Item 1A. Risk Factors
ITEM 1A. RISK FACTORS
The following are new or modified risk factors that should be read in conjunction with the risk factors disclosed under Part I, Item 1A. “Risk Factors” in the Company’s Form 10-K for the year ended December 31, 2024 and Part II, Item 1A. “Risk Factors” in the Company’s subsequent Form 10-Q filings.
Our business is sensitive to reductions in discretionary consumer spending, which may be adversely impacted by downturns in the economy and other factors outside of our control.
Our business is particularly sensitive to downturns in the economy and the associated impact on discretionary spending on leisure activities. As a regional operator, our in-person customers are predominately local, so we compete for more day-to-day discretionary spending as compared with destination spending. Decreases in discretionary consumer spending or changes in consumer preferences, including as a result of perceived or actual adverse economic conditions or inflation, changes in interest or unemployment rates, tight credit conditions, increased housing, energy, food and travel costs, global hostilities, trade disputes, including the imposition of new or increased tariffs, political or social unrest, widespread illnesses, or other factors beyond our control, could adversely affect the gaming and entertainment industries and demand for our products and amenities, which could materially and adversely affect our business, financial condition, and results of operations.
For example, the United States has recently announced certain changes, and has proposed additional changes, in trade policies, including imposing significant tariffs on imports from other countries. These actions have resulted, and are expected to further result, in responsive actions by impacted countries. On April 9, 2025, the United States announced the imposition of most “reciprocal” tariffs would be paused for 90 days, pending negotiations with the relevant countries. There continues to be significant uncertainty regarding the extent and duration of the tariffs, and any resulting economic downturns or market volatility may adversely impact our business, financial condition, and results of operations.
Shareholder activists have, and could in the future, cause a disruption to, or have an adverse effect on, our business.
We have been subject to shareholder activism and may be subject to such activism in the future, which may include proxy solicitations, shareholder proposals or other actions by activists to effect changes to the Company or to assert influence on our Board of Directors and management. For example, in January 2025, HG Vora Capital Management, LLC (“HG Vora”) notified our Board that it had nominated three director candidates to stand for election at the Company’s 2025 annual meeting of shareholders, William Clifford, Johnny Hartnett, and Carlos Ruisanchez. Subsequently, the Company’s financial advisors held calls with HG Vora’s outside advisor, and the Board’s Nominating and Corporate Governance Committee reviewed HG Vora’s nominees in line with the Company’s normal evaluation procedures, including conducting thorough interviews with all nominees. Following this evaluation, the Board nominated Mr. Hartnett and Mr. Ruisanchez for election to the Board at the Company’s 2025 annual meeting of shareholders. HG Vora filed a preliminary proxy statement with the SEC on April 28, 2025, and continues to seek the election of its three director candidates to the Board.
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Shareholder activism pursued against the Company has in the past, and may in the future, give rise to or result in, among other things: (a) increased costs, including expenses of third-party advisors, insurance, administrative expenses and other associated costs; (b) perceived uncertainties as to our future direction, which could result in reputational harm and the loss of potential business opportunities and could make it more difficult to attract, retain, or motivate qualified personnel, and strain relationships with investors, customers, suppliers, business partners, and regulators; (c) reduction or delay in our ability to effectively and timely execute our current business strategy and to implement new strategies; (d) diversion of the attention of our Board of Directors and management team; (e) potential litigation as a result of proposals by activist stockholders or proxy contests or matters relating thereto; (f) adverse implications from a gaming regulatory perspective, including those arising from a shareholder activist failing to comply with applicable gaming laws in connection with its investment in the Company or other actions that could have an adverse impact on our gaming licenses; and (g) fluctuations in the Company’s stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business. Any such shareholder activism could have an adverse effect on our business, financial condition, and results of operations.
PENN is the subject of litigation related to our 2025 annual meeting of shareholders, which could divert management time and resources, result in substantial costs, and have adverse implications from a gaming regulatory perspective.
On May 7, 2025, the HG Vora Plaintiffs filed a lawsuit in the United States District Court for the Eastern District of Pennsylvania against PENN, the members of the Board and PENN’s former director Ronald Naples captioned HG Vora Capital Management, LLC, et al. v. PENN Entertainment, Inc., et al., No. 5:25-cv-02313 . The HG Vora Complaint alleges, among other things, that PENN violated Pennsylvania’s Business Corporation Law and the individual defendants breached their fiduciary duties when the Board decreased the number of Class II directors from three to two and PENN violated federal securities laws by failing to abide by the universal proxy rules and making materially false and misleading statements in, and omissions from, its press release and its proxy materials filed with the SEC. The HG Vora Complaint seeks, among other things, a declaration that the PENN Board Reduction is invalid, injunctive relief ordering PENN to correct the alleged materially false and misleading statements in its proxy materials, injunctive relief allowing PENN shareholders an opportunity to elect three directors at PENN’s 2025 annual meeting of shareholders and damages in an amount to be determined at trial.
The defendants believe the allegations set forth in the HG Vora Complaint are without merit. However, if the HG Vora Plaintiffs are successful in their lawsuit, PENN may be required to, among other things, increase the number of Class II directors to three, nominate three directors for election at PENN’s 2025 annual meeting of shareholders, amend the Proxy Statement, provide new proxy cards to shareholders and discard previously-furnished proxy cards received by PENN, reschedule PENN’s 2025 annual meeting of shareholders and/or pay damages to the HG Vora Plaintiffs. In addition, defending against these claims can result in substantial costs and divert management time and resources. An adverse judgment could result in monetary damages, which could have a negative impact on PENN’s liquidity and financial condition, and could have adverse implications from a gaming regulatory perspective, including an adverse impact on our gaming licenses.