PENN Entertainment, Inc. (“PENN” or the “Company”) (Nasdaq:
PENN) today announced that it has entered into a transformative,
exclusive U.S. online sports betting (“OSB”) agreement with ESPN,
Inc. and ESPN Enterprises, Inc (together, “ESPN”). PENN will
discuss the ESPN transaction as well as its second quarter 2023
results on its previously scheduled conference call and webcast
tomorrow morning at 9:00 a.m. ET. For further information, the
Company has posted a presentation to its website regarding the
transaction, which can be found here.
ESPN Transaction Highlights:
- Exclusive Right to the #1 U.S. Sports Brand: PENN has
secured the exclusive right to the ESPN Bet trademark for OSB in
the U.S. for an initial 10-year term which may be extended for an
additional 10 years upon mutual agreement
- Launch of ESPN Bet: The online Barstool Sportsbook will
be rebranded ESPN Bet in the Fall of 2023; theScore Bet will
continue to operate in Canada
- Deep Integration: ESPN Bet, operated by PENN
Interactive, will benefit from exclusive promotional services
across ESPN platforms including programming, content, and access to
ESPN talent
- ESPN Becomes a Highly Aligned, Long-Term Strategic
Partner: Agreement enables efficient customer acquisition and
retention spend across premier sports content
- Mutually beneficial relationship through ongoing collaboration
and warrants
- PENN has agreed to make $1.5 billion in cash payments to ESPN
paid over the initial ten-year term and grant ESPN approximately
$5001 million of warrants to purchase approximately 31.8 million
PENN common shares that will vest ratably over 10 years, in
exchange for media, marketing services, brand and other rights
provided by ESPN
- Upon ESPN Bet meeting certain U.S. OSB market share performance
thresholds, ESPN could receive bonus warrants to purchase up to an
additional approximately 6.4 million PENN common shares
- ESPN will have the option, at its discretion, to designate one
non-voting Board observer or, upon completion of year 3 of the
agreement, designate a Board member subject to satisfying gaming
regulatory approval(s) and a minimum ownership threshold
- Significant Value Creation Potential: Provides an
estimated $500 million to $1.0 billion+ of annual long-term
Adjusted EBITDA potential in our Interactive segment
- Rebranded iCasino Product: Powered by our new
promotional engine, our new app will include a separate
Hollywood-branded iCasino product in those states where
permitted
Barstool Divestiture
- PENN Divests Barstool Sports to Founder David Portnoy:
PENN sold 100% of the Barstool Sports, Inc. (“Barstool”) common
stock to David Portnoy in exchange for certain non-compete and
other restrictive covenants. PENN also has the right to receive 50%
of the gross proceeds received by David Portnoy in any subsequent
sale or other monetization event of Barstool
Jay Snowden, Chief Executive Officer and President of PENN,
commented, “This transformative, exclusive agreement with ESPN
marks another major milestone in PENN’s evolution from a pure-play
U.S. regional gaming operator to a North American entertainment
leader. ESPN Bet will be deeply integrated with ESPN’s broad
editorial, content, digital and linear product, and sports
programming ecosystem. ESPN Bet will also benefit from PENN’s
operational experience, extensive market access and proprietary
technology platform, which successfully debuted in the U.S. this
July.”
Jimmy Pitaro, Chairman of ESPN, said, “After meeting with Jay
and the PENN team, it was clear that they were the right long-term
strategic partner to build ESPN Bet into a leading U.S. sports
betting platform. We are confident that the combination of our
unparalleled audience along with PENN’s operational expertise and
state-of-the-art technology provides us with a tremendous
opportunity to serve the ever-growing number of consumers
interested in betting.”
Mr. Snowden continued, “In connection with the transaction, we
are selling Barstool back to founder David Portnoy. Barstool has
been a great partner and we are thankful to Dave Portnoy, Erika
Ayers, Dan Katz and their team for helping to rapidly scale our
digital footprint across 16 jurisdictions in the U.S. and
introducing their audience to our retail and digital products. The
divestiture allows Barstool to return to its roots of providing
unique and authentic content to its loyal audience without the
restrictions associated with a publicly traded, licensed gaming
company.”
“Our agreement with ESPN will provide us access to the largest
ecosystem in sports, with 105 million+ monthly unique digital
visitors, an audience of more than 370 million across social
platforms, 25 million ESPN+ subscribers, and the nation’s #1
fantasy database. PENN’s ability to leverage the leading sports
media brands in both the U.S. and Canada with ESPN and theScore,
combined with our newly launched sports betting app, will allow us
to significantly expand our digital footprint and catapult ESPN Bet
into a strong podium position in this space. We believe we can
achieve substantial adjusted EBITDA in our Interactive Segment over
the coming years – and this will translate to very strong free cash
flow generation for the Company and value creation for our
shareholders,” concluded Mr. Snowden.
Non-GAAP Financial Measures
The Non-GAAP Financial Measures used in this press release
include Adjusted EBITDA. This non-GAAP financial measure should not
be considered a substitute for, nor superior to, financial results
and measures determined or calculated in accordance with GAAP.
We define Adjusted EBITDA as earnings before interest expense,
net; interest income; income taxes; depreciation and amortization;
stock-based compensation; debt extinguishment charges; impairment
losses; insurance recoveries, net of deductible charges; changes in
the estimated fair value of our contingent purchase price
obligations; gain or loss on disposal of assets; the difference
between budget and actual expense for cash-settled stock-based
awards; pre-opening expenses; non-cash gains/losses associated with
REIT transactions; non-cash gains/losses associated with partial
and step acquisitions as measured in accordance with ASC 805
“Business Combinations”; and other. Adjusted EBITDA is inclusive of
income or loss from unconsolidated affiliates, with our share of
non-operating items (such as interest expense, net; income taxes;
depreciation and amortization; and stock-based compensation
expense) added back for Barstool (prior to our acquisition of
Barstool on February 17, 2023) and our Kansas Entertainment, LLC
joint venture. Adjusted EBITDA is inclusive of rent expense
associated with our triple net operating leases with our REIT
landlords. Although Adjusted EBITDA includes rent expense
associated with our triple net operating leases, we believe
Adjusted EBITDA is useful as a supplemental measure in evaluating
the performance of our consolidated results of operations.
Adjusted EBITDA has economic substance because it is used by
management as a performance measure to analyze the performance of
our business, and is especially relevant in evaluating large,
long-lived casino-hotel projects because it provides a perspective
on the current effects of operating decisions separated from the
substantial non-operational depreciation charges and financing
costs of such projects. We present Adjusted EBITDA because it is
used by some investors and creditors as an indicator of the
strength and performance of ongoing business operations, including
our ability to service debt, and to fund capital expenditures,
acquisitions and operations. These calculations are commonly used
as a basis for investors, analysts and credit rating agencies to
evaluate and compare operating performance and value companies
within our industry. In order to view the operations of their
casinos on a more stand-alone basis, gaming companies, including
us, have historically excluded from their Adjusted EBITDA
calculations certain corporate expenses that do not relate to the
management of specific casino properties. However, Adjusted EBITDA
is not a measure of performance or liquidity calculated in
accordance with GAAP. Adjusted EBITDA information is presented as a
supplemental disclosure, as management believes that it is a
commonly used measure of performance in the gaming industry and
that it is considered by many to be a key indicator of the
Company’s operating results.
Adjusted EBITDA is not calculated in the same manner by all
companies and, accordingly, may not be an appropriate measure of
comparing performance among different companies.
The Company does not provide a reconciliation of projected
Adjusted EBITDA because it is unable to predict with reasonable
accuracy the value of certain adjustments that may significantly
impact the Company’s results, including realized and unrealized
gains and losses on equity securities, re-measurement of
cash-settled stock-based awards, contingent purchase payments
associated with prior acquisitions, and income tax (benefit)
expense, which are dependent on future events that are out of the
Company’s control or that may not be reasonably predicted.
Management Presentation, Conference Call, Webcast and Replay
Details
PENN is hosting a conference call and simultaneous webcast at
9:00 am ET tomorrow, both of which are open to the general public.
During the call, management will review a presentation regarding
the transaction with ESPN that can be accessed at
https://investors.pennentertainment.com/events-and-presentations/presentations.
The conference call number is 212-231-2913; please call five
minutes in advance to ensure that you are connected prior to the
presentation. Interested parties may also access the live call at
www.pennentertainment.com; allow 15 minutes to register and
download and install any necessary software. Questions and answers
will be reserved for call-in analysts and investors. A replay of
the call can be accessed for thirty days at
www.pennentertainment.com.
This press release is available on the Company’s web site,
www.pennentertainment.com, in the “Investors” section (select link
for “Press Releases”).
About PENN Entertainment
PENN Entertainment, Inc., together with its subsidiaries
(“PENN,” the “Company,” “we,” “our,” or “us”), is North America’s
leading provider of integrated entertainment, sports content, and
casino gaming experiences. As of June 30, 2023, PENN operated 43
properties in 20 states, online sports betting in 17 jurisdictions
and iCasino in five jurisdictions, under a portfolio of
well-recognized brands including Hollywood Casino®, L’Auberge®,
Barstool Sportsbook® and theScore Bet Sportsbook and Casino®. In
August 2023, PENN entered into a transformative, exclusive
long-term strategic alliance with ESPN, Inc. and ESPN Enterprises,
Inc. (together, “ESPN”) relating to online sports betting within
the United States. In the fall of 2023, the existing Barstool
Sportsbook will be rebranded across all online platforms in the
United States as ESPN Bet, and our online product will include a
Hollywood-branded integrated iCasino where permitted. PENN’s
ability to leverage the leading sports media brands in the United
States (ESPN) and Canada (theScore) will position us to
significantly expand our digital footprint and efficiently grow our
customer ecosystem. This highly differentiated strategy, which is
focused on organic cross-sell opportunities, is reinforced by our
investment in market-leading retail casinos, sports media assets
and technology, including a proprietary state-of-the-art, fully
integrated digital sports and iCasino betting platform and an
in-house iCasino content studio. PENN’s portfolio is further
bolstered by our industry-leading PENN Play™ customer loyalty
program, which offers our approximately 27 million members a unique
set of rewards and experiences across business channels.
About ESPN
ESPN, Inc. is the leading multinational, multimedia sports
entertainment company featuring the broadest portfolio of
multimedia sports assets with over 50 business entities. Reaching
fans across television, digital media, audio, print and more, it
has unparalleled scope, scale, consumption and brand strength.
Based in Bristol, CT., the company is 80 percent owned by ABC,
Inc., an indirect subsidiary of The Walt Disney Company. The Hearst
Corporation holds a 20 percent interest in ESPN.
Forward Looking Statements
This press release contains “forward-looking statements” within
the meaning of the Private Securities Litigation Reform Act of
1995. These statements can be identified by the use of
forward-looking terminology such as “expects,” “believes,”
“estimates,” “projects,” “intends,” “plans,” “goal,” “seeks,”
“may,” “will,” “should,” or “anticipates” or the negative or other
variations of these or similar words, or by discussions of future
events, strategies or risks and uncertainties. Specifically,
forward-looking statements include, but are not limited to,
statements regarding: future Adjusted EBITDA; the inclusion of a
Hollywood-branded integrated iCasino product in the ESPN Bet
Sportsbook; the integration of the ESPN Bet Sportsbook into the
ESPN ecosystem; the benefits of the Sportsbook Agreement between
the Company and ESPN; the benefit to ESPN Bet of the Company’s
experience, market access and technology platform; the expansion of
the Company’s digital footprint and growth of its customer
ecosystem; the Company’s expectations of future results of
operations and financial condition, the assumptions provided
regarding the guidance, including the scale and timing of the
Company’s product and technology investments; the Company’s
expectations regarding results, and the impact of competition, in
retail/mobile/online sportsbooks, iCasino, social gaming, and
retail operations; the Company’s development and launch of its
Interactive segment’s products in new jurisdictions and
enhancements to existing Interactive segment products, including
the content for the ESPN Bet and theScore Bet Sportsbook and Casino
apps and the expected timing of the rebrand of the Barstool
Sportsbook as ESPN Bet on our proprietary player account management
system and risk and trading platforms; the Company’s expectations
regarding its Sportsbook Agreement with ESPN and the future success
of its products; and the Company’s expectations with respect to the
integration and synergies related to the Company’s integration of
theScore and the continued growth and monetization of the Company’s
media business.
Such statements are all subject to risks, uncertainties and
changes in circumstances that could significantly affect the
Company’s future financial results and business. Accordingly, the
Company cautions that the forward-looking statements contained
herein are qualified by important factors that could cause actual
results to differ materially from those reflected by such
statements. Such factors include: the effects of economic and
market conditions in the markets in which the Company operates;
competition with other entertainment, sports content, and casino
gaming experiences; the timing, cost and expected impact of product
and technology investments; risks relating to international
operations, permits, licenses, financings, approvals and other
contingencies in connection with growth in new or existing
jurisdictions; the Company may not be able to achieve the
anticipated financial returns from the Sportsbook Agreement with
ESPN, including due to fees, costs, taxes or circumstances beyond
the Company’s or ESPN’s control; the rebranding of the Barstool
Sportsbook as ESPN Bet or the inclusion of Hollywood-branded
iCasino products may be delayed, or in certain jurisdictions may
not occur at all, for reasons beyond our control, including due to
any delays in the receipt of, or failure to receive, any required
regulatory approvals; the ability to successfully integrate ESPN
Bet, theScore and PENN’s iCasino products and the costs and fees
associated with such integrations; potential adverse reactions or
changes to business or regulatory relationships resulting from the
announcement or performance of the Sportsbook Agreement with ESPN
or the divestiture of Barstool Sports; the occurrence of any event,
change or other circumstances that could give rise to the right of
one or both of the Company and ESPN to terminate the Sportsbook
Agreement between the companies; liabilities, costs and fees in
connection with the divestiture of Barstool Sports and the
transition from the Barstool Sportsbook and other uses of
intellectual property of Barstool Sports, including in the
Company’s retail locations; the ability of the Company and ESPN to
agree to extend the initial 10-year term of the Sportsbook
Agreement on mutually satisfactory terms, if at all, and the costs
and obligations of such terms if agreed; the acceleration of the
vesting of the warrants issued to ESPN in certain circumstances;
the outcome of any legal proceedings that may be instituted against
the Company, ESPN or their respective directors, officers or
employees; the ability of the Company to retain and hire key
personnel; the impact of new or changes in current laws,
regulations, rules or other industry standards; and additional
risks and uncertainties described in the Company’s Annual Report on
Form 10-K for the year ended December 31, 2022, subsequent
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K,
each as filed with the U.S. Securities and Exchange Commission. The
Company does not intend to update publicly any forward-looking
statements except as required by law. Considering these risks,
uncertainties and assumptions, the forward-looking events discussed
in this press release may not occur.
1 Calculation is based on inputs agreed upon and contained
within the investment agreement which may be different from the
Company’s valuation in accordance with ASC 718 “Compensation—Stock
Compensation.”
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230808765627/en/
Mike Nieves SVP, Finance & Treasurer PENN Entertainment
610-373-2400
Joseph N. Jaffoni, Richard Land JCIR 212-835-8500 or
penn@jcir.com
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