What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-04 compared with 2022-11-03 · 229 added, 235 removed, 296 unchanged (61% of the section changed)

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EXECUTIVE OVERVIEW

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

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.

As of March 31, 2023, PENN operated 43 properties in 20 states, online sports betting in 17 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®.

In 2023, PENN completed its acquisition of Barstool Sports, Inc.

(“Barstool”).

Barstool’s vast audience, combined with the reach and highly engaged user base of Score Media and Gaming Inc.

(“theScore”), provide us with a significant digital footprint and growing customer ecosystem.

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

The Company’s portfolio is further bolstered by its industry-leading PENN Play TM customer loyalty program (the “PENN Play program”), which offers our approximately 27 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;

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 AR PENN Master Lease, 2023 Master Lease, PENN Master Lease (prior to January 1, 2023), and 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”).

Recent Acquisitions, Development Projects and Other

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.

On February 17, 2023, we acquired the remaining 64% of the outstanding shares of Barstool common stock not already owned by us for a consideration of approximately $405.5 million, which is inclusive of cash and common stock issuance, repayment of Barstool indebtedness of $23.8 million, transaction expenses and other purchase price adjustments in accordance with GAAP (the “Barstool Acquisition”).

Prior to the acquisition, we held a 36% ownership interest, which was accounted for under the equity method.

At the closing of the Barstool Acquisition, we obtained 100% of the Barstool common stock of which the fair value of Barstool was determined to be $660.0 million based on market participant assumptions.

Upon the completion of the Barstool Acquisition, Barstool became an indirect wholly owned subsidiary of PENN.

The acquisition provides us with a greater ability to execute our organic cross-sell strategy through Barstool’s resources, audience, and strong brand recognition.

We issued 2,442,809 shares of our common stock to certain former stockholders of Barstool for the Barstool Acquisition (see Note 13, “Stockholders’ Equity and Stock-Based Compensation” in the notes to our unaudited Consolidated Financial Statements for further information) and utilized $315.3 million of cash to complete the Barstool Acquisition, inclusive of transaction expenses and repayment of Barstool indebtedness.

See Note 6, “Acquisition s ” in the notes to our unaudited Consolidated Financial Statements for further discussion.

On February 21, 2023, as described in “Liquidity and Capital Resources” , the Company and GLPI entered into an agreement to amend and restate the PENN Master Lease (the “AR PENN Master Lease”), effective January 1, 2023, to (i) remove the land and buildings for Hollywood Casino Aurora (“Aurora”), Hollywood Casino Joliet (“Joliet”), Hollywood Casino Columbus (“Columbus”), Hollywood Casino Toledo (“Toledo”), and the M Resort Spa Casino (“M Resort”), and (ii) make associated adjustments to the rent after which the initial rent in the AR PENN Master Lease will be $284.1 million, consisting of $208.2 million of building base rent, $43.0 million of land base rent and $32.9 million of percentage rent (as such terms are defined in the AR PENN Master Lease).

Subsequent to the execution of the AR PENN Master Lease, the Company leases real estate assets associated with 14 of the gaming facilities used in its operations via a triple net master lease.

The current term of the AR PENN Master Lease expires on October 31, 2033 and thereafter contains three renewal terms of five years each on the same terms and conditions, exercisable at the Company’s option.

Concurrent with the execution of the AR PENN Master Lease, the Company and GLPI entered into a new master lease (the “2023 Master Lease”), effective January 1, 2023, specific to the properties associated with Aurora, Joliet, Columbus, Toledo, M Resort, Hollywood Casino at The Meadows (“Meadows”) and Hollywood Casino Perryville (“Perryville”) and a master development agreement (the “Master Development Agreement”).

The 2023 Master Lease has an initial term through October 31, 2033 with three subsequent five-year renewal periods on the same terms and conditions, exercisable at the Company’s option.

The 2023 Master Lease terminated the individual triple net leases associated with Meadows and Perryville.

The 2023 Master Lease and AR PENN Master Lease are cross-defaulted, cross-collateralized, and coterminous, and subject to a parent guarantee.

The 2023 Master Lease includes a base rent (the “2023 Master Lease Base Rent”) equal to $232.2 million and the Master Development Agreement contains additional rent (together with the 2023 Master Lease Base Rent, the “2023 Master Lease Rent”) equal to (i) 7.75% of any project funding received by PENN from GLPI for an anticipated relocation of PENN’s riverboat casino and related developments with respect to Aurora (the “Aurora Project”) and (ii) a percentage, based on the then-current GLPI stock price, of any project funding received by PENN from GLPI for certain anticipated development projects with respect to Joliet, Columbus, and M Resort (the “Other Development Projects”).

The Master Development Agreement provides that GLPI will fund, upon PENN’s request, up to $225 million for the Aurora Project and up to $350 million in the aggregate for the Other Development Projects, in accordance with certain terms and conditions set forth in the Master Development Agreement.

These funding obligations of GLPI expire on January 1, 2026.

The 2023 Master Lease Rent will be subject to a one-time increase of $1.4 million, effective November 1, 2027.

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

The Master Development Agreement provides that PENN may elect not to proceed with a development project prior to GLPI’s commencement of any equity or debt offering or credit facility draw intended to fund such a project or after such time in certain instances, provided that GLPI will be reimbursed for all costs and expenses incurred in connection with such discontinued project.

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

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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 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.

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

Operating and Competitive Environment

Most of our properties operate in mature, competitive markets.

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

We expect the majority of our future growth to come from cross-sell opportunities between our retail casino, online sports betting and online gaming businesses, and new distribution channels within the advertising and commerce spaces;

improvements, expansions or relocations of our existing properties;

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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, 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.

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

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

We seek to grow our customer database and loyalty program through the development of new properties and/or the expansion of recently-developed business lines as well as through partnerships with third-party operators, such as Live Nation Entertainment and Choice Hotels International, Inc.

Acquisitions such as Barstool and theScore enable us to further our omnichannel strategy by adding additional revenue streams and customer acquisition.

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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video lottery;

“iGaming” (which includes online sports betting and online social casino, bingo, and iCasino products);

iCasino and social casino;

online and retail sports betting;

sports media companies;

gaming at taverns;

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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;

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

and other forms of gaming in the U.S.

See the “Segment comparison of the 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.

See the “Segment comparison of the three months ended March 31 , 2023 and 202 2 ” section below for discussions of the impact of competition on our results of operations by reportable segment.

Key Performance Indicators

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

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

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

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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 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.

Our gaming revenue is derived primarily from slot machines (which represented approximately 84% and 81% of our gaming revenue for the three months ended March 31, 2023 and 2022, respectively) and, to a lesser extent, table games and online gaming consisting of online slots, online table games, and online sports betting.

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

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

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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, sports betting 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, and online gaming, including sports betting.

Our business is capital intensive, and we rely on cash flow from our properties to generate sufficient cash to satisfy our obligations under the Triple Net Leases (as defined in “Liquidity and Capital Resources” ), repay debt, fund maintenance capital expenditures, 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.

The Interactive segment includes all of our online sports betting, iCasino and social gaming operations, management of retail sports betting, media, and the operating results of Barstool (the remaining 64% of Barstool common stock, not already owned by PENN, was acquired on February 17, 2023).

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 September 30, For the nine months ended September 30,

2022 2021 2022 2021

For the three months ended March 31,

Northeast segment $ 700.5 $ 658.5

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Interactive segment 233.5 141.5

4.2 3.5 17.4 6.8

Intersegment eliminations (2)

(8.0) (6.7) (23.8) (25.6)

Total $ 1,673.3 $ 1,564.2

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(27.3) (23.7)

471.9 480.3 1,471.1 1,513.9

Rent expense associated with triple net operating leases (4)

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19.9 % 27.8 %

(1) The Other category consists of the Company’s stand-alone racing operations, namely Sanford-Orlando Kennel Club, and Sam Houston and Valley Race Parks (the remaining 50% was acquired by PENN on August 1, 2021), the Company’s joint venture interests in Freehold Raceway, and our management contract for Retama Park Racetrack.

(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 Company’s joint venture interests in Freehold Raceway, and our management contract for Retama Park Racetrack.

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.

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

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

(2) Primarily represents the elimination of intersegment revenues associated with our 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 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 Master Lease properties are primarily classified as finance leases.

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

(4) For the three months ended March 31, 2023, pertains to the following operating leases:

(i) AR PENN Master Lease;

(ii) 2023 Master Lease;

(iii) Margaritaville Lease;

and (iv) Greektown Lease.

For the three months ended March 31, 2022, pertains to the operating lease components contained within the (i) PENN Master Lease (specific to the land and building components associated with the operations of Hollywood Gaming at Dayton Raceway and Hollywood Casino at Mahoning Valley Race Course);

(ii) Meadows Lease;

(iii) Margaritaville Lease;

(iv) Greektown Lease;

and (v) Tropicana Lease (which terminated on September 26, 2022).

Consolidated comparison of the three months ended March 31, 2023 and 2022

The following table presents our consolidated revenues:

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

For the three months ended March 31, Change

(dollars in millions) 2023 2022 $ %

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Total revenues $ 1,673.3 $ 1,564.2 $ 109.1 7.0 %

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.

Gaming revenues for the three months ended March 31, 2023 increased $33.4 million compared to the prior year period, primarily due to increases in our Interactive segment resulting from continued growth in our online revenues.

Food, beverage, hotel, and other revenues for the three months ended March 31, 2023 increased $75.7 million compared to the prior year period, primarily due to increases in gaming tax reimbursement amounts charged to third-party online sports betting and/or iCasino partners for online sports betting and iCasino market access, as well as the inclusion of 100% of the operating results of Barstool subsequent to the Barstool Acquisition on February 17, 2023 .

See “Segment comparison of the three months ended Ma r ch 31, 2023 and 202 2 ” 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 September 30, Change For the nine months ended September 30, Change

For the three months ended March 31, Change

(dollars in millions) 2023 2022 $ %

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Depreciation and amortization 107.5 118.2 (10.7) (9.1) %

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

Total operating expenses $ 1,474.2 $ 1,272.2 $ 202.0 15.9 %

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.

Gaming expenses for the three months ended March 31, 2023 increased $42.9 million compared to the prior year period, 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.

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, which is inclusive of media.

Fo od, beverage, hotel, and other expenses for the three months ended March 31, 2023 increased $72.4 million compared to the prior year period, primarily due to increased volumes of visitors, which resulted in increases in payroll expenses and cost of sales, and increases in gaming tax reimbursement amounts charged to third-party online sports betting and/or iCasino partners for online sports betting and iCasino market access, as well as the inclusion of operating expenses related to Barstool subsequent to the Barstool Acquisition on February 17, 2023.

General and administrative expenses include items such as compliance, facility maintenance, utilities, property and liability insurance, surveillance and security, and lobbying expenses, 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;

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and rent expense associated with our triple net operating leases.

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.

For the three months ended March 31, 2023, general and administrative expenses increased by $97.4 million compared to the prior year period, primarily due to an increase in rent expense associated with triple net operating leases of $85.9 million stemming from the execution on February 21, 2023 of both the AR PENN Master Lease and 2023 Master Lease.

The impact of these aforementioned lease transactions resulted in the classification of all land components and building components to be operating leases of which the associated rent expense is recorded to “General and Administrative” as described in Note 9, “Leases” to our unaudited Consolidated Financial Statements.

Depreciation and amortization for the three months ended March 31, 2023 decreased $10.7 million compared to the prior year period, primarily due to a $10.4 million decrease in amortization costs stemming from the execution on February 21, 2023 of both the AR PENN Master Lease and 2023 Master Lease.

Prior to the execution of the aforementioned lease transactions, primarily all of the land components contained within the PENN Master Lease and the land and building components contained within the Perryville Lease (as defined in “Liquidity and Capital Resources” ) were classified as finance leases of which amortization of the lease right-of-use assets (“ROU”) were recorded to “Depreciation and Amortization” expense.

The impact of these aforementioned lease transactions resulted in the classification of all land components and building components associated with the AR PENN Master Lease to be operating leases with the associated rent expense recorded to “General and Administrative” as described in Note 9, “Leases” to our unaudited Consolidated Financial Statements.

Other income (expenses)

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

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

For the three months ended March 31, Change

(dollars in millions) 2023 2022 $ %

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Interest expense, net $ (113.0) $ (161.3) $ 48.3 (29.9) %

Interest income $ 10.4 $ 0.5 $ 9.9 1,980.0 %

Income from unconsolidated affiliates $ 2.6 $ 8.7 $ (6.1) (70.1) %

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

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

Gain on Barstool Acquisition, net $ 83.4 $ — $ 83.4 N/M

Gain on REIT transactions, net $ 500.8 $ — $ 500.8 N/M

Other $ (1.0) $ (40.7) $ 39.7 (97.5) %

Income tax expense $ (167.9) $ (47.6) $ (120.3) 252.7 %

N/M - Not meaningful

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.

Interest expense, net decreased by $48.3 million for the three months ended March 31, 2023 as compared to the prior year period, primarily due to a net decrease in Master Lease interest costs due to changes in lease classifications as a result of the amendment of the PENN Master Lease, as described in “Liquidity and Capital Resources” , of $65.1 million, partially offset by an increase in interest expense on our Senior Secured Credit Facilities of $16.2 million, related to an overall increase in interest rates.

Interest income increased by $9.9 million for the three months ended March 31, 2023 as compared to the prior year period, primarily due to executing on our short term investing strategy utilizing money market funds which commenced during the year ended December 31, 2022.

Income from unconsolidated affiliates relates principally to our investment in Barstool (prior to the Barstool Acquisition on February 17, 2023) and our Kansas Entertainment and Freehold Raceway joint ventures.

The $6.1 million decrease for the three months ended March 31, 2023, compared to the prior year period, is due to a lower income earned from our investments in unconsolidated affiliates and only including income from Barstool from January 1, 2023 through February 16, 2023.

Gain on Barstool Acquisition, net relates to the gain on our acquisition of all the outstanding shares of Barstool common stock not already owned by us on February 17, 2023 as described in Note 6, “Acquisition s ” in the notes to our unaudited Consolidated Financial Statements.

The gain consists of $66.5 million related to the remeasurement of our equity investment immediately prior to the acquisition date and $16.9 million related to the acquisition of the remaining 64% of Barstool common stock.

Gain on REIT transactions, net relates to the amendment and restatement of the PENN Master Lease which resulted in the (i) derecognition of $1.6 billion of financing obligations and (ii) derecognition of $1.1 billion of Property and Equipment, net.

In conjunction with entering into the 2023 Master Lease, the individual triple net leases associated with the Meadows Lease (as such terms are defined in “Liquidity and Capital Resources” ) and the Perryville Lease (as such terms are defined in “Liquidity and Capital Resources” ) were terminated which resulted in a $6.5 million loss from the derecognition of ROU assets and lease

See Note 9, “Leases” to our unaudited Consolidated Financial Statements for additional details on both of these transactions.

Other primarily relates to realized and unrealized gains and losses on equity securities, held by PENN Interactive, unrealized gains and losses related to certain Barstool shares (prior to the Barstool Acquisition on February 17, 2023) 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.

For the three m onths ended March 31, 2023, other income primarily consisted of an unrealized holding loss of $3.2 million compared to an unrealized holding loss of $38.7 million for the three m onths ended March 31, 2022.

Income tax expense was $167.9 million for the three months ended March 31, 2023, compared to $47.6 million for the three months ended March 31, 2022.

Our effective tax rate (income taxes as a percentage of income from operations before income taxes) including discrete items was 23.8% for the three months ended March 31, 2023 as compared to 48.0% for the three months ended March 31, 2022 .

The change in the effective rate for the three months ended March 31, 2023 as compared to the prior year period was primarily due to the increase in pre-tax income.

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 nine months ended September 30, 2022 and 2021

Segment comparison of the three months ended March 31, 2023 and 2022

Northeast Segment

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

For the three months ended March 31, Change

(dollars in millions) 2023 2022 $ %

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Adjusted EBITDAR $ 212.9 $ 205.2 $ 7.7 3.8 %

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 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 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%.

Adjusted EBITDAR margin 30.4 % 31.2 % -80 bps

The Nort heast segment’s revenues for the three months ended March 31, 2023 increased by $42.0 million over the prior year period, primarily due to an increase in visitation at the Northeast segment’s properties’ casinos, hotels and food and beverage outlets, partially offset by a decrease in total revenues at our Hollywood Casino Lawrenceburg property due to increased competition in the tri-state region.

For the three months ended March 31, 2023, the Northeast segment’s Adjusted EBITDAR increased $7.7 million, and Ad justed EBITDAR margin decreased to 30.4%, primarily due to increased gaming and non-gaming revenues which resulted in increased labor costs and cost of sales.

South Segment

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

For the three months ended March 31, Change

(dollars in millions) 2023 2022 $ %

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Adjusted EBITDAR $ 123.6 $ 146.5 $ (22.9) (15.6) %

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 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

Adjusted EBITDAR margin 39.3 % 42.9 % -360 bps

The South segment’s revenues for the three months ended March 31, 2023 decreased by $26.6 million from the prior year period, primarily due to a decrease in visitation at many of our properties.

During the three months ended March 31, 2022, there were COVID restrictions in place in downtown New Orleans which increased visitation to our Hollywood Casino Gulf Coast, Boomtown New Orleans, and L’Auberge Baton Rouge properties.

Additionally, significant ice storms at Hollywood Casino Tunica and tornados near Ameristar Vicksburg affected visitation at those properties during the three months ended March 31, 2023.

Furthermore, L’Auberge Lake Charles was affected during the three months ended March 31, 2023 by a new competitor beginning operations in December 2022.

F or the three months ended March 31, 2023, the South segment’s Adjusted EBITDAR decreased $22.9 million and Adjusted EBITDAR margin decreased to 39.3% primarily due to the decrease in gaming revenue described above.

For the three months ended March 31, Change

(dollars in millions) 2023 2022 $ %

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Adjusted EBITDAR $ 49.1 $ 51.2 $ (2.1) (4.1) %

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

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%.

Adjusted EBITDAR margin 37.9 % 36.3 % 160 bps

The West segment’s revenues for the three months ended March 31, 2023 decreased by $11.2 million from the prior year period, primarily due to the three months ended March 31, 2023 not including any revenue for Tropicana Las Vegas as the operations were sold on September 26, 2022, partially offset by an increase in revenue at Zia Park Casino.

For the three months ended March 31, 2023, the West segment’s Adjusted EBITDAR decreased $2.1 million primarily due to the sale of Tropicana Las Vegas, discussed above.

For the three months ended March 31, 2023, the West segment’s Adjusted EBITDAR margin increased to 37.9% primarily driven by increased revenues at Zia Park Casino.

Midwest Segment

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

For the three months ended March 31, Change

(dollars in millions) 2023 2022 $ %

3 unchanged sentences

Adjusted EBITDAR $ 125.6 $ 125.5 $ 0.1 0.1 %

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 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%.

Adjusted EBITDAR margin 42.5 % 44.4 % -190 bps

The Midwest segment’s revenues for the three months ended March 31, 2023 increased by $12.4 million over the prior year period, due to increased visitation at the Midwest segment properties’ casinos, hotels, and food and beverage outlets.

For the three months ended March 31, 2023, the Midwest segment’s Adjusted EBITDAR increased $0.1 million primarily due to increased gaming and non-gaming revenues, partially offset by higher labor costs and cost of sales, reflected in A djusted EBITDAR margin, which decreased by 190 basis points to 42.5%.

Interactive Segment

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

For the three months ended March 31, Change

(dollars in millions) 2023 2022 $ %

3 unchanged sentences

Adjusted EBITDAR $ (5.7) $ (10.0) $ 4.3 (43.0) %

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

Adjusted EBITDAR margin (2.4) % (7.1) % 470 bps

The Interactive segment’s revenues for the three months ended March 31, 2023 increased by $92.0 million over the prior year period, due to the inclusion of 100% of the operating results of Barstool subsequent to the Barstool Acquisition on February 17, 2023 as well as an increase in gaming revenue related to operating in additional jurisdictions, inclusive of the launch of theScore Bet in April 2022.

Additionally, revenues are inclusive of a tax gross-up of $92.3 million for the three months ended March 31, 2023, compared to $50.3 million for the three months ended March 31, 2022, respectively.

For the three months ended March 31, 2023, the Interactive segment’s Adjusted EBITDAR increased primarily due to increases in total revenues due to operating in additional gaming jurisdictions over the prior year.

Adjusted EBITDAR margin increased due to revenues increasing at a greater rate year-over-year than the rate at which operating expenses increased.

For the three months ended March 31, Change

(dollars in millions) 2023 2022 $ %

2 unchanged sentences

Adjusted EBITDAR $ (27.3) $ (23.7) $ (3.6) 15.2 %

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 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.

do not directly relate to or have not otherwise been allocated.

Revenues for the three months ended March 31, 2023 have decreased as compared to the prior ye ar corresponding periods, primarily due to a decrease in racing revenues.

Changes in Adjusted EBITDAR for the three months ended March 31, 2023 primarily relate to an increase in payroll expenses.

Non-GAAP Financial Measures

4 unchanged sentences

We define Adjusted EBITDA as earnings before interest expense, net;

interest income;

income taxes;

1 unchanged sentence

stock-based compensation;

debt extinguishment and financing charges (which are included in “other (income) expenses”);

debt extinguishment charges;

impairment losses;

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pre-opening expenses;

Adjusted EBITDA excludes (i) non-cash gains/losses associated with REIT transactions (including our transactions with GLPI entered into on February 21, 2023 as described in Note 9, “Leases” to our unaudited Consolidated Financial Statements);

and (ii) non-cash gains/losses associated with partial and step acquisitions as measured in accordance with ASC 805 “Business Combinations” (including the Barstool Acquisition).

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

2 unchanged sentences

and stock-based compensation expense) added back for Barstool Sports, Inc.

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., 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).

(prior to our acquisition of Barstool on February 17, 2023) and our Kansas Entertainment, LLC joint venture.

Adjusted EBITDA is inclusive of rent expense associated with our triple net operating leases with our REIT landlords.

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

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

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 properties.

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

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

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

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

We believe Adjusted EBITDAR is useful for equity valuation purposes because (i) its calculation isolates the effects of financing real estate;

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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 September 30, For the nine months ended September 30,

For the three months ended March 31,

(dollars in millions) 2023 2022

Net income $ 514.4 $ 51.6

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

Income tax expense 167.9 47.6

Income from unconsolidated affiliates (2.6) (8.7)

Interest expense, net 113.0 161.3

Other (income) expenses 8.8 (19.2) 77.7 (43.1)

Interest income (10.4) (0.5)

Gain on Barstool Acquisition, net (83.4) —

Gain on REIT transactions, net (500.8) —

Other expenses 1.0 40.7

Operating income 199.1 292.0

Stock-based compensation (1)

13.6 8.5 45.1 21.9

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

(3.8) 5.2 (16.2) 14.3

Loss (gain) on disposal of assets (1)

(0.2) 0.3 7.0 0.1

Gain on disposal of assets (1)

Contingent purchase price (1)

0.1 0.6 (0.9) 1.9

Pre-opening expenses (1)

0.5 1.6 4.1 2.8

Depreciation and amortization 107.5 118.2

Impairment losses (4)

104.6 — 104.6 —

Insurance recoveries, net of deductible charges (1)

(1.9) — (10.7) —

Income from unconsolidated affiliates 2.6 8.7

Non-operating items of equity method investments (3)

2.6 3.0 4.7 6.0

Other expenses (1)(3)(4)

32.9 13.2 48.4 15.8

Adjusted EBITDA 332.2 434.6

Rent expense associated with triple net operating leases (1)

31.5 116.0 119.6 342.9

Adjusted EBITDAR $ 478.2 $ 494.7

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

(3) During 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) 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.

(3) Consists principally of interest expense, net, income taxes, depreciation and amortization, and stock-based compensation expense associated with Barstool prior to us acquiring the remaining 64% of Barstool common stock (see Note 6, “ Acq uisition s ” in the notes to our unaudited Consolidated Financial Statements), and our Kansas Entertainment joint venture.

(4) 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 nine months ended September 30, Change

For the three months ended March 31, Change

(dollars in millions) 2023 2022 $ %

1 unchanged sentence

Net cash used in investing activities $ (378.2) $ (39.6) $ (338.6) 855.1%

Net cash (used in) provided by financing activities $ (705.2) $ 375.2 $ (1,080.4) N/M

N/M - Not meaningful

Net cash used in financing activities $ (83.0) $ (239.2) $ 156.2 (65.3)%

Operating Cash Flow

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 $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.

Net cash provided by operating activities decreased by $77.2 million for the three months ended March 31, 2023, primarily due to a negative impact in changes in working capital related to accrued racing liabilities, accrued capital expenditures, payroll related liabilities, and timing of payments to third party service providers.

Investing Cash Flow

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.

Cash used in investing activities for the three months ended March 31, 2023 of $378.2 million is primarily due to consideration paid for the Barstool Acquisition, net of cash acquired, of $314.6 million and capital expenditures of $63.2 million.

For the three months ended March 31, 2022, cash used in investing activities of $39.6 million primarily related to capital expenditures of $65.6 million offset by Hurricane Laura insurance proceeds.

Capital Expenditures

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.

Capital expenditures are accounted for as either project capital (new facilities or expansions) or maintenance (replacement) which is inclusive of projects such as our Barstool branded retail sportsbooks, our cashless, cardless and contactless technology and hotel renovations.

Cash provided by operating activities, as well as cash available under our Amended Revolving Credit Facility and Revolving Facility, was available to fund our capital expenditures for the three months ended March 31, 2023 and 2022, as applicable.

Capital expenditures for the three months ended March 31, 2023 and 2022 were $63.2 million and $65.6 million, respectively.

For the year ending December 31, 2023, our anticipated capital expenditures, inclusive of insurance proceeds, are approximately $413 million, which include capital expenditures of $63.2 million incurred for the three months ended March 31, 2023 and capital expenditures required under our Triple Net Leases, which require us to spend a specified percentage of total revenues.

Financing Cash Flow

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”) (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 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.

For the three months ended March 31, 2023 and 2022, net cash used in financing activities totaled $83.0 million and $239.2 million respectively, primarily related to repurchases of our common stock of $50.0 million and $175.1 million, respectively.

At March 31, 2023, 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 $163.5 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 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.

We have no debt maturing prior to 2026.

As of March 31, 2023 we had conditional obligations under letters of credit issued

pursuant to the Amended Credit Facilities with face amounts aggregating to $23.5 million resulting in $976.5 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.

In addition, our Amended 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 9, “Leases” to our unaudited Consolidated Financial Statemen ts ), each with GLPI.

Our debt agreements also contain customary events of default, including cross-default provisions that require us to meet certain requirements under the AR PENN Master Lease, the 2023 Master Lease, PENN Master Lease (prior to January 1, 2023), and the Pinnacle Master Lease (all of which are defined below), 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 September 30, 2022, the Company was in compliance with all required financial covenants.

As of March 31, 2023, 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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Share Repurchase Authorization

On February 1, 2022, the Board of Directors of PENN approved a $750.0 million share repurchase authorization.

The three-year authorization expires on January 31, 2025.

On February 1, 2022, the Board of Directors of PENN approved a $750.0 million share repurchase authorization, which expires on January 31, 2025 (the “February 2022 Authorization”).

On December 6, 2022, a second share repurchase program was authorized for an additional $750 million (the “December 2022 Authorization”).

The December 2022 Authorization expires on December 31, 2025.

The Company plans to utilize the remaining capacity under the February 2022 Authorization prior to effecting any repurchases under the December 2022 Authorization.

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

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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 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.

During the three months ended March 31, 2023, the Company repurchased 1,646,963 shares of its common stock in open market transactions for $50.0 million at an average price of $30.36 per share under the February 2022 Authorization.

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

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.

Subsequent to the quarter ended March 31, 2023, the Company repurchased 647,319 shares of its common stock at an average price of $29.21 per share for an aggregate amount of $18.9 million.

The remaining availability under February 2022 Authorization and our December 2022 Authorization was $80.4 million and $750.0 million, respectively, as of May 3, 2023.

Triple Net Leases

The majority of the real estate assets used in the Company’s operations are subject to triple net master leases;

the most significant of which are the 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 (terminated September 26, 2022) and the Morgantown Lease, collectively, as our Triple Net Leases.

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 AR PENN Master Lease, 2023 Master Lease, PENN Master Lease (prior to January 1, 2023), and Pinnacle Master Lease (as such terms are defined in Note 9, “Leases,” in the notes to our unaudited Consolidated Financial Statements, and collectively referred to as the “Master Leases”), with GLPI.

We refer to the Master Leases, Perryville Lease (where applicable), the Meadows Lease (where applicable), 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.

On February 21, 2023, as described in Note 9, “Leases” in the notes to our unaudited Consolidated Financial Statements, the Company and GLPI entered into the AR PENN Master Lease, effective January 1, 2023, to (i) remove the land and buildings for Aurora, Joliet, Columbus, Toledo and the M Resort, and (ii) make associated adjustments to the rent after which the initial rent in the AR PENN Master Lease will be $284.1 million, consisting of $208.2 million of building base rent, $43.0 million of land base rent and $32.9 million of percentage rent (as such terms are defined in the AR PENN Master Lease).

Subsequent to the execution of the AR PENN Master Lease, the Company leases real estate assets associated with 14 of the

gaming facilities used in its operations via a triple net master lease.

Concurrent with the execution of the AR PENN Master Lease, the Company and GLPI entered into the 2023 Master Lease, effective January 1, 2023, specific to the properties associated with Aurora, Joliet, Columbus, Toledo, M Resort, Meadows, and Perryville and the Master Development Agreement.

The 2023 Master Lease has an initial term through October 31, 2033 with three subsequent five-year renewal periods on the same terms and conditions, exercisable at the Company’s option.

The 2023 Master Lease terminated the individual triple net leases associated with Meadows and Perryville.

The 2023 Master Lease and AR PENN Master Lease are cross-defaulted, cross-collateralized, and coterminous, and subject to a parent guarantee.

The 2023 Master Lease includes the 2023 Master Lease Base Rent equal to $232.2 million and the Master Development Agreement contains additional rent (together with the 2023 Master Lease Base Rent, the “2023 Master Lease Rent”) equal to (i) 7.75% of any project funding received by PENN from GLPI for the Aurora Project and (ii) a percentage, based on the then-current GLPI stock price, of any project funding received by PENN from GLPI for the Other Development Projects.

These funding obligations of GLPI expire on January 1, 2026.

The 2023 Master Lease Rent will be subject to a one-time increase of $1.4 million, effective November 1, 2027.

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

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

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 September 30, For the nine months ended September 30,

For the three months ended March 31,

(in millions) 2023 2022

AR PENN Master Lease $ 71.1 $ —

2023 Master Lease 58.0 —

PENN Master Lease — 119.2

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$ 233.2 $ 229.3

(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.

Based on our current level of operations, we believe that cash generated from operations and cash on hand, together with amounts available under our Amended 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.

(1) For the three months ended March 31, 2022, rent payable under the Tropicana Lease was nominal.

Therefore, it has been excluded from the table above.

The Tropicana Lease was terminated on September 26, 2022.

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.

We cannot be certain:

(i) of the impact of global supply chain disruptions, price inflation, and rising interest rates on the U.S.

economy and the ability of our business to maintain its recovery from the impacts of the COVID-19 pandemic;

(i) of the impact of global supply chain disruptions, price inflation, rising interest rates on the U.S.

economy, slowing economic growth, geopolitical uncertainty, and instability in the banking sector following multiple bank failures;

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

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and (iv) that future borrowings will be available under our Amended 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 properties, such as strong visitation and increased length of play, 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;

We caution that the performance and trends seen across our portfolio 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 media, retail and online sports betting, iCasino, and social gaming;

from acquisitions of gaming properties at reasonable valuations;

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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, 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.

Other than discussed below, there have been no significant changes in our critical accounting estimates during the three months ended March 31, 2023.

The assessment of lease classifications of land and building components contained within each of the AR PENN Master Lease and the 2023 Master Lease (as described in Note 9, “Leases,” in the notes to our unaudited Consolidated Financial Statements) required management to make significant estimates and assumptions.

These included estimates for the (i) fair value of the land and building assets;

(ii) the term of the lease, including whether any renewal terms are reasonably assured of being exercised;

and (iii) the discount rate (collateralized incremental borrowing rate) over the lease term.

Additionally, management assessed whether the agreements should be accounted for as a separate or combined contract and whether the AR PENN Master Lease should be considered a lease modification or a new lease.

Business Combination

In connection with the Company’s acquisition of Barstool (as described in Note 6, “Acquisition s ” in the notes to our unaudited Consolidated Financial Statements), valuations were completed to determine the allocation of the purchase price.

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

We allocated 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 this business combination required management to make significant estimates and assumptions, including our estimate of intangible assets, such as the Barstool trade name, advertising relationships, other tradenames and brands, and customer relationships.

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

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

(1) revenue growth;

(2) discount rates;

(3) effective income tax rates;

(4) future terminal values;

and (5) gaming royalties for the use of the Barstool tradename assumptions.

These assumptions were developed based on historical trends in the current competitive markets in which Barstool and PENN operate as well as projections of future performance.

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

Advertising relationships were valued utilizing a with-and-without method.

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

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

Where a with-and-without method was utilized, significant assumptions included projecting

revenues with direct advertising relationships and projecting revenues without direct advertising relationships, and determining discount rates.

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 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.

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

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

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the Company’s anticipated share repurchases;

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 Company’s expectations regarding results, and the impact of competition, in retail/mobile/online sportsbooks, iCasino, social gaming, and retail operations;

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

the Company’s expectations regarding its acquisition of Barstool Sports Inc.

(“Barstool”) 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 Score Media and Gaming, Inc.

and Barstool;

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

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

the Company’s development projects, including the prospective development projects at Hollywood Casinos Aurora, Joliet, Columbus, and the M Resort Spa Casino;

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

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

the actions of regulatory, legislative, executive or judicial decisions at the federal, state, provincial or local level with regard to our business and the impact of any such actions.

Such statements are all subject to risks, uncertainties and changes in circumstances that could significantly affect the Company’s future financial results and business.

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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