Q3 2019 Earnings Call
During the presentation, all participants will be and they listen only mode. Afterwards, we will conduct a question answer session at that time. If you have a question. Please press the one followed by the four on your telephone.
But anytime during the conference you need to reach an operator, Please press star zero.
I'd now like to turn the conference over to Mr., Georgia, Tony Investor Relations. Please go ahead.
Thank you can be good good morning, everyone and thank you for joining Penn National Gaming 2019 third quarter Conference call, we'll get to management's presentation comments momentarily as was your questions and answers. The first I'll review the safe Harbor disclosure.
In addition to historical facts or statements of current conditions. Today's conference call contains forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, which involve risks and uncertainties.
Inch developments acquisitions capital expenditures and operating results.
Such forward looking statements reflect the company's current expectations and beliefs, but are not guarantees of future performance.
As such actual results may vary materially from expectations.
The risks and uncertainties associated with the forward looking statements are described in today's news announcement and the company's filings with the Securities Exchange Commission, including the company's reports on Form 10-K and 10-Q.
The National assumes no obligation to publicly update or revise any forward looking statements.
Today's call a webcast will include non-GAAP financial measures within the meaning of FCC regulation G.
Required a reconciliation of all non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with gap can be found in today's press release as well as on the company's website.
That it's now my pleasure to turn the call over to the company CEO , Tim Wilmott Tim.
Thank you Joe Good morning, and welcome to a more third quarter 2019, <unk> earnings call.
After I provide my introductory comments it will be followed by.
Our Chief operating Officer, Jay Snowden, and then our Chief Financial Officer, BJ fair to provide a their respective comment.
First I'd like to talk about our third quarter performance.
We delivered EBITDAR about 407.9 million again against guidance of 408.8 million.
The 900000 dollar offset is primarily driven by the performance of our Plainridge Park license.
Given the effect of heavy promotional spending we're seeing out of our new competitor in a in Boston.
We had slightly less EBITDAR results out of about Plainridge park than we expected when we provide guidance other than that we had a very solid third quarter and in fact, if you look at our.
EBITDA margins, we delivered 800 basis point improvement year over year on a on a profit results.
I did want to highlight operationally and Jay is going to give more color. After me that we certainly are seeing a trend that we've reflected now when our third quarter results in our fourth quarter guidance.
That we continue especially in our newly acquired properties.
Refine our marketing reinvestment at the lower end of our rated segment.
And the result is been.
Lower revenues than we expected, but improved profitability. So that's why we provided guidance in the fourth quarter on the net revenue side below what we previously provided but maintained.
Moving onto an update on pinnacle synergies they remain unchanged 120 million in cost synergies have to be realized the 19 and the other half in 2020.
Revenue synergies between 15 and $20 million to be realized in 2020 and 2021.
All of our newly acquired properties with the exception of Greektown, which will be in the first quarter up 2020.
And they have proven to be a very successful openings at all three of those locations.
A couple of weeks ago, we opened up our retail sportsbook at the Meadows casino in Western Pennsylvania.
And we also in the third quarter launched or I casino product real real money gaming.
Internet product in Pennsylvania, with encouraging early market share results I.
I would want to caution given the high tax rates in Pennsylvania that they'll have modest EBITDA results, but we did successfully launched that product in the third quarter.
Also in Pennsylvania, we continue on the category for a casino development in Morgantown were under construction seal is up in the air.
And we'll begin construction in York, Pennsylvania, very very shortly.
Both of those category for.
Elements.
Our expected to open in the fourth quarter of 2020 and to remind everyone that combined investment for both is about $230 million and that's inclusive of the licensees, we've already paid to state of Pennsylvania.
Please to report that we reduce traditional debt by almost $100 million in the third quarter of this year.
Our leverage on traditional net debt is now 2.5 at the end of the third quarter.
And our lease adjusted leverage is now 5.6, as we continue to work our way down too.
The low fives 5.0 by the end of 2020.
I'll be back to answer your questions. The audience may have a after we hear comments now from JMP Jay Jay.
Moving to a couple of Mychoice updates as well as database trends might twice as Tim mentioned is now live across all of our regional assets with the exception to greet town, which is coming soon and 2020.
My choice is also why it and fully integrated all of our retail sports books in West, Virginia, Pennsylvania, Indiana in Iowa, as well as with our real money gaming I casino product in Pennsylvania, Hollywood Casino Dot Com and we believe this is helping to drive impressive early result in trial in all cases.
Database trends in the third quarter were consistent with prior quarters spend per visit was higher year over year across all of our worth segments visitation was softer at the low end worth segments due to our continued focus on profitability, while solid everywhere else.
Now transitioning some more detail on sports betting and the sports books that we have been open now for over a year such as our Charles town property in West, Virginia, We're seeing significant year over year growth over 50% and sports betting handle and when do the first two months the football season, though I would note last night was not kind to us that Charles town with the local Washington.
The introduction of Sportsbook to know enterprise has not had a noticeable impact on our slot business. However, the opposite of certainly true with regard to table games, our properties that have been live with retail sports box in the last 15 months have experienced an average of 15% one 515% year over year growth and table game revenue post launch.
Food and beverage covers and revenues have also been positively impacted at the properties and perhaps most encouraging it's how complimentary an incremental this sports betting demographic has been to the profile of the vast majority of the customers in our existing retail casino database in fact, most of the table games and food and beverage growth at these properties has been driven by.
Hi, visitation and spend from new and reactivated guest to our properties.
And finally, while still early we're pleased with our initial market share results with our I casino product in Pennsylvania. We were the first to go live and we are fully integrated with our player affinity program. My choice. So you can now earn bank ports and redeemed your point.
Give me a <unk> online we're at our retail casinos across the country.
Though the high tax rates and online casino business in Pennsylvania, and make it extremely difficult to generate profits as Tim mentioned, we have been one of the early market share leaders, while maintaining tremendous marketing promotional on reinvestment discipline, which we will continue to deal.
With that I'll turn it over to BJ.
Thanks, Jay Good morning, everyone before I provide an update to our guidance I wanted to address an item that changed in our earnings presentation.
We will no longer be utilizing the adjusted EBITDA after lease payments metrics. This is primarily an internal performance metric utilized by the company.
We are still providing and guiding to adjusted EBITDAR, which is consistent with our past practices and it's consistent with other gaming companies that have triple net leases.
We will also continue to provide you with the total amount of cash payments made to our re landlords. There's been no change in the composition of the reporting segments in our EBITDAR reporting and at the segment level EBITDA reporting is consistent with past practices. So one of the guidance the detailed fourth quarter guidance and updated full 10 2019 guidance is income.
The updated revenue guidance for the full year has been reduced to $5.311 billion decrease reflects the refinements to our marketing reinvestment strategy is targeted at the lower segments of our database discussed by Tim and Jay that result in lower revenues without impacting profitability.
The adjusted EBITDAR for the full year is estimated to be $1.6 billion. We are reaffirming our fourth quarter guidance outlined on our last call combined with our year to date results through the third quarter.
Our total lease payments for the year, including Threeg LPI leases and the two vg leases are forecast to be $870 million.
As we previously reported we expect to incur a full escalation in November under the pen mass release of which $900000 will be incurred in 2019.
We address the allocations.
Parties have come to an agreement on the treatment of these expenses for the prior lease year, which will result in an increase of the coverage ratio to 1.81, which will require which will equate to an increase in the lease payment of just under $1 million, which $650000 will occur in 2019.
As of the completion of the metals lease year on 930, 19, we incurred full escalator of $752000 of which $188000 would be realized in 2019.
The implied trailing 12 month rent coverages as of 930 19 for the GLP I leases are as follows depend master lease was 1.91.
The amended Pinnacle Master lease was 1.75 and the metals lease was 2.06.
Free cash flow generation for the years estimated to be $413 million and net free cash flow after mandatory debt payments and other obligations as it is expected to be $324 million.
The increase in our free cash flow from last period is almost entirely due to a reduction in maintenance Capex expenses were completion or payment of some projects will just pushed in next year.
Thanks BJ.
Operator, we're now we're now ready to take questions from the audience.
Thank you.
I would like to register a question. Please press star one followed by the four on your telephone you will hear a three timeframes to acknowledge your request. If your question has been answered and you would like to withdraw your registration. Please press star one followed by the Curry.
One moment please for our first question.
Our first question is from the line of Carlo Santarelli with Deutsche Bank. Please proceed with your question.
Hey, everybody good morning.
I know you guys provided a little bit of color on kind of the marketing refinements and whatnot, but if we look at your combined results from last year and your results presented this quarter on an apples to apples basis and make some small adjustments for casino Rama it looks like your margins improved about a 180 basis point.
Year over year.
I was wondering if maybe you could talk a little bit about how much of that has to do with some of the other things that you have going on.
And relative to kind of the marketing refinements that you're making.
And maybe how much meadows in the quarter.
Sure thing Carlo.
The majority of what you're seeing on the margin improvement and the incremental EBITDA year over year, certainly due to the synergies that we've been working on.
There is a portion beyond the synergies that has been completely related to our efforts on continuing to refine our marketing reinvestment and drive more profitable visitation to our properties at those less than 100 dollar average daily theoretical worth segments.
So it's really those are that those are the two components and certainly more skewed toward synergies, but both are certainly having a positive impact on overall.
George and improvement on a year over year basis, when you look apples to apples.
With regard to sorry, the headwind I called them out during my introductory comments meadows construction disruption and we probably should have mentioned that previously we're investing over the course of this year about $10 million and casino in food and beverage entertainment as well as a retail sportsbook additions to the pro.
The meadows the flooding with route in regard to tropical storm Imelda in Houston impacted our Lake Charles property continued flooding impacted Council bluffs, and then of course the impact that plainridge.
He is one of those run in the range of one and a half the two and a half million dollars of impact most of those are one time specific to the third quarter.
Plainridge as a TBD as we continue to see what adjustments encore makes as we move forward.
Sorry, I said that I was I would actually.
It furthering on kind of the Plainridge stuff have you seen obviously in the industry Q levers there were challenges and quite a bit of promotional activity.
Have you seen that start to dissipate a little bit here more recently or does that remain pretty steady.
It's been steady Unfortunately, Carl I wish the answer is different and we were optimistic that it will be different soon it's hard to imagine that these are reinvestment levels that are sustainable when you're focused on driving profits. So but that's what I have today certainly what we've seen since they've opened as they've really Ella.
Data at the levels of marketing reinvestment in the marketplace and we'll see what happens in the fourth quarter and as we head into 2020.
Great, Thanks, Jay and Tim and BJ congratulations.
Thanks Carl.
Really from a location perspective.
Should remain your customers given the amount of time, it would take to negotiate Boston traffic.
We had anticipated that the impact from encore to our Plainridge facility would be somewhere in the range of 10 to low teen percentage on the topline it's been closer to 20% as you've seen from the publicly reported numbers and we've actually done quite well in terms of retention with our known.
Database customers the customers that we have lost in a more significant percentage had been the customers that were unrated.
And that is largely due to the significant offers that I think are being flooded in the market right now to visit encore in its first few months. So we'll see how the how that unrated business settles out over the coming quarters, but we're actually quite pleased with our retention on the on the database side, but overall the impact has been more significant than we anticipated.
Do you think that it's reached a stabilized.
Level.
Yes.
Well, we have not seen that level of reinvestment increase to answer your question over the last couple of months, but we have also not seeing it declined. So at this point. We're just we're sort of looking at the reinvestment levels month by month, we have not seen any noticeable material change and approach since opening.
My second question.
Given the amount of given your focus on on on paying down traditional debt.
Assuming no no recession. It's conceivable you you could be you could have no net debt by year end 2021, or very little is that a is that a fair estimate.
I mean, yes, I think that once we.
As you continue to pay down pass or 5.0 will be as two on in traditional dead, just a little over one and half and I think is that point, we would have to make a determination based upon executive stock prices and what else was what the appropriate use for capital is but the answer is yes from Merck had free cash flow generation, we could literally if we apply to all of our free cash flow to that.
I think domestic areas, we know what we want to do between now and the end of 2020.
That would give us an opportunity at that point to to make a determination and provide some direction at that time, where we think thats use of our free cash flow will be.
So far be it for me to lead the witness.
But.
Your free cash flow yield is over 15%.
Do you have any preference.
Yes.
As to how best to increase shareholder value.
Given that that your your free cash flow per share could be approaching four bucks a share by the time, we get to 2021.
Well, we hope we hope Perry that through our de leveraging activities over the next four or five quarters.
That will be recognized by the investment community and our share price will reflect that de leveraged balance sheet.
And our free cash flow yield will be below 15% what it is today.
Okay very good thanks, very much guys.
Thanks, Eric.
Thank you.
Our next question is from the line of Jared Cheyenne with Wolfe Research. Please proceed with your question.
Hey, good morning, everyone. Thanks for taking my question.
First question just on Gionee stepped up by a decent amount sequentially can you talk about what's driving that and I.
I guess going forward do you think theres any cost opportunities on the DNA side.
Okay can you repeat the question Jared I mean, it was broken up a little bit at the beginning.
Sure sorry, Yeah. The question is on the GE in a in the quarter stepped up a little bit sequentially can you talk about what's driving that and going forward do you see any opportunities to reduce this.
Sure I think.
Our corporate DNA to take a look on a pro forma basis on the combined between the two companies I think that we actually are down a little bit sequentially sequentially on a quarter over quarter basis.
Okay, Yeah, well I'll follow up offline. So I want to ask then about the south segment, which was.
Really strong despite some of the whether that you talked about he can you just talked about that and then specifically is as you look at I guess, Louisiana and Mississippi in that segment.
Right now, Mississippi, I think is performing quite well can you talk about what you're seeing in Louisiana do you think mississippi's taking market share because of sports betting right now.
It's good question Jared we're seeing.
Improved results in both states, so I would lean toward that's not what's occurring here.
You look at the South region property by property in the third quarter, what the exception of Lake Charles which as you know has been impacted by the 210 bridge construction, which concludes in December .
The rest the properties showed meaningful growth.
Topline and bottom line. So we just had a really strong quarter, both in Louisiana and Mississippi. It helps that we have now anniversaried as you know the smoking ban in Baton Rouge Baton Rouge results have been very good for US Margaritaville acquisition has been terrific and our properties in Mississippi, even some of the the more legacy Penn properties that have.
In in markets that have not been growing we've been taking profitably taking market share tunica, probably being the best example, as you know we unfortunately had to close one of our three properties there, but the other two have really picked up that business and then so we're pleased with the results across Louisiana and Mississippi.
All right. Thank you.
Thank you.
Our next question from the line of Chill craft with JP Morgan. Please proceed with your question.
Good morning, everybody.
Two quick questions. One Jay you, but can you talk for a while now with that.
Lower net worth that hundred dollar ATP player.
In reducing those unprofitable visits.
Yes to the mid teens level from 22% any potentially going to the high single digit I was just hoping if you continue to make progress there and you go to that sort of high single digit percentage, what does that mean in terms of incremental EBITDA and then my second question.
Relates to balance sheet and then maybe.
Taking advantage of the troponin and PSG and maybe looking at some.
One or both.
At means to further reduce balance sheet leverage outside of just taken internally generated free cash flow to pay down debt can you update us your thinking on those two specific areas and maybe a timetable which that thinking they have evolved to the point, where you take action. That's all for me. Thank you.
Sure. Thanks, Joe.
Good question look I I hesitate to quantify the impact of taking those percentages down.
To the high single digits simply because it's a continued work in progress and I don't have an exact timeline for when that will occur we're setting goals at this point and as you as you just recounted we were at the low 20% in terms of unprofitability for visitation at those low worth segments. We've got.
That now down into the mid teens, and we certainly set goals to get into the high single digits, we continue to make progress.
It's a process than every market is a bit different in the tweaks that you are making to reinvestment approach promotional spend are different in different parts of our portfolio. So.
I don't want to place a value or a timeline on that other than to say, we're working on it and you're going to continue to see progress continuous improvement in that area.
With regards to the balance sheet and potentially accelerating the deleverage story that Tim and I have been talking about now for the last couple of quarters, but we have a couple of.
Wholly owned very valuable assets in our portfolio that we believe are not appropriately valued in our share price today and there have been recent transactions both in Las Vegas on the strip as well as in the route operation business in Illinois at very attractive multiples.
And in both cases, and so we continue to receive some unsolicited interest and Prairie state gaming as well as some of the land holdings that we have in Las Vegas at Tropicana and so we're continuing to engage in those conversations we'll see where they take us we're encouraged by some of those.
Ends, but nothing has done until it's done and but we would certainly consider if anything were to materialize in either of those cases to continue to de lever.
Faster than what we've laid out of getting our leverage down to five times on a lease adjusted basis by the end of 2020 and Joe given the fluidity of these discussions it's impossible to put any kind of timetable on this.
If something does obviously come to to a conclusion, we will certainly we'll certainly get that information out as quickly as we can but it's it's as I said a fluid process.
Understood. Thanks, guys.
Thank you.
Next question is from the line of Felicia Hendrix with Barclays. Please proceed with your question.
Hi, good morning.
Jason This is one of your if this is your last one I'll start with you.
And just on the on the topic of leverage and if I'm correct. It looks like you've changed the objective fees improved it because from five to five and a half an hour five.
So thats not in significant change I was just wondering if you could just walk through that walk through your confidence to get to that level.
And then, especially just given some of the.
Commitments that you have particularly gross capex these in Pennsylvania.
Things like that.
I should highlight Felicia. This is my last call, but BJ, you're going to have the pleasure pure and one more call in the first quarter from Mr. Fair I did have the opportunities last call to say nice thing. So generally all goes around right.
Thanks Felicia.
No.
Okay.
Yes.
Okay.
Question.
Oh I'm, sorry, obviously, we caught me off and I was looking at some of the confidence of going from 5.5 down to five though I think we remain confident we've always said thats been our target goal that's been out there.
And as we continue to look at and we've been focusing on the de levering, we do feel very confident to be able to get down to 5.0 level were 5.6 right now as we continue on with the next few quarters continued de levering.
We'll be well below that and so I think we just really wanted to be targeting to the to the street is we're very serious about the de levering getting our balance sheet in order and 5.0 is something we feel very achievable about getting by the end of 2020 and is consistent with as Jay just said all the things we've been talking about previously I think Felicia, we continue to get feedback from it.
Theres in potential investors.
About the concerns about potential recessionary pressures on our operating model and.
That's why we're now very specific that we want to get down by the end of 2020 to 5.0 to continue to de risk our balance sheet in light of those investor concerns.
Okay, that's fair and helpful. Thank you and Tim.
His for you.
On the on the guidance.
Thank you said in your prepared remarks that the reduction in revenues. This data on refining your marketing that you've been very clear on that but im just wondering I think thats, probably something you are already doing in July . So when you get prior guidance Im just wondering what's changed between now and then.
Yes, I think we probably should have said something previously because we saw those trends and.
We should have signal there was going to be change in the net revenue numbers.
And we Didnt.
We're now absolutely certain that this is the direction, but we certainly should have considered that back on our prior call three months ago.
Okay Alright helpful. Thank you and good luck to both of you.
Thanks Felicia.
Thank you.
Our next question is from the line Steve's question ski with Stifel. Please proceed with your question.
Hey, good morning, guys what.
A follow up to that after the last question if we just had.
But but in some of your marketing reinvestment and I understand you're not going to give any type of 2020 guidance at this point, but you know just just wondering if you can give some high level thoughts heading into next year and I assume you guys are expect any material changes one way or the other around.
Your core customer, but should we think about your top line a little bit more conservatively next year because of these changes around your marketing reinvestment.
Steve It's a great question and we're continuing to learn as we go and work through our models. This is something that has been a significant focus of ours. As you know from most of 2019 and I do anticipate it will continue into 2020, so I feel comfortable that 2002.
Many.
EBITDAR will not be impacted by these efforts in a negative way.
But in terms of what you may have modeled from a revenue standpoint, you'll probably see a continuation of what what you have seen the last three or four quarters from Penn National gaming.
Okay got your thanks, Jay and then I'm wondering about your commentary around the trop end.
You talked about a possible moneta monetization of.
The land or even up an outright sale, but.
I guess the question would be just want to get a better sense of how you guys. Thank you would fare without a.
Without a strip asset under your umbrella and I guess, what I'm getting at is your narrative a couple of years ago was all around.
Needing a strip asset and this new strategy, just seems like a little bit about different approach.
Sure, Steve I would call it an evolution of our thought process. It doesnt mean that the hub and spoke model Las Vegas strip with regional assets across the country is flawed. We don't think its flawed, we think that it does it still makes sense that said.
Given this convergence of interactive between sports betting and I casino, which is quickly put proliferating across the country. We think that it's going to be even more important for us to have a very localized omnichannel approach.
Where you're engaging with gas both digitally as well as in brick and mortar casino. So it doesn't mean that the Las Vegas hub and spoke won't work or or isn't working it just means that we believe that we're going to be very focused on moving customers around our network and that's going to happen at a more local level across our 40 proper.
Ladies and 19 different states and across the interactive activities that were offering our customers in the markets, where it's legal.
Okay Gotcha. Thanks for the color appreciate it guys.
Thank you.
Our next question is from the line if David Katz with Jefferies. Please proceed with your question.
Hi, I'm discuss annually at Jefferies asking for David.
Can you help me painting the picture.
Okay investments in sports betting Igaming technology.
What does it looks like going forward and maybe.
Talk about.
How do you see yourself position, given how competitive sports betting is getting.
Sure I don't have much to share in terms of color of on investments that we have or will be making in our interactive offerings.
Hey tuned in to be determined nothing to share at this at this point in time, we do recognize that.
We have an opportunity obviously, having kept that primary scanner license in each of the 19 states, where we operate under our own control and one thing that we also recognize at Penn is that we don't have a sports brand to lead with we have great casino brands, but we don't have a sports relevant brand.
Today, and so we've been in.
Conversations continue to be in conversations with a number of potential sports media partners and we're encouraged by where some of those conversations are going nothing to share at this point as Tim mentioned those conversations are fluid as they are with Tropicana and Prairie state gaming so more to competency in the future, but we do envision.
Having partners potentially that we will be thinking about how we can engage with their their customers who are sports enthusiasts. At this point and then of course once they become part of our sports betting database to introduce them to our casino products as well.
Alright, Thank you very much.
Thank you.
Our next question is from the line of Thomas Allen with Morgan Stanley . Please proceed with your question.
Hi, Thanks.
So just thinking through 2020 in respecting that you'd said, we don't give guidance till next quarter can you just help us with some of the puts and takes the more idiosyncratic things are happening. So for example, I know you're gonna have some road closure issues around Charles town. Any can you just highlight that and then anything else that we should be thinking about.
They could we potentially impacting the growth in 2020. Thank you.
The only two notable worth mentioning I think at this point, Tom mentioned again will come with a lot more detail in February when we're providing guidance for 2020 would be the introduction of the new monarch expansion and the Black Hawk market and continued impact it's difficult at this point to gauge what that impact is going.
Tends to be in Massachusetts, with encores current approach in the marketplace.
Im not sure what you are referencing about road construction Theres. Some some minor road construction from northern Virginia to the south of the property.
But we have not gotten any indication of that is going to be extremely disruptive.
Maybe more to come but nothing at this point. We also have the completion of the 210 bridge down in the Lake Charles market, which should be a positive for us going into 2020 as Jay mentioned before we'll have completed all of the work at the Meadows and early part in November so the less.
I will have construction disruption that we've seen in the third quarter.
Should be a positive impact fully improvements were making it the meadows like I said there will be finished very very shortly the only thing that is added to that which again. We did not include in our fourth quarter guidance can you just don't know yet is.
The large hitting the bridge work done in coming out of.
Since into a coming out of Houston, So that was something that we just we just don't know what potential impacts and that would be.
The only other thing Thomas I'll say about 2020 is I don't think been for most cases, we're not going to be absorbing any new competitive.
Supply other than the monarch improvements.
In Colorado, everything else should be fairly stable supply situation in the markets we operated.
Thanks, just a follow up on that I mean, there's obviously some expansion on historical racing any anything that we should think about.
Risk on that.
Not in any of our key markets at this point I know that Churchill has announced potentially doing something outside of Cincinnati on the Kentucky side of the state line.
But I don't have any indication as to whether that would be a 2020 opening or impact you may know more about that than we do at this point.
All helpful. Thank you.
Thank you.
Our next question is from the line as Barry Jonas with Suntrust. Please proceed with your question.
Hi, guys just for starters, a clarification on the implied want to Q4 guidance you removed wording around that impact from the monarch expansion given that projects delayed. So is there upside just from that delay relative to your guidance and is that somewhat offset by.
Maybe continued softness plainridge.
I think Barry that's the right way to think about it.
We now have laid latest information is that the monarch expansion will open sometime in late Q1. So thats why we took it out of our guidance detail for fourth quarter 2019, but yes. At this point, we're still trying to really get our hands around what the impact long term longer term is going to be at plainridge with encores current spending less.
Yes.
Great and then just.
You talked a little bit about potential media partnerships for that first scan we've seen some competitors using various partnership structures I'm guessing. This is fluid, but just kind of have any preference in terms of how to structure. This potential partnership.
Yes, Great question, Barry we've been.
We're students on this as well we've been reading about these other partnerships. The Devil is always in the details and some you can learn more about than others from press releases.
I'd tell you that the way, we're thinking about a potential sports media relationship is that we want it to be fully integrated and in an ideal scenario, you've got aligned incentives and mutual skin in the game to drive long term success.
So you can take from that what you will but we're not looking to just announced an advertising deal with a big media company, that's not our preferred route.
Great and then just lastly, conceptually you know clearly we see some states.
Legalize retail, but also mobile and a lot of states only retail for the time being how do you think about that mobile.
About the mobile sports betting opportunity to help drive players to your land base casinos scores it really just separate business model altogether.
I would point to what's happened in the state of New Jersey, where online casinos.
Well online casino has now been legal for close to five years.
And online sports has been legal for about 15, or 16 months and what you see over the course of the first five years of online casino in New Jersey is that though it started off with a lower base around a 175 million in the first year of revenue, it's been growing at about 20% per year and the commentary from the operators and Atlantic.
City is that growth has not come at the expense of their brick and mortar casinos, it's been incremental and then what you've seen over the last 15 months in sports betting was legalize both retail and mobile in New Jersey as that there was a positive impact to online casino as well and that 20% compounded.
Annual growth rate move to 55, almost 60% over the last 12 month. So I think what that would tell you is that mobile sports betting is a great opportunity.
In terms of it being an acquisition tool you can certainly make money if the tax rate in the license fees are reasonable, but also the becomes an acquisition tool and then you're in the process introducing those newer customers that tend to skew younger and more mail that maybe your typical casino retail database customer.
And they're engaging with table game products for the most part blackjack relax crap, both online as well as back in the brick and mortar casinos and that New Jersey motto is the one that we are certainly most excited about because if you extrapolate what you've seen from New Jersey, and again, you have to make a lot of assumptions around what states legal.
Sports betting is that retail only online retail and then eventually is there an online casino legalization, but I think you see what the potential could be if you have the right sports betting both retail and mobile products and strategy and how that can positively impact your casino results as well.
Great. Thank you so much.
Thank you.
Our next question is from the line of Shaun Kelley with Bank of America. Please proceed with your question.
Hi, good morning, everyone.
I just wanted to go back sort of maybe the broader shift in some of the promotional activity.
So if we look at maybe maybe one way to think about this is if we looked at the change in revenue guidance for kind of full year estimate that you guys gave before.
It sounds like there are some pluses and minuses for the last question on what your expectations were from monarch relative to.
So the incremental softness and Plainridge. So is it fair to assume that most of the revenue change or revenue Delta that you made in the full year.
Revenue guidance is really just from this kind of promotional tweaking and obviously sacrificing are changing revenue for margin I think thats the way you characterize that.
You're exactly right John .
Jay the real question is this.
And I do the math on that it would imply something like maybe 1% to 2% type Gigi are impacted.
It could it be that significant is that the type of level, we're seeing across the portfolio at this stage because really what I'm trying to get my arms around is why let's call. It core same store sales at this point any kind of consumer cycle aren't actually little bit better in across regions. The regional gaming landscape and if if it wasn't 1% to 2% headwind that would sort.
Bridge, a lot for me and probably for some other investors as well, but trying to kind of put a number around that.
Yeah, I think your range is probably pretty.
Pretty good Shaw and probably more toward the lower end of that range, meaning maybe a one closer to a 1% impact to same store sales growth and what I would continue to ask everyone to focus on is that when you look at the database results.
We're continuing to see growth in both visitation and spend per visit in the segments, where the whole 80, 20 rule, where you make the majority of your profits.
Visitation and overall behavior has been very positive and consistent over the last several years and what's impacting the same store sales growth figure that you are referencing that potential impact is really at the low end worth segments, where we just generated too many unprofitable visits and I think we've been talking about.
Thats for several quarters, I think you're starting to hear some of our competitors talk about this as well theres an opportunity and we're in the middle innings. Here. This is not toward the late innings to continue to move those visits to either become profitable visits or in some cases to eliminate some of those visits were not in the business a firing customers. If they are unprofitable that's that's our fault and.
So we just we're continuing to look at how we de layer offers and maybe a customer that was coming three times a month, but two of those visits run profitable we'd much prefer that customer visit once or twice a month, knowing that they're going to be profitable visits when they do come in that Theres still offers we can send them that were really the ones that motivated their trip in the first place and maybe pull back on the one.
That were less motivating, but we're certainly hurting and eroding the margins. So I think your and continue to hear this story from us and likely our competitors and regional gaming.
Great. Thanks, Jay and then.
Last thing for me it would be kind of did a little bit of supply overview on one area. That's obviously in flux is what's going on in Illinois and show on could you can update on I think some of the jurisdictions are starting to do RFP is at least but I think the ones that are most impactful to tens portfolio may not be at that stage. Yet can you just give us kind of a quick.
Update and timeline on what your expectations are and Illinois for new supply.
Sean This is Tim the.
The communities are now in the process of providing.
Their preferred developers to the Illinois Gaming Board right now in the gaming Board.
From what I understand has a fair amount of time to make decisions on where the licenses licenses are going to go into to whom.
So we don't expect any of this new potential supply in the Illinois, Chicago land market to affect us in 2020.
We'll likelihood it'll be 2021 and beyond.
We'll know more I think probably in six months from now and as you know.
Theres been some discussion that they have to go back in Springfield to amend the economic model that they messed up in the city of Chicago, and that's probably going to occur sometime next year as well. So the Chicago Casino I think is going to be far more in the distance then these.
Potential.
Additional riverboat licenses or slots at racetrack, so that's our leased or read on it now that it's going to be a.
Post 2020.
Great. Thank you everyone.
Thank you.
Our next question is from the line as John to Crane, receiving in gaming. Please proceed with your question.
Good morning, everyone. Thanks for taking my question.
I think you've probably talked about your marketing reinvestment.
Program at length about us open to ask from a different angle, but.
When we talk with investors, yes, Theres certainly some concern that the cutback on these unprofitable customers are just marketing reinvestment could.
Ultimately have a lasting or negative.
Packed in a long run I was wondering if you could talk a little bit about what you're seeing from the customers that at the lower tiers of your database. When you do cutback committed those customers still coming are they going away for a while and then coming back on their own merits I was wondering maybe it's too soon to have any consistent data, but just your thoughts on on that idea.
Yes, John it's a good question and I understand the concern from from the outside looking in I would tell you that theres two things that we continue to look at its very important metrics or leading indicators as we make these marketing refinements. One is are we losing customers and the answer to that as Jeff.
Really no we're not losing customers. We're just we're seeing declines in visitation, but theres still visiting.
When they visit they are coming with less offers because we've made some some some tweaks and our overall promotional and reinvestment strategy with them and when they come that trip tends to be more profitable than it was historically. So that's important is to continue to look at are you losing customers from your database or are you just.
Changing the visitation patterns.
And then number two were continuing to see healthy growth in our unrated segments. So some of the customers, who maybe have decided that going from two or three offers down to one.
Maybe they're not redeeming the offer that we're sending them. So we're obviously working on making sure. We've got the right offer in their hand that motivates the visit but we also are seeing some of that low end rated business.
Transition into unrated and so that would tell you that they still do.
They look at that does a form of entertainment and they're still frequency in the casinos and that unrated segment growth is something that I share on these calls every quarter and we look out because it's very important I think the speak to the general health of the business as well as the consumers that you're moving from maybe lower worth rated and unrated.
That's really helpful. Additional color thanks, Jay that one follow up on the.
Volume's, you're seeing from the retail sports books, I think you've mentioned in your prepared remarks, the uplift in tables FNB.
Given that that sports is rather new.
I was curious if you could comment a little bit about the profitability of those new customers. Those reactivated customers can we kind of look at the market as as early days and probably needs.
Marketing to get people aware about the Sportsbook. So I was wondering if you could talk a little bit about youre seeing good revenue uplift in some segments is that coming in.
At some level of profitability right now.
Well in sorry for the nuanced answer, but as you know we have differing tax rates from one market to the next and in some markets the slot and table game tax rate as the same markets like West, Virginia, Pennsylvania, Theres, a significant delta between the slot tax on the table game tax so.
From a mixed bag to answer your question I would tell you that we're not spending aggressively to bring these customers in and therefore, when they engage with us in our casino product at unprofitable, it's largely incremental so there's some obviously some awareness efforts in advertising you're doing.
To make sure that you're distributing the news that you offer a sports betting product.
For us, we're seeing that when they come into that on sports, they're eating in the restaurants, there, they're engaging with us and table games, sometimes there's a hotel stay and there is there is largely very little reinvestment against that behavior.
The answer my questions. Thanks, a lot Jay thanks, guys.
Okay.
Thank you.
Mr will not there are no further questions at this time I will now turn the call back to you for your closing remarks.
Thank you operator.
Again, thanks for your attention this morning on our third quarter earnings call.
I think you'll continue to hear consistent results in what we're using with our free cash flow as we've talked about I look forward into 2022 being in the audience listening to Jane the team speak about our fourth quarter and year end results for 2019 in the outlook for 2020.
Again, thanks for your attention and have a great day bye.
That does conclude the conference call for today, we thank you all for your participation and we ask that you disconnect. Your lines. Thank you and have a great Dane.