What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-11-02 compared with 2023-08-09 · 349 added, 290 removed, 971 unchanged (40% of the section changed)

3 unchanged sentences

CONSOLIDATED BALANCE SHEETS

(in millions, except share and per share data) June 30,

(in millions, except share and per share data) September 30,

2023 December 31,

30 unchanged sentences

Series C Preferred stock ($ 0.01 par value, 18,500 shares authorized, no shares issued and outstanding)

Series D Preferred stock ($ 0.01 par value, 5,000 shares authorized, 969 shares issued in both periods, and 354 and 581 shares outstanding)

Series D Preferred stock ($ 0.01 par value, 5,000 shares authorized, 969 shares issued in both periods, and no shares and 581 shares outstanding)

Common stock ($ 0.01 par value, 400,000,000 shares authorized in both periods, 176,320,721 and 172,632,389 shares issued, and 151,153,819 and 152,903,708 shares outstanding)

13 unchanged sentences

CONSOLIDATED STATEMENTS OF OPERATIONS

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

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

(in millions, except per share data) 2023 2022 2023 2022

7 unchanged sentences

Depreciation and amortization 105.8 148.7 323.9 417.2

Impairment losses — 104.6 — 104.6

Loss on disposal of Barstool 923.2 — 923.2 —

Total operating expenses 2,405.8 1,488.3 5,349.3 4,085.0

Operating income 205.5 302.4 404.6 594.4

Operating income (loss)

( 786.4 ) 136.7 ( 381.8 ) 731.1

Other income (expenses)

6 unchanged sentences

Other ( 0.3 ) ( 8.8 ) 4.5 ( 67.3 )

Total other income (expenses) ( 92.7 ) ( 220.0 ) 390.5 ( 412.8 )

Income before income taxes 112.8 82.4 795.1 181.6

Income tax expense ( 34.7 ) ( 56.3 ) ( 202.6 ) ( 103.9 )

Net income 78.1 26.1 592.5 77.7

Total other expenses ( 100.4 ) ( 195.5 ) 290.1 ( 608.3 )

Income (loss) before income taxes ( 886.8 ) ( 58.8 ) ( 91.7 ) 122.8

Income tax benefit (expense) 161.7 182.0 ( 40.9 ) 78.1

Net income (loss) ( 725.1 ) 123.2 ( 132.6 ) 200.9

Net loss attributable to non-controlling interest 0.3 0.3 0.7 0.4

Net income attributable to PENN Entertainment $ 78.4 $ 26.1 $ 592.9 $ 77.8

Net income (loss) attributable to PENN Entertainment $ ( 724.8 ) $ 123.5 $ ( 131.9 ) $ 201.3

Earnings per share:

Basic earnings per share $ 0.51 $ 0.16 $ 3.86 $ 0.47

Diluted earnings per share $ 0.48 $ 0.15 $ 3.54 $ 0.45

Basic earnings (loss) per share $ ( 4.80 ) $ 0.78 $ ( 0.87 ) $ 1.23

Diluted earnings (loss) per share $ ( 4.80 ) $ 0.72 $ ( 0.87 ) $ 1.15

Weighted-average common shares outstanding—basic 150.9 157.6 152.3 163.5

4 unchanged sentences

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

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

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

(in millions) 2023 2022 2023 2022

Net income $ 78.1 $ 26.1 $ 592.5 $ 77.7

Other comprehensive income (loss):

Net income (loss) $ ( 725.1 ) $ 123.2 $ ( 132.6 ) $ 200.9

Other comprehensive loss:

Foreign currency translation adjustment during the period ( 44.7 ) ( 119.8 ) ( 0.1 ) ( 146.7 )

Other comprehensive income (loss) 36.4 ( 62.7 ) 44.6 ( 26.9 )

Other comprehensive loss ( 44.7 ) ( 119.8 ) ( 0.1 ) ( 146.7 )

Total comprehensive income (loss) ( 769.8 ) 3.4 ( 132.7 ) 54.2

5 unchanged sentences

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Three Months Ended June 30, 2023 and 2022

Three Months Ended September 30, 2023 and 2022

Preferred Stock Common Stock Treasury Stock Additional

1 unchanged sentence

(in millions, except share data) Shares Amount PENN Entertainment Shares Amount Exchangeable Shares Amount

Balance as of April 1, 2023 354 $ 11.8 154,136,908 $ 1.8 560,758 $ — $ ( 679.5 ) $ 4,333.6 $ 669.0 $ ( 160.4 ) $ 4,176.3 $ ( 1.2 ) $ 4,175.1

Balance as of July 1, 2023 354 $ 11.8 150,373,466 $ 1.8 560,388 $ — $ ( 779.7 ) $ 4,353.0 $ 747.4 $ ( 124.0 ) $ 4,210.3 $ ( 1.5 ) $ 4,208.8

Share-based compensation arrangements — — 426,553 — — — — 35.2 — — 35.2 — 35.2

Share repurchases — — ( 3,791,258 ) — — — ( 99.8 ) — — — ( 99.8 ) — ( 99.8 )

Common stock issuance — — 4,055 — — — 0.1 — — 0.1 — 0.1

Exchangeable share conversions — — 370 — ( 370 ) — — — — — — — —

Preferred stock conversions ( 354 ) ( 11.8 ) 353,800 — — — — 11.8 — — — — —

Currency translation adjustment — — — — — — — — — ( 44.7 ) ( 44.7 ) — ( 44.7 )

Net income (loss) — — — — — — — — 78.4 — 78.4 ( 0.3 ) 78.1

Net loss — — — — — — — — ( 724.8 ) — ( 724.8 ) ( 0.3 ) ( 725.1 )

Other — — — — — — 0.1 6.5 — — 6.6 — 6.6

Balance as of June 30, 2023 354 $ 11.8 150,373,466 $ 1.8 560,388 $ — $ ( 779.7 ) $ 4,353.0 $ 747.4 $ ( 124.0 ) $ 4,210.3 $ ( 1.5 ) $ 4,208.8

Balance as of April 1, 2022 581 $ 19.4 166,161,818 $ 1.7 633,189 $ — $ ( 203.5 ) $ 4,170.4 $ ( 15.9 ) $ ( 18.6 ) $ 3,953.5 $ ( 0.8 ) $ 3,952.7

Balance as of September 30, 2023 — $ — 151,153,819 $ 1.8 560,388 $ — $ ( 779.6 ) $ 4,406.5 $ 22.6 $ ( 168.7 ) $ 3,482.6 $ ( 1.8 ) $ 3,480.8

Balance as of July 1, 2022 581 $ 19.4 160,725,723 $ 1.7 624,658 $ — $ ( 370.5 ) $ 4,187.3 $ 10.2 $ ( 81.3 ) $ 3,766.8 $ ( 0.8 ) $ 3,766.0

Share-based compensation arrangements — — 62,935 — — — — 13.6 — — 13.6 — 13.6

3 unchanged sentences

Currency translation adjustment — — — — — — — — — ( 119.8 ) ( 119.8 ) — ( 119.8 )

Net income — — — — — — — — 26.1 — 26.1 — 26.1

Net income (loss) — — — — — — — — 123.5 — 123.5 ( 0.3 ) 123.2

Other — — — — — — — 0.8 — — 0.8 — 0.8

Balance as of June 30, 2022 581 $ 19.4 160,725,723 $ 1.7 624,658 $ — $ ( 370.5 ) $ 4,187.3 $ 10.2 $ ( 81.3 ) $ 3,766.8 $ ( 0.8 ) $ 3,766.0

Balance as of September 30, 2022 581 $ 19.4 155,448,209 $ 1.7 620,353 $ — $ ( 538.5 ) $ 4,201.9 $ 133.7 $ ( 201.1 ) $ 3,617.1 $ ( 1.1 ) $ 3,616.0

See accompanying notes to the unaudited Consolidated Financial Statements.

Six Months Ended June 30, 2023 and 2022

Nine Months Ended September 30, 2023 and 2022

Preferred Stock Common Stock Treasury Stock Additional

10 unchanged sentences

Currency translation adjustment — — — — — — — — — ( 0.1 ) ( 0.1 ) — ( 0.1 )

Net income (loss) — — — — — — — — 592.9 — 592.9 ( 0.4 ) 592.5

Net loss — — — — — — — — ( 131.9 ) — ( 131.9 ) ( 0.7 ) ( 132.6 )

Other — — — 0.1 — — ( 0.3 ) 14.6 — — 14.4 — 14.4

Balance as of June 30, 2023 354 $ 11.8 150,373,466 $ 1.8 560,388 $ — $ ( 779.7 ) $ 4,353.0 $ 747.4 $ ( 124.0 ) $ 4,210.3 $ ( 1.5 ) $ 4,208.8

Balance as of September 30, 2023 — $ — 151,153,819 $ 1.8 560,388 $ — $ ( 779.6 ) $ 4,406.5 $ 22.6 $ ( 168.7 ) $ 3,482.6 $ ( 1.8 ) $ 3,480.8

Balance as of January 1, 2022 775 $ 25.8 169,561,883 $ 1.7 653,059 $ — $ ( 28.4 ) $ 4,239.6 $ ( 86.5 ) $ ( 54.4 ) $ 4,097.8 $ ( 0.7 ) $ 4,097.1

8 unchanged sentences

Other — — — — — — — ( 3.2 ) — — ( 3.2 ) — ( 3.2 )

Balance as of June 30, 2022 581 $ 19.4 160,725,723 $ 1.7 624,658 $ — $ ( 370.5 ) $ 4,187.3 $ 10.2 $ ( 81.3 ) $ 3,766.8 $ ( 0.8 ) $ 3,766.0

Balance as of September 30, 2022 581 $ 19.4 155,448,209 $ 1.7 620,353 $ — $ ( 538.5 ) $ 4,201.9 $ 133.7 $ ( 201.1 ) $ 3,617.1 $ ( 1.1 ) $ 3,616.0

See accompanying notes to the unaudited Consolidated Financial Statements.

2 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the six months ended June 30,

For the nine months ended September 30,

(in millions) 2023 2022

Operating activities

Net income $ 592.5 $ 77.7

Adjustments to reconcile net income to net cash provided by operating activities:

Net income (loss) $ ( 132.6 ) $ 200.9

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization 323.9 417.2

2 unchanged sentences

Non-cash operating lease expense 224.9 67.8

Loss on disposal of Barstool 923.2 —

Gain on Barstool Acquisition, net ( 83.4 ) —

Gain on REIT transactions, net ( 500.8 ) —

Holding (gain) loss on equity securities ( 3.1 ) 55.6

Holding loss on equity securities 8.5 66.4

Loss on sale or disposal of property and equipment — 7.0

4 unchanged sentences

Stock-based compensation 71.4 45.1

Impairment losses — 104.6

Loss on early extinguishment of debt — 10.4

11 unchanged sentences

Net cash provided by operating activities 540.7 760.0

For the nine months ended September 30,

(in millions) 2023 2022

Investing activities

1 unchanged sentence

Consideration paid for Barstool, net of cash acquired ( 314.6 ) —

Sale of Barstool, net of cash disposed ( 50.9 ) —

Proceeds from sale of property and equipment 0.2 4.9

Hurricane Laura insurance proceeds 9.0 25.4

Cost method investment proceeds received (consideration paid) 8.0 ( 15.0 )

Consideration paid for gaming licenses and other intangible assets ( 17.1 ) ( 4.1 )

1 unchanged sentence

Net cash used in investing activities ( 586.0 ) ( 180.0 )

For the six months ended June 30,

(in millions) 2023 2022

Financing activities

31 unchanged sentences

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.

As of June 30, 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®.

As of September 30, 2023, PENN operated 43 properties in 20 states, online sports betting in 18 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 August 2023, PENN entered into a transformative, exclusive long-term strategic alliance with ESPN, Inc.

1 unchanged sentence

(together, “ESPN”) relating to online sports betting within the United States.

In the fall of 2023, the existing Barstool Sportsbook will be rebranded across all online platforms in the United States as ESPN Bet, and our online product will include a Hollywood-branded integrated iCasino where permitted.

In November 2023, pending regulatory approval, the existing Barstool Sportsbook will be rebranded and launched across all online platforms in the United States as ESPN BET, and our online product will include a Hollywood-branded integrated iCasino where permitted.

PENN’s ability to leverage the leading sports media brands in the United States (ESPN) and Canada (theScore) will position us to significantly expand our digital footprint and efficiently grow our customer ecosystem.

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

PENN’s portfolio is further bolstered by our industry-leading PENN Play TM customer loyalty program, which offers our approximately 27 million members a unique set of rewards and experiences across business channels.

PENN’s portfolio is further bolstered by our industry-leading PENN Play TM customer loyalty program, which offers our over 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 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” and collectively referred to as the “Master Leases”), with Gaming and Leisure Properties, Inc.

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

the most significant of which are with Gaming and Leisure Properties, Inc.

GLPI) (“GLPI”), a real estate investment trust (“REIT”), and include 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” and collectively referred to as the “Master Leases”).

Basis of Presentation:

22 unchanged sentences

Interactive includes all of our online sports betting, iCasino and social gaming operations, management of retail sports betting, media, and the operating results of Barstool Sports, Inc.

(“Barstool”) (the remaining 64 % of Barstool common stock, not already owned by PENN, was acquired on February 17, 2023) (see Note 6, “Acquisitions and Dispositions” for further information).

(“Barstool” or “Barstool Sports”).

We owned 36 % of Barstool common stock prior to the February 17, 2023 Barstool Acquisition (as defined in Note 6, “Acquisitions and Dispositions,” ) pursuant to which we acquired the remaining 64 % of Barstool common stock.

On August 8, 2023, we entered into a stock purchase agreement with David Portnoy (the “Barstool SPA”), and we sold 100 % of the outstanding shares of Barstool common stock.

See Note 16, “Segment Information” and Note 9, “Leases” for further segment and lease structure information, respectively.

55 unchanged sentences

Revenue Recognition:

Our revenue from contracts with customers consists primarily of gaming wagers, inclusive of sports betting and iCasino products, food and beverage transactions, hotel room sales, media, retail transactions, racing wagers, and third-party revenue sharing agreements.

party revenue sharing agreements.

See Note 5, “Revenue Disaggregation” for information on our revenue by type and geographic location.

3 unchanged sentences

Revenues recorded to “Food, beverage, hotel, and other” and offset to “Gaming” revenues were as follows:

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

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

(in millions) 2023 2022 2023 2022

8 unchanged sentences

In addition, members of the PENN Play program earn credit toward tier status, which entitles them to receive certain other benefits, such as priority access, discounts, gifts, trips to PENN destinations, partner experiences, and PENN Cash.

The obligation associated with our PENN Play program, which is included in “Accrued expenses and other current liabilities” within our unaudited Consolidated Balance Sheets, was $ 43.0 million and $ 39.3 million as of June 30, 2023 and December 31, 2022, respectively, and consisted principally of the obligation associated with the loyalty points.

The obligation associated with our PENN Play program, which is included in “Accrued expenses and other current liabilities” within our unaudited Consolidated Balance Sheets, was $ 34.4 million and $ 39.3 million as of September 30, 2023 and December 31, 2022, respectively, and consisted principally of the obligation associated with the loyalty points.

Our loyalty point obligations are generally settled within six months of issuance.

3 unchanged sentences

Unpaid wagers generally represent obligations stemming from prior wagering events, of which revenue was previously recognized.

The Company’s advance payments on goods and services yet to be provided and for unpaid wagers were $ 95.1 million and $ 125.8 million as of June 30, 2023 and December 31, 2022, respectively, and are included in “Accrued expenses and other current liabilities” within our unaudited Consolidated Balance Sheets.

The Company’s advance payments on goods and services yet to be provided and for unpaid wagers were $ 114.9 million and $ 125.8 million as of September 30, 2023 and December 31, 2022, respectively, and are included in “Accrued expenses and other current liabilities” within our unaudited Consolidated Balance Sheets.

The Company’s deferred revenue is primarily related to PENN Interactive, our wholly-owned interactive division, which enters into multi-year agreements with third-party online sports betting and/or iCasino operators for online sports betting and iCasino market access across our portfolio of properties.

During the three and six months ended June 30, 2023, we recognized $ 1.0 million and $ 1.7 million of previously deferred revenue, respectively, as compared to $ 3.0 million and $ 3.7 million during the three and six months ended June 30, 2022, respectively.

Deferred revenue primarily associated with third-party online sports betting and/or iCasino operators for online sports betting and iCasino market access, which is included in “Other long-term liabilities” within our unaudited Consolidated Balance Sheets, was $ 57.3 million and $ 46.5 million as of June 30, 2023 and December 31, 2022, respectively.

We recognized $ 0.7 million and $ 0.5 million of previously deferred revenue during the three months ended September 30, 2023 and 2022, respectively, and $ 2.4 million and $ 4.2 million during the nine months ended September 30, 2023 and 2022, respectively.

Deferred revenue primarily associated with third-party online sports betting and/or iCasino operators for online sports betting and iCasino market access, which is included in “Other long-term liabilities” within our unaudited Consolidated Balance Sheets, was $ 56.5 million and $ 46.5 million as of September 30, 2023 and December 31, 2022, respectively.

The Company expenses advertising costs the first time the advertising takes place or as incurred.

Advertising expenses, which generally relate to media placement costs and are primarily included in “Gaming” expenses within the unaudited Consolidated Statements of Operations, were $ 20.8 million and $ 44.4 million for the three and six months ended June 30, 2023, respectively, as compared to $ 18.5 million and $ 42.6 million for the three and six months ended June 30, 2022, respectively.

Advertising expenses, which generally relate to media placement costs and are primarily included in “Gaming” expenses within the unaudited Consolidated Statements of Operations, were $ 18.4 million and $ 27.1 million for the three months ended September 30, 2023 and 2022, respectively, and $ 62.8 million and $ 69.7 million for the nine months ended September 30, 2023 and 2022, respectively.

Gaming and Pari-mutuel Taxes:

2 unchanged sentences

Also, included in gaming and pari-mutuel taxes are costs to support the operations of local regulatory authorities which some jurisdictions require us to pay.

Gaming and pari-mutuel taxes are recorded in “Gaming” expenses or “Food, beverage, hotel, and other” expenses within the unaudited Consolidated Statements of Operations, and were $ 560.5 million and $ 1.1 billion for the three and six months ended June 30, 2023, respectively, as compared to $ 486.8 million and $ 959.0 million for the three and six months ended June 30, 2022, respectively.

Gaming and pari-mutuel taxes are recorded in “Gaming” expenses or “Food, beverage, hotel, and other” expenses within the unaudited Consolidated Statements of Operations, and were $ 562.9 million and $ 540.3 million for the three months ended September 30, 2023 and 2022, respectively, and $ 1.7 billion and $ 1.6 billion for the nine months ended September 30, 2023 and 2022, respectively.

Inventory, net:

1 unchanged sentence

Inventory accounted for under the average cost and FIFO methods are stated at the lower of cost or net realizable value.

Inventory balances substantially consist of finished goods and were $ 26.4 million and $ 5.0 million as of June 30, 2023 and December 31, 2022, respectively.

Inventory balances substantially consist of finished goods and were $ 5.3 million and $ 5.0 million as of September 30, 2023 and December 31, 2022, respectively.

Foreign Currency Translation:

5 unchanged sentences

Comprehensive Income (Loss) and Accumulated Other Comprehensive Loss:

Comprehensive income (loss) includes net income and all other non-stockholder changes in equity, or other comprehensive income (loss).

Comprehensive income (loss) includes net income (loss) and all other non-stockholder changes in equity, or other comprehensive income (loss).

The balance of accumulated other comprehensive loss consists solely of foreign currency translation adjustments.

Earnings Per Share:

Basic earnings per share (“EPS”) is computed by dividing net income applicable to common stock by the weighted-average number of common shares outstanding during the period.

Diluted EPS reflects the additional dilution, if any, for all potentially-dilutive securities such as stock options, unvested restricted stock awards (“RSAs”) and restricted stock units (“RSUs”) (collectively with RSAs, “restricted stock”), outstanding convertible preferred stock and convertible debt.

Holders of the Company’s Series D Preferred Stock (as defined in Note 13, “Stockholders' Equity and Stock-based Compensation” ) are entitled to participate equally and ratably in all dividends and distributions paid to holders of PENN common stock irrespective of any vesting requirement.

Accordingly, the Series D Preferred Stock shares are considered a participating security and the Company is required to apply the two-class method to consider the impact of the preferred shares on the calculation of basic and diluted EPS.

The holders of the Company’s Series D Preferred Stock are not obligated to absorb losses;

therefore, in reporting periods where the Company is in a net loss position, it does not apply the two-class method.

In reporting periods where the Company is in a net income position, the two-class method is applied by allocating all earnings during the period to common shares and preferred shares.

Earnings (Loss) Per Share:

Basic earnings (loss) per share (“EPS”) is computed by dividing net income (loss) applicable to common stock by the weighted-average number of common shares outstanding during the period.

Diluted EPS reflects the additional dilution, if any, for all potentially-dilutive securities such as warrants, stock options, unvested restricted stock awards (“RSAs”) and restricted stock units (“RSUs”) (collectively with RSAs, “restricted stock”), outstanding convertible preferred stock and convertible debt.

As described in Note 13, “Stockholders’ Equity and Stock-based Compensation,” on August 11, 2023 all remaining 354 outstanding shares of the Company’s Series D Preferred Stock (as defined in Note 13, “Stockholders’ Equity and Stock-based Compensation” ) became eligible for the conversion and were converted to common stock.

There are no outstanding shares of Series D Preferred Stock as of September 30, 2023.

Holders of the Company’s Series D Preferred Stock were entitled to participate equally and ratably in all dividends and distributions paid to holders of PENN common stock irrespective of any vesting requirement.

Accordingly, the Series D Preferred Stock shares were considered a participating security and the Company is required to apply the two-class method to consider the impact of the preferred shares on the calculation of basic and diluted EPS.

The previous holders of the Company’s Series D Preferred Stock were not obligated to absorb losses;

therefore, in reporting periods where the Company is in a net loss position, it did not apply the two-class method.

In reporting periods where the Company was in a net income position, the two-class method was applied by allocating all earnings during the period to common shares and preferred shares.

See Note 14, “Earnings per Share” for more information.

Guarantees and Indemnifications:

The Company accounts for indemnity obligations in accordance with the Accounting Standards Codification (“ASC”) 460-20, “Contingencies” and records a liability at fair value.

Pursuant to the Barstool SPA (as defined within Note 6, “Acquisitions and Dispositions,” ) the Company agreed to indemnify Barstool and its subsidiaries and David Portnoy for certain tax matters.

The indemnity provisions generally provide for the Company’s control of defense and settlement of claims, as well as certain other costs associated with potential tax matters related to Barstool and its subsidiaries and David Portnoy.

The Company has not previously incurred costs to settle claims under this indemnification obligation.

The Company has recorded liabilities of $ 70.0 million and none for this agreement as of September 30, 2023 and December 31, 2022, respectively.

See Note 6, “Acquisitions and Dispositions” for more information.

Voting Interest Entities and Variable Interest Entities:

2 unchanged sentences

Under the VOE model, controlling financial interest is generally defined as a majority ownership of voting rights.

Under the VIE model, controlling financial interest is defined as (i) the power to direct activities that most significantly impact the economic performance of the entity and (ii) the obligation to

absorb losses of or the right to receive benefits from the entity that could potentially be significant to the entity.

Under the VIE model, controlling financial interest is defined as (i) the power to direct activities that most significantly impact the economic performance of the entity and (ii) the obligation to absorb losses of or the right to receive benefits from the entity that could potentially be significant to the entity.

For those entities that qualify as a VIE, the primary beneficiary is generally defined as the party who has a controlling financial interest in the VIE.

10 unchanged sentences

Early adoption is permitted.

We are currently evaluating the impact of the adoption of ASU 2022-03 on our unaudited Consolidated Financial Statements.

Although we are still finalizing our assessment of the impact of the adoption of ASU 2022-03, which is effective January 1, 2024, we currently do not expect it to have a material impact on our Consolidated Financial Statements.

In March 2023, the FASB issued ASU 2023-02, “Investments—Equity Method and Joint Ventures (Topic 323):

3 unchanged sentences

ASU 2023-02 will be effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years.

Early adoption is permitted.

We evaluated the impact of the adoption of ASU 2023-02 on our unaudited Consolidated Financial Statements and determined that it is immaterial.

Although we are still finalizing our assessment of the impact of the adoption of ASU 2023-02, which is effective January 1, 2024, we currently do not expect it to have a material impact on our Consolidated Financial Statements .

Note 4— Hurricane Laura

5 unchanged sentences

Timing differences exist between the recognition of (i) impairment losses and capital expenditures made to repair or restore the assets and (ii) the receipt of insurance proceeds within the unaudited Consolidated Financial Statements.

During the six months ended June 30, 2023, we received additional insurance claim proceeds totaling $ 13.6 million, which resulted in a gain of $ 13.6 million.

During the six months ended June 30, 2022, we received proceeds of $ 37.5 million, which resulted in a gain of $ 8.8 million.

The gains are included in “General and administrative expenses” within our unaudited Consolidated Statements of Operations.

Additionally, we did not have a receivable balance as of December 31, 2022.

Subsequent to June 30, 2023, the Company received insurance payments totaling $ 13.9 million.

As of August 8, 2023, the insurance claim remains open, and we expect to receive additional future proceeds.

We record proceeds in excess of the recognized losses and lost profits under our business interruption insurance as a gain contingency in accordance with ASC Topic 450, “Contingencies,” which we expect to recognize at the time of final settlement or when nonrefundable cash advances are made in a period subsequent to June 30, 2023.

During the three months ended September 30, 2023 and 2022, we received $ 0.3 million and $ 1.9 million of insurance claim proceeds related to property damage, respectively, which resulted in a gain of $ 0.3 million and $ 1.9 million, respectively.

During the nine months ended September 30, 2023 and 2022, we received $ 13.9 million and $ 39.4 million of insurance claim proceeds related to property damage, respectively, which resulted in a gain of $ 13.9 million and $ 10.7 million, respectively.

The property damage proceeds are included in “Other” expenses within the unaudited Consolidated Statements of Operations.

Additionally, during the three and nine months ended September 30, 2023, we received $ 14.0 million in business interruption insurance proceeds, which are included in “General and administrative” expenses within the unaudited Consolidated Statements of Operations.

Subsequent to September 30, 2023, the Company received its final insurance payment related to business interruption proceeds totaling $ 5.6 million.

The following table summarizes the financial impact of Hurricane Laura related matters:

Life to date through

(in millions) June 30, 2023 December 31, 2022

Insurance proceeds received through the end of the period $ 100.5 $ 86.9

(in millions) September 30, 2023 December 31, 2022

Insurance proceeds related to property damage received through the end of the period $ 100.8 $ 86.9

Insurance proceeds related to business interruption received through the end of the period $ 14.0 $ —

Deductible $ 15.0 $ 15.0

11 unchanged sentences

Our revenue is disaggregated by type of revenue and geographic location of the related properties, which is consistent with our reportable segments, as follows:

For the three months ended June 30, 2023

For the three months ended September 30, 2023

(in millions) Northeast South West Midwest Interactive (1)

7 unchanged sentences

Total revenues $ 687.0 $ 308.2 $ 135.1 $ 293.4 $ 196.3 $ 4.5 $ ( 5.1 ) $ 1,619.4

For the three months ended June 30, 2022

For the three months ended September 30, 2022

(in millions) Northeast South West Midwest Interactive (1)

7 unchanged sentences

Total revenues $ 685.4 $ 329.8 $ 156.5 $ 298.4 $ 158.7 $ 4.2 $ ( 8.0 ) $ 1,625.0

For the six months ended June 30, 2023

For the nine months ended September 30, 2023

(in millions) Northeast South West Midwest Interactive (1)

7 unchanged sentences

Total revenues $ 2,075.5 $ 931.3 $ 394.8 $ 882.0 $ 687.3 $ 16.5 $ ( 19.9 ) $ 4,967.5

For the six months ended June 30, 2022

For the nine months ended September 30, 2022

(in millions) Northeast South West Midwest Interactive (1)

7 unchanged sentences

Total revenues $ 2,028.8 $ 1,009.8 $ 451.2 $ 877.6 $ 455.1 $ 17.4 $ ( 23.8 ) $ 4,816.1

(1) Other revenues within the Interactive segment are inclusive of gaming tax reimbursement amounts related to third-party online sports betting and/or iCasino partners for online sports betting and iCasino market access of $ 88.5 million and $ 180.8 million for the three and six months ended June 30, 2023, respectively, as compared to $ 55.4 million and $ 105.7 million for the three and six months ended June 30, 2022, respectively.

(1) Other revenues within the Interactive segment are inclusive of gaming tax reimbursement amounts related to third-party online sports betting and/or iCasino partners for online sports betting and iCasino market access of $ 102.6 million and $ 63.0 million for the three months ended September 30, 2023 and 2022, respectively, and $ 283.4 million and $ 168.7 million for the nine months ended September 30, 2023, and 2022, respectively.

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

Note 6— Acquisitions and Dispositions

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”).

Barstool Acquisition and Disposition

On February 17, 2023, we acquired the remaining 64 % of the outstanding shares of Barstool common stock not already owned by us for 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.

5 unchanged sentences

The Company also recorded a gain of $ 16.9 million related to the acquisition of the remaining 64 % of Barstool common stock, which is included in “Gain on Barstool Acquisition, net” within our unaudited Consolidated Statements of Operations.

The following table reflects the preliminary allocation of the purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed, with the excess recorded as goodwill at the February 17, 2023 acquisition date.

(in millions) Estimated fair value

The following table reflects the allocation of the purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed, with the excess recorded as goodwill, at the February 17, 2023 acquisition date.

(in millions) Fair value

Cash and cash equivalents $ 10.1

22 unchanged sentences

All other intangible assets were determined to be definite-lived with assigned useful lives primarily ranging from 2 - 5 years.

Goodwill, none of which was deductible for tax purposes, is approximately 35.1 % of the net assets acquired and was allocated to the Company’s Interactive segment.

Goodwill, none of which was deductible for tax purposes, represented approximately 35.1 % of the net assets acquired and was allocated to the Company’s Interactive segment.

Goodwill was primarily attributable to synergies and cross selling opportunities to Barstool’s existing customer base.

5 unchanged sentences

Customer relationships Replacement cost

Barstool’s revenue and net loss are included in our results for the period beginning February 17, 2023 through June 30, 2023.

Barstool’s revenue and net loss for the three months ended June 30, 2023, included in the unaudited Consolidated Statements of Operations, were $ 52.7 million and $ 12.8 million, respectively.

Barstool’s revenue and net loss for the six months ended June 30, 2023, included in the unaudited Consolidated Statements of Operations, were $ 80.9 million and $ 16.1 million, respectively.

Barstool’s revenue and net loss were included in our results for the period beginning February 17, 2023 through August 7, 2023, the day prior to the Barstool SPA, as described below.

Barstool’s revenue and net loss for the period beginning July 1, 2023 through August 7, 2023, included in the unaudited Consolidated Statements of Operations, were $ 18.3 million and $ 7.8 million, respectively.

Barstool’s revenue and net loss for the period beginning February 17, 2023 through August 7, 2023, included in the unaudited Consolidated Statements of Operations, were $ 99.2 million and $ 23.9 million, respectively.

On August 8, 2023, PENN entered into a Sportsbook Agreement (the “Sportsbook Agreement”) with ESPN, which provides for a long-term strategic relationship between PENN and ESPN relating to online sports betting in the United States.

Pursuant to the Sportsbook Agreement, PENN will rebrand its existing Barstool Sportsbook across all online platforms in the United States as ESPN BET (the “Sportsbook”) and will oversee daily operations of the Sportsbook.

See Note 17, “Subsequent Events” for more information related to the Sportsbook Agreement.

In connection with PENN’s decision to rebrand our online sports betting business from Barstool Sportsbook to ESPN Bet pursuant to the Sportsbook Agreement as discussed above, PENN entered into a stock purchase agreement with David Portnoy (the “Barstool SPA”) on August 8, 2023.

Pursuant to the Barstool SPA, PENN sold 100 % of the outstanding shares of Barstool to David Portnoy in exchange for a nominal cash consideration ($ 1.00 dollar) and certain non-compete and other restrictive covenants.

See Note 12, “Commitments and Contingencies” for more information related to the Sportsbook Agreement.

In connection with PENN’s decision to rebrand our online sports betting business from Barstool Sportsbook to ESPN BET pursuant to the Sportsbook Agreement as discussed above, PENN entered into the Barstool SPA with David Portnoy on August 8, 2023.

Pursuant to the Barstool SPA, PENN sold 100 % of the outstanding shares of Barstool to David Portnoy in exchange for nominal cash consideration ( one dollar) and certain non-compete and other restrictive covenants.

Pursuant to the Barstool SPA, PENN has the right to receive 50 % of the gross proceeds received by David Portnoy in any subsequent sale or other monetization event of Barstool.

On August 8, 2023, the Company’s Board of Directors approved the sale to David Portnoy and we classified the assets and liabilities to be disposed in connection with the Barstool SPA as held-for-sale which are measured at the lower of (i) the carrying value when we classified the disposal group as held-for-sale and (ii) the fair value of the disposal group, less costs to sell.

The classification of the Barstool business as held-for-sale was considered an event or change in circumstance which requires an assessment of the goodwill and intangible assets of the disposal group for impairment each reporting period until disposal.

We are currently quantifying the impact of the Barstool SPA to our unaudited Consolidated Financial Statements, however we expect the carrying value of the net assets held-for-sale to be greater than their fair value, less costs to sell, which is expected to result in a material non-cash loss and the corresponding reversal of the net deferred tax liability of approximately $ 115.9 million that will have a significant impact to income taxes.

See Note 11, “Income Taxes.” The pre-tax non-cash loss on disposal is estimated to be between $ 800.0 million and $ 850.0 million (inclusive of $ 705.0 million to $ 720.0 million in goodwill and intangible assets write offs) to be incurred in the third quarter of 2023.

These material adjustments will be reflected in our September 30, 2023 unaudited Consolidated Statements of Operations and unaudited Consolidated Balance Sheets.

On August 8, 2023, the Company’s Board of Directors approved the sale of Barstool Sports to David Portnoy, and we classified the assets and liabilities to be disposed of as held-for-sale.

These assets and liabilities were measured at the lower of (i) the carrying value when we classified the disposal group as held-for-sale or (ii) the fair value of the disposal group, less costs to sell.

The Company recognized a pre-tax loss on disposal of $ 923.2 million (inclusive of $ 714.8 million in goodwill and intangible assets write offs and a $ 70.0 million indemnification liability discussed below) during the third quarter of 2023, included in “Loss on disposal of Barstool” within our unaudited Consolidated Statements of Operations.

Pursuant to the Barstool SPA, PENN will indemnify Barstool and its subsidiaries and David Portnoy for certain tax matters.

We are unable to assess the potential financial impact to the Company of this indemnification.

As a result, we cannot estimate the potential amount of future payments under this indemnity.

To the extent that a claim is made under this indemnity and/or becomes probable and reasonably estimable, liabilities associated with this indemnity will be recorded and included in the Company’s commitments and contingencies disclosure in Note 12 “ Commitments and Contingencies .

Unaudited Pro Forma Financial Information

The following table includes unaudited pro forma consolidated financial information assuming our acquisition of Barstool had occurred as of January 1, 2022.

The pro forma amounts include the historical operating results of PENN and Barstool prior to our acquisition.

The pro forma financial information does not necessarily represent the results that may occur in the future.

For the three months ended June 30, 2023 and 2022, pro forma adjustments directly attributable to the acquisition include acquisition and transaction related costs of $ 1.0 million, as compared to $ 2.3 million for the six months ended June 30, 2023 and 2022, incurred by both PENN and Barstool.

Pro forma adjustments also included a $ 83.4 million gain on the Barstool Acquisition for the six months ended June 30, 2023 and 2022.

Additionally, for the six months ended June 30, 2023 pro forma adjustments included a gain of $ 3.1 million, as compared to a gain of $ 1.5 million and $ 5.6 million for the three and six months ended June 30, 2022, respectively, related to remeasurement and settlement of Barstool put/call options.

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

(in millions) 2023 2022 2023 2022

Revenues $ 1,674.8 $ 1,680.7 $ 3,367.8 $ 3,285.5

Net income $ 79.2 $ 32.3 $ 518.5 $ 139.6

Liabilities associated with the indemnification of $ 70.0 million were recorded at September 30, 2023, in “Other long-term liabilities” within our unaudited Consolidated Balance Sheets.

The indemnity provisions generally provide for the Company’s control of defense and settlement of claims, as well as certain other costs, associated with potential tax matters related to Barstool and its subsidiaries and David Portnoy.

Claims under the indemnification are paid upon demand.

The Company has not previously incurred costs to settle claims under this indemnification obligation and provisions in the Barstool SPA limit the time within which an indemnification claim can be made to the later of the resolution of the indemnification claim or the relevant statutes of limitations.

The maximum potential amount of future payments the Company could be required to make under this indemnification agreement is not estimable at this time due to uncertainties related to potential outcomes and other unique facts and circumstances involved in the Barstool SPA.

For information on the tax-related impacts from the Barstool transactions, see Note 11, “Income Taxes.”

The following table reflects the major classes of assets and liabilities disposed of pursuant to the Barstool SPA, which were part of the Interactive Segment:

(in millions) August 8, 2023

Current assets

Cash and cash equivalents $ 50.9

Accounts receivable, net 53.5

Inventory, net 21.9

Other current assets 6.4

Total current assets 132.7

Property and equipment, net 8.8

Goodwill 231.9

Other intangible assets, net 482.9

Lease right-of-use assets 21.4

Other assets 21.0

Total assets $ 898.7

Current liabilities

Accounts payable $ 11.1

Accrued expenses and other current liabilities 23.1

Total current liabilities 34.2

Other long-term liabilities 19.9

Total liabilities $ 54.1

Note 7— Goodwill and Other Intangible Assets

6 unchanged sentences

Goodwill acquired during the period $ — $ — $ — $ — $ 231.9 $ — $ 231.9

Goodwill disposed of during the period — — — — ( 231.9 ) — ( 231.9 )

Effect of foreign currency exchange rates — — — — ( 2.2 ) — ( 2.2 )

Balance as of June 30, 2023

Balance as of September 30, 2023

Goodwill, gross $ 923.5 $ 236.6 $ 216.8 $ 1,116.7 $ 1,626.2 $ 87.7 $ 4,207.5

1 unchanged sentence

Goodwill, net $ 124.7 $ 175.6 $ 200.2 $ 560.6 $ 1,626.2 $ — $ 2,687.3

There were no impairment charges recorded to goodwill during the three and six months ended June 30, 2023 and 2022.

In August 2023, in connection with the Barstool SPA, we expect to record an estimated pre-tax non-cash loss on disposal of $ 800.0 million to $ 850.0 million, inclusive of an estimated goodwill write off in the range of $ 225.0 million to $ 235.0 million in our Interactive segment.

There were no impairment charges recorded to goodwill during the three and nine months ended September 30, 2023, as compared to a $ 37.4 million impairment charge recorded to goodwill during both the three and nine months ended September 30, 2022 which pertained to our Northeast segment.

During the three months ended September 30, 2023, in connection with the Barstool SPA, we recorded a pre-tax loss on disposal of $ 923.2 million, inclusive of a goodwill write-off of $ 231.9 million within our Interactive segment.

See Note 6, “Acquisitions and Dispositions.”

The table below presents the gross carrying amount, accumulated amortization, and net carrying amount of each major class of other intangible assets:

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

(in millions) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount

8 unchanged sentences

Total other intangible assets, net $ 1,954.3 $ ( 232.9 ) $ 1,721.4 $ 1,932.2 $ ( 193.3 ) $ 1,738.9

There were no impairment charges recorded to other intangible assets, net during the three and six months ended June 30, 2023 and 2022.

In August 2023, in connection with the Barstool SPA, we expect to record an estimated pre-tax non-cash loss on disposal of $ 800.0 million to $ 850.0 million, inclusive of estimated trademarks and other intangible assets write offs in the range of $ 480.0 million to $ 485.0 million in our Interactive segment.

There were no impairment charges recorded to other intangible assets, net during the three and nine months ended September 30, 2023, as compared to a $ 65.4 million impairment charge recorded to other intangible assets, net during both the three and nine months ended September 30, 2022 which pertained to our Northeast segment.

During the three months ended September 30, 2023, in connection with the Barstool SPA, we recorded a pre-tax loss on disposal of $ 923.2 million, inclusive of trademarks and other intangible assets write-offs of $ 482.9 million in our Interactive segment.

See Note 6, “Acquisitions and Dispositions.”

Amortization expense related to our amortizing intangible assets was $ 17.9 million and $ 31.9 million for the three and six months ended June 30, 2023, respectively, as compared to $ 14.9 million and $ 29.9 million for the three and six months ended June 30, 2022, respectively.

The following table presents the estimated amortization expense based on our amortizing intangible assets as of June 30, 2023 (in millions):

Amortization expense related to our amortizing intangible assets was $ 14.3 million for both the three months ended September 30, 2023 and 2022, and $ 46.2 million and $ 44.2 million for the nine months ended September 30, 2023 and 2022, respectively.

The following table presents the estimated amortization expense based on our amortizing intangible assets as of September 30, 2023 (in millions):

Years ending December 31,

2023 (excluding the six months ended June 30, 2023)

2023 (excluding the nine months ended September 30, 2023)

Thereafter 25.2

2 unchanged sentences

The table below presents long-term debt, net of current maturities, debt discounts and issuance costs:

(in millions) June 30,

(in millions) September 30,

2023 December 31,

12 unchanged sentences

$ 2,715.4 $ 2,721.3

The following is a schedule of future minimum repayments of long-term debt as of June 30, 2023 (in millions):

The following is a schedule of future minimum repayments of long-term debt as of September 30, 2023 (in millions):

Years ending December 31:

2023 (excluding the six months ended June 30, 2023)

2023 (excluding the nine months ended September 30, 2023)

Thereafter 1,352.0

13 unchanged sentences

The interest rates per annum applicable to loans under the Amended Credit Facilities are, at the Company’s option, equal to either an adjusted secured overnight financing rate (“Term SOFR”) or a base rate, plus an applicable margin.

The applicable margin for each of the Amended Revolving Credit Facility and the Amended Term Loan A Facility was initially 1.75 % for Term SOFR loans and 0.75 % for base rate loans until the Company provided financial reports for the first full fiscal quarter following closing and, thereafter, ranges from 2.25 % to 1.50 % per annum for Term SOFR loans and 1.25 % to 0.50 % per annum for base rate loans, in each case depending on the Company’s total net leverage ratio (as defined within the Second Amended and Restated Credit Agreement).

The applicable

margin for each of the Amended Revolving Credit Facility and the Amended Term Loan A Facility was initially 1.75 % for Term SOFR loans and 0.75 % for base rate loans until the Company provided financial reports for the first full fiscal quarter following closing and, thereafter, ranges from 2.25 % to 1.50 % per annum for Term SOFR loans and 1.25 % to 0.50 % per annum for base rate loans, in each case depending on the Company’s total net leverage ratio (as defined within the Second Amended and Restated Credit Agreement).

The applicable margin for the Amended Term Loan B Facility is 2.75 % per annum for Term SOFR loans and 1.75 % per annum for base rate loans.

The Amended Term Loan B Facility is subject to a Term SOFR “floor” of 0.50 % per annum and a base rate “floor” of 1.50 % per annum.

In addition, the Company pays a commitment fee on the unused portion of the commitments under the Amended Revolving Credit Facility at a rate that was initially 0.25 % per annum, until the Company provided financial reports for the first full fiscal quarter following closing, and thereafter, ranges from 0.35 % to 0.20 % per annum, depending on the Company’s total net leverage ratio.

The Amended Credit Facilities contain customary covenants that, among other things, restrict, subject to certain exceptions, the ability of the Company and certain of its subsidiaries to grant liens on their assets, incur indebtedness, sell assets, make investments, engage in acquisitions, mergers or consolidations, pay dividends and make other restricted payments and prepay certain indebtedness that is subordinated in right of payment to the obligations under the Amended Credit Facilities.

2 unchanged sentences

The Amended Credit Facilities also contain certain customary affirmative covenants and events of default, including the occurrence of a change of control (as defined in the documents governing the Second Amended and Restated Credit Agreement), termination and certain defaults under the Master Leases (which are defined in Note 9, “Leases” ).

In connection with the repayment of the previous Senior Secured Credit Facilities, the Company recorded a $ 10.4 million loss on the early extinguishment of debt for the three and six months ended June 30, 2022.

In connection with the repayment of the previous Senior Secured Credit Facilities, the Company recorded a $ 10.4 million loss on the early extinguishment of debt for the nine months ended September 30, 2022.

Additionally, we recorded $ 1.3 million in refinancing costs, which is included in “General and administrative” within our Consolidated Statements of Operations.

In addition, we recorded $ 5.0 million of original issue discount related to the Amended Term Loan B Facility which will be amortized to interest expense over the life of the Amended Term Loan B Facility.

As of June 30, 2023 and December 31, 2022, the Company had conditional obligations under letters of credit issued pursuant to the Amended Credit Facilities with face amounts aggregating to $ 23.4 million and $ 22.5 million, respectively, resulting in $ 976.6 million and $ 977.5 million of available borrowing capacity under the Amended Revolving Credit Facility.

As of September 30, 2023 and December 31, 2022, the Company had conditional obligations under letters of credit issued pursuant to the Amended Credit Facilities with face amounts aggregating to $ 21.8 million and $ 22.5 million, respectively, resulting in $ 978.2 million and $ 977.5 million of available borrowing capacity under the Amended Revolving Credit Facility, respectively.

2.75 % Unsecured Convertible Notes

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

As of June 30, 2023 and December 31, 2022, no Convertible Notes have been converted into the Company’s common stock.

The maximum number of shares that could be issued to satisfy the conversion feature of the Convertible Notes was 18,360,815 and the amount by which the Convertible Notes if-converted value exceeded its principal amount was $ 110.7 million, as of June 30, 2023.

As of September 30, 2023 and December 31, 2022, no Convertible Notes have been converted into the Company’s common stock.

The Convertible Notes consisted of the following components:

(in millions) June 30,

(in millions) September 30,

2023 December 31,

4 unchanged sentences

The table below presents interest expense, net:

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

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

(in millions) 2023 2022 2023 2022

3 unchanged sentences

The table below presents interest expense related to the Convertible Notes:

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

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

(in millions) 2023 2022 2023 2022

3 unchanged sentences

Debt issuance costs are amortized to interest expense over the term of the Convertible Notes at an effective interest rate of 3.329 %.

The remaining term of the Convertible Notes was 2.9 years as of June 30, 2023.

The remaining term of the Convertible Notes was 2.6 years as of September 30, 2023.

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.

2 unchanged sentences

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

As of June 30, 2023, the Company was in compliance with all required financial covenants.

As of September 30, 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.

4 unchanged sentences

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

The amount included in interest expense related to this obligation was $ 8.7 million and $ 16.8 million for the three and six months ended June 30, 2023, respectively, as compared to $ 6.7 million and $ 12.9 million for the three and six months ended June 30, 2022, respectively.

The amount included in interest expense related to this obligation was $ 9.3 million and $ 7.1 million for the three months ended September 30, 2023 and 2022, respectively, and $ 26.1 million and $ 20.0 million for the nine months ended September 30, 2023 and 2022, respectively.

Ohio Relocation Fees

Other long-term obligations included $ 27.4 million at both June 30, 2023 and December 31, 2022, related to the relocation fees for Hollywood Gaming at Dayton Raceway (“Dayton”) and Hollywood Gaming at Mahoning Valley Race Course (“Mahoning Valley”), which opened in August 2014 and September 2014, respectively.

Other long-term obligations included $ 18.5 million and $ 27.4 million at September 30, 2023 and December 31, 2022, respectively, related to the relocation fees for Hollywood Gaming at Dayton Raceway (“Dayton”) and Hollywood Gaming at Mahoning Valley Race Course (“Mahoning Valley”), which opened in August 2014 and September 2014, respectively.

The relocation fee for each facility is payable as follows:

1 unchanged sentence

These obligations are accreted to interest expense at an effective yield of 5.0 %.

As of June 30, 2023 and December 31, 2022, other long-term obligations included $ 9.9 million and $ 10.7 million, respectively, related to the repayment obligation of a hotel and event center located less than a mile away from Hollywood Casino Lawrenceburg, which was constructed by the City of Lawrenceburg Department of Redevelopment.

As of September 30, 2023 and December 31, 2022, other long-term obligations included $ 9.9 million and $ 10.7 million, respectively, related to the repayment obligation of a hotel and event center located less than a mile away from Hollywood Casino Lawrenceburg, which was constructed by the City of Lawrenceburg Department of Redevelopment.

Effective in January 2015, by contractual agreement, we assumed a repayment obligation for the hotel and event center in the amount of $ 15.3 million, which was financed through a loan with the City of Lawrenceburg Department of Redevelopment, in exchange for conveyance of the property.

14 unchanged sentences

The payment structure under the AR PENN Master Lease includes a fixed component, a portion of which is subject to an annual escalator of up to 2 %, depending on the Adjusted Revenue to Rent Ratio (as defined in the AR PENN Master Lease) of 1.8 :1, and a component that is based on performance, which is prospectively adjusted every five years by an amount equal to 4 % of the average change in net revenues of all properties associated with the AR PENN Master Lease compared to a contractual baseline during the preceding five years (“PENN Percentage Rent”).

The next annual escalator test date and PENN Percentage Rent reset is scheduled to occur on November 1, 2023.

We concluded the AR PENN Master Lease constituted a modification event under ASC Topic 842, “Leases” (“ASC 842”), which required us to reassess the classifications of the lease components and remeasure the associated lease liabilities.

As a result of the annual escalator, effective November 1, 2023, for the lease year ending October 31, 2023, the fixed component of rent increased by $ 4.2 million.

The PENN Percentage Rent test date occurred on November 1, 2023 of which we are currently determining the impact to the performance component of rent which will be in effect until October 31, 2028.

We concluded the execution of the AR PENN Master Lease constituted a modification event under ASC Topic 842, “Leases” (“ASC 842”), which required us to reassess the classifications of the lease components and remeasure the associated lease liabilities.

We concluded the lease term should end at the current lease expiration date of October 31, 2033 and the optional three renewal terms of five years each were not included in the lease term.

1 unchanged sentence

The execution of our omni-channel strategy continues to diversify our earning streams and precluded us from concluding all renewal periods were reasonably assured to be exercised.

As a result of the January 1, 2023 lease modification event, we concluded (i) the land components contained within the AR PENN Master Lease, which were previously primarily classified as finance leases under the PENN Master Lease, to be classified as operating leases, and (ii) control of the building assets have transferred from the Company to the lessor (GLPI) allowing for sale recognition in accordance with ASC 842 which results in the building components to be classified as operating leases.

As a result of the January 1, 2023 lease modification event, we concluded (i) the land components contained within the AR PENN Master Lease, which were previously primarily classified as finance leases under the PENN Master Lease, to be classified as operating leases, and (ii) control of the building assets have transferred from the Company to the lessor allowing for sale recognition in accordance with ASC 842 which results in the building components to be classified as operating leases.

Prior to the January 1, 2023 lease modification event, control of substantially all of the building components were concluded not to have passed from the Company to the lessor in accordance with ASC 842 which required recognition of a financing obligation in accordance with ASC Topic 470, “Debt” (“ASC 470”) and continued recognition of the underlying asset in Property and Equipment, net within our unaudited Consolidated Balance Sheets.

14 unchanged sentences

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

The AR PENN Master Lease and the 2023 Master Lease are coterminous, as such consistent with the AR PENN Master Lease, we concluded the 2023 Master Lease term ends at the current lease expiration date of October 31, 2033 and does not

include any of the remaining three renewal terms of five years each.

(See above lease term discussion for AR PENN Master Lease.)

5 unchanged sentences

Lease components classified as an operating lease are recorded to “General and Administrative” within our unaudited Consolidated Statements of Operations.

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”).

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 up to $ 225.0 million for the Aurora Project and, upon PENN’s request, up to $ 350.0 million in the aggregate for the Other Development Projects, in accordance with certain terms and conditions set forth in the Master Development Agreement.

1 unchanged sentence

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

13 unchanged sentences

The building components of substantially all of the Pinnacle Master Lease properties continue to be classified as financing obligations.

Lease components classified as a finance lease are recorded to “Depreciation and amortization” and “Interest expense, net” within our unaudited

Consolidated Statements of Operations.

Lease components classified as a finance lease are recorded to “Depreciation and amortization” and “Interest expense, net” within our unaudited Consolidated Statements of Operations.

The Company recognizes interest expense on the lease payments related to the financing obligation under the effective yield method.

1 unchanged sentence

Morgantown Lease

On October 1, 2020, the Company entered into a triple net lease with a subsidiary of GLPI for the land underlying our development project in Morgantown, Pennsylvania (“Morgantown Lease”) in exchange for $ 30.0 million in rent credits which were utilized to pay rent under the Master Leases, Meadows Lease, and the Morgantown Lease during the year ended December 31, 2020.

On October 1, 2020, the Company entered into a triple net lease with a subsidiary of GLPI for the land underlying our development project in Morgantown, Pennsylvania (“Morgantown Lease”) in exchange for $ 30.0 million in rent credits which were utilized to pay rent under the Master Leases, Meadows Lease (as defined and discussed below), and the Morgantown Lease during the year ended December 31, 2020.

All improvements made on the land, including the constructed building, will be owned by the Company while the lease is in effect, however, on the expiration or termination of the Morgantown Lease, ownership of all tenant improvements on the land will transfer to GLPI.

20 unchanged sentences

The next annual escalator test date is scheduled to occur on February 1, 2024.

Additionally, on February 1, 2023, the Margaritaville Percentage

Rent reset resulted in an annual rent increase of $ 2.3 million which will be in effect until the next Margaritaville Percentage Rent reset, scheduled to occur on February 1, 2025.

Additionally, on February 1, 2023, the Margaritaville Percentage Rent reset resulted in an annual rent increase of $ 2.3 million which will be in effect until the next Margaritaville Percentage Rent reset, scheduled to occur on February 1, 2025.

Upon reset of the Margaritaville Percentage Rent, effective February 1, 2023, we recognized an additional operating lease ROU asset and corresponding lease liability of $ 9.8 million.

4 unchanged sentences

The Greektown Lease has an initial term of 15 years, with four subsequent five-year renewal options on the same terms and conditions, exercisable at the Company’s option.

The payment structure under the Greektown Lease includes a fixed component, a portion subject to an annual escalator of up to 2 % depending on an Adjusted Revenue to Rent Ratio (as defined in the Greektown Lease) of 1.85 :1, and a component that is based on performance, which is prospectively adjusted every two years by an amount equal to 4 % of the average change in net revenues of the property compared to a contractual baseline during the preceding two years (Greektown Percentage Rent”).

The payment structure under the Greektown Lease includes a fixed component, a portion subject to an annual escalator of up to 2 %

depending on an Adjusted Revenue to Rent Ratio (as defined in the Greektown Lease) of 1.85 :1, and a component that is based on performance, which is prospectively adjusted every two years by an amount equal to 4 % of the average change in net revenues of the property compared to a contractual baseline during the preceding two years (Greektown Percentage Rent”).

On June 1, 2023, the Greektown Percentage Rent reset resulted in an annual rent increase of $ 1.5 million, which will be in effect until the next Greektown Percentage Rent reset, scheduled to occur on June 1, 2025.

Upon reset of the Greektown Percentage Rent, effective June 1, 2023, we recognized an additional operating lease ROU asset and corresponding lease liability of $ 7.0 million.

We did not incur an annual escalator for the lease year ended June 1, 2023.

We did not incur an annual escalator for the lease year ended May 31, 2023.

On April 1, 2023, the lease was amended to provide for a Net Revenue to Rent coverage floor to be mutually agreed upon prior to the commencement of the sixth lease year (June 1, 2024).

12 unchanged sentences

The Company’s operating lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The following is a maturity analysis of our operating leases, finance leases and financing obligations as of June 30, 2023:

The following is a maturity analysis of our operating leases, finance leases and financing obligations as of September 30, 2023:

(in millions) Operating Leases Finance Leases Financing Obligations

Year ended December 31,

2023 (excluding the six months ended June 30, 2023) $ 304.6 $ 79.2 $ 83.2

2023 (excluding the nine months ended September 30, 2023) $ 148.4 $ 39.7 $ 41.6

2024 585.2 149.3 166.5

9 unchanged sentences

Total payments made under the Triple Net Leases were as follows:

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

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

(in millions) 2023 2022 2023 2022

9 unchanged sentences

$ 235.0 $ 232.0 $ 702.4 $ 693.1

(1) For the three and six months ended June 30, 2022, rent payable under the Tropicana Lease was nominal.

(1) For the three and nine months ended September 30, 2022, rent payable under the Tropicana Lease was nominal.

Therefore, it has been excluded from the table above.

1 unchanged sentence

Information related to lease term and discount rate was as follows:

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Weighted-Average Remaining Lease Term

8 unchanged sentences

Location on unaudited

Consolidated Statements of Operations For the three months ended June 30, For the six months ended June 30,

Consolidated Statements of Operations For the three months ended September 30, For the nine months ended September 30,

(in millions) 2023 2022 2023 2022

17 unchanged sentences

Interest expense, net $ 36.8 $ 86.2 $ 110.0 $ 261.0

(1) For the three and six months ended June 30, 2023, pertains to the following operating leases:

(1) For the three and nine months ended September 30, 2023, pertains to the following operating leases:

(i) AR PENN Master Lease;

2 unchanged sentences

and (iv) Greektown Lease.

For the three and six months ended June 30, 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 Dayton and Mahoning Valley);

For the three and nine months ended September 30, 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 Dayton and Mahoning Valley);

(ii) Meadows Lease;

3 unchanged sentences

(2) Excludes the operating lease costs and variable lease costs pertaining to our triple net leases with our REIT landlords classified as operating leases, discussed in footnote (1) above.

(3) For the three and six months ended June 30, 2023, pertains to the finance lease components associated with the Pinnacle Master Lease.

For the three and six months ended June 30, 2022, pertains to the finance lease components associated with the (i) PENN Master Lease;

(3) For the three and nine months ended September 30, 2023, pertains to the finance lease components associated with the Pinnacle Master Lease.

For the three and nine months ended September 30, 2022, pertains to the finance lease components associated with the (i) PENN Master Lease;

(ii) Pinnacle Master Lease;

1 unchanged sentence

The finance lease components contained within the PENN Master Lease and the Pinnacle Master Lease consist of the land, inclusive of the variable expense associated with Columbus and Toledo.

(4) For the three and six months ended June 30, 2023, pertains to the components contained within the Pinnacle Master Lease (primarily buildings) and the Morgantown Lease.

For the three and six months ended June 30, 2022, pertains to the components contained within the PENN Master Lease (primarily buildings) inclusive of the variable expense associated with Columbus and Toledo for the financing obligation components, Pinnacle Master Lease (primarily buildings), and the Morgantown Lease.

(4) For the three and nine months ended September 30, 2023, pertains to the components contained within the Pinnacle Master Lease (primarily buildings) and the Morgantown Lease.

For the three and nine months ended September 30, 2022, pertains to the components contained within the PENN Master Lease (primarily buildings) inclusive of the variable expense associated with Columbus and Toledo for the financing obligation components, Pinnacle Master Lease (primarily buildings), and the Morgantown Lease.

Supplemental cash flow information related to leases was as follows:

For the six months ended June 30,

For the nine months ended September 30,

(in millions) 2023 2022

6 unchanged sentences

Note 10— Investments in and Advances to Unconsolidated Affiliates

As of June 30, 2023, investments in and advances to unconsolidated affiliates primarily consisted of the Company’s 50 % investment in Kansas Entertainment, the joint venture with NASCAR that owns Hollywood Casino at Kansas Speedway.

As of September 30, 2023, investments in and advances to unconsolidated affiliates primarily consisted of the Company’s 50 % investment in Kansas Entertainment, the joint venture with NASCAR that owns Hollywood Casino at Kansas Speedway.

Kansas Entertainment Joint Venture

As of June 30, 2023 and December 31, 2022, our investment in Kansas Entertainment was $ 80.7 million and $ 81.5 million, respectively.

During the three and six months ended June 30, 2023, the Company received distributions from Kansas Entertainment totaling $ 8.3 million and $ 16.8 million, respectively, as compared to $ 9.0 million and $ 17.0 million for the three and six months ended June 30, 2022, respectively.

As of September 30, 2023 and December 31, 2022, our investment in Kansas Entertainment was $ 77.8 million and $ 81.5 million, respectively.

The Company received distributions from Kansas Entertainment totaling $ 11.0 million and $ 10.5 million for the three months ended September 30, 2023 and 2022, respectively, and $ 27.8 million and $ 27.5 million for the nine months ended September 30, 2023 and 2022, respectively.

The Company deems these distributions to be returns on its investment based on the source of those cash flows from the normal business operations of Kansas Entertainment.

1 unchanged sentence

Using the guidance for entities that are not VIEs, the Company determined that it did not have a controlling financial interest in the joint venture, primarily as it did not have the ability to direct the activities of the joint venture that most significantly impacted the joint venture’s economic performance without the input of NASCAR.

Therefore, the Company did not consolidate the financial position of Kansas Entertainment as of June 30, 2023 and December 31, 2022, nor the results of operations for the three and six months ended June 30, 2023 and 2022.

Therefore, the Company did not consolidate the financial position of Kansas Entertainment as of September 30, 2023 and December 31, 2022, nor the results of operations for the three and nine months ended September 30, 2023 and 2022.

Note 11— Income Taxes

1 unchanged sentence

The tax effects of discrete items, including but not limited to, excess tax benefits associated with stock-based compensation, are reported in the interim period in which they occur.

The effective tax rate (income taxes as a percentage of income or loss before income taxes) including discrete items was 30.7 % and 25.5 % for the three and six months ended June 30, 2023, as compared to 68.3 % and 57.2 % for the three and six months ended June 30, 2022.

We excluded certain foreign losses from our worldwide effective tax rate calculation due to a year-to-date ordinary loss for which no benefit may be recognized.

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

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

As of each reporting date, the Company considers all available positive and negative evidence that could affect its view of the future realization of deferred tax assets pursuant to ASC Topic 740, “Income Taxes.” As of June 30, 2023, we intend to continue maintaining a valuation allowance on our deferred tax assets until there is sufficient positive evidence to support the reversal of all or some portion of these allowances.

The effective tax rate (income taxes as a percentage of income or loss before income taxes) including discrete items was 19.0 % and 226.7 % for the three months ended September 30, 2023 and 2022, respectively.

The effective tax rate (income taxes as a percentage of income or loss before income taxes) including discrete items was 1,698.9 % and ( 62.9 )% for the nine months ended September 30, 2023 and 2022, respectively.

Our effective income tax rate can vary from period to period depending on, among other factors, the geographic and business mix of our earnings, acquisitions and dispositions, and changes to our valuation allowance positions.

The primary drivers causing fluctuations in our effective tax rate each period were (i) the Barstool transactions, (ii) excluding certain foreign losses for which no tax benefit can be recognized in our worldwide effective tax rate calculation, and (iii) changes to the valuation allowance.

As of each reporting date, the Company considers all available positive and negative evidence that could affect its view of the future realization of deferred tax assets pursuant to ASC Topic 740, “Income Taxes.” As of September 30, 2023, we intend to continue maintaining a valuation allowance on our deferred tax assets that are not more likely than not to be realized, until there is sufficient positive evidence to support the reversal of all or some portion of these allowances.

A reduction in the valuation allowance could result in a significant decrease to income tax expense in the period the release is recorded.

Although the exact timing and valuation reversal amount are estimated, the actual determination is contingent upon the earnings level we achieve in 2023 as well as our projected income levels in future periods.

During the three and six months ended June 30, 2023, the Company’s valuation allowance increased in the amount of $ 1.0 million and decreased in the amount of $ 2.1 million, respectively, due to a combination of income levels, accounting for Master Leases and the Barstool Acquisition that had the effect on certain state deferred tax assets that are more likely than not to be realized.

During the three months ended March 31, 2023, the Company recorded a net deferred tax liability of $ 115.9 million with respect to the Barstool stock acquisition on February 17, 2023, as discussed in Note 6, “Acquisitions and Dispositions.” These temporary differences were primarily related to existing carryover tax basis, acquired federal and state net operating losses and other acquired intangible assets excluding goodwill.

Barstool’s operations are now included in our consolidated federal, state and local tax returns, which has an impact on our effective tax rate in certain jurisdictions.

In August 2023, we entered into the Barstool SPA, as discussed in Note 6, “Acquisitions and Dispositions,” pursuant to which PENN sold 100 % of the outstanding shares of Barstool to David Portnoy in exchange for a nominal cash consideration ($ 1.00 dollar) and certain non-compete and other restrictive covenants.

As such, the deferred tax liability associated with the Barstool tradename and other intangible assets will be written off to income tax expense, which will have a material impact on our unaudited Consolidated Statements of Operations and unaudited Consolidated Balance Sheets.

As of June 30, 2023, the Company has a current income tax payable of $ 4.4 million included in “Accrued expenses and other current liabilities” within our unaudited Consolidated Balance Sheets, compared to prepaid income taxes of $ 15.2 million as of December 31, 2022, which were included in “Prepaid expenses” within our unaudited Consolidated Balance Sheets.

During the three and nine months ended September 30, 2023, the Company’s valuation allowance increased in the amount of $ 53.0 million and $ 50.9 million, respectively, primarily due to a capital loss carryforward generated on the Barstool disposition, that is more likely than not to be realized.

During the three months ended March 31, 2023, the Company recorded a net deferred tax liability of $ 115.9 million with respect to the Barstool stock acquisition on February 17, 2023, which was subsequently written off to income tax expense on August 8, 2023, as part of the Barstool disposition, as discussed in Note 6, “Acquisitions and Dispositions.” These temporary differences were primarily related to the fair value accounting adjustments on the acquired intangible assets (excluding goodwill) and existing carryover tax basis, including acquired federal and state net operating losses.

Barstool’s operations are included in our consolidated federal, state and local tax returns for the stub period ended August 8, 2023, which has an immaterial impact on our effective tax rate in certain jurisdictions.

The Company recorded prepaid income taxes of $ 54.4 million and $ 15.2 million as of September 30, 2023 and December 31, 2022, respectively, which are included in “Prepaid expenses” within our unaudited Consolidated Balance Sheets.

Note 12— Commitments and Contingencies

2 unchanged sentences

The Company does not believe that the final outcome of these matters will have a material adverse effect on its financial position, results of operations, or cash flows.

ESPN Sportsbook and Investment Agreements

On August 8, 2023, PENN entered into the Sportsbook Agreement with ESPN which provides for a long-term strategic relationship between PENN and ESPN relating to online sports betting in the United States.

Pursuant to the Sportsbook Agreement, PENN will rebrand its existing Barstool Sportsbook across all online platforms in the United States as ESPN BET and will oversee daily operations of the Sportsbook.

The Sportsbook Agreement provides PENN with an exclusive license to use the ESPN BET trademark in the United States in connection with the Sportsbook.

In addition, ESPN will provide certain marketing, content integration and promotional services in support of the Sportsbook, including access to ESPN talent, and will exclusively promote the Sportsbook in the United States, subject to certain exceptions, in accordance with a mutually agreed on-channel marketing plan.

The Sportsbook will be deeply integrated within the broader ESPN editorial, content, digital product and sports programming ecosystem, with access to ESPN’s industry leading audience and database.

The Sportsbook Agreement has an initial 10-year term and may be extended for an additional ten years upon mutual agreement of PENN and ESPN.

In consideration for the media marketing services and brand and other rights provided by ESPN, PENN will pay $ 150.0 million per year in cash pursuant to the Sportsbook Agreement for the initial 10-year term and issue the warrants pursuant to the Investment Agreement (as defined and described in more detail below).

In addition, the Sportsbook Agreement may be terminated by either party (i) in the case of an uncured material breach by or bankruptcy of the other party, (ii) if at the end of year 3 of the term the Sportsbook has not achieved a specified level of market share based on gross gaming revenue in the states in which the Sportsbook operates while branded ESPN BET, (iii) in certain circumstances, if the other party or certain of its officers is the subject of a criminal or other investigation by federal or state authorities, is charged with certain crimes or commits certain other acts, including those which would reasonably be expected to cause material damage to the terminating party’s reputation or brand, or (iv) in certain circumstances involving non-compliance with data privacy laws.

In addition, ESPN has the right to terminate the Sportsbook Agreement if (i) a repeated material breach by PENN of the terms of the ESPN intellectual property license or an uncured material breach by PENN of the terms of the ESPN intellectual property license that results in material harm to the reputation or goodwill associated with the ESPN brand or name, (ii) in certain circumstances where PENN commits a material failure of specified product and technology guidelines or certain customer service level metrics, (iii) if at the end of year 3 or year 7 of the term the Sportsbook’s market access is not at least a specified percentage of the total market access by the online sportsbook operator with the most expansive market access, subject to certain exceptions, (iv) if ESPN undergoes certain transactions involving a significant change in ownership of ESPN, subject to the payment of a termination fee to PENN or (v) in certain circumstances if PENN undergoes certain transactions involving a significant change in ownership of PENN, including such a transaction involving a competitor of The Walt Disney Company (“TWDC”).

PENN has the right to terminate the Sportsbook Agreement (i) if ESPN undergoes certain transactions resulting in a significant change in ownership of ESPN involving a competitor of PENN, (ii) in certain circumstances related to the suitability of ESPN, TWDC or certain of their respective officers for gaming regulatory purposes or (iii) in certain circumstances if PENN is unable to utilize the ESPN BET brand in states comprising a specified percentage of the aggregate population for all states in which PENN conducts online sports betting in the United States.

In connection with the Sportsbook Agreement, PENN and ESPN, Inc.

entered into an Investment Agreement (the “Investment Agreement”) on August 8, 2023.

The Investment Agreement provides for the issuance to ESPN, Inc.

of certain warrants to purchase shares of PENN common stock, par value $ 0.01 per share, and setting forth certain other governance rights of ESPN, Inc.

Pursuant to the Investment Agreement PENN issued to ESPN, Inc.

warrants to purchase approximately 31.8 million shares of PENN common stock.

The warrants are classified as equity and contain three separate tranches which vest quarterly over ten years from the date of the Investment Agreement, provided that any remaining unvested portion of the first tranche of warrants will vest on August 8, 2032.

If the Sportsbook Agreement is terminated due to certain breaches of the Sportsbook Agreement by PENN, then all unvested warrants will immediately vest.

If the Sportsbook Agreement is terminated for any other reason, then all unvested warrants will immediately be forfeited, subject to certain exceptions.

At the grant date, the $ 550.4 million fair value of the awards was determined using the Black Scholes pricing model with contractual terms ranging from 9.5 to 11.5 years, and strike prices ranging from $ 26.08 to $ 32.60 .

Additionally, if after February 29, 2024 and during the term of the Sportsbook Agreement PENN achieves specified performance conditions based on an average market share based on gross gaming revenue in the states in which the Sportsbook operates (as defined within the Investment Agreement), PENN could issue to ESPN, Inc.

warrants to purchase up to an additional 6.4 million shares of PENN common stock.

The additional warrants will be fully vested upon issuance, have an exercise price of $ 28.95 and will be exercisable for 10.5 years from the date of issuance.

Note 13— Stockholders’ Equity and Stock-Based Compensation

Common and Preferred Stock

On June 29, 2023, in connection with the acquisition of HitPoint Inc.

and Lucky Point Inc.

(collectively, “Hitpoint”) which were acquired in 2021, the Company issued 4,055 shares of common stock with a par value of $ 0.01 , representing the achievement of the second of three annual mutual goals established by the Company and Hitpoint.

On February 17, 2023, as part of the Barstool Acquisition as discussed in Note 6, “Acquisitions and Dispositions,” the Company issued 2,442,809 shares of common stock with a par value of $ 0.01 , to certain former stockholders of Barstool (the “Share Consideration”).

The issuance of the Share Consideration was exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof, because such issuance did not involve a public offering.

The Share Consideration is subject to transfer restrictions which will be waived on August 11, 2023 pursuant to the Barstool SPA.

The Share Consideration was subject to transfer restrictions which were waived on August 11, 2023, pursuant to the Barstool SPA.

See Note 6, “Acquisitions and Dispositions” for additional information related to the Barstool SPA.

In conjunction with the February 20, 2020 stock purchase agreement between PENN and Barstool, the Company issued 883 shares of Series D Preferred Stock, par value $ 0.01 (the “Series D Preferred Stock”) to certain individual stockholders affiliated with Barstool.

1/1,000th of a share of Series D Preferred Stock is convertible into one share of PENN common stock.

The Series D Preferred stockholders are entitled to participate equally and ratably in all dividends and distributions paid to holders of PENN common stock based on the number of shares of PENN common stock into which such Series D Preferred Stock could convert.

1/1,000th of a share of Series D Preferred Stock was convertible into one share of PENN common stock.

The Series D Preferred stockholders were entitled to participate equally and ratably in all dividends and distributions paid to holders of PENN common stock based on the number of shares of PENN common stock into which such Series D Preferred Stock could convert.

Series D Preferred Stock is nonvoting stock.

1 unchanged sentence

As a result of the conversion, the Company issued 226,800 shares of common stock with a par value of $ 0.01 .

Pursuant to the Barstool SPA, on August 11, 2023, all remaining 354 outstanding shares of Series D Preferred Stock became eligible for conversion and were converted to common stock.

As a result of the conversion, the Company issued 353,800 shares of common stock with a par value of $ 0.01 .

The issuances were exempt from registration pursuant to Section 4(a)(2) of the Securities Act.

As of June 30, 2023, 89 shares of the Series D Preferred Stock were eligible for conversion into PENN common stock.

Pursuant to the Barstool SPA, all 354 outstanding Series D Preferred Stock will become eligible for conversion on August 11, 2023.

There are no outstanding shares of Series D Preferred Stock as of September 30, 2023.

On June 29, 2023, in connection with the acquisition of HitPoint Inc.

and Lucky Point Inc.

In connection with the acquisition of theScore in October 2021, the Company issued 12,319,340 of common stock with a par value of $ 0.01 , and 697,539 exchangeable shares (“Exchangeable Shares”) through the capital of an indirect wholly-owned subsidiary of PENN, in addition to cash consideration.

2 unchanged sentences

In addition, the Company may redeem all outstanding Exchangeable Shares in exchange for shares of PENN common stock at any time following the fifth anniversary of the closing, or earlier under certain circumstances.

We issued no Exchangeable Shares during the three months ended June 30, 2023.

During the six months ended June 30, 2023, we issued 2,854 Exchangeable Shares.

No Exchangeable Shares were issued during the three and six months ended June 30, 2022.

As of both June 30, 2023 and December 31, 2022, there were 768,441 Exchangeable Shares authorized, of which 560,388 shares and 620,019 shares were outstanding, respectively.

We issued no Exchangeable Shares during the three months ended September 30, 2023 or 2022.

During the nine months ended September 30, 2023, we issued 2,854 Exchangeable Shares.

No Exchangeable Shares were issued during the nine months ended September 30, 2022.

As of both September 30, 2023 and December 31, 2022, there were 768,441 Exchangeable Shares authorized, of which 560,388 shares and 620,019 shares were outstanding, respectively.

Share Repurchase Authorization

During the quarter, we completed our $ 750.0 million share repurchase authorization approved by the Board of Directors on February 1, 2022 (the “February 2022 Authorization”).

During the second quarter of 2023, we completed our $ 750.0 million share repurchase authorization approved by the Board of Directors on February 1, 2022 (the “February 2022 Authorization”).

On December 6, 2022, a second share repurchase program was authorized for an additional $ 750.0 million (the “December 2022 Authorization”).

1 unchanged sentence

The Company utilized the capacity under the February 2022 Authorization prior to effecting any repurchases under the December 2022 Authorization.

Repurchases by the Company are subject to available liquidity, general market and economic

conditions, alternate uses for the capital and other factors.

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

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

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

During the three and six months ended June 30, 2023 respectively, the Company repurchased 3,791,258 and 5,438,221 shares of its common stock in open market transactions for $ 99.8 million and $ 149.8 million, at an average price of $ 26.31 and $ 27.54 per share under the February 2022 and December 2022 Authorizations.

During the three and six months ended June 30, 2022, the Company repurchased 5,539,177 and 9,341,585 shares of its common stock in open market transactions for $ 167.0 million and $ 342.1 million, at an average price of $ 30.16 and $ 36.62 per share under the February 2022 Authorization.

No shares of the Company’s common stock were repurchased during the three months ended September 30, 2023.

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 under the February 2022 Authorization.

During the nine months ended September 30, 2023 and 2022, respectively, the Company repurchased 5,438,221 and 14,690,394 shares of its common stock in open market transactions for $ 149.8 million and $ 510.1 million, at an average price of $ 27.54 and $ 34.72 per share under the February 2022 and December 2022 Authorizations.

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

No shares of the Company’s common stock were repurchased subsequent to the quarter ended June 30, 2023.

As of August 8, 2023, the remaining availability under our December 2022 Authorization was $ 749.5 million.

No shares of the Company’s common stock were repurchased subsequent to the quarter ended September 30, 2023.

As of November 1, 2023, the remaining availability under our December 2022 Authorization was $ 749.5 million.

2022 Long Term Incentive Compensation Plan

7 unchanged sentences

Any awards that are not settled in shares of common stock are not counted against the share limit.

As of June 30, 2023, there are 10,974,710 shares available for future grants under the 2022 Amended Plan.

As of September 30, 2023, there are 10,960,721 shares available for future grants under the 2022 Amended Plan.

Performance Share Program

The Company’s performance share programs were adopted to provide our NEOs and certain other key executives with stock-based compensation tied directly to the Company’s performance, which further aligns their interests with our shareholders and provides compensation only if the designated performance goals are met for the applicable performance periods.

An aggregate of 461,747 and 244,955 restricted units with performance-based vesting conditions, at target, were granted during the six months ended June 30, 2023 and 2022, respectively.

An aggregate of 461,747 and 244,955 restricted units with performance-based vesting conditions, at target, were granted during the nine months ended September 30, 2023 and 2022, respectively.

Restricted performance units granted prior to the adoption of the 2022 Plan were awarded under a performance share program (“the Performance Share Program II”).

2 unchanged sentences

The awards have the potential to be earned at between 0 % and 150 % of the number of shares granted, depending on achievement of the annual performance goals, and remain subject to vesting for the full three-year service period.

In addition to the above, during the six months ended June 30, 2023, the Company granted employees of theScore 202,518 restricted units with performance-based vesting conditions that are dependent on the achievement of certain milestones.

In addition to the above, during the nine months ended September 30, 2023, the Company granted employees of theScore 200,634 restricted units with performance-based vesting conditions that are dependent on the achievement of certain milestones.

The awards have the potential to be earned at between 0 % and 100 % and consist of two , one-year performance periods, each containing an applicable milestone.

2 unchanged sentences

Stock-based Compensation Expense

Stock-based compensation expense, which pertains principally to our stock options and restricted stock, including restricted stock with performance conditions, was $ 19.7 million and $ 36.2 million for the three and six months ended June 30, 2023 as compared to $ 14.5 million and $ 31.5 million for the three and six months ended June 30, 2022 and is included within the unaudited Consolidated Statements of Operations under “General and administrative.”

Stock-based compensation expense, which pertains principally to our stock options and restricted stock, including restricted stock with performance conditions, is included within the unaudited Consolidated Statements of Operations under “General and administrative,” and was $ 35.2 million and $ 13.6 million for the three months ended September 30, 2023 and 2022, respectively, and $ 71.4 million and $ 45.1 million for the nine months ended September 30, 2023 and 2022, respectively.

Stock-based compensation expense for the three and nine months ended September 30, 2023 included $ 14.5 million related to immediate vesting, pursuant to the Barstool SPA, of all unvested restricted shares and stock appreciation rights issued under

PENN’s long term incentive compensation plans to Barstool employees.

See Note 6, “Acquisitions and Dispositions” for additional information related to the Barstool SPA.

Stock Options

The Company granted 2,362 and 840,235 stock options during the three and six months ended June 30, 2023 respectively, as compared to 3,316 and 396,365 for the three and six months ended June 30, 2022 respectively.

The Company granted 905 and 1,516 stock options during the three months ended September 30, 2023 and 2022, respectively, and 841,140 and 397,881 during the nine months ended September 30, 2023 and 2022, respectively.

Cash-settled Phantom Stock Units

2 unchanged sentences

The CPUs are accounted for as liability awards and are re-measured at fair value each reporting period until they become vested with compensation expense being recognized over the requisite service period.

The Company has a liability, which is included in “Accrued expenses and other current liabilities” within the unaudited Consolidated Balance Sheets, associated with its cash-settled CPUs of $ 1.7 million and $ 2.1 million as of June 30, 2023 and December 31, 2022, respectively.

As of June 30, 2023, there was a total of $ 2.3 million unrecognized compensation cost related to CPUs that will be recognized over the awards remaining weighted-average vesting period of 0.8 years.

For the three and six months ended June 30, 2023, the Company recognized $ 0.9 million and $ 1.6 million of compensation expense associated with these awards, respectively, as compared to $ 0.8 million and $ 1.4 million for the three and six months ended June 30, 2022.

The Company has a liability, which is included in “Accrued expenses and other current liabilities” within the unaudited Consolidated Balance Sheets, associated with its cash-settled CPUs of $ 0.8 million and $ 2.1 million as of September 30, 2023 and December 31, 2022, respectively.

As of September 30, 2023, there was a total of $ 0.8 million unrecognized compensation cost related to CPUs that will be recognized over the awards remaining weighted-average vesting period of 1.5 years.

The Company recognized $ 1.3 million and $ 1.0 million of compensation expense associated with these awards for the three months ended September 30, 2023 and 2022, respectively, and $ 2.9 million and $ 2.4 million for the nine months ended September 30, 2023 and 2022, respectively.

Compensation expense associated with our CPUs is recorded in “General and administrative” within the unaudited Consolidated Statements of Operations.

We paid $ 2.0 million and $ 8.0 million for the six months ended June 30, 2023 and 2022, respectively, pertaining to cash-settled CPUs.

We paid $ 4.2 million and $ 9.9 million during the nine months ended September 30, 2023 and 2022, respectively, pertaining to cash-settled CPUs.

Stock Appreciation Rights

1 unchanged sentence

The fair value of cash-settled SARs is calculated each reporting period and estimated using the Black-Scholes option pricing model.

The Company has a liability, which is included in “Accrued expenses and other current liabilities” within the unaudited Consolidated Balance Sheets, associated with its cash-settled SARs of $ 5.7 million and $ 9.2 million as of June 30, 2023 and December 31, 2022, respectively.

For SARs held by employees of the Company, there was $ 2.4 million of total unrecognized compensation cost as of June 30, 2023 that will be recognized over the awards remaining weighted-average vesting period of 1.7 years.

The Company recognized a reduction to compensation expense of $ 3.6 million and $ 3.7 million for the three and six months ended June 30, 2023, as compared to a reduction to compensation expense of $ 6.8 million for the three and six months ended June 30, 2022.

The Company has a liability, which is included in “Accrued expenses and other current liabilities” within the unaudited Consolidated Balance Sheets, associated with its cash-settled SARs of $ 4.7 million and $ 9.2 million as of September 30, 2023 and December 31, 2022, respectively.

For SARs held by employees of the Company, there was $ 1.6 million of total unrecognized compensation cost as of September 30, 2023 that will be recognized over the awards remaining weighted-average vesting period of 1.6 years.

The Company recognized a reduction to compensation expense of $ 0.7 million and $ 1.3 million for the three months ended September 30, 2023 and 2022, respectively, and a reduction to compensation expense of $ 4.4 million and $ 8.1 million for the nine months ended September 30, 2023 and 2022, respectively.

Compensation expense associated with our SARs is recorded in “General and administrative” within the unaudited Consolidated Statements of Operations.

We paid $ 0.6 million and $ 2.1 million during the six months ended June 30, 2023 and 2022, respectively, related to cash-settled SARs.

We paid $ 0.6 million and $ 2.8 million during the nine months ended September 30, 2023 and 2022, respectively, related to cash-settled SARs.

In the second quarter of 2021, the Company entered into two promissory notes with shareholders for a total of $ 9.0 million.

2 unchanged sentences

Note 14— Earnings per Share

For the three and six months ended June 30, 2023 and 2022 we recorded net income attributable to PENN.

As such, we used diluted weighted-average common shares outstanding when calculating diluted income per share.

For the three and nine months ended September 30, 2023, we recorded a net loss attributable to PENN.

As such, because the dilution from potential common shares was anti-dilutive, we used basic weighted-average common shares outstanding, rather than diluted weighted-average common shares outstanding when calculating diluted loss per share for the three and nine months ended September 30, 2023.

Stock options, restricted stock, convertible preferred shares and convertible debt that could potentially dilute basic EPS in the future that were not included in the computation of diluted loss per share were as follows:

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

(in millions) 2023

Assumed conversion of dilutive stock options 0.5 0.7

Assumed conversion of dilutive restricted stock 0.4 0.4

Assumed conversion of convertible preferred shares 0.2 0.3

Assumed conversion of convertible debt 14.1 14.1

For the three and nine months ended September 30, 2022, we recorded net income attributable to PENN.

As such, we used diluted weighted-average common shares outstanding when calculating diluted income per share for the three and nine months ended September 30, 2022.

Stock options, restricted stock, convertible preferred shares and convertible debt that could potentially dilute basic EPS in the future are included in the computation of diluted income per share.

The following table sets forth the allocation of net income for the three and six months ended June 30, 2023 and 2022 under the two-class method.

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

The following table sets forth the allocation of net income (loss) for the three and nine months ended September 30, 2023 and 2022 under the two-class method.

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

(in millions) 2023 2022 2023 2022

Net income attributable to PENN Entertainment $ 78.4 $ 26.1 $ 592.9 $ 77.8

Net income (loss) attributable to PENN Entertainment $ ( 724.8 ) $ 123.5 $ ( 131.9 ) $ 201.3

Net income applicable to preferred stock — 0.5 — 0.8

Net income applicable to common stock $ 78.2 $ 26.0 $ 591.2 $ 77.5

The following table reconciles the weighted-average common shares outstanding used in the calculation of basic EPS to the weighted-average common shares outstanding used in the calculation of diluted EPS for the three and six months ended June 30, 2023 and 2022:

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

Net income (loss) applicable to common stock $ ( 724.8 ) $ 123.0 $ ( 131.9 ) $ 200.5

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

(in millions) 2023 2022 2023 2022

Weighted-average common shares outstanding 152.8 164.8 153.0 166.5

Weighted-average common shares outstanding — basic

150.9 157.6 152.3 163.5

Assumed conversion of:

3 unchanged sentences

Weighted-average common shares outstanding — diluted

Restricted stock with performance and market based vesting conditions that have not been met as of June 30, 2023 were excluded from the computation of diluted EPS.

Options to purchase 1.8 million and 1.7 million shares were outstanding during the three and six months ended June 30, 2023, compared to 0.9 million and 0.8 million during the three and six months ended June 30, 2022, but were not included in the computation of diluted EPS because they were anti-dilutive.

The assumed conversion of 0.4 million preferred shares were excluded from the computation of diluted EPS for each of the three and six months ended June 30, 2023, as compared to 0.6 million preferred shares for each of the three and six months ended June 30, 2022, because including them would have been anti-dilutive.

The Company’s calculation of weighted-average common shares outstanding includes the Exchangeable Shares as discussed Note 13, “Stockholders’ Equity and Stock-Based Compensation.” The following table presents the calculation of basic and diluted EPS for the Company’s common stock for the three and six months ended June 30, 2023 and 2022:

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

150.9 173.0 152.3 179.0

Restricted stock with performance and market based vesting conditions that have not been met as of September 30, 2023 were excluded from the computation of diluted EPS.

In addition to the 0.5 million and 0.7 million options included in the table above for the three and nine months ended September 30, 2023, respectively, options to purchase 2.0 million and 0.9 million shares were outstanding during the three months ended September 30, 2023 and 2022, respectively, and 1.7 million and 0.8 million during the nine months ended September 30, 2023 and 2022, respectively, but were not included in the computation of diluted EPS because they were anti-dilutive.

The assumed conversion of 0.2 million and 0.6 million preferred shares were excluded from the computation of diluted EPS for the three months ended September 30, 2023 and 2022, respectively, and 0.3 million and 0.6 million preferred shares for the nine months ended September 30, 2023 and 2022, respectively, because including them would have been anti-dilutive.

The Company’s calculation of weighted-average common shares outstanding includes the Exchangeable Shares as discussed in Note 13, “Stockholders’ Equity and Stock-Based Compensation.” The following table presents the calculation of basic and diluted EPS for the Company’s common stock for the three and nine months ended September 30, 2023 and 2022:

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

(in millions, except per share data) 2023 2022 2023 2022

Calculation of basic earnings per share:

Net income applicable to common stock $ 78.2 $ 26.0 $ 591.2 $ 77.5

Calculation of basic earnings (loss) per share:

Net income (loss) applicable to common stock $ ( 724.8 ) $ 123.0 $ ( 131.9 ) $ 200.5

Weighted-average shares outstanding — PENN Entertainment

150.3 157.0 151.7 162.9

Weighted-average shares outstanding — Exchangeable Shares

0.6 0.6 0.6 0.6

Weighted-average common shares outstanding — basic

Basic earnings per share $ 0.51 $ 0.16 $ 3.86 $ 0.47

Calculation of diluted earnings per share:

Net income applicable to common stock $ 78.2 $ 26.0 $ 591.2 $ 77.5

150.9 157.6 152.3 163.5

Basic earnings (loss) per share $ ( 4.80 ) $ 0.78 $ ( 0.87 ) $ 1.23

Calculation of diluted earnings (loss) per share:

Net income (loss) applicable to common stock $ ( 724.8 ) $ 123.0 $ ( 131.9 ) $ 200.5

Interest expense, net of tax (1) :

Convertible Notes — 1.8 — 5.4

Diluted income applicable to common stock $ 80.0 $ 27.8 $ 594.8 $ 81.2

Diluted income (loss) applicable to common stock $ ( 724.8 ) $ 124.8 $ ( 131.9 ) $ 205.9

Weighted-average common shares outstanding — diluted

Diluted earnings per share $ 0.48 $ 0.15 $ 3.54 $ 0.45

(1) The three and six months ended June 30, 2023 and 2022 were tax-affected at a rate of 21 %.

150.9 173.0 152.3 179.0

Diluted earnings (loss) per share $ ( 4.80 ) $ 0.72 $ ( 0.87 ) $ 1.15

(1) The three and nine months ended September 30, 2022 were tax-affected at a rate of 21 %.

Note 15— Fair Value Measurements

11 unchanged sentences

Equity Securities

As of June 30, 2023 and December 31, 2022, we held $ 20.2 million and $ 17.1 million in equity securities of ordinary shares, respectively, which are reported as “Other assets” in our unaudited Consolidated Balance Sheets.

As of September 30, 2023 and December 31, 2022, we held $ 8.6 million and $ 17.1 million in equity securities of ordinary shares, respectively, which are reported as “Other assets” in our unaudited Consolidated Balance Sheets.

These equity securities are the result of PENN Interactive entering into multi-year agreements with third-party online sports betting and/or iCasino operators for online sports betting and iCasino market access across our portfolio.

During the three and six months ended June 30, 2023, we recognized unrealized holding gains of $ 6.3 million and $ 3.1 million related to these equity securities, respectively, compared to unrealized holding losses of $ 16.9 million and $ 55.6 million

for the three and six months ended June 30, 2022, which is included in “Other,” as reported in “Other income (expenses)” within our unaudited Consolidated Statements of Operations.

The fair value of the equity securities was determined using Level 2 inputs, which use market approach valuation techniques.

We recognized unrealized holding losses of $ 11.6 million and $ 10.8 million related to these equity securities during the three months ended September 30, 2023 and 2022, respectively, and unrealized holding losses of $ 8.5 million and $ 66.4 million

for the nine months ended September 30, 2023 and 2022, respectively, which are included in “Other,” as reported in “Other income (expenses)” within our unaudited Consolidated Statements of Operations.

As of September 30, 2023, the fair value of the equity securities was determined using Level 1 inputs, which use market approach valuation techniques.

The primary inputs to those techniques include the quoted market price of the equity securities and foreign currency exchange rates.

As of December 31, 2022, the fair value of the equity securities was determined using Level 2 inputs, which use market approach valuation techniques.

The primary inputs to those techniques include the quoted market price of the equity securities, foreign currency exchange rates, a discount for lack of marketability (“DLOM”) with respect to the ordinary shares.

The DLOM was based on the remaining term of the relevant lock-up periods and the volatility associated with the underlying equity securities.

Available-for-Sale Debt Securities

1 unchanged sentence

The terms contain optional and mandatory conversion provisions pursuant to which we will receive common stock upon conversion.

As of June 30, 2023, the fair value of the convertible notes approximates the transaction price, as such we did not record any unrealized gains or losses to “Other comprehensive income (loss)” within our unaudited Consolidated Statements of Comprehensive Income (Loss).

As of September 30, 2023, the fair value of the convertible notes approximates the transaction price, as such we did not record any unrealized gains or losses to “Other comprehensive income (loss)” within our unaudited Consolidated Statements of Comprehensive Income (Loss).

The fair value of the convertible notes was determined using a binomial lattice model and is categorized as a Level 3 measurement.

2 unchanged sentences

In addition, we own 1.0 % of the equity of Retama Nominal Holder, LLC, which holds a nominal interest in the racing license used to operate Retama Park Racetrack, and a 75.5 % interest in Pinnacle Retama Partners, LLC (“PRP”), which owns the contingent gaming rights that may arise if gaming under the existing racing license becomes legal in Texas in the future.

As of June 30, 2023 and December 31, 2022, PRP held $ 7.9 million in promissory notes issued by RDC and $ 6.7 million in local government corporation bonds issued by RDC, at amortized cost.

As of September 30, 2023 and December 31, 2022, PRP held $ 7.9 million in promissory notes issued by RDC and $ 6.7 million in local government corporation bonds issued by RDC, at amortized cost.

The promissory notes and the local government corporation bonds are collateralized by the assets of Retama Park Racetrack.

As of June 30, 2023 and December 31, 2022, the promissory notes and the local government corporation bonds were included in “Other assets” within our unaudited Consolidated Balance Sheets.

As of September 30, 2023 and December 31, 2022, the promissory notes and the local government corporation bonds were included in “Other assets” within our unaudited Consolidated Balance Sheets.

The contractual terms of these promissory notes include interest payments due at maturity;

4 unchanged sentences

The fair value of our Amended Term Loan A Facility, Amended Term Loan B Facility, 5.625 % Notes, 4.125 % Notes, and the Convertible Notes is estimated based on quoted prices in active markets and is classified as a Level 1 measurement.

Other long-term obligations as of June 30, 2023 and December 31, 2022 included a financing arrangement entered in February of 2021, the relocation fees for Dayton and Mahoning Valley, and the repayment obligation of the hotel and event center located near Hollywood Casino Lawrenceburg.

Other long-term obligations as of September 30, 2023 and December 31, 2022 included a financing arrangement entered in February of 2021, the relocation fees for Dayton and Mahoning Valley, and the repayment obligation of the hotel and event center located near Hollywood Casino Lawrenceburg.

See Note 8, “Long-term Debt” for details.

2 unchanged sentences

The financing obligation has been classified as a non-current liability and the fair value of the financing obligation is based on what we expect to be settled in a future period of which the principal is contingent and predicated on other events, plus accreted period non-cash interest using an effective interest rate of 27.0 % until the claims and related obligation is settled.

The financing obligation has been classified as a Level 3 measurement and is included within our unaudited Consolidated Balance Sheets in “Long-term debt, net of current maturities, debt discount and debt issuance costs.” See Note 8, “Long-term Debt.”

The financing obligation has been classified as

a Level 3 measurement and is included within our unaudited Consolidated Balance Sheets in “Long-term debt, net of current maturities, debt discount and debt issuance costs.” See Note 8, “Long-term Debt.”

Other Liabilities

Other liabilities as of June 30, 2023 and December 31, 2022 includes contingent purchase price liabilities related to Plainridge Park Casino and Hitpoint, of which Hitpoint was acquired on May 11, 2021.

Other liabilities as of September 30, 2023 and December 31, 2022 includes contingent purchase price liabilities related to Plainridge Park Casino and Hitpoint, of which Hitpoint was acquired on May 11, 2021.

The Hitpoint contingent purchase price liability is payable in installments up to a maximum of $ 1.0 million in the form of cash and equity, on the first three anniversaries of the acquisition close date and is based on the achievement of mutual goals established by the Company and Hitpoint.

As of June 30, 2023, there is one annual achievement period remaining.

As of September 30, 2023, there is one annual achievement period remaining.

The Plainridge Park Casino contingent purchase price liability is calculated based on earnings of the gaming operations over the first ten years of operations, which commenced on June 24, 2015.

As of June 30, 2023, we were contractually obligated to make three additional annual payments.

As of September 30, 2023, we were contractually obligated to make two additional annual payments.

The fair value of the Plainridge Park Casino contingent purchase price liability is estimated based on an income approach using a discounted cash flow model.

These contingent purchase price liabilities have been classified as a Level 3 measurement and are included within our unaudited Consolidated Balance Sheets in “Accrued expenses and other current liabilities” or “Other long-term liabilities,” depending on the timing of the next payment.

Additionally, Other liabilities as of September 30, 2023, includes the $ 70.0 million indemnification as described in Note 6, “Acquisitions and Dispositions.” The indemnification liabilities were recorded at September 30, 2023, in “Other long-term liabilities” within our unaudited Consolidated Balance Sheets and have been classified as a Level 3 measurement.

Key assumptions used to estimate the fair value of the indemnification include the expected tax rate and the probability of potential outcomes based on valuation methods that utilize unobservable inputs that are significant to the overall fair value as of September 30, 2023.

The assessment of the significance of a particular input to the fair value measurement requires judgment.

The carrying amounts and estimated fair values by input level of the Company’s financial instruments were as follows:

June 30, 2023

September 30, 2023

(in millions) Carrying Amount Fair Value Level 1 Level 2 Level 3

40 unchanged sentences

Included in earnings (1)

Balance as of June 30, 2023

Balance as of September 30, 2023

(1) The expense is included in “General and administrative” within our unaudited Consolidated Statements of Operations.

The following table summarizes the significant unobservable inputs used in calculating fair value for our Level 3 assets and liabilities on a recurring basis as of June 30, 2023:

The following table summarizes the significant unobservable inputs used in calculating fair value for our Level 3 assets and liabilities on a recurring basis as of September 30, 2023:

Valuation Technique Unobservable Input Discount Rate

3 unchanged sentences

Note 16— Segment Information

We have aggregated our operating segments into five reportable segments.

Retail operating segments are based on the similar characteristics within the regions in which they operate:

Northeast, South, West, and Midwest.

Our 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, as discussed in Note 6, “Acquisitions and Dispositions” ).

The Other category is included in the following tables to reconcile the segment information to the consolidated information.

We have five reportable segments:

Northeast, South, West, Midwest, and Interactive.

Our gaming and racing properties are grouped by geographic location, and each is viewed as an operating segment with the exception of our two properties in Jackpot, Nevada, which are viewed as one operating segment.

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

Interactive includes all of our online sports betting, iCasino and social gaming operations, management of retail sports betting, media, and the operating results of Barstool.

On August 8, 2023, we entered into the Barstool SPA, and we sold 100 % of the outstanding shares of Barstool common stock (as defined in Note 6, “Acquisitions and Dispositions” ).

The Company utilizes Adjusted EBITDAR (as defined below) as its measure of segment profit or loss.

The following table highlights our revenues and Adjusted EBITDAR for each reportable segment and reconciles Adjusted EBITDAR on a consolidated basis to net income.

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

The following table highlights our revenues and Adjusted EBITDAR for each reportable segment and reconciles Adjusted EBITDAR on a consolidated basis to net income (loss).

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

(in millions) 2023 2022 2023 2022

21 unchanged sentences

Cash-settled stock-based awards variance 2.9 3.8 12.0 16.2

Loss on disposal of assets — ( 7.3 ) — ( 7.2 )

Gain (loss) on disposal of assets — 0.2 — ( 7.0 )

Contingent purchase price ( 1.3 ) ( 0.1 ) ( 1.8 ) 0.9

1 unchanged sentence

Depreciation and amortization ( 105.8 ) ( 148.7 ) ( 323.9 ) ( 417.2 )

Impairment losses (5)

— ( 104.6 ) — ( 104.6 )

Insurance recoveries, net of deductible charges 0.3 1.9 13.9 10.7

3 unchanged sentences

Interest income 10.2 5.2 30.5 7.0

Loss on disposal of Barstool (7)

( 923.2 ) — ( 923.2 ) —

Gain on Barstool Acquisition, net (8)

2 unchanged sentences

( 14.7 ) ( 41.7 ) ( 20.6 ) ( 115.7 )

Income before income taxes 112.8 82.4 795.1 181.6

Income tax expense ( 34.7 ) ( 56.3 ) ( 202.6 ) ( 103.9 )

Net income $ 78.1 $ 26.1 $ 592.5 $ 77.7

Income (loss) before income taxes ( 886.8 ) ( 58.8 ) ( 91.7 ) 122.8

Income tax benefit (expense)

161.7 182.0 ( 40.9 ) 78.1

Net income (loss) $ ( 725.1 ) $ 123.2 $ ( 132.6 ) $ 200.9

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

1 unchanged sentence

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

Corporate overhead costs were $ 24.8 million and $ 51.1

million for the three and six months ended June 30, 2023, respectively, as compared to $ 23.6 million and $ 48.4 million for the three and six months ended June 30, 2022, respectively.

Corporate overhead costs were $ 27.0 million and $ 26.5 million for the three months ended September 30, 2023 and 2022, respectively, and $ 78.1 million and $ 74.9 million for the nine months ended September 30, 2023 and 2022, respectively.

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

1 unchanged sentence

pre-opening expenses;

loss on disposal of a business;

non-cash gains/losses associated with REIT transactions;

1 unchanged sentence

Adjusted EBITDAR is also inclusive of income or loss from unconsolidated affiliates, with our share of non-operating items (see footnote (6) below) added back for Barstool and our Kansas Entertainment joint venture.

(4) For the three and six months ended June 30, 2023, pertains to the operating lease components contained within the:

(4) For the three and nine months ended September 30, 2023, pertains to the operating lease components contained within the:

(i) AR PENN Master Lease;

2 unchanged sentences

and (iv) Greektown Lease.

(ii) Meadows Lease;

2 unchanged sentences

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

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

(6) 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, “Acquisitions and Dispositions” ) and our Kansas Entertainment joint venture

(7) Relates to the loss incurred on the sale of 100 % of the outstanding shares of Barstool which was completed on August 8, 2023 (see Note 6, “Acquisitions and Dispositions” ).

(8) Includes a gain of $ 66.5 million associated with Barstool related to remeasurement of the equity investment immediately prior to the acquisition date of February 17, 2023 and a gain of $ 16.9 million related to the acquisition of the remaining 64 % of Barstool common stock (see Note 6, “Acquisitions and Dispositions” ).

(9) Upon the execution of the February 21, 2023 AR PENN Master Lease and the 2023 Master Lease, both effective January 1, 2023, we recognized a gain of $ 500.8 million as a result of the reclassification and remeasurement of lease components (see Note 9, “Leases” ).

(8) Primarily relates to unrealized holding gains on our equity securities of $ 6.3 million and $ 3.1 million, respectively, for the three and six months ended June 30, 2023, offset by transaction and finance transformation costs.

Primarily relates to unrealized holding losses of $ 16.9 million and $ 55.6 million, respectively, for the three and six months ended June 30, 2022, which are discussed in Note 15, “Fair Value Measurements.

(10) Primarily relates to unrealized holding losses on our equity securities of $ 11.6 million and $ 10.8 million for the three months ended September 30, 2023 and 2022, respectively.

Primarily relates to unrealized holding losses of $ 8.5 million and $ 66.4 million for the nine months ended September 30, 2023 and 2022, respectively.

In addition, during the three and nine months ended September 30, 2023, the unrealized holding losses were partially offset by dividend income received (see Note 15, “Fair Value Measurements ”).

Also consists of non-recurring acquisition and transaction costs of $ 31.9 million and $ 46.3 million for the three and nine months ended September 30, 2022, respectively.

The table below presents capital expenditures by segment:

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

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

(in millions) 2023 2022 2023 2022

9 unchanged sentences

(in millions) Northeast South West Midwest Interactive Other (1)

Balance sheet as of June 30, 2023

Balance sheet as of September 30, 2023

Investment in and advances to unconsolidated affiliates $ 0.1 $ — $ — $ 77.8 $ — $ 4.7 $ 82.6

4 unchanged sentences

(1) The real estate assets subject to the Master Leases, which are classified as either property and equipment, operating lease ROU assets, or finance lease ROU assets, are included within the Other category.

Note 17— Subsequent Events

Pursuant to the Sportsbook Agreement, PENN will rebrand its existing Barstool Sportsbook across all online platforms in the United States as ESPN Bet (the “Sportsbook”) and will oversee daily operations of the Sportsbook.

The Sportsbook Agreement provides PENN with an exclusive license to use the ESPN Bet trademark in the United States in connection with the Sportsbook.

The Sportsbook will be deeply integrated within the broader ESPN editorial, content, digital product and sports programming ecosystem, with access to ESPN’s industry leading audience and database.

The Sportsbook Agreement has an initial 10-year term and may be extended for an additional ten years upon mutual agreement of PENN and ESPN.

In addition, the Sportsbook Agreement may be terminated by either party (i) in the case of an uncured material breach by or bankruptcy of the other party, (ii) if at the end of year 3 of the term the Sportsbook has not achieved a specified level of market share based on gross gaming revenue in the states in which the Sportsbook operates while branded ESPN Bet, (iii) in certain circumstances, if the other party or certain of its officers is the subject of a criminal or other investigation by federal or state authorities, is charged with certain crimes or commits certain other acts, including those which would reasonably be expected to cause material damage to the terminating party’s reputation or brand, or (iv) in certain circumstances involving non-compliance with data privacy laws.

In addition, ESPN has the right to terminate the Sportsbook Agreement (i) a repeated material breach by PENN of the terms of the ESPN intellectual property license or an uncured material breach by PENN of the terms of the ESPN intellectual property license that results in material harm to the reputation or goodwill associated with the ESPN brand or name, (ii) in certain circumstances where PENN commits a material failure of specified product and technology guidelines or certain customer service level metrics, (iii) if at the end of year 3 or year 7 of the term the Sportsbook’s market access is not at least a specified percentage of the total market access by the online sportsbook operator with the most expansive market access, subject to certain exceptions, (iv) if ESPN undergoes certain transactions involving a significant change in ownership of ESPN, subject to the payment of a termination fee to PENN or (v) in certain circumstances if PENN undergoes certain transactions involving a significant change in ownership of PENN, including such a transaction involving a competitor of The Walt Disney Company (“TWDC”).

PENN has the right to terminate the Sportsbook Agreement (i) if ESPN undergoes certain transactions resulting in a significant change in ownership of ESPN involving a competitor of PENN, (ii) in certain circumstances related to the suitability of ESPN, TWDC or certain of their respective officers for gaming regulatory purposes or (iii) in certain circumstances if PENN is unable to utilize the ESPN Bet brand in states comprising a specified percentage of the aggregate population for all states in which PENN conducts online sports betting in the United States.

In connection with the Sportsbook Agreement, PENN and ESPN, Inc.

entered into an Investment Agreement (the “Investment Agreement”) on August 8, 2023.

The Investment Agreement provides for the issuance to ESPN, Inc.

of certain warrants to purchase shares of PENN common stock, par value $ 0.01 per share, and setting forth certain other governance rights of ESPN, Inc.

Pursuant to the Investment Agreement PENN issued to ESPN warrants to purchase approximately 31.8 million shares of PENN common stock.

The warrants are expected to be classified as equity and contain three separate tranches which vest quarterly over ten years from the date of the Investment Agreement, provided that any remaining unvested portion of the first tranche of warrants will vest on August 8, 2032.

If the Sportsbook Agreement is terminated due to certain breaches of the Sportsbook Agreement by PENN, then all unvested warrants will immediately vest.

If the Sportsbook Agreement is terminated for any other reason, then all unvested warrants will immediately be forfeited, subject to certain exceptions.

At the grant date, the fair value of the awards was determined using the Black Scholes pricing model with contractual terms ranging from 9.5 to 11.5 years, and strike prices ranging from $ 26.08 to $ 32.60 .

Additionally, if after February 29, 2024 and during the term of the Sportsbook Agreement, PENN achieves specified performance conditions based on an average market share based on gross gaming revenue in the states in which the Sportsbook operates (as defined within the Investment Agreement), PENN could issue to ESPN warrants to purchase up to an additional 6.4 million shares of PENN common stock.

The additional warrants will be fully vested upon issuance, have an exercise price of $ 28.95 and will be exercisable for 10.5 years from the date of issuance.

Further details on the Investment Agreement are contained in PENN’s Current Report on Form 8-K dated August 8, 2023.

In connection with the Sportsbook Agreement, PENN entered into the Barstool SPA on August 8, 2023.

Pursuant to the Barstool SPA, PENN has the right to receive 50 % of the gross proceeds received by David Portnoy in any subsequent sale or other monetization event of Barstool.

See Note 6, “Acquisitions and Dispositions” for further information.

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 1. Financial Statements