Penn National Gaming [PENN] Conference call transcript for 2023 q3
2023-11-02 14:32:16
Fiscal: 2023 q3
Operator: Greetings, and welcome to the Penn Entertainment Third Quarter 2023 Results Conference Call. [Operator Instructions]. I would now like to turn the conference over to Mr. Joe Jaffoni, Investor Relations. Please go ahead.
Joseph Jaffoni: Thanks, Frank. Good morning, and thank you for joining Penn Entertainment's 2023 Third Quarter Conference Call. We'll get to management's presentation and comments momentarily as with Q&A. During the Q&A, we ask that everyone please limit themselves to 1 question and 1 follow-up. Now I'll review the safe harbor disclosure. 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. It's now my pleasure to turn the call over to your host, Penn Entertainment CEO, Jay Snowden. Jay, please go ahead.
Jay Snowden: Thanks, Joe. Good morning, everyone. I have with me here in our CFO, Felicia Hendrix; and our Head of Operations, Todd George, as well as other members of my executive team, who can help answer your questions during the question and answer at the end. . And it was a pleasure to host many of you at our recent Investor Event at the M Resort in Las Vegas during G2E. For those unable to attend Mike Morrison, Head of Sports Betting and Fantasy Sports at ESPN and I spoke about our highly synergistic strategic alliance and the deep integration of ESPN BET across the ESPN ecosystem. I couldn't be more pleased with the way our products and design, engineering, marketing and operations teams, ESPN and Penn, have seamlessly and tirelessly worked together to prepare us for this launch coming up on November 14 pending final approvals. Yesterday, we released a teaser on the ESPN BET landing page featuring Sports Center anchor, Scott Van Pelt. If you haven't seen it yet, there's a link to the video on Page 10 in our investor presentation. And early last night, ESPN began exclusively using odds provided by ESPN BET for all editorial and other content. It's all very exciting, but more on that subject in a bit. First, I will cover our results for the quarter. As provided in our earnings release, Penn generated third quarter revenues of $1.62 billion and adjusted EBITDA of $445.1 million and adjusted EBITDA margins of $27.5 million. Our property level performance was stable during the quarter, reflecting solid customer behavior, particularly from our rated traditional core customer. We also saw the continued return of our 65-plus demographic and moderate growth in our spend per visit trends. All of this helped to offset softness in our unrated business in the South region, a couple of major road construction projects and increased supply in several markets, which we've covered. Overall, I'm pleased with the strength and resilience of our properties, particularly our casinos in Ohio, Kansas, Massachusetts and Missouri, the broader stability of our operations and performance this quarter highlights the benefits of our geographically diversified portfolio. As well as new and sustained customer engagement driven by the growth of our database and ongoing investment in our properties, leading our -- including our leading retail sports betting offerings in key markets. As we look ahead to the fourth quarter, we anticipate more of the same in terms of stability across most markets, offset by new supply pressures on the unrated and low end of our database, in addition to the onetime impact of ongoing union negotiations at Greektown in Detroit and road construction disruptions in Charlestown. Which started in September, but will thankfully conclude in December of this year. And in Black Hawk, Colorado. As it relates to overall company guidance, we anticipate ending the year within 1% of our full year retail EBITDAR guidance. For the Interactive segment, we estimate an EBITDA loss of approximately $100 million to $150 million for the fourth quarter, as we launch ESPN Bet in the next couple of weeks. Over the next 2 months, we look forward to breaking ground on all 4 of our retail growth projects. As highlighted on Slide 14, our Hollywood Aurora and Hollywood Joliet projects provide us the opportunity to replace our existing dated Riverboat properties, which have experienced revenue declines over the last several years, due to new competition that we would expect to continue absent these relocations. The relocations also allow us to avoid significant capital investments on maintaining the existing river boats by building new destination quality facilities with enhanced amenities and significantly higher traffic counts from direct access to major interstates. As well as proximity to large third-party retail and entertainment offerings. As a reminder, the city of Aurora, who has been a great economic development partner throughout this process with Penn. We'll be providing $50 million in funding for the project there, and GLPI has committed up to $575 million. And then you have the hotel projects at 2 of our highest performing properties, Hollywood Columbus and the M Resort in Las Vegas. In Columbus, we're building a 200-room hotel that's fully connected to our casino. We think this will be a key economic driver in the ongoing resurgence of Columbus' Westside and it will create a true regional destination. At the end, we'll be nearly doubling the size of our hotel by building another tower with 380 additional rooms, which will allow us to accommodate the demand for larger group business. When considering the expected continuing revenue declines at Aurora and Joliet over the next few years, we expect these 4 growth projects to deliver a 15-plus percent cash-on-cash return on the aggregate project cost of $800 million. Which is net of the $50 million contribution from the City of Aurora. These projects will also contribute to our strong free cash flow generation upon opening in late 2025 and early 2026. Turning again to the Interactive segment. As I mentioned at the outset, our plan is to go live with ESPN BET on November 14, subject again to final approvals, which will occur simultaneously in the 17 states, in which we operate sports betting. This allows us to take advantage of a very active Thanksgiving week sports calendar, which includes the NCAA College Football RivalReweek and the Super Bowl rematch of the Kansas City Chiefs in the Philadelphia Eagles, which will be televised on ESPN's Monday night football In connection with the launch, ESPN will be implementing an initial wave of exclusive integrations across the ESPN ecosystem, which includes 200 million unique monthly users in the U.S., more than 12 million of whom are regular users of the nation's #1 fantasy sports app at ESPN. Following an initial advertising campaign, headlined by Sports Center anchors, Scott Van Pelt and L. Dunkin', you'll begin to see even deeper platform and media integrations with ESPN over the coming months. Providing an unmatched and eventually frictionless media and betting experience. Importantly, when we go live, our existing customers in the Barstool Sports book will be prompted to download ESPN BET and all of their account information and wallet will seamlessly transition over to ESPN BET. ESPN BET will be powered by our proprietary and proven technology platform, which has been driving impressive performance in Ontario for over a year now under the Score Bet brand. In fact, October represents a record month for us in GGR and NGR in both online sports betting and iCasino. As you can see on Slides 12 and 13, we've had great success in terms of media integration, retention and cross-sell results, leading to double-digit market share in a highly competitive market. Notably, 73% of our total handle in Ontario comes from users already within the Score Media's ecosystem. And in terms of cross-selling, there's over 50% conversion, 5-0, of online sports betting players into iCasino. Besides SkyBet in the U.K., we think Ontario with the Score Bet, provides one of the best blueprints for success in the U.S. with ESPN BET. And with that, I'll turn it over to Felicia.
Felicia Hendrix: Thanks, Jay. Our property level performance was stable in the third quarter, owing to our diverse portfolio and the investments we have made in the customer experience. Property level revenues were $1.42 billion and adjusted EBITDAR was $523.4 million. Adjusted EBITDA margins were 36.8%, in the quarter, we had roughly $10 million net of onetime good guys in the South segment. Interactive segment revenues were $196.3 million in the quarter and the adjusted EBITDA loss was $50.2 million. Our Interactive segment EBITDA in the quarter reflects lower curtailed marketing in the U.S., as we prepare to transition our online sportsbook to the ESPN BET brand. In addition, in the quarter, we recorded a tax gross-up of $103 million, compared to $63 million in the third quarter of 2022. Further, given our divestiture of Barstool Sports on August 8, the third quarter '23 will be the last quarter where the Interactive segment includes Barstool Sports results. From July 1 to August 7, Barstool Sports generated $18 million in revenues and a net loss of $7.8 million. Slide 4 summarizes our balance sheet and liquidity. We ended the third quarter with total liquidity of $2.3 billion, inclusive of our $1 billion undrawn revolver. Traditional net leverage as of September 30 was 1.4x and lease-adjusted net leverage was 4.7x. Notably, we also have no near-term debt maturities until 2026. You'll find on Page 8 of our earnings release, a table that summarizes our cash expenditures for the quarter, including cash payments to our REIT landlords, cash taxes, cash interest and total CapEx. Of our $75 million of total CapEx in the quarter, $6.7 million was project CapEx. Our net income results include a pretax noncash loss on the divestiture of Barstool Sports, that we disclosed last quarter that we would record in the third quarter, the details of which will be in our 10-Q filed later today. Our fully diluted weighted average common shares, as of September 30 was $150.9 million. Because the dilution for potential common shares was anti-dilutive, we use basic weighted average common shares outstanding. If we reported moderate net income for the quarter, our fully diluted weighted average common share count would have been 168 million shares. To further help you with your modeling for 2023, we expect '23 corporate expense of $105 million, inclusive of our cash settled stock-based awards. Total CapEx for 2023 is approximately $345 million, net of insurance proceeds and inclusive of $45 million of project CapEx. For cash interest expense, we forecast $130 million for the full year, after roughly $38 million of interest income. And cash taxes will be roughly $70 million to $80 million for the full year. And with that, I'll turn it back to Jay.
Jay Snowden: Thanks. In closing, I wanted to cover the slides we included at the beginning of our presentation, which are meant to help remind investors of Penn's ability to generate significant free cash flow and grow our overall cash position, even in the event of an unforeseen economic downturn. So let's start with Slide 5, where we show how much free cash flow our retail operations have generated, over the last 12 months, after maintenance CapEx on a GAAP basis. On Slide 6, which is we're spending a couple of minutes on, we lay out an illustration of our cash generation bridge over the next 3 years. We start with our current cash balance and add 3 years of our retail free cash flow, as calculated on a TTM basis. This cash flow is meant to be illustrative as our LTM free cash flow, includes slightly lower maintenance CapEx than our typical $200 million a year. And our leases are subject to modest annual escalators, as you know. The biggest variable, of course, will be our operating performance over the period. For purposes of this illustration, we conservatively discounted our annual retail free cash flow to be 80% of our LTM retail cash flow and extrapolated this over 3 years. And we did not include any contribution from our growth projects. But regardless of whatever assumptions you want to make about the strength of the economy, our properties are going to generate a significant amount of free cash flow over the next 3 years, that will support our growth initiatives. Next, as I mentioned earlier, Penn plans to take advantage of available financing from GLPI and the $50 million contribution from the City of Obora in connection with our 4 retail growth projects so that, our total capital outlay when these assets open in late 2025 and early 2026 will be $225 million. And finally, while we anticipate accumulated EBITDA losses of Interactive of approximately $300 million, over the next 3 years, you can see that we expect to grow our total cash position by more than $1 billion, over this 3-year period. And going back to the interactive losses anticipated, you should expect those to occur mostly in year 1 and year 2, with year 3 inflecting to breakeven or modestly positive EBITDA. Which bridges nicely to the ranges of EBITDA, we provided on our last earnings call when you get to 2027. Of note, we anticipate our leverage ratio peaking in Q3 of next year and then coming down by roughly a full turn every 4 quarters thereafter. I hope this all helps for modeling purposes and clarify how we intend to grow our business in the near term. As Felicia covered during her remarks, we have total liquidity of $2.3 billion, inclusive of our $1 billion undrawn revolver. We also have no near-term debt maturities until 2026. An exciting new growth catalysts on the retail and interactive fronts. With all that being said, we have $750 million remaining under our December 2022 share repurchase authorization and we'll be active and opportunistic over the next few quarters if our stock continues to remain undervalued. And with that, we'll open up the line for questions. Frank?
Operator: [Operator Instructions]. Our first question comes from Carlo Santarelli with Deutsche Bank.
Carlo Santarelli: Jay, I just wanted to kind of dig into the comments that you just made. So from the slide, you're basically assuming about $1.7 billion of retail cash flow over each of the next 3 years. That doesn't include the, I want to say, $120 million you guys kind of anticipate on the developments, even though that will be stunted towards the end. But the 80% that you took, acknowledging free cash flow could be a little bit sensitive to EBITDAR and you want to provide yourself some room, is that indicative of a guidance? Or is that more just being conservative just to show kind of the strength of the balance sheet and the cash position?
Jay Snowden: Yes. Carlo, it's entirely the latter. We just felt like let's be conservative here because you can anticipate -- everybody's got a theory on what's going to happen from a macro perspective over the course of the next 12, 18, 24 months. So for us to take TTM. And the one thing you said that I would just clarify, it's not -- that's 3 years total worth of retail free cash flow, not each year, so that $1.7 billion there. We just need it to be conservative. There's no other reason. And if you want to trim it at 90% or 95% or 72% or keep it what it is on a TTM basis, any of those work. The point of the slide is to show you that even if you take a really conservative view of free cash flow generation, the investments that we're making in the 4 retail growth projects and our total cumulative loss in Interactive anticipated over the next 3 years, we're still building our overall cash position by north of $1 billion. I think this gets lost sometimes and people drill down too much on this month, last month, next quarter. The 3-year look, I think, shows you how we're thinking about growing the company and also remaining extremely liquid and continue to grow our cash position.
Carlo Santarelli: And then if I could, just a follow-up. I know you mentioned kind of a $100 million to $150 million 4Q loss as it pertains to the ESPN BET. I know there's a lot of variables in how things go and whatnot. But, as we think about 2024 in that segment, what kind of guidepost could you kind of outline for us in terms of how you're thinking about the investment over the course of 2024?
Jay Snowden: Yes. And it's a great question, Carlo. We'll provide more detail, obviously, in February when we're putting out guidance for 2024. But I think at a high level, you should expect the Interactive losses to sort of be at their peak between Q4 and then Q1 because you're going to be launching. You've got a lot of first-time deposit, match promo dollars, running through the system and you sort of capture not just NFL, but you're going to capture NBA, you're going to capture NHL. And then when you get into Q1, you're going to capture college basketball, you're going to have, call it, football championship and Super Bowl. So I think that's where you're going to see sort of peak. But from a leverage perspective, that the leverage number will peak in the third quarter because you'll be sort of on a TTM, including Q4 of this year plus the first 3 quarters of 2024. That's sort of the way I would anticipate it, but we'll definitely be showing losses every quarter in 2024. And then we'll talk more about what that looks like cadence-wise in '25 and then rolling into '26. But as I provided at the -- in the prepared remarks, you should think about the first 2 years of launch of ESPN BET, to be really where those cumulative losses are. And then in the third full year is where you would anticipate us inflecting to breakeven and better, probably modest EBITDA growth in that third year. And then that bridges you right into 2027 and the ranges that we provided on our last call.
Operator: Our next question comes from Shaun Kelley with Bank of America.
Shaun Kelley: I just want to go back to two things. First, I think in the prepared remarks, Jay, you mentioned being within 1% of overall company guidance. I just wanted to kind of clarify just does that imply we're within 1% of the midpoint? Or is that more conservative than that? And then as my follow-up, if we could just talk a little bit more about some of the programming around the ESPN BET launch. We're starting to see some operators, particularly those that are launching focus on specific states? And I just -- you're obviously able to launch very broadly, given your market access, but I wanted to kind of get your thoughts on, are there a state road map or 2 that we should be particularly focused on, either given your prior success with Barstool or kind of where you're going to front load some of the marketing, just so we can get a sense of what's possible here under the partnership as the data starts to come in.
Jay Snowden: Yes. No, both good question, Shaun. And yes, to be clear, when I mentioned within 1% of company guidance, we're talking about the midpoint of guidance. So you were correct on that. . As it relates to ESPN BET in specific states, I don't know that I would look at one particular state. I mean, obviously, the ones that are going to be probably the most important long term for us or states that have both online sports betting and online casino. I don't know, just based on the information that we've seen from ESPN, I'm not sure I'd say that they have states that they're super strong, and then the brand is weak in other states. You don't really see that. It's really based on population as the popularity of ESPN. So I wouldn't double collect on any one state. I think we're really approaching this now that we have the scale we do being live in 17 states. It's a national platform, and most of our marketing efforts, certainly from a paid and earned media perspective, will be more on the national side. And then promotionally, it will be a lot more regional and localized. But I don't -- I wouldn't point you to any 1 or 2 states at this stage.
Operator: Our next question comes from Barry Jonas with Truist Securities.
Barry Jonas: Property margins were nearly 37% for retail in the quarter. While more recently, you talked about 36%, I think you mentioned some softness in the South, margins there were really strong. So I'm just curious if there are any callouts for flow-through and how we should think about total margin range from here?
Jay Snowden: Yes. And Barry, I make sure you caught it. Felicia did mention that we had roughly -- there's always puts and takes in every quarter, when you got 40-something businesses across the country, and we had roughly $10 million of onetime good guys in the South region that certainly benefited the business results there a little bit. But even when you put -- when you include that $10 million or take it out of EBITDA, I think you'll see that margins were still pretty healthy. All things considered, very close to that 36% number. And I would -- but I would remind everyone, too, fourth quarter seasonally is always the softest quarter and not that it's going to be any softer. We don't think this year compared to third quarter than it historically is, but you should look at what that drop in margin is between third and fourth quarter, the last 2 years, and that's sort of what we anticipate again happening this year, just due to seasonality and calendar, really no other reason. The business, as we mentioned earlier, is really stable other than the onetime callouts of new supply and road construction.
Barry Jonas: Got it. And then just, as you think about sort of the longer-term opportunity to work with the ESPN personalities, around ESM BETS. How should we think about it being similar and maybe how different than your experience with Barstool personalities?
Jay Snowden: Yes. I mean, look, it's it's similar in the sense that you're working with individuals who are pretty passionate, or in the case of the ones we're talking about on both sides, very passionate about sports and sports betting. But every one of them is different, in terms of what their preferences are and how much they like to talk about the betting aspect of sports entertainment. I think what we found in our discussions with the team at ESPN is that, there's a tremendous amount of excitement. It wasn't hard for ESPN to find the first 2 personalities to get involved in creative and commercials. And I think you'll see more and more of that, as we get into 2024. This is a big deal. I've mentioned this before, and I think you guys will all start seeing, we no longer have to speculate and who's right and who's wrong about how committed to ESPN BET -- ESPN is. We know what we see and hear and engage with them about every day. And you'll start seeing that, and that includes the personalities. But the list is pretty long in terms of involvement and excitement on the ESPN side.
Operator: Our next question comes from Brandt Montour with Barclays.
Brandt Montour: So on ESPN BET and the launch and it looks like -- it sounds like you guys have a fair amount of momentum here building under the service. And sometimes, we just kind of think about, what could go so right that it might go wrong and worry about that. And so one thing that pops into my mind is just you're getting so much volume that on day 1 or 2 or 3 and you never had that level of volume before. And I'm just curious if you're able -- if you've been able to stress test the system, and how comfortable and confident you feel that you're going to be able to handle that throughput?
Jay Snowden: Yes. I'll say a couple of things. Todd, obviously jump in if you have anything to add to this as well. We've been part of why we decided to launch in November, despite having announced this partnership in August, we probably could have rushed to try to get ready for post of the start of football season, but there were really 2 things driving the decision. One, let's make sure that the product is first class, when we launch -- don't -- you have 1 chance to make a first impression. We had a number of enhancements to the app that we wanted to make in advance of launch, which we've done. And we wanted the reskin to really fill all things ESPN and ESPN Bet by the time we went live. We've had time to do them. And Noah Live and the product team have done an amazing job getting us ready for the launch. I just want to say. And then on the load testing side, that was the other factor really driving the dates. And our engineering team has done a great job of really thinking through, low testing preparation. We have had plenty of time to order additional servers and hardware to prepare for what we anticipate with volumes being the highest we've ever seen. And we sort of -- we use information that's out there around top players in the space and how much volume per second -- bets per second on Super Bowl. And the nice thing about launching on November 14, is that it's a Tuesday, and you kind of build into this before you get to Thursday night football, which is a big deal, but not -- not what Super Bowl is, certainly. And then by the time you get into the weekend. So we've thought about this. And again, pending final approvals of November 14 is the date. It's going to be mostly NBA, NHL, maybe a little bit of college football for a couple of days, then you roll into NFL 1 game, and then you get to Rivalryweekend, that weekend and roll right into Sunday and then the big Monday night football game. So we feel really good. Benji and team have been spending a lot of time and load testing has probably been the biggest piece of preparation on along with the product enhancements. Todd, if you want to add anything?
Todd George: No, I think you covered it in the second half. Just the CapEx went through rather quickly and thank you to our vendors for working with us, all the new servers are in. And the example that Jay used really was the guiding force where we tested it compared to Super Bowl volumes of the market leaders. So we feel really, really comfortable that we'll be ready to handle, going into such a busy time of year.
Brandt Montour: That's super helpful. And then a bit of more nuanced question on the customer experience sort of on day 1. I think you just said, Jay, or earlier in the prepared comments that on day 1, we all wake up and be prompted to download ESPN BET, if we already have Barstool app on our phones. I think we were expecting that it might sort of download itself at some point and maybe it's just semantics, but is that something that could be considered a minor extra layer of friction? Or how do you kind of foresee that playing out for the consumer experience?
Jay Snowden: Yes. I think there's plenty of examples of companies that have done this before. Felicia, you use one all the time.
Felicia Hendrix: Yes. If you've used HBO Max and then when it just went to MAX, when you open the app, it prompted you to download the new app and then you could use all your prior credentials. The whole thing took like -- takes like 2 seconds. That's the experience that we'll have on -- with ESPN BET.
Jay Snowden: And part of the thinking there also is that you start -- you get an opportunity to just reset everything, in terms of the history and the ratings and the comments and all of that stuff just resets. So it will be consistent, all focused on ESPN BET and no historical information in the app when we go live, again, pending final approvals on November 14.
Operator: Our next question comes from Sam Gaffer with Macquarie.
Unidentified Analyst: Jay, you previously mentioned that you hope to grow the overall size of the market, given the strength and reach of the ESPN brand, I was wondering if that changes your your strategy in the earlier stages of your launch, as it relates to pricing, hold rates and retention. And then as a follow-up, are there any stats or data points that we can look to, as we think about retention rates for new sports betters versus more experienced sports betters?
Jay Snowden: Yes. I would say let's sort of -- let's put that one on hold, in terms of how are we thinking about retention of existing versus new. What I would say is that the first part of your question, in terms of growing the TAM, that's a big focus for us. And we have -- we have a great starting point. We have roughly 2 million digital customers within our ecosystem that we picked up, obviously, the bulk of that with Barstool Sports book and then we've got Hollywood Casino, the historical database there, social gaming. We've got Pen play. So we've got a pretty big digital database that we're going to be able to cross-sell those 2 million people to ESPN BET, and we know their history. We know them very well. And then, of course, ESPN, the brand, the brand equity, we think that we can really grow the market with a lot on the side of casual betters. Who maybe have bet once or twice or intrigued by it and they really trust the ESPN brand. And so there's our opportunity to cross-sell from the ESPN media ecosystem into ESPN BET, we really like our chances there, particularly with the 12 million in their Fantasy database. There's a high propensity to bet on sports, as we know with Fantasy players. But I -- look, I think one of the things that we've talked about internally, in terms of what does success look like, is that we want to see whatever that market share is in the first couple of months. We want to see that continue to grow over time. But we don't, and that will speak to the product and the retention. What we don't want to have is a giant splash in the first month or 2, and then you leak market share, like that would not be deemed to success. So as you're thinking about retention, and we'll share more of the KPIs, obviously, after we launch. We don't have any as we sit here today. But we'll be able to share a lot more by the time we're getting together in early February. And then, of course, we talked on our last earnings call about an Investor Day, which we still plan to do. We had initially said before year-end. But as we thought about it more, we're just not going to have enough information to share, if we try to jam it in before year-end. So we'll do it sometime in Q1. Most likely sometime between Super Bowl and the start of March Madness, good time of the year to do it, and we'll have 2 to 3 months of results under our belt. So I would say stay tuned in terms of the KPIs around retention, but at a very high level, we want to continue to build our market share over time and not have it be a giant shot gun day 1 and then you slowly leak market share. That's not the goal. And that's why I think you'll find that our approach in terms of how we're marketing and how we're investing in customers and promotional dollars, paid media, how we're thinking about integrations, that's all going to continue to build over time. That's not going to be that we go out there day 1 or month 2 or month 3 and try to bring everybody into the ecosystem. We want to build this thing over time.
Operator: Our next question comes from Joe Stauff with Susquehanna.
Joseph Stauff: I wanted to ask a couple of questions maybe on your Ontario market, that being sort of the analog. I guess, as I look at the math and you did indicate say double-digit market share. So you're growing with the market, on a year-over-year basis. It certainly seems just kind of based on the numbers as well. And I'm wondering if you've seen any, say, changes in that market, where an operator gets more aggressive, say, with promotional spend or not? Or do you think that market has kind of stabilized in terms of where everyone's market share is today, say, versus last quarter or the previous quarter? I guess that's the first question. And then the second question is, again, in the same market, Ontario, do you see anyone in the Ontario market, there's a large number of them, with an effort to have an integrated product offering like you have media sports book to casino?
Jay Snowden: Good question, Joe. I'll hit the second one first because I think it's the easier of the 2. And the answer is no. We don't see any of the competitors in Ontario or in the U.S., that have really focused on this deep integration between sports media and sports betting. And I think we've got it to a point in Ontario, where it's pretty frictionless. I hesitate to really hang on that word because people may sort of define that differently. But you don't know when you're in the Score media app and you're populating a bet slip. And then when you're ready to place the bet, you click and it takes you right over the score bet, you place your transaction and you move right back over the score and finish reading your story or whatever you were doing checking scores and stats, et cetera. And we envision getting there very quickly here in the U.S. with ESPN. And the great news about the integrations that we've been able to execute and deliver on in Ontario is that our friends at ESPN have experienced that and we have a shared vision of getting there, here in the U.S. as quickly as possible. So it's not as though there's a disagreement or a different vision for how we want to integrate and how we want to cross-sell. And as you mentioned before, the couple of slides that we included on 12 and 13 about Ontario speaks to 73% and of the wagers and handle in our ecosystem coming from those that were media users before we launch. So that's 3 quarters. It's very strong. And then our ability to cross-sell within our app, from sports betting into online casino of greater than 50%. Those are great results. And I would say, we mentioned or showed in this Slide 13, what our growth is year-over-year, and then I also highlighted we actually broke every record in October. It's preliminary. Obviously, we have to audit through everything. But our preliminary results in October were on a GGR and NGR basis, the best month that we've ever delivered in Ontario. So we have tremendous momentum. The market has only gotten more competitive. There's over 40 operators and over 70 competing brands in Ontario, and we continue to grow our business at or above market growth levels. As you can see in the slides there, especially on the online casino side as we get more and more effective of cross-selling between online sports betting and online casino. So I don't -- and to the first part of your question, I don't -- we really don't see anything crazy from a promotional standpoint in Ontario from anybody. There might be waves of -- remember, you've got sort of a moratorium on being able to advertise what your promotions are. It's more brand advertising. But you'll see waves of some companies being more aggressive during certain times of the sports calendar. But generally speaking, it's pretty stable promotionally, which I think makes the growth story that we've been able to deliver on more impressive and what gets us even more confident for our ability to execute here in the U.S.
Operator: Our next question comes from John DeCree with CBRE.
John DeCree: Maybe one, I guess, kind of elements your housekeeping, but on Slide 6, with the free cash flow bridge, if you could just kind of clarify the net cumulative investment in digital interactive with $300 million. Is the translated to kind of cumulative EBITDA losses, is it included in CapEx, just if you could kind of help us frame that a little bit?
Jay Snowden: Yes. There's not a ton of CapEx, that goes into the interactive side now that we've built out the team, and we've gotten ready for ESPN BET launch, there will be some, but it's not at a magnitude for example, of what you see on the retail casino side of things. So the reason we provided the range of $200 million to $400 million, we wanted that to be all inclusive. So that would be EBITDA loss and CapEx investment over the 3-year time horizon. And again, as I mentioned before, the losses will really accumulate in the first 2 years, and then we anticipate inflecting and starting to see some positive EBITDA in the third year.
John DeCree: Got it. And then maybe at the property level. Earlier question, the margins were pretty strong. I realize there was $10 million of of onetime benefits in there, but still pretty good margins. Conversation that we still have often is OpEx inflation. Curious if you could give us your views on what you're seeing in terms of utility and wage inflation, labor inflation? And if any kind of outlook for where you have visibility in your business, that would be helpful.
Todd George: Thanks. I'll take that. This is Todd. So we actually have been looking at this a lot. We've got a great team that has really helped us on the utilities front. We've completed several projects coming out of COVID, around energy efficiency. So we've really been able to mitigate some of that, as well as locking in futures for a lot of the utilities that we use. So, we have been very fortunate and very prepared to kind of deal with this. So we haven't seen that yet. And then on the wage and labor front, I would say that, yes, there are some wage and labor creep there, and we specifically called out Griptown and what's happening there. But for the most part, you're looking at this new dynamic, where you can do more with less labor. A lot of the technology initiatives that we have in place have made us a more efficient operations. So we're able to mitigate a lot of that as well.
Jay Snowden: The one area where I believe some of our competitors have mentioned this on their calls, where there you're seeing some cost creep is certainly on the insurance side, property insurance. It's just the market right now plus concern around hurricanes and things of that nature. And of course, cyber insurance is not going down, especially after what's happened not just in our industry, but in so many of late. So you're definitely seeing some cost creep on the insurance side. But as Todd mentioned, I think he and our operations team have done an amazing job and have a good handle on all of this. And obviously, the margins that we've delivered on, includes some of those headwinds.
Operator: Our next question comes from Dan Ppolitzer with Wells Fargo.
Daniel Politzer: Just one here on Interactive. I mean I think that you gave a lot of good commentary on how to think about the cadence of the losses going forward. But I guess as we kind of try to unpack 3Q and look at your kind of scale and operating expenses, you gave a few pieces related to Barstool and then there's market access fees in there. But -- any way to help us think about kind of the run rate of your fixed costs in this business? And do you feel like you're at a scale, where we'll really start to see that EBITDA start to inflect, as you maybe get that GGR share that you've aspired to?
Jay Snowden: Yes. I mean I'm trying to keep it largely focused on what we've said already, Dan, just because I think the way we sort of laid out what you can anticipate in the next couple of years versus year 3 speaks to the timing of inflection. We anticipate having a successful launch, having a stable platform throughout that launch period, growing the business over time. And I think that as you're thinking about the cadence, I think Carlo asked the question earlier, we gave some information on kind of what you should expect for next year. So I don't know if Felice or Todd, do you have anything to add there, but I don't really have anything else in terms of what to expect.
Felicia Hendrix: No, I think you said it.
Jay Snowden: Yes, yes. I just don't -- Dan, unless you have a specific question, I think I covered whatever you are saying.
Daniel Politzer: Yes. I guess another way to ask it is the incremental losses from kind of where we are today? Is that all marketing and advertising? Or are you assuming any incremental fixed cost adds in there, you may be at engineers or some administrative stuff?
Jay Snowden: It's all in. I mean, I don't -- yes, there's -- it's not one of those things driving. That's why we wanted to do this 3-year look of. And there's so many factors that go in. What's your hold percentage is going to be, what's your handle market share, what's your promo cost and percentage of handle and GGR going to be and what's your paid media. And I think this what we provided here on the 3-year outlook, includes all of that, including ramping on the staffing side with engineers and product team members and marketing folks and operators. We've done a lot of ramping, as you can imagine, over the course of the last 3 months in anticipation of this launch. We've hired hundreds more people for our call center, for example. So there's a lot of that ramping, that has gone into the third quarter result, that we just reported, but we don't have any of the benefits yet of ESPN BET launch. So that's why you see the loss there. There were some onetime noise on the media side, as well that we disclosed and Felicia covered. But just you should assume, Dan, that this range we provided on the 3-year includes all of that and that our thoughts around how we're going to spend both on channel with ESPN from a marketing perspective, $150 million per year and then off channel, they'd be roughly that same number. That thought process and approach has not changed, as we show you what this 3-year outlook looks like.
Operator: Our next question comes from Stephen Grambling with Morgan Stanley.
Stephen Grambling: I thought I just clarify some of the guidance commentary. I think you previously talked to EBITDA for the year. Just want to make sure that if we're looking at some of the puts and takes in the 4Q that on my math, maybe gets around $650 million. Just if you could provide some brackets around what at least 4Q we should be looking at in terms of the brick-and-mortar business.
Jay Snowden: Yes. The midpoint for the brick-and-mortar business for the year is $2.022 billion. So when we say within 1%, we're talking about brick-and-mortar. We gave separate guidance for Interactive of between $100 million and $150 million in losses for the fourth quarter.
Stephen Grambling: That's helpful. Great. And then one other quick follow-up. So I think on the digital side, this past quarter was a little bit elevated, relative to people's expectations, and I know you kind of touched on this a little bit, but does that include some onetime things? Or is that also reflective of kind of like a new base level of cost that we should be layering the ESPN deal on top of?
Jay Snowden: You're talking about the third quarter Interactive results, Stephen?
Stephen Grambling: Yes.
Jay Snowden: Yes. I mean there's one time in there that Felicia covered on the media side, as we closed out our ownership of Barstool Sports from July to August 8. And then beyond that, it's really 2 things. One, we literally spent no money on marketing because we're switching brands on November 14. So it doesn't make sense to spend money on the brand that you were using previously. And so -- but you should assume in there that we had significant ramp on the payroll side of things because we're getting ready for a launch, and we expect to be at a certain level of scale and volume that we have not seen before. So that number incorporates all -- so it's sort of like you've got the downside of preparing for the launch, but you don't have any of the upside of the revenues that come with the launch. That's what really drove the 3Q. I wouldn't use the 3Q number for any purposes of modeling out the future.
Operator: Our next question comes from David Katz with Jefferies.
David Katz: I appreciate all the detail. If I can just ask with respect to the Digital, is there any sort of crossover benefit that you could point to potentially with the land-based business? Do you have any sort of insight or data that can support that? And I'll put my follow-up out there upfront, which is we've seen other operators as they go on the journey of digital, making tuck-ins to enhance product or their tech stack in some way? Should we be anticipating there would be any of those?
Jay Snowden: David, I'll tackle the second one first, and then I'll ask Todd to tackle the first part of your question. Well, let me answer the tuck-in question this way, which is we don't feel like we're missing anything today. We've made our investments, certainly significant ones, to get to a point where -- we've got a very strong brand to lead with in Canada, that has proven out to be a very successful investment. Of course, the technology, that we acquired as part of the Score acquisition. We've now fully migrated to the U.S., and we're ready to go with ESPN BET on our own proprietary tech stack. And so are there little things that you could think about investing in or owning to make your product better, faster, offer more markets and features -- perhaps, but we don't -- as we sit here today, we certainly don't feel at launch, like we're missing anything. And we've got to go make an acquisition, large or small, to take the app to the next level. It's really about, from our perspective, on the product side is continuing. We've been so focused on migration. I think we've got a lot of ideas on the product road map on how to enhance features and markets, for example. And a lot of the effort over the course of the next 12, 18 months is going to be on going deeper and deeper on integrations with ESPN throughout ESPN BET, to make it as seamless and frictionless as we all envision and accomplish a lot of the things that we've already done in Ontario. We know how to do it. We've got the template and we'll be executing on that here in the U.S. as well. But I don't anticipate certainly not in the near term, you'll be hearing from us on acquisitions. Again, things can change, but we feel like we've got -- we're in a really strong position as we sit here today. Todd, I'll let you answer the first question.
Todd George: Thanks, Jay. And David, great question. We refer to this as kind of our omnichannel approach. And -- for the last several years, Jay, myself, Jennifer Weissman, from marketing have kind of talked about this. And really, you can see this dynamic for us, not only here but on a property basis, we have multiple properties in the same market. And we can see the value of that consumer, when they play with us across multiple properties. Take that example and then just apply it, somebody that joins us through online channels and then visits a property plays up at a significant multiple. And we have goals as a leadership team, around making sure that we're introducing our other offerings to these consumers. Whether they find us through online channels or through a property because the multiples that we're seeing. And I think in the future, we'll have more data around this and be able to talk in more detail but it's very encouraging to see how much more valuable they are when they play 1, 2, 3 different channels. So if they play at property, if they bet with us through online sports betting, and then especially in those states that have online casino offerings, we're really unlocking some value there.
Operator: Our next question comes from Jason Tichen with Canaccord Genuity.
Jason Tilchen: First, in terms of the since the migration in early July, understanding that it's tough to compare apples-to-apples to prior to that because of the level of marketing investment. But just within the existing sort of customer base, have you seen a similar uplift in hold rates or par lane mix in the U.S. relative to what you've observed in Ontario?
Jay Snowden: It's been similar. We actually have had -- we're coming off of a very strong hold month in October, both in Ontario, as well as in the U.S. It's still early days. I mean, obviously, we were continuing to make a number of enhancements and updates to the app in the U.S. between full migration in July. Until you got to the start of football season and from the football season, so when we go live with ESPN BET in November. So I think we'll be much more comfortable sharing stats and KPIs with you around some of the questions you asked post ESPN, that launch when we've got more marketing activities and more promotions going. And we now have a featured bet on our home page, which is fantastic in that we can start to drive behavior and merchandise differently, than we were in the past around some of the integrated betting options with ESPN and the personalities there and Parlay, same game Parley, as we can do that dynamically throughout a given day or weekend. So the product continues to get better and better. And I think we'll wait on some of those KPIs until we launch with ESPN.
Jason Tilchen: Great. That's helpful. And just one quick follow-up. In the press release, you called out some of the positive impact at your land-based properties from the presence of the retail sports books. I'm curious, has there been any determination surrounding the potential to use the ESPN branding around those? And what are the plans as you transition away from the Barstool brand, here in the next few weeks?
Todd George: Yes, great question. So we're almost completely de-themed removing the Barstool theme. They're sitting there as a Sportsbook now and really honoring kind of the local markets that we operate in. We're working with ESPN. ESPN has sent their representatives to several of our properties. And to date, the feedback has been great. So we'll talk about where we can take this brand at our retail locations and find something that works for both of us.
Operator: Our next question comes from Ryan Sigdahl with Craig-Hallum Capital.
Ryan Sigdahl: I was having a hard time keeping up with the new guidance. So could you just clarify exactly what you're guiding to? I thought I heard sales and then you talked EBITDA last. And the last -- I don't believe you updated in Q2. And the last IC is Q1, which included bar stool for the full year. So I guess can you specify sales versus EBITDA versus margin? And then specifically, what metric we should be thinking plus or minus 1% relative to?
Jay Snowden: Yes. Ryan, sorry, if there's any confusion. I don't think we referenced sales at all or margin. We're talking about EBITDA on the retail side of the business at the midpoint, for the year was $2.022 billion. And we believe we'll end the year on the retail side within 1% of that number. Interactive separately will be between $100 million and $150 million EBITDA loss for the fourth quarter.
Operator: Our next question comes from Daniel Guglielmo with Capital One Securities.
Daniel Guglielmo: Just on the brick-and-mortar side, it seems like the gaming names of near-term development projects have traded a little better over the last few months. And you highlighted your developments coming up. Would you ever think about accelerating any of those developments or adding additional properties to the pipeline?
Jay Snowden: Dan, I would say for now, there's not a plan to do anything on an accelerated basis. It's sort of really driven by the market and supply chains and construction schedule. So there's not a lot you can or would do to accelerate those. I think the timeline that we provided for those between end of '25 and early '26 is that's the right time line to think about. We're always looking at opportunities to invest in our businesses. You don't always have an opportunity to relocate properties. I mean these Aurora and Joliet projects are sort of once in a decade, you get a chance to greatly improve your location, greatly upgrade your offerings, both on the gaming and nongaming side, go from a riverboat to land based and all the efficiencies that come with that and you get out of the deferred maintenance CapEx mode into growth mode. So we couldn't be more excited about those 2. And of course, the hotels at M and Columbus are long overdue we've had demand for hotel addition and a new hotel, the first one at Columbus for years. And for lots of reasons, we just -- we couldn't or didn't pull the trigger. But we're always looking internally at projects like that, and there could be more down the road. We don't have anything right now that we're ready to announce. Todd, you want to add anything?
Todd George: Yes. Great answer, Jay, I think the only thing I would add is these are already fairly aggressive time lines for all the reasons that Jay mentioned, especially with the time line and labor force and everything else. So again, we feel very comfortable that we can hit these targets. And to Jay's point, we constantly look at our capital for options that are out there. But these 4 make make a ton of sense.
Daniel Guglielmo: Great. And then just on the funding side for those 4 developments, is there a time frame for when you need to decide how and when you would get the funding from GLPI?
Felicia Hendrix: No. Thanks. No, there's no time line. What we've said in the past is that we'll take the funding at the end of the project. So as we're opening and if you think about it, we wouldn't want to take the funding before they open because then we would be paying rent on projects, that were not generating EBITDA. So you want to have that matching. So I would -- as you model it out, I would assume that we take the funding as the projects complete.
Operator: Mr. Snowden, there are no further questions at this time.
Jay Snowden: All right. Great. Frank, and thanks, everyone, for dialing in. Great questions, and we look forward to speaking with you again in February.
Operator: That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day, everyone.
