What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-03 compared with 2022-08-04 · 196 added, 161 removed, 335 unchanged (52% of the section changed)

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On August 4, 2022, Penn National Gaming, Inc.

was renamed PENN Entertainment, Inc., together with its subsidiaries (“PENN,” the “Company,” “we,” “our,” or “us”), is North America’s leading provider of integrated entertainment, sports content, and casino gaming experiences.

A member of the S&P 500 ® , PENN operates 44 properties in 20 states, online sports betting in 13 jurisdictions and iCasino in five, under a portfolio of well-recognized brands including Hollywood Casino ® , L'Auberge ® , Barstool Sportsbook ® , and theScore Bet ® .

PENN’s highly differentiated strategy, which is focused on organic cross-sell opportunities, is reinforced by its investments in owned technology, including a state-of-the-art media and betting platform and an in-house iCasino content studio.

The Company’s portfolio is further bolstered by its industry-leading my choice ® customer loyalty program (the “my choice program”), which offers its over 26 million members a unique set of rewards and experiences across business channels.

was renamed PENN Entertainment, Inc.

PENN Entertainment, Inc., together with its subsidiaries (“PENN,” the “Company,” “we,” “our,” or “us”), is North America’s leading provider of integrated entertainment, sports content, and casino gaming experiences.

PENN operates 43 properties in 20 states, online sports betting in 14 jurisdictions and iCasino in five jurisdictions, under a portfolio of well-recognized brands including Hollywood Casino ® , L’Auberge ® , Barstool Sportsbook ® , and theScore Bet Sportsbook and Casino ® .

PENN’s highly differentiated strategy, which is focused on organic cross-sell opportunities, is reinforced by its investments in market-leading retail casinos, sports media assets, technology, including a state-of-the-art, fully integrated digital sports and online casino betting platform, and an in-house iCasino content studio.

The Company’s portfolio is further bolstered by its industry-leading my choice ® customer loyalty program (the “my choice program”), which offers our approximately 26 million members a unique set of rewards and experiences across business channels.

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

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Recent Acquisitions, Development Projects and Other

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

(“Tropicana”) to GLPI in 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.

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

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

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.

On October 19, 2021, we acquired 100% of Score Media and Gaming, Inc.

(“theScore”) for a purchase price of approximately $2.1 billion.

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

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

(the “Purchaser”), an indirectly wholly owned subsidiary of PENN, acquired each of the issued and outstanding theScore shares (other than those held by PENN and its subsidiaries) for US$17.00 per share in cash consideration, totaling $0.9 billion, and either 0.2398 of a 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.

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

On January 11, 2022, PENN entered into a definitive purchase agreement to sell its outstanding equity interest in Tropicana Las Vegas Hotel and Casino, Inc.

(“Tropicana”), which has the gaming license and operates the Tropicana, to Bally’s Corporation.

The transaction closed on September 26, 2022.

On August 17, 2022, the Company exercised its call rights to bring its ownership of Barstool Sports Inc.

(“Barstool”) to 100%.

The acquisition of the remaining Barstool shares is expected to be completed in February 2023, after which Barstool will be a wholly-owned subsidiary of PENN.

Completion of the acquisition at that time is subject to the satisfaction of certain conditions, including regulatory approval.

Subsequent to quarter end, on October 9, 2022, as described in Note 9, “Leases,” in the notes to our unaudited Consolidated Financial Statements, the Company entered into a binding term sheet (the “Term Sheet”) with GLPI.

As part of the Term Sheet, PENN plans to relocate its riverboat casinos to new land-based facilities at Hollywood Casino Aurora (“Aurora”) and Hollywood Casino Joliet (“Joliet”), and to build a hotel at Hollywood Casino Columbus (“Columbus”) and a second hotel tower at the M Resort Spa Casino (“M Resort”).

Pursuant to the Term Sheet, the Company and GLPI agreed to amend the PENN Master Lease to (i) remove the land and buildings for Aurora, Joliet, Columbus, Hollywood Casino Toledo (“Toledo”) and M Resort and (ii) make associated adjustments to the rent under the PENN Master Lease;

(iii) terminate the existing leases associated with Hollywood Casino at The Meadows (“Meadows”) and Hollywood Casino Perryville (“Perryville”);

and (iv) enter into a new master lease (the “New Lease”), effective on the expected date of January 1, 2023, specific to the property associated with Aurora, Joliet, Columbus, Toledo, M Resort, Meadows and Perryville.

The New Lease will be cross-defaulted, cross-collateralized and coterminous with the PENN Master Lease, and subject to a parent guarantee.

The New Lease will include a base rent (the “New Lease Base Rent”) equal to $232.2 million and additional rent (together with the New Lease Base Rent, the “New Lease Rent”) equal to (i) 7.75% of any project funding received by PENN from GLPI for an anticipated relocation of PENN’s riverboat casino and related developments with respect to Aurora (the “Aurora Project”) and (ii) a percentage, based on then-current market conditions, of any project funding received by PENN from GLPI for certain anticipated development projects with respect to Joliet, Columbus and M Resort (the “Other Development Projects”).

GLPI will fund up to $225 million for the Aurora Project, and GLPI has committed to fund, upon PENN’s request, up to $350 million in the aggregate for the Other Development Projects, in accordance with certain terms and conditions set

forth in the Term Sheet.

The New Lease Rent will be subject to a one-time increase of $1.4 million, effective the fifth anniversary of the effective date.

The New Lease Rent will be further subject to a fixed escalator of 1.5% on November 1, 2023 and annually thereafter.

PENN may elect not to proceed with or to abandon any development project, provided that GLPI will be reimbursed for any out-of-pocket costs associated with an abandoned project.

The Aurora Project and the Other Development projects are all subject to necessary regulatory and other government approvals.

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, Inc.

(“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.

In addition, the partnership with Barstool and the acquisition of Score Media and Gaming, Inc.

(“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 expect that the majority of our future growth will come from new business lines or distribution channels, such as retail and online gaming and sports betting;

improvements, expansions or relocations of our existing properties;

entrance into new jurisdictions;

expansions of gaming in existing jurisdictions;

and, to a lesser extent, improvements/expansions of our existing properties and strategic acquisitions of gaming properties.

and strategic investments and acquisitions.

Our portfolio is comprised largely of well-maintained regional gaming facilities, which has allowed us to develop what we believe to be a solid base for future growth opportunities.

We continue to adjust operations and cost structures at our properties to reflect 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 grow 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.

We continue to adjust operations, offerings, and cost structures at our properties to reflect changing economic and health and safety conditions.

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

We seek to grow our customer database by partnering with third-party operators to expand our loyalty program, such as Choice Hotels International, Inc., as well as through accretive investments or acquisitions, such as Barstool and theScore, to capitalize on organic growth opportunities from the development of new properties or the expansion of recently-developed business lines, and to 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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and other forms of gaming in the U.S.

See the “Segment comparison of the three and six months ended June 30, 2022 and 2021” section below for discussions of the impact of competition on our results of operations by reportable segment.

See the “Segment comparison of the three and nine months ended September 30, 2022 and 2021” section below for discussions of the impact of competition on our results of operations by reportable segment.

Key Performance Indicators

In our business, revenue is driven by discretionary consumer spending.

We have no certain mechanism for determining why consumers choose to spend more or less money at our properties from period-to-period;

We have no certain mechanism for determining why consumers choose to spend more or less money at our properties or on our iGaming products from period-to-period;

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

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

For example, decreases in discretionary consumer spending have historically been brought about by weakened general economic conditions, such as lackluster recoveries from recessions, inflation, rising interest rate environments, high unemployment levels, higher income taxes, low levels of consumer confidence, weakness in the housing market, high fuel or other transportation costs, and the effects of the COVID-19 pandemic.

For example, decreases in discretionary consumer spending have historically been brought about by weakened general economic conditions, such as recessions, inflation, rising interest rate environments, high unemployment levels, higher income taxes, low levels of consumer confidence, weakness in the housing market, high fuel or other transportation costs, and the effects of the COVID-19 pandemic.

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

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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 83% and 85% of our gaming revenue for the six months ended June 30, 2022 and 2021) and, to a lesser extent, table games and sports betting.

Our gaming revenue is derived primarily from slot machines (which represented approximately 83% and 85% of our gaming revenue for the nine months ended September 30, 2022 and 2021, respectively) and, to a lesser extent, table games and sports betting.

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 operations.

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Therefore, changes in table game hold percentages do not typically have a material impact to our results of operations and cash flows.

Under normal operating conditions, our properties generate significant operating cash flow since most of our revenue is cash-based from slot machines, table games, and pari-mutuel wagering.

Under normal operating conditions, our properties generate significant operating cash flow since most of our revenue is cash-based from slot machines, table games, sports betting and pari-mutuel wagering.

Our business is capital intensive, and we rely on cash flow from our properties to generate sufficient cash to satisfy our obligations under the Triple Net Leases (as defined in “Liquidity and Capital Resources” ), repay debt, fund maintenance capital expenditures, repurchase our common stock, fund new capital projects at existing properties and provide excess cash for future development and acquisitions.

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Northeast, South, West, and Midwest.

Our Interactive segment includes all of our iCasino and online sports betting operations, management of retail sports betting, media, and our proportionate share of earnings attributable to our equity method investment in Barstool Sports.

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.

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

For the three months ended June 30, For the six months ended June 30,

For the three months ended September 30, For the nine months ended September 30,

2022 2021 2022 2021

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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 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., our individual triple net leases with GLPI for the real estate assets used in the operation of Tropicana and Hollywood Casino at Meadows Racetrack, and our individual triple net leases with VICI Properties Inc.

VICI) (“VICI”) for the real estate assets used in the operations of Margaritaville Casino Resort and

Hollywood Casino at Greektown (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”.

(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., our individual triple net leases with GLPI for the real estate assets used in the operation of Tropicana (terminated on September 26, 2022) and Hollywood Casino at The Meadows, and our individual triple net leases with VICI Properties Inc.

VICI) (“VICI”) for the real estate assets used in the operations of

Margaritaville Resort Casino and Hollywood Casino at Greektown (of which the Tropicana Lease, Meadows Lease, Margaritaville Lease and the Greektown Lease are defined in “Liquidity and Capital Resources” ) and are referred to collectively as our “triple net operating leases”.

As a result of the Lease Modification defined in Note 9, “Leases” to our unaudited Consolidated Financial Statements, the land and building components associated with the operations of Hollywood Gaming at Dayton Raceway and Hollywood Gaming at Mahoning Valley Race Course are classified as operating leases which is recorded to rent expense, as compared to prior to the Lease Modification, whereby the land components of substantially all of the Master Lease properties were classified as operating leases and recorded to rent expense.

Subsequent to the Lease Modification, the land components associated with the properties are primarily classified as finance leases.

Consolidated comparison of the three and six months ended June 30, 2022 and 2021.

Subsequent to the Lease Modification, the land components associated with the Master Lease properties are primarily classified as finance leases.

Consolidated comparison of the three and nine months ended September 30, 2022 and 2021

The following table presents our consolidated revenues:

For the three months ended June 30, Change For the six months ended June 30, Change

For the three months ended September 30, Change For the nine months ended September 30, Change

(dollars in millions) 2022 2021 $ % 2022 2021 $ %

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Total revenues $ 1,625.0 $ 1,511.8 $ 113.2 7.5 % $ 4,816.1 $ 4,332.5 $ 483.6 11.2 %

Gaming revenues for the three months ended June 30, 2022 increased $20.1 million compared to the prior year period primarily due to increases in our Interactive segment and the inclusion of the operating results of three new properties, partially offset by decreases in gaming revenues in our South segment and Northeast segment properties in both current and prior year periods.

Gaming revenues include 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.

Gaming revenues for the six months ended June 30, 2022 increased $229.3 million compared to the prior year corresponding period, primarily due to increases in our Interactive segment resulting from continued growth in our online and sports betting revenues, as well as the inclusion of the operating results of three new properties discussed above.

Food, beverage, hotel and other revenues for the three and six months ended June 30, 2022 increased $61.0 million and $141.1 million, respectively, compared to the prior year corresponding periods, primarily due to easing of restrictions, strong visitation levels among all age groups, and increased offerings and hours of operations, as well as the inclusion of the operating results from our three new properties as discussed above, and revenues from theScore, which was acquired on October 19, 2021.

During the prior year periods, food, beverage, hotel and other revenues were negatively impacted as our properties operated within locally-restricted gaming capacity and limited food and beverage, hotel capacity, and other amenity offerings .

See “Segment comparison of the three and six months ended June 30, 2022 and 2021” below for more detailed explanations of the fluctuations in revenues.

Gaming revenues for the three months ended September 30, 2022 increased $61.3 million compared to the prior year period, primarily due to increases in our Interactive segment resulting from continued growth in our online revenues, partially due to the acquisition of theScore on October 19, 2021, and the inclusion of the full quarter operating results of two new properties:

Hollywood Casino York, which opened August 12, 2021, and Hollywood Casino Morgantown, which opened December 22, 2021.

For the nine months ended September 30, 2022, gaming revenues increased by $290.6 million primarily due to increases in our Interactive segment resulting from continued growth in our online revenues, partially due to the acquisition of theScore, the inclusion of the full period operating results of three new properties, including Hollywood Casino Perryville, which was acquired on July 1, 2021, Hollywood Casino York, and Hollywood Casino Morgantown, and increases in gaming revenues in most of our properties i n the West and Midwest segments, partially offset by decreases in gaming revenues in our Northeast segment properties primarily related to our Ameristar East Chicago property due to increased competition in the Indiana region.

Food, beverage, hotel and other revenues for the three and nine months ended September 30, 2022 increased $51.9 million and $193.0 million, respectively, compared to the prior year corresponding periods, primarily due to increases in gaming tax reimbursement amounts charged to third-party partners for online sports betting and iCasino market access, the inclusion of the operating results from our new properties as discussed above, and revenues from theScore, as well as the impact of easing of restrictions, strong visitation levels to our food and beverage outlets, and increased offerings and hours of operations from the prior periods .

See “Segment comparison of the three and nine months ended September 30, 2022 and 2021” below for more detailed explanations of the fluctuations in revenues.

Operating expenses

The following table presents our consolidated operating expenses:

For the three months ended June 30, Change For the six months ended June 30, Change

For the three months ended September 30, Change For the nine months ended September 30, Change

(dollars in millions) 2022 2021 $ % 2022 2021 $ %

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Depreciation and amortization 148.7 83.7 65.0 77.7 % 417.2 246.9 170.3 69.0 %

Impairment losses 104.6 — 104.6 — % 104.6 — 104.6 — %

Total operating expenses $ 1,488.3 $ 1,272.7 $ 215.6 16.9 % $ 4,085.0 $ 3,499.0 $ 586.0 16.7 %

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

Gaming expenses for the three and six months ended June 30, 2022 increased $92.7 million and $251.5 million, respectively, compared to the prior year corresponding periods, p rimarily due to an increase in gaming taxes resulting from the increase in gaming revenues, higher payroll expenses related to volume increases in addition to variable marketing and promotional expenses, which remain below pre-pandemic levels.

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.

Fo od, beverage, hotel and other expenses for the three and six months ended June 30, 2022 increased $38.2 million and $87.0 million, respectively, compared to the prior year corresponding periods, primarily due to increased volumes as we operated with increased offerings and extended hours of operations, which resulted in increases in payroll expenses and cost of sales.

The prior year periods were impacted by reduced hotel capacity and limited food and beverage options .

Gaming expenses consist primarily of gaming taxes, payroll, marketing and promotional, and other expenses associated with our gaming operations.

Gaming expenses for the three and nine months ended September 30, 2022 increased $105.5 million and $357.0 million, respectively, compared to the prior year corresponding periods, primarily due to higher third-party service provider fees from higher online gaming activity, higher payroll expenses, and an increase in gaming taxes resulting from the increase in gaming revenue s.

Also included in gaming expenses are non-recurring transaction costs of $26.0 million for both the three and nine months ended September 30, 2022 , related to third-party contract termination fees as we execute on our strategy to deploy our internally built technology stack, consisting of a player account management system and proprietary risk and trading platform, specific to the Interactive segment.

Additionally, the nine months ended September 30, 2022 includes increased variable marketing and promotional expenses compared to the pri or period.

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

Fo od, beverage, hotel and other expenses for the three and nine months ended September 30, 2022 increased $39.1 million and $126.1 million, respectively, compared to the prior year corresponding periods, primarily due to increased volumes, which resulted in increases in payroll expenses and cost of sales, and increases in gaming tax reimbursement amounts charged to third-party partners for online sports betting and iCasino market access.

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.

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and rent expense associated with our triple net operating leases.

For the three and six months ended June 30, 2022, general and administrative expenses decreased by $42.7 million and $73.4 million respectively, primarily due to a decrease in rent costs associated with our Master Leases of $88.5 million and $138.8 million respectively, representing changes in lease classifications from operating to finance as a result of the Lease Modification as described in Note 9, “Leases” to our unaudited Consolidated Financial Statements.

The decrease was offset by increased payroll costs of $13.3 million and $33.0 million, and increased facility costs due to increased volumes of $10.4 million and $23.8 million, in each respective period.

In addition, general and administrative expenses include a $6.4 million loss on the sale of land for the three and six months ended June 30, 2022.

Depreciation and amortization for the three and six months ended June 30, 2022 increased period over period primarily due to increased amortization costs associated with our Master Leases of $46.7 million and $76.9 million, respectively, representing changes in lease classifications from operating to finance as a result of the Lease Modification as described in Note 9, “Leases” to our unaudited Consolidated Financial Statements.

In addition, for the three and six months ended June 30, 2022, amortization on other intangible assets increased by $12.4 million and $25.2 million respectively, primarily due to the amortization of other intangible assets held by theScore.

For the three and nine months ended September 30, 2022, general and administrative expenses decreased by $98.6 million and $172.0 million, respectively, primarily due to a decrease in rent costs associated with our Master Leases of $84.5 million and $223.3 million, respectively, representing changes in lease classifications from operating to finance as a result of the Lease Modification as described in Note 9, “Leases” to our unaudited Consolidated Financial Statements.

For the nine months ended September 30, 2022, the decrease was partially offset by increased payroll costs of $35.4 million, which reflect the current operating environment, a $12.4 million increase in facility costs due to increased volumes, and a $6.4 million loss on the sale of land.

Depreciation and amortization for the three and nine months ended September 30, 2022 increased period over period primarily due to increased amortization costs associated with our Master Leases of $46.8 million and $123.7 million, respectively, representing changes in lease classifications from operating to finance as a result of the Lease Modification as described in Note 9, “Leases” to our unaudited Consolidated Financial Statements.

In addition, for the three and nine months ended September 30, 2022, amortization on other intangible assets increased by $12.3 million and $37.5 million, respectively, primarily due to the amortization of other intangible assets that resulted from our acquisition of theScore.

Impairment losses for both the three and nine months ended September 30, 2022 primarily relate to impairment charges at our Hollywood Casino at Greektown property for goodwill and other intangible assets of $37.4 million and $65.4 million, respectively, as a result of an interim impairment assessment during the third quarter of 2022.

See Note 7, “Goodwill and Other Intangible Assets” to our unaudited Consolidated Financial Statements for further discussion.

There were no impairment losses during the three and nine months ended September 30, 2021.

Other income (expenses)

The following table presents our consolidated other income (expenses):

For the three months ended June 30, Change For the six months ended June 30, Change

For the three months ended September 30, Change For the nine months ended September 30, Change

(dollars in millions) 2022 2021 $ % 2022 2021 $ %

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Other $ (8.8) $ 19.2 $ (28.0) N/M $ (77.7) $ 43.1 $ (120.8) N/M

Income tax expense $ (56.3) $ (53.1) $ (3.2) 6.0 % $ (103.9) $ (73.7) $ (30.2) 41.0 %

Income tax benefit (expense) $ 182.0 $ (36.4) $ 218.4 N/M $ 78.1 $ (110.1) $ 188.2 N/M

N/M - Not meaningful

Interest expense, net increased for the three and six months ended June 30, 2022 as compared to the prior year corresponding periods, primarily due to a net increase in Master Lease interest costs due to changes in lease classifications as a result of the Lease Modification as described in Note 9, “Leases” to our unaudited Consolidated Financial Statements of $51.9 million and $74.7 million respectively.

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

The decrease for the three and six months ended June 30, 2022, compared to the prior year corresponding periods, is due to lower income earned from our investments in unconsolidated affiliates.

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

Other primarily relates to realized and unrealized gains and losses on equity securities (including warrants), held by PENN Interactive, losses on early retirement of debt, unrealized gains and losses related to certain Barstool Sports shares as well as miscellaneous income and expense items.

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

For the three m onths ended June 30, 2022, other income primarily consisted of unrealized holding losses of $16.9 million as well as a $10.4 million loss on the early extinguishment of debt in connection with refinancing our Senior Secured Credit Facilities, as described in “Liquidity and Capital Resources.” For the three m onths ended June 30, 2021 , other income primarily consisted of unrealized holding losses of $7.4 million, offset by a $5.8 million unrealized gain related to certain Barstool Sports shares and other miscellaneous income.

For the six months ended June 30, 2022, other income primarily consisted of unrealized holding losses of $55.6 million on equity shares, as well as the loss on the early extinguishment of debt described above, compared to an unrealized holding gain on equity shares (including warrants) of $18.8 million for the six months ended June 30, 2021 .

Income tax expense was a $56.3 million and $103.9 million expense for the three and six months ended June 30, 2022, respectively, as compared to a $53.1 million and $73.7 million expense for the three and six months ended June 30, 2021.

Our effective tax rate (income taxes as a percentage of income from operations before income taxes) including discrete items was 68.3% and 57.2% for the three and six months ended June 30, 2022 as compared to 21.1% and 20.3% for the three and six months ended June 30, 2021 , respectively.

The change in the effective rate for the six months ended June 30, 2022 as compared to the prior year period was primarily due to the decrease in income before taxes as well as an increase in the valuation allowance attributed to the Lease Modification.

Interest expense, net increased for the three and nine months ended September 30, 2022 as compared to the prior year corresponding periods, primarily due to a net increase in Master Lease interest costs due to changes in lease classifications as a result of the Lease Modification as described in Note 9, “Leases” to our unaudited Consolidated Financial Statements of $49.0 million and $123.7 million, respectively.

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

The decrease for the three and nine months ended September 30, 2022, compared to the prior year corresponding periods, is due to lower income earned from our investments in unconsolidated affiliates.

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

Other primarily relates to realized and unrealized gains and losses on equity securities (including warrants), held by PENN Interactive, losses on early retirement of debt, unrealized gains and losses related to certain Barstool shares as well as miscellaneous income and expense items.

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

For the three m onths ended September 30, 2022, other income primarily consisted of unrealized holding losses of $10.8 million.

For the three m onths ended September 30, 2021 , other income primarily consisted of a realized loss of $20.1 million offset by an unrealized holding gain of $10.1 million, and 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.

For the nine months ended September 30, 2022, other income primarily consisted of unrealized holding losses of $66.4 million on equity shares, as well as a $10.4 million loss on the early extinguishment of debt in connection with refinancing our Senior Secured Credit Facilities, as described in “Liquidity and Capital Resources.” For the nine months ended September 30, 2021, other income primarily consisted of a realized loss of $20.1 million offset by an unrealized holding gain of $28.9 million, and a $29.9 million gain related to our investment in Sam Houston and Valley Race Parks as previously described.

Income tax benefit (expense) was a $182.0 million and $78.1 million benefit for the three and nine months ended September 30, 2022, respectively, as compared to a $36.4 million and $110.1 million expense for the three and nine months ended September 30, 2021, respectively.

Our effective tax rate (income taxes as a percentage of income from operations before income taxes) including discrete items was 226.7% and (62.9%) for the three and nine months ended September 30, 2022 as compared to 29.7% and 22.7% for the three and nine months ended September 30, 2021 , respectively.

The change in the effective rate for both the three and nine months ended September 30, 2022 as compared to the prior year corresponding periods was primarily due to the decreases to income before taxes and the release of our valuation allowance.

The reversal of our valuation allowance during the three and nine m onths ended September 30, 2022 was primarily due to (i) sustained growth in our three-year cumulative pretax earnings;

(ii) substantial total revenues and earnings growth for the retail operating segment measured over prior periods, and (iii) lack of significant asset impairment charges.

Accordingly, the valuation allowance has been reduced by $172.7 million resulting in a substantial decrease to income tax expense for the three and nine months ended September 30, 2022.

See Note 11, “Income Taxes” to our unaudited Consolidated Financial Statements for further discussion.

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.

Segment comparison of the three and six months ended June 30, 2022 and 2021

Segment comparison of the three and nine months ended September 30, 2022 and 2021

Northeast Segment

For the three months ended June 30, Change For the six months ended June 30, Change

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(dollars in millions) 2022 2021 $ % 2022 2021 $ %

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Adjusted EBITDAR margin 31.8 % 32.9 % -110 bps 31.4 % 34.1 % -270 bps

The Nort heast segment’s revenues for the three months ended June 30, 2022 increased by $32.4 million over the prior year corresponding period, primarily due to the inclusion of operating results from our three new properties:

Hollywood Casino Perryville, Hollywood Casino York, and Hollywood Casino Morgantown.

The revenue increases resulting from the inclusion of our new properties were partially offset by decreases in gaming revenues in our properties with operations in both current and prior year periods.

Additionally, operating results at our Ameristar East Chicago property were negatively impacted by increased competition as a new property opened in Northern Indiana in May of 2021.

The Nort heast segment’s revenues for the six months ended June 30, 2022 increased by $120.0 million over the prior year corresponding period, primarily due to the inclusion of operating results from our three new properties, as discussed above, and increases in food, beverage, hotel and other revenues as we operated with increased offerings and extended hours of operations, partially offset by decreases in gaming revenues in our properties with operations in both current and prior year periods.

During the prior year periods, our Nort heast segment’s operating results were negatively impacted as our properties operated within locally-restricted gaming capacity and limited food and beverage and other amenity offerings .

The Nort heast segment’s revenues for the three months ended September 30, 2022 increased by $13.0 million over the prior year period, primarily due to inclusion of full quarter operating results of two new properties:

Hollywood Casino York, which opened August 12, 2021, and Hollywood Casino Morgantown, which opened December 22, 2021, partially offset by a decrease in total revenues at our Ameristar East Chicago property due to increased competition in the Indiana region.

The Nort heast segment’s revenues for the nine months ended September 30, 2022 increased by $133.0 million over the prior year period, primarily due to the inclusion of the operating results of the two new properties discussed above as well as the inclusion of Perryville, which was acquired on July 1, 2021.

In addition, food, beverage, hotel and other revenues increased as we operated with increased offerings and extended hours of operations, and were partially offset by a decrease in gaming revenues at our Ameristar East Chicago property mentioned above.

For the nine months ended September 30, 2021, our Nort heast segment’s operating results were negatively impacted as our properties operated within locally-restricted gaming capacity and limited food and beverage and other amenity offerings .

Additionally, our Pennsylvania properties were temporarily closed for three days in January 2021, due to COVID-19 restrictions.

For the three months ended June 30, 2022, the Northeast segment’s Adjusted EBITDAR decreased $17.2 million, and Ad justed EBITDAR margin decreased to 31.3%, primarily due to increased variable marketing and promotional, and payroll expenses associated with hotel and food and beverage offerings not available in the prior year period.

For the six months ended June 30, 2022, the Northeast segment’s Adjusted EBITDAR decreased $5.2 million, primarily due to increased variable marketing and promotional, and payroll expenses associated with hotel and food and beverage offerings not available in the prior year period , resulting in an Adjusted EBITDAR margin of 31.2%.

For the three months ended September 30, 2022, the Northeast segment’s Adjusted EBITDAR decreased $3.2 million, and Ad justed EBITDAR margin decreased to 31.8%, primarily due to additional payroll costs.

For the nine months ended September 30, 2022, the Northeast segment’s Adjusted EBITDAR decreased $8.4 million, primarily due to increased gaming taxes, variable marketing and promotional expenses, which remain below pre-pandemic levels, and payroll expenses , resulting in an Adjusted EBITDAR margin of 31.4%.

South Segment

For the three months ended June 30, Change For the six months ended June 30, Change

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(dollars in millions) 2022 2021 $ % 2022 2021 $ %

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Adjusted EBITDAR margin 42.4 % 43.1 % -70 bps 42.6 % 45.6 % -300 bps

The South segment’s revenues for the three months ended June 30, 2022 decreased by $29.6 million from the prior year period, primarily due to strong visitation levels and customer spend in the prior period.

Revenues for the six months ended June 30, 2022 increased by $15.9 million from the prior year period, primarily due to strong visitation levels among all age groups, increased length of play, and increased spend per guest during the first quarter of 2022.

For the three months ended June 30, 2022, the South segment’s Adjusted EBITDAR decreased $33.8 million and Adjusted EBITDAR margin decreased to 42.3% primarily due to the decrease in gaming revenues, increased variable marketing and promotional expenses, which remain below pre-pandemic levels, and increased payroll expenses as we reopened outlets and offered additional amenities such as banquets, conferences, and new restaurants.

For the six months ended June 30, 2022, the South segment’s Adjusted EBITDAR decreased $21.2 million and Adjusted EBITDAR margin decreased to 42.6% primarily due to higher variable marketing and promotional expenses, which remain below pre-pandemic levels, in addition to higher payroll expenses associated with hotel and food and beverage offerings not available in the prior year period .

For the three months ended June 30, Change For the six months ended June 30, Change

The South segment’s revenues for the three months ended September 30, 2022 increased by $11.6 million from the prior year period, primarily due to the negative impact of temporary closures during the hurricane season for the three months ended September 30, 2021.

Revenues for the nine months ended September 30, 2022 increased by $27.5 million from the prior year period, primarily due to strong visitation levels to our food and beverage outlets, and increased spend per guest during the first quarter of 2022.

For the three months ended September 30, 2022, the South segment’s Adjusted EBITDAR of $139.9 million and Adjusted EBITDAR margin of 42.4% remained relatively unchanged compared to the prior year quarter.

F or the nine months ended September 30, 2022, the South segment’s Adjusted EBITDAR decreased $18.3 million and Adjusted EBITDAR margin decreased to 42.6% primarily due to higher payroll expenses associated with hotel and food and beverage offerings and higher variable marketing and promotional expenses in previous quarters, which remain below pre-pandemic levels.

For the three months ended September 30, Change For the nine months ended September 30, Change

(dollars in millions) 2022 2021 $ % 2022 2021 $ %

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Adjusted EBITDAR margin 38.7 % 37.4 % 130 bps 38.0 % 39.5 % -150 bps

The West segment’s revenues for the three and six months ended June 30, 2022 increased by $13.4 million and $57.7 million over the prior year corresponding periods, primarily due to increases in food, beverage, hotel and other revenues due to the easing of restrictions and strong visitation levels at our Zia Park, Tropicana, and M Resort properties.

During the three and six months ended June 30, 2021, our West segment’s operating results were negatively impacted by the temporary closure of our Zia Park property due to the COVID-19 pandemic, which remained closed until March 5, 2021 and for an additional thirteen days in April of 2021.

Additionally, during the prior year periods, our properties in the West segment operated within locally restricted gaming and hotel capac ity and limited food and beverage and other amenities offerings.

For the three months ended June 30, 2022, the West segment’s Adjusted EBITDAR decreased $1.7 million and Adjusted EBITDAR margin decreased to 38.8%, primarily due to higher payroll expenses related to volume increases in addition to variable marketing and promotional expenses, which remain below pre-pandemic levels.

For the six months ended June 30, 2022, the West segment’s Adjusted EBITDAR increased $14.3 million primarily due to increases in gaming and non gaming revenues as described above, offset by higher payroll expenses related to volume increases in addition to higher variable marketing and promotional expenses, which remain below pre-pandemic levels, reflected in Adjusted EBITDAR margin, which decreased by 320 basis points to 37.6%.

The West segment’s revenues for the three months ended September 30, 2022 increased by $10.8 million over the prior year period, primarily due to increased spend per guest.

Revenues for the nine months ended September 30, 2022 increased by $68.5 million over the prior year period, primarily due to increased visitation.

During the nine months ended September 30, 2021, our West segment’s operating results were negatively impacted by the temporary closure of our Zia Park property due to the COVID-19 pandemic, which remained closed until March 5, 2021 and for an additional thirteen days in April of 2021, and our properties operated within locally restricted gaming and hotel capac ity and limited food and beverage and other amenities offerings.

For the three months ended September 30, 2022, the West segment’s Adjusted EBITDAR increased $6.0 million and Adjusted EBITDAR margin increased to 38.7%, primarily due to increases in gaming and non gaming revenues from the prior year quarter.

For the nine months ended September 30, 2022, the West segment’s Adjusted EBITDAR increased $20.3 million primarily due to increases in gaming and non gaming revenues, offset by higher payroll expenses related to volume increases and higher variable marketing and promotional expenses, which remain below pre-pandemic levels, reflected in Adjusted EBITDAR margin, which decreased by 150 basis points to 38.0%.

Midwest Segment

For the three months ended June 30, Change For the six months ended June 30, Change

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(dollars in millions) 2022 2021 $ % 2022 2021 $ %

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Adjusted EBITDAR margin 43.4 % 44.0 % -60 bps 44.0 % 45.9 % -190 bps

The Midwest segment’s revenues for the three months ended June 30, 2022 increased slightly compared to the prior year quarter.

The Midwest segment’s revenues for the six months ended June 30, 2022 increased by $49.7 million over the prior year corresponding period, due to strong operating results in the first quarter of 2022, resulting from easing of restrictions, strong visitation levels among all age groups, increased length of play and increased spend per guest.

During the prior year periods, our Midwest segment’s operating results were negatively impacted as our properties operated within locally-restricted gaming capacity and limited food and beverage and other amenity offerings .

Additionally, our Illinois properties were temporarily closed for periods between fifteen and twenty-two days in January 2021, due to COVID-19 restrictions.

For the three months ended June 30, 2022, the Midwest segment’s Adjusted EBITDAR decreased $10.9 million and Adjusted EBITDAR margin decreased to 44.3% , primarily due to the decrease in gaming revenues, increased variable marketing and promotional expenses, which remain below pre-pandemic levels in addition to higher payroll expenses associated with hotel and food and beverage offerings not available in the prior year period.

For the six months ended June 30, 2022, the Midwest segment’s Adjusted EBITDAR increased $8.6 million primarily due to increases in gaming and non gaming revenues as discussed above, offset by higher payroll expenses related to volume increases in addition to higher variable marketing and promotional expenses, which remain below pre-pandemic levels , reflected in Adjusted EBITDAR margin, which decreased by 260 basis points to 44.3%.

The Midwest segment’s revenues for the three months ended September 30, 2022 increased by $12.7 million over the prior year period.

The Midwest segment’s revenues for the nine months ended September 30, 2022 increased by $62.4 million over the prior year period, due to increased length of play and increased spend per guest, particularly at table games.

During the nine months ended September 30, 2021, our Midwest segment’s operating results were negatively impacted as our properties operated within locally-restricted gaming capacity and limited food and beverage and other amenity offerings .

Additionally, our

Illinois properties were temporarily closed for periods between fifteen and twenty-two days in January 2021, due to COVID-19 restrictions.

For the three months ended September 30, 2022, the Midwest segment’s Adjusted EBITDAR increased $3.6 million primarily due to increased gaming and non gaming revenues, partially offset by higher payroll expenses, reflected in A djusted EBITDAR margin, which decreased by 60 basis points to 43.4%.

For the nine months ended September 30, 2022, the Midwest segment’s Adjusted EBITDAR increased $12.2 million primarily due to increases in gaming and non gaming revenues, offset by higher payroll expenses and higher variable marketing and promotional expenses, which remain below pre-pandemic levels , reflected in Adjusted EBITDAR margin, which decreased by 190 basis points to 44.0%.

Interactive Segment

For the three months ended June 30, Change For the six months ended June 30, Change

For the three months ended September 30, Change For the nine months ended September 30, Change

(dollars in millions) 2022 2021 $ % 2022 2021 $ %

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Total revenues $ 158.7 $ 93.0 $ 65.7 70.6 % $ 455.1 $ 275.3 $ 179.8 65.3 %

Adjusted EBITDAR $ (20.8) $ 1.2 $ (22.0) N/M $ (30.8) $ 2.5 $ (33.3) N/M

Adjusted EBITDAR margin (13.4) % 1.3 % N/M (10.4) % 1.4 % N/M

N/M - Not meaningful

The Interactive segment’s revenues for the three and six months ended June 30, 2022 increased by $58.9 million and $114.1 million over the prior year corresponding periods, primarily due to continued increases in online activity with the launch of theScore Bet in Ontario and the Barstool Sportsbook in additional states, as well as the inclusion of revenues from theScore,

which was acquired on October 19, 2021.

Additionally, revenues are inclusive of a tax gross-up of $55.4 million and $105.7 million for the three and six months ended June 30, 2022, respectively, compared to $46.0 and $85.5 million for the three and six months ended June 30, 2021, respectively.

For the three and six months ended June 30, 2022, the Interactive segment’s Adjusted EBITDAR and Adjusted EBITDAR margin decreased primarily due to increased expenses related to ramping and launching theScore Bet in Ontario and the Barstool Sportsbook in additional states, and the inclusion of theScore financial results, as indicated above.

For the three months ended June 30, Change For the six months ended June 30, Change

Adjusted EBITDAR $ (49.3) $ (32.0) $ (17.3) 54.1 % $ (80.1) $ (29.5) $ (50.6) 171.5 %

Adjusted EBITDAR margin (31.1) % (34.4) % 330 bps (17.6) % (10.7) % -690 bps

The Interactive segment’s revenues for the three and nine months ended September 30, 2022 increased by $65.7 million and $179.8 million, respectively, over the prior year corresponding periods, primarily due to continued increases in online activity with the launch of theScore Bet Sportsbook and Casino in Ontario and the Barstool Sportsbook in additional states, as well as the inclusion of revenues from theScore, which was acquired on October 19, 2021.

Additionally, revenues are inclusive of a tax gross-up of $63.0 million and $168.7 million for the three and nine months ended September 30, 2022, respectively, compared to $44.0 million and $129.5 million for the three and nine months ended September 30, 2021, respectively.

For the three months ended September 30, 2022, the Interactive segment’s Adjusted EBITDAR decreased primarily due to increased expenses associated with the launch of online sports betting in Kansas, as well as increased expenses due to increased marketing initiatives related to our first football season in the Ontario and Louisiana markets.

For the three months ended September 30, 2022, Adjusted EBITDAR margin increased due to revenues increasing at a higher rate than expenses.

For the nine months ended September 30, 2022, the Interactive segment’s Adjusted EBITDAR and Adjusted EBITDAR margin decreased primarily due to increased expenses related to ramping and launching theScore Bet Sportsbook and Casino in Ontario and the Barstool Sportsbook in additional states.

For the three months ended September 30, Change For the nine months ended September 30, Change

(dollars in millions) 2022 2021 $ % 2022 2021 $ %

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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 for the three and six months ended June 30, 2022, have increased as compared to the prior ye ar corresponding periods, primarily due to the acquisition of Sam Houston, the remaining 50% of which was acquired on August 1, 2021.

Adjusted EBITDAR increased by $3.5 million and $2.4 million for the three and six months ended June 30, 2022 respectively, as compared to the prior year corresponding periods, primarily due to changes in corporate overhead costs, which are reflective of the current operating environment.

Revenues for the three and nine months ended September 30, 2022 have increased as compared to the prior ye ar corresponding periods, primarily due to the acquisition of Sam Houston, the remaining 50% of which was acquired on August 1, 2021.

Changes in Adjusted EBITDAR for the three and nine months ended September 30, 2022 primarily relate to changes in corporate overhead costs, which are reflective of the current operating environment.

Non-GAAP Financial Measures

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and our Kansas Entertainment, LLC joint venture.

GLPI) (“GLPI”) and the triple net master lease assumed in connection with our acquisition of Pinnacle Entertainment, Inc., our individual triple net leases with GLPI for the real estate assets used in the operation of Tropicana Las Vegas Hotel and Casino, Inc.

and Hollywood Casino at Meadows Racetrack, and our individual triple net leases with VICI Properties Inc.

VICI) (“VICI”) for the real estate assets used in the operations of Margaritaville Casino Resort and Hollywood Casino at Greektown).

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., our individual triple net leases with GLPI for the real estate assets used in the operation of Tropicana Las Vegas Hotel and Casino (terminated on September 26, 2022), Inc.

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

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

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

We present Adjusted EBITDA because it is used by some investors and creditors as an

indicator of the strength and performance of ongoing business operations, including our ability to service debt, and to fund capital expenditures, acquisitions and operations.

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.

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The following table includes a reconciliation of net income, which is determined in accordance with GAAP, to Adjusted EBITDA and Adjusted EBITDAR, which are non-GAAP financial measures, as well as related margins:

For the three months ended June 30, For the six months ended June 30,

For the three months ended September 30, For the nine months ended September 30,

(dollars in millions) 2022 2021 2022 2021

Net income $ 123.2 $ 86.1 $ 200.9 $ 375.7

Income tax expense 56.3 53.1 103.9 73.7

Income tax (benefit) expense (182.0) 36.4 (78.1) 110.1

Income from unconsolidated affiliates (6.6) (9.1) (17.1) (27.8)

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Depreciation and amortization 148.7 83.7 417.2 246.9

Impairment losses (4)

104.6 — 104.6 —

Insurance recoveries, net of deductible charges (1)

(1.9) — (10.7) —

Income from unconsolidated affiliates 6.6 9.1 17.1 27.8

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

(4) Consists principally of interest expense, net, income taxes, depreciation and amortization, and stock-based compensation expense associated with Barstool Sports and our Kansas Entertainment joint venture.

We record our portion of Barstool Sports’ net income or loss, including adjustments to arrive at Adjusted EBITDAR, one quarter in arrears.

(4) Amount primarily relates to a $102.8 million impairment charge in the Northeast segment.

(5) Consists principally of interest expense, net, income taxes, depreciation and amortization, and stock-based compensation expense associated with Barstool and our Kansas Entertainment joint venture.

We record our portion of Barstool’s net income or loss, including adjustments to arrive at Adjusted EBITDAR, one quarter in arrears.

(6) Consists of non-recurring acquisition and transaction costs, and finance transformation costs associated with the implementation of our new Enterprise Resource Management system.

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Our ongoing liquidity will depend on a number of factors, including available cash resources, cash flow from operations, acquisitions or investments, funding of construction for development projects, and our compliance with covenants contained under our debt agreements.

For the six months ended June 30, Change

For the nine months ended September 30, Change

(dollars in millions) 2022 2021 $ %

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Trends in our operating cash flows tend to follow trends in operating income, excluding non-cash charges, but can be affected by changes in working capital, the timing of significant interest payments, tax payments or refunds, and distributions from unconsolidated affiliates.

Net cash provided by operating activities decreased by $68.2 million for the six months ended June 30, 2022, primarily due to an increase in cash paid for income taxes and a negative impact in changes in working capital related to gaming taxes and other gaming liabilities and payroll related liabilities.

Net cash provided by operating activities decreased by $19.0 million for the nine months ended September 30, 2022, primarily due to a negative impact in changes in working capital related to gaming taxes and other gaming liabilities and payroll related liabilities, partially offset by a decrease in cash paid for taxes.

Investing Cash Flow

Cash used in investing activities for the six months ended June 30, 2022 of $113.7 million is primarily due to capital expenditures of $125.6 million and the acquisition of a $15.0 million cost method investment, offset by insurance proceeds received for losses incurred due to Hurricane Laura in 2020.

For the six months ended June 30, 2021, cash used in investing activities of $99.1 million was primarily due to capital expenditures and consideration paid for gaming licenses and other intangible assets.

Cash used in investing activities for the nine months ended September 30, 2022 of $180.0 million is primarily due to capital expenditures of $189.6 million and the acquisition of a $15.0 million cost method investment, offset by insurance proceeds received for losses incurred due to Hurricane Laura in 2020.

For the nine months ended September 30, 2021, cash used in investing activities of $269.5 million was primarily due to the acquisitions of HitPoint, Perryville, and the remaining 50% interest of Sam Houston, purchases of gaming licenses, and capital expenditures.

Capital Expenditures

Capital expenditures are accounted for as either project capital (new facilities or expansions) or maintenance (replacement) capital expenditures.

Cash provided by operating activities, as well as cash available under our Amended Revolving Credit Facility and Revolving Facility, was available to fund our capital expenditures for six months ended June 30, 2022 and 2021, respectively.

Capital expenditures for the six months ended June 30, 2022 and 2021 were $125.6 million and $64.6 million, respectively.

Capital expenditures related to our York and Morgantown development project were $13.3 million and $25.6 million for the six months ended June 30, 2022 and 2021, respectively.

During the six months ended June 30, 2022, capital expenditures also included $17.8 million in construction costs related to hurricane damage sustained at our Lake Charles property of which insurance proceeds were previously received.

F or the year ending December 31, 2022, our anticipated capital expenditures are approximately $300 million, which includes capital expenditures required under our Triple Net Leases, which require us to spend a specified percentage of net revenues.

Capital expenditures are accounted for as either project capital (new facilities, expansions or return generating growth projects) or maintenance (replacement) capital expenditures.

Cash provided by operating activities, as well as cash available under our Amended Revolving Credit Facility and Revolving Facility, was available to fund our capital expenditures for the nine months ended September 30, 2022 and 2021, respectively.

Capital expenditures for the nine months ended September 30, 2022 and 2021 were $189.6 million and $137.8 million, respectively.

Capital expenditures related to our York and Morgantown development projects were $15.2 million and $46.6 million for the nine months ended September 30, 2022 and 2021, respectively.

During the nine months ended September 30, 2022 , capital expenditures also included $20.8 million in construction costs related to hurricane damage sustained at our Lake Charles property of which insurance proceeds were previously received.

For the year ending December 31, 2022, our anticipated capital expenditures are approximately $300 million, which include capital expenditures of $189.6 million incurred for the nine months ended September 30, 2022 and capital expenditures required under our Triple Net Leases, which require us to spend a specified percentage of net revenues.

Financing Cash Flow

For the six months ended June 30, 2022, net cash used in financing activities totaled $477.3 million, primarily related to $342.1 million common stock repurchases, net debt repayments of $18.7 million, $18.2 million in debt issuance costs, and $85.4 million in principal payments on our finance leases and finance obligations.

During the six months ended June 30, 2021, cash provided by financing activities of $18.8 million was primarily due to net cash proceeds of $72.5 million from other long-term obligations, offset by principal payments on long-term debt and principal payments on our finance leases and finance obligations .

For the nine months ended September 30, 2022, net cash used in financing activities totaled $705.2 million, primarily related to $510.1 million common stock repurchases, net debt repayments of $28.1 million, $18.2 million in debt issuance costs, and $129.4 million in principal payments on our finance leases and finance obligations.

During the nine months ended September 30, 2021, cash provided by financing activities of $375.2 million was primarily due to net cash proceeds of $400.0 million related to the issuance of our 4.125% Notes due 2029.

Borrowings and Repayments of Long-term Debt

On May 3, 2022, the Company entered into a Second Amended and Restated Credit Agreement with its various lenders (the “Second Amended and Restated Credit Agreement”).

The Second Amended and Restated Credit Agreement provides for a $1.0 billion revolving credit facility, undrawn at close, (the “Amended Revolving Credit Facility”), a five-year $550.0 million term loan A facility (the “Amended Term Loan A Facility”) and a seven-year $1.0 billion term loan B facility (the “Amended Term Loan B Facility”) facilities (together, the “Amended Credit Facilities”).

The proceeds from the Amended Credit Facilities were used to repay the existing Term Loan A Facility and Term Loan B-1 Facility balances.

At June 30, 2022, we had $2.8 billion in aggregate principal amount of indebtedness, including $1.6 billion outstanding under our Amended Credit Facilities, $400.0 million outstanding under our 5.625% senior unsecured notes, $400.0 million outstanding under our 4.125% senior unsecured notes, $330.5 million outstanding under our 2.75% Convertible Notes due 2026, and $150.1 million outstanding in other long-term obligations.

At September 30, 2022, we had $2.8 billion in aggregate principal amount of indebtedness, including $1.5 billion outstanding under our Amended Credit Facilities, $400.0 million outstanding under our 5.625% senior unsecured notes, $400.0 million outstanding under our 4.125% senior unsecured notes, $330.5 million outstanding under our 2.75% Convertible Notes, and $157.2 million outstanding in other long-term obligations.

No amounts were drawn on our Amended Revolving Credit Facility.

After the refinancing of our Senior Secured Credit Facilities discussed above, we have no debt maturing prior to 2026.

As of June 30, 2022 we had conditional obligations under letters of credit issued pursuant to the Amended Credit Facilities with face amounts aggregating to $25.4 million resulting in $974.6 million available borrowing capacity under our Amended Revolving Credit Facility.

As of September 30, 2022 we had conditional obligations under letters of credit issued pursuant to the Amended Credit Facilities with face amounts aggregating to $22.7 million resulting in $977.3 million available borrowing capacity under our Amended Revolving Credit Facility.

Our Amended 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.

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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 June 30, 2022, the Company was in compliance with all required financial covenants.

As of September 30, 2022, the Company was in compliance with all required financial covenants.

The Company believes that it will remain in compliance with all of its required financial covenants for at least the next twelve months following the date of filing this Quarterly Report on Form 10-Q with the SEC.

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

During the three months ended June 30, 2022, the Company repurchased 5,539,177 shares of its common stock in open market transactions for $167.0 million at an average price of $30.16 per share.

During the six months ended June 30, 2022, the Company repurchased 9,341,585 shares of its common stock in open market transactions for $342.1 million at an average price of $36.62 per share.

During the three months ended September 30, 2022, the Company repurchased 5,348,809 shares of its common stock in open market transactions for $168.0 million at an average price of $31.40 per share.

During the nine months ended September 30, 2022, the Company repurchased 14,690,394 shares of its common stock in open market transactions for $510.1 million at an average price of $34.72 per share.

The cost of all repurchased shares is recorded as “Treasury stock” within our unaudited Consolidated Balance Sheets.

Subsequent to the quarter ended June 30, 2022, the Company repurchased 3,019,790 million shares of its common stock at an average price of $31.46 per share for an aggregate amount of $95.0 million.

The remaining availability under our $750.0 million share repurchase authorization was $313.1 million as of August 3, 2022.

Subsequent to the quarter ended September 30, 2022, the Company repurchased 1,005,188 million shares of its common stock at an average price of $28.95 per share for an aggregate amount of $29.1 million.

The remaining availability under our $750.0 million share repurchase authorization was $211.1 million as of November 2, 2022.

On August 17, 2022, the Company exercised its call rights to bring its ownership of Barstool to 100%.

The acquisition of the remaining Barstool shares, which can be settled in cash or a combination of cash and equity at PENN’s election, is expected

to be completed in February 2023, after which Barstool will be a wholly-owned subsidiary of PENN.

Completion of the acquisition at that time is subject to the satisfaction of certain conditions, including regulatory approval.

See Note 10, “Investments in and Advances to Unconsolidated Affiliates,” in the notes to our unaudited Consolidated Financial Statements for further discussion.

Triple Net Leases

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

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, collectively, as our Triple Net Leases.

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 (terminated September 26, 2022) and the Morgantown Lease, collectively, as our Triple Net Leases.

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

Subsequent to quarter end, on October 9, 2022, as described in Note 9, “Leases,” in the notes to our unaudited Consolidated Financial Statements, the Company entered into the Term Sheet with GLPI.

Pursuant to the Term Sheet, the Company and GLPI agreed to amend the PENN Master Lease to (i) remove the land and buildings for Aurora, Joliet, Columbus, Toledo, and M Resort and (ii) make associated adjustments to the rent under the PENN Master Lease;

(iii) terminate the existing leases associated with Meadows and Perryville;

and (iv) enter into the New Lease, effective on the expected date of January 1, 2023, specific to the property associated with Aurora, Joliet, Columbus, Toledo, M Resort, Meadows and Perryville.

The New Lease will be cross-defaulted, cross-collateralized and coterminous with the PENN Master Lease, and subject to a parent guarantee.

The New Lease will include New Lease Base Rent equal to $232.2 million and additional rent equal to (i) 7.75% of any project funding received by PENN from GLPI for the Aurora Project and (ii) a percentage, based on then-current market conditions, of any project funding received by PENN from GLPI for the Other Development Projects.

The New Lease Rent will be subject to a one-time increase of $1.4 million, effective the fifth anniversary of the effective date.

The New Lease Rent will be further subject to a fixed escalator of 1.5% on November 1, 2023 and annually thereafter.

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:

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Total payments made to our REIT Landlords, GLPI and VICI, were as follows:

For the three months ended June 30, For the six months ended June 30,

For the three months ended September 30, For the nine months ended September 30,

(in millions) 2022 2021 2022 2021

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$ 232.0 $ 228.5 $ 693.1 $ 683.6

(1) Rent payable under the Tropicana Lease is nominal.

(1) Rent payable under the Tropicana Lease was nominal prior to termination on September 26, 2022.

Therefore, this lease has been excluded from the table above.

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greenfield projects;

development projects;

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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A complete discussion of our critical accounting estimates is included in our Form 10-K for the year ended December 31, 2021.

There have been no significant changes in our critical accounting estimates during the six months ended June 30, 2022.

With the exception of the table below, which provides updated sensitivity on the impairment of goodwill and the gaming license at Hollywood Casino at Greektown, as discussed in Note 7, “Goodwill and Other Intangible Assets,” and the income tax valuation allowance discussion below, there have been no significant changes in our critical accounting estimates during the nine months ended September 30, 2022.

Increase (decrease) in the Recorded Amount of Impairment Loss as a Result of:

(in millions) Carrying Amount Discount Rate

+100 bps Terminal Growth Rate -50 bps

Hollywood Casino at Greektown $ 67.4 $ 0.4 $ (0.1)

Gaming licenses

Hollywood Casino at Greektown $ 166.4 $ 14.0 $ 1.0

As of September 30, 2022, the Company determined that a valuation allowance was no longer required against its federal, foreign, and state net deferred tax assets for the portion that will be realized, as discussed in detail in Note 11, “Income Taxes” .

As a result, the Company released $172.7 million of its total valuation allowance during the three and nine months ended September 30, 2022, due to the positive evidence outweighing the negative evidence thereby allowing the Company to achieve the “more-likely-than-not” realization standard.

The most significant positive evidence that led to the reversal of the valuation allowance during this interim period included the achievement and sustained growth in our three-year cumulative pretax earnings, substantial total revenue and earnings for the retail operating segment growth over the last seven quarters, and a lack of significant asset impairment charges expected for the Company’s retail business operations or projections for the foreseeable future.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

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This Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

These statements can be identified by the use of forward-looking terminology such as “expects,” “believes,” “estimates,” “projects,” “intends,” “plans,” “goal,” “seeks,” “may,” “will,” “should,” or “anticipates” or the negative or other variations of these or similar words, or by discussions of future events, strategies or risks and uncertainties.

These statements can be identified using forward-looking terminology such as “expects,” “believes,” “estimates,” “projects,” “intends,” “plans,” “goal,” “seeks,” “may,” “will,” “should,” or “anticipates” or the negative or other variations of these or similar words, or by discussions of future events, strategies or risks and uncertainties.

Specifically, forward-looking statements include, but are not limited to, statements regarding:

the Company’s expectations of, and guidance regarding, future results of operations and financial condition, the assumptions provided regarding the guidance, including the scale and timing of the Company’s product and technology investments;

the Company’s expectations of future results of operations and financial condition, the assumptions provided regarding the guidance, including the scale and timing of the Company’s product and technology investments;

the Company’s anticipated share repurchases;

the Company’s expectations with regard to results, and the impact of competition, in online sports betting, iGaming and retail/mobile sportsbooks;

the Company’s launch of its Interactive segment’s products in new jurisdictions and enhancements to existing Interactive segment products, including the integration of the Barstool Sportsbook into theScore mobile app in the U.S., and the migration of the Barstool Sportsbook to theScore’s player account management trading platforms;

the Company’s expectations with regard to its future investments in Barstool Sports and the future success of its products;

the Company’s expectations with respect to the integration and synergies related to the Company’s integration of theScore and Barstool Sports;

the Company’s expectations with respect to the ongoing introduction and the potential benefits of the cashless, cardless and contactless (“3Cs”) technology;

the Company's development projects;

the Company’s expectations regarding results, and the impact of competition, in retail/mobile/online sportsbooks, iGaming and land-based operations;

the Company’s development and launch of its Interactive segment’s products in new jurisdictions and enhancements to existing Interactive segment products, including content for the Barstool and theScore Bet iCasino apps and the migration of the Barstool Sportsbook into both our player account management system and risk and trading platforms;

the Company’s expectations regarding its future investments and the future success of its products;

the Company’s expectations with respect to the integration and synergies related to the Company’s acquisition of Barstool Sports;

the continued growth and monetization of the Company’s media business;

the Company’s expectations with respect to the ongoing introduction and the potential benefits of the cashless, cardless and contactless (3C’s) technology;

the Company’s development projects, including the recently-announced prospective development projects at Hollywood Casinos Aurora, Joliet, Columbus, and the M Resort;

our ability to obtain financing for our development projects on attractive terms;

and the timing, cost and expected impact of planned capital expenditures on the Company’s results of operations.

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Such factors include:

the effects of economic conditions and market conditions in the markets in which the Company operates;

the effects of economic and market conditions in the markets in which the Company operates;

competition with other entertainment, sports content, and casino gaming experiences;

the timing, cost and expected impact of product and technology investments;

the timing, cost and expected

impact of product and technology investments;

risks relating to international operations, permits, licenses, financings, approvals and other contingencies in connection with growth in new or existing jurisdictions;

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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-Q

Item 2. Management’s Discussion and Analysis