, the impact of new legislation which approves gaming in nearby jurisdictions or further expands gaming in jurisdictions where our reporting units currently operate can result in opportunities for us to expand our operations.

However, it also has the impact of increasing competition for our established properties which generally will have a negative effect on those locations’ profitability once competitors become established as a certain level of cannibalization occurs absent an overall increase in customer visitations.

Additionally, increases in gaming taxes approved by state regulatory bodies can negatively impact forecasted cash flows.

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Circumstances include, for instance, temporary property closures as a result of COVID-19, changes in legislation that approves gaming in nearby jurisdictions, further expansion of gaming in jurisdictions where we currently operate, new state legislation that requires the implementation of smoking restrictions at our casinos or any other events outside of our control that make the customer experience less desirable.

During the first quarter of 2020, we identified an indicator of impairment as a result of the COVID-19 pandemic and recognized impairments on our goodwill, gaming licenses and trademarks, of $113.0 million, $437.0 million and $61.5 million, respectively.

Upon reopening of our gaming facilities and throughout the fourth quarter of 2020 we undertook various initiatives to mitigate the impact of regulatory restrictions imposed as a result of the COVID-19 pandemic.

We completed our annual assessment for impairment as of October 1, 2020, which did not result in any impairment charges to goodwill, gaming licenses and trademarks.

The Company completed its annual assessment for impairment as of October 1, 2021, which did not result in any impairment charges to goodwill, gaming licenses and trademarks.

See Note 9, “Goodwill and Other Intangible Assets,” in the notes to our Consolidated Financial Statements.

Reporting units with goodwill which were identified as having less than a substantial cushion, were subject to a sensitivity analysis to determine the potential impairment losses:

Amount of impairment loss

as a result of:

(dollars in millions) Carrying Amount Cushion Discount Rate

+100 bps Terminal Growth Rate -50 bps

Greektown $ 67.4 8.3 % $ 3.4 $ —

Business Combinations

In connection with the Company’s acquisitions, valuations are completed to determine the allocation of the purchase price.

We allocate the business combination purchase price to tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values.

The excess of the purchase price over those fair values is recorded as goodwill.

Accounting for business combinations required our management to make significant estimates and assumptions, including our estimate of intangible assets, such as gaming licenses, trade names, customer relationships and developed technology.

Although we believe the assumptions and estimates made have been reasonable and appropriate, they are inherently uncertain.

For our gaming license valuation, the estimated future cash flows of our properties were the primary assumption in the respective intangible valuations.

Cash flow estimates included assumptions regarding factors such as recent and budgeted

operating performance, net win per unit (revenue), patron visits and growth percentages.

The growth percentages were developed considering general macroeconomic conditions as well as competitive impacts from current and anticipated competition through a review of customer market data, operating margins, and current regulatory, social and economic climates.

The most significant of the assumptions used in the valuations included:

(1) revenue growth/decline percentages;

(2) discount rates;

(3) effective income tax rates;

(4) future terminal values;

and (5) capital expenditure assumptions.

These assumptions were developed for each acquired property based on historical trends in the current competitive markets in which they operate, and projections of future performance and competition.

Significant assumptions with respect to our tradenames and customer relationships were selecting the appropriate royalty rates and cost estimates for replacement cost analyses.

Acquired developed technology has been valued with either a relief-from-royalty method or a replacement cost approach.

Where a relief-from-royalty method was utilized, significant assumptions include projected revenues attributable to the asset, royalty rates, obsolescence factors, estimated synergies, and discount rates.

Where a replacement cost method was utilized, significant assumptions include estimated cost and time required to replace, opportunity cost over the replacement period, and estimated mark-up on development costs.

Under ASC Topic 740, “Income Taxes” (“ASC 740”), deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities and are measured at the prevailing enacted tax rates that will be in effect when these differences are settled or realized.

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Additionally, we expect to remain in a three year cumulative loss position in the near future.

As a result, the Company has recorded a valuation allowance against its net deferred tax assets, excluding assets that can be realized based on our ability to carry back losses to recoup taxes previously paid and excluding the reversal of deferred tax liabilities related to indefinite‑lived intangibles.

As a result, the Company has recorded a valuation allowance against its net deferred tax assets, excluding the reversal of deferred tax liabilities related to indefinite‑lived intangibles.

We intend to continue to maintain a valuation allowance on our net deferred tax assets until there is sufficient positive evidence to support the reversal of all or some portion of these allowances.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis