Greetings, and welcome to the Penn National Gaming Third Quarter Conference Call. [Operator Instructions] I would now like to turn the conference over to Mr. Joe Jaffoni of Investor Relations. Please go ahead. .

Thank you, Frank. Good morning, everyone, and thank you for joining Penn National Gaming's 2021 Third Quarter Conference Call. We'll get to management's presentation and comments momentarily as well as your questions and answers, but first, I'll review the safe harbor disclosure. .

In addition to historical facts or statements of current conditions, today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which involve risks and uncertainties.

These statements can be identified by the use of forward-looking terminologies such as expects, believes, estimates, projects, intends, plans, seeks, may, will, should or anticipates or the negative or other variations of these or similar words or by discussion of future events, strategies or risks and uncertainties, including future plans, strategies, performance, developments, acquisitions, capital expenditures and operating results.

Such forward-looking statements reflect the company's current expectations and beliefs but are not guarantees of future performance. .

As such, actual results may vary materially from expectations. The risks and uncertainties associated with the forward-looking statements are described in today's news announcement and in the company's filings with the Securities and Exchange Commission, including the company's reports on Form 10-K and Form 10-Q.

Penn National assumes no obligation to publicly update or revise any forward-looking statements. .

Today's call and webcast will also include non-GAAP financial measures within the meaning of SEC Regulation G. When required, a reconciliation of all non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP can be found in today's press release as well as on the company's website.

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Thank you for your patience with that. And it's now my pleasure to turn the call over to the company's CEO, Jay Snowden. Jay, please go ahead. .

Thanks, Joe. Good morning, everyone. Thanks for joining us for our third quarter earnings call. As usual, I have here with me in Wyomissing, our CFO, Felicia Hendrix, our Head of Operations, Todd George and other members of my executive team who can help answer your questions during the Q&A session. .

As you can see from our earnings release and corresponding investor presentation, we achieved many significant milestones during the third quarter. We successfully launched the Barstool Sportsbook mobile app in five new states, which more than doubled the size of our footprint.

And just this week, we launched in Iowa, bringing our total to 10 live states. We also continue to grow and evolve our brick-and-mortar footprint. During the quarter, we opened Hollywood Casino, York and Pennsylvania.

The strong initial results began to roll out our market-leading cashless, cardless and contactless 3Cs technology across the portfolio and have continued to see tangible benefits of our highly differentiated omnichannel strategy. .

On the core business side, the third quarter was really a tale of two halves for us. July started off with the same positive momentum we saw in the second quarter with revenues up 10% over 2019 and adjusted EBITDAR up 40%.

That momentum slowed beginning in the second half of August and into September due to Hurricane Ida, which affected us significantly in the South region and the regional flare-ups of the Delta variant, which combined impacted property adjusted EBITDAR and adjusted EBITDAR margins by an estimated $30 million and 85 basis points, respectively. .

Additionally, the other segment results reflect $7.5 million of expenses related to new state launches of the Barstool Sportsbook app that I mentioned earlier this quarter as well as $12.5 million for our share of the initial campaign expenses for the sports betting ballot initiative in California.

Looking ahead, October reflects more of what we saw in the first half of the third quarter with strong property level performance across our segments with a few notable exceptions due to new competition in Colorado and Indiana and the residual effects of Pennsylvania's continued gaming expansion. .

Engagement among our younger demographic continues to be strong and is more than offsetting the decline we saw in our older demos in the quarter due to delta. Further, our VIP segment, which grew 33% year-over-year in the third quarter continues to outperform.

Notably, our retail Barstool Sportsbook concepts are continuing to stimulate database growth and increase frequency of visitation in the younger segments while also boosting gaming and food and beverage spend. .

Our retail sports books are now #1 in handle market share in the states of Indiana, Iowa, West Virginia and Michigan and we're excited to announce the recent opening of two new retail sports books this week in Louisiana at L’Auberge Baton Rouge and Boomtown New Orleans with more to come in the coming weeks.

We cannot be more pleased with the momentum we are seeing in our Interactive business with monthly active users for the Barstool Sportsbook and casino growing over 6x what they were in September of last year.

We have been able to achieve this growth while maintaining our disciplined approach to marketing, which has resulted in blended customer acquisition costs of under $100 for the year. .

In addition to our increased footprint, new features to the Barstool Sportsbook app, including Parlay+, which is same game Parlay and Shareable Bet Slips have also driven performance.

We are now seeing well over 100,000 bets per week on Parlay+, which is leading to higher engagement and higher hold rates and the shareable bet feature is really helping to leverage our strength in social media with over 140,000 bets shared last week alone. .

I'm pleased to say that the Barstool Sportsbook is now tied also for first among all mobile sports betting apps in the Apple Store -- Apple App store, excuse me, with a user rating of 4.8 on a scale of 5.0. .

With the return of football, we have successfully developed top 3 to top 5 handle market share positions in every state that has reported so far in September, while continuing our disciplined approach to marketing that I referenced earlier.

In September, we proved the strength of our approach as 1 of only 3 operators in both Michigan and Pennsylvania to generate positive net gaming revenue despite a relatively unfavorable hold percentage versus the competition.

Our Penn Interactive team, which has obviously been very busy this quarter, also rolled out a Barstool-branded live dealer studio in New Jersey, which for those of you that caught it was being played and live streamed last night by Big Cat and Logan Paul for some pretty amazing content.

And also last week, launched our first in-house developed digital iCasino game from our Hit Point acquisition called Barstool Blackjack. .

We expect these products to drive additional cross-sell from the Barstool audience with further iCasino upgrades on the horizon. All of this positive momentum will be greatly enhanced by our acquisition of theScore, which officially closed on October 19.

With Barstool's wide audience reach at the top of the customer acquisition funnel and theScore's ability to engage and retain sports fans with its highly complementary content, we're creating a one-stop destination for the consumer that simply doesn't exist today. .

In addition, as the #1 sports media app in Canada, theScore is uniquely positioned to capitalize on the legalization of single event sports wagering in Ontario with the launch of theScore Bet when the market opens, which now looks likely to occur in Q1 of 2022.

We anticipate theScore Bet app will be the brand we lead with in Canada, while we continue to lead with our Barstool Sportsbook app in the U.S. But both brands will mutually benefit from the marketing support of Barstool Sports and the integration with theScore's media app. .

Looking forward, we are focused on building a highly differentiated and fully integrated media and sports betting tech solutions with our partners at theScore while opportunistically pursuing revenue growth, including new markets such as Ontario.

Despite these significant planned investments in product and marketing and the delayed launch from what we initially anticipated in Ontario, we expect our Interactive business to generate a loss of only approximately $20 million in the fourth quarter. .

As I hope you've come to learn what really sets Penn apart from the competition is our strategy to buy and build, whether it's brands, experiences, loyal customers, products, tech stack, versus the renting of [ eyeballs ] via aggressive traditional marketing tactics.

Our goal continues to be developing bespoke products and features with features and promos that are experiential, fun and differentiated, rather than relying primarily on paid advertising, our promos often include unique bets, branded merchandise and VIP Barstool experiences that simply can't be found elsewhere.

We expect that this approach is the right long-term strategy and will result in a best-in-class margin profile and loyalty and retention. .

The power of our fully integrated omnichannel and media strategy was on full display during our successful promotion and event held in late August at our Hollywood Casino, Aurora property. As you know, Illinois currently requires in-person registration for new mobile sports wagering player accounts at a casino.

By featuring a special promotion on the Chicago Bears game, which culminated in a block party in the parking lot of our casino attended by key Barstool talent, we were able to drive nearly 10,000 first-time depositors over a 5-day period with minimal paid media expense.

That 10,000 for context, compares to we were averaging about 25 to 30 per day up until that point. .

Finally, before turning it over to Felicia for a brief overview of our financials, I wanted to know how impressed we continue to be with the ability of our partners at Barstool Sports to leverage their growing and loyal audience by pursuing opportunities outside of traditional sports media or betting, starts unlocking huge new channels of future growth.

One Bite Pizza is one of the highest selling products in the frozen food section at Walmart stores across the country.

Incredibly, Barstool is now also representing over 135,000 collegiate athletes under the NCAAs new name, image and likeness rules, and they're continuing to extend their established media footprint by securing the broadcast rights to the Arizona Bull as well as playing a prominent role in the recent Jake Paul versus Tyron Woodley fight on Showtime, which featured commentary from Dave and Big Cat during the broadcast.

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Now I'll turn it over to Felicia. .

Thanks, Jay, and good morning, everyone. We reported revenues of $1.5 billion and adjusted EBITDAR of $480 million in the third quarter. Revenues were 10% above the 3Q '19 levels and adjusted EBITDAR was 17% higher. There were a number of onetime items that affected results in the quarter, which Jay discussed earlier.

A detailed breakout of these items can be found on Slide 5 of our earnings deck, which was posted on our website this morning. .

As Jay mentioned, we achieved a major milestone last month as we closed on our almost $2 billion acquisition of Score Media and Gaming and proudly welcome theScore team into our Penn family. We are excited about what lies ahead, and we continue our evolution into being North America's leading digital sports content and entertainment company.

As for several housekeeping items, corporate expense which is reported in our other segment was $27.8 million in the quarter. Our cash rent payments were $228.5 million, cash taxes were $47.9 million and cash interest was $21.7 million. Maintenance CapEx was $52.3 million.

And we remain on track and on budget for the opening of our second category for casino in Pennsylvania later this year, Hollywood Casino Morgantown. .

Our balance sheet continues to be a key asset for us as we remain focused on growth even following our acquisition of theScore. Total liquidity as of September 30, 2021, was $3.4 billion, consisting of $2.7 billion in cash and our $700 million undrawn revolver.

Traditional net debt was $45 million, a decrease of $71 million during the quarter, principally due to repayments under our senior secured credit facilities. Our lease adjusted net leverage was 3.9x based on trailing 12-month EBITDAR.

As a reminder of our roughly $2 billion purchase of theScore, approximately $923 million was paid in cash, and we estimate the transaction was levering by 0.5 turn.

As the delta outbreak reminded us in the third quarter, the environment remains uncertain while the future looks bright, and we believe we can continue to generate revenues and adjusted EBITDAR above 2019 levels, we continue to maintain our current policy of not providing guidance, and we will reevaluate quarter-to-quarter. .

And with that, I'll turn it back over to Jay. .

Thanks, Felicia. I referenced Hurricane Ida earlier in my remarks. It really is incredible when you stop to think about it that this storm hit on August 29, 16 years ago to the day after Hurricane Katrina devastated much of the Gulf Coast.

I've been overwhelmed, but I have to say not surprised by the response from our team members across the country in the aftermath, which once again demonstrated the compassion and dedication our Penn family has for one another.

With limited supplies available in New Orleans and basic utilities completely disabled our sister properties quickly helps to provide temporary housing and much needed provisions. .

In addition, our Penn National Gaming Foundation established the Hurricane Ida Emergency Relief Fund for team members to apply for financial assistance for immediate needs. Meanwhile, we continue to expand our support for our nation's heroes.

One of our newest partner organizations is the Concussion Legacy Foundation, which launched a special project focused on CTE and PTSD research on veterans.

In addition, in the wake of our country's withdrawal from Afghanistan, we are offering financial support to the No One Left Behind organization to provide funds to help Afghan special immigration Visa recipients with food, housing, clothing and a no-interest loan program, which helps immigrant families become self-sufficient.

One of our fellows from the U.S. Chamber of Commerce is hiring our Heroes program, which helps active military personnel transition back into civilian life, recently volunteered at Fort Pickett to help some of the 6,000 temporary refugees there learn new job search skills to help acclimate life in America. .

Also during the quarter, with female members comprising 44% of our corporate Board of Directors, Penn has been recognized by 2 separate organizations for its Board diversity efforts.

We were named a champion of Board diversity by the form of executive women, the Greater Philadelphia Region's premier women's organization, and we will also be honored on November 10 at the Women's Forum of New York's annual Breakfast of Champions for leading the way of gender balance on corporate boards.

And with that, I'd like to hand it back over to Frank to open up the line for questions. .

[Operator Instructions] Our first question comes from Joe Greff with JPMorgan. .

Jay, I just want to lead off and talk specifically about Ontario and your approach there and how that -- the marketing the acquisition environment, you anticipate being versus what I would imagine, be very different than what we're seeing here in the U.S.

I was hoping you could give us a sense of your approach there and what you anticipate?.

Yes, happy to, Joe. I think, first off, worth noting that we initially thought Ontario was going to be ready to go live probably in December. And the additional information we have at this point, looks like it's probably going to be more sometime in Q1, just call it, mid-Q1 is probably the best most updated information we have at this point. .

So that's that from a time line perspective. I think from an overall market perspective, we're obviously really excited. We're leading in Ontario with the preeminent sports digital media brands across Canada. We feel really good about that. And we're going to be launching aggressively there.

We want to make sure that we really start at the starting line with everybody else, and we have a really big splash. We've got a great marketing launch plan in the works with the Levy family and our partners at theScore. .

I think, Joe, one of the things that really stands to benefit us is that there are some advertising restrictions in Ontario. So there will be a bit of a different market there. you can advertise your brands, but you can't lead with big discounting type promotions. We welcome that environment.

We have a very loyal audience in Canada to theScore and what will be Score Bet similar to the loyalty we have with the brand that we lead with here in the U.S. with Barstool. .

So we expect to be a major player in Ontario when they're ready for us to go live. And we have a great plan in place.

And honestly, if anything, the slight delay in launch allows us to launch with a product that we feel even better about and hopefully get even more content ready to go on the iCasino side in Ontario, assuming that they're ready to go live with sports and online casino at the same time. .

Great. And then just switching topics to maybe how much of a strategic priority a Las Vegas Strip asset where OpCo is for you. Obviously, you were involved in the Cosmo and that went to another buyer. We've heard this week from MGM last night in Caesars earlier this week about their marketing strip assets.

Can you talk about how much of a strategic priority that is? What you would sort of do with sort of a premier strip asset and putting it into your flywheel? And then how do you think about valuing an OpCo relative to how your regional Opcos are valued?.

Yes. It's been pretty public, and we've confirmed that we were definitely involved in the bidding process for Cosmopolitan. I think Cosmo really stands in a class of its own. That's a once-in-a-lifetime opportunity to potentially get your hands on one of the best-in-class assets really around the globe.

And so that was imperative for us because we felt as though it checked several strategic boxes for us. Generally speaking, I don't think it's imperative that we have a Las Vegas strip asset given the differentiated approach that we have around omnichannel. .

I think that having representation across states throughout the U.S., it is absolutely a strategic imperative for us, and we've largely accomplished that goal. If we were to find the right asset at the right location in the right price, then, of course, we would be interested. We know that we have a very valuable regional database.

We know with the right asset in Las Vegas that we could activate and really drive more of that visitation that's already organically finding its way to Vegas because people who like to gamble, like to gamble and Vegas is the Mecca. And so they're already going.

It would be great if we had an asset where we could create some retention value when they're in Vegas. But we don't think that's such a strategic imperative that we would chase an asset or overpay. And that's how I feel currently. So we'll kick the tires, if there's something out there, we're going to be disciplined in our approach.

And yes, I think you're going to have to pay a higher multiple for a Las Vegas Strip OpCo than you would in most or all regional markets. .

But I think you have to be thoughtful and careful about that because as we all know, there's a lot more maintenance capital requirements and intensity for Las Vegas assets. And typically, when you are an OpCo, your rent, your lease is largely fixed, not entirely, but largely fixed.

And so if you're the one that's continuing to invest in the property, it takes away from the free cash flow and -- well, EBITDA and eventually free cash flow generation for the opportunity. So I just think there's a lot of variables. I think you have to look at it asset by asset, as they become available, if they become available.

But you should assume that we are not going to be chasing anything that we don't believe we can get a good return on. .

Great. And just one final quick one.

Felicia, what's the diluted share count pro forma for theScore transaction?.

Joe, I'll get back to you with that offline. I just don't have that in front of me right now. .

Yes. I know we issued 13 million shares associated with theScore. So just add 13 to whatever your last number was, Joe. .

I'll get back to this other person. .

Our next question comes from Shaun Kelley with Bank of America. .

Jay, just maybe a couple of questions on the online business. helpful color on sort of your expectations around the fourth quarter loss. Could you talk a little bit about the revenue environment heading into the fourth quarter.

Obviously, you gave a couple of stats on your handle share but maybe in a fair fight state like Arizona, how you think you're holding up thus far with a sort of new launch across the board? How is Barstool performing versus your longer-term target or aspiration there?.

Yes. Well, let me -- maybe I'll hit Arizona at the end, but I'll talk sort of at a high level. As you think about the launch of -- or the start of football season this year on September 9, as I mentioned earlier, we were live in nine states versus a year prior zero. We went live in week 2 actually in Pennsylvania last year.

So if you look at sort of revenue environment from week 1 of NFL and then all the way through to week 9 last week, and we have a slide on this in the investor presentation, we really have shown tremendous handle growth week over week over week. I think we're averaging 9% handle growth week over week from week 1 to week 9.

So we're very happy with what we're seeing. .

I would also say that when you launch five states, which we did, and I don't think anybody else came close to that many launches for the start of football season this year because we were a bit late to the game in some of these states that you have deposit and match that bonuses that have to kind of work their way through the system.

And so we have a $1,000 deposit in [ Betmatch ] that was offered in those 5 states for September, which obviously lowers your NGR after promotion. Your NGR, it takes about 4 to 5, maybe 6 weeks for that initial offer to kind of work its way through. .

What we're seeing in October, what we saw in October and are seeing in early November, is that obviously, there's a lot less promotional dollar flowing through, which means assuming that you have a more normal hold rates. And I think you probably heard Sean and we, like everybody else, definitely had a softer hold percentage in October.

Favorites covered significantly the first 4 weeks that reversed itself. We had a very good final weekend, but the first 4 weekends hold rate was lower than normal.

But if you sort of just look at an average hold and you look at what we were able to do in October and converting handle to GGR based on hold and then GGR to NGR, we feel really good about not only continuing to grow our handle market share but being able to grow our NGR market share. .

Now NGR, unfortunately, we would welcome this, but it's only reported in two states. So Michigan and Pennsylvania, you actually get a really good look as to how operators are running the business in terms of what's driving handle, what is GGR and ultimately in addition to paid media where we play a very different game than most everybody else.

Also, how much of that handle is being driven by promotions. And so you can actually see what NGR looks like. .

Every other state, it's either just handle or it's handle in GGR and you don't really have the visibility to NGR.

So we feel, as you see that slide that shows the momentum we have on handle from week 1 through week 9, you should assume that we feel just as good and in some cases, even better of what the NGR trending looks like from week 1 to week 9, assuming a normal hold rate. .

Now Arizona to your last question. I have zero visibility at this point into what the market looked like that has not been reported unless it came out this morning, but I have not seen that yet. As we compare Arizona to other state launches, I would say it's sort of for us, it's in the middle of the pack.

It's better than some states, and it's not quite as good as some larger -- of the larger population states like Illinois and Pennsylvania for us. .

Super helpful. And maybe just my follow-up. If you could just give us an update on the online casino offering. I mean, I think each quarter, you kind of give us a little bit more, but obviously, you're working through that product offering.

And when do you think you're going to have that at the place that you kind of want to have it to maybe either support broader marketing or just a bigger push through the channels that you already have?.

Yes. Great question. We -- I feel as though our product offering currently is significantly better than it was when we launched in Pennsylvania and when we launched in Michigan.

So we did have a little bit of paid media and promotion in Michigan around iCasino because we know that the product is so much better than it was when we launched there in early 2021. So that tells you something, obviously, we feel from a product offering perspective.

If you look at the library of flat content, the library of manufacture different manufacturer content, we have a much better offering today than we did. I still don't think our iCasino offering is where it needs to be.

And I don't think it's ultimately as competitive with best-in-class product offerings in the states where we're live but it's getting a lot better. .

So we're going to continue to think about reinvesting and driving acquisition to online casino as we feel better and better about the product.

We -- as I mentioned earlier, we just went live with live dealer in New Jersey that's actually Barstool themed and last night was amazing content watching Den Cat's, Big Cat and Logan Paul and several others at Barstool were playing, live Blackjack all in the same room.

And as a fan, you can watch them on the live stream, you can download the app if you're in a state where we're live like New Jersey where they were last night, and you can bet behind them, which is what a lot of people were doing behind Logan Paul and Big Cat and some of the other personalities at Barstool. .

So we can do things that others just simply can't do or don't have the personalities or content creators that anybody would care to bet behind. So I think from an online casino perspective, as we continue to develop and launch new products and the overall offering is more competitive.

You're going to see us continue to ramp up how much we support that from a marketing standpoint. And I think you'll see our market share reflective of growth as we make those investments all around. We're already seeing momentum. And again, we are not where we ultimately want to be an online casino. .

But truth be told, and I think I've said this before, we had to prioritize. We were late to the online game in terms of launching products. We prioritize having a great and we've delivered on that a great sports betting product, 4.8 on a scale of 5.0 on the Apple App Store. We wanted to get live in as many states as possible.

We have a great sports betting brand to lead with an amazing audience that we can activate and have done that. And ultimately, that ends up being the best acquisition tool you have for conversion from online sports to online casino. And so we've got a lot of runway in front of us. .

I would say, from a online sports betting perspective in terms of product and capability, we're probably third or fourth inning and still have lots of improvement in front of us that we're pursuing from an online casino standpoint, we're in the top of the first. We're nowhere near where we know we'll be and need to be, but we're making progress. .

Our next question comes from Ryan Sigdahl with Craig-Hallum Capital. .

Jay and Felicia. Curious if you're willing to comment, Caesars, FanDuel, they're seeing their online businesses expect to inflect profitability sometime in 2023. I guess without getting too specific, but given what you guided Q4 to have only $20 million loss.

How do you think about Penn Interactive? Can that be profitable sooner than those? And then is it even possible to potentially be profitable all of next year?.

This is -- these are topics that we welcome, obviously, given what we've been able to do and our strategy and the differentiation really. Here's the way that I would sort of describe 2022 and 2023 at a high level.

I've said before that this is pre-acquisition of theScore that we thought we would be breakeven or better from a Penn Interactive standpoint in 2022. I absolutely still stand by that. We have, however, acquired theScore, and we're making real significant investments in theScore around technology.

And theScore is already currently live on their own PAM in the U.S. and their own promotional engine. So far, so great. I mean, the results that they're seeing around not just stability and feedback and ratings are all good.

But I think importantly, what they're finding already is that when you -- and this is why obviously, we're pursuing our own tech stack, but when you have your own PAM, you can really create personalization and customization. .

So it's almost as though, if you have 1 million customers in your ecosystem, you have 1 million sportsbooks, right? Everybody's experience is a bit different. And what they've been able to do already with their promotional engine and what they're seeing around retention value and people coming back to bet more often is pretty significant.

Now it's early innings, but we're just encouraged by what we're seeing because we know that's just the tip for us in terms of what can be done. .

And so from a 2022 standpoint, we will not be profitable I'll wait to give a number on that until when we're providing maybe guidance for 2022. It won't be in the hundreds of millions negative. It will be under $100 million. I just don't have an exact number for you now. but it's going to be all around investing in product and technology stack.

I think it also will depend on when we go live in Ontario because that's a huge revenue driver for us to offset some of those expenses that we're not able to offset yet as it relates to theScore. .

So $20 million loss for Q4, more to come on 2022, you could probably annualize that 20% per quarter for 2022 to be safe for now. And I think we'll be there or better for 2022 even when you include the investments in tech stack, 2023 is going to be the year of hockey stick growth for us because everything comes together.

TheScore is going to be live, completely vertical on their own tech stack, before football season '22.

And then we have the whole football season and March Madness to make sure everything is as we want it to be, including managed trading services and risk management completely vertical and then we bring that tech stack back to the U.S., and we will convert over in the U.S. before football season in 2023. .

So profitability is definitely going to be there in 2023, and it would be there in '22 if we weren't also going vertical on tech stack, but we're happy to be doing that. .

Very helpful. Two quick ones on the financials. Felicia, on that $30 million you commented impact on Hurricane Ida and COVID.

Can you break that out between the two?.

And then secondly, you're live with cashless, cardless, contactless at seven properties.

Any financial metrics you can give to share on potential revenue uplift and/or margin impact from those initiatives in those early adopting locations?.

Yes, Ryan, I'm going to ask Todd George to address those two questions. .

Thanks, Ryan. And thanks, Jay. The breakdown between Ida and the Delta Variant, I'd say that we have a material amount of our EBITDAR generated from the Southern region. So we had a -- I would skew a little bit heavier towards the hurricane versus the delta variant. Delta was kind of spread out, and there were pockets around the U.S.

But we generate quite a bit from both Louisiana and Mississippi. So focus more of the Ida impact there. From 3Cs, so very early innings, you heard Jay used the analogy before, but we are so pleased with what we're seeing with each launch. .

So now we're three properties in Pennsylvania and two casinos and two racinos in Ohio. And with each launch, we're getting greater adoption. Initially, we thought we would see greater adoption from the younger demographics. But we're pleasantly surprised that it's actually going across all demographics.

What we're seeing is that if you look at a normal guest to a casino, take that as your baseline, we're seeing great growth from people that are app users as well as even greater growth for people that are downloading the wallet and playing with wallet, a lot of that just comes from removing friction as well as increased time on device, not standing in line.

So very early, and I think we'll have more to report in future quarters after we roll this out at other properties. .

Our next question comes from Barry Jonas with Truist Securities. .

Can you talk a little bit about the strategy behind the stand-alone Barstool sports bars as well as Pizza and any other new growth channels there? Is the intent for these to be meaningful profit centers at some point for Penn? Or are they more as marketing vehicles to drive gaming?.

Yes. Great question, Barry. I would say a little bit of both. It really depends on which of those opportunities that you're talking about. Take the one bite frozen pizza as an example, and I'll only share of course, whatever Erika and Dave Portnoy have shared publicly.

But they've sold hundreds of thousands of frozen pizzas just in the first few weeks of offering those in Walmarts across the country. I know it has blown away expectations and that Walmart, they know how to handle demand, but it's been overwhelming for them and a lot of the different geographies around the country.

So that's probably an opportunity to do both. It's going to be good financially, but it also, importantly, is going to be great for just continuing to build out the brand in the top of funnel. Not everybody who's shopping for frozen pizza is already a Barstool fan or maybe in some cases, has even heard of Barstool.

But there's a lot of social media buzz around frozen pizza and a lot of people sharing their purchases and ratings of the pizza. .

And so it's just a great brand builder.

And I sort of put the other ones that we've talked about in the similar category, the stand-alone Barstool sports bars, which will essentially serve as -- because they'll be in markets where mobile sports betting is live and legal, they'll essentially serve as satellite sports books because we can make sure that it's a great digital experience inside of those sports bars and some people are going to go there to socialize.

Some people are going to go there to meet up with friends, someone are going to go there to watch games and some people are going to go there to bet on games. .

So it really allows us to continue to build the brands, introduce new people to the brand. We're picking high-density population areas for these sports bars. We'll give exact locations later when Erika and Dave are ready to announce that.

But the first two are going to be in the Philly area as well as in Chicago, and we anticipate both of those opening up in the next couple of months, unless something changes. And we've got several more in the queue.

We'll share more details around current performance of the existing ones that open as well as our plans for building out new ones probably on our next call. But we're very excited about it. .

It's obviously a great opportunity. And again, it's something that we can do that really no one else in the space can because the Barstool brand has a different affiliation and base of loyal fans, who really care about the brand and feel like they're a part of the brand.

And so whether you're talking about those two examples or NCAA collegiate athletes, where we're obviously building relationships with college athletes when they're relatively early in life and pre professional career. And I think that's great. .

Right now, it's all about Barstool and how Barstool can help them as a media company and a lifestyle company. and down the road, maybe that evolves into a relationship around sports betting for those that are interested in betting on sports.

So I think that it's probably for us primarily brand building but there's definitely going to be financial components to it as well, especially when you consider the average age of the sports app user with us is late 20s, I think 28.5 years old. I don't know whatever everyone else is. I know it's a lot older than that.

And so as you think about lifetime value, we just want to continue to feed the funnel and 28.5 years old average age on the sports betting app is terrific when you think about what those spend levels may be when they're in their 30s and 40s. .

Yes, I guess that touches on my follow-up question, which is I'm curious as you're building out Penn Interactive what you're learning about the differences and similarities between the online and the land-based player? And if longer term down the road, how you're thinking about potential cannibalization?.

Yes, it's a great question. And maybe Todd and I can tag team this one. There's a lot of really good data. We've been at this now for a while in Pennsylvania and actually in Michigan, close to a year.

There's some really interesting facts that were sort of uncovering in the states where we're live with brick-and-mortar casinos as well as online casino, so call it, Pennsylvania and Michigan.

One of the things that we're finding, which I find fascinating is that when you look at the online casino VIP business, roughly half of that online casino VIP business were customers that we knew, we had a relationship with previously. But of that 50%, 60% of them had gone dormant, okay? So we've reactivated.

This has been such an amazing reactivation tool for us. For whatever reason, they had gone dormant in our database, whether that was because they moved elsewhere in the state, or whatever reason it might be.

They decided they didn't want to visit the casino anymore, but 60% of those that were reactivated or excuse me, 60% of them of the VIPs were reactivated who are no longer visiting our casinos as a regular customer. .

And 10% of those also started coming back to our brick-and-mortar casinos after they were reactivated with online casino. So that's really powerful as I take a step back and think about it.

And you're definitely seeing I think it's been well reported that in the states that are live with online casino, you haven't seen the brick-and-mortar casinos in those states bounce back the same way versus 2019, as you have seen in states that don't have online casino offerings, I think that's to be expected.

There's no doubt you get some people that are spending up, some are splitting wallet, some have moved over entirely to online casino. .

And I think that's why it's really important to run a profitable online business because if you're moving people and their spend around, you want to make sure, I mean, from our perspective, we're indifferent. You want to play online with us, great. You want to play in the brick-and-mortar.

That's also great because we know we have best-in-class margin profile long term that we just want to develop the relationship and make sure we have best-in-class products. But I'll pause there and see if Todd has anything he wants to add to that. .

Jay, I would only add a few items. One, you touched on it. The fact that we have 100% of the online component. We don't have a JV like some of the others in our industry do. So again, to Jay's point, we have 100% of the upside.

The other thing we're very uniquely positioned in the states that are offering online gaming because we don't have a brick-and-mortar presence in New Jersey. So a lot of this is really a brand-new business to us. A lot of it drives the database and then we can mobilize those people around the country to our operations.

And then in Pennsylvania, the bulk of the population residing in and around Philadelphia our properties are not located close to Philadelphia. So a lot of that represents brand-new play as well. Again, an opportunity to grow the database that can then be shared across our properties around the U.S. .

And similar with Detroit in the Michigan area. The Detroit area, we have a large amount of our databases within that 30- to 50-minute drive. So as we're growing that business, it's coming from outside of that zone as well. .

Our next question comes from Bernie McTernan with Needham & Company. .

Just wanted to focus in on the live event at the Hollywood Casino in Illinois, the 10,000 first-time depositors significant step-up of what you've been adding previously.

How is the retention? And I know it's early days, but how is the retention and engagement of those users and payers look relative to the overall base?.

Yes. We were we were very curious to see what kind of retention value we would have with the 10,000 given that it was driven around an event.

And you don't know at the time you do the event, what is the motivator, is it to be in person with Dave and Diane and crew on property? Is it to just take advantage of the promotional offer and the bet on the Bears. So we really -- we didn't know going in. We were expecting about 1,000 to 1,500 people to come in and visit us and deposit.

So it obviously blew away our expectations I've been very pleased with the retention that we've seen from the 10,000. We saw a noticeable uptick from a handle perspective relative to the first few weeks of the football season. I think we ran this in week 4, if I'm not mistaken.

And if you look at our Illinois handle in week 4, it was the best week we had, but week 5 through week 9 were all better than weeks 1 through 3 by a pretty good variance. .

So it's turned out to be, in hindsight, a great event. And we learned a lot from it.

And I think it really shows the power of omnichannel when we do something that is maybe initially digitally focused, but you have an on-premise experiential event component to it, you can really put these opportunities on steroids and get more out of the events than you anticipated.

So I think you can expect us to take the learnings and do more around that, not necessarily just Aurora but other parts of the country, other states. .

And I think we've been -- it's been interesting, too. I think a big part of the reason why you're seeing this week over week over week handle growth for us from week 1 to week 9 is that we've been able to -- well, one, we're in more space, obviously.

But number two, we've been able to get out, right? A year ago, we were live in one state and COVID was still keeping people mostly inside whereas right now, the Barstool crew every week, we hit one of the nine states that we're in, sometimes multiple times a week, and we're doing on-prem events. .

And if you looked at, I don't know how many of you saw it, but it'd be worth going back and looking at the game day events that the Barstool crude did last weekend at Michigan State and East Lansing. And if you look at the crowd that was at the Barstool event in apartment complex next door, the stadium versus the ESPN event, it wasn't even close.

And that's exciting, but we weren't able to do that last year.

And every week when we do these on-prem events, you see the states we're in, see a significant pop in first-time deposit -- registrations, first-time deposits, handle, and we're doing a much better job after the fact around retention because we've learned a lot around what works and what doesn't from last year being in one state to now having scaled in nine states.

So feeling really good about that overall and lots more to come. .

Got it. That's helpful. And then just wanted to touch on Market Access spent $7.5 million on the ballot initiative in California.

What's your outlook for potentially bringing OSB to that state? And then while we're on the top of the market access, just any thoughts on New York?.

one, homelessness and mental health support, which is a big issue in a lot of states, California, in particular, as well as some of the dollars channel back to the tribal entities in California. .

So I think that it's been constructed in a way that is good for the state and good for those that operate casinos in the state today. It's going to take a little bit of time to play out. Obviously, we're going to be pretty deep into signature gathering mode here in the coming weeks and months. And there's been a little bit of opposition.

So we're trying to understand that and we actually want to do this in a way where it's completely complementary to the ballot initiative that the tribe's already had out there before we announced this ballot initiative and the language around the ballot initiative.

So we're trying to make sure that we're doing this in a complementary way, and that we're including all of the right parties as we think about the California opportunities. .

So more to come. Obviously, very early, and I'll have more updates. I think quarter-to-quarter, we have a better feel for the polling already looks good, polling can change over time and signature-gathering effort.

It's just going to take us a little bit of time to see where we are, but I feel good about the team, the dollars that we've put forth the campaign initiative. .

New York. So New York is an interesting one. I have discussed New York with my team at [ nauseam ], and I've -- I feel the same way today that I felt day one, which is I feel really mixed about New York because of the way that the gaming law is structured and the fact that the tax rate is being self-imposed with a minimum of 50%.

And when you keep in mind that, that 50% tax is in addition to a really high license fee as well as that 50% tax is on gross pre promo spend, not net. I don't think anybody is going to make money operator wise. The state couldn't make money. I don't think a single operator will make money in New York.

So I've always struggled with the -- would you rather be in or not?.

I think objectively speaking, you'd probably rather be in than not be in, but it's one of those states where you're not in you're not crushed by that either maybe from a TAM perspective and from a revenue perspective, but I think it's just it's going to be a margin killer. I think it's going to be an EBITDA detractor.

And New Jersey, we're live in and a lot of the New York residents live in North Jersey and Manhattan, which is easy to get over. And I think that competitively, New Jersey is just going to be able to do things and offer things that New York can't. .

I'm not saying anything that is -- I don't think -- I mean New York has their own prerogative in terms of how they want to structure the law, and they're pursuing that.

And if we're in and we'll play by the rules, I think that if we end up as one of the operators in New York, that if nobody can make money, we'll lose the least because we can rely on the Barstool audience organically and turn that on and activate it in ways that we've done in other states without having to get into the paid media shotgun approach.

I don't know who's going to be able to afford doing really any of that given the tax rate would be the highest in the country or at least tied with New Hampshire, and we know drafting has been clear. .

It's very difficult to make money in New Hampshire. So it's a long answer because it's a pretty complicated issue. That's our position on New York. .

Our next question comes from Thomas Allen with Morgan Stanley. .

So on iGaming, typically when we look at international markets, iGaming is more fragmented than sports betting. In the U.S., we're seeing basically the opposite, if not just as concentrated.

How do you think that will turn out? And like how are you thinking about it affecting your company?.

Can you maybe -- I'm not sure I follow the question, Tom, I want to make sure I answer what you're shooting for. .

Yes. So in iGaming, you typically see like the -- in international markets and iGaming specifically, you typically see the largest share of companies with like 10% to 15% share. In the U.S. right now, you see like [ Circa ] one of your peers was about 30% market share.

Do you think it will continue to be so concentrated? Or do you think over time, that market is going to be like more like the international market? And then how you're thinking about like in terms of your opportunity, obviously, you have a massive casino database, which is similar to the peer that has a lot of market share. .

Yes. Okay. I got you. Here's my thoughts overall on market share. I think that it's very early to be declaring what's going to be in the next five years on either side, sports betting or online casino. I do think that companies that have built-in structural advantages. I think on the online casino side, that would be your existing casino operators.

So obviously, in the states where iCasino is legal, have a built-in advantage of a database that they can market to. Just like the sports betting operators, the DFS companies and us with Barstool have a built-in advantage because you have a database you can market to organically. So market share, I think, is going to continue to shift around.

It's obviously competitive. There will likely be some consolidation in the mix as well. So I don't have any reason to believe that the ultimate market share results in terms of fragmentation are going to look a whole lot different than over in Europe or parts of Europe. .

I don't know if there will be 30% or 40% operator, single operator market share sort of "winner" if it's going to be more lots that are in that sort of 10% to 20% market share. We'll have to see how it plays out, but I think that some companies have built-in advantages.

The thing that's always tough also to peg Thomas around questions on all my casino is that there's really only three states of any real population that are live today. And those are continuing to, I think, evolve, and we'll see what market share looks like.

I think even in those states that will look different in two years and three years than it does today, certainly from our perspective, we know because our product is only going to get better, and we can really take advantage of converting sports betters in those states as well as our database because in Michigan and Pennsylvania, we have casinos there.

.

But I don't know what states are going to be live and legal. And obviously, there are some states where we are super well positioned. If it comes, we have four casinos in major markets in Ohio. We have the top-of-class assets in Louisiana in all of the major population centers in that state Missouri, we're very well positioned in Kansas City and St.

Louis. The list goes on, Illinois, Indiana, we've got property -- multiple properties in so many of these states. So I think we're really well positioned but I think it's going to take a little bit of time to play out. .

Helpful. And then just my follow-up. One of the attractions of retail sports book is bringing in a different demographic or maybe attracting some players back that like to play table games over slot machines.

Any updated numbers around what you're seeing in place to where you've opened up retail sports books on the table game side and maybe some benefits to slot too?.

Yes. Todd, anything you want to add to that, that we've said beyond what we've said previously. .

So the trends continue. The great thing for us and Jay and I kind of talked about this at the close of every month.

It's we all expected, as you referenced, the growth in table games business, but we're also seeing some conversion over to slots, we're seeing conversion over to electronic table games, which have really been able to grow quite a bit this year.

And then obviously, the increase in food and beverage as especially our Barstool-branded retail sports books feature a pretty robust food and beverage component as well. So it's more experiential. .

That has been really the -- across every property across every region. So we're excited to get Louisiana, as Jay touched on in his opening remarks. We've got the temporary sports books, two of them opened this week, but we'll be converting those to Barstool-branded sports books in the upcoming months.

So we really look for that as keeping that Texas customer coming over. You had mentioned really being able to reactivate the inactives. That has been the case a lot in Indiana with the Cincinnati customer coming back to Indiana and the Chicago customer coming back to e-Chicago and Indiana. So everything you touched on is what we continue to see. .

And Thomas, unless you have any other follow-ups. I'm always sensitive to everyone's time, and we're right at 10:00. So Frank, unless Thomas says anything else, I think we'll probably stop there. .

Okay. .

All right. Thanks, Thomas, and thank you, everybody else, for joining us this morning. We look forward to catching up with you again likely in very early February for our Q4 earnings. Have a good one. .

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..