PENN Entertainment Q2 2023 Earnings Report

PENN Entertainment EPS Results

• Actual EPS: $0.48
• Consensus EPS: $0.39
• Beat/Miss: Beat by +$0.09
• One Year Ago EPS: $0.15

PENN Entertainment Revenue Results

• Actual Revenue: $1.67 billion
• Expected Revenue: $1.66 billion
• Beat/Miss: Beat by +$9.83 million
• YoY Revenue Growth: +2.90%

PENN Entertainment Announcement Details

• Quarter: Q2 2023
• Date: 8/9/2023
• Time: Before Market Opens
• Conference Call Date: Wednesday, August 9, 2023
• Conference Call Time: 9:00AM ET

PENN Entertainment (NASDAQ:PENN) is an omnichannel provider of gaming, sports betting and entertainment services. The company operates casinos, racetracks and gaming properties offering slot machines, table games, poker, sports wagering, dining, lodging and live entertainment. Its portfolio also includes retail sportsbooks and online gaming platforms.

PENN serves customers primarily across the United States and Canada through its land-based properties and digital operations. Its online offerings have included sports betting, iCasino gaming and related media and technology products, supported by customer loyalty programs and theScore, a digital sports media and betting brand acquired by PENN in 2021.

The company was formerly known as Penn National Gaming and adopted the PENN Entertainment name in 2022 to reflect its broader entertainment and digital strategy. PENN has also pursued media partnerships and digital sports-betting initiatives, including its former relationship with Barstool Sports. Jay Snowden has served as PENN Entertainment’s president and chief executive officer since 2020.

PENN Entertainment Q2 2023 Earnings Call Transcript

Key Takeaways

• Penn Entertainment entered a flagship, exclusive 10-year partnership with ESPN to launch ESPN Bet this fall, committing $150 million per year in marketing payments plus similar off-channel spend and granting ESPN performance-based warrants and board observer rights.
• The agreement combines Penn’s proprietary tech stack and retail/digital customer database with ESPN’s massive reach (105 million+ monthly unique visitors, 370 million+ social followers, 25 million+ ESPN+ subscribers) for deep media integration and efficient customer acquisition.
• Penn has completed migration to its in-house technology platform across 16 U.S. markets, a strategy proven by double-digit market share gains for theScoreBet in Ontario, and will use that scalable system to power ESPN Bet.
• Penn projects its Interactive segment can generate an incremental $500 million–$1 billion in annual adjusted EBITDA (including marketing fees), expects launch‐related leverage to peak around 5×, then quickly deleverage through free cash flow.
• Penn sold Barstool Sports back to its founder and will rebrand digital casino offerings under the Hollywood name, focusing resources on the new ESPN Bet partnership.

Presentation

[Operator]

Greetings, and welcome to the PENN Entertainment Second Quarter and ESPN Transaction Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. At that time, if you have a question, please press one followed by four on your telephone. If at any time during the conference you need to reach an operator, please press star zero. I would now like to turn the conference over to Mr. Joe Jaffoni, Investor Relations. Please go ahead.

[Joe Jaffoni, President of Investor Relations at JCIR]

Thank you, Frank. Good morning, everyone, and thank you for joining PENN Entertainment second quarter and ESPN Transaction conference call. We'll get to management's presentation and comments momentarily, as well as your questions and answers. During the Q&A, we ask that everyone please limit themselves to one question and one follow-up. Now I'll review the safe harbor disclosure. Excuse me. Please note that today's discussion contains forward-looking statements. Forward-looking statements involve risks, assumptions, and uncertainties that could cause actual results to differ materially. For more information, please see our press release and for details on specific risk factors. With that, it's now my pleasure to turn the call over to the company's CEO, Jay Snowden. Jay, please go ahead.

[Jay Snowden, CEO and President at PENN Entertainment]

Thanks, Joe. Good morning, thank you for joining us. Last night, we announced that we signed the most exclusive long-term agreement with U.S. online sports betting with the worldwide leader in sports, excuse me, ESPN. I'm here this morning in New York City with my Executive Management team, including our CFO, Felicia Hendrix, our Head of Operations, Todd George, and Chris Rogers, who oversees Business Development and Strategy at PENN and worked very closely with me on the establishment and structure of this partnership with ESPN. I plan to focus my comments this morning primarily talking about this transformational agreement and the future launch of ESPN BET, but we'll take questions when I conclude my prepared remarks about any and all aspects of our business.

[Jay Snowden, CEO and President at PENN Entertainment]

We look forward to combining PENN's operational expertise, wholly owned and cutting-edge proprietary tech stack, expansive market access, and rapidly growing PENN Play database with the number one sports brand in both the U.S. and Canada with ESPN theScore. this powerful new strategic alliance with ESPN will create a best-in-class user experience and allow us to significantly expand our digital footprint and online market share, while simultaneously and efficiently growing our customer database. We are particularly excited about the level of integration ESPN BET will have in the broader ESPN ecosystem. With 105 million+ monthly unique digital visitors, an audience of more than 370 million across social platforms, over 25 million ESPN+ subscribers, and the nation's number one fantasy database, ESPN has unparalleled reach within the world of sports.

[Jay Snowden, CEO and President at PENN Entertainment]

We look forward to receiving exclusive promotional services across all of ESPN's platforms, programming, and content, including access to ESPN's popular roster of sports media personalities. I would like to spend a bit of time talking about what makes this deal so unique and special. First, it really starts with the brands. ESPN has built up decades of brand affinity through its customer-centric approach and is truly synonymous with sports content in this country. We are firmly convinced that we will be getting significant value for our marketing dollars by allocating those funds to the single best brand and platform in the U.S. to reach sports fans and potential bettors.

[Jay Snowden, CEO and President at PENN Entertainment]

With a robust menu of promotion and integration across all of ESPN's platforms, including, 1, traditional linear advertising, 2, digital media, 3, in-program integration, 4, odds at attribution, 5, database marketing opportunities, and 6, access to some of the biggest personalities in sports media. This is not a typical media sportsbook commercial agreement. This is an exclusive and comprehensive alliance that will redefine the sports betting landscape with a highly aligned partner that long term, like us, wants to see ESPN BET at the top. We have seen firsthand the power of integrating media with betting from our experience with theScore Bet in Ontario.

[Jay Snowden, CEO and President at PENN Entertainment]

Despite operating in one of the most competitive jurisdictions in North America with over 70 operators, many of whom competed in that market for years and years prior to full legalization when the market was gray, we have been able to achieve sustained double-digit market share in both online sports betting and online casino in the province by leading with Ontario's top digital sports media theScore, and utilizing our best-in-class technology, which has been built from the ground up with the North American markets and comprehensive media integrations, not only in mind, but as top priorities. This is a proven playbook and will be effective here in the United States as well.

[Jay Snowden, CEO and President at PENN Entertainment]

Between ESPN's portfolio of premier sports rights, massive social media following, deep fantasy database, and best-in-class sports media app, we have the opportunity to dramatically transform the way fans engage with sports content and betting here in the U.S. markets. Importantly, with this deal, ESPN now becomes a highly aligned, long-term strategic partner for PENN. As outlined on Slide 10 in our investor presentation, which was posted on our website last night along with our 8-K, PENN has granted ESPN approximately $500 million of warrants to purchase 31.8 million PENN common shares that will vest ratably over 10 years. Upon ESPN BET meeting certain U.S. online sports betting market share performance thresholds, ESPN could receive bonus warrants to purchase up to an additional 6.4 million PENN common shares.

[Jay Snowden, CEO and President at PENN Entertainment]

ESPN will also have the option to designate a non-voting board observer, and upon completion of year three of our agreement, they'll be able to designate at their discretion a member to our corporate board of directors, subject, of course, to regulatory approvals. Over the last several years, we have made significant investments in technology, and we are confident that our newly launched product, combined with the unrivaled brand and reach of ESPN, will catapult ESPN BET into a strong podium position in this space. We believe we can achieve substantial 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.

[Jay Snowden, CEO and President at PENN Entertainment]

We have learned a lot over the last few years about the recipe for success in the sports betting industry, which we have highlighted on Slide 8 in our investor presentation. It all starts with brand recognition among sports fans, and as I noted earlier, there is not a brand more powerful in this space than ESPN. We also know that access to customers is vital. Between ESPN's unrivaled reach, including the largest fantasy database, as I mentioned earlier, in the U.S. and our casino database of over 27 million customers, we certainly check this box. Of course, product and customer experience, excuse me, are also paramount, and this is why we have been so focused over the last several years on developing our own state-of-the-art technology, which we fully and successfully migrated to across the United States last month.

[Jay Snowden, CEO and President at PENN Entertainment]

Finally, our relationship with ESPN will allow us to create deep media integrations that will provide highly efficient customer acquisition, as well as increased engagement, loyalty, and friction-free access to betting on the sports, teams, players, and events they love. All of this will lead to compelling cross-sell opportunities into online casino, retail gaming, and more. In short, we believe we have all the necessary ingredients to win. In order to reach this goal, we will be continuing to make strategic investments in our interactive segment for the remainder of 2023 and into 2024. We will be focused on launch, execution, sustainable market share growth, and continuing to iterate upon our best-in-class technology.

[Jay Snowden, CEO and President at PENN Entertainment]

As we sit here today, for lots of reasons, including competitive ones, I'm not going to get into specifics regarding the impact of this partnership on our guidance for the remainder of the year. What I can tell you is that we anticipate launching ESPN BET sometime this fall, around the middle of football season, certainly before Thanksgiving. We are committed to spending $150 million in annual cash payments to ESPN for marketing services over the initial 10-year term, which we expect will generate a very strong return on investment. Additionally, we will likely spend a similar amount on off-channel marketing, meaning outside of ESPN. We also anticipate an additional amount of promotional spending as we launch the ESPN BET product and welcome newly engaged fans as first-time and reactivated depositors in the ecosystem.

[Jay Snowden, CEO and President at PENN Entertainment]

During this product launch, we anticipate our leverage to increase slightly to approximately 5 times over the next several quarters, after which time you should expect us to quickly delever organically, given our free cash flow generation. Bottom line, we are in this to win, and we'll continue to invest where we see attractive CPAs and where we can produce strong returns. Now, pivoting for a moment, we are still seeing stable consumer and overall business trends and healthy operating margins in our core business. Guidance for our Retail segment remains unchanged for the remainder of the year. Even with additional investment in our Interactive segment, we will continue to generate positive free cash flow as a company and remain focused on maintaining a healthy balance sheet and leverage ratio.

[Jay Snowden, CEO and President at PENN Entertainment]

This is not a bet the company type of transaction, but we are extremely excited about this partnership and strongly believe it will be a transformational one for PENN. As highlighted on Slide 9, looking out a few years, we believe this business can generate an incremental Adjusted EBITDA in our Interactive segment of approximately $500 million to well over $1 billion per year. I would like to point out that these EBITDA ranges include the $150 million in annual cash payments to ESPN, which in our view, is a very efficient allocation of the marketing dollars we would have otherwise spent to support the sportsbook. The online sports betting and online casino space is a sizable opportunity, and we are fully committed to leveraging our numerous built-in advantages, now including the power of the ESPN media assets, to help fully realize this opportunity.

[Jay Snowden, CEO and President at PENN Entertainment]

We plan to host an Investor Day before the end of this calendar year, where we will provide you with more color regarding our near-term and longer-term strategy, as well as key metrics and financial targets regarding our new partnership with ESPN. As part of this transaction, we are selling Barstool Sports back to its Founder, Dave Portnoy. Dave, Erica, Big Cat, and everyone at Barstool have been great to work with over the last 3.5 years and were the ideal partners to help us launch and rapidly scale our digital footprint across 16 jurisdictions in the U.S. With the sale, Barstool will now be able to return to what it does best: provide unique and authentic entertainment content to their loyal fan base without the restrictions and guardrails that come from being owned by a publicly traded, licensed, regulated gaming company.

[Jay Snowden, CEO and President at PENN Entertainment]

I really can't thank Dave, Erica, and Dan, and the rest of the Barstool team enough for their partnership in helping us to get to where we are today in terms of online sports betting. We gained a tremendous amount of knowledge and experience with them over the last several years. More importantly, Barstool helped us grow our digital database by over 1.5 million people since launching the Barstool Sportsbook three years ago. Our new relationship with ESPN will enable us to build on this successful foundation as we move forward. It's truly a momentous day for us at PENN, for the folks at Barstool. We certainly can't wait to roll up our sleeves and get started with our partners at ESPN, starting today. Before opening the line for questions, a few words about our second quarter earnings.

[Jay Snowden, CEO and President at PENN Entertainment]

We continue to see solid and stable property-level performance across our portfolio, with each month showing sequential improvement. Second quarter finished strong with our best month of the quarter in June, and that momentum is carried over into Q3, where we just closed the books on a very strong July and had a good first weekend, excuse me, a good first week of business here in August as well. During the quarter, as I briefly mentioned earlier, we successfully completed the full-scale migration of our U.S. digital sportsbook and online casino offerings to our proprietary in-house technology platform, which was a huge milestone achievement for our company. This state-of-the-art tech platform continues to drive strong results for theScore Bet in Ontario, and our improved product will provide the foundation for meaningful growth in the U.S. once we rebrand to ESPN BET later this year.

[Jay Snowden, CEO and President at PENN Entertainment]

I want to thank and congratulate the nearly 500 members of our Interactive team, who seamlessly executed this massive technology project with a lot of skeptics, following more than 18 months of hard work. As always, I want to give a special thanks to all of our property leaders and team members throughout our organization for continuing to provide a best-in-class experience for our rapidly growing customer database at our properties around the country. We look forward to numerous cross-sell opportunities to come with our new online products. With that, Frank, I'm happy to open up the line for questions.

[Operator]

Thank you. If you would like to register a question, please press the one four on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the one followed by the three. We ask that you limit to one question and one follow-up. One moment, please, for the first question. Our first question comes from Barry Jonas with Truist Securities. Please proceed.

[Barry Jonas, Managing Director and Senior Equity Analyst at Truist Securities]

Hey, good, good morning, guys, and congrats on the deal. Jay, is it possible to give a little more color about how this came together, overall?

[Jay Snowden, CEO and President at PENN Entertainment]

Not really. I'd prefer not to get on the inside baseball of how it came together. I would just say that as we got to know the folks at ESPN, led by James Pitaro, you know, it felt good. We've, we've met a lot of people at ESPN, and what I've been blown away by and the folks that we've spent time with is they share a passion for wanting to be the best at everything that they do. ESPN BET is no different. They've been working on this behind the scenes for some time. It's very clear when you meet with them, the excitement, the energy, the passion, and the alignment on what the future will look like is very exciting. I'll, I'll, I'll leave it at that.

[Barry Jonas, Managing Director and Senior Equity Analyst at Truist Securities]

understood. I guess, just from a demographics perspective, how does the new ESPN BET positioning compare to what you previously had with Barstool? I guess I'm just trying to understand how to think about your overall omnichannel strategy there.

[Jay Snowden, CEO and President at PENN Entertainment]

Yeah, no, it's a great question. obviously, the ESPN brand compared to the Barstool brand. Barstool skews on the younger side. The average age in our digital database is around 29 years old. I think that's great. We have 1.5 million people in that database that weren't there before we launched Barstool Sportsbook. We've got a great foundation of younger customers that have also frequented our casinos on the land-based side, and we've been able to cross-sell into affinity. I think with ESPN, you know, you're talking about a brand that everybody in the world knows about. It's not an old brand, it's not a young brand, it's an everything brand. There's a lot of affinity for that brand. We think it's gonna be extremely complementary to what we've built over the course of the last 3 years.

[Jay Snowden, CEO and President at PENN Entertainment]

Yeah, we're excited. We think this is-- you know, this is an opportunity to really appeal to the masses. One thing that's become crystal clear, Barry, over the course of the last, call it 3 years, we've all watched market share in online sports betting continue to consolidate, really amongst the top 2 players, and you've got to have scale to compete. There's certain-- there's a certain recipe to get to scale, which I laid out in my prepared remarks and then on 1 of our slides in the presentation. We think that we, we check the boxes with that recipe, and we're, we're ready to compete at a scale level.

[Operator]

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

[Carlo Santarelli, Analyst at Deutsche Bank]

Hey, Jay, thank you for taking my question. Jay, just going back to, to the comment that, that you made about kind of leverage topping out at, at five times. It, it would imply that, that maybe spend this year, is, is not as significant on the initiative. Clearly, if, if you're, you're launching sometime in, in November, that very well could be the case. As, as we move into 2024, in addition to, to the committed spend, how are you guys thinking about kind of the, the promotions and, and, and going about customer acquisition? Do you have any kind of, I don't know, guidance that you could perhaps give that, that would give us maybe a, a better sense of, of what we're thinking about on a, on a 2024 basis?

[Jay Snowden, CEO and President at PENN Entertainment]

Yeah, I, I, I don't want to get into too much detail on 2024 yet, Carlo. We will hold an Investor Day before the end of the year and give you a lot more detail on that. I think getting to launch is really important to us, and we want to launch flawlessly and probably hold that Investor Day after we launch, so we have some more visibility as to how, how things are trending. What I would say in terms of the promotional spend is sort of think about it this way, that you're gonna have, let's call, you know, a, an, a November launch, whatever that date is. We don't have the firm date yet. Obviously, the team's working really hard on this reskinning of the app to ESPN BET. As you think about it, there's gonna be...

[Jay Snowden, CEO and President at PENN Entertainment]

That's where the lion's share of your promotional expense is gonna be, is you're bringing a lot of new people into the ecosystem with the first-time deposit match and the like. So, you know, Nove-- it usually takes approximately two months to burn through that deposit match. So November and December, I think, on the promo side, would be, would be pretty high. Then you've got a lot of really big sporting events after that, getting into NFL playoffs, obviously the Super Bowl in February, and then March Madness in March. I think from a promo perspective, you're looking at the lion's share is gonna be in that Q4 and Q1 timeframe. As it relates to general marketing spend, you should think about us, sort of, as I mentioned earlier, matching in off-channel, meaning outside of ESPN, how much we're spending with ESPN.

[Jay Snowden, CEO and President at PENN Entertainment]

It's not an exact, you know, scientific number, but that's, that's the way we're modeling things out, and that's all those assumptions that I laid out for you still get us comfortable being around 5x, even as we're at the peak level of spend. That'll come down, obviously, as you head deeper into 2024, with the free cash flow that we generate, and organically, we'll be able to delever that back down into the 4s pretty quickly. We're going for it.

[Jay Snowden, CEO and President at PENN Entertainment]

We're certainly not gonna be cheap about our approach and be focused on, you know, We don't wanna have regrets around how we launch the products and how we launch the brand. We have a lot of alignment with ESPN on doing that in a way that's going to be great for the consumer. People are gonna know that we're live when we're live. I feel very comfortable saying that.

[Carlo Santarelli, Analyst at Deutsche Bank]

Got it. Jay, just, just, you kind of answered my follow-up within there. The $150 million committed marketing through ESPN will buy an incremental $150 million through other, you know, vendors, other customer acquisition channels, et cetera. And then promotions will be a separate bucket to that, correct?

[Jay Snowden, CEO and President at PENN Entertainment]

That, that's all correct, Carlo, and the $150 million is, is not a perfect number, but just to say roughly, yes.

[Carlo Santarelli, Analyst at Deutsche Bank]

Okay. Then if I, just, just one follow-up, kind of, on, on the core business. Your, your margins broadly held in fairly well. You know, significantly up a little bit. Obviously, there's, there's some seasonality there, but, but kind of continued to hover around this, this 36 level. It, it, you know, and, and clearly, top line has, has seen some pressures. How do you guys kind of think about... I, I, I heard you say earlier, you're, you're kind of, the, the retail brick-and-mortar guidance for the, for the balance of the year, et cetera, is unchanged. Is, is this kind of margin level fairly sustainable in the climate that you see right now as we move through the back half of this year, you know, seasonality aside?

[Jay Snowden, CEO and President at PENN Entertainment]

Well, let me just answer your question by saying, generally, yes, is the answer. Todd, I'll let you jump in there in terms of what we're seeing in the business and why we've been able to really keep those margins in that 36% sort of level over the course of the last several quarters.

[Todd George, EVP of Operations at PENN Entertainment]

Thanks, Jay, thanks, Carlo. listen, it's sustainable, and I think our. We continue to compare ourselves to where we were in 2019. I think the growth that we've seen from them with this, really, it's a new day. Looking at where we are from a labor standpoint, looking at where we are from a marketing standpoint, not just for us, but for the competitive set, it's more rational. It's, you know, entitlement programs have kind of fallen away. We're very comfortable as we move forward with those, you know, being the two expense drivers that we're in a good place. With our technology enhancements, we think that'll continue to add to our margin profile.

[Todd George, EVP of Operations at PENN Entertainment]

Very comfortable as we move forward, that these margins are what we can look to in the future. Obviously, there'll be some seasonality here and there.

[Operator]

Our next question comes from Bernie McTernan with Needham and Company. Please proceed.

[Bernie McTernan, Senior Analyst at Needham]

Great, thank you for taking the questions. Maybe just to start, I mean, clearly, the market's having a very positive reaction to this announcement, but some of the, the pushback that I'm hearing is just on market share and the thought that other partnerships between, you know, media operators and online sports bettors hasn't worked historically. What gives you confidence that you will be able, you know, Jay, you talked about your pole position and really driving market share, driving scale. What gives you some of the confidence that you'll be able to achieve those market share expectations?

[Jay Snowden, CEO and President at PENN Entertainment]

Yeah, no, look, it's, it's a fair question. I, I, I love addressing it because there's really no comparison to ESPN in the world. That's number one. I think this relationship that we've spent some time talking about, you know, last night in the materials and this morning, here's the reasons, what, as I think about it, why I know it's going to work. One, it's exclusive. Two, it's ESPN branded, which I think is very, very important. It's fully integrated. It includes access and endorsement from top ESPN talent, and I think really importantly, is that this is a strategic relationship. You think about how is this going to be more, more valuable for ESPN over time, is helping us achieve higher levels of market share.

[Jay Snowden, CEO and President at PENN Entertainment]

The higher levels of market share make the warrants that they own of PENN valuable, and you get over 20%, they become much, much, many more warrants and much more valuable. You know, if we're having conversations around what's the dilutive effect of the warrants over 20%, I think that's a great day for everybody. We're very focused with ESPN on long term getting to those levels. You know, it's interesting, I oftentimes look back to the U.K. market, and you just look at what, what did market share look like in the first 3 years versus the middle 3 years versus the last 3 years? It's gonna shift around. It's not done.

[Jay Snowden, CEO and President at PENN Entertainment]

I think this narrative or this notion that the market share that's established is sort of permanent here in the U.S., that's, to me, that's crazy talk. I'm not saying that it's gonna be wildly different from what it is today, but it's going to ebb and flow. It's going to move around. It's going to be fluid. What we announced this morning or last night and this morning is. It's something new and different to think about that probably wasn't in the consideration set up for anybody a day ago. It's gonna have an impact on what that overall market share looks like, and we think we're gonna be a major player.

[Bernie McTernan, Senior Analyst at Needham]

Great, thank you. Just a follow-up to Slide 9, calls out expectations for EBITDA margins in the high teens. Would love just to get your thoughts in terms of what you think how this operating plan is different from the prior one in terms of the potential margin potential for the business. The market share, the illustrative market shares, are those? We're getting some inbounds in terms of that year 3 termination, just how investors should think about the market share required to keep this partnership going for both sides.

[Jay Snowden, CEO and President at PENN Entertainment]

Let me hit the, the margins question first, and most importantly, you need scale to drive margins in this space. We, we all know that. Trying to drive, you know, 20% margins at 5% market share is gonna be impossible in online sports betting. That's number one, I think most important. Keep in mind on that Slide 9 that you're referencing, in case there's any confusion on this, the margin assumptions we have there in the footnote, this is based on GGR, okay? If you're comparing what we're showing here to what others have said that they think they can get to long term on a margin basis, most of what, if not all of the analysis that they're showing you, is on NGR, Net Gaming Revenue.

[Jay Snowden, CEO and President at PENN Entertainment]

If you extrapolate the margin assumptions we have here on a GGR basis and look at it, what would that mean on an NGR basis? We're probably a little bit below what others are saying, and that's just, you know, putting in some level of conservatism because for no other reason, but just to be conservative. I think if we're at scale and we're on the podium in every state or most every state, which we plan to be, then we think we can probably get close to the margins that others have said, others have said that they can get to on an NGR basis, but we'll take a conservative path for now. I think as it relates to market share assumptions. Well, repeat that part of the question. I want to make sure I tackle that one correctly, Bernie.

[Bernie McTernan, Senior Analyst at Needham]

There's a, you know, it's a ten-year partnership, but, but, you know, potential termination rights after year three if certain market share thresholds aren't met. So we've been getting some inbounds or investors asking, you know, what those market share thresholds are.

[Jay Snowden, CEO and President at PENN Entertainment]

Got it. Sorry. We haven't disclosed it, and we're not going to. That's in our agreement with ESPN, but I would just say that, probably safe to assume that the bottom end of the range on Slide 9, is gonna be a level that, you know, we're, we're starting to get excited about, both ESPN and PENN, and below there is not really exciting. Just sort of think about it that way.

[Operator]

Our next question comes from Chad Beynon with Macquarie. Please proceed.

[Chad Beynon, Managing Director and Senior Analyst at Macquarie]

Morning. Congrats on the announcement, and thanks for taking my question. Jay, wanted to ask about the rights portfolio. It's a 10-year deal with ESPN, and there's been some other companies buying up rights to different sporting events and different contracts. What gave you the confidence that ESPN will continue to be a leader with the content that they currently offer? Thanks.

[Jay Snowden, CEO and President at PENN Entertainment]

Yeah, look, I'm not, I'm not gonna sit here and speak on ESPN's behalf with regard to their, their sports rights. What I would say is, I think they've been crystal clear publicly in how much they value the ESPN brand long term and how important owning sports rights are for the success long term. We feel great about that. If you look at the agreements they have in place with the major leagues today, the NFL, NHL, MLB, NBA, it, it looks really good, and it goes out pretty far, and so you can do your own research on that. I think most importantly is there's a high level of conviction from everybody we've met at ESPN that sports rights are a big part of who they are and what they do, and that won't change.

[Chad Beynon, Managing Director and Senior Analyst at Macquarie]

Thanks. Then on the tech side, you mentioned up in Ontario, you're a double-digit market share leader in sports betting and iGaming, so that clearly speaks to the brand, but also the tech. You recently, you know, adjusted the tech down here, and this is certainly a, an important part of the equation. Anything else you can just talk about where the tech stands today, the menu of offerings that you've recently launched, and when you launch ESPN BET in November, kinda how your tech stands against some of the other market share leaders in North America? Thanks.

[Jay Snowden, CEO and President at PENN Entertainment]

Yeah, happy to. You know, we've been live on our own tech stack in Ontario for over a year now, things have gone great. We continue to iterate, and we've got the same full menu of options of, you know, parlay and in-game. The UI, UX is fantastic. We think it's very competitive with other top-tier online sports betting platform offerings, and we feel like when we go live here in November with ESPN BET, we'll be able to say the same thing. The beauty of what we have here is that we've built this from the ground up, and it was really built for the North American markets. We're gonna be able to continue to iterate. Obviously, we've also proven out, and we have the capability to do a lot of full integration on the media side.

[Jay Snowden, CEO and President at PENN Entertainment]

We currently in Canada, in Ontario, you can be on theScore media app, excuse me, and you can populate your bet slip and see the odds of games and place your wagers. As soon as you're ready to actually make the wager, it seamlessly takes you into theScore Bet. It feels like it's all the same app. Obviously, that's the path that we're gonna head down here in the U.S. as well, with ESPN, ESPN BET, and betting slips. So some of that'll take a little bit of time, but we've done a lot of it already. It's a matter of just prioritizing the product roadmap and the upgrades.

[Jay Snowden, CEO and President at PENN Entertainment]

We feel great about where we are at launch, and we feel really great about where we're gonna be 6 months later and 12 months later.

[Operator]

Our next question comes from Joe Greff with J.P. Morgan. Please proceed.

[Joe Greff, Managing Director and Senior Equity Research Analyst at JP Morgan]

Good morning, Jay. Do you guys have minimum investments for advertising on ESPN beyond $150 million per year? Is there anything that precludes ESPN from taking advertising across its platforms from your OSB competitors?

[Jay Snowden, CEO and President at PENN Entertainment]

There's no obligations other than the $150 million a year. We could choose to do more than that, and we may if we're seeing great results, but that's, that is the obligation. They have the ability, of course, if they want to, to take advertising dollars during commercial breaks from competitors, and that's really ESPN's call on if they do it and how much of that they do. I'm not worried about that. I think it's gonna be very clear if you're tuned into ESPN programming, that they are fully behind ESPN BET.

[Joe Greff, Managing Director and Senior Equity Research Analyst at JP Morgan]

Great. I'm not sure if you answered it exactly, and maybe you don't want, you don't want to, but the provision where both parties can terminate the agreement, assuming a certain market share threshold, did you actually give a specific threshold?

[Jay Snowden, CEO and President at PENN Entertainment]

We, we did not, Joe. I, I, I mentioned earlier that, we're not going to, you know, we're not doing this deal to be 4% or 5% market share players. That's not gonna be acceptable for us. It's not gonna be acceptable for ESPN. So, you should assume if those are the ranges you're in, that's not gonna work out long term. We think we're gonna be certainly within the range that we provided here on Slide 9 in our investor presentation, and we think we can go beyond there long term.

[Operator]

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

[Ryan Sigdahl, Senior Research Analyst at Craig-Hallum Capital]

Good morning, Jay. Curious, will ESPN BET offer iGaming in states where legal to leverage that OSB iGaming cross-sell that PENN had so much success with?

[Jay Snowden, CEO and President at PENN Entertainment]

Well, the answer is that we will have a Hollywood-branded affinity offering within the ESPN sports betting, ESPN BET sports betting offering and platform in all states where online casino is legal. We, you know, we've thought a lot about, you know, online sports betting. Obviously, we believe we have the best brand in the world to lead with. On the online casino side, we're of the opinion, as I think most are, by the way, that you really need multiple brands long term. Some might cater more to a slot player, some might cater more and appeal more to a table game player. We thought a lot about that. We thought it was a good time for us to pivot to really focusing on Hollywood Casino and the Hollywood brand.

[Jay Snowden, CEO and President at PENN Entertainment]

The Hollywood brand for us on the brick-and-mortar side is roughly two-thirds of our properties. We've invested a lot of capital across the portfolio, and we feel... We're very proud of that Hollywood brand, and we think that it, it creates a really nice linkage from digital online casino, you know, the five markets that we're live in today. That's gonna grow over time, and we think in markets where we've got land-based casinos branded Hollywood, it creates a really nice cross-sell opportunity, not just digitally, but also on the brick-and-mortar side.

[Ryan Sigdahl, Senior Research Analyst at Craig-Hallum Capital]

Jay, just clarification, I do have a separate follow-up. You said within something. Is it within the app, so it'll be a cohesive experience, or is it, I guess, will they be separate apps?

[Jay Snowden, CEO and President at PENN Entertainment]

No, no. I mean, we, we will have, at some point, a standalone Hollywood Casino app. We're, we're not there yet, but it'll be integrated. If you're in the state of Pennsylvania, for example, and you're within ESPN BET, betting on sports, you'll, you'll be able to wager by clicking on the casino icon and go to Hollywood Casino seamlessly within the same app and platform, the way that you can today between Barstool Sportsbook and Barstool affinity.

[Operator]

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

[Shaun Kelley, Managing Director and Senior Research Analyst at Bank of America]

Hi, good morning, everyone. Thanks for taking my questions. Jay, just wanna go back to some of the financial parameters here, like, a little bit. Maybe if we could start with just if we think about, you know, your, your initial plan here for Barstool and maybe the initial budgets that we were given, was there some amount of, you know, marketing and buildup already contemplated in sort of, you know, how you were building to 2023, just as you knew you were moving back onto your tech platform? Trying to kind of get a sense of, really where I'm going with this is, how much of, let's call it, this total $300 million or, you know, certainly some of the big spending in the fourth quarter was already contemplated.

[Shaun Kelley, Managing Director and Senior Research Analyst at Bank of America]

How much is incremental, and how much was sort of already built into to what you were expecting before?

[Jay Snowden, CEO and President at PENN Entertainment]

Yeah, I would say, a good portion of it is incremental, although we did have a pretty solid marketing plan for launch this football season if we hadn't gotten to the finish line with ESPN for ESPN BET. I don't know, maybe a third of it was already built in and two-thirds of it now incremental, when you consider the ESPN investment and some of the additional off-channel marketing investments, something like that.

[Shaun Kelley, Managing Director and Senior Research Analyst at Bank of America]

... That, that's helpful. Then maybe sort of the strategic question behind that, you know, as we think out to 2024 and beyond, you know, you kind of mentioned you're, you're in this for the long haul, and you're certainly, you know, going pretty big here. Can you just help us think about, you know, the, maybe the, the depth and duration? If you talked about, let's call it, this 5x parameter, which I assume is lease-adjusted net debt, if we think about that, does that hold, you know, throughout 2024? Sort of how long in your own mind, you know, do you need to kind of start to see cost leverage in this? Historically, you know, maybe we've seen, you know, 12-24-month paybacks.

[Shaun Kelley, Managing Director and Senior Research Analyst at Bank of America]

I think those have actually accelerated a little bit on, on promotions, you know, in more recent cohorts of states. How do you think about it, and when do you think you start to really show or turn the corner here, you know, for what you want this business to be?

[Jay Snowden, CEO and President at PENN Entertainment]

Yeah, it's a great question. We'll cover a lot of that, Shaun, in our Investor Day before the end of the year. I think at a high level, sort of think about, you know, where we are in the, in the journey versus maybe the other top players, is we're probably, with this announcement today, a year-ish behind in terms of that inflection point. Others are sort of getting there soon in the fourth quarter. I mean, I, I think second quarter was profitable for a lot of operators. Not a ton of money, but profitable. I think you're gonna see people, at least based on what they've committed to, show some real profit in the fourth quarter of this year. We obviously will not, as we're, as we're launching the product this year.

[Jay Snowden, CEO and President at PENN Entertainment]

We're going to be really focused on customer acquisition and retention and cross-sell over the course of the next 12 months. I think going into football season next year, we wanna make sure if we feel like we've left anything out there on the, on the acquisition side, we're continuing to be aggressive going into football season, given that we're gonna miss the first couple of months of football season this year. I think things will start to settle out for us, and we'll have a good handle on how things are going to look in 2025 and beyond from a profitability standpoint. But they will certainly be profitable, and I think it depends on, you know, what level of scale and where we are on the podium as to what 25 and beyond look like.

[Jay Snowden, CEO and President at PENN Entertainment]

That'll certainly be the year where you really start to see the returns, starting to come through the P&L.

[Operator]

Our next question comes from Steve Wieczynski with Stifel. Please proceed.

[Steve Wieczynski, Managing Director at Stifel]

Yeah. Hey, guys. Good morning. So, Jay, you kind of just touched on my first question, but, you know, something we've-- You know, one of the questions we've got from investors over the last, you know, call it 16 or 18 hours is, you know, are you guys, you know, late to the game? Meaning, you know, if you don't launch till the middle of the NFL season, how difficult, you know, is it gonna be for you guys to gain market share? Maybe not so much this year, but over time, given, you know, a lot of potential customers will, you know, already be tied into other platforms.

[Jay Snowden, CEO and President at PENN Entertainment]

Yeah, look, I. We received that question a lot before we launched in October 2020 with Barstool Sportsbook. You know, we came out of the gate pretty strong back then at over 10% market share. That was sustained for, I don't know, close to 1 year. I don't. PASPA was overturned 5 years ago. We've sort of been in the online sports betting space for 3 or 4 years. In a lot of markets, it's been 1 or 2 years. It's not been decades. I think we have an opportunity to really get in here and be a major player. I actually think the timing of our launch in November is good because it's not gonna get lost at the launch of football season. Beginning of football season is so noisy.

[Jay Snowden, CEO and President at PENN Entertainment]

Everybody's spending like crazy, trying to drive top of funnel on the acquisition side. I, I, I like how this lays out. Now, it's a product-led decision for us to launch with ESPN BET in November, but strategically, I like it because we're gonna be out there launching at a time where maybe with everyone else, new customers have kind of burned through those promotional dollars on first-time deposit match, and we're gonna be mid-season offering something that probably isn't being offered by others or it's already been utilized with the other competitors. So we, we like it, and we're fine with this being a show-me story. If, you know, we'll, we'll be happy to share results, and you're gonna see those real time, November, December, heading into 2024, and we'll have a lot more to share on our overall thoughts.

[Jay Snowden, CEO and President at PENN Entertainment]

We feel like the launch timeline is actually really good in this case.

[Steve Wieczynski, Managing Director at Stifel]

Okay, gotcha. Then, Jay, you know, if we sat here I think it was three years ago, you originally invested into Barstool. If I remember correctly, when you did, you know, when you did that call, I think you made, you know, some claims about how great of a partnership, you know, Barstool was going to be. So I guess, you know, I'm just trying to understand, you know, why this deal is, you know, is so much different versus Barstool. Look, I understand ESPN is a whole different animal. I get that. Maybe a different way of asking that is, you know, what did you overestimate with Barstool? Or maybe what did you get wrong with Barstool?

[Steve Wieczynski, Managing Director at Stifel]

I'm trying to ask that as nicely as I can, as you look back on that deal, and I, I, I probably assume you're somewhat restricted in terms of, of how you can answer that.

[Jay Snowden, CEO and President at PENN Entertainment]

Well, I, I guess the way I would answer it is that we felt great at the time that we were partnering and launching with Barstool, and we've had a great three-and-a-half-year run with our partners at Barstool. I'm sure most, if not all of you, watched Dave's emergency press conference on this last night. I thought he summed it up really well. It just, it became obvious to both parties that there's probably long term, only one natural owner of Barstool Sports, and that's Dave Portnoy and Barstool Sports. Being part of a publicly held, highly regulated, licensed gaming company, it became clear that we were an unnatural owner. I think today is a real, it's a great day. It's great for Dave and Barstool Sports. It's great for Stoolies. It's great for PENN. It's great for ESPN.

[Jay Snowden, CEO and President at PENN Entertainment]

Everyone's feeling great about the future and where we're headed, and we're not really focused or gonna spend too much time talking about the past. We're gonna really stay focused on where we're headed.

[Operator]

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

[Joe Stauff, Analyst at Susquehanna]

Thank you. Good morning. Jay, I was wondering if you could maybe just touch on a few things in terms of your new tech stack and the product offering, you know, questions largely about kind of just how stress-tested and ready for prime time and higher levels of capacity going into the football season is? Can you talk about your parlay product? You know, is that, is that product something that, that you are pricing, or do you outsource certain pieces of it? Maybe some of the plans that you have in terms of maybe getting into New York or, you know, how far or how long it'll take if you were able to integrate ESPN's maybe streaming signal within the app, things like that.

[Jay Snowden, CEO and President at PENN Entertainment]

Yep, there's a lot there, Joe.

[Joe Stauff, Analyst at Susquehanna]

Sure.

[Jay Snowden, CEO and President at PENN Entertainment]

Things like that. There's a lot there. I'll, I'll try to tackle those, and if I don't address your question specifically, then just jump, jump back in. Part of why we're launching in November is that we wanna make sure we have the time not just to do the, the reskinning of the app to ESPN BET in a way that is branded appropriately, but also has, of course, a great UI and UX. It also is because we wanna make sure that we have the capacity to handle significantly more volume as we move forward, so that's part of why it's being driven by a November launch. There's a lot of hardware, that's, you know, we already had hardware, but we're gonna be ordering more servers to handle more volume, and I think those are good problems to have.

[Jay Snowden, CEO and President at PENN Entertainment]

Stress-tested, we've gotten through, you know, a full year of operating in Ontario, including Super Bowl. We've got, I think, best-in-class technology and products and engineering team in our PENN Interactive unit, and we feel great about handling significantly more volume as we move forward, and we'll be ready for that when we launch in November. With regard to how we think about risk and trading services, nothing really changes. We have our own risk and trading team that's been built out, proven. We're very happy with the progress that we've made in Ontario as well as here in the U.S. post-migration.

[Jay Snowden, CEO and President at PENN Entertainment]

We've, we've, we've already seen a lot of benefits around having your own risk and trading team and what that can do for how you price, not just parlays, but how you even think about, you know, taking VIP bets and at what levels. Feel really good about that. Of course, you're taking some of your feeds from third parties. Everybody does that to some extent. I think the value of owning your own risk and trading team is really making those little decisions that can make a big difference in terms of what your overall hold % looks like and how you price your parlays, both in-game, as well as just general parlays. That hasn't changed, but we certainly are getting better and better at that all the time and seeing really good progress as it relates to overall hold % trends.

[Jay Snowden, CEO and President at PENN Entertainment]

I think with regard-

[Joe Stauff, Analyst at Susquehanna]

Sorry.

[Jay Snowden, CEO and President at PENN Entertainment]

I was just gonna address your, your last one, and then feel free to jump in there on access to other states. Look, I think with... Dave covered some of this in his emergency press conference. I think going in with ESPN BET sets you up to get access pretty much anywhere. Now, some states, there's limited licenses and things of that nature, but there's, I think where there's a will, there's a way, and there's creative ways to get into some of the states that we're not currently in. That's something that's a high priority for both us and ESPN, and we'll continue to make that a high priority.

[Joe Stauff, Analyst at Susquehanna]

I see. That makes a lot of sense. Again, like, I'm sure it's something that, that's on the come, but is there plans eventually to maybe integrate the signal, ESPN's in particular, within your app, I don't know, in 2024? Or how long would that take in theory?

[Jay Snowden, CEO and President at PENN Entertainment]

Yeah, I would say that that's a real forward-looking question, Joe. The answer is, of course, those are things that we're gonna prioritize, but I'd, I'd rather wait until our Investor Day, more toward the end of this year. We're really focused on launch and ramping and getting through football season. We'll have a lot more to share with you of how we're thinking about product roadmap and enhancements and media integrations between ESPN and ESPN BET and feeds and the other questions you have. We'll, we'll be happy to address all of those or as many of those as we can later this year.

[Operator]

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

[Brandt Montour, Analyst at Barclays]

Thanks, everybody, for taking my question. We've covered a lot. My first question is, the retail sportsbook, the Barstool brand of retail sportsbook, that you've been rolling out, you know, what happens to those, and do you have access to the ESPN BET brand in, in sort of potentially rebranding those as ESPN BET sportsbooks?

[Jay Snowden, CEO and President at PENN Entertainment]

Yeah, good question. We, we have invested pretty significant capital, and I think we have best-in-class retail sportsbooks across the portfolio today, which is awesome. The arrangement that we have with Dave and team at Barstool is that we've got a period of time. You know, they need some support from us as we transition, and we're gonna need to have some time to obviously get the ESPN BET app launched, as well as take down some of the Barstool specific branding inside of our retail sportsbooks. You know, we're working cooperatively, cooperatively together on a number of issues and transition issues. With regard to what does that end up being or looking like, that's TBD. We're working through ESPN.

[Jay Snowden, CEO and President at PENN Entertainment]

Folks have not had a chance to visit our properties yet. We're gonna go through a process. There could be some, potentially some ESPN-branded retail sportsbooks on prem. If not, we still have what we believe to be best-in-class destinations on the retail sports betting side and sports bars, connected to almost all of them.

[Brandt Montour, Analyst at Barclays]

Okay, thanks for that. Just as a follow-up, I know you went over this a little bit, but the extra $150 million-ish of off-channel marketing, recognize that, you know, that's not... You know, you have a $150 million commitment to ESPN through a fee. This is in addition to that, but this is not necessarily with ESPN. Is this extra $150 million-ish completely discretionary, or is it part of the agreement with ESPN that you're gonna be doing this off-channel marketing just to support the product? Is there connectivity with broader Disney assets, that, that could utilize to, to spend that? Where did you just-- how did you just come up with that level? You know, where do you-- why do you think that's the right, the right number?

[Jay Snowden, CEO and President at PENN Entertainment]

Yeah, I mean, we've put a lot of thought into what we believe we're trying to accomplish, scaling, and in addition to the support and marketing service that we're getting from ESPN, what are we missing? We feel like, you know, that level of spend allows you to do really most, if not all, of everything else that you want to do or plan to do. There's no commitment to your first part of your question, Brandt, on how much we will or won't spend in off-channel as part of this deal. This is what we believe is the right level of spend, and our partners at ESPN feel good about it, too. We're, we're, we're both excited about the marketing spend, both within the ESPN ecosystem as well as outside of that.

[Operator]

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

[John DeCree, Managing Director at CBRE]

Hi, Jay. Thanks for taking the questions. Maybe one, I think you in Joe's question, you kind of talked about the incremental spend in four Q, but I was wondering if you could give us some parameters on what the annual kind of marketing spend, $150 million ESPN and, you know, roughly $150 million off-channel, compares to, what you were doing, you know, prior using the Barstool brand. You know, how, how much of an uptick, you know, is this relative to, say, the last year or two in terms of total marketing dollars?

[Jay Snowden, CEO and President at PENN Entertainment]

Yeah, well, we've talked about this before, John, it's a good question. We were going through product migration for the last 12, almost 18 months, as I mentioned in my prepared remarks. So we were very careful not to be aggressive in marketing spend outside of things that we were doing on an integration basis organically with our friends and partners at Barstool. So that's now done. We feel great about the products. We feel great about how migration occurred. It was seamless, it was uneventful, and that's amazing, given that we converted all 16 of our markets in the U.S. in a matter of 24 hours. So again, hats off to Benji and the team at PENN Interactive on that.

[Jay Snowden, CEO and President at PENN Entertainment]

I, I think generally speaking, we feel, we feel really good about where things are as it sits today. You know, we obviously can, can pivot and, you know, whatever we want to do on a, on a go-forward basis, but we, we feel good.

[John DeCree, Managing Director at CBRE]

Okay. Got it. Fair enough. Maybe one question you touched on earlier, about, I think some of the ESPN, maybe emails, the fantasy database, subscriber lists. Are you able to directly market to those emails, or are there restrictions around that? Then I guess the second part of that question would be, ESPN BET customers, is that are those customers and customer information owned by PENN or ESPN or shared?

[Jay Snowden, CEO and President at PENN Entertainment]

Well, ultimately, anyone who is in the ESPN BET, specifically the ESPN BET ecosystem, is owned by PENN. You have to be fully regulated and licensed to be able to have that information on gaming customers, and so that's pretty clear-cut. I think as it relates to the emailable database at ESPN, we're not gonna get into a ton of specifics on that. I would just say that, again, ESPN has been working on this for some time behind the scenes, and they've got a robust plan. It's comprehensive, it's exciting. They also, if you read the... Which I'm, I'm sure, I'm sure most of you did. If you read the release that ESPN put out yesterday, one of the things that we have a tremendous amount of alignment on, and they take very seriously, is around responsible gaming.

[Jay Snowden, CEO and President at PENN Entertainment]

They're putting together a committee within ESPN that will work very closely with the folks that are on our committee here at PENN. We feel like we've got a path forward and a roadmap on how to market to the database in a very responsible way and make sure that those we're marketing to in certain ways, we have age verification completed and all the things that we would typically think about on the gaming side.

[Operator]

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

[Stephen Grambling, Managing Director at Morgan Stanley]

Thanks. many of the other media partnerships, I think, ultimately acquired customers that then lost them, or you saw them dwindle in year 2. How will you measure conversion effectiveness with ESPN and/or track KPIs to ensure that you're acquiring beyond that kind of first test? As a related follow-up, how do the CAC assumptions embedded in your market share projections compare to what you've provided in the past for the digital business?

[Jay Snowden, CEO and President at PENN Entertainment]

Good questions, Stephen. Look, I would say with regard to some of the KPIs, we'll get into more of that at the end of the year in our investor presentation. Again, we're really focused on launch right now. I think we're getting a lot of questions around other media deals. I think it's apples to eggplants. People go to ESPN to consume sports content every day, all day, scores, stats, stories. I mean, they're the best in the world. We're gonna be able to retain people because they love the brand. They have an affinity for it. We're gonna have a best-in-class product, and we're gonna give them every reason in the world to stay in the ecosystem and treat them amazingly well.

[Jay Snowden, CEO and President at PENN Entertainment]

People are going to be going back over and over again to ESPN media assets, and they'll be reminded, in case they forgot, that we're still there. We, we feel great about what our year 2 retention capabilities will be, cross-sell opportunities, such a great brand. With regard to, to CAC, I think we've always been pretty clear that we think that because of our media relationships, that we can run best-in-class customer acquisition costs. I would expect that, you know, the environment right now has been good. We haven't spent into it because we didn't have a competitive product. Now we do, you know, I think the, the environment is, is good. We're, we're seeing customer acquisition costs in that $200-$300 range, in some cases lower, and I think those are pretty healthy levels.

[Jay Snowden, CEO and President at PENN Entertainment]

Assuming that the environment is there or better, I think it gives us a great opportunity to spend and feel good about, you know, LTV and how you're thinking about returns on, on those customer acquisition costs.

[Stephen Grambling, Managing Director at Morgan Stanley]

On that, would you be willing to, if the ROI is there, and the CAC is lower, would you be willing to go above the 5 turns of leverage, or is there a way to get additional capital infused into this to pursue market share more aggressively?

[Jay Snowden, CEO and President at PENN Entertainment]

Yeah, I mean, look, let's, let's wait and see, Stephen. I, I think right now we've got a really good plan that I've laid out for everybody and given you some parameters on how we're thinking about the business. By Investor Day, assuming we do that sometime in December, we'll have been live for, call it, a few weeks, and I think have some really good information to share on how we're thinking about some of the topics that you've raised. I think it would be premature to get into that now. We feel good about the plan in front of us.

[Operator]

Our next question comes from David Katz with Jefferies. Please proceed.

[David Katz, Equity Research Analyst at Jefferies]

Hi, good morning, everyone. Thanks for taking my questions. Congrats on your deal. I wanted to ask, and Jay, I think you talked about this a bit, but I, I wanted to get any thoughts you may have on how, from a product perspective, you're thinking about defining, you know, yours in a differentiated way, right? You know, we've seen over the past, you know, several months to a year, that there are some differences in, in the kinds of offerings and the, the manner in which apps are defining themselves, you know, to, to capture not only share but, but do so profitably.

[Jay Snowden, CEO and President at PENN Entertainment]

Yeah, it's a good question. I think that really the key differentiation for us, medium term, long term, David, is gonna be the things that we can do around integration, media integration, video, and maybe potentially live streaming. There's a lot of things that we can do because of who our partner is here, that others won't be able to do in the same way. I think, you know, there's been a lot of attention, as there should have been, given to same-game parlays and, and, you know, who's best at those. To me, those are gonna end up being largely commoditized because they're betting, betting offerings that we're all gonna be at the same level in a very short period of time.

[Jay Snowden, CEO and President at PENN Entertainment]

There are certain things that we're gonna be able to do because of the media partnership and who ESPN is, that others just won't be able to, to emulate.

[David Katz, Equity Research Analyst at Jefferies]

Understood. And if I may just follow quickly. With respect to the cross-selling opportunities here, have you talked about some of the concentric, you know, circles around customers in one database versus the other? Obviously, one is much, much larger than the other, but how many of your PENN people are ESPN people and/or vice versa?

[Jay Snowden, CEO and President at PENN Entertainment]

We don't have a good feel for that today, David. I'd imagine that there's gonna be some overlap, but, but not a lot. I mean, this is a, this is a huge opportunity to partner with ESPN and, yeah, I think most of it's going to be incremental to what we have today. Frank, if we could maybe just do one more question, that'd be great.

[Operator]

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

[Jason Tilchen, Senior Equity Research Analyst at Canaccord Genuity]

Great. Yeah, thanks for taking the question. I'm just curious in terms of, I know you mentioned market access earlier, specifically when it comes to Connecticut, given Rush Street's plans to exit there, given that ESPN's home state, how you would handicap your chances of obtaining that third license and where in that process you currently stand?

[Jay Snowden, CEO and President at PENN Entertainment]

Yeah, that decision hasn't been made yet, and we obviously would like to be in Connecticut, so we'll see when that decision is made and if we're fortunate to be a new operator in Connecticut. You know, we've talked before about New York. No one loves the tax rate in New York, but there could be opportunities in the short term or medium term to get access to New York creatively. You know, those are things that we're working on behind the scenes. It's like I said earlier, it's really important to be a scale player, to have access to the states that matter.

[Jay Snowden, CEO and President at PENN Entertainment]

I don't think anybody's really making money in New York today, but I think from a database cultivation and hopefully down the road, there's opportunities to work with the state on a win-win scenario between the state and the operators to have a more favorable operating environment there. Those are things that we're gonna be, you know, working on behind the scenes, and we'll keep everyone posted with regard to how we're thinking about market access. We could have some updates potentially by the time we have our Investor Day.

[Jason Tilchen, Senior Equity Research Analyst at Canaccord Genuity]

Great. Thank you.

[Jay Snowden, CEO and President at PENN Entertainment]

All right, thank you, everyone, for joining this morning. Very excited, look forward to continuing to connect with you on this, what we view to be such an amazing strategic alliance, and the future looks bright. Look forward to continuing to talk. Thanks for spending time with us this morning and for all the analysts for having great questions, as always. We'll talk to you soon.

[Operator]

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day, everyone.

Participants

Executives

• Jay Snowden, CEO and President
• Todd George, EVP of Operations

Analysts

• Joe Jaffoni, President of Investor Relations at JCIR
• Barry Jonas, Managing Director and Senior Equity Analyst at Truist Securities
• Carlo Santarelli, Analyst at Deutsche Bank
• Bernie McTernan, Senior Analyst at Needham
• Chad Beynon, Managing Director and Senior Analyst at Macquarie
• Joe Greff, Managing Director and Senior Equity Research Analyst at JP Morgan
• Ryan Sigdahl, Senior Research Analyst at Craig-Hallum Capital
• Shaun Kelley, Managing Director and Senior Research Analyst at Bank of America
• Steve Wieczynski, Managing Director at Stifel
• Joe Stauff, Analyst at Susquehanna
• Brandt Montour, Analyst at Barclays
• John DeCree, Managing Director at CBRE
• Stephen Grambling, Managing Director at Morgan Stanley
• David Katz, Equity Research Analyst at Jefferies
• Jason Tilchen, Senior Equity Research Analyst at Canaccord Genuity