What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-11-02 compared with 2023-08-09 · 169 added, 132 removed, 447 unchanged (40% of the section changed)

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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.

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

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

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 “ Liquidity and Capital Resources ” and collectively referred to as the “Master Leases”).

Recent Acquisitions, Dispositions, Development Projects, and Other

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

Upon the completion of the Barstool Acquisition, we obtained 100% of the Barstool common stock of which the fair value of Barstool was determined to be $660.0 million based on market participant assumptions and Barstool became an indirect wholly owned subsidiary of PENN.

At the closing of the Barstool Acquisition, we obtained 100% of the Barstool common stock and determined the fair value of Barstool to be $660.0 million based on market participant assumptions, and Barstool became an indirect wholly owned subsidiary of PENN.

See Note 6, “Acquisitions and Dispositions” and Note 13, “Stockholders’ Equity and Stock-Based Compensation” in the notes to our unaudited Consolidated Financial Statements for further discussion.

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entered into an Investment Agreement (the “Investment Agreement”) providing 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., as discussed in Note 17, “Subsequent Events” in the notes to our unaudited Consolidated Financial Statements.

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 concurrently entered into a stock purchase agreement with David Portnoy (the “Barstool SPA”) 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.

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, as discussed in Note 6, “Acquisitions and Dispositions” in the notes to our unaudited Consolidated Financial Statements.

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.

The pre-tax non-cash loss 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.

See Note 6, “Acquisitions and Dispositions ” and Note 11, “Income Taxes” in the notes to our unaudited Consolidated Financial Statements.

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., as discussed in Note 12, “Commitments and Contingencies” in the notes to our unaudited Consolidated Financial Statements.

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 concurrently entered into a stock purchase agreement with

David Portnoy (the “Barstool SPA”) pursuant to which 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.

In connection with the Barstool SPA, we 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) during the third quarter of 2023.

See Note 6, “Acquisitions and Dispositions” in the notes to our unaudited Consolidated Financial Statements.

For information on the tax-related impacts from the Barstool transaction, see Note 11, “Income Taxes” in the notes to our unaudited Consolidated Financial Statements.

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

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

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

We continuously adjust operations, offerings, and cost structures to reflect changing economic conditions.

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

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

Acquisitions such as theScore and our Sportsbook Agreement with ESPN enables us to further our omnichannel strategy by adding additional revenue streams and customer acquisition.

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

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

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and other forms of gaming in the U.S.

See the “Segment comparison of the three and six months ended June 30, 2023 and 2022” section below for discussions of the impact of competition on our results of operations by reportable segment.

See the “Segment comparison of the three and nine months ended September 30, 2023 and 2022” section below for discussions of the impact of competition on our results of operations by reportable segment.

Key Performance Indicators

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

Our gaming revenue is derived primarily from slot machines (which represented approximately 85% and 83% of our gaming revenue for the six months ended June 30, 2023 and 2022, respectively) and, to a lesser extent, table games and online gaming consisting of online slots, online table games, and online sports betting.

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

Our gaming revenue is derived primarily from slot machines (which represented approximately 85% and 83% of our gaming revenue for the nine months ended September 30, 2023 and 2022, respectively) and, to a lesser extent, table games and online gaming consisting of online slots, online table games, and online sports betting.

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

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

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The win or hold percentage is the net amount of gaming wins and losses, with liabilities recognized for accruals related to the anticipated payout of progressive jackpots.

Given the stability in our slot hold percentages on a historical basis, we have not experienced significant impacts to net income from changes in these percentages.

Given the stability in our slot hold percentages on a historical basis, we have not experienced significant impacts to net income (loss) from changes in these percentages.

For table games, customers usually purchase chips at the gaming tables.

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Northeast, South, West, and Midwest.

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

See Note 6, “Acquisitions and Dispositions” in the notes to our unaudited Consolidated Financial Statements for further information.

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

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 the Barstool SPA, and we sold 100% of the outstanding shares of Barstool common stock.

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

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RESULTS OF OPERATIONS

The following table highlights our revenues, net income, and Adjusted EBITDA, on a consolidated basis, as well as our revenues and Adjusted EBITDAR by reportable segment.

The following table highlights our revenues, net income (loss), and Adjusted EBITDA, on a consolidated basis, as well as our revenues and Adjusted EBITDAR by reportable segment.

Such segment reporting is consistent with how we measure our business and allocate resources internally.

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

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

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

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

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

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

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

2023 2022 2023 2022

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Total $ 1,619.4 $ 1,625.0 $ 4,967.5 $ 4,816.1

Net income $ 78.1 $ 26.1 $ 592.5 $ 77.7

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

Adjusted EBITDAR:

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Adjusted EBITDA $ 298.5 $ 440.4 $ 961.1 $ 1,351.5

Net income margin 4.7 % 1.6 % 17.7 % 2.4 %

Net income (loss) margin (44.8) % 7.6 % (2.7) % 4.2 %

Adjusted EBITDAR margin

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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 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.

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

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

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

(i) AR PENN Master Lease;

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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 Hollywood Gaming at Dayton Raceway and Hollywood Gaming at Mahoning

Valley Race Course);

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 Hollywood Gaming at Dayton Raceway and Hollywood Gaming at

Mahoning Valley Race Course);

(ii) Meadows Lease;

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

Consolidated comparison of the three and six months ended June 30, 2023 and 2022

Consolidated comparison of the three and nine months ended September 30, 2023 and 2022

The following table presents our consolidated revenues:

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

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

(dollars in millions) 2023 2022 $ % 2023 2022 $ %

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Total revenues $ 1,619.4 $ 1,625.0 $ (5.6) (0.3) % $ 4,967.5 $ 4,816.1 $ 151.4 3.1 %

Gaming revenues for the three months ended June 30, 2023 decreased $32.8 million compared to the corresponding prior year period, primarily due to a decrease in visitation among all segments, offset by increases in our Interactive segment resulting from continued growth in our online revenues.

Gaming revenues for the six months ended June 30, 2023 increased by $0.6 million compared to the corresponding prior year period, primarily due to increased visitation at our properties in the Northeast segment during the first quarter of 2023 and increases in our Interactive segment resulting from continued growth in our online revenues, offset by decreases in the second quarter, as described above.

Food, beverage, hotel, and other revenues for the three and six months ended June 30, 2023 increased $80.7 million and $156.4 million, respectively, compared to the corresponding prior year periods, primarily due to the inclusion of 100% of the operating results of Barstool subsequent to the Barstool Acquisition on February 17, 2023, as well as increases in gaming tax reimbursement amounts charged to third-party online sports betting and/or iCasino partners for online sports betting and iCasino market access .

See “Segment comparison of the three and six months ended June 30, 2023 and 2022” below for more detailed explanations of the fluctuations in revenues.

Gaming revenues for the three months ended September 30, 2023 decreased $65.4 million compared to the corresponding prior year period, primarily due to a decrease in visitation in the South segment, decreases in online gaming revenues in our Interactive segment, and the sale of the Tropicana Las Vegas operations in September 2022 .

The prior year quarter included Tropicana Las Vegas revenues through the sale on September 26, 2022, compared to none in the current year quarter.

Gaming revenues for the nine months ended September 30, 2023 decreased by $64.8 million compared to the corresponding prior year period, primarily due to a decrease in visitation in the South segment and the sale of the Tropicana Las Vegas operations in September 2022 .

The prior year period included Tropicana Las Vegas revenues through the sale on September 26, 2022, compared to none in the current year period.

Food, beverage, hotel, and other revenues for the three and nine months ended September 30, 2023 increased $59.8 million and $216.2 million, respectively, compared to the corresponding prior year periods, primarily due to the inclusion of 100% of the operating results of Barstool subsequent to the Barstool Acquisition on February 17, 2023, until the disposition on August 8, 2023, as well as increases in gaming tax reimbursement amounts charged to third-party online sports betting and/or iCasino partners for online sports betting and iCasino market access .

See “Segment comparison of the three and nine months ended September 30, 2023 and 2022” below for more detailed explanations of the fluctuations in revenues.

Operating expenses

The following table presents our consolidated operating expenses:

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

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

(dollars in millions) 2023 2022 $ % 2023 2022 $ %

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Depreciation and amortization 105.8 148.7 (42.9) (28.9) % 323.9 417.2 (93.3) (22.4) %

Impairment losses — 104.6 (104.6) N/M — 104.6 (104.6) N/M

Loss on disposal of Barstool

923.2 — 923.2 N/M 923.2 — 923.2 N/M

Total operating expenses $ 2,405.8 $ 1,488.3 $ 917.5 61.6 % $ 5,349.3 $ 4,085.0 $ 1,264.3 30.9 %

N/M - Not meaningful

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

Gaming expenses for the three months ended June 30, 2023 decreased $3.0 million compared to the corresponding prior year period, due to lower gaming taxes resulting from the decrease in gaming revenues, offset by higher payroll expenses.

Gaming expenses for the six months ended June 30, 2023 increased $39.9 million compared to the corresponding prior year period, primarily due to increases in payroll expenses and higher third-party service provider fees from higher online gaming activity.

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

Fo od, beverage, hotel, and other expenses for the three and six months ended June 30, 2023 increased $81.0 million and $153.4 million, respectively, compared to the corresponding prior year periods, primarily due to the inclusion of operating expenses related to Barstool subsequent to the Barstool Acquisition, which was completed on February 17, 2023, as well as increases in gaming tax reimbursement amounts related to third-party online sports betting and/or iCasino partners for online sports betting and iCasino market access.

Gaming expenses for the three and nine months ended September 30, 2023 decreased $48.9 million and $9.0 million, respectively, compared to the corresponding prior year periods, primarily due to the decreases in gaming revenues as described above, partially offset by increased payroll costs.

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

Fo od, beverage, hotel, and other expenses for the three and nine months ended September 30, 2023 increased $62.2 million and $215.6 million, respectively, compared to the corresponding prior year periods, primarily due to the inclusion of operating expenses related to Barstool subsequent to the Barstool Acquisition on February 17, 2023, until the disposition on August 8, 2023, as well as increases in gaming tax reimbursement amounts related to third-party online sports betting and/or iCasino partners for online sports betting and iCasino market access.

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

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and rent expense associated with our triple net operating leases.

For the three and six months ended June 30, 2023, general and administrative expenses increased by $106.5 million and $203.9 million, respectively, compared to the corresponding prior year periods, primarily due to an increase in rent expense associated with triple net operating leases of $118.4 million and $204.3 million respectively, stemming from the execution on February 21, 2023 of both the AR PENN Master Lease and 2023 Master Lease.

For the three and nine months ended September 30, 2023, general and administrative expenses increased by $128.5 million and $332.4 million, respectively, compared to the corresponding prior year periods, primarily due to an increase in rent expense associated with triple net operating leases of $115.1 million and $319.4 million, respectively, stemming from the execution on February 21, 2023 of both the AR PENN Master Lease and 2023 Master Lease.

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

Depreciation and amortization for the three and six months ended June 30, 2023 decreased $39.7 million and $50.4 million, respectively, compared to the corresponding prior year periods, primarily due to a decrease in depreciation and amortization costs stemming from the execution on February 21, 2023 of both the AR PENN Master Lease and 2023 Master Lease.

Depreciation and amortization for the three and nine months ended September 30, 2023 decreased $42.9 million and $93.3 million, respectively, compared to the corresponding prior year periods, primarily due to a decrease in depreciation and amortization costs stemming from the execution on February 21, 2023 of both the AR PENN Master Lease and 2023 Master Lease.

Prior to the execution of the aforementioned lease transactions, primarily all of the building components of the PENN Master Lease were classified as financing obligations of which depreciation of the associated property and equipment assets were previously recorded to “Depreciation and amortization” expense.

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

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

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

There were no impairment losses for the three and nine months ended September 30, 2023.

Loss on disposal of Barstool relates to the loss on the sale of 100% of the outstanding shares of Barstool to David Portnoy in exchange for nominal cash consideration (one dollar) as described in Note 6, “Acquisitions and Dispositions” in the notes to our unaudited Consolidated Financial Statements.

Other income (expenses)

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

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

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

(dollars in millions) 2023 2022 $ % 2023 2022 $ %

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Income from unconsolidated affiliates $ 7.2 $ 6.6 $ 0.6 9.1 % $ 17.0 $ 17.1 $ (0.1) (0.6) %

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

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

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

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

Loss on early extinguishment of debt $ — $ — $ — N/M $ — $ (10.4) $ 10.4 N/M

Other $ 5.8 $ (17.8) $ 23.6 N/M $ 4.8 $ (58.5) $ 63.3 N/M

Income tax expense $ (34.7) $ (56.3) $ 21.6 (38.4) % $ (202.6) $ (103.9) $ (98.7) 95.0 %

Other $ (0.3) $ (8.8) $ 8.5 (96.6) % $ 4.5 $ (67.3) $ 71.8 N/M

Income tax benefit (expense)

$ 161.7 $ 182.0 $ (20.3) (11.2) % $ (40.9) $ 78.1 $ (119.0) N/M

N/M - Not meaningful

Interest expense, net decreased by $79.4 million and $127.6 million for the three and six months ended June 30, 2023, respectively, compared to the corresponding prior year periods, primarily due to a net decrease in Master Lease interest costs due to changes in lease classifications as a result of the amendment of the PENN Master Lease, as described in “Liquidity and Capital Resources,” of $96.4 million and $161.5 million, respectively, partially offset by an increase in interest expense on our Senior Secured Credit Facilities related to an overall increase in interest rates.

Interest income increased by $8.5 million and $18.5 million for the three and six months ended June 30, 2023, respectively, compared to the corresponding prior year periods, primarily due to executing on our short term investing strategy utilizing money market funds which commenced during the year ended December 31, 2022.

Interest expense, net decreased by $81.0 million and $208.6 million for the three and nine months ended September 30, 2023, respectively, compared to the corresponding prior year periods, primarily due to a net decrease in Master Lease interest costs due to changes in lease classifications as a result of the amendment of the PENN Master Lease, as described in “Liquidity and Capital Resources,” of $93.7 million and $255.2 million, respectively, partially offset by an increase in interest expense on our Senior Secured Credit Facilities related to an overall increase in interest rates.

Interest income increased by $5.0 million and $23.5 million for the three and nine months ended September 30, 2023, respectively, compared to the corresponding prior year periods, primarily due to executing on our short term investing strategy utilizing money market funds which commenced during the year ended December 31, 2022.

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

The increase of $5.4 million for the three months ended June 30, 2023, compared to the corresponding prior year period, is due to higher income earned from our investments in unconsolidated affiliates.

The decrease of $0.7 million for the six months ended June 30, 2023, compared to the corresponding prior year period, is due to lower income earned from our investments in unconsolidated affiliates.

The change in income from the corresponding prior year periods is due to fluctuations in earnings from our investments in unconsolidated affiliates.

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

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

the three and six m onths ended June 30, 2023, other income primarily consisted of an unrealized holding gain of $6.3 million and $3.1 million, respectively, compared to an unrealized holding loss of $16.9 million and $55.6 million for the three and six m onths ended June 30, 2022, respectively.

Income tax expense was $34.7 million and $202.6 million for the three and six months ended June 30, 2023, respectively, compared to $56.3 million and $103.9 million for the three and six months ended June 30, 2022, respectively.

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

The change in the effective rate for the three and six months ended June 30, 2023 compared to the corresponding prior year periods was primarily due to the increase in pre-tax income.

For the three m onths ended September 30, 2023 and 2022, other income primarily consisted of unrealized holding losses of $11.6 million and $10.8 million, respectively.

For the nine m onths ended September 30, 2023 and 2022, other income primarily

consisted of unrealized holding losses of $8.5 million and $66.4 million, respectively.

In addition, during the three and nine months ended September 30, 2023, these losses were partially offset by dividend income received.

Income tax benefit (expense) was a benefit of $161.7 million and $182.0 million for the three m onths ended September 30, 2023 and 2022, respectively, and an expense of $40.9 million as compared to a benefit of $78.1 million for the nine m onths ended September 30, 2023 and 2022, respectively.

Our effective tax rate (income taxes as a percentage of income from operations before income taxes), including discrete items, was 19.0% and 226.7% for the three months ended September 30, 2023 and 2022, respectively, and 1,698.9% and (62.9)% for the nine months ended September 30, 2023 and 2022, respectively.

The change in the effective rate for the three and nine months ended September 30, 2023 compared to the corresponding prior year periods was primarily due to the projections of pre-tax income, changes to the valuation allowance, and the Barstool transactions discussed in Note 6, “Acquisitions and Dispositions” and Note 11, “Income Taxes.” Excluding the Barstool transactions, the Company’s annualized effective tax rate for the nine months ended September 30, 2023 would have been approximately 28%.

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

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

Additionally, as a result of the Barstool SPA entered into in August 2023, the deferred tax liability associated with the Barstool tradename and other intangibles 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 discussed in Note 11, “Income Taxes” to our unaudited Consolidated Financial Statements.

Segment comparison of the three and six months ended June 30, 2023 and 2022

Additionally, as a result of the Barstool SPA entered into in August 2023, the $115.9 million deferred tax liability associated with the Barstool tradename and other intangibles was written off to income tax expense, which had a material impact on our unaudited Consolidated Statements of Operations and unaudited Consolidated Balance Sheets, as discussed in Note 11, “Income Taxes” to our unaudited Consolidated Financial Statements.

Segment comparison of the three and nine months ended September 30, 2023 and 2022

Northeast Segment

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

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Adjusted EBITDAR margin 30.3 % 31.8 % -150 bps 30.8 % 31.4 % -60 bps

The Nort heast segment’s revenues for the three months ended June 30, 2023 increased by $3.1 million due to increase in hotel and food and beverage revenues, primarily due to the completion of room renovations at our Hollywood Casino at our Greektown property, as well as increased visitation to our food and beverage outlets, offset by a reduction in gaming revenues, primarily at our Hollywood Casino Lawrenceburg and Ameristar East Chicago properties due to increased competition.

The Northeast segment’s revenues for the six months ended June 30, 2023 increased $45.1 million, primarily due to strong visitation at the Northeast segment’s properties during the first quarter, as well as increases in hotel and food and beverage revenues as described above.

The increases were partially offset by decreases in gaming revenues at our Hollywood Casino Lawrenceburg and Ameristar East Chicago properties due to increased competition.

For the three months ended June 30, 2023, the Northeast segment’s Adjusted EBITD AR increased $2.9 million and Ad justed EBITDAR margin increased to 31.6%, primarily due to an increase in non-gaming revenues, as well as a reversal of accrued gaming taxes that are no longer expected to be incurred, partially offset by increased labor costs.

For the six months ended June 30, 2023, the Northeast segment’s Adjusted EBITDAR increased $10.6 million, primarily due to increased gaming and non-gaming revenues and the reversal of gaming taxes discussed above.

Ad justed EBITDAR margin decreased to 31.0% primarily due to higher labor costs and cost of sales.

The Nort heast segment’s revenues for the three months ended September 30, 2023 increased by $1.6 million due to an increase in hotel and food and beverage revenues, primarily due to the completion of room renovations at our Hollywood Casino at Greektown property, as well as increased visitation to our food and beverage outlets, offset by a reduction in gaming revenues, primarily at our Hollywood Casino Lawrenceburg and Ameristar East Chicago properties due to increased competition.

The Northeast segment’s revenues for the nine months ended September 30, 2023 increased $46.7 million, primarily due to increases in gaming and non-gaming revenues at our Hollywood Casino at Greektown property due to the completion of room renovations, an increase in non-gaming revenues as visitation to our food and beverage outlets increased, and strong visitation in the first quarter of the year.

These increases were partially offset by decreases in gaming revenues at our Hollywood Casino Lawrenceburg and Ameristar East Chicago properties as described above.

For the three months ended September 30, 2023, the Northeast segment’s Adjusted EBITD AR decreased $9.6 million primarily due to the decrease in revenues at our Hollywood Casino Lawrenceburg and Ameristar East Chicago as described above.

Ad justed EBITDAR margin decreased to 30.3%, primarily due to increases in payroll and other operating costs at our food and beverage outlets driven by increased volumes as discussed above.

For the nine months ended September 30, 2023, the Northeast segment’s Adjusted EBITDAR increased $1.0 million, primarily due to increased gaming and non-gaming revenues.

Ad justed EBITDAR margin decreased to 30.8% primarily due to increased payroll costs.

South Segment

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Adjusted EBITDAR margin 44.3 % 42.4 % 190 bps 40.9 % 42.6 % -170 bps

The South segment’s revenues for the three and six months ended June 30, 2023 decreased by $30.3 million and $56.9 million respectively, compared to the corresponding prior year periods, primarily due to a decrease in visitation at many properties, partially due to unfavorable weather and increased competition that affected our L’Auberge Lake Charles and Margaritaville properties.

The South segment’s revenues for the three and nine months ended September 30, 2023 decreased by $21.6 million and $78.5 million, respectively, compared to the corresponding prior year periods, primarily due to a decrease in visitation at many properties, partially due to increased competition that affected our L’Auberge Lake Charles and Margaritaville properties and inclement weather during the first half of the year.

During the prior year periods, particularly in the first quarter, there were COVID restrictions in place in downtown New Orleans which increased visitation to our Hollywood Casino Gulf Coast, Boomtown New Orleans, and L’Auberge Baton Rouge properties.

For the three and six months ended June 30, 2023, the South segment’s Adjusted EBITDAR decreased $22.4 million and $45.3 million respectively, and Adjusted EBITDAR margin decreased to 39.2%, primarily due to the decrease in revenues as described above.

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

For the three months ended September 30, 2023, the South segment’s Adjusted EBITDAR decreased $3.3 million, primarily due to the decrease in gaming revenue combined with increased payroll costs and cost of sales, partially offset by the receipt of business interruption insurance proceeds related to the loss experienced in 2020 due to Hurricane Laura, resulting in an overall increase in Adjusted EBITDAR margin of 190 basis points.

For the nine months ended September 30, 2023, the South segment’s Adjusted EBITDAR decreased $48.6 million and Adjusted EBITDAR margin decreased to 40.9%, primarily due to the decrease in gaming revenues as described above, combined with increased payroll costs.

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

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Adjusted EBITDAR margin 40.5 % 38.7 % 180 bps 38.9 % 38.0 % 90 bps

The West segment’s revenues for the three and six months ended June 30, 2023 decreased by $23.8 million and $35.0 million, respectively, compared to the corresponding prior year periods, primarily due to the three and six months ended June 30, 2023 not including any revenue for Tropicana Las Vegas as the operations were sold on September 26, 2022, partially offset by an increase in revenue at Zia Park Casino.

For the three months ended June 30, 2023, the West segment’s Adjusted EBITDAR decreased $10.1 million primarily due to the sale of Tropicana Las Vegas, discussed above.

For the three months ended June 30, 2023, the West segment’s Adjusted EBITDAR margin decreased to 38.2% primarily due to increases in labor costs and promotional offerings.

For the six months ended June 30, 2023, the West segment’s Adjusted EBITDAR decreased $12.2 million primarily due to the sale of Tropicana Las Vegas, discussed above.

For the six months ended June 30, 2023, the West segment’s Adjusted EBITDAR margin increased to 38.0% primarily driven by increased revenues at Zia Park Casino.

The West segment’s revenues for the three and nine months ended September 30, 2023 decreased by $21.4 million and $56.4 million, respectively, compared to the corresponding prior year periods, primarily due to the sale of the Tropicana Las Vegas operations in September 2022, partially offset by an increase in revenues at Zia Park Casino.

The corresponding prior year periods included Tropicana Las Vegas revenues through the sale on September 26, 2022, compared to none in the current year periods.

For the three months ended September 30, 2023, the West segment’s Adjusted EBITDAR decreased $5.8 million, primarily due to the sale of Tropicana Las Vegas, discussed above.

Adjusted EBITDAR margin increased to 40.5% primarily resulting from the sale of Tropicana Las Vegas which had a negative impact on margins in the prior year qua rter.

For the nine months ended September 30, 2023, the West segment’s Adjusted EBITDAR decreased $18.0 million primarily due to the sale of Tropicana Las Vegas, as discussed above.

Additionally, Adjusted EBITDAR margin increased to 38.9% primarily due to the sale of Tropicana which had a negative impact on margins in the prior year period.

Midwest Segment

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Adjusted EBITDAR margin 42.2 % 43.4 % -120 bps 42.7 % 44.0 % -130 bps

The Midwest segment’s revenues for the three months ended June 30, 2023 decreased by $3.0 million, compared to the corresponding prior year period, due to a decrease in casino attendance, partially due to new competition in Nebraska which has affected our Ameristar Council Bluffs property.

The Midwest segment’s revenues for the six months ended June 30, 2023 increased by $9.4 million, compared to the corresponding prior year period, due to increased visitation at the Midwest segment properties particularly in the first quarter, partially offset by a decline in gaming revenues during the second quarter described above.

For the three months ended June 30, 2023, the Midwest segment’s Adjusted EBITDAR decreased $4.2 million primarily due to decreased total revenues and higher labor costs, reflected in A djusted EBITDAR margin, which decreased to 43.3%.

For the six months ended June 30, 2023, the Midwest segment’s Adjusted EBITDAR decreased $4.1 million primarily due to higher labor costs and cost of sales, partially offset by increased gaming and non-gaming revenues, reflected in A djusted EBITDAR margin, which decreased to 42.9%.

The Midwest segment’s revenues for the three months ended September 30, 2023 decreased by $5.0 million, compared to the prior year quarter, primarily due to a decrease in gaming revenues as new competition in the region negatively impacted several properties within our Midwest segment, partially offset by increases in non-gaming revenues due to increased visitation at our hotel, and food and beverage outlets.

The Midwest segment’s revenues for the nine months ended September 30, 2023 increased by $4.4 million, compared to the corresponding prior year period, primarily due to increased visitation at our hotels, and food and beverage outlets, partially offset by declines in gaming revenues due to new competition in the region.

For the three months ended September 30, 2023, the Midwest segment’s Adjusted EBITDAR decreased $5.6 million primarily due to a decrease in gaming revenues.

A djusted EBITDAR margin decreased to 42.2% primarily due to a decrease in gaming margins driven by an increase in payroll costs,

For the nine months ended September 30, 2023, the Midwest segment’s Adjusted EBITDAR decreased $9.7 million primarily due to increase in payroll costs, partially offset by increased non-gaming revenues, reflected in A djusted EBITDAR margin, which decreased to 42.7%.

Interactive Segment

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Total revenues $ 196.3 $ 158.7 $ 37.6 23.7 % $ 687.3 $ 455.1 $ 232.2 51.0 %

Adjusted EBITDAR $ (12.8) $ (20.8) $ 8.0 (38.5) % $ (18.5) $ (30.8) $ 12.3 (39.9) %

Adjusted EBITDAR margin (5.0) % (13.4) % 840 bps (3.8) % (10.4) % 660 bps

The Interactive segment’s revenues for the three and six months ended June 30, 2023 increased by $102.6 million and $194.6 million, respectively, compared to the corresponding prior year periods, due to the inclusion of 100% of the operating results of Barstool subsequent to the Barstool Acquisition on February 17, 2023 as well as an increase in gaming revenue related to operating in additional jurisdictions, inclusive of the launch of theScore Bet in April 2022.

Additionally, revenues are inclusive of a tax gross-up of $88.5 million and $180.8 million for the three and six months ended June 30, 2023, respectively, compared to $55.4 million and $105.7 million for the three and six months ended June 30, 2022, respectively.

For the three and six months ended June 30, 2023, the Interactive segment’s Adjusted EBITDAR increased primarily due to increases in total revenues due to operating in additional gaming jurisdictions over the prior year.

Adjusted EBITDAR $ (50.2) $ (49.3) $ (0.9) N/M

$ (68.7) $ (80.1) $ 11.4 N/M

Adjusted EBITDAR margin (25.6) % (31.1) % N/M

(10.0) % (17.6) % N/M

The Interactive segment’s revenues for the three months ended September 30, 2023 increased by $37.6 million, compared to the corresponding prior year period, due to the inclusion of 100% of the operating results of Barstool, until the disposition on August 8, 2023, partially offset by a decrease in U.S.

online gaming revenues during the transition period prior to the launch of ESPN BET.

Additionally, revenues are inclusive of a tax gross-up of $102.6 million and $63.0 million for the three months ended September 30, 2023 and 2022, respectively.

The Interactive segment’s revenues for the nine months ended September 30, 2023 increased by $232.2 million, compared to the corresponding prior year period, due to the inclusion of 100% of the operating results of Barstool subsequent to the Barstool Acquisition on February 17, 2023 until the disposition on August 8, 2023, as well as an increase in gaming revenue related to operating in additional jurisdictions, inclusive of the launch of theScore Bet in April 2022.

Additionally, revenues are inclusive of a tax gross-up of $283.4 million and $168.7 million for the nine months ended September 30, 2023 and 2022, respectively.

For the three months ended September 30, 2023, the Interactive segment’s Adjusted EBITDAR decreased primarily due to the inclusion of 100% of the operating results of Barstool until the disposition on August 8, 2023 and a decrease in U.S.

gaming revenues driven by minimal external marketing of the existing platforms in the U.S.

Additionally, the third quarter results were negatively i mpacted by increased expenses related to ramping and preparing for the November launch of ESPN BET .

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

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

For the nine months ended September 30, 2023, the Interactive segment’s Adjusted EBITDAR increased primarily due to increases in total revenues due to operating in additional gaming jurisdictions over the prior year.

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

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

(dollars in millions) 2023 2022 $ % 2023 2022 $ %

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Total revenues $ 4.5 $ 4.2 $ 0.3 7.1 % $ 16.5 $ 17.4 $ (0.9) (5.2) %

Adjusted EBITDAR $ (25.3) $ (23.4) $ (1.9) 8.1 % $ (52.6) $ (47.1) $ (5.5) 11.7 %

Adjusted EBITDAR $ (28.1) $ (26.5) $ (1.6) N/M

$ (80.7) $ (73.6) $ (7.1) N/M

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

Revenues for the three and six months ended June 30, 2023 have increased and decreased respectively, compared to the prior ye ar corresponding periods, primarily due to fluctuations in racing revenues.

Changes in Adjusted EBITDAR for the three and six months ended June 30, 2023 primarily relate to an increase in payroll expenses.

Revenues for the three and nine months ended September 30, 2023 have increased and decreased respectively, compared to the prior ye ar corresponding periods, primarily due to fluctuations in racing revenues.

Changes in Adjusted EBITDAR for the three and nine months ended September 30, 2023 primarily relate to an increase in payroll costs.

Non-GAAP Financial Measures

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pre-opening expenses;

loss on disposal of a business;

non-cash gains/losses associated with REIT transactions as described in Note 9, “Leases” to our unaudited Consolidated Financial Statements;

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

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

These calculations are commonly used as a basis for investors, analysts and

credit rating agencies to evaluate and compare operating performance and value companies within our industry.

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

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Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures

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

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

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

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

(dollars in millions) 2023 2022 2023 2022

Net income $ 78.1 $ 26.1 $ 592.5 $ 77.7

Income tax expense 34.7 56.3 202.6 103.9

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

Income tax (benefit) expense

(161.7) (182.0) 40.9 (78.1)

Interest expense, net 117.5 198.5 346.1 554.7

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Other (income) expenses 0.3 8.8 (4.5) 67.3

Operating income 205.5 302.4 404.6 594.4

Operating income (loss)

(786.4) 136.7 (381.8) 731.1

Loss on disposal of Barstool 923.2 — 923.2 —

Stock-based compensation (1)

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(2.9) (3.8) (12.0) (16.2)

Loss on disposal of assets (1)

Loss (gain) on disposal of assets (1)

— (0.2) — 7.0

Contingent purchase price (1)

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Depreciation and amortization 105.8 148.7 323.9 417.2

Impairment losses (3)

— 104.6 — 104.6

Insurance recoveries, net of deductible charges (1)

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Adjusted EBITDAR $ 445.1 $ 471.9 $ 1,400.1 $ 1,471.1

Net income margin 4.7 % 1.6 % 17.7 % 2.4 %

Net income (loss) margin (44.8) % 7.6 % (2.7) % 4.2 %

Adjusted EBITDA margin 18.4 % 27.1 % 19.3 % 28.1 %

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

(3) 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” in the notes to our unaudited Consolidated Financial Statements), and our Kansas Entertainment joint venture.

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

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

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

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

For the six months ended June 30, Change

For the nine months ended September 30, Change

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Operating Cash Flow

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

Net cash provided by operating activities decreased by $112.7 million for the six months ended June 30, 2023, primarily due to a decrease in earnings, a negative impact in changes in working capital related to payroll related liabilities and an increase in cash paid for taxes.

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

Net cash provided by operating activities decreased by $219.3 million for the nine months ended September 30, 2023, primarily due to a decrease in income before taxes and additional cash paid for income taxes.

Investing Cash Flow

Cash used in investing activities for the six months ended June 30, 2023 of $462.9 million is primarily due to consideration paid for the Barstool Acquisition, net of cash acquired, of $314.6 million and capital expenditures of $132.8 million.

For the six months ended June 30, 2022, cash used in investing activities of $113.7 million primarily related to capital expenditures of $125.6 million and the acquisition of a $15.0 million cost method investment, offset by Hurricane Laura insurance proceeds.

Cash used in investing activities for the nine months ended September 30, 2023 of $586.0 million is primarily due to consideration paid for the Barstool Acquisition, net of cash acquired, of $314.6 million and capital expenditures of $207.8 million.

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

Capital Expenditures

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

Cash provided by operating activities, as well as cash available under our Amended Revolving Credit Facility and Revolving Facility, was available to fund our capital expenditures for the six months ended June 30, 2023 and 2022, as applicable.

Capital expenditures for the six months ended June 30, 2023 and 2022 were $132.8 million and $125.6 million, respectively.

For the year ending December 31, 2023, our anticipated capital expenditures, inclusive of insurance proceeds, are approximately $413 million, which include capital expenditures of $132.8 million incurred for the six months ended June 30, 2023 and capital expenditures required under our Triple Net Leases, which require us to spend a specified percentage of total revenues.

Cash provided by operating activities, as well as cash available under our Amended Revolving Credit Facility and Revolving Facility, was available to fund our capital expenditures for the nine months ended September 30, 2023 and 2022, as applicable.

Capital expenditures for the nine months ended September 30, 2023 and 2022 were $207.8 million and $189.6 million, respectively.

For the year ending December 31, 2023, our anticipated capital expenditures, inclusive of insurance proceeds, are approximately $368.0 million, which include capital expenditures of $207.8 million incurred for the nine months ended September 30, 2023 and capital expenditures required under our Triple Net Leases, which require us to spend a specified percentage of total revenues.

Financing Cash Flow

For the six months ended June 30, 2023, net cash used in financing activities totaled $214.1 million, primarily related to repurchases of our common stock of $149.8 million, as well as $42.7 million in principal payments on our finance leases and finance obligations and debt repayments of $18.8 million.

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

At June 30, 2023, we had $2.8 billion in aggregate principal amount of indebtedness, including $1.5 billion outstanding under our Amended Credit Facilities, $400.0 million outstanding under our 5.625% senior unsecured notes, $400.0 million outstanding under our 4.125% senior unsecured notes, $330.5 million outstanding under our 2.75% Convertible Notes, and $172.2 million outstanding in other long-term obligations.

For the nine months ended September 30, 2023, net cash used in financing activities totaled $257.9 million, primarily related to repurchases of our common stock of $149.8 million, as well as $64.4 million in principal payments on our finance leases and finance obligations and debt repayments of $28.1 million.

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

At September 30, 2023, we had $2.8 billion in aggregate principal amount of indebtedness, including $1.5 billion outstanding under our Amended Credit Facilities, $400.0 million outstanding under our 5.625% senior unsecured notes, $400.0 million outstanding under our 4.125% senior unsecured notes, $330.5 million outstanding under our 2.75% Convertible Notes, and $172.6 million outstanding in other long-term obligations.

No amounts were drawn on our Amended Revolving Credit Facility.

We have no debt maturing prior to 2026.

As of June 30, 2023 we had conditional obligations under letters of credit issued

pursuant to the Amended Credit Facilities with face amounts aggregating to $23.4 million resulting in $976.6 million available borrowing capacity under our Amended Revolving Credit Facility.

As of September 30, 2023 we had conditional obligations under letters of

credit issued pursuant to the Amended Credit Facilities with face amounts aggregating to $21.8 million resulting in $978.2 million available borrowing capacity under our Amended Revolving Credit Facility.

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

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

As of June 30, 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.

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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”).

The December 2022 Authorization expires on December 31, 2025.

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

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.

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

During the three 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.

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

During the nine months ended September 30, 2023, the Company repurchased 5,438,221 shares of its common stock in open market transactions for $149.8 million, at an average price of $27.54 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.

Other Factors Affecting Liquidity

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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.

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.

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 (see Note 17, “Subsequent Events” for additional information).

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 (see Note 12, “Commitments and Contingencies” for additional information).

Triple Net Leases

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

the most significant of which are the AR PENN Master Lease, 2023 Master Lease, PENN Master Lease (prior to January 1,

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

the most significant of which are with GLPI, 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” in the notes to our unaudited Consolidated Financial Statements, and collectively referred to as the “Master Leases”).

We refer to the Master Leases, Perryville Lease (where applicable), the Meadows Lease (where applicable), the Margaritaville Lease, the Greektown Lease, the Tropicana Lease (terminated September 26, 2022) and the Morgantown Lease, collectively, as our “Triple Net Leases”.

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

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

Additionally, our Triple Net Leases are subject to

annual escalators and periodic percentage rent resets, as applicable.

See Note 9, “Leases” in the notes to our unaudited Consolidated Financial Statements for further discussion and disclosure related to the Company’s leases.

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

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

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

(in millions) 2023 2022 2023 2022

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$ 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.

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A complete discussion of our critical accounting estimates is included in our Form 10-K for the year ended December 31, 2022.

Other than discussed below, there have been no significant changes in our critical accounting estimates during the six months ended June 30, 2023.

Other than discussed below, there have been no significant changes in our critical accounting estimates during the nine months ended September 30, 2023.

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

These included estimates for the (i) fair value

of the land and building assets;

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

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

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

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

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

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

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the Company’s expectations with respect to the integration and synergies related to the Company’s integration of theScore and the continued growth and monetization of the Company’s media business;

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

the Company’s

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

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

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

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

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

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

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

collective bargaining activity and strikes;

the Company may not be able to achieve the anticipated financial returns from the Sportsbook Agreement with ESPN, including due to fees, costs, taxes or circumstances beyond the Company’s or ESPN’s control;

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis