PENN Entertainment, Inc. Q3 FY2024 Earnings Call

Greetings, and welcome to the PENN Entertainment Third Quarter 2024 Earnings Call. I would like to turn the conference over to Mr. Joe Jaffoni, Investor Relations. Please go ahead.

Thank you, Cindy. Good morning, and thanks everyone for joining PENN Entertainment's 2024 third quarter conference call. We'll get to management's presentation and comments momentarily as well as your questions and answers. During the Q&A session, we ask that everyone please limit themselves to one question and one follow-up. I'll now read the Safe Harbor disclosure and then we'll get into the call. 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. With that, 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. I'm happy to be here in Wyomissing with our CFO, Felicia Hendrix; Head of Operations, Todd George; and our CTO, Aaron LaBerge as well as other members of our senior management team. It was great to see many of you at our investor event on October 7 at the M Resort in Las Vegas. Some of you may have missed it. We highlighted some of the significant product enhancements we recently implemented for ESPN BET as well as some early KPIs related to those feature upgrades. We also provided a hands-on demonstration of our industry-leading three C’s technology and attendees got to see some of our new property automations in action along with several key business updates that we will review or highlight again with all of you here today. Turning to the results of the third quarter, strong year-over-year market share growth in Ohio, Massachusetts and Kansas helped offset unfavorable hold in our Northeast segment and volume declines in our South segment largely as a result of severe weather disruptions and our accelerated hotel remodeling at L'Auberge Casino in Lake Charles. We are roughly halfway through the planned room renovations there which have been driving higher gaming spend per customer. We look forward to completing this project by the end of January 2025. Meanwhile, we are continuing to mitigate pressure from no new supply in Nebraska, Louisiana and Chicago land through our ongoing efforts to reimagine our properties to improve the customer experience and drive loyalty. Overall, we are seeing stable consumer demand and are performing well in those markets not impacted by new competition profitably gaining market share in several of them. Thanks to our best-in-class operators across the country. We saw sequential month-over-month improvement throughout the third quarter and continuing into the month of October. The first several days of November showed improved volumes as well with a strong first weekend. Finally, as noted on slide 4, we have seen 3.6% year-over-year slot volume growth through the first five full weeks in Q4 compared to flat year-over-year slot volumes in the third quarter led by our properties in Michigan, Ohio and St. Louis. The trends we are seeing around the country provide us with continued optimism about our four new growth projects which are highlighted on slide 5. These projects remain on budget and on schedule with Hollywood Joliet expected to open ahead of schedule during the second half of 2025. Turning to slide 6. We unveiled seven new ESPN BET branded retail sportsbooks during the quarter as we continue to implement our rebranding strategy across our portfolio. On the interactive side, as I referenced earlier, prior to the start of football season, we released several product enhancements and ESPN integrations to our ESPN BET offering. These product improvements help contribute to a higher parlay mix and higher structural hold during the quarter. Slide 7 highlights the meaningful growth ESPN Bet has generated for both our digital database and active user base providing a strong foundation for future growth as we introduce additional product improvements. We are now approaching four million members in our digital database. And we saw a 127% year-over-year growth in monthly active users in Q3 2024 versus Q3 2023. As noted on Slide 9, our Interactive segment saw year-over-year OSB NGR growth of more than 200% in Q3, driven by a combination of higher parlay mix from our improving products and lower promotional expenses. While we saw an increase in promotional spend at the beginning of football season from the competition, we have remained disciplined as we primarily focus on reactivation and retention efforts given our deep digital database. As noted on Slide 11, we have seen momentum from September into October, and we are seeing encouraging trends in volumes and handle per user. The September launch of ESPN BET in New York expanded our online betting footprint to 19 U.S. states, representing approximately 46% of the U.S. population. Average daily handle per user in New York is 228% higher than the average in our existing states. And our average deposits there are over 87% larger. And with over 10 million average monthly visitors on ESPN, New York provides a significantly greater scale as we leverage ESPN's vast media reach and integrations for efficient customer acquisition. Turning to Slide 13, as of October 30th, account linking between ESPN BET and ESPN is now available for customers. By linking accounts, fans now have the ability to seamlessly track upcoming, live, and settled bets within the ESPN app and on espn.com. Bringing this new feature to market is an important step towards creating an industry-leading personalized sports betting experience across the ESPN ecosystem. This will help to further drive monetization through enhanced engagement, retention, and reactivation. This was a tremendous achievement for the talented PENN and ESPN technology teams and really speaks to the depth of our partnership with ESPN. We have some exciting additional product enhancements coming soon as we accelerate our product roadmap. These include an improved same-game parlay experience, enhanced branding and IP, and upgraded in-play betting. Finally, on the iCasino side, as you'll see on Slide 15, Hollywood Casino experienced solid growth in the quarter as well. That momentum has continued into October and will be helped by our recently introduced PENN Play promo credit redemption offering. We're excited for the launch of our Hollywood Casino app in Pennsylvania in early Q1 subject to final regulatory approvals, of course, with additional jurisdictions to follow.

Thanks Jay. Our third quarter retail revenue and adjusted EBITDA results of $1.4 billion and $472 million were slightly above the midpoint of the third quarter preliminary results we reported on October 7th. In markets where we are not facing new supply, demand remains stable. October volumes improved over September and continued to improve sequentially through the first weekend in November. For our Interactive segment, adjusted revenues excluding our skin tax gross-up were $141 million and interactive adjusted EBITDA in the quarter was a loss of $91 million. Better than expected holds, driven by a higher parlay mix from our improving product and lower promotional expenses drove the upside in the quarter relative to the original guidance we provided on August 8th. These results are at the high end of the third quarter preliminary results we reported on October 7th and also reflect a 12% sequential improvement from our second quarter Interactive adjusted EBITDA results. As usual, you will find on page 8 of our earnings release, a table that summarizes our cash expenditures in the quarter, including cash payments to our REIT landlords, cash taxes, cash interest and total CapEx. Of our total $132 million CapEx in the quarter, $69 million was project CapEx related to our four development projects. We ended the third quarter of 2024 with total liquidity of $1.8 billion inclusive of $834 million in cash and cash equivalents. As you know, we have no debt maturities until 2026, which are our $330 million convertible notes. Our lease adjusted net leverage peaked in the third quarter of 2024 and we're excited to begin our delevering trajectory driven by organic EBITDAR growth and our ability to access GLPI's balance sheet as our growth projects reach completion. We continue to expect to generate positive free cash flow in 2025 and beyond, bolstered by our Interactive segment, which should generate meaningful adjusted EBITDA in 2026 and our four retail growth projects, which should all be complete by the first half of 2026. I will now provide guidance for our Retail and Interactive segments. For the Retail segment, we expect fourth quarter 2024 revenues to range from $1.36 billion to $1.38 billion and adjusted EBITDAR to range from $440 million to $460 million. Our forecast assumes continued construction disruption in Lake Charles due to the room remodeling project, which will be completed by the end of January 2025. We also continue to absorb new competition in a few markets such as Louisiana, Nebraska and Chicago land as properties open and make efforts to drive trial. As I mentioned earlier, we are seeing stable consumer demand and we are performing well in the markets not impacted by new competition. For Interactive, given that fourth quarter industry-wide holds has been negatively impacted by customer-friendly outcomes quarter-to-date. We think it's prudent for now to reiterate the midpoint of our 2024 Interactive EBITDA guidance, which is unchanged from our last call. We expect 2024 corporate expense of roughly $105 million, inclusive of our cash-settled stock-based awards. Total CapEx for 2024 will be approximately $500 million, inclusive of $275 million of project CapEx. For cash interest expense, we forecast approximately $175 million for the full year 2024, before roughly $20 million of interest income. For cash taxes, we are projecting a small tax refund in 2024 and our base share count as of the end of the third quarter was 152.2 million shares. And we typically have roughly 15 million of diluted shares inclusive of the 14 million share dilution from the converts. And with that, I'll turn it back over to Jay.

All right. Thanks, Felicia. In closing, I'm proud to report that our efforts to ensure diversity of backgrounds and perspectives within our corporate boardroom have been recognized for the fourth straight year by The Forum of Executive Women, who named us as one of their Champions of Board Diversity. In addition, we're proud to have been recently named one of the Best of the Best 2024 Top Diverse Employers by DiversityComm Magazine. Finally, our Leap Internship program, which stands for Leadership Excellence at PENN, has been recognized as one of the Top 100 Internship Programs of 2024 by the nation's largest CEI Recruitment platform. And with that, Cindy, can we open up the line for our first question?

Ladies and gentlemen, we will now begin the question-and-answer session. The first question is from Mr. Barry Jonas of Truist Securities. Please go ahead with your question. Thank you.

Great. Thank you. Hey guys, good morning. Maybe starting with ESPN that you're achieving mid-teen share in weekly active users but more closer to mid single-digits let's say in GGR, giving your mass market focus what degree do you think you could bridge that delta over time and drive higher spend per user?

Yeah. Barry, it's one of those topics we've hit on a quarterly basis for the last several quarters. I think what we're seeing right now is encouraging for us as if you look at our average handle per user, we're seeing really nice growth from week two of NFL to where we are through week nine every week. We're seeing sequential growth and handle per user. So I think part of this is exactly what you said that ESPN bet certainly draws in a more casual mass market base. We think that's great for the long term, a higher propensity to bet on parlays and player props is terrific maybe a lower average wager but we are seeing that average wager continue to grow from where we were even just a few weeks ago. So we would expect to see that continue to grow throughout football season as we head out into March Madness as well. It's a big focus for us right now and we think retention we’re in a really good place but continuing to improve monetization is going to be key for us.

Great, and then just follow up on land-based gaming. You know maybe at a high level as we think about 2025. I know there's a few puts and takes. But do you think regional land-based gaming can grow next year?

We're not going to go fully into 2025, Barry? I appreciate the question. I would say that what we're seeing right now the core business across the country, if you exclude the markets where there's new supply, things are really stable and we've actually seen a nice uptick here in the fourth quarter that you know I'd be guessing if I said I knew exactly what's driving that whether that's election, pre-election, post-election, not really sure but Q4 we've seen a nice bump up from where we were in the third quarter. October, really nice sequential growth from September. So we're feeling good about that. I think as you're looking out into 2025, we've highlighted these but the things that you want to keep in mind in terms of new supply would be Nebraska, Chicago Lands. And then in Louisiana, there's three projects there. Caesars, New Orleans just opened their expansion, could be a little bit of an impact there. We don't have a ton – there's not a ton of competition with Caesars, New Orleans, but there is some. And then of course, we've already highlighted Treasure Chest, the Boyd projects and then Bossier City the Cordish project is going to be open, I believe sometime in Q1 maybe Q2, somewhere in that time frame. So those are the big ones to keep in mind. The nice thing about Chicago Land, as you sort of circle that one is that's really sort of a first, nine, 10, 11 months of 2025 dynamic for us because we'll be opening our Harris, Joliet relocated land-based project sometime before the end of the year. And then of course our new Hollywood Aurora relocation project, which is going to be a fantastic asset for us that's going to be in early 2026. So Chicago then we'll be able to mitigate, I think pretty well in 2025. But I think in 2026 it's time for us to really start playing offense there as well as in Las Vegas with the M Resort tower completion and in Columbus Ohio with the Hollywood project hotel expansion as well.

Great. Thank you, Jay.

Next question from Carlo Santarelli from Deutsche Bank.

Hey guys. Good morning and thanks for taking my question. Jay, I'm respecting the fact that you don't want to give a lot as it pertains to 2025. I know, you know that the message so far on the interactive side has been, you know, getting closer to break even next year. And you know if you just kind of look at the guidance range you're talking somewhere in the ballpark of 400 plus million of an EBITDA swing. And just big picture, I wanted to understand like the way you guys think about that, obviously, net revenue growth, substantial promos coming out etc., some launch costs coming out. But then thinking further in terms of expenses and the path to where you see kind of larger chunkier costs coming out of the business. Is there any color you'd be able to provide on kind of that sequencing and transition over 2025?

Yeah. I will definitely provide a lot more color on this in February when we put out guidance for 2025 both for the retail business as well as interactive. I would say one of the things before we get into cost that you didn't mention, you mentioned a lot of things on the online sports betting side that will be vast improvements on a year-over-year basis. But you also have to keep in mind that we're going to be launching our standalone Hollywood Casino offering in Pennsylvania again, pending final regulatory approval sometime in early Q1. And we should be able to follow pretty quickly in states like Michigan, again pending regulatory approval in New Jersey, West Virginia and in Ontario we think Hollywood Casino will perform very well. So we think that's going to be a really nice shot in the arm for us in terms of continuing to grow our online casino business. Obviously that's a really good margin profile. OSB with PARLAY MIX is getting better but the margin profile for online gaming obviously a lot stronger. And I think as you think about the cost structure, we continue to have as we grow and scale you get efficiencies and that's with regard to your third-party providers and being able to negotiate you get better economics. Of course, the more scale that you have which will have stronger scale. And we also have the marketing spend outside of ESPN. I think we've really figured out or continuing to figure out what's effective, what's working. We're seeing attractive CPAs in our paid digital performance digital spend. And so you know we're getting smarter-and-smarter about what we want and need to spend on the marketing side of things that will continue through the rest of this year and into 2025. So I would say you know with a level of specificity we will provide more in February, but that's the way to be thinking about it at a high-level.

Great. I have a follow-up regarding the brick-and-mortar business in relation to the fourth quarter. It appears we are roughly at the midpoint of the net revenue guidance, remaining flat year-over-year. However, the midpoint of EBITDA seems to be 25 million lower compared to last year. Is this essentially a good baseline for understanding the year-over-year cost increase? Additionally, can you provide insights on how to approach the outlook for next year, particularly regarding cost-free mitigation and the advantages that may come from anniversarying some competition and disruptions?

Hey, Carlo this is Todd. So yeah typically you know there's the seasonality with margins and Q4 is traditionally always the lowest margin percentage. So I wouldn't look at that as a guide for next year unless you're thinking about Q4 of next year. Also keep in mind; we had some one-time good guys last year in Q4. So that is the reconciling item for the difference year-on-year and the EBITDA flow-through outside of that. Like Jay talked about for 2025 we'll get into much more detail in February.

Understood. Thank you guys. Thanks everyone.

Thanks.

Your next question from Brandt Montour of Barclays. Go ahead.

Good morning, everybody. Thanks for taking my question. So the first question is on the fourth quarter interactive guidance. You guys beat the third quarter or your own third quarter guidance by $30 million on EBITDA, and then you reiterated the full year end. So the question is, is that not flowing through that third quarter? Is that how we should think about the direct impact from October hold, or is there any other adjustments you made to your core or otherwise KPIs in the fourth quarter we should think about?

You should consider it completely related to hold. The fourth quarter has had a challenging start, which many of you are aware of. It's evident in the New York weekly results even before the October monthlies are released, and it's also reflected in West Virginia's weekly results. A higher parlay mix is beneficial, except when all the favorites win and parlays win simultaneously. This has been the case for the last five weeks, and the first weekend of November mirrored what we experienced in October. Unfortunately, given that it has become a matter of luck, things can change. Rather than trying to bridge the gap between the hold impact in Q4 and the performance in Q3, we decided it was wiser to leave the numbers untouched. If the hold percentage improves, that would likely indicate a conservative stance. However, we don’t want to adjust things if we aren't certain about what the hold will be for the rest of Q4.

That's super helpful. And then a follow-up on the congratulations on the announcement on the linkages of the account between ESPN and ESPN BET. Curious, what are the initial success rates on getting people to upgrade to that and to actually link the accounts? If you've seen any increased activity related to those accounts that have a linkage linked, and then the last follow-up to that would just be maybe a refresh on the roadmap specifically regarding that linkage product development on top of it?

Yeah let me ask Aaron to speak to that one.

We're excited about account linking, having had tens of thousands of users successfully link their accounts. As expected, these users are placing significantly more bets, resulting in higher handles and GDR. Additionally, they are consuming much more content from ESPN, indicating they are highly engaged fans. We're pleased with the progress made so far. The linking process is incredibly seamless and quick. This development allows us to personalize every aspect of the betting experience on ESPN BET, enabling us to provide tailored promotions, offers, and content related to users' favorite teams and interests. This personalization will also extend across ESPN’s digital platforms, where you'll see integrated features like player highlights, teams, and results without any extra effort on your part. We believe fans will really appreciate this. The account linking option will be conveniently placed on the homepage of ESPN and within the ESPN app once your My Bets module is activated. The experience is exceptional, and we anticipate further improvements moving forward.

Yes. The last thing I would add is and I mentioned it in my prepared remarks, this is a big technical feat from the team here at PENN as well as at ESPN. And it's great having partners where there's alignment and vision and where we want to take this thing. And exactly how ESPN BET integrations will play into the total ESPN sports fandom and the consumption of sports content, so really happy with the execution and now it's time to start marketing the linked betting opportunity and people are grabbing on to it very quickly. As Erin mentioned, it's been tens of thousands and it's really picked up even in the last 24 hours.

Yes. Okay. Thanks, everyone.

Thanks, Brandt.

And your next question from Joe Greff of JPMorgan. Please go ahead.

Good morning, everybody. Jay, I just wanted to ask you about New York and as we think about the inclusion of your efforts in New York going forward, how so far and how you're thinking about promos in relation to handle with the inclusion of New York. How you think that trends in the near term, and how you think about it you know more medium and longer term.

We previously discussed this, and my response remains the same. What we're observing in New York is not surprising; we are seeing a higher quality customer base. The users we've attracted through the top of the funnel are making higher average deposits and, understandably, are also showing a higher average handle per user. We have been very cautious with our promotions, especially considering the tax rate exceeding 50%, and there are no promotional deductions available before taxation. Although we may be late to enter the market, this has provided us with a significant opportunity to expand our user base. New York is a critical market for us and for ESPN, with many people working there but living in neighboring states such as New Jersey and Pennsylvania. This situation creates valuable cross-sell opportunities depending on whether it’s a weekday or weekend and whether individuals are commuting or at home. Launching in New York was vital for us, and we are committed to maintaining discipline in our strategies there. We are not primarily focused on handle market share in New York in the same way we are in other states, particularly those where we operate both online sports betting and iCasino. Looking at the results from October, we feel confident about our sequential momentum. In September, if we exclude New York—launched in late September, which created some noise in the figures—our year-over-year growth for ESPN BET was 32% when excluding New York. In October, this growth rose to 45% year-over-year, still excluding New York. This occurred even though our promotions as a percentage of handle decreased slightly from September to October. We are seeing organic growth in handle driven by our retention strategies, along with profit boost tools that we did not have a year ago. All these initiatives are yielding positive results, and we are witnessing a sequential improvement from September to October, aside from the impact of hold percentage, which was just over 5% compared to September.

Excellent. Thank you for the color. And then good to hear the first five weeks the start of this quarter from a slot volume perspective strong if we were to exclude Michigan, Ohio and the states that you reference is leading the way would you say that still broad-based growth in slot volume? Obviously, if you exclude those you're also sort of including those markets with competition. My question is like how broad-based or how concentrated is that 3.6% volume growth year over year to those select markets?

Yes. It's been surprisingly to the good news side, it's been broad-based, but Todd maybe you can speak to that a little more specificity.

Yes. Joe, this is Todd. I really this last weekend, Jay and I and others were talking after the weekend results. It was one of the best weekends we've seen in quite some time. And you know that's really kind of continued through this week. So you would reference the competitive markets where there's new competition coming in. Obviously, those are not performing as well. But I would say across the board, we're pleased with results and volumes everywhere. And there's some other key markets that we're seeing that kind of halo effect from the sports betting. And as that comes in we're seeing growth not only in the states that we referenced, but also Plainridge in Massachusetts has been a strong market for us. So we're pleased with where we're headed and I think continued through this week and getting through Tuesday and letting kind of people settle into how they feel about the economy in the future.

Thank you very much.

Your next question for Mr. Joe Stauff of Susquehanna. Please go ahead.

Thank you. Good morning Jay, Todd, Felicia. I had a question you know realizing it's very difficult in your previous answer, Jay to the 2025 revenue outlook. I'm wondering how you guys think about OpEx in 2025. Is there an opportunity you know to say assume that it could be flat to down or is that more dynamic? What's the right way to think about that? And then maybe just a follow up on the digital side for Aaron, with respect to account linking, I appreciate the commentary, and certainly, it's early in that launch of that product. But are you able to deliver say, a personalized promos that, I guess, essentially get fed from fantasy lineups into real sports betting? Is that something that you are able to deliver now or that's something that maybe is what would occur a little bit later?

Okay. Joe we'll take both of those Todd and I tag team. The first one I would say, look at a high level again excluding the markets with new supply, because you're always going to feel impacts a bit different market to market there. And we'll know more obviously when we're sitting on the call in February and have a couple more a few more months under our belt of what we're seeing with some of the new competition. I would say, other than that we're certainly feeling a lot better on a year-over-year basis going into 2025 from an OpEx perspective than we were in 2024. In 2024 there were major insurance headwinds. There were several markets of labor headwinds and renegotiated union agreements and labor. So at a high level, I would say, we're feeling better Todd feel free to jump in there.

I agree with all that. The only thing I would add is as we continue to kind of pursue technology it's changing the way that we communicate with people from a marketing standpoint. So yesterday we were in a meeting looking at our overall marketing cost and we're moving away from things like postage and mailing costs, and printing costs, and moving more to that digital communication. Those are big dollars for us, also with the way that our properties are laid out. Now, we have set up kind of these clusters of properties where we can create synergies, we can share marketing expenses, we can share labor expenses and we do a really good job of that. But we are turning over every stone, so, more to come. But if you were to kind of again the way you phrased your question up down flat. We're always looking for that flat to downward trajectory without negatively impacting the guest experience.

And this is Aaron. I'll take the second question. So yeah, absolutely. So account linking does unlock the ability for us to know your Fantasy rosters and then to create and target content based on that. If you look at this year for fantasy football, we actually had a really slick integration with ESPN Bet around that. That was pseudo personalized. Remember this was pre-account linking. So, of course, we know who's on everyone's roster and we have markets around all those players, so we could target you based on who was on your roster. And even that implementation that wasn't super personalized had a 20% engagement. So we integrated that through a modal pop-up and it was highly engaged. And of course now that we have account linking and we know your roster, you're going to see that integration natively integrated into ESPN's actual game. So, it won't be a pop-up. It will be part of the actual experience. So, we're super excited about it.

Thanks a lot.

Your next question is from Shaun Kelley of Bank of America. Go ahead.

Hi, good morning everyone. I wanted to discuss the online casino launch or relaunch as we approach 2025. I don't think we've covered this much so far, but could you provide us with an overview or preview of the plans? We've noticed that when focus shifts back to this area, there's often a demand for additional marketing support. Should we anticipate incorporating that into our plans? Additionally, what is your strategy for cross-selling? Will you prioritize the Casino channel and the physical locations, or lean more towards the OSB cross-sell given the success with ESPN? Thank you.

Thank you, Shaun. I’ll start with the cross-sell aspect, and I’m sure Aaron and Todd will share their insights on the launch and what will make it unique. To provide some context, other than our initial launch of the iCasino offering in Pennsylvania, which was branded as Hollywood Casino and operated on a third-party platform, we haven't had the chance to engage in this arena since that ended about a year ago. Historically, when we introduced the Hollywood Casino app in Pennsylvania on that platform, we achieved a solid market share, consistently in the high single digits. A significant factor in that success was the cross-sell opportunity presented by our land-based casinos. In Pennsylvania, we operate four land-based casinos, all under the Hollywood brand, as well as one in Michigan. The potential for cross-selling when we roll out the standalone Hollywood Casino app is considerable. Currently, our marketing efforts are somewhat chaotic because we’re targeting our land-based casino database at Hollywood properties and encouraging them to download the ESPN Bet app to enjoy their favorite slot machines. This is messy, but we recognize it as a major opportunity. We have observed our competitors successfully launch standalone iCasino apps, often under the same brand, which have been very successful. For us, it’s not just about emphasizing iCasino in that app, but also about the brand connection, which we believe will be quite impactful. For the marketing plans related to this launch, they will be factored into our guidance. This does not alter our previous statements regarding our high-level strategy for 2025, but we are committed to allocating funds to promote these new standalone iCasino apps, as they represent a great business with excellent margins and significant cross-sell opportunities with both our online sportsbooks and land-based operations.

Yeah. And I think just to build on what Jay was saying we're seeing a lot of success in cross-sell from OSB to casino. What the standalone app lets us do is, there is a whole cohort of iGamers, who as Jay said don't get the fact that they have to access our casino through our sportsbook. And so this completely unlocks that. And then of course, building on that further is, we have the entire omni-channel opportunity where people are in our casinos and we can now clearly market to them the same branded product, the same product they're playing on-site as they go interactivity. And so we think that's also going to just be incremental to all the things we're doing here.

Yeah, they well said the only thing I would add, we've actually had great conversations starting at G2E with some of the slot manufacturers. So working with them to get some unique products that no one else is offering. We also have a rather sizable database all across Pennsylvania that we'll tap into and kind of look at slots first. But we'll also be able to do some unique items that we're working on, where we'll actually put live dealer studios, inside of our properties. So we're just kind of looking at everything and how differentiated our approach can be.

It to Todd triggered another idea or thought that I wanted to share as well. With regards to the actual launch, but not surprisingly we lean a lot more table games today because the only way to get to Hollywood Casino is through ESPN bet. And so most online sports bets play table games as compared to slots. Whereas people that would be coming into Hollywood Casino as a standalone app, who are land-based retail customers and avid casino and slot players, casino visitors, and slot players. I think you'll see that the product launch and the product offering for Hollywood iCasino will definitely be targeting slots first and table game second versus ESPN bet. Hollywood Casino is more of a table games first slot second. So that's a difference that you'll see with this launch as well.

Thank you for all the color.

Next question from Dan Politzer of Wells Fargo. Please go ahead.

Good morning, everyone, and thank you for taking my question. I wanted to follow up on the fourth quarter interactive guide you provided. Considering the hold impact, which appears to be around 35 million, could you clarify how much of that amount relates to hold versus other factors in the quarter, like account linking and the New York launch? Additionally, does this 35 million figure reflect changes in promotional behavior due to your customers winning?

It's entirely about hold percentage, Dan. I mentioned earlier that we’re not down $35 million right now, but we've had a rough start in terms of hold percentage. We thought it made sense to keep our expectations flat compared to last quarter since we're in a tough spot now. This isn't just specific to PENN; you'll likely hear similar comments from others reporting later this week and next week. So we decided to take a conservative approach. If the hold percentage improves and we recover from the very low hold in October and early November, then this will turn out to be a very cautious strategy. It’s all related to hold percentage, and it doesn’t involve any of the other factors such as our promotions as a percentage of handle, which we have a solid grasp on. Account linking was part of our marketing plan for the quarter, so there’s nothing new or different aside from hold percentage.

Got it. That's helpful. Can you provide any research or insights on how your current brick-and-mortar database is performing? Are you seeing competition from other omnichannel providers or mostly from digital-first competitors? As you consider capturing market share from these competitors, what are the different areas you are focusing on?

I'm not sure we have a definitive answer. My best guess is that it's likely a mix of factors. Some may be experimenting with us, while others may not fully recognize the relationship between ESPN betting and the iCasino, which features the Hollywood brand. We have a loyalty program that we plan to promote more actively, making it clear that there’s a complete integration between the earnings from land-based activities and the digital platform. Players can redeem promo credits earned at our physical locations within the iCasino app, but we haven't marketed this effectively due to the branding disconnect. I believe the integration of our loyalty program will be a significant advantage for us.

Got it. Thanks so much.

Next question is from Chad Beynon of Macquarie. Go ahead.

Hi. Good morning. Thanks for taking my question. I wanted to ask about initial thoughts on the Missouri sports betting vote, plans for that state. And if you think the outcome of this could have any potential impact on some other states, either in that part of the country or in other regions and then also related to the tax rate that was announced in that market. Thank you.

We're discussing this as of 48 hours ago, and we had a solid sense of whether it would pass. We understand the structure involved. Missouri stands out as an interesting state, being one of the last in the nation, aside from California, Texas, and Florida, where there is genuine sports fandom. The two major cities, St. Louis and Kansas City, are heavily invested in sports. Additionally, we have three land-based casinos in Missouri—two in the St. Louis area and one in Kansas City. There's also another property on the Kansas side of Kansas City. We feel well positioned due to the attractive tax rate and structure. There's been some discussion regarding land-based casino companies receiving only one license for the entire state, but it appears that may not be how the regulators view it. They might approve multiple licenses for casino operators with several properties. We're working to confirm this with the regulators, but that's our current understanding. Overall, we see this as positive news for PENN and for launching ESPN BET, and we believe we have a valuable database to leverage across the state.

Thanks. I appreciate it. And then just thinking about seasonality on hold and maybe what a lot of us saw out there with the World Series and the really strong national numbers and viewership. Do you think the hold rates for non-NFL sports have a line have a lot of way to go in terms of? Thanks.

Thanks, Chad. That's not on our end. I'm not sure what, Cindy is that?

Jay, did you get all that?

I think I did, Chad if not just jump in at the end. With regard to seasonality and World Series. Obviously there was more attention on the World Series and more wagers this year given the match-up was two powerhouse cities versus what it was last year. As a Yankee fan it was a brutal World Series, but it also wasn't super helpful on the betting side. I think people were definitely feeling as though the Dodgers were going to win that series especially the way that it started. So I would say you know World Series every year, it's hard to say that there's going to be any seasonality related to World Series. It really depends on the match up and the favorite and where the money is landing. Generally speaking, we would expect the fourth quarter to be a solid in-market hold quarter for us. The good news about the fourth quarter even where we sit today is that October is the lightest betting month of the quarter. If you look at handle by month historically typically it's around 30%, 31% in October and then the rest in November and December. So if hold comes around we've got heavier volume months ahead of us where it could really help make up some of what's been lost so far quarter-to-date.

Thanks, appreciate it.

Next question from Bernie McTernan from Needham. Please go ahead.

Great, good morning. Thanks for taking questions. I want to focus on account linking. Aaron talked about personalization. I know there's bet tracking within the account linking right now. But is there actual personalization that's happening with bets and promotions right now? And if it is driving an uplift embedding the account linking, is there anything you could do to get customers to more aggressively adopt account linking? Would that be something you could look at, or is organically the way to go?

No we're actually really focused on driving people towards account linking. As Jay mentioned previously, we just started promoting it in the last few days. The results have been really great. So we'll continue both on the ESPN and ESPN BET side to promote the benefits of account linking. You'll see it all throughout your experiences whether signing up for new products, signing up for games. Just targeted approaches to getting you to link and sharing the benefits. Back to your first question in order to personalize your bets and your bet tracking and everything that's going to go with this, we had to link accounts first. So we are literally a few days into that. So obviously as we move forward you will start to see personalized content bet offers all throughout ESPN and ESPN BET and it will just start happening organically. It's not going to be a launch. It's just your experience is going to start getting smarter for you and you'll see it in a bunch of different places including in that module on the ESPN home feed as well.

Got it. Thanks, Aaron.

Next question from Jordan Bender of Citizens JMP. Please go ahead.

Good morning, everyone. Thanks for taking my question. When we look at the 3.9 million digital database you have in your slides and then the 1.8 you've added since the launch of ESPN BET. Are you maybe able to help us break down how many of those people have come directly through just an ESPN channel versus we want to call it other channels?

I would say that since the launch of ESPN Bet, you should assume that most of those users have come from the ESPN ecosystem. However, we haven't provided any more detail than that, but it is definitely most.

Okay, thanks. Are you noticing any differences in turn rates between people coming through the ESPN channel and those from other channels?

Retention is generally stronger among users who enter through ESPN. Additionally, the integrations and account linking enhance this retention further. We are very satisfied with our retention metrics. We have a substantial base of mass market casual bettors, and as I mentioned earlier, we are observing increased engagement and improved handling per user. Our modernization efforts are progressing well. It is crucial for us to attract new users while also reactivating those who haven’t returned since using our promotions last November through February. Focusing on reactivation is a top priority. Furthermore, beyond ESPN, we are gaining insights into our digital performance, allowing us to understand what strategies are effective or not from a cost per acquisition perspective, with strong results both within and outside of ESPN.

Great. Thanks, Jay.

Next question from Ryan Sigdahl from Craig-Hallum. Please go ahead.

Hey, good morning, guys. Just one on the player linking to follow up on that. Is there the potential to offer say ESPN plus memberships for free or if you have for linking it or if you have some status on ESPN? But you get that membership for free where you can really try and drive cross synergies from ESPN or is that I guess too difficult given Disney and PENN are two different companies?

Well, I think – I’ll let Todd take that one. Thanks, Aaron. Great question and thanks for teeing it up for us. It's great timing. We actually are working with ESPN Disney on an opportunity for our database to get ESPN Plus and that will be coming out shortly. It'll be a one-month trial membership. And again, it just shows the teamwork that we have between these companies and everything that we can do together to communicate and interact and engage with our fans.

Excellent. Switching over to land-based side. You're shutting down the Freehold raceway in New Jersey. I guess is there opportunity to further optimize non-core assets in the portfolio either sale, further closures, et cetera or is that kind of a one-off?

I would consider that one Ryan a one-off that was you know standalone horse racing. And so really if you look at our portfolio, we feel like we're in really good shape, all of our land-based and barge, riverboat, casinos all of them are profitable both before and after rent not even close to being unprofitable in any of them. So, there really wouldn't be any thoughts around any necessary closures or anything of that nature. And I think as you look at the rest of our horse racing portfolio, one, they're either at you know close or above break-even on a standalone basis. And they're also we believe some of those are great development options for us down the road for potential land-based casino legalization or expansion in some of those markets. Certainly Texas is top of mind there.

Thanks Jay. And no hard feelings on your disrespect towards Minnesota loyal sports fans and not having OSB yet. Good luck guys.

Thanks Ryan.

The next question from Stephen Grambling of Morgan Stanley. Please go ahead.

Hey, this is Steven. Wanted to touch on digital but with a focus on Toronto and Canada, specifically, I guess how does the customer spend in other aspects in that market compared to the U.S. as we think about ESPN BET customers? And is that segment EBIT positive on its own or even if you separate out kind of media and betting?

Yes, it's certainly contribution margin positive. It depends obviously on how you would allocate some of those shared expenses beyond that Ontario has been continues to be a really good story for us which is part of why we're pretty bold up on Alberta opportunity. Whenever that does present itself it certainly has moved into 2025. We'll wait on the government and the regulators there to tell us exactly when the Go Live launch would be. We've got a significant number of users. It's interesting because the makeup of our database in Ontario is quite similar to what we're seeing here in the U.S. with ESPN BET. Large mass market casual certainly have some VIP play, but the bulk of the users are more in that casual segment. Our parlay mix in Ontario, because we've been at it a bit longer there, is comfortably in the low 30s as a percentage of handle and that's up year-over-year from the mid to high 20s. So, we're already ahead in Ontario of what we're seeing here in the U.S. We're moving in the right direction here in the U.S., but we're still in that mid to high 20s parlays as a percentage of handle. So, we look at Ontario sort of being maybe a year or 18 months ahead of kind of where things are here in the U.S. from an ESPN BET perspective and everything that we saw in Ontario trend-wise we're seeing as we go in in the U.S. as well.

And then maybe a quick follow-up on that is the cross-sell. And iGaming in Ontario also similar to or would you think that that's generally going to be a little bit of a different animal just given differences in the retail business there?

It's really just grown over time again. We've been operating in Ontario longer than in some U.S. markets. Our cross-sell percentages are somewhat higher in Ontario, indicating we have opportunities not only for land-based cross-sell that Todd and I discussed but also for OSB cross-sell in the States where both options exist. This provides a solid template for us as we consider the opportunities in the U.S. with ESPN BET based on our experiences and the results we've observed in Ontario. Cindy, if we could take one more question, considering we had an investor event just a month ago and are nearing the end of the hour, let's go ahead with one more question.

Okay. Question from David Katz of Jefferies. Please go ahead.

Thank you for taking my question. I'm looking at your slide four, which has a map showing all the properties and highlights your focus on developing the digital side in a disciplined manner, while maintaining a stable but not growing land-based business. Are you considering selling some of those non-growing properties to reallocate resources towards digital? Additionally, I see you have a presence in Texas. Given recent events, perceptions about potential legalization in Texas may shift. If there were changes, would you be positioned and interested in participating in Texas should it move towards legalization?

Yeah. Thanks, David. I'll hit the second first. The answer is definitely yes. We think we're positioned actually very well. In Texas, we've got ownership of several standalone horse tracks in Texas. And Retama in San Antonio and Sam Houston in Greater Houston, MSA and those are two of the three Class 1 horse tracks in the state of Texas. We are have been and will continue to be engaged in conversations with the appropriate people in Texas and feel like horse racing is very likely to be involved in whatever happened down the road. I'm not going to make predictions on when and how that will happen. There's some new Senate positions that just got filled. And so we need to see how the dust settles in Texas and the new presidency and how that may or may not affect others in Texas in terms of potentially joining that administration. So I think more to come in Texas, but definitely well possession, extremely interested and engaged and will continue to be. With regard to your first question, look, we have liquidity is not an issue. We have $1.8 billion of liquidity and so we're going to spend where we feel like we should be spending and need to be spending across the portfolio both on the retail side as well as the digital side. We don't have a plan to sell any of our assets. None of those are on the market. Every once in a while there's something in that you read in the paper. And I don't even know where those rumors come from, but that's not the case. And we feel like we're strongly positioned. We've got some momentum in the business right now. We've got four growth projects that are going to be very exciting additions to our land-based portfolio again, one at the end of 2025 which is not far away and the other three in early 2026. So we'll continue to invest where we feel like we're going to get the best returns and that becomes clearer and clearer for us every day on both the retail side as well as on the digital side.

Thank you very much.

Yeah. Thank you, David. Thank you everyone for joining, especially if you also joined us in Las Vegas. Some of this was redundant, but hopefully, you got some new information and takeaways. And we look forward to catching up with all of you again in a few months in February.

Ladies and gentlemen, this completes your conference call for today. We thank you for participating, and ask that you please disconnect your lines.