Q3 2024 PENN Entertainment Inc Earnings Call
Thanks for watching!
Speaker Change: Greetings and welcome to the Penn Entertainment's 3rd Quarter 2024 Earnings Call.
Speaker Change: I would like to turn the conference over to Mr. Joe Jaffoni, Investor Relations. Please go ahead.
Joe Jaffoni: Thank you, Cindy. Good morning and thanks everyone for joining Penn Entertainment's 2024 third quarter conference call. We'll get to management's presentation and comments momentarily as well as your questions and answers.
During the Q&A session, we ask that everyone please limit themselves to one question and one follow-up. I'll now read the Safe Harbor Disclosure and then we'll get into the call.
Speaker Change: 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 for details on specific risk factors.
Speaker Change: 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: Thanks, Joe. Good morning, everyone. I'm happy to be here in While Missing with our CFO, Felicia Hendrix, Head of Operations, Todd George, and our CTO, Aaron LaBerge.
Speaker Change: as well as other members of our senior management team. It was great to see many of you at our investor event on October 7th at the M Resort in Las Vegas.
Speaker Change: Some of you may have missed it. We highlighted some of the significant product enhancements we recently implemented for ESPN VET as well as some early KPIs related to those feature upgrades.
Speaker Change: We also provided a hands-on demonstration of our industry-leading 3Cs technology and attendees got to see some of our new property automations in action along with several key three business updates that we will review or highlight again with all of you here today.
turning to the results of the third quarter.
Speaker Change: strong year-over-year market share growth in Ohio, Massachusetts, and Kansas helped offset unfavorable hold.
Speaker Change: in our Northeast segment and volume declines in our South segment, largely as a result of severe weather disruptions and our accelerated hotel remodeling at the Berge Casino in Lake Charles.
Speaker Change: We are roughly halfway through the planned room renovations there, which have been driving higher gaming spend per customer. We look forward to completing this project by the end of January 2025.
Speaker Change: Meanwhile, we are continuing to mitigate pressure from no new supply in Nebraska, Louisiana, and Chicagoland through our ongoing efforts to reimagine our properties to improve the customer experience and drive loyalty.
Speaker Change: Overall, we are seeing stable consumer demand and are performing well in those markets not impacted by new competition, profitably gaining market share in several of them, thanks to our best-in-class operators across the country.
Speaker Change: We saw sequential month-over-month improvement throughout the third quarter and continuing into the month of October. The first several days of November showed improved volumes as well with a strong first weekend.
Speaker Change: Finally, as noted on slide 4, we have seen 3.6% year-over-year slot volume growth through the first five full weeks in Q4 compared to flat year-over-year slot volumes in the third quarter, led by our properties in Michigan, Ohio, and St. Louis.
Speaker Change: The trends we are seeing around the country provide us with continued optimism about our four new growth projects, which are highlighted on slide five. These projects remain on budget and on schedule, with Hollywood Joliet expected to open ahead of schedule during the second half of 2025.
Speaker Change: On the interactive side, as I referenced earlier, prior to the start of football season, we released several product enhancements and ESPN integrations to our ESPN bet offering.
Speaker Change: These product improvements help contribute to a higher parlay mix and higher structural hold during the quarter.
Speaker Change: Slide 7 highlights the meaningful growth ESPN-BET has generated for both our digital database and active user base, providing a strong foundation for future growth as we introduce additional product improvements.
Speaker Change: We are now approaching 4 million members in our digital database, and we saw a 127% year-over-year growth in monthly active users in Q3'24 versus Q3'23.
Speaker Change: As noted on slide 9, our interactive segment saw year-over-year OSB NGR growth of more than 200% in Q3, driven by a combination of higher parlay mix from our improving products and lower promotional expenses.
Speaker Change: While we saw an increase in promotional spend at the beginning of football season from the competition, we have remained disciplined as we primarily focus on reactivation and retention efforts given our deep digital database.
Speaker Change: As noted on slide 11, we have seen momentum from September into October, and we are seeing encouraging trends in volumes and handle per user.
Speaker Change: The September launch of ESPN Bet in New York expanded our online betting footprint to 19 U.S. states, representing approximately 46% of the U.S. population.
Speaker Change: Average daily handle per user in New York is 228% higher than the average in our existing states and our average deposits there are over 87% larger.
Speaker Change: and with over 10 million average monthly visitors on ESPN, New York provides a significantly greater scale as we leverage ESPN's vast media reach and integrations for efficient customer acquisition.
Speaker Change: Turning to slide 13, as of October 30th, account linking between ESPN Bet and ESPN is now available for customers. By linking accounts, fans now have the ability to seamlessly track upcoming, live, and settled bets within the ESPN app and on ESPN.com.
Speaker Change: Bringing this new feature to market is an important step towards creating an industry-leading, personalized sports betting experience across the ESPN ecosystem. This will help to further drive monetization through enhanced engagement, retention, and reactivation.
Speaker Change: This was a tremendous achievement for the talented Penn and ESPN technology teams and really speaks to the depth of our partnership with ESPN.
Speaker Change: We have some exciting additional product enhancements coming soon as we accelerate our product roadmap. These include an improved same-game parlay experience, enhanced branding and IP, and upgraded in-play betting.
Speaker Change: Finally, on the iCasino side as you'll see on slide 15, Hollywood Casino experienced solid growth in the quarter as well. That momentum has continued into October and will be helped by our recently introduced Penn Play promo credit redemption offering.
Speaker Change: We're excited for the launch of our Hollywood Casino app in Pennsylvania in early Q1, subject to final regulatory approvals, of course, with additional jurisdictions to follow. I'll now turn it over to Felicia for additional financial details for the quarter.
Speaker Change: Our third quarter retail revenue and adjusted EBITDA results of $1.4 billion and $472 million were slightly above the midpoint of the third quarter preliminary results we reported on October 7.
Speaker Change: In markets where we are not facing new supply, demand remains stable. October volumes improved over September, and continue to improve sequentially through the first weekend in November.
Speaker Change: For our interactive segment, adjusted revenues excluding our skin tax gross up were $141 million and interactive adjusted EBITDA in the quarter was a loss of $91 million.
Speaker Change: Better-than-expected holds driven by a higher parlay mix from our approving product and lower promotional expenses drove the upside in the quarter relative to the original guidance we provided on August 8th.
Speaker Change: These results are at the high end of the third quarter preliminary results we reported on October 7th and also reflect a 12% sequential improvement from our second quarter interactive adjusted EBITDA results.
Speaker Change: As usual, you will find on page 8 of our earnings release a table that summarizes our cash expenditures in the quarter, including cash payments to our REIT landlords, cash taxes, cash interest, and total capex.
Speaker Change: Of our total 132 million CapEx in the quarter, $69 million was Project CapEx related to our four development projects.
Speaker Change: We ended the third quarter of 2024 with total liquidity of $1.8 billion, inclusive of $834 million in cash and cash equivalents.
Speaker Change: As you know, we have no debt maturities until 2026, which are our 330 million convertible notes.
Speaker Change: Our lease-adjusted net leverage peaked in the third quarter of 2024, and we're excited to begin our de-levering trajectory driven by organic EBITDAR growth and our ability to access GLPI's balance sheet as our growth projects reach completion.
Speaker Change: We continue to expect to generate positive free cash flow in 2025 and beyond bolstered by our interactive segment, which should generate meaningful adjusted EBITDA in 2026 and our four retail growth projects, which should all be complete by the first half of 2026.
Speaker Change: I will now provide guidance for our retail and interactive segments.
Speaker Change: For the retail segment, we expect fourth quarter 24 revenues to range from $1.36 billion to $1.38 billion and adjusted EBITDA to range from $440 million to $460 million.
Speaker Change: We also continue to absorb new competition in a few markets, such as Louisiana, Nebraska, and Chicagoland, as properties open and make efforts to drive trial. As I mentioned earlier, we are seeing stable consumer demand, and we are performing well in the markets not impacted by new competition.
Speaker Change: For Interactive, given that fourth quarter industry-wide hold has been negatively impacted by customer-friendly outcomes quarter-to-date,
Speaker Change: We think it's prudent for now to reiterate the midpoint of our 2024 interactive EBITDA guidance, which is unchanged from our last call.
Speaker Change: For cash interest expense, we forecast approximately $175 million for the full year 2024, before roughly $20 million of interest income.
Speaker Change: For cash taxes, we are projecting a small tax refund in 2024, and our basic share count as of the end of the third quarter was 152.2 million shares, and we typically have roughly 15 million of diluted shares, inclusive of the 14 million shared dilution from the converts.
And with that, I'll turn it back over to Jay.
Jay Snowden: All right, thanks, Felicia. In closing, I'm proud to report that our efforts to ensure diversity of backgrounds and perspectives within our corporate boardroom have been recognized for the fourth straight year by the Forum of Executive Women, who named us as one of their champions of board diversity.
Jay Snowden: In addition, we're proud to have been recently named one of the best.
Speaker Change: of the best 2024 Top Diverse Employers by DiversityComm Magazine. Finally, our LEAP Internship Program, which stands for Leadership Excellence at Penn, has been recognized as one of the Top 100 Internship Programs of 2024 by the nation's largest DEI recruitment platform.
Speaker Change: And with that, Cindy, can we open up the line for our first question?
And we'll now open the questions.
One moment.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number 1 on your touchtone phone. You will hear a prompt that your hand has been raised.
Speaker Change: If you wish to decline from the polling process, please press the star followed by the number 2. And if you are using speakerphone, please leave the handset before pressing any keys.
One moment, please, for your first question.
First question from Mr. Barry Jonas of Trubist Security.
Please ask your question. Thank you.
Speaker Change: Great, thank you. Hey guys, good morning. Maybe starting with ESPN Bet, you're achieving mid-teen share in weekly active users.
Speaker Change: but more closer to mid-single digits, let's say, in GGR. Given your mass market focus, what degree do you think you could bridge that delta over time and drive higher spend per user?
Speaker Change: Yeah, Barry, it's one of those topics we've hit, I think, on a quarterly basis for the last several quarters. I think
Speaker Change: What's encouraging for us is that if you look at our average handle per user,
Speaker Change: We're seeing really nice growth from, call it, week two of NFL to where we are through week nine. Every week we're seeing sequential growth and handle per user. So I think part of this is exactly what you said, that ESPN bet certainly draws in a more casual mass market base. We think that's great for the long term.
Speaker Change: is terrific, maybe a lower average wager, but we are seeing that average wager continue to grow from where we were even just a few weeks ago. So we would expect to see that continue to grow throughout football season as we head out into March Madness as well. It's a big focus for us right now, and we think retention, we're in a really good place, but continuing to improve monetization is going to be key for us.
Speaker Change: Great and then just follow up on land-based gaming, you know maybe at a high level, if we think about 25, I know there's a few puts and takes, but do you think regional land-based gaming can grow next year?
Speaker Change: We're not going to go fully into 2025. Barry, I appreciate the question. I would say that...
Speaker Change: What we're seeing right now, the core business across the country, if you exclude the markets where there's new supply, things are really stable. And we've actually seen a really nice uptick here in the fourth quarter that, you know, I'd be guessing if I said I knew exactly what's driving that, whether that's election, pre-election, post-election, not really sure. But Q4, we've seen a nice bump up from where we were in the third quarter. October, really nice sequential growth from September.
Speaker Change: And then in Louisiana, there's three projects there. Caesars New Orleans just opened their expansion. Could be a little bit of an impact there. We don't have a ton, there's not a ton of competition with Caesars New Orleans, but there is some. And then of course, we've already highlighted Treasure Chests.
Speaker Change: The Boyd Project, and then Bossier City, the Cordish Project is going to be open, I believe, sometime in Q1, maybe Q2, somewhere in that time frame. So.
Speaker Change: Those are the big ones to keep in mind. The nice thing about Chicagoland, as you sort of circle that one, is that's really sort of a, you know, first 9, 10, 11 months of 2025 dynamic for us because we'll be opening our Harris-Joliet relocated land-based project sometime before the end of the year. And then, of course, our new Hollywood Aurora relocation project, which is going to be a fantastic asset for us, that's going to be in early 26. So Chicagoland, we'll be able to mitigate, I think, pretty well in 25, but I think in 26 it's
Speaker Change: Time for us to really start play offense there as well as in Las Vegas with the M resort tower Completion and in Columbus, Ohio with the Hollywood project hotel expansion as well
Great. Thank you, Jeff.
Thanks, Barry.
Next question from Carlos Santorelli from Deutsche Bank.
Carlos Santorelli: Hey guys, good morning and thanks for taking my question. Jay, I'm respecting the fact that you don't want to want to give a lot as it pertains to 2025. I know you know that the message so far on the interactive side has been
Speaker Change: you know, getting closer to break even next year. And, you know, if you just kind of look at the guidance range, you're talking somewhere in the ballpark of 400 plus million of an EBITDA swing.
Speaker Change: Big picture, I wanted to understand, like, the way you guys think about that, obviously, you know, net revenue growth, substantial, you know, promos coming out, etc., some launch costs coming out.
Speaker Change: But then thinking further in terms of expenses and the path to where you see kind of larger, chunkier costs coming out of the business, is there any color you'd be able to provide on kind of that sequencing and transition over 2025?
Speaker Change: But you also have to keep in mind that we're going to be launching our stand-alone Hollywood Eye Casino offering in Pennsylvania, again pending final regulatory approval sometime in early Q1, and we should be able to follow pretty quickly in states like Michigan, again, pending regulatory approval, New Jersey, West Virginia, and in Ontario we think Hollywood Casino will perform very well.
Speaker Change: So, we think that's going to be a really nice shot in the arm for us in terms of continuing to grow our online casino business. Obviously, that's it.
Speaker Change: And I think as you think about the cost structure, we continue to have, as we grow in scale, you get efficiencies. And that's with regard to your third-party providers and being able to negotiate. You get better economics, of course, the more scale that you have, which will have stronger scale.
Speaker Change: And we also have the marketing spend outside of ESPN. I think we've really figured out or continuing to figure out what's effective, what's working. We're seeing attractive CPAs in our paid digital performance, digital spends. And so, you know, we're getting smarter and smarter about what we want and need to spend on the marketing side of things. That'll continue through the rest of this year and into 2025. So I would say, you know, with a level of specificity, we'll provide more in February, but that's the way to be thinking about it at a high level.
Speaker Change: Great, and then if I could, just one follow-up on the brick and mortar business as it relates to the fourth quarter. It looks like...
Speaker Change: You know, more or less at the midpoint of the of the net revenue guidance, you're flattish effectively year over year, whereas kind of the midpoint of EBITDA looks to be
Speaker Change: 25 million lower year over year. Is that essentially just the reflection of, is that a good baseline for kind of what the cost increase looks like from a year-over-year perspective and could you shed any light on kind of how to think about
Speaker Change: You know, the outlook for next year as it pertains to kind of costs, cost creep, cost mitigation, obviously some of the benefits you'll have from anniversary, some of the competition, and some of the disruptions, more notably.
Speaker Change: Hey Carlo, this is Todd. So yeah, typically, you know, there's the seasonality with margins and Q4 is...
Traditionally, always the lowest margin percentage, so I...
Speaker Change: I wouldn't look at that as kind of a guide for next year, unless you're thinking about Q4 of next year. Also, keep in mind...
Speaker Change: We had some some one-time good guys last year in Q4 So that kind of is the reconciling item for the difference year-over-year in the EBITDA flow through Outside of that like Jay talked about for 25. We'll we'll get into much more detail in February
Understood. Thank you, guys. Thanks, everyone.
Thanks.
Your next question from Brian Winter of Barclays, go ahead.
Brian Winter: Good morning everybody. Thanks for taking my question. So the first question is on the fourth quarter interactive guidance you know, you guys beat the third quarter your own third quarter guidance by 30 million on EBITDA and then you reiterated the full year end. So the question is
Brian Winter: Is that sort of, you know, not flowing through that third quarter? Is that how we should think about the direct impact from October hold? Or is there any other adjustments you made to your core or otherwise KPIs in the fourth quarter we should think about?
Speaker Change: Yeah, you should think about it as entirely hold related. That's, it's been a rough start to the fourth quarter. That's well documented by many of you. You can see it in the New York Weekly Results. Even before the October monthlies come out, you can see it in West Virginia Weekly Results.
Speaker Change: Having a higher parlay mix is great other than when all the favorites are hitting and parlays are also hitting. So that's really been the last five weeks. And the first weekend of November was very consistent with what we saw in October, unfortunately.
Speaker Change: that it's just a it's a luck thing it does change it switches it reverses course and so we just felt as opposed to pulling through
Speaker Change: the difference between the hold impact in Q4 and what the beat was in Q3 and then now you're sort of banking on hold being an exact number for the rest of Q4. We thought it just made sense. Let's not touch the number. If things improve on the hold percentage side that'll be likely a conservative approach.
Speaker Change: But why bring some of that through if we're not sure exactly where HOLD is going to end up for the remainder of Q4?
Speaker Change: That's super helpful. And then a follow-up on the, congratulations on the announcement on the linkages of the account between ESPN and ESPN Bet.
Speaker Change: Curious, what are the initial sort of success rates on getting people to upgrade to that and to actually link the accounts? If you've seen any sort of increased activity related to those accounts that have?
Speaker Change: Yeah, let me let me ask Aaron to speak to that one yeah great happy to yeah, we're pretty excited about account linking We've had tens of thousands of people link already as you'd expect they're all placing significantly more bets
higher handle, higher GGR.
Speaker Change: and also impressive, they're consuming significantly more ESPN content as well. So, these are super fans that are linking. We're incredibly happy with the progress so far. I don't know if you've had an opportunity to link, but it's an incredibly seamless and quick process.
Speaker Change: And what it really does, to get to your second question, is it's really a foundational development that allows us to now personalize every element of your bedding experience, not only
Speaker Change: on ESPN VET so that we can start serving you personalized promos and offers.
Speaker Change: players and teams and results on ESPN without you doing any work and we think fans are really going to love this.
and, of course, the placement.
Speaker Change: of Account Linking once your MyBets module is activated is right there on the homepage of ESPN and in the ESPN app. It's an incredible experience and it's only going to get better from here.
Speaker Change: Yeah, the last thing I would add is, and I mentioned it in my prepared remarks, this is a big technical feat from the team here at Penn as well as at ESPN. And it's great having partners where there's alignment and vision and where we want to take this thing and exactly how ESPN-VET integrations will play into the total ESPN sports
Speaker Change: fandom and the consumption of sports content. So really happy with the execution and now it's time to start marketing the linked betting opportunity and people are grabbing onto it very quickly. As Aaron mentioned, it's been tens of thousands and it's really picked up even in the last 24 hours.
Well, okay. Thanks, everyone.
Thanks, Brent.
And your next question from Joe Krepp of J.P. Morgan.
Please go ahead.
Joe Krepp: Good morning, everybody. Jay, I just wanted to ask you about New York and as we think about the inclusion of your efforts in New York going forward, how, so far, and how you're thinking about promos in relation.
Speaker Change: to handle, with the inclusion of New York, how you think that trends in the near term and how you think about it, you know, more medium and longer term.
Speaker Change: and you don't have any promo deduction opportunity before you pay taxes. And so, you know, we're later to the game, but it has been a big opportunity for us to to grow our user base. Obviously, New York is a really important market for us and ESPN.
Speaker Change: And there's a lot of people that work in New York but live in other states, like New Jersey and Pennsylvania. And so there's pretty neat cross-sell opportunities depending on whether, you know, somebody's, it's a weekday versus a weekend, whether they're, you know, commuting or they're at home. And so New York was a critical market for us to launch, but we're going to remain very disciplined in New York. We're not as worried about handle market share in New York the way that we are focused on that in all the other states, especially those that are combination OSB and iCasino.
I think, you know, what's interesting is that.
The results that we shared with with regard to October
Speaker Change: We're feeling pretty good about the momentum sequentially. So September, we actually, from a, this is all, I'm pivoting a little bit, but I think it's an important part of your question. If you exclude New York, because New York we launched in, I believe it was late September, so there's a little bit of, you know, noise in September and a lot more in October.
Speaker Change: but if you look at our our handle year-over-year growth for ESPN bet in the month of September again excluding New York to keep it apples to apples it was 32 percent year-over-year and in October excluding New York it was 45 percent.
Speaker Change: year over year. And that was with our promos as a percentage of handle down a bit from September to October. So we're growing handle organically. We're doing it through our
Speaker Change: Retention efforts, you know we have profit boost tools that we didn't have a year ago. These things are all working and we're seeing improvements sequentially from September and October other than obviously hold percentage has been an impact at just over 5% versus what it was in September.
Speaker Change: Excellent, thank you for the color. And then, good to hear the first five weeks, the start of this quarter, from a slot volume perspective.
Speaker Change: If we were to exclude Michigan, Ohio and the states that you reference as leading the way, would you say there's still broad-based growth in slot volume? Obviously, if you exclude those, you're also sort of including those markets with competition. My question is, like, how broad-based or how concentrated?
is at 3.6% volume growth year-over-year to those select markets.
Speaker Change: Yeah, it's been surprisingly to the good news side. It's been broad-based, but Todd, maybe you can speak to that, a little more specificity. Yeah, Joe, this is Todd. Really, this last weekend, Jay and I and others were talking after the weekend results. It was one of the best weekends we've seen in quite some time, and that's really kind of continued through this week.
Speaker Change: You would reference the competitive markets where there's new competition coming in.
Speaker Change: We're pleased with results and volumes everywhere. And there's some other key markets that...
Speaker Change: We're seeing that kind of halo effect from the sports betting and as that comes in
Speaker Change: We're seeing growth not only in the states that we referenced, but also Plainridge in Massachusetts has been a strong market for us. So, we're pleased with where we're headed and I think
Speaker Change: continue through this week and getting through Tuesday and letting kind of people settle into how they feel about the economy in the future.
Thank you very much.
Speaker Change: Your next question from Mr. Charles Toth of Cisquehanna. Please go ahead.
Thank you. Good morning, Jay, Todd, Alicia.
Speaker Change: I had a question, you know, realizing it's very difficult in your previous answer, Jay, to the 2025 revenue outlook. I'm wondering how you guys think about OPEX in 25. Is there an opportunity?
Speaker Change: you know, to say, assume that it could be flat to down, or is that more dynamic? What's the right way to think about that? And then maybe just to follow up on
Aaron LaBerge, The Digital Side for Aaron
Speaker Change: With respect to account linking, I appreciate the commentary, and certainly it's early in that launch of that product, but are you able to deliver, say, a personalized
Speaker Change: promos that I guess essentially get fed from fantasy lineups into real sports betting is that something
Speaker Change: that you are able to deliver now, or that's something that maybe is...
would occur a little bit later.
Speaker Change: Okay, Joe, we'll take both of those. Todd and I will tag-team the first one. I would say, look, at a high level, again, excluding the markets with new supply, because you're always going to feel impacts a bit different market to market there, and we'll know more, obviously, when we're sitting on the call in February and have a couple more or a few more months under our belt of what we're seeing with some of the new competition. I would say, other than that, we're certainly feeling a lot better on a year-over-year basis going into 25 from an OPEX perspective than we were in 24. In 24, there were major insurance headwinds. There were several markets of labor headwinds and renegotiated union agreements and labor agreements.
Jay Snowden: At a high level, I would say we're feeling better. Todd, feel free to jump in there. Yeah, Jay, I agree with all that. The only thing I would add is, as we continue to kind of pursue technology, it's changing the way that...
Speaker Change: We communicate with people from a marketing standpoint. So, you know, yesterday we were in a meeting looking at our overall marketing costs and, you know, we're moving away from things like.
Speaker Change: postage and mailing costs and printing costs and moving more to that digital communication. Those are those are big dollars for us.
Speaker Change: Also, with the way that our properties are laid out now, we have set up kind of these
Speaker Change: These clusters of properties where we can create synergies, we can share marketing expenses, we can share labor expenses.
Speaker Change: We do a really good job of that, but, you know, we are turning over every stone. So, you know, more to come, but, you know, if you were to kind of, again, the way you phrased your question, up, down, flat, we're always looking for that flat to downward trajectory without negatively impacting the guest experience.
Speaker Change: And this is Aaron. I'll take the second question. So, yeah, absolutely. So account linking does unlock the ability for us to know your fantasy rosters and to create and target content based on that.
Speaker Change: If you look at this year for fantasy football, we actually had a really slick integration with ESPN bet around that. That was pseudo personalized. Remember, this was pre-account linking. So, of course, we know who's on everyone's roster and we have markets around all those players, so we could target you based on who was on your roster.
and even that implementation.
that wasn't.
super personalized.
Speaker Change: had a 20% engagement. So we integrated that through a modal pop-up.
and it was highly engaged.
Speaker Change: And of course, now that we have account linking and we know your roster, you're going to see that integration natively integrated into ESPN's actual game. So it won't be a pop-up, it will be part of the actual experience. So we're super excited. Based on that early engagement, we know that fantasy players love sports betting and they love this content and they're hyper engaged. And so this just allows us to take this now to the next level. So we're super excited about it.
Thanks a lot.
Yep.
Speaker Change: Your next question from Sean Kelly of Bank of America. Go ahead.
Sean Kelly: Hi, good morning, everyone. I just wanted to touch on the online casino launch or relaunch as we get into 2025. I don't think we've talked about this too much.
Speaker Change: here. But could you just give us a little sense or a little preview on some of the plans there? We have seen, you know, when people have refocused on efforts there, they've wanted to, you know, have some incremental marketing support for that. So is that something we should expect to be baked into the plans? And then, you know, maybe the bigger strategy question is, you know, how do we make it work?
Speaker Change: Is it going to be sort of, what's your kind of cross-sell plan, are you going to lean more to the casino channel and the brick and mortar side, or a little bit more to the OSB cross-sell just given the success so far with ESPN? Thanks.
Speaker Change: So take a step back for a minute. We haven't had the opportunity, other than when we initially launched years ago, our iCasino offering in the state of Pennsylvania, we had it branded Hollywood Casino, but it was with a third-party platform, IGT. And that was discontinued about a year ago. And so we really haven't had the opportunity
Speaker Change: And again, just going back in time, when we launched the Hollywood Casino app in Pennsylvania on that third-party platform, we saw pretty strong market share. We were high single digit for most of that time. And obviously, the biggest reason is the cross-sell opportunity with your land-based casinos.
Speaker Change: Remember that we have four land-based casinos in the state of Pennsylvania. They're all flagged Hollywood.
Speaker Change: We have one in Michigan, one of the three land-based commercial casinos, again flagged Hollywood at Great Town.
Speaker Change: And so the cross-sell opportunities for us are going to be very significant when we launch that stand-alone Hollywood Casino app.
Speaker Change: What we're doing right now is messy because you're marketing to your land-based casino database at Hollywood Properties and telling them that they should download the ESPN bet app to play their favorite slot machine.
Speaker Change: So it's messy and we know that this is a big opportunity. We've watched our competition launch standalone iCasino apps with great success. And many times it was the same brand. It was just it led iCasino. And so for us, it's not only leading with iCasino in that app.
Speaker Change: But it's also the brand connection, which is going to be, I think, probably very, well, we believe, pretty powerful for us. With regards to the marketing plans for that launch, it'll be built into our guidance for sure. It doesn't change what we've said about how we've thought at a high level about 2025. But we're definitely going to make sure that we've got some dollars put aside to market those new standalone iCasino apps. Because, again, great business, great margins, and great cross-sell opportunities, both with regard to OSB and our land-based businesses.
Speaker Change: Yeah, and I think just to build on what Jay was saying, we're seeing a lot of success in cross-sell from OSB to iCasino.
Speaker Change: What the standalone app lets us do is, this is a whole cohort of iGamers who, as Jay said, don't get the fact that they have to access our casino through our sportsbook. And so this completely unlocks that.
Building on that further is we have the entire omnichannel opportunity where people are in our casinos and we can now clearly market to them the same branded product, the same product they're playing on site, you know, as they go interactive. And so we think that's also going to just be incremental to all the things we're doing here.
Speaker Change: Yeah, they well said the only thing I would add we've we've actually had great conversations starting
Speaker Change: at G2E with some of the slot manufacturers. So working with them to get some unique products that no one else is offering. We also have a rather sizable database all across Pennsylvania that we'll tap into and kind of look at slots first.
Speaker Change: So we're just kind of looking at everything and how differentiated our approach can be. It taught, triggered another idea or thought that I wanted to share as well with regard to the actual launch. But.
Speaker Change: Not surprisingly, we lean a lot more table games today because the only way to get to Hollywood Casino is through ESPN bet and so most online sports bettors play table games as compared to slots.
Speaker Change: where as people that would be coming into Hollywood Casino as a stand-alone app who are land-based retail customers and avid casino and slot players, casino visitors and slot players.
Speaker Change: I think you'll see that the product launch and the product offering for Hollywood Eye Casino will definitely be targeting slots first and table games second versus ESPN Bet. Hollywood Casino is more of a table games first slot second. So that's a difference that you'll see with this launch as well.
Thank you for all the color.
and
Speaker Change: Next question from Ben Pollister of Wells Fargo. Please go ahead.
Hey, good morning, everyone, and thanks for taking my question.
Speaker Change: I just wanted to follow up on just kind of that fourth quarter interactive guide that you gave.
Speaker Change: If we think about kind of the hold impact, which I think it equates to about $35 million, or that's the change. I guess, how much of that $35 million is hold, versus kind of other moving pieces in the quarter, account linking, you know, the New York launch, and then, you know, does that $35 million swing, assuming that is the correct number, or does that reflect maybe a change in promotional behavior, given your customers have been winning?
Speaker Change: It's entirely hold percentage, Dan. It's not, and I mentioned earlier, we're not down 35 million right now, but we've had a rough start from a hold percentage perspective, so we thought it was just prudent to just keep it flat to last quarter because we're in a hole right now. That's not a pen thing. You'll hear this, I'm sure, from others reporting later this week and next week.
Speaker Change: So we thought let's just take the conservative approach. If hold percentage bounces back and we make up for the really low hold in October and early November, then this is going to turn out to be a very conservative approach. But it's hold percentage related. It's not any of the other stuff where our promos is a percentage of handle.
Speaker Change: We've got a very good handle on. Account linking was built into our marketing plan for the quarter. So there's nothing new or different other than hold percentage.
Speaker Change: Got it, that's helpful. And then just to follow up on iGaming, is there any research that you've done or any kind of insights you can share on where that, you know, your current brick and mortar database is playing, you know, is it other omnichannel providers or is it kind of the digital first, you know, competitors and, you know, as you think about taking, taking share from those, you know, what are kind of the different buckets as you look at it?
Speaker Change: Yeah, I'm not sure that we know that answer. I would, my best guess would be probably a little bit of everything. They're probably playing a little bit with us, some of them, and others haven't connected the whole ESPN bed. If you're not a sports better that there's a casino there waiting for you that's branded Hollywood.
So I would say think about this as...
Speaker Change: Obviously, we have the loyalty program connection that we're going to be able to introduce more aggressively with people, make sure it's very clear that you can use your... There's total linkage between what you play and earn on the land-based side and what you play and earn within the digital ecosystem.
Speaker Change: And so if you're looking to redeem promo credits that you've earned in the land-based side within the iCasino app, you can actually do that now, but we haven't been able to market it as aggressively just because, again, the brand disconnect. So I think the loyalty program connection and linkage is going to be pretty powerful for us.
Got it. Thanks so much.
Next question from Chad Bayman of Macquarie. Go ahead.
Chad Bayman: I wanted to ask about initial thoughts on the Missouri sports betting vote, plans for that state, and if you think the outcome of this could have any potential impact on some other states, either in that part of the country or in other regions, and then also related to the tax rate.
That was announced in that market. Thank you.
Speaker Change: Yeah, happy to chat. We're talking 48 hours ago, but we did have a good feel for whether it was going to pass or not. We know what the structure is. I think Missouri is an interesting state. It's probably one of the last states in the country, obviously excluding the Californias and Texases and Floridas, but one of the last states outside of those three that we know that there's real sports fandom. You've got two major cities really into sports between St. Louis.
Speaker Change: St. Louis MSA, one in the Kansas City MSA. We have another property on the Kansas side of Kansas City. So we're, we think we're pretty well positioned. Tax rate is attractive. I think the structure was attractive and
Speaker Change: There's been some commentary out there about the land-based casino companies only getting one skin for the whole state. And we're reading, again, publicly what I think others can read that maybe that's not the read of the regulators there, that it's gonna be each of the casino operators that have multiple properties would then have multiple skins in the state. So we're still clarifying that with the regulators, but that's our understanding as we sit here today. So we think, overall, this is good news for Penn, obviously, good news for us launching ESPN-BET, and we feel like we've got a nice database that we can tap into across the state.
Speaker Change: you know, national numbers and viewership. Do you think the hold rates for non-NFL sports have a lot of way to go in terms of improvement? Thanks. Thanks, Chad. That's not on our end. I'm not sure what, Cindy, is that?
Speaker Change: Okay, Jay, did you get all that? Thanks. I think I did. Chad, if not, just jump in at the end.
with regard to
Speaker Change: Seasonality and World Series, obviously there was more attention on the World Series and more wagers this year given the matchup was two powerhouse cities versus what it was.
Speaker Change: last year. As a Yankee fan, it was a brutal World Series, but it also wasn't super helpful on the betting side. I think people were definitely feeling as though the Dodgers were going to win that series, especially the way that it started. So I would say, you know, World Series every year, it's hard to say that there's going to be any seasonality related to World Series. It really depends on the matchup and the favorite and where the money is landing. Generally speaking, we would expect
Speaker Change: the fourth quarter to be a solid, you know, sort of in-market hold quarter for us. The good news about the fourth quarter, even where we sit today...
is that October is the lightest.
Speaker Change: Betting Month of the quarter. If you look at handle by month historically, typically it's around 30-31% in October and then the rest in November and December. So if hold comes around, we've got, you know, heavier volume months ahead of us where it could really help make up some of what's been lost so far quarter to date.
Thanks, appreciate it.
Next question, from Bernie McTurton.
From Needham, please go ahead.
Speaker Change: Great. Good morning. Thanks for taking questions. I wanted to focus on account linking. Aaron talked about personalization. I know there's bet tracking within the account linking right now, but is there actual personalization that's happening with bets and promotions right now? And if it is driving you up with embedding the account linking, is there anything you could do to get customers to more aggressively adopt account linking? Would that be something you could look at or is it organically the way to go?
No, we're actually really...
Speaker Change: really focused on on driving people towards account linking. We, as Jay mentioned previously, we just started promoting it in the last few days. The results have been really great. So we'll continue both on the ESPN and ESPN Bet side.
Speaker Change: to promote the benefits of account linking. You'll see it all throughout your experiences.
Speaker Change: whether signing up for new products, signing up for games, just targeted approaches to getting you to link and sharing the benefits.
Back to your first question.
Speaker Change: content bets offers all throughout ESPN and ESPN bet and it will just start happening organically it's not
Speaker Change: It's not going to be a launch, it's just your experience is going to start getting smarter for you and you'll see it in a bunch of different places, including in that module on the ESPN home feed as well.
Got it. Thanks, Aaron.
Yep.
Speaker Change: Next question from Jordan Bender of Citizens TMP. Please go ahead.
Speaker Change: Good morning everyone. Thanks for taking my question. When we look at the 3.9 million digital database you have in your slides and then the 1.8 you've added since the launch of ESPN, Ben, are you maybe able to help us break down how many of those people have come directly through just an ESPN channel versus we want to call it an other channel?
Speaker Change: We haven't provided that level of detail, Jordan. I would say that since the launch of ESPN VET, you should assume that most of those that have come through were from the ESPN ecosystem, but we haven't provided any more detail than that, but it is definitely most.
Speaker Change: Okay, thanks. And then are you seeing just any, in terms of churn rates, are you seeing any difference between people coming in through the ESPN channel versus, again, that kind of other bucket?
Speaker Change: Yeah, retention tends to be stronger with those that come in through ESPN and obviously when you add the integrations and account linking that just continues to get stronger.
Speaker Change: We're quite pleased with what retention looks like. We've got this really large base of.
Speaker Change: Mass-market casual bettors and I mentioned earlier. We're continuing to see higher engagement better handle per user Monetization is improving so we're very focused on that and we have to simultaneously of course continue to attract new and Reactivate those that have not reactivated who maybe came in in that, you know, November December January February time frame used promotions maybe placed, you know cash wager better to and then Disappeared and so continuing to focus on
reactivating is of highest priority for us.
Speaker Change: And then of course we're seeing outside of ESPN, as I mentioned earlier, on our digital performance, we're really getting a good feel for what's working, what's not from a CPA perspective, and those CPAs continue to look pretty good both within ESPN, they're the best, but they're looking pretty good outside of ESPN as well.
Great. Thanks, Jay.
and the next episode.
Speaker Change: Next question from Ryan Sigdahl from Craig Halem. Please go ahead.
Speaker Change: Hey, good morning guys. Just one on the player linking to follow up on that. Is there the potential to offer, say, ESPN Plus memberships for free, or if you have, for linking it, or if you have some status on ESPN, but you get that membership for free, where you can really try and drive cross synergies from ESPN, or is that, I guess, too difficult, given Disney and Penn are two different companies?
Speaker Change: an opportunity for our database to get ESPN Plus and that will be coming out shortly. It will be a one-month trial membership.
Speaker Change: And again, it just shows the teamwork that we have between these companies and everything that we can do together to communicate and interact and engage with our fans.
Speaker Change: Really, if you look at our portfolio, we feel like we're in really good shape. All of our land-based and, you know, barge, riverboat casinos, all of them are profitable, both before and after rent.
Speaker Change: not even close to being unprofitable, any of them. So there really wouldn't be any thoughts around any necessary closures or anything of that nature. And I think as you look at the rest of our horse racing portfolio.
Speaker Change: One, they're either at, you know, close or above breakeven on a standalone basis, and they're also, we believe, some of those are great development options for us down the road for potential land-based casino legalization or expansion in some of those markets. Certainly, Texas is top of mind there.
Speaker Change: Thanks Jay, and no hard feelings on your disrespect towards Minnesota loyal sports fans for not having OSB yet. Good luck guys. Thanks Ryan.
Speaker Change: Next question from Susan Kremling of Morgan Stanley. Please go ahead.
Speaker Change: Hey, this is Steven. I wanted to touch on digital, but with a focus on Toronto and Canada specifically. I guess how does the customer spend and other aspects in that market compared to the US as we think about ESPN?
Speaker Change: that customers and is that segment EBITDA positive on its own or even if you separate out kind of media embedding?
Speaker Change: Yes, it's certainly contribution margin positive. It depends obviously on how you would allocate some of those shared expenses beyond that.
Speaker Change: Ontario continues to be a really good story for us, which is part of why we're pretty bulled up on Alberta opportunity whenever that does present itself. It certainly has moved into 2025. We'll wait on the government, the regulators there to tell us exactly when the go live launch would be. We've got significant number of users. It's interesting because the makeup of our database in Ontario is quite similar to what we're seeing here in the US with ESPN bed, large mass market, casual.
Speaker Change: certainly have some VIP play, but the bulk of the users are more in that casual segment. Our parlay mix in Ontario, because we've been at it a bit longer there, is comfortably in the low 30s as a percentage of handle.
Speaker Change: And that's up year over year from the mid to high 20s. So we're already ahead in Ontario of what we're seeing here in the U.S. We're moving in the right direction here in the U.S., but we're still in that, you know, mid to high 20s parlays as a percentage of handle.
Speaker Change: So, we look at Ontario sort of being maybe a year, 18 months ahead of kind of where things are here in the U.S. from an ESPN bet perspective, and everything that we saw in Ontario trend-wise we're seeing as we go in the U.S. as well.
Speaker Change: And as maybe a quick follow-up on that is the cross-sell in iGaming in Ontario also similarity or would you think that that's generally going to be a little bit of a different animal just given differences in the retail business there?
Speaker Change: It's really just, it's grown over time. Again, we've been at it longer in Ontario than some of the markets here in the U.S. Our cross-sell percentages are a little bit higher in Ontario, so that tells us we've got opportunity not just on the land-based cross-sell that Todd and I talked about earlier, but also on the OSB cross-sell in the states where you have both. So, you know, it's a good template for us to look at as we think about what the opportunities in front of us here in the U.S. with ESPN bet given our experiences and what we've seen in the results in Ontario.
Speaker Change: Cindy, if we can have one more question, realizing that, you know, we had an investor event just a month ago and we're getting close to the end of the hour, but we'll do one more question.
Okay.
David, are you on?
Speaker Change: Sorry about that. I'm sitting here looking at your, thank you for taking my question. I'm looking at your slide four.
Speaker Change: And, you know, I see your map, you know, with all the properties, etc.
Speaker Change: and, you know, the focus on building out the digital and doing it in a disciplined way, you know, with a land basis that's stable but not growing. Any thought toward, you know, whether you might, you know, consider looking at some properties that aren't growing and maybe redeploying some of those resources by selling them, you know, toward digital? And the second part of my question, which I'll put out up front, is, you know, I see you do have a presence in Texas. You know, there's obviously events of the week.
Speaker Change: You know, that may refocus or, you know, change people's view about whether Texas might legalize some things, you know, if Dan Patrick might, you know, move on. Are you, you know, positioned and interested in participating, you know, in Texas, you know, should it move in a, in a legalization direction? Thanks.
Speaker Change: Thanks, David. I'll hit the second one first. The answer is definitely yes. We think we're positioned actually very, very well in Texas. We've got ownership of several standalone horse tracks.
Speaker Change: in Texas, and Rotama in San Antonio, and Sam Houston at the Greater Houston MSA. And those are two of the three class one horse tracks in the state of Texas. So, you know, we are, have been, we'll continue to be engaged in conversations with the appropriate people in Texas.
Speaker Change: and feel like you know horse racing is very likely to be involved in whatever happens down the road. I'm not going to make predictions on when and how that will happen. There's some new Senate positions that just got filled and so we need to see that how the dust settles and in Texas and the new presidency and how that may may or may not affect others in Texas in terms of potentially joining that administration.
Speaker Change: So, I think more to come in Texas, but definitely well-positioned, extremely interested and engaged and will continue to be.
Speaker Change: With regard to your first question, look, we have liquidity is not an issue. We have one point eight billion dollars of liquidity. And so we're going to spend where we feel like we should be spending and need to be spending across the portfolio, both on the retail side, as well as on the digital side. We don't have a plan to sell any of our assets. None of those are on the market. Every once while there's something in that you read in the paper. And I don't know where those rumors come from, but that's that's not the case.
and we feel like we're strongly positioned. We've got...
Speaker Change: some momentum in the business right now. We've got four growth projects that are going to be very exciting additions to our land-based portfolio. Again, one at the end of 25, which is
Speaker Change: not far away, and the other three in early 26. So we'll continue to invest where we feel like we're going to get the best returns, and that becomes clearer and clearer for us every day on both the retail side as well as on the digital side.
Thank you very much.
Speaker Change: Yeah, thank you, David. Thank you, everyone, for joining, especially if you also joined us in Las Vegas. Some of this was redundant, but hopefully you got some new information and takeaways. And we look forward to catching up with all of you again in a few months in February.
and the next episode of the FB series.
Speaker Change: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.