PENN Entertainment Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 2, 2023

Key Takeaways

  • Penn Entertainment will launch ESPN Bet on November 14 across its 17 sports-betting states, leveraging exclusive ESPN integrations to drive interactive segment growth.
  • In Q3, Penn reported $1.62 billion in retail revenues and $445.1 million in adjusted EBITDAR (27.5% margin), with stable property performance offsetting softness in the South region.
  • For Q4, the company expects retail EBITDAR to be within 1% of the full-year midpoint and projects an interactive segment EBITDA loss of $100 million to $150 million due to the ESPN Bet launch.
  • Four retail growth projects—including relocations in Aurora and Joliet and hotel expansions at Columbus and the M Resort—are expected to deliver a 15%+ cash on cash return on roughly $800 million of net investment.
  • Penn ended Q3 with $2.3 billion of liquidity, a net leverage ratio of 1.4×, no debt maturities until 2026, and retains $750 million under its share-buyback authorization.
AI Generated. May Contain Errors.
Earnings Conference Call
PENN Entertainment Q3 2023
00:00 / 00:00

There are 13 speakers on the call.

Operator

Greetings, and welcome to the Penn Entertainment Third Quarter 2023 Results Conference Call. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session. I would now like to turn the conference over to Mr. Joe Jaffoni, Investor Relations.

Operator

Please go ahead.

Speaker 1

Thanks, Frank. Good morning and thank you for joining Penn Entertainment's 2023 Third Quarter Conference Call. Now I'll review the Safe Harbor disclosure. Please note that today's discussion contains forward looking statements. Forward looking statements involve It's now my pleasure to turn the call over to your host, Penn Entertainment's CEO, Jay Snowden.

Speaker 1

Jay, please go ahead.

Speaker 2

Thanks, Joe. Good morning, everyone. I have with me here in Wyomissing our CFO, Felicia Hendrix and our Head of Operations, Todd George as well as other members of my executive team who can help answer your questions during the question and answer at the end. And it was a pleasure to host many of you at our recent investor event The M Resort in Las Vegas during G2E. For those unable to attend, Mike Morrison, Head of Sports Betting and Fantasy Sports at ESPN and I spoke about our highly synergistic strategic alliance and the deep integration of ESPN Bet across the ESPN ecosystem.

Speaker 2

I couldn't be more pleased with the way our products and design, engineering, marketing and operations teams at ESPN and Penn Have seamlessly and tirelessly worked together to prepare us for this launch coming up on November 14 pending final approvals. Yesterday, we released a teaser on the ESPN bet landing page featuring SportsCenter anchor, Scott Van Pelt. It's all very exciting, but more on that subject in a bit. First, I will cover our results for the quarter. As provided in our earnings release, Penn generated 3rd quarter revenues of $1,620,000,000 and adjusted EBITDAR of $445,100,000 adjusted EBITDAR margins of 27.5%.

Speaker 2

Our property level performance was stable during the quarter, reflecting solid customer behavior, particularly from our rated We also saw the continued return of our 65 plus demographic and moderate growth in our spend per visit trends. All of this helped to offset softness in our unrated business in the South region, a couple of major road construction projects and increased supply in several markets, which we've covered. Overall, I'm pleased with the strength and resilience of our properties, particularly our casinos in Ohio, Kansas, Massachusetts and Missouri. The broader stability of our operations and performance this quarter highlights the benefits of our geographically diversified portfolio as well as new and sustained customer engagement driven by the growth of our database and ongoing investment in our properties, leading our including our leading retail sports betting offerings in key markets. As we look ahead to the Q4, we anticipate more of the same in terms of stability across most markets, offset by new supply pressures on the unrated and low end of our database, in addition to the one time impact of ongoing union negotiations at Greektown in Detroit And road construction disruptions in Charlestown, which started in September, but will thankfully conclude in December of this year and in Black Hawk, Colorado.

Speaker 2

As it relates to overall company guidance, we anticipate ending the year within 1% of our full year retail EBITDAR guidance. For the Interactive segment, we estimate an EBITDA loss of approximately $100,000,000 to $150,000,000 for the Q4 as we launch ESPN Bet in the next couple of weeks. Over the next 2 months, We look forward to breaking ground on all 4 of our retail growth projects. As highlighted on Slide 14, our Hollywood Aurora And Hollywood Joliet projects provide us the opportunity to replace our existing dated riverboat properties, which have experienced revenue declines over the last several years due to new competition that we would expect to continue absent these relocations. The relocations also allow us to avoid significant capital investments As a reminder, the City of Aurora, who has been a great economic development partner throughout this process with Penn, We'll be providing $50,000,000 in funding for the project there and GLPI has committed up to $575,000,000 And then you have the hotel projects at 2 of our highest performing properties, Hollywood Columbus and the M Resort in Las Vegas.

Speaker 2

In Columbus, we're building a 200 room hotel that's fully connected to our casino. We think this will be a key economic driver in the ongoing resurgence of Columbus' Westside and it will create a true regional destination. At the end, we'll be nearly doubling the size of our hotel by building another tower with 380 additional rooms, which will allow us to accommodate the demand for larger group business. When considering the expected continuing revenue declines at Aurora and Joliet over the next few years, we expect these 4 growth projects to deliver A 15 plus percent cash on cash return on the aggregate project cost of $800,000,000 which is net of the $50,000,000 contribution from the City of Aurora. These projects will also contribute to our strong free cash flow generation upon opening in late 2025 early 2026.

Speaker 2

Turning again to the Interactive segment. As I mentioned at the outset, our plan is to go live with ESPN bet on November 14, subject again to final approvals, which will occur simultaneously in the 17 states in which we operate sports betting. This allows us to take advantage of a very active Thanksgiving week sports calendar, which includes the NCAA College Football Rivalry Week And the Super Bowl rematch of the Kansas City Chiefs and the Philadelphia Eagles, which will be televised on ESPN's Monday Night Football. In connection with the launch, ESPN will be implementing an initial wave of exclusive integrations across the ESPN ecosystem, which includes 200,000,000 unique monthly users in the U. S, more than 12,000,000 of whom are regular users of the nation's number one fantasy sports app at ESPN.

Speaker 2

Following an initial advertising campaign headlined by SportsCenter Anchors Scott Van Pelt and L. Duncan, You'll begin to see even deeper platform and media integrations with ESPN over the coming months, providing an unmatched and eventually frictionless media and betting experience. Importantly, when we go live, our existing customers in the Barstool Sports ESPN bet will be powered by our proprietary and proven technology platform, which has been driving impressive performance in Ontario for over a year now under the In fact, October represents a record month for us in GGR and NGR in both online sports betting and iCasino. As you can see on Slides 1213, we've had great success in terms of media integration, retention and cross sell results, leading to double digit market share in a highly competitive market. Notably, 73% of our total handle in Ontario Comes from users already within theScore Media's ecosystem.

Speaker 2

And in terms of cross selling, there's over 50% conversion, five-zero, of online sports betting players into Icasino. Besides Sky Bet in the UK, we think Ontario with theScore Bet provides one of the best blueprints for success in the U. S. With ESPN bet. And with that, I'll turn it over to Felicia.

Speaker 3

Thanks, Jay. Our property level performance was stable in the 3rd quarter owing to our diverse portfolio and the investments we have made in the customer experience. Property level revenues were 1.4 $2,000,000,000 and adjusted EBITDA was $523,400,000 Adjusted EBITDA margins were 36.8 percent. In the quarter, we had roughly $10,000,000 net of one time Good Guys in the South segment. Interactive segment revenues were $196,300,000 in the quarter and the adjusted EBITDA loss was 50,200,000 Our Interactive segment EBITDA in the quarter reflects lower curtailed marketing in the U.

Speaker 3

S. As we prepare to transition our online In addition, in the quarter, we recorded a tax gross up of $103,000,000 compared to $63,000,000 in the Q3 of 2022. Further, given our divestiture of Barstool Sports on August 8, The Q3 'twenty three will be the last quarter where the Interactive segment includes Barstool Sports results. From July 1 to August 7, Barstool Sports generated $18,000,000 in revenues and a net loss of $7,800,000 Slide 4 summarizes our balance sheet and liquidity. We ended the 3rd quarter with total liquidity of $2,300,000,000 inclusive of our $1,000,000,000 undrawn revolver.

Speaker 3

Traditional net leverage as of September 30th was 1.4 times and lease adjusted net leverage was 4.7 times. Notably, we also have no near term debt maturities until 2026. You'll find on Page 8 of our earnings release a table that summarizes our cash expenditures for the quarter, including cash payments to our REIT landlords, Cash taxes, cash interest and total CapEx. Of our $75,000,000 of total CapEx in the quarter, $6,700,000 was project CapEx. Our net income results include a pre tax non cash loss on the divestiture Barstool Sports that we disclosed last quarter that we would record in the Q3, the details of which will be in our 10 Q filed later today.

Speaker 3

Our fully diluted weighted average common shares as of September 30th was 150,900,000. Because the dilution for potential common shares was antidilutive, we use basic weighted average common shares outstanding. If we reported moderate net income for the quarter, our fully diluted weighted average common share count would have been 168,000,000 shares. To further help you with your modeling for 2023, we expect 23 corporate expense of $105,000,000 inclusive of our cash settled Total CapEx for 2023 is approximately $345,000,000 net of insurance proceeds and inclusive of $45,000,000 of project CapEx. For cash interest expense, We forecast $130,000,000 for the full year after roughly $38,000,000 of interest income and cash taxes will be roughly $70,000,000 to $80,000,000 for the full year.

Speaker 3

And with that, I'll turn it back to Jay.

Speaker 2

Thanks. In closing, I wanted to cover the slides we included at the beginning of our presentation, which are meant to help remind So let's start with Slide 5, where we show how much free cash flow our retail operations have generated over the last 12 months after maintenance CapEx on a GAAP basis. On Slide 6, which is worth spending a couple of minutes on, we lay out an illustration of our Cash generation bridge over the next 3 years. We start with our current cash balance and add 3 years of our retail free cash flow as calculated on a TTM basis. This cash flow is meant to be illustrative as our LTM free cash flow includes slightly lower CapEx than our typical $200,000,000 a year and our leases are subject to modest annual escalators as you know.

Speaker 2

The biggest variable of course Our operating performance over the period. For purposes of this illustration, we conservatively discounted our annual retail free cash flow to be 80% of our LTM Retail Cash Flow and extrapolated this over 3 years, and we did not include any contribution from our growth projects. But regardless of whatever assumptions you want to make about the strength of the economy, our properties are going to generate a significant amount of free cash flow over the next 3 years that will support our growth initiatives. Next, as I mentioned earlier, Penn plans to take advantage of available financing from GLPI and the $50,000,000 contribution from the City of Aurora in connection with our 4 retail growth projects, so that our total capital outlay when these assets open in late 2025 early 2026 will be $225,000,000 And finally, while we anticipate Accumulated EBITDA losses in Interactive of approximately $300,000,000 over the next 3 years, you can see that we expect to grow our total cash position by more than $1,000,000,000 over this 3 year period. And going back to the interactive losses anticipated, you should expect those to occur mostly in year 1 year 2, with year 3 inflecting to breakeven or modestly positive EBITDA, which bridges nicely to the ranges of EBITDA of EBITDA we provided on our last earnings call when you get to 2027.

Speaker 2

Of note, we anticipate our leverage ratio peaking in Q3 of next year and then coming down by roughly a full turn every 4 quarters thereafter. I hope this all helps for modeling purposes and clarifies how we intend to grow our business in the near term. As Felicia covered during her remarks, We have total liquidity of $2,300,000,000 inclusive of our $1,000,000,000 undrawn revolver. We also have no near term debt maturities until 2026, An exciting new growth catalyst on the retail and interactive fronts. With all that being said, we have $750,000,000 remaining under our December And we'll be active and opportunistic over the next few quarters if our stock continues to remain undervalued.

Speaker 2

And with that,

Operator

Our first question comes from Carlo Santarelli with Deutsche Bank. Please proceed.

Speaker 4

Hey, thanks everyone. Jay, I just wanted to kind of dig into the comments that you just made. So from the slide, you're We're assuming about $1,700,000,000 of retail cash flow over each of the next 3 years. That doesn't include The I want to say $120,000,000 you guys kind of anticipate on the developments even though that will be stunted towards the end. But the 80% that you took, acknowledging free cash flow could be a little bit sensitive to EBITDAR and you want to provide yourself some room, Is that indicative of a guidance or is that more just being conservative just to show kind of the strength of the balance sheet and the cash position?

Speaker 2

Yes. Carlo, it's entirely the latter. We just felt like let's be conservative here because You can anticipate everybody's got a theory on what's going to happen from a macro perspective over the course of the next 12, 18, 24 months. So for us to take TTM and the one thing you said that I would just clarify, it's not that's 3 years total worth of retail free cash flow, not each year, so that 1.7 there. We just did it to be conservative.

Speaker 2

There's no other reason. And if you want Trim it at 90% or 95% or 72% or keep it what it is on a TTM basis, any of those work. The point of the slide is to show you that Even if you take a really conservative view of free cash flow generation, the investments that we're making in the 4 retail growth projects and our total Cumulative loss in Interactive anticipated over the next 3 years, we're still building our overall cash position by north of $1,000,000,000 I think this gets lost sometimes when people drill down too much on this month, last month, next quarter. The 3 year look, I think, Shows you how we're thinking about growing the company and also remaining extremely liquid and continuing to grow our cash position.

Speaker 4

Great. Thank you. And then if I could just a follow-up. I know you mentioned kind of a $100,000,000 to $150,000,000 4Q loss as it pertains to ESPN bet. I know there's a lot of variables and how things go and whatnot.

Speaker 4

But as we think about 2024 in that segment, what kind of guideposts could you kind of Outline for us in terms of how you're thinking about the investment over the course of 2024?

Speaker 2

Yes. And it's a great question, Carlo. We'll provide more detail obviously in February when we're putting out guidance for 2024. But I think At a high level, you should expect the interactive losses to sort of be at their peak between Q4 and then Q1 because You're going to be launching, you've got a lot of first time deposit match promo dollars running through the system and you can sort of capture not just NFL, but you're going to capture NBA, you're going to capture NHL. And then when you get into Q1, you're going to capture college basketball, You're going to have College Football Championship and Super Bowl.

Speaker 2

So I think that's where you're going to see sort of peak. But from a leverage perspective that The leverage number will peak in the Q3 because you'll be sort of on a TTM including Q4 of this year plus the 1st 3 quarters of 2024. That's sort of the way I would anticipate it, but we'll definitely be showing losses every quarter in 2024. And then we'll talk more about what that looks Like cadence wise in 2025 and then rolling into 2026. But as I provided at the in the prepared remarks, you should think about The first two years of launch of ESPN bet to be really where those cumulative losses are.

Speaker 2

And then in the 3rd full year is where you would anticipate us inflecting to breakeven and better, probably modest EBITDA growth in that 3rd year and then that bridges you right into 2027 and the ranges that we provided on our last call.

Operator

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

Speaker 5

Hi, good morning, everyone. Thanks for taking my questions. I just want to go back to 2 things. First, I think in the prepared remarks, Jay, you mentioned being within 1% of overall company guidance. I just wanted to kind of clarify just Does that imply we're within 1% of the midpoint?

Speaker 5

Or is that more conservative than that? And then as my follow-up, if we could Talk a little bit more about some of the programming around the ESPN that launch. We're starting to see some operators, particularly those that are Launching focus on specific states and I just you're obviously able to launch very broadly given your market access, but I wanted to kind of get your thoughts on, are there

Speaker 2

Yes. No, both good questions, Sean. And yes, to be clear, when I mentioned within 1% of company guidance, we're talking about the midpoint of guidance. So you were correct on that. As it relates to ESPN bed in specific states, I don't know that I would look at one particular state.

Speaker 2

I mean, obviously, the ones that are going to be probably the most important long term for us are states that have both Online sports betting and online casino. I don't know just based on the information that we've seen from ESPN, I'm not sure I'd say that they have states that they're super strong and then the brand is weak in other states. You don't really see that. It's really based is the popularity of ESPN. So I wouldn't double click on any one state.

Speaker 2

I think we're really Approaching this now that we have the scale we do being live in 17 states, it's a national platform and most of our marketing efforts, Certainly from a paid and earned media perspective, we'll be more on the national side. And then promotionally, it'll be a lot more regional and localized. But I don't I wouldn't point you to any 1 or 2 states at this stage.

Operator

Our next question comes from Barry Jonas with Truist Securities. Please proceed.

Speaker 4

Great. Thank you. Good morning. Property margins were nearly 37% for retail in the quarter, while more recently you talked about 36%. I think you mentioned some softness in the South, margins there were really strong.

Speaker 4

So I'm just curious if there are any call outs for flow through and how we should think about total margin range from here.

Speaker 2

Yes. And Barry, I'll make sure you caught it. Felicia did mention that we had There's always puts and takes in every quarter when you've got 40 something businesses across the country and we had roughly $10,000,000 of one time good guys in the South region that certainly benefited the business results there a little bit. But even when you put when you include that $10,000,000 or take it out of EBITDA, I think you'll see that margins were still Pretty healthy, all things considered, very close to that 36% number. And I would but I would remind everyone too, Q4 seasonally As always the softest quarter and not that it's going to be any softer, we don't think this year compared to Q3 than it historically is, but you should look at what that Drop in margin is between 3rd Q4, the last 2 years, and that's sort of what we anticipate again happening this year just due to seasonality and calendar.

Speaker 2

Really no other reasons. The business, as we mentioned earlier, is really stable other than the one time callouts of new supply and road construction.

Speaker 4

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

Speaker 2

Yes. I mean, look, it's similar in the sense that you're working with individuals who are pretty passionate In the case or in the case of the ones we're talking about on both sides, very passionate about sports and sports betting. But Every one of them is different in terms of what their preferences are and how much they like to talk about the betting aspect of sports Entertainment, I think what we found in our discussions with the team at ESPN is that there's a tremendous amount of excitement. It wasn't hard for ESPN to find the first two personalities to get involved in creative and commercials. And I think you'll see more and more of that as we get into 2024.

Speaker 2

This is a big deal. I've mentioned this before and I think you guys will all start seeing We no longer have to speculate and who's right and who's wrong about how committed to ESPN that ESPN is. We know what we see and hear and engage with them about every day. And you'll start seeing that and that includes the personalities. But The list is pretty long in terms of involvement and excitement on the ESPN side.

Operator

Our next question comes from Brad Montour with Barclays. Please proceed.

Speaker 6

Great. Thanks everybody. Good morning. Thanks for the question. So on ESPN bet and the launch and it looks like Sounds like you guys have a fair amount of momentum here building under the service.

Speaker 6

And sometimes we just kind of think about what could go so right that it might go wrong and worry about that. And so one thing that pops into my mind is just you're getting so much volume that On day 1 or 2 or 3, and you never had that level of volume before. And I'm just curious if you've been able to stress test the system and how comfortable and confident you feel that you're going to be able to handle that throughput?

Speaker 2

Yes. I'll say a couple of things. Todd, obviously jump in, if you have anything to add to this as well. We've been part of why we decided to launch in November, Despite having announced this partnership in August, we probably could have rushed to try to get ready for post to the start of football season, but There were really 2 things driving the decision. 1, let's make sure that the product is 1st class when we launch.

Speaker 2

You have one chance to make a first impression, we had a number of enhancements to the app that we wanted to make in advance of launch, which we've done. And we wanted the re skin to really feel all things ESPN and ESPN bet by the time we went live. We've had time to do that and Noah Levy and the product team have done an amazing job getting us ready for the launch.

Speaker 7

Yes. Oh, sorry.

Speaker 6

I

Speaker 7

was just going

Speaker 2

to say, and then on the load testing side, that was the other factor really driving the dates. And our engineering

Speaker 8

team has done

Speaker 2

a great job of really thinking through load has done a great job of really thinking through load testing preparation. We have had plenty of time to order Additional servers and hardware to prepare for what we anticipate with volumes being the highest we've ever seen. And We sort of we used information that's out there around top players in the space and how much volume per That's per second on Super Bowl. And the nice thing about launching on November 14th is that it's a Tuesday And you kind of build into this before you get to Thursday Night Football, which is a big deal, but not what Super Bowl is certainly. So we've thought about this and again pending final approvals if November 14 is the date, Yes.

Speaker 2

It's going to be mostly NBA, NHL, maybe a little bit of college football for a couple of days, then you roll into NFL one game and then you get to rivalry weekend that weekend and roll right into Sunday and then the big Monday night football game. So we feel really good. Benjie and team have been spending a lot And load testing has probably been the biggest piece of preparation, honestly, along with the product enhancements. Todd, if you want to add anything.

Speaker 7

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

Speaker 6

That's super helpful. And then a bit of a more nuanced question on the customer experience sort of on day 1. I think You just said, Jay, earlier in the prepared comments that, on day 1, we'll all wake up and be prompted to download ESPN bet if we already have Barstool, The app on our phones, I think we were expecting that it might sort of download itself at some point and maybe it's just Semantics, but is that something that could be considered a minor extra layer of friction or how do you kind of foresee that playing out for the consumer experience.

Speaker 2

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

Speaker 3

Yes. If you've used HBO Max and then when it just went to Max, When you open the app, it prompted you to download the new app and then you could use all your prior credentials. The whole thing took like takes like 2 seconds. That's the experience that we'll have on with ESPN bet.

Speaker 2

And part of the thinking there Also is that you sort of get you get an opportunity to just reset everything, in terms of the history and And the ratings and the comments and all of that stuff just resets. So it will be consistent, all focused on ESPN bed and no historical

Operator

Our next question comes from Sam Gaffir with Macquarie. Please proceed.

Speaker 9

Good morning. Thanks for taking our questions. Jay, you previously mentioned that you hope to grow the overall size of the market given the strength and reach of the ESPN brand. And then as a follow-up, are there any stats or data points that we can look to as we think about retention rates for new sports betters versus more experienced sports betters? Thanks.

Speaker 2

Yes. I would say, let's sort of let's put that one on hold in terms of How are we thinking about retention of existing versus new? What I would say is that the first part of your question in terms of growing the TAM, That's a big focus for us. And we have a great starting point. We have roughly 2,000,000 digital customers within our ecosystem that we picked up, obviously, the bulk of that with Barstool Sportsbook and then we've got Hollywood Casino, the historical database there, social gaming, we've got Penn Play.

Speaker 2

So we've got a pretty big Digital database that we're going to be able to cross sell those 2,000,000 people to ESPN Bed and we know their history. We know them very well. And then of course, ESPN, the brand, the brand equity, we think that we can really grow the market with a lot On the side of casual bettors who maybe have bet once or twice or intrigued by it and they really trust the ESPN brand. And so There's our opportunity to cross sell from the ESPN Media ecosystem into ESPN Bet, we really like our chances there, particularly with the 12,000,000 in their fantasy database. There's a high propensity to bet on sports as we know with fantasy players.

Speaker 2

But I look, I think One of the things that we've talked about internally in terms of what does success look like is that we want to see whatever that Market share is in the 1st couple of months. We want to see that continue to grow over time. What we don't and that will speak to the product and the retention. What we don't want to have is a giant splash in the 1st month or 2 and then you leak market share like that would not be deemed a success. So As you're thinking about retention and we'll share more of the KPIs obviously after we launch, we don't have any as we sit here today, but We'll be able to share a lot

Speaker 4

more

Speaker 2

by the time we're getting together in early February. And then, of course, we talked on our last earnings call about an Investor Day, which we still plan to do. We had initially said before year end, but as we thought about it more, we're just not going to have enough information to share if we try to So we'll do it sometime in Q1, most likely sometime between Super Bowl and the start of March Madness, good time of year to do it. And we'll have 2 to 3 months of results under our belt. So I would say stay tuned in terms of the KPIs around retention.

Speaker 2

But at a very high level, We want to continue to build our market share over time and not have it be a giant shotgun day 1 and then you slowly leak market share. That's not the goal and that's why I think you'll find that our approach in terms of how we're marketing and how we're investing in customers and promotional dollars, paid media, How we're thinking about integrations, that's all going to continue to build over time. That's not going to be that we go out there day 1 or month 2 or month 3 and Try to bring everybody into the ecosystem. We want to build this thing over time.

Operator

Our next question comes from Joel Stauff with Susquehanna. Please proceed.

Speaker 10

Hey, good morning. I wanted to ask a couple of questions maybe on your Ontario market that being sort of the analog. I guess, as I look at the math and you did indicate say double digit market share, So you're growing with the market on a year over year basis. It certainly seems just kind of based on numbers as well. And I'm wondering If you've seen any, say, changes in that market where an operator gets more aggressive, Say with promotional spend or not, or do you think that market has kind of Stabilize in terms of where everyone's market share is today, say versus last quarter or the previous quarter?

Speaker 10

I guess that's the first question. And then the second question is, again, in the same market, Ontario, do you see anyone In the Ontario market, there's a large number of them with an effort to have an integrated Product offering like you have media to sports book to casino?

Speaker 2

Good questions, Joe. I'll hit the second one first, because I think it's the easier of the 2, and the answer is no. We don't see any of the competitors In Ontario or in the U. S. That have really focused on this deep integration between sports media and sports betting.

Speaker 2

And I think we've got it To a point in Ontario where it's pretty frictionless, you hesitate to really hang on that word because People may sort of define that differently, but you don't know when you're in the Score Media app And you're populating a bet slip. And then when you're ready to place the bet, you click and it takes you right over theScore bet. You place your transaction And you move right back over the score and finish reading your story or whatever you were doing, checking scores and stats, etcetera. And we envision getting there very quickly here in the U. S.

Speaker 2

With And the great news about the integrations that we've been able to execute and deliver on in Ontario is that Our friends at ESPN have experienced that and we have a shared vision of getting there in here in the U. S. As quickly as possible. So it's not as though there's disagreement or a different vision for how we want to integrate and how we want to cross sell. And as you mentioned before, the couple of slides that we included on 1213 about Ontario Speaks to 73% of the wagers and handle in our ecosystem coming from those that were media users before we launch.

Speaker 2

So that's 3 quarters. It's very strong. And then our ability to cross sell within our app from sports betting into online casino of greater than 50%. Those are great results. And I would say, we mentioned or showed in this Slide 13 what our growth is year over year.

Speaker 2

And then I also highlighted we actually broke every record in October. It's preliminary. Obviously, we have to audit through everything, but our preliminary results in October were On a GGR and NGR basis, the best month that we've ever delivered in Ontario. So we have tremendous momentum. The market has only gotten more competitive.

Speaker 2

There's Over 40 operators and over 70 competing brands in Ontario, and we continue to grow our business

Speaker 9

atorabovemarketgrowthlevels,

Speaker 2

as you can see in the slides there, especially on the online casino side as Get more and more effective of cross selling between online sports betting and online casino. So I don't and to the first part of your question, I don't we really don't see anything crazy from a promotional standpoint in Ontario from anybody. There might be waves of Remember, you've got sort of a moratorium on being able to advertise what your promotions are. It's more brand advertising. But you'll see waves of some companies being more aggressive during certain times of the sports calendar.

Speaker 2

But generally speaking, it's Pretty stable promotionally, which I think makes the growth story that we've been able to deliver on more impressive and what gets us even more confident for our ability to execute here in the U. S.

Operator

Our next question comes from John DeCree with CBRE. Please proceed.

Speaker 9

Good morning, Jay. Thanks for taking the questions. Maybe one, I guess, kind of elementary or housekeeping, but On Slide 6 with the free cash flow bridge, I wonder if you could just kind of clarify the net cumulative investment in digital Interactive with $300,000,000 is that translated to kind of cumulative EBITDA losses? This includes some CapEx, just if you could kind of help us frame that a little bit?

Speaker 2

Yes. There's not a ton of CapEx That goes into the interactive side now that we've built out the team and we've gotten ready for ESPN that launch. There'll be some, But it's not it's a magnitude, for example, of what you see on the retail casino side of things. So the reason we provided the range of 200 to we wanted that to be all inclusive. So that would be EBITDA loss and CapEx investment over the 3 year time horizon.

Speaker 2

And again, as I mentioned before, The losses will really accumulate in the 1st 2 years and then we anticipate inflecting and starting to see some positive EBITDA in the 3rd year.

Speaker 9

Got it. Thanks, Jay. And then maybe on the at the property level, earlier question, margins were pretty strong. I realized there was $10,000,000 of one time benefits in there, but still pretty good margins. A conversation that we still have often is OpEx inflation.

Speaker 9

Curious if you could give us your views on what you're seeing in terms of utility and wage inflation, labor inflation, And if any kind of outlook from where you have visibility in your business, that would be helpful.

Speaker 7

Thanks. I'll take that. This is Todd. So we actually have been looking at this a lot. We've got a great team that has really helped us on the utilities front.

Speaker 7

We've completed several projects coming out of COVID around energy efficiency. So we've really been able to mitigate some of that as well as locking in futures for a lot of the utilities that we use. So We have been very fortunate and very prepared to kind of deal with this. So we haven't seen that yet. And then on the wage and labor front, I would say that, yes, there's some wage and labor creep there, and we specifically called out Greektown and what's happening there.

Speaker 7

But for the most part, you're looking at this new dynamic where you can do more with less labor. A lot of the technology initiatives that we have in place have made us a more efficient operation, so we're able to mitigate a lot of that as well.

Speaker 2

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

Operator

Our next question comes from Dan Politzer with Wells Fargo. Please proceed.

Speaker 11

Hey, good morning, everyone, and thanks for taking my question. Just one here on Interactive. I mean, I think that You gave a lot of good commentary on how to think about the cadence of the losses going forward. But I guess as we kind of try to unpack 3Q and look at your kind of scale and operating expenses. You gave a few pieces related to Barstool And then there's market access fees in there.

Speaker 11

But any way to help us think about kind of the run rate of your fixed costs in this business? And do you feel like you're at a scale where we'll really start See that EBITDA start to inflect as you maybe get that GGR share that you've aspired to?

Speaker 2

Yes. I mean, I'm trying to keep it largely focused what we've said already, Dan, just because I think the way we sort of laid out what you can anticipate in the next couple of years versus Year 3 speaks to the timing of inflection. We anticipate having a successful launch, Having a stable platform throughout that launch period, growing the business over time. And I think that as you're thinking about the cadence, I think Carlo asked the question earlier, we gave some information on kind of what you should expect for next year. So I don't know if Felicia or Todd, you have anything to add there, but I don't really have anything else in terms of, what to expect.

Speaker 3

No, I think you said it. Yes.

Speaker 2

Yes. I just don't Dan, unless you have a specific question, I think I covered what you are comfortable saying.

Speaker 11

Well, just Yes. I guess another way to ask it is, is the incremental losses from kind of where we are today, is that all marketing and advertising? Or are you assuming any incremental Fixed cost adds in there as you maybe add engineers or some administrative stuff?

Speaker 2

It's all in. I mean, I don't yes, there's it's not One of those things driving that's why we wanted to do this 3 year look of and there's so many factors that go in, what's your hold Going to be in what's your paid media and I think this what we provided here on the 3 year outlook includes all of that, including ramping on the staffing side with engineers and product members and marketing folks and operators. We've done a lot of ramping, as you can imagine, over the course of the last 3, 4 months in anticipation of this launch. We've hired 100 more people for our call center, for example. So there's a lot of that ramping that has Gone into the Q3 results that we just reported, but we don't have any of the benefits yet of ESPN bet launch.

Speaker 2

So that's why you see the loss there. There was some one time noise on the media side as well that we disclosed and Felicia covered. But just you should assume, Dan, that This range we provided on the 3 year includes all of that and that our thoughts around how we're going to spend both on channel With ESPN from a marketing perspective, dollars 150,000,000 per year and then off channel to be roughly that same number, that

Operator

Our next question comes from Stephen Grambling with Morgan Stanley. Please proceed.

Speaker 8

Hey, thought I'd just clarify some of the guidance commentary. I think you previously had talked to $18,750,000,000 for EBITDAR for the year. Just want to make sure that as we're looking at some of the puts and takes in the 4Q that On my math, maybe it gets around $650,000,000 Just wanted to provide some brackets around what at least 4Q we should be looking at in terms of the brick and mortar business? Thanks.

Speaker 2

Yes. The midpoint for the brick and mortar business for the year is 2.022 1,000,000,000. So when we say within 1%, we're talking about brick and mortar. We gave separate guidance for Interactive of between $100,000,000 $150,000,000 in losses for the 4th quarter.

Speaker 8

That's helpful. Great. And then one other quick follow-up. So I think on the digital side, this past Quarter was a little bit elevated relative to people's expectations. And I know you kind of touched on this a little bit, but does that include some one Or is that also reflective of kind of like a new base level of cost that we should be layering the ESPN deal on top of?

Speaker 2

You're talking about the 3rd quarter interactive result, Steven?

Speaker 8

Correct. Yes.

Speaker 2

Yes. I mean, excuse me, there's one time in there that Felicia covered on the media side as we closed out our ownership of Barstool Sports from July to August 8. And then beyond that, it's really 2 things. 1, we literally spent no money on marketing because we're switching brands on November 14. So it doesn't make sense That we had significant ramp on the payroll side of things because we're getting ready for a launch and we expect to be at a certain level of The downside of preparing for the launch, but you don't have any of the upside of the revenues that come with the launch.

Speaker 2

That's what really drove the 3Q. I wouldn't use the 3Q

Operator

Our next question comes from David Katz With Jefferies, please proceed.

Speaker 8

Hi, good morning, everyone. Thanks for taking my question. Appreciate all the detail. If I can just ask with respect to the digital, is there any sort of crossover benefit that you could Point to potentially with the land based business, do you have any sort of insight or data that You can support that and I'll put my follow-up out there upfront, which is, we've seen other operators as they go on the journey of digital, Making tuck ins to enhance product or their tech stack in some way, should we be anticipating there to be Thank you.

Speaker 2

David, I'll tackle the second one first and then I'll ask Todd to tackle the first part of your question. Well, let me answer the tuck in question this way, which is we don't feel like we're missing anything today. We've made our investments, Certainly, the significant ones to get to a point where we've got a very strong brand to lead with in Canada that has proven out to be a very successful investment. Of course, the technology that we acquired is part of the SCOR acquisition. We've now fully migrated to the U.

Speaker 2

S. And We're ready to go with ESPN bet on our own proprietary tech stack. And so are there little things that you could think about investing in or owning to make your product Better, faster, offer more markets and features, perhaps, but we don't As we sit here today, we certainly don't feel at launch like we're missing anything and we've got to go make an acquisition large or small To take the app to the next level, it's really about from our perspective on the product side is continuing. We've been so focused On migration, I think we've got a lot of ideas on the product roadmap on how to enhance features and markets, for example. And a lot of the effort over the course of the next 12, 18 months is going to be on going deeper and deeper on integrations With ESPN throughout ESPN bet to make it as seamless and frictionless as we all envision and Accomplish a lot of the things that we've already done in Ontario.

Speaker 2

We know how to do it. We've got the template and we'll be executing on that here in the U. S. As well. But I don't anticipate certainly not in the near term you'll be hearing from us on acquisitions.

Speaker 2

Again, things

Speaker 7

We refer to this as kind of our omnichannel approach. And for the last several years, Jay, myself, Jennifer Weissman from marketing have kind of talked about this. And really, you can see this dynamic For us, not only here, but on a property basis, we have multiple properties in the same market And we can see the value of that consumer when they play with us across multiple properties. Take that example and then just apply it. Somebody that Joins us through online channels and then visits a property, plays up at a significant multiple.

Speaker 7

And we have goals as a leadership team around making sure that we're introducing our other team around making sure that we're introducing our other offerings to these consumers, whether they find us through online channels or through a property, Because the multiples that we're seeing and I think in the future, we'll have more data around this and be able to talk in more detail, But it's very encouraging to see how much more valuable they are when they play 1, 2, 3 different channels. So if they play at a property, if they bet with us

Operator

Our next question comes from Jason Tilton with Canaccord Genuity. Please proceed.

Speaker 9

Great. Good morning and thanks for taking the question. First, in terms of the since the migration in early July, understanding that it's tough to compare apples to apples to Prior to that, because of the level of marketing investment, but just within the existing sort of customer base, have you seen a similar uplift in hold rates or parley mix In the U. S. Relative to what you've observed in Ontario?

Speaker 2

It's been similar. We actually have had we're coming off of a very strong hold month in October, both in Ontario as well as In the U. S, it's still early days. I mean, obviously, we were continuing to make a number of enhancements And updates to the app in the U. S.

Speaker 2

Between full migration in July until you got to the start of football season and then from the start The football season is when we go live with ESPN bet in November. So I think we'll be much more comfortable sharing And we now have a featured bet on our homepage, which is Fantastic. In that, we can start to drive behavior and merchandise differently than we were in the past around Some of the integrated betting options with ESPN and the personalities there and parlays, same game parlays, we can do that dynamically throughout a given day or weekend. So the product continues to get better and better, and I think we'll wait on some of those KPIs until we launch with ESPN.

Speaker 9

Great. That's helpful. And just one quick follow-up. In the press release, you called out some of the positive impact at your land based properties from the presence of the retail sports books. I'm curious, has there been any determination surrounding the potential to use the ESPN branding around those?

Speaker 9

And what are the plans as you

Speaker 7

Yes, great question. So we're almost completely Dethemed removing the barstool theme, they're sitting there as a sports book now and really honoring kind of the local markets that we operate in. We're working with ESPN. ESPN has sent There are representatives to several of our properties, and to date, the feedback has been great. So we'll talk about where we can take this brand at our retail locations and find something that works for both of us.

Operator

Our next question comes from Ryan Sigdahl with Craig Hallum Capital. Please proceed.

Speaker 2

Hey, good morning, guys. I was having a hard time keeping up with the new guidance. So could you just To clarify exactly what you're guiding to, I thought I heard sales and then you talked to EBITDA last. And the last I don't believe you updated in Q2. And the last I see is Q1, which included Barstool for the full year.

Speaker 2

So I guess, can you specify sales versus EBITDA versus margin? And then Specifically, what metric we should be thinking plus or minus 1% relative to? Yes. Ryan, sorry if there was any confusion. I don't think we reference Sales at all or margin, we're talking about EBITDA on the retail side of the business at the midpoint For the year, it was $2,022,000,000 and we believe we'll end the year on the retail side within 1% of that number.

Speaker 2

Interactive separately will be between $100,000,000 $150,000,000 EBITDA loss for the 4th quarter.

Operator

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

Speaker 12

Hello, everyone. Thank you for taking my questions. Just on the brick and mortar side, it Seems like the gaming names of near term development projects have traded a little better over the last few months and you highlighted your developments coming up. Do you ever think about accelerating any of those developments or adding additional properties to the pipeline?

Speaker 2

Daniel, I would say for now, there's not a plan to do anything on an accelerated basis. It's sort of really driven by the market And supply chains and construction schedules. So there's not a lot you can or would do to accelerate those. I think the timeline that we provided for those between end of 25 early 2026 is that's the right timeline to think about. We're always looking at opportunities to invest in our businesses.

Speaker 2

You don't always have an opportunity to relocate properties. I mean, these Aurora and Joliet projects are sort of once in a decade, you get a chance to Greatly improve your location, greatly upgrade your offerings both on the gaming and non gaming side, go from A riverboat, a land based and all the efficiencies that come with that and you get out of the deferred maintenance CapEx mode and into growth mode. So we couldn't be more excited about those 2. And of course, the hotels at M in Columbus are long overdue. We've had demand for hotel addition at M and a new hotel, the first one at Columbus for years.

Speaker 2

And for lots of reasons, we just we couldn't or didn't Pull the trigger, but we're always looking internally at projects like that and there could be more down the road. We don't have anything right now that we're ready to announce.

Speaker 7

Jay mentioned, especially with the timeline and labor force and everything else. So, again, we feel very comfortable that we can hit these targets. And to Jay's point, we constantly look at our capital deployment and look for options that are out there. But these 4 make a ton of sense.

Speaker 12

Great. Thank you. And then just on the Funding side for those 4 developments, is there a timeframe for when you need to decide how and when you would get the funding from GLPI? No,

Speaker 3

thanks. No, there's no timeline. What we've said in the past is that we'll take the Funding, at the end of the project. So as we're opening and if you think about it, we wouldn't want to take the funding before they open because Then we would be paying rent on projects that were not generating EBITDA. So you want to have that matching.

Speaker 3

So I would as you model it out, I would

Operator

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

Speaker 2

All right, great, Frank, and thanks to everyone for dialing in. Great questions.

Powered by Quartr