All right, good morning, everybody. Next up, on the panel, is the CEO of PENN Entertainment, Jay Snowden. I think what we've been doing, Jay, and it's been instructive for people of varying levels of knowledge of the PENN investment story, or investment stories in general, is just to folks at the beginning, some of your top strategic priorities. And maybe for you it would be interesting if we can focus on the top strategic initiatives and priorities for you, in digital as one bucket, the second bucket in the land-based casinos, and then maybe the third bucket in terms of balance sheet and capital allocation views, and then maybe we can dive a little bit deeper into those topics.
Yeah, happy to. Maybe start with the land-based business first, just I think just given the magnitude.
You can start simple and then get more complicated.
Yeah, happy to do it that way. So, land-based business, I think people know the story pretty well. We've got 40 assets across the country in 20 states and generate around $2 billion of EBITDAR and about $1 billion of EBITDA after rent. That business generates a lot of free cash flow for our company and has been very stable over the course of the last couple of years post-COVID. We get that question all the time around stability. Has been stable, continues to be stable. January, the start of this year, there was obviously weather impacted most markets. That's been well, well documented. But beyond that, it does continue to be stable for us.
In addition to our core business of the portfolio that exists today, we also just broke ground on four new growth projects within that retail portfolio, two in the state of Illinois, which are actual relocations of our license to much better locations in the cities of Aurora and Joliet. We're very excited about those. We have a hotel that we're building at our Columbus property, which is one of our top-performing properties. We've needed a hotel there since we opened. There was Master Lease reasons for why we couldn't do that originally, but we reworked those leases with GLPI, our landlord, and so we broke ground on that hotel.
Then we have a new hotel that we're building at the M Resort here in Las Vegas as well that'll roughly double the size of the hotel from just under 400 rooms to just under 800 rooms. So those projects, I think, if, if you're thinking about our core business, has been stable from a revenue and EBITDAR and cash free cash flow standpoint the last couple of years. I think you should expect that to continue the next couple of years, and then you probably see a bump up in terms of revenue and EBITDAR and free cash flow, by virtue of those 4 new projects. That'll more than offset some of the new supply that's hitting some of our other markets. That's the way to think about the, the core business. The interactive business, we're, we're really excited about. We just launched with ESPN BET.
I think everyone's aware of that in November. Obviously, we're 3 months in, so there's only so much, 3, 3.5 months in. There's only so much data that we have to share. But the data that we do have access to, that we have been sharing, I think, is pretty compelling in that top of funnel demand has been very, very strong. Obviously, that's what drove all the promotional expense that hit us in the fourth quarter. We anticipated about 300,000 new users. In the first 7 weeks, it turned out to be over 1 million. We also launched in November, mid-November, and it was the 2 worst hold weeks of the year. So all those promo dollars also happened to be bet on games that turned out really good for the better.
So that exacerbated that loss in the fourth quarter as well, was hold percentage. If you fast forward into where we are now here in the first quarter, we just launched in North Carolina on Monday with everyone else. We feel really good about that launch. We've done so many of those state launches went off without a hitch. And, it's, it's it's three days, so I can't tell you what it's gonna look like over the next couple of years. But we feel like it's gonna be a top-tier state for us based on users that we're seeing so far in bets.
Yep. So North Carolina is interesting for you. Again, a whopping handful of days.
Yeah.
It's interesting in that it's a state where you're launching at the same time as your competitors. Is there any sort of interesting tidbits or observations in this, you know, relatively narrow sample size that you would call out relative to launching in markets, particularly with ESPN BET, after your peers have been sort of, you know, maybe more firmly established in those markets?
Yeah. Again, it's three days, so not a ton. It's Monday, Tuesday, Wednesday, and pre-March Madness. There's not a lot.
Take the best day of the 3. We'll multiply it by 365, and we'll use that as a run rate.
Yes, exactly. So what I would say, though, is that when we launched in November and I think people sometimes forget this. We launched in 17 states all on the same day. No one had done that before. What we've seen as the results have sort of played out over the last few months is that the states that are newer to online sports betting, where you'd have customers probably a little less entrenched with, you know, habits, in terms of where which app they use and how much time they spend, we've performed a little bit better than in the states that were maybe older, like in New Jersey, for example, where people have been doing the same thing for the longest period of time.
So I would expect that North Carolina probably would look more like the newer states because that's those are the trends that we've been seeing. It's interesting because I don't know if everybody gets access to this data. I would encourage everybody to. There's third-party data that comes out from Sensor Tower. And it's really interesting because it's well, first off, it's objective. It's not based on what a CEO's gonna tell you about things like retention. But it does show you that ESPN BET, really from December to January to February and now even into March, has been remarkably consistent in our weekly active users across the U.S.
If you look at what our market share is of weekly active users, not only has it been stable throughout that December to January to February to early March, but it also shows you that we, we know we're not in New York, right? So that's a big state that once we're there, that weekly active user number, of course, will continue to grow. But we're running in the mid to high teens in terms of user share, okay? That's really important 'cause you get these questions of, you know, there's these fluctuations right now of handle and revenue share. But we're seeing that of the users that were that came through top of funnel, retention's been very good. And this consistency in weekly active users is very encouraging. I'm certainly of the opinion it's up for debate, certainly, 'cause we're only three and a half months into this.
But I'm of the opinion that there's no reason to believe that over time, as your product gets better. We knew and I talked about this before we launched at our investor event at G2E in Las Vegas. The one area that we knew our product wasn't gonna be competitive at launch was on the same-game parlays. Well, during football season, that's a big deal. And during Super Bowl, it's a really big deal 'cause there's nothing to bet on other than same-game parlay for an event that there's only one game for the entire day. And so not surprisingly, we saw our market share on Super Bowl; we dipped down. And we also didn't market aggressively because it was our first Super Bowl with 17 states all on load management.
But what is great is that right after Super Bowl, it ticked back up again from a weekly active user share perspective. I'm certainly of the opinion that as the product gets better, our internal team of engineers and product development folks, all they're working on right now between now and September is enhancements to our parlay offering, that we know that's the gap right now on the product side of things. Then all the folks at ESPN, our partners at ESPN on the engineering and product side, all they're working on is integrations 'cause that's really more on them. The integrations are easy for us. They have to get work done within their media app, within their fantasy app. And you know, the bracketology, March Madness, there's things that we can't do that. That's on ESPN to get these integrations going faster. That's their focus.
Our focus is on product enhancement. I'm of the opinion that when the product is comparable or close to comparable, given the power of the brands and what we've seen on top of funnel and what we've seen in weekly active users (people are in our app every week just like they are to the top, the other two top players), we're just not getting our fair share of handle and spend per user, okay? We're getting people in the app. They're not spending as much time in the app, and they're not spending as much money in the app. That makes sense to me because we know that the product that people want, 60% of bets are on parlays. It's a lot. When your product isn't comparable on parlays, that's a big deal. So 30% of handle, but 60% of bets are on parlays.
As we get our product closer to parity by football season, I think that you'll continue to see us chip away at that delta between handle share or revenue share. And by the way, when the parlay product gets better, those two should be pretty close to the same, the handle and margin and revenue share. But the difference between that number and your user share should continue to close.
So, two questions from a bunch of things you said there. Your satisfaction with the level of retention right now, given where the product is. What's driving that sort of better-than-expected retention? And then two, which is probably a more relevant question, is what is the timing for improved same-game parlay product?
Yep.
Obviously, you wanted to get it in front of.
Football.
The NFL season, college football season.
Yep.
Do you need to have a period of time where there's some experimentation before you step into a you know a major league where Same-Game Parlays are pretty important?
I mean, we offer them now. We're just—it's if you go to our home screen, it's, it's the important bets are there: money line, over/under, point spread. Like, you can find the bets that you want. Scoreboard is there. Promotional tiles are there and feature bets. Like, it's all there. It's just, it's not merchandised in a way that it needs to be to be competitive. If you go onto our top competitors, they've got prepopulated parlays on a carousel. You swipe right. It tells you how many people have bet on that parlay. There's this, you know, fear of missing out, oh, 10,000 people. We don't have that capability yet. So it's just inserting those capabilities into that home screen. We'll have a lot of that done by September. So you're gonna see a lot of enhancements coming.
Call it every six weeks. You'll see more enhancements coming. Being able to track the legs on your parlay bets on your bet slip, that's launching, like, any day.
Mm-hmm.
So there's enhancements that are gonna be coming along between now and September that'll have us in a much stronger position from a same-game parlay offering perspective. So that's the goal internally. Your other question around why do we believe we're seeing this consistent retention? Our app is a very good experience. The UI/UX is great. And being able to navigate, it just comes up a little short on the more sophisticated parlay betting. And so people are in there, but they're probably betting more of their, you know, money line wagers, checking out what our features of the day are, bets of the day, what promotions are we running with top talent. But, you know, Stephen A. Smith and Scott Van Pelt and Greeny and all these guys are putting together their own promotional ideas.
So they're like we're just scratching the surface of what's to come. But I think those are all the reasons. It is a great app. It's reliable. It's easy to deposit and withdraw. Like, it just needs to become more advanced on the parlays.
One of the things Tom Reeg mentioned this morning, and you know Tom well, is part of the, you know, a big reason of their iCasino success was that they went out and they hired somebody from BetMGM who did a good job there. Where are you in terms of the need to hire personnel that are specific to improving the parlay product?
Yep.
Or is it just in all in-house and just, "Listen, this stuff just takes time to ramp and get better"?
There's certainly a piece of it that is the second part of what we have very talented people internally, engineers and product people. All they've been focused on over the course of the last two years is, like, major milestones, right? We need to go live on our own PAM in Canada. Check that box. That was in, you know, two years ago. Now we gotta go live on our own risk and trading platform in, in Ontario. Check that box. We did that. Okay. Now we gotta migrate this whole technology stack down to the U.S. in the summer of 2023. Check that box. We go live, you know, 17 states in three days. Oh, by the way, we're gonna launch ESPN BET in November. Okay. Now we so all of that focus has been on sort of table stakes, major milestones.
Now we get to do the fun stuff, which is enhancements to the experience. So we have a very talented team. We have our product roadmap. You don't lay out a product roadmap for, like, one month at a time. Like, you're looking at, "What do we need to do over the next 12 months?" So we may have a gap in terms of the, you know, leadership transition of a very short period of time, but the product roadmap is laid out. People know what they need to get done between now and September, so there won't be any hiccups there. The profile of the person that we're gonna be bringing in to run that part of the organization is somebody who by the way, the decision's made. I just can't announce it yet, okay?
The profile of the person is somebody who has a very strong background in building world-class products, digital products, and has an engineering background. Their passion is in those areas where they will act as an accelerant to the things that need to get done in the areas of improving the products and the integrations with our partner at ESPN.
Great. And so obviously, if you were going to announce that, you would have announced it already. How are you thinking of the timing of that? And, you know, are there sort of product-related deadlines that you need to sort of be mindful of for this person to come and start?
That person that.
If you announce that person tomorrow, would he start six months from now? Would he start relatively quickly?
I have to be careful on how I answer some of the questions.
Okay.
Or you could potentially.
I have to worry about it. Just feel free and just.
Triangulate. The person has already weighed in on product roadmap. So again, you're setting that product roadmap to get people on your engineering and product teams going. That's happening, okay? So the start date is actually a little less important than you would think. But this is all gonna be happening, you'll be hearing about this soon.
Okay.
Yeah.
Okay. Good enough. The engagement, the activation between ESPN BET and your existing land-based database, how different has that been relative to what was the engagement between that database and Barstool's? Arguably, you would think that there's maybe a significant better engagement activity, just given maybe Barstool's is a little bit niche-y relative to your database. ESPN is much broader to a much broader audience relative to that database. Can you talk about that a little bit?
Yeah. It's very early, right? That database is being built real-time and across the opportunities to cross-sell them into other parts of the business, like land-based casino or online casino, is starting to happen. What we know about the profile of the ESPN BET bettor is that, not surprisingly, they're a little older.
Mm-hmm.
They also are a little bit, in some cases, more familiar with the casino side of the business versus just sports betting. Those are two things that we are seeing. So we know when we get people who come in through that ESPN BET funnel to visit a property or to engage with us in online casino, that their spend with us goes up, in some cases, exponentially versus what they bet on a, you know, $10 parlay or a $20 parlay. When they visit a casino, the bet, that budget can go up to $100 quickly. So we like the early signs of.
Mm-hmm.
Omnichannel and cross-sell. We're just—it's very, very early innings, as you can appreciate. I mean, we just went live in November.
Great. I know when we as investors, when we think about the digital business for you, we're so focused on sports betting on ESPN BET. And obviously, that's incredibly important. But you also have within that business, you have these relatively high-margin market access fees if you exclude the pass-throughs tax.
Yep.
consequences, as well as an iCasino business. Can you talk about those things, particularly one on the market access fees? Can you talk about maybe how the economics may or may not change as some of those agreements come up for renewal? And then two, on the iCasino side, is that a much more secondary, tertiary set of initiatives versus online sports betting?
I'll hit the second one first just 'cause it's.
Okay.
Fresher on the mind as you were asking the question. iCasino, I think everybody knows, is gonna be a better-margin business than online sports betting. It is now. It will be in 2 years, and it will be forever. It's a very important piece of the business for us. There's no better way to drive an online casino business than a very robust online sports betting database. Your best opportunity is gonna be cross-sell from online sports betting and then cross-sell from, if you have regional casinos, that database as well. So it's really prioritization. What we're missing in iCasino today, our product is actually pretty good. It's not, you know, sort of below market. We have the right number of slot offerings. We have digital blackjack. We have live blackjack. We have our own games that we produce as well.
The challenge that we have today, and it's just a prioritization issue, is that we don't have a standalone iCasino app, okay? So if you're at one of our Hollywood-branded casinos in Pennsylvania or Hollywood Greektown in Detroit, our messaging to you is, "Download ESPN Bet to play slots with us." It's a little messy, right? So understandably, that conversion from landbase database to our iCasino offering isn't where it needs to be yet. We will have a standalone iCasino app called Hollywood Casino, I would say, live within the next 12 months. Our goal is to have it live by end of year, but maybe it trickles into early Q1. That'll be a big deal for us. It's a big priority. But we are prioritizing the online sports betting offering because we have all this great demand.
We've got people that are in that app looking at it every day. We are confident that as we can continue to enhance the product.
Mm-hmm.
There's gonna be more stickiness and better retention. The better retention you have in OSB, the better you're gonna have success or the more success you'll have cross-selling over to online casino.
Great. And market access fees?
Yeah. So that's, there's not a lot to talk about there. I mean, when those come up for renewal, it depends on what is the current skin partner looking for. Do they wanna have a partner or two and just have all their access done with that company or that partner? Do they wanna just go, you know, try to wheel and deal for the best price in those markets? They wanna renew at maybe slightly better terms. I mean, those are all things that'll play out over time. I think we have several really good partners: DraftKings, BetMGM, Fanatics. We've, we're partnered up with quite a few of them. We have more access than any other gaming operator. So I think we'll be able to put some compelling packages together in front of people.
Great. And then back to sort of the topic of capital allocation and balance sheet, you know, how are you thinking this year in terms of allocating capital, and using your balance sheet capacity and free cash flow? And then, you know, as we look to 2025, presumably, digital will have a significant swing, year-over-year in terms of EBITDA performance. You still have some CapEx related to the four projects.
Mm-hmm.
That'll, you know, bear fruit in 2026. But you're still left with, you know, a balance sheet that has ample liquidity, relatively low-levered. You know, how are you thinking about buybacks and particularly, you know, at current valuation, share price levels?
Yep. We would love to be able to do both. But the investment in the short term, call it 2024, certainly is in the investment in our interactive business and ESPN BET. We filed a Q after our last earnings. Sorry. And it was in the K, actually, right? Felicia, you certainly can speak to this. But we have to go back in.
Just do it right there for a minute.
Exactly. There's bank covenants that we had to get waivers. And those waivers preclude you from being able to do everything you wanna do during that period of time. That period of time for us is 2024. So, we've been active share buyers of our own shares in the past. I see us as being active in that, on a regular sort of regular state-by-case. And certainly going forward, that would be part of our capital allocation strategy. But at the moment, our investment is in ESPN BET. And though leverage ticks up, I mean, that's really a matter of it's calculated on a TTM basis. We don't have any liquidity concerns.
Okay.
We've got ample cash. We've got an untouched billion-dollar revolver. We feel like we've got a good handle on what we already put out the forecast on, interactive guidance for the year. We feel good about that as we sit here today.
Great. And then back to New York. I mean, how do you make that profitable, especially if you're, like, I don't know what you say, between 8% and 15% market share.
Yeah.
Or, or something like that? Is it the best-case scenario there, it's a push in terms of EBITDA generation, but you need it to support the other parts of the business?
I view it as a I think break-even is probably where you're gonna be. It's really hard at 51% sports betting, no deductibility for promos to make meaningful money, even at scale.
Mm-hmm.
We felt it was important to be there because it's a huge state, the largest population of any of the legal states in the U.S. today. It's a database builder for us. Don't lose sight of that. I think that's gonna be over time, our number one asset is our database, which is growing rapidly right now. And all of the things that we'll be able to do with that long-term, that's conversation for another day. It's probably more of an AI conversation.
Mm-hmm.
I also think that New York could be great in that online casino is likely to happen there, at some point.
Will we be alive by the time that's, you know, legalized?
I mean, you, you and I have been doing this for a long time and trying to handicap.
Right.
Decisions, state legislative decisions, is challenging. So we'll see. But I think break-even, build out the database, and be there at the time when iCasino legislation gets passed, those are all really important things.
Do you see, I don't know, in any state, any evidence that online casino, iCasino is cannibalizing the land-based casinos?
We get this question a lot. There's been a lot of analysis done that is pretty, one side of it is adamant that there's been.
I mean, you had one CEO post a day you know, a dissertation on LinkedIn.
Yeah.
Is that in any kind of regional casinos?
That's right.
Yeah, what are your views on that?
I think that, what's clear, if you look at Pennsylvania and Michigan, at least from where I sit and the data that we have, is that, when you legalize online casino, it grows the market in total. Is there a little bit of cannibalization of land-based? Probably. But if you're in the online casino business and you have land-based casinos, we welcome that. We think the pie getting bigger, and we think that as our products get better both on the land-based side and on the digital side and we get our standalone app, that our share of that bigger pie will grow. And so we're in favor of online gaming legislation, even if there is a little bit of cannibalization. It's not. It's not meaningful.
If you look at the profile of an online casino player, it is quite different than in what you see in brick and mortar. It's somebody in their mid- to late 30s who are mostly playing table games. And you go inside of a casino, and it's early 50s, mostly playing slot machines and female. So it is a different demo. But is there some crossover? Of course, there is. There's.
Mm-hmm.
Anybody who says there's zero cannibalization, that's nonsense. There has to be some. People do play both.
Got it. And in terms of you mentioned the comment about, you know, legislation is maybe hard to sort of predict. But what states are you maybe more optimistic on, whether it's on the online sports betting or on the iCasino side of, say, over the next couple of years?
Yeah. Sports betting, I don't think I'll say anything that others don't keep an eye on. Georgia looks like there could be some potential momentum there. I think Texas will be an exciting one. It's probably just a matter of when, not if. I think we're positioned really well there with the horse tracks that we own. We've got Sam Houston Race Park in Houston. It's the only racetrack in Houston. We own Retama Park in San Antonio. And we have a license in for Manor Downs in Austin. So we're positioned very strong in Texas, not gonna handicap when that happens. And I think on the online casino side of things and sports betting, maybe there's, you know, Mississippi finally goes mobile, Alabama and Arkansas. They're so there are but not huge population states. I think Georgia and Texas are probably the most interesting.
Missouri, of course, will happen at some point. On the online casino side, I think something will likely happen in the Midwest, whether that's Indiana, Illinois, Iowa. And I think once that happens, it probably starts to domino pretty quick from there just because neighboring states and cannibalization. And I also think that most of these states do one thing terrible, which is manage their budgets. And so just like we were pre-COVID, you're back to deficit mode in most of these states. They got bailed out during COVID. A lot of federal stimulus money comes in, have a surplus. That's gone. And so when you're running a deficit, you've gotta find in most of these states new streams of revenue. And I think iGaming, especially in states that are already legal with online sports betting, is kind of a no-brainer.
It's just a matter of who goes first, who goes second. And then it probably starts to go a lot quicker.
Great. This may be a good time for questions. Anybody in the audience have questions for Jay? Great. Jay, Felicia, thank you very much for attending.
Yeah.
Appreciate it.