Barstool divesture leaves Penn Entertainment with $724.8m net loss in Q3

Portnoy bought back 100% of Barstool’s share capital “in exchange for certain non-compete and other restrictive covenants”. There was also a nominal cash consideration of $1. Penn Entertainment confirmed divesture of Barstool, its sports betting brand since 2020, in August. This had an impact on bottom line in Q3.

According to Penn, the divesture incurred a $923.2m loss for the quarter. This was noted in its Q3 results, meaning that despite revenue remaining almost level-year-on-year, it was left with a heavy quarterly loss.

The Barstool sale, however, forms part of Penn’s long-term plans, with the group linking up with ESPN. The deal with Disney-owned ESPN is worth around $1.50bn.

In becoming ESPN’s exclusive sportsbook, this effectively ends ESPN’s existing partnerships with the likes of DraftKings and Caesars. Both brands were previously mooted as potential sportsbook partners for the broadcaster. 

Penn’s existing Barstool sportsbooks will relaunch under the new ESPN Bet brand on 14 November, as confirmed today (2 November) by Penn.

“We are excited to announce that we plan to simultaneously launch ESPN Bet across the 17 states in which we operate online sports betting, subject to final approvals,” Penn CEO Jay Snowden said. 

“This strategic alliance is expected to further expand our digital ecosystem and drive re-engagement with the millions of customers in our digital and retail databases, leading to compelling cross-sell opportunities.”

Revenue almost level at $1.62bn in Q3

Taking a closer look at the three months to 30 September, revenue for Q3 was $1.62bn, a marginal drop of 0.4%. Gaming revenue slipped 5.0% to $1.25bn but food, beverage and hotel revenue jumped 19.5% to $367.3m.

Breaking this down by business, the Northwest segment led the way with $687.0m in total revenue for Q3. South segment revenue reached $308.2m, Midwest revenue $293.4m and West revenue $135.1m.

Turning to the Interactive business, revenue amounted to $196.3m, which was 23.7% ahead of Q3 2022. Penn owned 36% of Barstool stock prior to acquiring the remaining 64% in February this year.

Further revenue of $4.5m came from other sources including stand-alone racing operations. In addition, Penn discounted $5.1m in inter-segment revenue from its final total.

Operating costs rocket 61.7% after Barstool divesture

As for costs, these were up by 61.7% year-on-year at $2.41bn, mainly due to the Barstool divesture. Other major outgoings at Penn include gaming costs at $709.0m and general and administrative expenses of $406.4m.

Penn also noted $100.4m in other expenses, primarily related to interest, leaving a pre-tax loss of $886.8m. This is far wider than the $58.8m loss posted at the end of Q3 last year.

After receiving $161.7m in tax benefits and taking off $300,000 in loss from non-controlling interests, net loss for the quarter was $724.8m, in contrast to last year’s $123.5m. However, Penn remained in the black in terms of adjusted EBITDAR, which hit $445.1m, although this was down 5.7%.

Revenue nears $5.00bn in year-to-date

As for Penn’s performance in the nine months to 30 September, revenue hit $4.97bn. This is 3.2% ahead of $4.82bn at the same point in 2023. Gaming revenue fell 1.7% to $3.87bn but food, beverage and hotel revenue was 24.5% higher at $1.10bn.

Segment-wise, the Northeast business drew the most revenue during Q3, posting $2.08bn. Revenue in the South reached $931.3m, Midwest $882.0m and West $394.8m. Interactive revenue topped $687.3m, other revenue $16.5m and inter-segment eliminations $19.9m.

Total operating costs were 30.9% higher at $5.35bn, including the $923.2m Barstool loss. However, Penn was boosted with $290.1m in additional income, with a $500.8m gain on REIT transactions more than offsetting other costs.

This left a pre-tax loss of $91.7m, compared to a profit of $122.8m last year. Tax payments totalled $40.9m and Penn discounted a $700,000 loss from non-controlling interests.

As such, Penn ended the period with a net loss of $131.9m, in contrast to a $201.3m net profit in 2023. Adjusted EBITDAR slipped 4.8% to $1.40bn.

Snowden’s closing comments on Q3

“Our property level performance was stable in the third quarter reflecting solid results from our rated traditional core customer,” Snowden said. “We continued to see relative strength in several locations, including our casinos in Ohio, Kansas, Massachusetts and Missouri, which highlights the benefits of our geographically diversified portfolio of premier regional gaming assets and the addition of retail sports betting offerings at many of our properties. 

“Q3 Interactive segment results reflect curtailed marketing in the US as we prepared to transition our online sportsbook to ESPN Bet. 

“We are also pleased to announce that we expect to break ground on our four growth projects throughout November and December of this year. 

“These investments in the aggregate will create long-term shareholder value driven by their attractive return profiles and also contribute to our strong free cash flow generation upon opening in late 2025 and early 2026.”