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Penn National Gaming bounces back with record earnings in Q3


Penn National Gaming saw revenue decline 16.6% in Q3, though earnings reached record highs as the business emphatically bounced back from the novel coronavirus (Covid-19) pandemic and launched its Barstool Sportsbook product.

The three months to 30 September represented a significant improvement on the second quarter of the year, when revenue fell 76.9% to $305.5m and the business posted a $213.9m loss.

Of Penn’s $1.13bn in revenue, $993.6m came from gaming, down 8.7% from Q3 of 2019.

A further $136.1m in revenue came from food, beverages, hotels and other income, down 47.9% year-on-year.

These revenue figures included activity from the first two weeks of Penn National Gaming’s Barstool Sportsbook product. The app was launched on 18 September after the operator acquired a 36% stake in media business Barstool Sports.

In September, players wagered a combined $29.9m on the Barstool sportsbook app, which posted a $700,000 loss for the period. This widened to $2.8m, after factoring in $2.2m in promotional credits awarded to payers during the month.

The Pennsylvania sports betting market as a whole brought in $6.3m in September despite bets of $462.8m as Barstool was one of many operators hit by poor margins.

Looking at revenue by region, Penn National’s operations in the Northeast brought in just under half of group revenue, at $545.1m, down 13.3%.

The South segment, meanwhile, saw the most stable revenue despite an extremely active hurricane season impacting the Mississippi Delta area, following a 7.6% decline to $255.6m. The Midwest segment followed with $229.1m, down 16.9%.

The Western region, including properties in Las Vegas, continued to struggle with the pandemic, the operator noted, which saw revenue fall 51.3% to $78.7m.

Operating expenses, meanwhile, came to $933.5m. Just under half of this came from gaming-related outgoings, at $458.1m, down 22.1%. Food, beverage, hotel and other costs of sales came to $70.1m, down 59.1%.

General and administrative revenue was up 2.3% to $317.6m, while depreciation and amortisation costs were down 18.9% to $87.7m.

This resulted in an operating profit of $196.2m, up 8.9%.

The operator’s earnings before interest, tax, depreciation and amortisation (EBITDA) came to $343.6m, up 10.3%. Earnings before interest, tax, depreciation amortisation and rent (EBITDAR) was a record $452.6m, up 11.0%.

Penn National Gaming chief executive Jay Snowden said this was particularly impressive given the continued effects of the pandemic.

“I am pleased to report that our property, interactive, and corporate management teams generated strong third quarter revenues, as well as all time quarterly record adjusted EBITDAR and adjusted EBITDAR margins, despite the continuation of social distancing and capacity constraints at all of our reopened properties,” Snowden said.

“The current operating environment has demonstrated the resilience of our teams and operations as we’ve made significant modifications to our business model to respond to the new volumes, offerings, and ongoing restrictions.” 

The business paid an additional $142.3m in interest expenses, up 6.6%, but made $5.0m (down 48.5%) from unconsolidated affiliates in which it holds a stake, and $68.0m (up 844.4%) from other sources.

This resulted in a pre-tax profit of $126.9m, almost exactly double Q3 of 2019’s profit before tax.

After receiving a $14.3m tax benefit, Penn National Gaming made a profit of $141.2m, up 223.1%.

After adjusting for losses attributable to noncontrolling interests, Penn’s Q3 net profit jumped 223.1% to $141.9m.

For the period from the end of Q3 to October 24, the Barstool sportsbook app recorded handle of $48.4m, gross gaming revenue of $4.5m and net gaming revenue of $3.1m after $1.4m in bonuses. Snowden said the entire portfolio, not just that sportsbook, has had a strong start to Q4.

“As we look ahead, we continue to see solid results across the portfolio in October, which is being driven not only by our margin improvement, but also our sustained revenue performance as we have continued to manage the ongoing Covid-19 restrictions,” he said. “In sum, we believe we can close out the year with positive momentum.”

During the quarter, the business also released its MyChoice-branded social casino app, powered by GAN’s Simulated Gaming product. The app is integrated with Penn’s MyChoice player loyalty program, which has 20m members.

However, with its Western segment still struggling, the business also notified the Nevada Department of Employment, Training and Rehabilitation of 620 layoffs to take place at its Tropicana Las Vegas location, as well as 58 additional redundancies at the M Resort, which came on top of 352 announced in the second quarter.

It said that one reason for these layoffs was that it “could not have anticipated… how restrictive the new operating conditions would be” after casinos were permitted to reopen from June 4.

At the end of the quarter, the operator announced that it raised $982.1m – to be used to fund its online betting and gaming expansion plans – through a public offering of shares.