Bally's Corp Q3 FY2021 Earnings Call

Good day, and thank you for standing by. Welcome to the Bally's Corporation third quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. In order to ask a question during the session, please press the star key followed by the number one on your telephone. Please be advised that today's conference is being recorded. If you require further assistance, please press star 90. I'd now like to turn the call over to Bobby Labian, Senior Vice President, Finance and Investor Relations for Bally's. Please go ahead, sir.

Good morning, everyone, and thank you for joining us on today's call. The earnings release and presentation that accompany this call are available in the Investor Relations section of our website at www.bally's.com. With me on today's call are Lee Fenton, Chief Executive Officer, President Retail, President Interactive, and Steve Kapp, Chief Financial Officer. Before we begin, we'd like to remind everyone that comments made by management today will contain forward-looking statements. These forward-looking statements include plans, expectations, estimates, and projections that involve significant risks and uncertainties. These risks are discussed and may differ materially from the results discussed in these forward-looking statements. In addition, during today's call, management will refer to certain non-GAAP. We do not provide a record to project. Special being broadcast will be available for replay shortly after the completion of this call and now i'll hand it over to lee thanks bobby good

morning everyone and thank you for joining us i join you today from our shreveport casino in the great state of louisiana and could not be happier to be here welcome to all our investors and other stakeholders i'm excited to start our journey together to build an outstanding global gaming entertainment company. Ballets closed the acquisition of Gamesis on October 1, and I've spent time with some of you discussing the strategic priorities and direction of our business. Today's call will give you some further insight into our evolving roadmap and expectations going forward. The past two years have seen large steps forward in the strategic direction of Ballets. We want to simplify the story to focus on our key competitive modes. Namely, we have strong cash flow, fully owned technology, high awareness of the Bally's brand and market presence that gives us access to millions of customers. Just one year ago, we were named Twin River and have a 750 million market cap. Since then, we've changed our name to Bally's, closed on multiple retail casinos, struck a strategic deal with Sinclair to rename all its regional sports networks to Bally Sports, acquired a sports betting engine, and done a transformative deal with GameSys to give us access to iGaming and deep experience in digital, both in product and in management talent. Our market cap is now more than 3 billion, and yet we think we're just beginning. Coming fourth quarter and into 2022, the business through three segments. Firstly, retail and casinos in 10 states. We will be providing more information early next year on our new build in Pennsylvania, plans for our acquisition of Tropicana Las Vegas, and our proposed build in Chicago. Our second segment will be international interactive. This includes our market-leading iGaming operations in the UK and Asia, as well as smaller markets in Europe and the rest of the world. And our third segment will be North America Interactive. This segment will combine the collection of digital assets acquired over the past two years, including Bet.Works as well as the Gamesys technology to provide a unique data-driven product in OSB and iCasino into the high-growth North American market that includes the US and Canada. This segment also includes market access into five states in addition to our existing retail casino footprint. The strategic rationale to bring Ballets and Gamesys together was to leverage Games' proven technology and know-how to turbocharge Bally's omnichannel gambling platform in North America, whilst continuing to grow interactive revenues internationally. The retail casinos are a scaled casino footprint with meaningful cash flow generation and market access, brand awareness, and player databases. International Interactive will continue to grow while providing the business scalability on technology resources as well as strong earnings flow through. North America Interactive is in the early stages of what I believe will be tremendous growth, and with the free cash flow generated by retail casinos and International Interactive, we will have ample cash at hand to invest into that opportunity. There are lots of moving parts, so let me start to try and simplify the story. Retail casinos, excluding Atlantic City, run rates at approximately $450 million of adjusted EBITDA, which includes rent expense currently per year. International Interactive, annualizing for this quarter, is doing approximately $330 million of adjusted EBITDA. Corporate expense is $40 million, and we'll see some upward pressure from market factors, including insurance and growth hiring. Our new debt for $5 billion with cash interest expense of $165 million, which is an average cost of capital sub-5%. Maintenance capex for the new entity is $80 million. When you add all of that up before investments in North America Interactive, growth capex at retail casinos, or shared buybacks, we have north of $400 million of pre-tax free cash flow to invest to drive shareholder value. Assuming a 25% tax rate and 68 million shares, which includes common shares outstanding and full dilution, will continue to evaluate investments that drive shareholder value. At Gamesys, we've built a strong track record of creating shareholder value, and that's exactly what we intend to do here. We are committed to taking our $5 per share of free cash flow and investing in growth at the properties, buying back stock, and most importantly, investing in North America Interactive. We ran games with strict CAC and LTV metrics, and in the lowest early days, our initial analysis indicates we'll be in a competitive position, investing near 20% cash flow into the North America Interactive segment in the near term. Certain that spending will be revenue with $315 million of sales and $78 million of adjusted EBITDA. Retail casinos have $302 million of revenue and $106 million of EBITDA, negatively impacted by approximately $6 million EBITDA because of natural disasters that included two hurricanes and wildfires in Nevada. Excluding Atlantic City, which I will touch on later, revenues of $260 million were up 3% to the comparable period in 2019. Adjusted EBITDA, excluding rent, adding back the $6 million natural disaster impact was $109 million compared to $79 million in 2019. This equates to a 42% property EBITDA margin and 31% in 2019. In a normalised post-COVID environment, we expect EBITDA margins to normalise at mid to high 30s. A few notes on the properties in the quarter. Demand at Lincoln for cable games justified opening the hotel, which we did on October 1. We will continue to take a conservative approach to bringing back immunities. Atlantic City reported a positive 3 million of EBITDA, better than the previous quarters, but still below expectations. We expect Atlantic City to have full-year losses of approximately 12 million. I've reviewed the CapEx program and believe in the long-term potential, but it will be 2023 before we have a full year of positive EBITDA from the property. It's very comparable to our investment in Tiverton. It took us over 12 months to get it right, but ultimately our $100 million plus investment at Tiverton has been a runaway success. The property will be heavily in focus in 2022 to support our iCasino launch that I would discuss. To rebrand, the retail estate has been rebranded by the end of the year. I'm sitting at Ballast Shreveport that was El Dorado when I walked in the door just a few days ago. This banner-changing investment will be a tailwind for the entire group. Net-net, the retail casino, has delivered a record quarter with adjusted EBITDA, excluding Atlantic City, adjusting $6 million for natural disaster impacts, up 39% over 2019. July was an exceptional performing month, with a step down in August and early September, primarily from natural disasters, that has improved into October. We expect to maintain recent margin improvements offset moderately by increased labour rates in 2020. Interactive. In the quarter, we had $11.4 million of revenue and $5.5 million of EBITDA losses. This is in line with our expectations as we continue to invest in brand awareness, customer engagement through free-to-play, as well as the development and integration of the Bet.Works and GameSys technology stats. In the quarter, we closed on acquisitions of the The Association of Volleyball Professionals and Telescope that support our awareness, content and consumer engagement efforts. Before to close, we acquired Degree 53, having further expertise to our sports front-end development. We brand at a local level, using proprietary assets and partnerships, building structural cost advances. Secondly, to launch iCasino and OSD products that are loved by our teams to work hand-in-glove with their retail colleagues to leverage our footprint and deliver an omnichannel experience that is both relevant and value-adding to the customer. And lastly, to develop content and consumer programming that creates unique opportunities for customer engagement with the Bally brand on a daily basis. Progress on our app launches. We'll launch the Bally Eye Casino in New Jersey before the end of the year. We are currently live with BallyBet 1.0 app in colorado and iowa in the coming months we will launch in indiana and virginia in beta phase our significant focus though is on the launch of valley bet 2.0 in the first half of 2022. this new app will see us play to our strengths as we integrate the bet.works b2b sports betting engine and the games b2c technology data-driven experience cycle management tool bet 2.0 app will launch first in Arizona, but want to deploy that in the coming months given across bankruptcy business, Monkey Knife Site, that is now available in 38 states. As a reminder, we closed the acquisition of Gamesis on October 1. Revenue and EBITDA was a record performance on a constant currency basis. Revenue was $279 million and EBITDA was $84 million. Revenue increased 6% year-on-year, while EBITDA increased UK revenues, increased 9%, and Asia increased 10%, while Europe was down 25% as we are exiting non-core markets in Netherlands and Germany due to regulatory changes that accounted for 200 basis points of headwinds in the quarter. In the UK, active users were up 3% on the year prior. Our transition of the Hart Bingo proposition to double bubble bingo in September has been well received by the market with us retaining in excess of 95% of revenues and growing and it gives us an improved trademark license rate and a 10-year term size in the UK in the quarter was 85 pence compared to the year prior in slots for the quarter was 75 pence. I believe that the average bet size, customer profile, responsible gaming standards and a lack of dependence on VIP business puts us in a favorable position as the UK progresses the gambling app review. We have always been and will continue to be the leader of best practices in the market. In Asia, active users were up 47% year on year. Our strong growth comes from localized games in the market and leading customer acquisition practices. We continue to enhance our offering in Asia, most notably with daily free games that increase reach and frequency, with more exclusive content to enhance retention, and extending our customer service hours to 24-7. Our customer service is unique in the market, including marketing, licensing, gaming tax, and processing fees was 53.7% of net revenue costs. Business has a very predicting that going forward. Adjusted EBITDA of 84 million benchmark for profit. Here to handing it over to Steve, I just wanted to leave you with a few more points. In the UK, GameSys has grown from a 9.6% market share in 2016, market share in 2021. This was the best market share growth of any of our peers. This growth came from being a data-first company, in-class LTV determinations, decision-making on cash, and life cycle management to lower churn. We will deploy all these tools. Another key factor in growth was customer centricity. We do not need to be first to market with an inferior product. Customers will always have choices, and we will take a customer-centric view of our products. We will launch when the product is right, and we are willing to see short-term gains to build long-term trust and value. Our analytics and lifecycle management will be important to North America Interactive but we'll also apply it to retail casinos and we are starting to implement new technologies into the casino for better marketing analytics and driving a true omnichannel experience. It's recognizable and it's critical for us to continue to build both the awareness and the relevance. climate game to saw the company become a leader in the UK in sustainability, responsible gaming and being at the forefront of ESG in the industry. In my first month at Ballet, we've hired group heads of sustainability and diversity and inclusion. These issues will be at the forefront of our minds, particularly as more focus is put on the North American gaming industry with the growth of online gaming finally complex up to now due to the incredibly fast growth of the group through multiple acquisitions it is our job to give clarity on the numbers and the roadmap and execute very tangible term value with that I will pass Steve who will provide some incremental color

on the course glad to be here with you today good morning all thank you for attending the call. For the third quarter, we reported adjusted EBITDA margins for retail casinos of 34.9 percent. This includes the aforementioned 6 million of headwinds from natural disasters as well as Atlantic City, which while on positive territory only delivered a 6.5 percent EBITDA margin in the quarter. North America Interactive EBITDA was negative of $5.5 million, adjusted corporate expense was $11.1 million, and rent was $11.4 million, which leads to adjusted EBITDA in the quarter of $78 million. Going forward, we will report retail casinos as EBITDA, that of course is EBITDA, before Again, our triple net rent in the quarter was $11.4 million. Our North America Interactive business delivered approximately $11 million of net revenues in the quarter with five and a half million of negative EBITDA. This was in line with our expectations and we expect this to continue to grow quarter over quarter going forward as Lee has already mentioned. On the capex front we expect requirements to increase as a result of the properties acquired in the last 18 months. For the first nine months of this year capex was approximately 66 million we expect capex to continue to ramp into 4q21 we expect the consolidated group to spend 40 to 50 million of capex per quarter through the end of 2022 and moving forward of course our approach to maintenance and growth capital investment will continue to be focused and disciplined the gains this acquisition on october 1st that reset our balance sheet Our new capital structure includes a $1.945 billion term loan and $1.5 billion of unsecured notes split equally between 8- and 10-year tranches, as well as a $620 million revolver, which revolver was undrawn at the transaction closing. Our structure is covenant light with minimal amortization, allowing us to focus on growth in the coming years and to utilize substantial free cash flow in an ongoing capital allocation methodology. As part of the Gamesys acquisition, we issued Gamesys shareholders 9.8 million shares of Ballycommon stock. Starting in 2022, we will calculate adjusted EPS, assuming all warrants and The options are converted to focus investors and management on adjusted cash. We have added information to the press release and Form 10-Q, which are or will be available on our investor relations site that should help analysts and shareholders model the business going forward. Total shares outstanding for that purpose is $68.3 million, which includes warrants and shares issuable to Sinclair and other contingent investments. Thanks for tuning in this morning. We appreciate your time. And with that, I'll hand it back to Lee.

Solid quarterly results while expanding and diversifying our collection of land-based and digital gaming assets. We continue to evolve as a company and position ourselves to capitalize on favorable industry trends. We are confident that the closing of the Gamesys deal will drive a unique business proposition as we enter 2022. Please don't forget that the GAMESIS founders, me and my management team, rolled our stock into the company because we believe in the upside opportunity, and we'll be investing our free cash with the shareholders.

At this time, if you would like to ask a question, please press the star and one on your touch tone phone. You may remove yourself from the queue at any time by pressing the pound key. Once again, that is star and one if you would like to ask a question, and we will take our Our first question from Jeff Standell with Stiefel. Your line is now open.

Hey, good morning, everyone. Thanks for taking our questions, and Lee, it's great to be hearing from you on this call. I wanted to start on the North America Interactive Division. You know, as we look out to 2022, you're going to be looking at one to two quarters with BallyBet 1.0, call it two to three of 2.0. And if you think about that ground running with a full marketing program and app, Just how are you thinking about the potential revenue contribution from that segment in 2022? And any thoughts around how market share plays into that, you know, relative to your previously stated 10% target would be helpful as well.

Hi, Jeff. Thanks very much. We actually walked away from that 10% target some time ago. But we have been obviously looking and analyzing the market in terms of how we can enter. You know, BallyBet 1.0 is very much a beta product. There's a big focus on BallyBet 2.0 and getting out the door because I think that combines the best of all the technology that we've got. We've talked about the kinds of investments that we intend making through 2022, and I think that will continue at that 20% pre-tax free cash flow level into 2023 as well. In revenue terms, we expect to be north of $125 million in North American Interactive in 2022.

Really helpful. And then just for my follow-up, I wanted to drill into the GameSys tech stack to be integrated into BallyBet next year. You know, we were just listening to PAN, and we heard them talk about some internal investment into technology, really focusing on improving player-level customization in the PAM. And this did stand out of it, given I recall this being a key focus on the merger call back in April.

Lee, since we now have the luxury of hearing from you directly on this call,

I was hoping you might share some thoughts on how you see the GameSys tech stack position here relative to some other players in the U.S. that might be playing a bit of catch-up in certain ways.

I think the way that we've tried to uniquely position ourselves in other markets has always been about the full personalization of customer journeys. So to ensure that we're putting either the right bets or the right games in front of the right player at the right time on the right device and to make sure that your experience as Jeff is different to my experience as Lee entering into any of those apps. And it's that kind of managed choice, managed experience that we believe customers value, particularly over time. You obviously need to cover that with a good brand to put behind it, to build trust into it and to make sure that you deliver it with excellent customer service. But, you know, the technology really is all about how we can action our data to deliver a very tailored customer journey.

Okay, great. Very helpful. Thanks for the call here, and I'll hop back in the queue.

And we will take our next question from Barry Jonas with Truist. Your line is now open.

Great. Thank you. So, Lee, notwithstanding, walking back from the 10% target, I wanted to focus on iGaming. You've had success there with the Tropicana app. And as we think about the impending launch and ramp in the state, you know, what are your expectations there for iGaming and maybe beyond Jersey over time?

Hi, Barry. Morning. Thanks for the question. I think we've actually probably discussed before that, you know, in New Jersey, you know, I've used the phrase that we've been operating with kind of one hand side behind our back. We didn't have the luxury and the opportunity of a casino database to leverage and that casino footprint to help us along the way, if you like. you know we've we've had six point share albeit you know one of those brands over time will go away from us in Tropicana but we will have Virgin and we will have the Balei Casino app to launch I would be disappointed if over time we weren't beating the share that we had previously based on the fact that I said we had one arm behind our back in delivering that so how quickly we can get there i wouldn't like to comment on right now barry but i would expect to be above 6.5 shots

great and then uh just wanted to touch on game assist a little bit um you know definitely helpful color uh but but can you talk about sort of your expectations around growth in the various segments i know we've got a uk regulatory review coming up but but curious to to get your overall

thoughts there. Sure. I mean, listen, the UK regulatory review is a gambling act review, but there's been regulations over the last six years dropping into the UK market. What we've seen is that every time there have been additional regulations dropping into the UK market, we've actually managed to increase share. We see regulation as opportunity, right? I think that it's really about the way that you execute. New regulations at least bring a level playing field to many of the dynamics, and every single time we've seen that in the UK over the last six years, we've inched forward over time. The Asian market, I keep saying, has been one of our most stable regulatory environments for the last six to eight years, with not much happening there at all. Obviously, in Japan, there's a focus on integrated casino resorts. Any regulation for online gaming, I think, is probably many years down the line. So we don't see anything changing there. On the Gambling Act specifically, looks like the white paper's now kicked into 2022. On the prepared remarks, you know, we think customers, our relatively low-staking customers, and our activity around RG, which has been in place for many years. Thanks, Lee.

And we will take our next question from Lance Vita-Enza with Cowin. Your line is now open.

Thanks. Thanks. My first question is on the North American interactive side. I heard you mention a moment ago, Lee, the $125 million revenue target for 2022. But what about on the cost side? I mean, I would think you could spend twice that much in 2022 as you invest for growth. And I may have missed this, so I apologize. But did you say at what point you would expect NA Interactive EBITDA positive on its own?

no i didn't but thanks for the question um no we haven't said that now what i said is you know we we will expect to invest against north american interactive 20 percent of our pre-tax free cash flow and i see that in 2022 and i see that continuing into 2023 i think let us get the apps out the door let us build into a little bit of market share understand what our marketing dynamics alike and then we'll be in a much better position um you know probably towards the end of 2022 when we see this turning positive and then my my other question is with opportunity and the

partnership strategy that you chosen there i'm wondering if you could talk i know maybe it's a little premature but how do you feel about your prospects there um in terms of whether you are

selected profitability if you are selected and timing of might come earlier for with our position and with no one's happy with a 51 tax rate um i think that would be true for all of the partners that we've been working with as well uh but it's a huge state and therefore you know the scale of it means that you can have opportunities we also have some opportunities with uh we can leverage in the outskirts of the state as well. Change the end to that market in terms of how they might address and attack that market. But clearly, New York is not a market that you want to miss out on. Thanks so much for your help. Thank you.

And we'll take our next question from Dan Pulitzer with Wells Fargo. Your line is now open.

Hey, good morning, everyone, and thanks for taking my questions. So the first one, just on sports betting and iGaming, is it reasonable to expect that your share of iGaming would exceed that of sports betting, just given the GameAssist core competency is kind of the backbone for the iGaming component?

I don't think that's a given, to be honest, Dan. We're working extremely hard on the sports betting products that will come to market in the first half of 2022. too. We've got some incredible talent in Betworks, which will provide the betting engine. GameSys have actually dabbled in the sports betting market previously in the UK, and we've got some incredible new talent as well on the product side, which we think will give us excellent. I'm definitely not giving that as a given that iGaming is naturally going to be a... We would love more states to have both sports betting and iGaming, because that enhances the opportunity for everybody. And we think we would be extraordinarily well positioned where this has been going on as well as our eye game.

And then just for my follow-up, to what extent, if any, do you anticipate Valley bet to be impacted by the Sinclair RSN uncertainty? I know that the D-Sport bonds are trading at distress levels. So, you know, is there any impact or read-through there in the event that, you know, there is a credit event with Diamond?

well i think you know we i don't want to comment on the diamond situation specifically but you know we think we bring a lot of value to valley sports today uh and that value is only going to continue to build over time we've got a great relationship with sinclair today but if if those rsn assets end up other under other ownership in the future uh we still believe that we'll bring a great deal of value has that in the future if that was to be the way it went. Remember also the tennis channel, local TV stations, and stadium app are all kind of outside of that diamond structure, so it wouldn't all go away as well. But, you know, we value the partnership we have there. If it were to change hands, we'd look at whether or not we can find a valued partnership under a new owner.

Got it. Thanks for all the color, and best of luck in the new role. Thank you. Appreciate it.

And we will take our next question from David Katz with Jeffries. Your line is now open.

Good morning, everyone. Thanks for taking my questions. I wanted to go back to, I know you touched earlier on the Chicago bit. If you could elaborate just a bit on how, you know, management thought about its pursuit, you know, what success would look like. And more broadly speaking, how are you thinking about investing capital in the land-based portfolio next year or two?

Hi, David. Thanks for the question. The company has been following with interest Chicago for some time, and that obviously predates me. But our interest became very serious when the city moved to rationalize the tax structure. You know, I think we've got a very comprehensive plan that we're proud of that George has been dealing with much of that plan over a much longer period. So maybe, George, can you comment to Chicago and the future CapEx investments?

Sure. So thanks for the question, David. So, you know, we felt Chicago would be a perfect location for us to position this property centerpiece of our national portfolio. You know, we view this as a tremendous cross-marketing opportunity that will be very attractive to our large and growing regional database customers to development. You know, I don't know anything related to our RFP yet, but, you know, we're taking a phased approach so we understand really what the, you know, what the levels of visitation would be in that market. So you'll see a highlight number of $1.6 billion, but that's after the first phase, which is temporary, as well as the phase one of the project, which would include hotel room products, potential gaming places.

Which are running at the moment in Lincoln, Kansas City, and Atlantic City. We'll all roll out from those capex for the seasonality in that market.

And nothing on, no thoughts on any of the other properties or markets.

Is there anything you'd like to add on any of the other ones?

So, you know, we're underway with our CapEx in Kansas City, fully online for 2023. And, you know, we're focused on a rebrand right now. I think Lee mentioned touched on that recently, focused on marketing as well as rebranding and a lot of that as lead time. But now we're underway.

Thank you so much.

We will take our next question from Stephen Grambling with Goldman Sachs. Your line is now open.

Hi, thanks. And, Lee, thanks for all the thoughts. But I'd love to start off with maybe a broader question on just how you're thinking about the North America digital market, both from a competitive standpoint and consumer behavior standpoint, relative to the experience in the U.K. and perhaps how that frames your view of the margin structure and market evolution over the long term.

Hi. Thanks, Stephen. Thanks for the question. If I look back at the UK, I guess, you know, a few lessons for us from the UK, although, you know, I'm conscious not to just think everything is the same because I think there's quite a few different dynamics in the U.S. but you know first thing to say is that the winners are not decided in the first few years but you know if you look back at the history and evolution of the UK market that's rather over the first 10 years which tend to bring that to the fore and decide who the winners are you know your use of data and and how you leverage that is key we think that you know unique content and unique acquisition funnels will be kind of critical to avoid the kind of massive overspend with just throwing money above the line and hoping that it sticks. So you've seen us with the acquisitions that we've already made and the partnerships that we've already struck, starting to craft together a different way to approach the market. And, You know, GameSys has always been different in the way that it approached the market in the UK. Very scientific in terms of the way that it acquires players. Very focused on digital marketing. But in the US, of course, we'll have a number of different opportunities. One, through the media partnerships that we have. Two, through some of the great acquisitions we've made on free-to-play. And I'd cite like Sportcaller and Telescope as super interesting parts of the business for us to really give us a better funnel. And then, of course, the retail casino database, which we intend to leverage in a more integrated way than we've seen done today. And that's not a dynamic, of course, that really exists other than, let's call it the bedding shop.

All super helpful. And one unrelated follow-up, this may be more for Steve. On the capital allocation front, I think I saw a buyback authorization. I guess, how are you thinking about redistribution of capital back to shareholders, even if that's over the longer term versus maybe further M&A and what the right leverage level is for the business in a steady state?

Steve, good question. Yeah, look, capital allocation is a frequent topic for our senior team and board, and we go through it many times per year. And of course, it's variable, right? What's the stock price? What are the ROIC expectations on capital investment opportunities facing us what's what's our leverage through recent LTM cash flows etc and so that kind of frames the discussion for capital allocation that said look over time we we've said it many times we have kind of a longer term steady state view of leverage in the kind of the mid force range but let me couch that as mid fours on our two operating cash flow businesses, that being International Interactive and the retail casinos. We have in our capital structure kind of parsed away North American Interactive and that's as a separate. But let me also say that we do not have any issues with strong ROIC investment opportunities today. We have, George just talked about the three retail investments investments we have going on. We've got opportunities potentially in New York and Chicago and elsewhere. So look, it's nice to have these problems to consider capital allocation. The good news is, as the press release talks about, we've got an abundance of free cash flow between the two operating divisions and so there's plenty to work with there. Stephen, if I could also add to that

maybe a little more directly, that if our stock remains as low as it is we will be buying it. So the quantum of that will depend on other opportunities that we're facing. We will continue to be opportunistic on retail casinos. You've seen our ability to move fast, to add things to the portfolio that we think make great sense, and I think our track record there is excellent. On digital, we'll continue to be interested in unique content and unique distribution models, but beyond that, I'd say we're happy pulled together today.

That's all super helpful context. Thanks so much, and best of luck.

Thank you. Thanks, Stephen.

And we will take our next question from Jordan Bender with Macquarie. Your line is now open.

Good morning, everyone. You called out the media relationship as driving your brand awareness, and you kind of touched on the Sinclair RSNs earlier in the call. Could you and would you look to expand your media presence through other RSNs or media partnerships outside of Sinclair?

Yeah, Jordan, I don't think anything is off the table. We'll always look, but obviously that depends on the economics of that deal and whether or not we think that's going to add to us in the right places and does it sync with the roadmap of rollout that we're considering and looking at? So yes is the answer. We do think that the right media partnership, the right economics in the right places can work very effectively for us. So we're not limited to just the leverage of the Sinclair relationship.

Perfect. And then understanding its early days, can you talk about the app downloads and kind of your first-time depositors coming from your casino database?

Well, the app today is the BallyBet 1.0 app. We really haven't pushed it, Jordan, is the truth, because what's out there today is not the product that we want to put in front of our customers. It's been a great learning experience for the team. It was put together by the B2B team at Betworks, and I think they'd be the first to say that they're not the B2C experts in our group. They're specialists at delivering the betting engine and I think that we want to keep our powder dry to really push the 2.0 app when it's brought together all of the expertise of Betworks with the expertise of GameSys and that's something that will look for the 2.0 and have a lot more metrics.

Awesome, thank you.

And we will take our final question from Adam Cecil with Gravity. Your line is now open.

Yes, good morning, and Lee, congratulations on telling a very complicated story with a lot of moving parts as simply as you can. Just to be clear, the 20% free cash flow reinvestment into North American Interactive for 2022 and 2023, that's largely going to come through the P&L as marketing expense, right?

Yes, do the P&L in multi-spend.

Yeah, and I know from having read something about what you did at GameSys, that you do, as you mentioned, in passing take a very scientific approach to, you know, catch LTV and so forth. I think there's a fair amount of concern on the street that people, that you're going to, you know, waste money or throw money at this problem, as a lot of people are. Can you just spend a couple of minutes explaining how you did it at GameSys and how you think that will be, you know, you'll carry that over to OSB?

You know, throwing money at the wall just simply isn't in our DNA. I would say that there's no doubt we are going to have to do a level of awareness build, if you like. But we think that the media partnerships we have from Sinclair and the retail casino footprint and database that we have will limit the amount of, let's say, ATL brand awareness that we need to do. Our focus has always been on digital channels and ensuring that when a customer arrives at us, that we can understand their LTV quickly. So we have PLV, which is our projected LTV algo, which effectively gives us, well, you can project it over whatever time frame you like. We take two years just to be conservative. Most players stay a lot longer. But we project to LTV plus or minus 10% for two years within the first 48 hours of the customer experience in the site. That gives us huge latitude in terms of either opening the hose or closing the hose on marketing because we can buy on the ratio of CAC to LTV rather than buy at CPA. So that's absolutely the deployment that we will do into North America Interactive. And so the vast majority of us will be done with that consideration. And typically, when you enter a new market, you might have a CAC-to-LTV ratio of more of 50% than 30% in a mature market. But that's exactly the approach we will take.

And then just as a quick follow-up, you know, if I take 20% of the 400 and change million of free cash flow that you put out, that's $80 million of spend in the P&L for North american interactive against 125 million of revenues so am i missing something to say that it sounds like north american interactive could be free cash flow positive as early as next year

i'm not expecting it to be pre-cash flow positive in in 2022 um i think we'll be continuing to reinvest some of that revenue that is coming in and uh but but we'll i think i've said earlier in the call, Adam, that I think that towards the second half of 2022, we'll be in a much better position to give some idea of forecast on that day.

Thanks a lot. Appreciate it.

Thank you. Thanks for your time.

And there are no further questions on the line at this time. I will turn the program back over to our presenters for any additional or closing remarks. And that does conclude today's program. You may just connect your line at any time and have a wonderful day. Thank you.