PENN Entertainment, Inc. Q3 FY2021 Earnings Call

Greetings, and welcome to the Penn National Gaming Third Quarter Conference Call. I would now like to turn the conference over to Mr. Joe Jaffoni of Investor Relations. Please go ahead.

Thank you, Frank. Good morning, everyone, and thank you for joining Penn National Gaming's 2021 Third Quarter Conference Call. We'll get to management's presentation and comments momentarily as well as your questions and answers, but first, I'll review the safe harbor disclosure. In addition to historical facts or statements of current conditions, today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which involve risks and uncertainties. These statements can be identified by the use of forward-looking terminologies such as expects, believes, estimates, projects, intends, plans, seeks, may, will, should or anticipates or the negative or other variations of these or similar words or by discussion of future events, strategies or risks and uncertainties, including future plans, strategies, performance, developments, acquisitions, capital expenditures and operating results. Such forward-looking statements reflect the company's current expectations and beliefs but are not guarantees of future performance. As such, actual results may vary materially from expectations. The risks and uncertainties associated with the forward-looking statements are described in today's news announcement and in the company's filings with the Securities and Exchange Commission, including the company's reports on Form 10-K and Form 10-Q. Penn National assumes no obligation to publicly update or revise any forward-looking statements. Today's call and webcast will also include non-GAAP financial measures within the meaning of SEC Regulation G. When required, a reconciliation of all non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP can be found in today's press release as well as on the company's website. Thank you for your patience with that. And it's now my pleasure to turn the call over to the company's CEO, Jay Snowden. Jay, please go ahead.

Thanks, Joe. Good morning, everyone. Thanks for joining us for our third quarter earnings call. As usual, I have here with me in Wyomissing, our CFO, Felicia Hendrix, our Head of Operations, Todd George, and other members of my executive team who can help answer your questions during the Q&A session. As you can see from our earnings release and corresponding investor presentation, we achieved many significant milestones during the third quarter. We successfully launched the Barstool Sportsbook mobile app in five new states, which more than doubled the size of our footprint. And just this week, we launched in Iowa, bringing our total to 10 live states. We also continue to grow and evolve our brick-and-mortar footprint. During the quarter, we opened Hollywood Casino, York in Pennsylvania. The strong initial results began to roll out our market-leading cashless, cardless, and contactless 3Cs technology across the portfolio and we have continued to see tangible benefits of our highly differentiated omnichannel strategy. On the core business side, the third quarter was really a tale of two halves for us. July started off with the same positive momentum we saw in the second quarter with revenues up 10% over 2019 and adjusted EBITDAR up 40%. That momentum slowed beginning in the second half of August and into September due to Hurricane Ida, which affected us significantly in the South region, and the regional flare-ups of the Delta variant, which combined impacted property adjusted EBITDAR and adjusted EBITDAR margins by an estimated $30 million and 85 basis points, respectively. Additionally, the other segment results reflect $7.5 million of expenses related to new state launches of the Barstool Sportsbook app that I mentioned earlier this quarter, as well as $12.5 million for our share of the initial campaign expenses for the sports betting ballot initiative in California. Looking ahead, October reflects more of what we saw in the first half of the third quarter with strong property-level performance across our segments with a few notable exceptions due to new competition in Colorado and Indiana and the residual effects of Pennsylvania's continued gaming expansion. Engagement among our younger demographic continues to be strong and is more than offsetting the decline we saw in our older demographics in the quarter due to delta. Further, our VIP segment, which grew 33% year-over-year in the third quarter continues to outperform. Notably, our retail Barstool Sportsbook concepts are continuing to stimulate database growth and increase frequency of visitation in the younger segments while also boosting gaming and food and beverage spend. Our retail sports books are now #1 in handle market share in the states of Indiana, Iowa, West Virginia, and Michigan and we're excited to announce the recent opening of two new retail sports books this week in Louisiana at L’Auberge Baton Rouge and Boomtown New Orleans with more to come in the coming weeks. We cannot be more pleased with the momentum we are seeing in our Interactive business with monthly active users for the Barstool Sportsbook and casino growing over 6x what they were in September of last year. We have been able to achieve this growth while maintaining our disciplined approach to marketing, which has resulted in blended customer acquisition costs of under $100 for the year. In addition to our increased footprint, new features to the Barstool Sportsbook app, including Parlay+, which is same-game Parlay, and Shareable Bet Slips have also driven performance. We are now seeing well over 100,000 bets per week on Parlay+, which is leading to higher engagement and higher hold rates, and the shareable bet feature is really helping to leverage our strength in social media with over 140,000 bets shared last week alone. I'm pleased to say that the Barstool Sportsbook is now tied for first among all mobile sports betting apps in the Apple App Store with a user rating of 4.8 on a scale of 5.0. With the return of football, we have successfully developed top 3 to top 5 handle market share positions in every state that has reported so far in September, while continuing our disciplined approach to marketing that I referenced earlier. In September, we proved the strength of our approach as one of only three operators in both Michigan and Pennsylvania to generate positive net gaming revenue despite a relatively unfavorable hold percentage versus the competition. Our Penn Interactive team, which has obviously been very busy this quarter, also rolled out a Barstool-branded live dealer studio in New Jersey, which for those of you that caught it was being played and live streamed last night by Big Cat and Logan Paul for some amazing content. And last week, we launched our first in-house developed digital iCasino game from our Hit Point acquisition called Barstool Blackjack. We expect these products to drive additional cross-sell from the Barstool audience, with further iCasino upgrades on the horizon. All of this positive momentum will be greatly enhanced by our acquisition of theScore, which officially closed on October 19. With Barstool's wide audience reach at the top of the customer acquisition funnel and theScore's ability to engage and retain sports fans with its highly complementary content, we're creating a one-stop destination for the consumer that simply doesn't exist today. In addition, as the #1 sports media app in Canada, theScore is uniquely positioned to capitalize on the legalization of single-event sports wagering in Ontario with the launch of theScore Bet when the market opens, which now looks likely to occur in Q1 of 2022. We anticipate theScore Bet app will be the brand we lead with in Canada, while we continue to lead with our Barstool Sportsbook app in the U.S. But both brands will mutually benefit from the marketing support of Barstool Sports and the integration with theScore's media app. Looking forward, we are focused on building a highly differentiated and fully integrated media and sports betting tech solution with our partners at theScore while opportunistically pursuing revenue growth, including new markets such as Ontario. Despite these significant planned investments in product and marketing and the delayed launch from what we initially anticipated in Ontario, we expect our Interactive business to generate a loss of only approximately $20 million in the fourth quarter. As I hope you've come to learn what really sets Penn apart from the competition is our strategy to buy and build, whether it's brands, experiences, loyal customers, products, or tech stack, versus renting eyeballs via aggressive traditional marketing tactics. Our goal continues to be developing bespoke products and features with experiences, promotions that are experiential, fun and differentiated, rather than relying primarily on paid advertising. Our promos often include unique bets, branded merchandise, and VIP Barstool experiences that simply can't be found elsewhere. We expect that this approach is the right long-term strategy and will result in a best-in-class margin profile as well as loyalty and retention. The power of our fully integrated omnichannel and media strategy was on full display during our successful promotion and event held in late August at our Hollywood Casino, Aurora property. As you know, Illinois currently requires in-person registration for new mobile sports wagering player accounts at a casino. By featuring a special promotion on the Chicago Bears game, which culminated in a block party in the parking lot of our casino attended by key Barstool talent, we were able to drive nearly 10,000 first-time depositors over a 5-day period with minimal paid media expense. That 10,000, for context, compares to we were averaging about 25 to 30 per day up until that point. Finally, before turning it over to Felicia for a brief overview of our financials, I wanted to mention how impressed we continue to be with the ability of our partners at Barstool Sports to leverage their growing and loyal audience by pursuing opportunities outside of traditional sports media or betting, starting to unlock huge new channels of future growth. One Bite Pizza is one of the highest-selling products in the frozen food section at Walmart stores across the country. Incredibly, Barstool is now representing over 135,000 collegiate athletes under the NCAA's new name, image, and likeness rules, and they're continuing to extend their established media footprint by securing the broadcast rights to the Arizona Bowl as well as playing a prominent role in the recent Jake Paul versus Tyron Woodley fight on Showtime, which featured commentary from Dave and Big Cat during the broadcast. Now I'll turn it over to Felicia.

Thanks, Jay, and good morning, everyone. We reported revenues of $1.5 billion and adjusted EBITDAR of $480 million in the third quarter. Revenues were 10% above the 3Q '19 levels, and adjusted EBITDAR was 17% higher. There were a number of one-time items that affected results in the quarter, which Jay discussed earlier. A detailed breakout of these items can be found on Slide 5 of our earnings deck, which was posted on our website this morning. As Jay mentioned, we achieved a major milestone last month as we closed on our almost $2 billion acquisition of Score Media and Gaming and proudly welcome theScore team into our Penn family. We are excited about what lies ahead and we continue our evolution into being North America's leading digital sports content and entertainment company. As for several housekeeping items, corporate expense, which is reported in our other segment was $27.8 million in the quarter. Our cash rent payments were $228.5 million, cash taxes were $47.9 million, and cash interest was $21.7 million. Maintenance CapEx was $52.3 million. And we remain on track and on budget for the opening of our second category casino in Pennsylvania later this year, Hollywood Casino Morgantown. Our balance sheet continues to be a key asset for us as we remain focused on growth even following our acquisition of theScore. Total liquidity as of September 30, 2021, was $3.4 billion, consisting of $2.7 billion in cash and our $700 million undrawn revolver. Traditional net debt was $45 million, a decrease of $71 million during the quarter, principally due to repayments under our senior secured credit facilities. Our lease-adjusted net leverage was 3.9x based on trailing 12-month EBITDAR. As a reminder, for our roughly $2 billion purchase of theScore, approximately $923 million was paid in cash, and we estimate the transaction was leveraged by 0.5 turn. As the delta outbreak reminded us in the third quarter, the environment remains uncertain while the future looks bright, and we believe we can continue to generate revenues and adjusted EBITDAR above 2019 levels, we continue to maintain our current policy of not providing guidance, and we will reevaluate quarter-to-quarter. And with that, I'll turn it back over to Jay.

Thanks, Felicia. I referenced Hurricane Ida earlier in my remarks. It really is incredible when you stop to think about it that this storm hit on August 29, 16 years ago to the day after Hurricane Katrina devastated much of the Gulf Coast. I've been overwhelmed, but I have to say not surprised by the response from our team members across the country in the aftermath, which once again demonstrated the compassion and dedication our Penn family has for one another. With limited supplies available in New Orleans and basic utilities completely disabled, our sister properties quickly helped to provide temporary housing and much-needed provisions. In addition, our Penn National Gaming Foundation established the Hurricane Ida Emergency Relief Fund for team members to apply for financial assistance for immediate needs. Meanwhile, we continue to expand our support for our nation's heroes. One of our newest partner organizations is the Concussion Legacy Foundation, which launched a special project focused on CTE and PTSD research on veterans. In addition, in the wake of our country's withdrawal from Afghanistan, we are offering financial support to the No One Left Behind organization to provide funds to help Afghan special immigration Visa recipients with food, housing, clothing and a no-interest loan program, which helps immigrant families become self-sufficient. One of our fellows from the U.S. Chamber of Commerce is hiring our Heroes program, which helps active military personnel transition back into civilian life, recently volunteered at Fort Pickett to help some of the 6,000 temporary refugees there learn new job search skills to help acclimate to life in America. Also during the quarter, with female members comprising 44% of our corporate Board of Directors, Penn has been recognized by two separate organizations for its Board diversity efforts. We were named a champion of Board diversity by the Forum of Executive Women, the Greater Philadelphia Region's premier women's organization, and we will also be honored on November 10 at the Women's Forum of New York's annual Breakfast of Champions for leading the way in gender balance on corporate boards. And with that, I'd like to hand it back over to Frank to open up the line for questions.

Our first question comes from Joe Greff with JPMorgan.

Jay, I would like to start by discussing Ontario and your strategy there, especially in relation to the marketing acquisition environment. I expect it will be quite different from what we are experiencing in the U.S. Could you share your approach and what you foresee?

Yes, happy to, Joe. I think, first off, worth noting that we initially thought Ontario was going to be ready to go live probably in December. And the additional information we have at this point looks like it's probably going to be more sometime in Q1, just call it, mid-Q1 is probably the best most up-to-date information we have at this point. So that's that from a timeline perspective. I think from an overall market perspective, we're obviously really excited. We're leading in Ontario with the preeminent sports digital media brands across Canada. We feel really good about that. And we're going to be launching aggressively there. We want to make sure that we really start at the starting line with everybody else, and we have a really big splash. We've got a great marketing launch plan in the works with the Levy family and our partners at theScore. I think, Joe, one of the things that really stands to benefit us is that there are some advertising restrictions in Ontario. So there will be a bit of a different market there. You can advertise your brands, but you can't lead with big discounting type promotions. We welcome that environment. We have a very loyal audience in Canada to theScore and what will be Score Bet, similar to the loyalty we have with the brand that we lead with here in the U.S. with Barstool. So we expect to be a major player in Ontario when they're ready for us to go live. And we have a great plan in place. And honestly, if anything, the slight delay in launch allows us to launch with a product that we feel even better about and hopefully get even more content ready to go on the iCasino side in Ontario, assuming that they're ready to go live with sports and online casino at the same time.

Great. And then just switching topics to maybe how much of a strategic priority a Las Vegas Strip asset where OpCo is for you. Obviously, you were involved in the Cosmo and that went to another buyer. We've heard this week from MGM last night in Caesars earlier this week about their marketing strip assets. Can you talk about how much of a strategic priority that is? What you would sort of do with a sort of a premier strip asset and putting it into your flywheel? And then how do you think about valuing an OpCo relative to how your regional Opcos are valued?

Yes. It's been pretty public, and we've confirmed that we were definitely involved in the bidding process for Cosmopolitan. I think Cosmo really stands in a class of its own. That's a once-in-a-lifetime opportunity to potentially get your hands on one of the best-in-class assets really around the globe. And so that was imperative for us because we felt as though it checked several strategic boxes for us. Generally speaking, I don't think it's imperative that we have a Las Vegas strip asset given the differentiated approach that we have around omnichannel. I think that having representation across states throughout the U.S., it is absolutely a strategic imperative for us, and we've largely accomplished that goal. If we were to find the right asset at the right location at the right price, then, of course, we would be interested. We know that we have a very valuable regional database. We know with the right asset in Las Vegas that we could activate and really drive more of that visitation that's already organically finding its way to Vegas because people who like to gamble, like to gamble, and Vegas is the Mecca. And so they're already going. It would be great if we had an asset where we could create some retention value when they're in Vegas. But we don't think that's such a strategic imperative that we would chase an asset or overpay. And that's how I feel currently. So we'll kick the tires, if there's something out there, we're going to be disciplined in our approach. And, yes, I think you're going to have to pay a higher multiple for a Las Vegas Strip OpCo than you would in most or all regional markets. But I think you have to be thoughtful and careful about that because as we all know, there's a lot more maintenance capital requirements and intensity for Las Vegas assets. And typically, when you are an OpCo, your rent, your lease is largely fixed, not entirely, but largely fixed. And so if you're the one that's continuing to invest in the property, it takes away from the free cash flow and, well, EBITDA and eventually free cash flow generation for the opportunity. So I just think there's a lot of variables. I think you have to look at it asset by asset, as they become available, if they become available. But you should assume that we are not going to be chasing anything that we don't believe we can get a good return on.

Great. And just one final quick one. Felicia, what's the diluted share count pro forma for theScore transaction?

Joe, I'll get back to you with that offline. I just don't have that in front of me right now.

Yes. I know we issued 13 million shares associated with theScore. So just add 13 to whatever your last number was, Joe.

I'll get back to this other person.

Our next question comes from Shaun Kelley with Bank of America.

Jay, just maybe a couple of questions on the online business. Helpful color on sort of your expectations around the fourth quarter loss. Could you talk a little bit about the revenue environment heading into the fourth quarter? Obviously, you gave a couple of stats on your handle share, but maybe in a fair fight state like Arizona, how you think you're holding up thus far with a sort of new launch across the board? How is Barstool performing versus your longer-term target or aspiration there?

Yes. Let me discuss the high-level overview. As the football season kicks off on September 9, we were active in nine states this year compared to none last year. We launched in Pennsylvania in week two last year. Analyzing the revenue environment from week 1 of the NFL season through week 9, we've observed significant week-over-week handle growth, averaging 9%. We're pleased with these results. When we launched in five states this year, which is more than anyone else, we encountered some challenges since we were late to the market in terms of deposit and match bonuses. We offered a $1,000 deposit and match for September in those states, which reduced our net gaming revenue after promotions. This initial offer takes about 4 to 6 weeks to cycle through. In October and early November, we noticed fewer promotional dollars impacting our revenue, suggesting more typical hold rates as we move forward. We saw a weaker hold percentage in October due to favorites covering in the first four weeks. However, we had a strong finish in the last weekend. Looking at our average hold and what we managed in October for converting handle to gross gaming revenue and then to net gaming revenue, we're optimistic about continuing to increase both our handle and net gaming revenue market shares. Unfortunately, net gaming revenue is only reported in two states, Michigan and Pennsylvania, allowing for better insights into how operators perform regarding handle, gross gaming revenue, and the effect of promotions. In other states, we lack visibility into net gaming revenue. Based on the momentum shown from week 1 to week 9 in handle, we feel equally optimistic, if not more, about the net gaming revenue trends. Regarding Arizona, I currently have no visibility into the market unless something was reported this morning, which I haven't seen. Comparatively, Arizona's launch is in the middle of the pack for us—better than some states but not as strong as larger ones like Illinois and Pennsylvania.

Super helpful. And maybe just my follow-up. If you could just give us an update on the online casino offering. I mean, I think each quarter, you kind of give us a little bit more, but obviously, you're working through that product offering. And when do you think you're going to have that at the place that you kind of want to have it to maybe either support broader marketing or just a bigger push through the channels that you already have?

I believe our current product offering is significantly improved compared to when we launched in Pennsylvania and Michigan. We did invest some in paid media and promotions in Michigan for iCasino because we recognized that the product has greatly enhanced since our initial launch there in early 2021. Our library of content is much stronger today than before. However, I still think our iCasino offering isn't fully competitive with the best products available in the states where we operate, though it is improving. We plan to reinvest in and promote online casino as we gain confidence in our product. Recently, we introduced live dealer games in New Jersey that are themed around Barstool, featuring celebrities like Den Cat, Big Cat, and Logan Paul playing live Blackjack. Fans can watch the live stream, download our app if they're in New Jersey, and bet on their favorite players, which many users enjoyed doing. We have unique offerings that set us apart from others in the market. As we continue developing and launching new products that boost our competitiveness, we will increase our marketing efforts, and I expect to see our market share grow as we make these investments. While we're starting to gain momentum, we still have room to improve in online casino. We had to prioritize our efforts because we entered the market later than others. We focused on creating an excellent sports betting product, achieving a rating of 4.8 out of 5 on the Apple App Store. We aimed to launch in as many states as possible with a strong sports betting brand that engages an amazing audience, which helps in transitioning users from online sports to online casino. We still have significant potential ahead of us; in sports betting, we're probably in the third or fourth inning, while in online casino, we're just at the start. We're not yet where we aspire to be, but we are making progress.

Jay and Felicia. Curious if you're willing to comment, Caesars, FanDuel, they're seeing their online businesses expect to inflect profitability sometime in 2023. I guess without getting too specific, but given what you guided Q4 to have only $20 million loss. How do you think about Penn Interactive? Can that be profitable sooner than those? And then is it even possible to potentially be profitable all of next year?

We welcome discussions around our strategy and differentiation. To summarize the situation for 2022 and 2023, prior to acquiring theScore, we anticipated reaching breakeven or better for Penn Interactive in 2022, and I still believe that. However, with the acquisition of theScore, we are making significant investments in their technology. Currently, theScore is operating on their own platform in the U.S. along with their promotional engine, and the initial results are promising. They're experiencing good stability, positive feedback, and solid ratings. Importantly, their own platform allows for personalization, making every customer's experience unique. Their promotional efforts are showing significant retention, as more users return to bet regularly. While it’s still early, we are optimistic about the potential. Looking at 2022, I will withhold specific figures until we provide guidance, but our losses will be under $100 million, not in the hundreds of millions. This will primarily reflect our investments in product and technology. The timing of our launch in Ontario will also significantly influence our ability to offset these expenses. For Q4, we expect a $20 million loss which we suggest could be annualized at 20% per quarter for 2022. We foresee an encouraging outlook for 2022, even with our technology investments. We anticipate 2023 will be a year of significant growth, as all parts of our strategy align. TheScore will have fully integrated their tech stack before the 2022 football season, allowing us to leverage the football season and March Madness to refine operations, including our trading services and risk management. We plan to transition our tech stack back to the U.S. before the 2023 football season. We are confident in achieving profitability in 2023, which we believe would have been possible in 2022 without the additional tech stack investments.

Very helpful. Two quick ones on the financials. Felicia, on that $30 million you commented impact on Hurricane Ida and COVID. Can you break that out between the two? And then secondly, you're live with cashless, cardless, contactless at seven properties. Any financial metrics you can give to share on potential revenue uplift and/or margin impact from those initiatives in those early adopting locations?

Thanks, Ryan, and thanks, Jay. Regarding the impact from Hurricane Ida and the Delta Variant, we generated a significant portion of our EBITDAR from the Southern region, with a heavier emphasis on the hurricane compared to the delta variant. The Delta Variant had a more widespread impact with pockets across the U.S., but we saw substantial contributions from Louisiana and Mississippi, so we should focus more on the impact of Ida. As for our cashless, cardless, contactless initiatives, we're still in the early stages, and we are very pleased with the outcomes from each launch. We now have three properties in Pennsylvania and two casinos and two racinos in Ohio. With each rollout, we've observed an increase in adoption rates. Initially, we expected younger demographics to embrace these changes more quickly, but we've been pleasantly surprised to see engagement across all age groups. If we compare a typical casino guest to the overall growth, we are witnessing significant increases among app users and even more pronounced growth among those using the wallet feature. Much of this is due to reduced friction and allowing for greater time on device, rather than waiting in line. We still have a lot to share in future quarters as we expand this initiative to more properties.

Our next question comes from Barry Jonas with Truist Securities.

Can you talk a little bit about the strategy behind the stand-alone Barstool sports bars as well as Pizza and any other new growth channels there? Is the intent for these to be meaningful profit centers at some point for Penn? Or are they more as marketing vehicles to drive gaming?

Yes, that's a great question, Barry. I would say it's a bit of both, and it largely depends on the specific opportunities we're discussing. For instance, the One Bite frozen pizza has been a strong success. They sold hundreds of thousands of frozen pizzas within just the first few weeks at Walmarts nationwide, exceeding expectations. Walmart is well-equipped to handle demand, but it has been quite overwhelming in various regions. This presents an opportunity for both financial success and brand expansion. Many shoppers looking for frozen pizza may not be familiar with Barstool, but there's a lot of social media engagement about the frozen pizza, further promoting the brand. Similarly, the stand-alone Barstool sports bars will be strategically located in areas where mobile sports betting is legal. They will effectively serve as satellite sportsbooks, allowing us to enhance the digital experience inside these venues. People will visit these bars for various reasons—socializing, meeting friends, watching games, and placing bets. This helps us continue building our brand and introducing it to new audiences. We're targeting high-density areas for these sports bars, with the first two opening in the Philly area and Chicago in the coming months, barring any changes. We have more locations planned and will share details about the performance of existing ones and our expansion plans in our next call. We are excited about this opportunity, as it sets Barstool apart from competitors due to our unique brand identity and dedicated fan base. Additionally, we are forming relationships with NCAA collegiate athletes early in their careers. This engagement is important for us as a media and lifestyle brand, and potentially, it could evolve into opportunities related to sports betting later on. At present, our focus is primarily on brand building, although there will certainly be financial benefits, especially considering that the average age of our sports app users is about 28.5 years. As we consider lifetime value, we see the potential for significant spending as these users reach their 30s and 40s.

Yes, I guess that touches on my follow-up question, which is I'm curious as you're building out Penn Interactive what you're learning about the differences and similarities between the online and the land-based player? And if longer term down the road, how you're thinking about potential cannibalization?

That's a great question. Todd and I can address it together. We've gathered a lot of valuable information from both Pennsylvania and Michigan, where we've been operating for nearly a year. One interesting finding is that in the online casino VIP segment, about half of the customers we engage with were previously known to us, but 60% of them had become inactive. We've successfully reactivated many of these customers, which has proven to be an effective strategy. Some had stopped visiting our casinos for various reasons, but after we reactivated them for online play, 10% started returning to our physical casinos as well. This is significant when considering the overall market dynamics. Reports indicate that brick-and-mortar establishments in states with online casinos haven't recovered as quickly compared to those without such offerings; this trend is expected. Customers are shifting their spending, with some opting for online experiences entirely. Hence, it’s crucial to keep our online business profitable, as our focus is on maintaining strong relationships regardless of where customers choose to play, whether online or in person. We simply aim to provide top-notch products and service. I'll pause here to see if Todd has any additional thoughts.

Jay, I would only add a few items. One, you touched on it. The fact that we have 100% of the online component. We don't have a JV like some of the others in our industry do. So again, to Jay's point, we have 100% of the upside. The other thing we're very uniquely positioned in the states that are offering online gaming because we don't have a brick-and-mortar presence in New Jersey. So a lot of this is really a brand-new business to us. A lot of it drives the database, and then we can mobilize those people around the country to our operations. And then in Pennsylvania, the bulk of the population residing in and around Philadelphia; our properties are not located close to Philadelphia. So a lot of that represents brand-new play as well. Again, an opportunity to grow the database that can then be shared across our properties around the U.S.

Our next question comes from Bernie McTernan with Needham & Company.

Just wanted to focus in on the live event at the Hollywood Casino in Illinois, the 10,000 first-time depositors significant step-up of what you've been adding previously. How is the retention? And I know it's early days, but how is the retention and engagement of those users and payers look relative to the overall base?

We were eager to analyze the retention value from the 10,000 new users given that it was associated with an event. At the time of the event, we were uncertain about the primary motivator for attendees—whether it was the chance to be with our team in person or to take advantage of the promotional offer related to the Bears. We initially anticipated around 1,000 to 1,500 visitors who would deposit, so the turnout surpassed our expectations. I'm very pleased with the retention we've observed among the 10,000. We noted a significant increase in handle compared to the first few weeks of the football season, particularly in week 4, which was our best week. Subsequent weeks, from 5 through 9, also outperformed the initial three weeks by a considerable margin. This event proved to be a great success, and we learned a lot from it. It highlighted the effectiveness of our omnichannel approach, where a primarily digital initiative benefits greatly from an experiential on-premise event component, allowing us to maximize the opportunities beyond our initial expectations. We plan to apply these insights to future events, not only in Aurora but across other regions and states. Additionally, the notable week-over-week handle growth we have experienced from week 1 to week 9 can be attributed to our expanded presence and improved outreach. Last year, we were limited to one state and faced restrictions due to COVID, but now our Barstool team actively engages with communities in nine states, often multiple times a week through on-premise events. For example, last weekend, the Barstool crew hosted events at Michigan State and East Lansing, drawing much larger crowds than ESPN's event nearby. This engagement is thrilling, especially since we couldn't conduct such activities last year. Each on-premise event has consistently led to substantial increases in first-time deposits and registrations, and we're effectively enhancing our retention efforts by applying the lessons learned from last year's limited scope to our current broader strategy across nine states. Overall, I'm very optimistic about our progress and what's ahead. Yes, I'm glad to address both points. In California, we are investing $12.5 million as part of a coalition of seven operators supporting a ballot initiative. We will have to wait and see how this unfolds. The initiative includes substantial upfront license fees and allocates a significant portion of taxes to address homelessness and mental health issues, important concerns for California, and channels some funds back to tribal entities. The structure seems beneficial for both the state and casino operators. However, it will take time to develop. We are entering a period of collecting signatures soon, and while there is some opposition, we aim to ensure that our efforts complement existing tribal initiatives. We will engage all relevant parties as we explore opportunities in California. More updates will follow as we progress, and I anticipate a clearer picture in the coming quarters. The initial polling looks promising, although metrics can shift over time. Regarding New York, my perspective remains mixed due to the structure of the gaming law, particularly with a self-imposed 50% tax rate. This high tax, coupled with steep licensing fees and being applied to gross revenues before promotions, presents significant challenges for operators. I doubt any operators will be profitable in New York. While it may be better to participate than not, the state's environment may not heavily penalize those who choose not to enter from a market perspective. However, the high costs will likely reduce margins and adversely affect EBITDA. New Jersey is operational, and many potential New York customers live nearby, making it more competitive. I acknowledge New York’s right to set its regulations, and if we enter that market, we will comply. Nevertheless, if profitability is unattainable, we could potentially fare better due to our established Barstool audience, allowing us to engage without relying heavily on costly advertising strategies. The tax rate would be the highest in the nation and presents a substantial hurdle for all operators, which makes this a complex situation for us in New York.

So on iGaming, typically when we look at international markets, iGaming is more fragmented than sports betting. In the U.S., we're seeing basically the opposite, if not just as concentrated. How do you think that will turn out? And how are you thinking about it affecting your company?

Can you clarify your question, Tom? I want to ensure that I address what you're asking.

Yes. So in iGaming, you typically see in international markets, iGaming specifically, you typically see the largest share of companies with like 10% to 15% share. In the U.S. right now, you see one of your peers was about 30% market share. Do you think it will continue to be so concentrated? Or do you think over time, that market is going to be like more like the international market? And then how you're thinking about like in terms of your opportunity, obviously, you have a massive casino database, which is similar to the peer that has a lot of market share.

Yes. Okay. I got you. Here's my thoughts overall on market share. I think that it's very early to be declaring what's going to be in the next five years on either side, sports betting or online casino. I do think that companies that have built-in structural advantages, I think on the online casino side, that would be your existing casino operators. So obviously, in the states where iCasino is legal, have a built-in advantage of a database that they can market to. Just like the sports betting operators, the DFS companies and us with Barstool have a built-in advantage because you have a database you can market to organically. So market share, I think, is going to continue to shift around. It's obviously competitive. There will likely be some consolidation in the mix as well. So I don't have any reason to believe that the ultimate market share results in terms of fragmentation are going to look a whole lot different than over in Europe or parts of Europe. I don't know if there will be 30% or 40% operator, single operator market share sort of 'winner' if it's going to be more lots that are in that sort of 10% to 20% market share. We'll have to see how it plays out, but I think that some companies have built-in advantages. The thing that's always tough also to peg Thomas around questions on online casino is that there's really only three states of any real population that are live today. And those are continuing to, I think, evolve, and we'll see what market share looks like. I think even in those states that will look different in two years and three years than it does today, certainly from our perspective, we know because our product is only going to get better, and we can really take advantage of converting sports bettors in those states as well as our database because in Michigan and Pennsylvania, we have casinos there. But I don't know what states are going to be live and legal. And obviously, there are some states where we are super well-positioned. If it comes, we have four casinos in major markets in Ohio. We have the top-of-class assets in Louisiana in all of the major population centers in that state. Missouri, we're very well positioned in Kansas City and St. Louis. The list goes on, Illinois, Indiana, we've got multiple properties in so many of these states. So I think we're really well positioned but I think it's going to take a little bit of time to play out.

Helpful. And then just my follow-up. One of the attractions of retail sports book is bringing in a different demographic or maybe attracting some players back that like to play table games over slot machines. Any updated numbers around what you're seeing in places where you've opened up retail sports books on the table game side and maybe some benefits to slot too?

Yes. Todd, anything you want to add to that, that we've said beyond what we've said previously.

The trends are ongoing. Jay and I often discuss this at the end of each month. We anticipated growth in the table games sector, and we are also noticing a shift towards slots and a significant increase in electronic table games this year. Furthermore, there has been a boost in food and beverage sales, particularly with our Barstool-branded retail sportsbooks, which offer a strong food and beverage experience. This trend is evident across all our properties and regions. We're looking forward to expanding in Louisiana, as Jay mentioned in his opening remarks. We have opened two temporary sportsbooks this week, and we will be converting them to Barstool-branded sportsbooks in the coming months, which we believe will help attract Texas customers. You pointed out the importance of reactivating inactive customers, and we've seen a lot of success with that in Indiana, as customers from Cincinnati and Chicago are returning to play in Indiana. Everything you've mentioned aligns with what we are currently experiencing.

And Thomas, unless you have any other follow-ups. I'm always sensitive to everyone's time, and we're right at 10:00. So Frank, unless Thomas says anything else, I think we'll probably stop there.

Okay.

All right. Thanks, Thomas, and thank you, everybody else, for joining us this morning. We look forward to catching up with you again likely in very early February for our Q4 earnings. Have a good one.

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day, everyone.