Greetings, and welcome to the Penn Entertainment Third Quarter 2023 Results Conference Call. I would now like to turn the conference over to Mr. Joe Jaffoni, Investor Relations. Please go ahead.

Thanks, Frank. Good morning, and thank you for joining Penn Entertainment's 2023 Third Quarter Conference Call. We'll get to management's presentation and comments momentarily as well as the Q&A. During the Q&A, we ask that everyone please limit themselves to one question and one follow-up. Now I'll review the safe harbor disclosure. Please note that today's discussion contains forward-looking statements. Forward-looking statements involve risks, assumptions and uncertainties that could cause actual results to differ materially. For more information, please see our press release for details on specific risk factors. It's now my pleasure to turn the call over to your host, Penn Entertainment CEO, Jay Snowden. Jay, please go ahead.

Thank you, Joe. Good morning, everyone. Joining me today are our CFO, Felicia Hendrix; our Head of Operations, Todd George; and other members of my executive team who are available to answer your questions later. It was great to host many of you at our recent Investor Event at the M Resort in Las Vegas during G2E. For those who couldn’t attend, Mike Morrison, Head of Sports Betting and Fantasy Sports at ESPN, and I discussed our strategic alliance and the deep integration of ESPN BET within the ESPN ecosystem. I am thrilled with how our teams at ESPN and Penn have worked closely and diligently to prepare for the launch on November 14, pending final approvals. Yesterday, we released a teaser on the ESPN BET landing page featuring Sports Center anchor, Scott Van Pelt. If you have not seen it yet, there is a link to the video in our investor presentation. Last night, ESPN exclusively began using odds from ESPN BET for all editorial content. It’s all very exciting, but I’ll talk more about that shortly. First, let me review our quarterly results. As reported, Penn generated third quarter revenues of $1.62 billion with adjusted EBITDA of $445.1 million and adjusted EBITDA margins of 27.5%. Our property performance was stable this quarter, showing solid customer behavior, especially from our traditional core customers. We also saw the continued return of our 65-plus demographic and moderate growth in our spending per visit. This helped balance the softness in our unrated business in the South region, along with some major road construction projects and increased supply in several markets that we’ve discussed. Overall, I’m pleased with the strength and resilience of our properties, especially our casinos in Ohio, Kansas, Massachusetts, and Missouri. The stability in our operations this quarter demonstrates the advantages of our geographically diversified portfolio and ongoing customer engagement driven by our growing database and continued investments in our properties, including our leading retail sports betting offers in key markets. Looking ahead to the fourth quarter, we expect to see continued stability across most markets, though we’ll face new supply pressures on the unrated and lower segments of our database, along with the one-time impacts of ongoing union negotiations at Greektown in Detroit and road construction disruptions in Charlestown that began in September and will wrap up in December. Regarding our overall company guidance, we expect to finish the year within 1% of our full-year retail EBITDAR guidance. In our Interactive segment, we anticipate an EBITDA loss of about $100 million to $150 million for the fourth quarter as we prepare to launch ESPN Bet in the next couple of weeks. In the upcoming two months, we are excited to break ground on all four of our retail growth projects. Our Hollywood Aurora and Hollywood Joliet projects allow us to replace our outdated riverboat properties, which have seen revenue declines over recent years due to new competition that we anticipate will persist without these relocations. The relocations will also help us avoid significant capital expenses tied to maintaining the existing riverboats by creating new destination-quality facilities with better amenities and much higher traffic from direct access to major interstates, as well as proximity to significant third-party retail and entertainment options. The city of Aurora has been an excellent economic development partner in this process, contributing $50 million to the project, while GLPI has committed up to $575 million. Additionally, we have hotel projects underway at two of our top-performing locations, Hollywood Columbus and the M Resort in Las Vegas. In Columbus, we’re developing a 200-room hotel that will be directly connected to our casino, which we believe will serve as a key economic driver for Columbus's Westside resurgence and become a true regional destination. By the end, we will nearly double our hotel size with another tower of 380 rooms, allowing us to cater to the demand for larger group business. Given the anticipated continued revenue declines at Aurora and Joliet over the next few years, we expect these four growth projects to yield over a 15% cash-on-cash return on the total project cost of $800 million, net of the $50 million contribution from the City of Aurora. These projects are also expected to enhance our free cash flow generation once they open in late 2025 and early 2026. Returning to the Interactive segment, as I mentioned, our plan is to launch ESPN BET on November 14, subject to final approvals, simultaneously across the 17 states where we operate sports betting. This timing allows us to capitalize on a busy Thanksgiving week sports calendar, including the NCAA College Football Rivalry weekend and the Super Bowl rematch between the Kansas City Chiefs and Philadelphia Eagles, which will air on ESPN’s Monday night football. During the launch, ESPN will initiate an initial wave of exclusive integrations across its ecosystem, reaching 200 million unique monthly users in the U.S., over 12 million of whom are regular users of the top fantasy sports app at ESPN. Following an advertising campaign led by Sports Center anchors Scott Van Pelt and L. Dunkin', we will implement even deeper platform and media integrations with ESPN in the coming months, offering an unmatched and ultimately smooth media and betting experience. Importantly, when we launch, current customers of Barstool Sportsbook will be prompted to download ESPN BET, with all their account information and wallet transitioning seamlessly over. ESPN BET will utilize our proprietary technology platform, which has been delivering strong performance in Ontario for over a year under the Score Bet brand. In fact, October marked a record month for us in gross gaming revenue and net gaming revenue for both online sports betting and iCasino. As shown on slides 12 and 13, our media integration, retention, and cross-sell efforts have been highly successful, resulting in double-digit market share in a competitive landscape. Notably, 73% of our total handle in Ontario comes from users already in the Score Media ecosystem, and over 50% of online sports betting players have been converted into iCasino users. Aside from SkyBet in the U.K., we see Ontario with the Score Bet as one of the best models for success in the U.S. with ESPN BET. Now, I’ll turn it over to Felicia.

Thanks, Jay. Our property level performance was stable in the third quarter, owing to our diverse portfolio and the investments we have made in the customer experience. Property-level revenues were $1.42 billion and adjusted EBITDAR was $523.4 million. Adjusted EBITDA margins were 36.8%. In the quarter, we had roughly $10 million net of one-time good news in the South segment. Interactive segment revenues were $196.3 million in the quarter, and the adjusted EBITDA loss was $50.2 million. Our Interactive segment EBITDA in the quarter reflects lower curtailed marketing in the U.S., as we prepare to transition our online sportsbook to the ESPN BET brand. In addition, in the quarter, we recorded a tax gross-up of $103 million, compared to $63 million in the third quarter of 2022. Further, given our divestiture of Barstool Sports on August 8, the third quarter of '23 will be the last quarter where the Interactive segment includes Barstool Sports results. From July 1 to August 7, Barstool Sports generated $18 million in revenues and a net loss of $7.8 million. Slide 4 summarizes our balance sheet and liquidity. We ended the third quarter with total liquidity of $2.3 billion, inclusive of our $1 billion undrawn revolver. Traditional net leverage as of September 30 was 1.4x, and lease-adjusted net leverage was 4.7x. Notably, we also have no near-term debt maturities until 2026. You'll find on Page 8 of our earnings release a table that summarizes our cash expenditures for the quarter, including cash payments to our REIT landlords, cash taxes, cash interest, and total CapEx. Of our $75 million of total CapEx in the quarter, $6.7 million was project CapEx. Our net income results include a pretax non-cash loss on the divestiture of Barstool Sports, which we disclosed last quarter that we would record in the third quarter, the details of which will be in our 10-Q filed later today. Our fully diluted weighted average common shares, as of September 30, was $150.9 million. Because the dilution for potential common shares was anti-dilutive, we use basic weighted average common shares outstanding. If we reported moderate net income for the quarter, our fully diluted weighted average common share count would have been 168 million shares. To further help you with your modeling for 2023, we expect '23 corporate expense of $105 million, inclusive of our cash settled stock-based awards. Total CapEx for 2023 is approximately $345 million, net of insurance proceeds and inclusive of $45 million of project CapEx. For cash interest expense, we forecast $130 million for the full year after roughly $38 million of interest income. Cash taxes will be roughly $70 million to $80 million for the full year. And with that, I'll turn it back to Jay.

Thanks. In closing, I wanted to cover the slides we included at the beginning of our presentation, which are meant to remind investors of Penn's ability to generate significant free cash flow and grow our overall cash position, even in the event of an unforeseen economic downturn. So let's start with Slide 5, where we show how much free cash flow our retail operations have generated over the last 12 months, after maintenance CapEx on a GAAP basis. On Slide 6, which is we're spending a couple of minutes on, we lay out an illustration of our cash generation bridge over the next three years. We start with our current cash balance and add three years of our retail free cash flow, as calculated on a TTM basis. This cash flow is meant to be illustrative as our LTM free cash flow includes slightly lower maintenance CapEx than our typical $200 million a year, and our leases are subject to modest annual escalators, as you know. The biggest variable, of course, will be our operating performance over the period. For purposes of this illustration, we conservatively discounted our annual retail free cash flow to be 80% of our LTM retail cash flow and extrapolated this over three years. And we did not include any contribution from our growth projects. But regardless of whatever assumptions you want to make about the strength of the economy, our properties are going to generate a significant amount of free cash flow over the next three years, that will support our growth initiatives. Next, as I mentioned earlier, Penn plans to take advantage of available financing from GLPI and the $50 million contribution from the City of Aurora in connection with our four retail growth projects so that our total capital outlay when these assets open in late 2025 and early 2026 will be $225 million. And finally, while we anticipate accumulated EBITDA losses of Interactive of approximately $300 million, over the next three years, you can see that we expect to grow our total cash position by more than $1 billion over this three-year period. And going back to the interactive losses anticipated, you should expect those to occur mostly in year one and year two, with year three inflecting to breakeven or modestly positive EBITDA. Which bridges nicely to the ranges of EBITDA we provided on our last earnings call when you get to 2027. Of note, we anticipate our leverage ratio peaking in Q3 of next year and then coming down by roughly a full turn every four quarters thereafter. I hope this all helps for modeling purposes and clarify how we intend to grow our business in the near term. As Felicia covered during her remarks, we have total liquidity of $2.3 billion, inclusive of our $1 billion undrawn revolver. We also have no near-term debt maturities until 2026, with exciting new growth catalysts on the retail and interactive fronts. With all that being said, we have $750 million remaining under our December 2022 share repurchase authorization, and we'll be active and opportunistic over the next few quarters if our stock continues to remain undervalued. And with that, we'll open up the line for questions. Frank?

Our first question comes from Carlo Santarelli with Deutsche Bank.

Jay, I just wanted to dig into the comments that you just made. So from the slide, you're basically assuming about $1.7 billion of retail cash flow over each of the next three years. That doesn't include the $120 million you guys anticipate on the developments, even though that will be stunted towards the end. But the 80% that you took, acknowledging free cash flow could be a little bit sensitive to EBITDAR and you want to provide yourself some room, is that indicative of a guidance? Or is that more just being conservative just to show the strength of the balance sheet and the cash position?

Yes, Carlo, it's definitely the latter. We wanted to take a conservative approach because everyone has different predictions about the macroeconomic situation over the next 12, 18, or 24 months. To clarify, the $1.7 billion represents three years of total retail free cash flow, not the yearly amount. We are being conservative for that reason. You could adjust it to 90%, 95%, or 72%, or keep it as is on a trailing twelve months basis; any of those options are valid. The key takeaway is that even when adopting a very cautious perspective on free cash flow generation, the investments in our four retail growth projects combined with our expected total cumulative loss in Interactive over the next three years will still lead us to strengthen our overall cash position by over $1 billion. Sometimes this gets overlooked as people focus too much on short-term performance metrics like monthly or quarterly results. A three-year perspective illustrates our strategy for growing the company while maintaining strong liquidity and continuing to enhance our cash reserves.

And then if I could, just a follow-up. I know you mentioned a $100 million to $150 million 4Q loss as it pertains to the ESPN BET. I know there's a lot of variables in how things go and what not. But as we think about 2024 in that segment, what kind of guidepost could you outline for us in terms of how you're thinking about the investment over the course of 2024?

Yes, that's a great question, Carlo. We'll provide more details in February when we release our guidance for 2024. At a high level, you can expect the Interactive losses to peak between Q4 and Q1 due to upcoming launches and various first-time deposit match promotions. This will include not only the NFL but also the NBA and NHL. In Q1, we will also see college basketball, the football championship, and the Super Bowl, which will contribute to peak losses. From a leverage standpoint, the leverage number will reach its highest point in the third quarter, reflecting the situation including Q4 of this year and the first three quarters of 2024. We anticipate showing losses every quarter in 2024, and we will discuss the specific cadence for 2025 and 2026 later. As mentioned in the prepared remarks, you should think of the first two years after launching ESPN BET as the period for cumulative losses, with expectations of breakeven and possibly modest EBITDA growth in the third year. This will lead us into 2027 and the ranges we've previously discussed.

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

I want to revisit a couple of points. First, Jay, you mentioned in your prepared remarks that we're within 1% of the overall company guidance. Can you clarify if that means we are within 1% of the midpoint, or is it more conservative? Also, could we discuss the programming related to the ESPN BET launch? We're noticing some operators are focusing on specific states as they launch. While you have the capability to launch broadly due to your market access, I’d like to hear your thoughts on whether there are particular states we should pay attention to, given your previous success with Barstool or where you plan to emphasize marketing as we gather more data under this partnership.

Yes, both are great questions, Shaun. To clarify, when I referred to being within 1% of company guidance, I meant the midpoint of that guidance, and you were correct about that. Regarding ESPN BET in specific states, I wouldn't focus on just one state. The key states for us long-term are those with both online sports betting and online casinos. Based on the information from ESPN, I wouldn't say they're particularly strong in some states while the brand is weak in others. It's more about population and the popularity of ESPN. Therefore, I wouldn't highlight any particular state. Now that we are active in 17 states, we're viewing this as a national platform, and most of our marketing efforts, especially in terms of paid and earned media, will be primarily national. Promotions will be more regional and localized, but I'm not pointing to any specific states at this time.

Our next question comes from Barry Jonas with Truist Securities.

Property margins were nearly 37% for retail in the quarter. While more recently, you talked about 36%, I think you mentioned some softness in the South, margins there were really strong. So I'm just curious if there are any callouts for flow-through and how we should think about total margin range from here?

Yes, Barry, I want to ensure you heard this. Felicia mentioned that we experienced about $10 million of one-time favorable news in the South region, which positively impacted business results there. However, even considering that $10 million in our EBITDA, I believe margins remained fairly robust, quite close to that 36% figure. It's important to note that the fourth quarter is typically our softest, and while we don’t expect this year to be softer than the third quarter like it has been in the past, you should consider the historical drop in margin from the third to the fourth quarter over the last two years as a guide for what we anticipate happening again this year, primarily due to seasonality and calendar factors. Overall, the business remains stable aside from the one-time mentions of new supply and road construction.

Got it. And then just, as you think about sort of the longer-term opportunity to work with the ESPN personalities around ESPN BET, how should we think about it being similar and maybe how different than your experience with Barstool personalities?

Yes, it's similar in that you're working with individuals who are very passionate about sports and sports betting. However, each person has different preferences regarding how much they enjoy discussing the betting aspect of sports entertainment. In our talks with the team at ESPN, we found a lot of excitement. ESPN quickly identified the first two personalities to participate in creative projects and commercials. I believe we will see more of this as we move into 2024. This is significant. I've mentioned it before, and I think you'll notice that we no longer need to speculate about ESPN's commitment to ESPN BET. We see and engage with them daily, and that includes the personalities. The level of involvement and excitement from ESPN is quite substantial.

Our next question comes from Brandt Montour with Barclays.

It seems like there's a considerable amount of momentum building with ESPN BET. Sometimes we think about the potential challenges that can come with that success. One concern that comes to mind is the high volume of activity you're experiencing right from the start, which is a level you've never encountered before. I'm interested to know if you've conducted any stress tests on your system and how confident you are in your ability to manage that increased throughput.

Yes. I'll mention a couple of things. Todd, feel free to add anything as well. We chose to launch in November, even though we announced this partnership in August, because we wanted the product to be top-notch at launch. We had several enhancements to the app that needed to be made prior to the launch, which we accomplished. We wanted the reskin to fully represent both ESPN and ESPN Bet by the time we went live. This timeline allowed us to achieve that, and Noah Live and the product team have done an amazing job preparing. Another crucial factor in our timing was load testing. Our engineering team has excelled in preparing for load testing. We had ample time to order additional servers and hardware to accommodate what we expect will be our highest volume yet. We analyzed data about top players in the industry regarding the volume of bets per second during the Super Bowl. The advantage of launching on November 14, a Tuesday, is that it allows for a gradual build-up before Thursday Night Football, which is significant but not as major as the Super Bowl. By the weekend, we will have ramped up properly. We've carefully considered this, and pending final approvals, November 14 is the date. The initial focus will be on NBA and NHL, with a bit of college football for a few days, then one NFL game, followed by Rivalry weekend and then a big Sunday and Monday Night Football game. We feel very confident. Benji and the team have dedicated a lot of time to load testing, which has been the most critical preparation alongside the product enhancements. Todd, do you have anything to add?

No, I think you covered it in the second half. Just the CapEx went through rather quickly and thank you to our vendors for working with us, all the new servers are in. The example that Jay used really was the guiding force where we tested it compared to Super Bowl volumes of the market leaders. So we feel really, really comfortable that we'll be ready to handle going into such a busy time of year.

That's super helpful. And then a bit of a more nuanced question on the customer experience sort of on day one. I think you just said, Jay, or earlier in the prepared comments that on day one, we all wake up and be prompted to download ESPN BET, if we already have Barstool app on our phones. I think we were expecting that it might sort of download itself at some point and maybe it's just semantics, but is that something that could be considered a minor extra layer of friction? Or how do you kind of foresee that playing out for the consumer experience?

Yes. I think there's plenty of examples of companies that have done this before. Felicia, you use one all the time.

Yes. If you've used HBO Max and then it switched to MAX, when you open the app, it prompts you to download the new app and then you can use all your previous credentials. The whole process takes about two seconds. That's the experience we will have with ESPN BET.

The idea is that we have the chance to completely refresh everything, including the history, ratings, and comments, which will all be reset. This will ensure consistency, all centered around ESPN BET, without any past information in the app when we launch, pending final approvals on November 14.

Our next question comes from Sam Gaffer with Macquarie.

Jay, you previously mentioned that you hope to grow the overall size of the market, given the strength and reach of the ESPN brand. I was wondering if that changes your strategy in the earlier stages of your launch as it relates to pricing, hold rates, and retention. And then as a follow-up, are there any stats or data points that we can look to, as we think about retention rates for new sports betters versus more experienced sports betters?

Yes. Let's set aside the discussion on retention of existing versus new customers for now. Regarding the first part of your question about expanding the total addressable market, that is a major focus for us. We have a solid foundation with around 2 million digital customers gained primarily through Barstool Sportsbook, as well as data from Hollywood Casino, social gaming, and Penn Play. This gives us a substantial digital customer base that we can cross-sell to ESPN BET, where we have a good understanding of their history. With ESPN's brand strength, we believe we can engage casual bettors who may have only bet once or twice and who trust the ESPN brand. This presents a significant opportunity for us to connect the ESPN media ecosystem with ESPN BET. We are particularly optimistic about the 12 million users in the Fantasy database, as they show a high likelihood of betting on sports. However, internally, we are considering what success looks like for us; we aim to observe market share growth in the initial months rather than just a temporary spike followed by a decline, which we wouldn't consider successful. As for retention, we will share specific key performance indicators after our launch. We do not have any data to report at this moment, but we will provide more information by early February.

And then, of course, we talked on our last earnings call about an Investor Day, which we still plan to do. We had initially said before year-end, but as we thought about it more, we're just not going to have enough information to share if we try to jam it in before year-end. So we'll do it sometime in Q1, most likely sometime between Super Bowl and the start of March Madness, good time of the year to do it, and we'll have two to three months of results under our belt. So I would say stay tuned in terms of the KPIs around retention, but at a very high level, we want to continue to build our market share over time and not have it be a giant shotgun day one and then you slowly leak market share. That's not the goal. And that's why I think you'll find that our approach in terms of how we're marketing and how we're investing in customers and promotional dollars, paid media, how we're thinking about integrations, that's all going to continue to build over time. That's not going to be that we go out there day one or month two or month three and try to bring everybody into the ecosystem. We want to build this thing over time.

Our next question comes from Joe Stauff with Susquehanna.

I wanted to ask a couple of questions maybe on your Ontario market, that being sort of the analog. I guess, as I look at the math and you did indicate say double-digit market share. So you're growing with the market on a year-over-year basis, it certainly seems just kind of based on the numbers as well. And I'm wondering if you've seen any changes in that market, where an operator gets more aggressive, say, with promotional spend or not? Or do you think that market has stabilized in terms of where everyone's market share is today, say, versus last quarter or the previous quarter? I guess that's the first question. And then the second question is, again, in the same market, Ontario, do you see anyone in the Ontario market, there's a large number of them, with an effort to have an integrated product offering like you have media sportsbook to casino?

Good question, Joe. I’ll address the second part first since it’s simpler. The answer is no. We don’t see any competitors in Ontario or the U.S. that have truly focused on integrating sports media and sports betting deeply. In Ontario, we’ve reached a level of integration that feels seamless. When using the Score media app, users can easily fill out a bet slip, and with a click, they switch to Score Bet to place the bet before returning to the Score app to continue reading or checking scores. We aim to achieve a similar seamless experience in the U.S. with ESPN. The good news is that ESPN has seen the integrations we’ve successfully implemented in Ontario, and we share a vision of achieving this swiftly in the U.S. There’s no disagreement on how we want to integrate and cross-sell. As mentioned in our slides, 73% of the wagers in our ecosystem came from users who engaged with media before our launch, which is quite significant. Our cross-sell capability from sports betting to online casino is over 50%. These are impressive results. We highlighted our year-over-year growth in slide 13, and we set new records in October, though these results are preliminary and require auditing. Nevertheless, our initial numbers show that October was our best month ever in Ontario, both in terms of gross gaming revenue and net gaming revenue. We have strong momentum, and the market is competitive with over 40 operators and 70 brands, yet we continue to grow at or above market levels. As illustrated in the slides, particularly with online casino growth, we’re becoming more effective at cross-selling between sports betting and online casino. To address the first part of your question, I don’t see any outrageous promotional activity in Ontario from competitors. There may be periods where some companies are more aggressive based on the sports calendar, but overall, the promotional environment is stable, which makes our growth story even more remarkable and boosts our confidence in executing in the U.S.

Our next question comes from John DeCree with CBRE.

Maybe one, I guess, kind of elements you’re housekeeping, but on Slide 6, with the free cash flow bridge, if you could just kind of clarify the net cumulative investment in digital interactive with $300 million. Is it translated to kind of cumulative EBITDA losses? Is it included in CapEx? Just if you could kind of help us frame that a little bit?

Yes. There's not a ton of CapEx that goes into the interactive side now that we've built out the team, and we've gotten ready for the ESPN BET launch. There will be some, but it's not at a magnitude for example, of what you see on the retail casino side of things. So the reason we provided the range of $200 million to $400 million, we wanted that to be all-inclusive. So that would be EBITDA loss and CapEx investment over the three-year time horizon. And again, as I mentioned before, the losses will really accumulate in the first two years, and then we anticipate inflecting and starting to see some positive EBITDA in the third year.

Got it. And then maybe at the property level. Earlier question, the margins were pretty strong. I realize there was $10 million of one-time benefits in there, but still pretty good margins. Conversation that we still have often is OpEx inflation. Curious if you could give us your views on what you're seeing in terms of utility and wage inflation, labor inflation? And if any kind of outlook for where you have visibility in your business, that would be helpful.

Thanks. I'll take that. This is Todd. So we actually have been looking at this a lot. We've got a great team that has really helped us on the utilities front. We've completed several projects coming out of COVID around energy efficiency. So we've really been able to mitigate some of that, as well as locking in futures for a lot of the utilities that we use. So we have been very fortunate and very prepared to deal with this. So we haven't seen that yet. And then on the wage and labor front, I would say that, yes, there are some wage and labor creep there, and we specifically called out Greektown and what's happening there. But for the most part, you're looking at this new dynamic, where you can do more with less labor. A lot of the technology initiatives that we have in place have made us more efficient operations. So we're able to mitigate a lot of that as well.

The one area where I believe some of our competitors have mentioned this on their calls, where you're seeing some cost creep is certainly on the insurance side, property insurance. It's just the market right now plus concern around hurricanes and things of that nature. And of course, cyber insurance is not going down, especially after what's happened not just in our industry, but in so many of late. So you're definitely seeing some cost creep on the insurance side. But as Todd mentioned, I think he and our operations team have done an amazing job and have a good handle on all of this. And obviously, the margins that we've delivered on includes some of those headwinds.

Our next question comes from Dan Politzer with Wells Fargo.

I have a question regarding Interactive. You provided valuable insights on how to assess the cadence of future losses. However, as we analyze the third quarter and consider your scale and operating expenses, you mentioned some factors related to Barstool and included market access fees. Could you help us understand the run rate of your fixed costs in this business? Additionally, do you believe you have reached a scale where we will begin to see a positive impact on EBITDA as you capture the GGR share you are aiming for?

Yes. I mean, I'm trying to keep it largely focused on what we've said already, Dan, just because I think the way we sort of laid out what you can anticipate in the next couple of years versus year three speaks to the timing of the inflection. We anticipate having a successful launch, having a stable platform throughout that launch period, and growing the business over time. And I think that as you're thinking about the cadence, I think Carlo asked the question earlier, we gave some information on kind of what you should expect for next year. So I don't know if Felicia or Todd, do you have anything to add there, but I don’t really have anything else in terms of what to expect.

No, I think you said it.

Yes. I think I have covered everything you were mentioning, unless you have a specific question, Dan.

Yes. I guess another way to ask it is the incremental losses from kind of where we are today? Is that all marketing and advertising? Or are you assuming any incremental fixed cost adds in there, you may be at engineers or some administrative stuff?

It's all in. I mean, yes, it's not one of those things driving the overall results. That's why we wanted to provide this three-year outlook. There are so many factors to consider, such as hold percentage, handle market share, promotional costs, and media expenses. The three-year outlook we provided takes all of this into account, including our staffing ramp-up with engineers, product team members, marketing staff, and operators. We've expanded significantly over the last three months in preparation for this launch, including hiring hundreds more people for our call center. All this ramping has influenced the third-quarter results we've just reported, but we have not yet seen the benefits from the ESPN BET launch, which is reflected in the loss. There was also some one-time variability on the media side that we discussed, and Felicia provided details on that. You should assume that the range we provided for the three-year outlook includes all these factors, along with our planned marketing spend of $150 million per year with ESPN and a similar amount off-channel. That approach and thought process remain consistent as we present this three-year outlook.

Our next question comes from Stephen Grambling with Morgan Stanley.

I thought I just clarify some of the guidance commentary. I think you previously talked to EBITDA for the year. Just want to make sure that if we're looking at some of the puts and takes in the fourth quarter that on my math, maybe gets around $650 million. Just if you could provide some brackets around what at least four Q we should be looking at in terms of the brick-and-mortar business.

Yes. The midpoint for the brick-and-mortar business for the year is $2.022 billion. So when we say within 1%, we're talking about the midpoint of guidance. We gave separate guidance for Interactive of between $100 million and $150 million in losses for the fourth quarter.

Our next question comes from Daniel Guglielmo with Capital One Securities.

Just on the brick-and-mortar side, it seems like the gaming names of near-term development projects have traded a little better over the last few months. And you highlighted your developments coming up. Would you ever think about accelerating any of those developments or adding additional properties to the pipeline?

Dan, for now, there is no plan to accelerate anything. This is largely influenced by the market, supply chains, and construction schedules, which limits our ability to speed things up. I believe the timeline we provided, between the end of 2025 and early 2026, is the appropriate timeframe to consider. We always look for investment opportunities in our businesses, but relocating properties is not something that occurs frequently. The Aurora and Joliet projects are unique chances to significantly enhance our locations and upgrade our offerings in both gaming and non-gaming areas, transitioning from riverboat to land-based operations, which brings various efficiencies and allows us to move from deferred maintenance to growth. We are very enthusiastic about these projects. Additionally, the hotels at M and Columbus have been needed for a long time; we have seen strong demand for a new hotel, especially the first one at Columbus, for many years. For various reasons, we have not proceeded yet, but we continually evaluate such projects, and there may be more opportunities in the future. We do not have any announcements to make at this moment. Todd, do you have anything to add?

Yes. Great answer, Jay. I think the only thing I would add is these are already fairly aggressive timelines for all the reasons that Jay mentioned, especially with the timeline and labor force and everything else. So again, we feel very comfortable that we can hit these targets. And to Jay's point, we constantly look at our capital for options that are out there. But these four make tons of sense.

No, there's no timeline. As we've mentioned before, we will secure funding at the end of the project. When we consider the opening, it makes sense to wait for funding until after we open, as taking it earlier would mean paying rent on projects that are not yet generating EBITDA. It's important to have that alignment. Therefore, as you map it out, I would suggest assuming that we will obtain funding as the projects are completed.

Mr. Snowden, there are no further questions at this time.

All right. Great. Frank, and thanks, everyone, for dialing in. Great questions, and we look forward to speaking with you again in February.

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.