Greetings. And welcome to the PENN Entertainment Second Quarter and ESPN Transaction Conference Call. During the presentation all participants will be in the listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to Mr. Joe Jaffoni, Investor Relations.

Please go ahead..

Thank you, Frank. Good morning, everyone, and thank you for joining PENN Entertainment’s second quarter and ESPN transaction conference call. We’ll get to management’s presentation and comments momentarily, as well as your questions and answers. During the Q&A, we ask that everyone please limit themselves to one question and one follow-up.

Now, I’ll review the Safe Harbor disclosure. Please note that today’s discuss contains forward-looking statements. Forward-looking statements involve risks, assumptions and uncertainties that could cause action results to differ materially. For more information, please see our press release and for details on specific risk factors.

With that, it’s now my pleasure to turn the call over to the Company’s CEO, Jay Snowden. Jay, please go ahead..

provide unique and authentic entertainment content to their loyal fan base, without the restrictions and guardrails that come from being owned by a publicly traded, licensed, regulated gaming company.

I really can’t think Dave, Erika and Dan and the rest of Barstool team enough for their partnership in helping us to get to where we are today in terms of online sports betting. We gained a tremendous amount of knowledge and experience with them over the last several years.

More importantly, Barstool helped us grow our digital database by over 1.5 million people since launching the Barstool Sportsbook three years ago. Our new relationship with ESPN will enable us to build on this successful foundation as we move forward. It’s truly a momentous day for us at PENN for the folks at Barstool.

We certainly can’t wait to roll up our sleeves and get started with our partners at ESPN starting today. Before opening the line for questions, a few words about our second quarter earnings. We continue to see solid and stable property-level performance across our portfolio with each month showing sequential improvement.

Second quarter finished strong with our best month of the quarter in June, and that momentum has carried over into Q3, where we just closed the books on a very strong July and had a good first weekend -- excuse me, a good first week of business here in August as well.

During the quarter, as I briefly mentioned earlier, we successfully completed the full-scale migration of our U.S. digital sportsbook and online casino offerings to our proprietary, in-house technology platform, which was a huge milestone achievement for our company.

This state-of-the-art tech platform continues to drive strong results for theScore Bet in Ontario, and our improved product will provide the foundation for meaningful growth in the U.S., once we rebrand to ESPN Bet later this year.

I want to thank and congratulate the nearly 500 members of our Interactive team who seamlessly executed this massive technology project with a lot of skeptics, more than 18 -- following more than 18 months of hard work.

And as always, I want to give a special thanks to all of our property leaders and team members throughout our organization for continuing to provide a best-in-class experience for our rapidly growing customer database at our properties around the country. We look forward to numerous cross-sell opportunities to come with our new online products.

And with that, Frank, I’m happy to open up the line for questions..

Thank you. [Operator Instructions] Our first question comes from Barry Jonas with Truist Securities..

Hey. Good morning, guys. And congrats on the deal.

Jay, is it possible to give a little more color about how this came together overall?.

Not really. I’d prefer not to get on the inside baseball of how it came together. I would just say that as we got to know the folks at ESPN led by Jimmy Pitaro, it felt good.

And we’ve met a lot of people at ESPN, and what I’ve been blown away by and the folks that we’ve spent time with is they share a passion for wanting to be the best at everything that they do. And ESPN Bet is no different. They’ve been working on this behind the scenes for some time. It’s very clear when you meet with them.

The excitement, the energy, the passion, and the alignment on what the future will look like is very exciting, but I’ll leave it at that..

Understood. And then, I guess just from a demographics perspective, how is the new ESPN Bet positioning compared to what you previously had with Barstool? I guess, I’m just trying to understand how to think about your overall omnichannel strategy there..

Yes. No, it’s a great question. Obviously, the ESPN brand compared to the Barstool brand -- Barstool SKUs on the younger side, the average age in our digital database is around 29 years old. I think that’s great. We have 1.5 million people in that database that weren’t there before we launched Barstool Sportsbook.

So, we’ve got a great foundation of younger customers that have also frequented our casinos on the land-based side, and we’ve been able to cross-sell into iCasino. And I think with ESPN, you’re talking about a brand that everybody in the world knows about. It’s not an old brand. It’s not a young brand. It’s an everything brand.

There’s a lot of affinity for that brand. And so we think it’s going to be extremely complementary to what we’ve built over the course of the last three years. And yes, we’re excited. We think this is an opportunity to really appeal to the masses.

And one thing that’s become crystal clear, Barry, over the course of the last, call it, three years, we’ve all watched market share in online sports betting continue to consolidate really amongst the top two players. And you’ve got to have scale to compete.

And there’s a certain recipe to get to scale, which I laid out in my prepared remarks and on one of our slides in the presentation. And we think that we check the boxes with that recipe, and we’re ready to compete at a scale level..

Our next question comes from Carlo Santarelli with Deutsche Bank..

Jay, just going back to the comment that you made about kind of leverage topping out at 5x. It would imply that maybe spend this year is not as significant on the initiative. And clearly, if you’re launching sometime in November, that very well could be the case.

But as we move into 2024, in addition to the committed spend, how are you guys thinking about kind of the promotions and going about customer acquisition? And do you have any kind of, I don’t know, guidance that you could perhaps give that would give us maybe a better sense of what we’re thinking about on a 2024 basis?.

Yes. I don’t want to get into too much detail on ‘24 yet, Carlo. We will hold an Investor Day before the end of the year and give you a lot more detail on that.

I think getting to launch is really important to us, and we want to launch flawlessly and probably hold that Investor Day after we launched and we have some more visibility as to how things are trending.

What I would say in terms of the promotional spend is sort of think about it this way, that you’re going to have, let’s call, a November launch, whatever that date is. We don’t have the firm date yet. Obviously, the team is working really hard on this reskinning of the app to ESPN Bet.

But as you think about it, there’s going to be -- that’s where the lion’s share of your promotional expense is going to be as you’re bringing a lot of new people into the ecosystem with the first-time deposit match and the like. And so, that usually takes approximately two months to earn through that deposit match.

And so November and December, I think, on the promo side would be pretty high. And then you’ve got a lot of really big sporting events after that, getting into NFL playoffs, obviously, the Super Bowl in February and then March Madness in March.

So I think from a promo perspective, you’re looking at the lion’s share is going to be in that Q4 and Q1 time frame. As it relates to general marketing spend, you should think about us sort of, as I mentioned earlier, matching in off-channel, meaning outside of ESPN, how much we’re spending with ESPN.

And it’s not an exact scientific number, but that’s the way we’re modeling things out and that’s -- all those assumptions that I laid out for you still get us comfortable being around 5 times even as we’re at the peak level of spend.

And that will come down, obviously, as you head deeper into 2024, but the free cash flow that we generate and organically, we’ll be able to delever that back down into the 4s pretty quickly. But we’re going forward.

We’re certainly not going to be cheap about our approach and be focused on not -- we don’t want to have regrets around how we launch the products and how we launch the brand, and we have a lot of alignment with ESPN on doing that in a way that’s going to be great for the consumer. And people are going to know that we’re live when we’re live.

I feel very comfortable saying that..

Got it. And Jay, just -- you kind of answered my follow-up within there. So, the $150 million committed marking through ESPN will imply an incremental $150 million through other vendors, other customer acquisition channels, et cetera.

And then promotions will be a separate bucket to that, correct?.

That’s all correct, Carlo. And the $150 million is not a perfect number, but just to say roughly, yes..

Okay. And then if I could, just one follow-up kind of on the core business. Your margins broadly held in fairly well. [Technical Difficulty] up a little bit. Obviously, there’s some seasonality there, but kind of continued to hover around this 36% level. And clearly, top line has seen some pressures.

How do you guys kind of think about -- I heard you say earlier, you’re kind of -- the retail brick-and-mortar guidance for the balance of the year, et cetera, is unchanged.

Is this kind of margin level fairly sustainable in the climate that you see right now as we move through the back half of this year, seasonality aside?.

Well, let me just answer your question by saying, generally, yes is the answer. Todd, I’ll let you jump in there in terms of what we’re seeing in the business and why we’ve been able to really keep those margins in that 36% sort of level over the course of the last several quarters..

Thanks, Jay, and thanks, Carlo. Yes, listen, it’s sustainable. And I think our -- we continue to compare ourselves to where we were in 2019. And I think the growth that we’ve seen from them with this -- really, it’s a new day.

So looking at where we are from a labor standpoint, looking at where we are from a marketing standpoint, not just for us but for the competitive set, it’s more rational. It’s -- entitlement programs have kind of fallen away. So, we’re very comfortable as we move forward with those being the two expense drivers that we’re in a good place.

And then with our technology enhancements, we think that will continue to add to our margin profile. So, very comfortable as we move forward that these margins are what we can look to in the future. Obviously, there’ll be some seasonality here and there..

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

Maybe just to start, I mean, clearly, the market is having a very positive reaction to this announcement. But some of the pushback that I’m hearing is just the market share and the thought that other partnerships between media operators and online sports betters hasn’t worked historically.

So, what gives you confidence that you will be able -- Jay, you talked about pole position and really driving market share, driving scale.

What gives you some of the confidence that you’ll be able to achieve those market share expectations?.

Yes. No, look, it’s a fair question. I love addressing it because there’s really no comparison to ESPN in the world. So, that’s number one. I think this relationship that we’ve spent some time talking about last night in the materials in this morning, here’s the reasons as I think about it why I know it’s going to work. One, it’s exclusive.

Two, its ESPN-branded, which I think is very, very important. It’s fully integrated. It includes access and endorsement from top ESPN talent. And I think really importantly is that this is a strategic relationship. So, you think about how is this going to be more valuable for ESPN over time is helping us achieve higher levels of market share.

The higher levels of market share make the warrants that they own of PENN valuable. And you get over 20%, they become much -- many more warrants and much more valuable. So, there’s -- if we’re having conversations around what’s the dilutive effect of the warrants over 20%, I think that’s a great day for everybody.

And we’re very focused with ESPN on long term getting to those levels. So, it’s interesting. I oftentimes look back to the UK market, and you just look at what did market share look like in the first three years versus the middle three years versus the last three years, it’s going to shift around. It’s not done.

I think this narrative or this notion that the market share that’s established is sort of permanent here in the U.S., that’s -- to me, that’s crazy talk. I’m not saying that it’s going to be wildly different from what it is today. But it’s going to ebb and flow. It’s going to move around. It’s going to be fluid.

And what we announced this morning -- or last night and this morning is something new and different to think about that probably wasn’t in the consideration set up for anybody a day ago. And so, it’s going to have an impact on what that overall market share looks like. And we think we’re going to be a major player..

Great. Thank you. And then just a follow-up to slide 9. It calls out expectations for EBITDA margins in the high-teens.

Would love to just get your thoughts in terms of what you think -- how this operating plan is different from the prior one in terms of the potential margin -- potential for the business? And then, the market share -- the illustrated market shares, are those -- we’re getting some inbounds in terms of that year three termination.

Just how investors should think about the market share required to keep this partnership going for both sides?.

Let me hit the margins question first. And most importantly, you need scale to drive margins in this space. We all know that. Trying to drive 20% margins at 5% market share is going to be impossible in online sports betting. So, that’s number one, I think, most important.

And we also -- keep in mind on that slide 9 that you’re referencing, in case there’s any confusion on this, the margin assumptions we have there in the footnote, this is based on GGR, okay? So if you’re comparing what we’re showing here to what others have said that they think they can get to long term on a margin basis, most of what, if not all of the analysis that they’re showing you is on NGR, net gaming revenue.

So if you extrapolate the margin assumptions we have here on a GGR basis and look at it what would that mean on an NGR basis, we’re probably a little bit below what others are saying. And that’s just putting in some level of conservatism because -- for no other reason but just to be conservative.

I think if we’re at scale and we’re on the podium in every state or most every state, which we plan to be, then we think we can probably get close to margins that others have said that they can get to on an NGR basis, but we’ll take a conservative path for now.

I think as it relates to market share assumptions -- well, repeat that part of the question. I’ll make sure I tackle that one correctly, Bernie..

There’s a year -- it’s a 10-year partnership, but potential termination rights after year three if certain market share thresholds aren’t met. And so, we’ve been getting some inbounds or investors asking what those market share thresholds are..

Got it. Sorry. We haven’t disclosed it and we’re not going to. That’s in our agreement with ESPN. But I would just say that probably safe to assume that the bottom end of the range on slide 9 is going to be a level that we’re starting to get excited about, both ESPN and PENN. And below there is not really exciting.

So, just sort of think about it that way..

Our next question comes from Chad Beynon with Macquarie..

Congrats on the announcement. And thanks for taking my question. Jay, I wanted to ask about the rights portfolio. It’s a 10-year deal with ESPN. And there’s been some other companies buying up rights to different sporting events and different contracts.

What gave you the confidence that ESPN will continue to be a leader with the content that they currently offer? Thanks..

Yes. Look, I’m not going to sit here and speak on ESPN’s behalf with regard to their sports rights. What I would say is I think they’ve been crystal clear publicly in how much they value the ESPN brand long term and how important owning sports rights are for the success long term. And so, we feel great about that.

And if you look at the agreements they have in place with the major leagues today, the NFL, NHL, MLB, NBA, it looks really good and it goes out pretty far. And so you can do your own research on that.

But I think most importantly is there’s a high level of conviction from everybody we’ve met at ESPN that sports rights are a big part of who they are and what they do, and that won’t change..

Thanks. And on the tech side, you mentioned up in Ontario, you’re a double-digit market share leader in sports betting and iGaming. So that clearly speaks to the brand but also the tech. You recently adjusted the tech down here, and this is certainly an important part of the equation.

So, anything else you can just talk about where the tech stands today, the menu of offerings that you’ve recently launched and when you launch ESPN Bet in November, kind of how your tech stands against some of the other market share leaders in North America? Thanks..

Yes, happy to. And we’ve been live on our own tech stack in Ontario for over a year now. And things have gone great. We continue to iterate. And we’ve got the same full menu of options of Parlay and in-game. The UI/UX is fantastic. We think it’s very competitive with other top-tier online sports betting platform offerings.

And we feel like when we go live here in November with ESPN Bet, we’ll be able to say the same thing. The beauty of what we have here is that we’ve built this from the ground up, and it was really built for the North American markets. And we’re going to be able to continue to iterate.

Obviously, we’ve also proven out and we have the capability to do a lot of full integration on the media side. We currently -- in Canada, in Ontario, you can be on the sports -- theScore media app, excuse me, and you can populate your bet slip and see the odds of games and place your wagers.

And as soon as you’re ready to actually make the wager, it seamlessly takes you into theScore Bet. It feels like it’s all the same app. And obviously, that’s the path that we’re going to head down here in the U.S. as well with ESPN, ESPN Bet and betting slips. And so some of that will take a little bit of time, but we’ve done a lot of it already.

It’s a matter of just prioritizing the product road map and the upgrades. But we feel great about where we are at lunch, and we feel really great about where we’re going to be 6 months later and 12 months later..

Our next question comes from Joe Greff with JPMorgan..

Do you guys have minimum investments for advertising on ESPN beyond $150 million per year? And is there anything that precludes ESPN from taking advertising across its platforms from your OSB competitors?.

There’s no obligations other than the $150 million a year. We can choose to do more than that. We may if we’re seeing great results, but that is the obligation.

They have the ability, of course, if they want to, to take advertising dollars during commercial breaks from competitors, and that’s really ESPN’s call on if they do it and how much of that they do. I’m not worried about that. I think it’s going to be very clear if you’re tuned into ESPN programming that they are fully behind ESPN Bet..

Great. And I’m not sure if you answered it exactly, and maybe you don’t want to.

But the provision where both parties can terminate the agreement, assuming a certain market share threshold, did you actually give a specific threshold?.

We did not, Joe. I mentioned earlier that we’re not going to. But we’re not doing this deal to be 4% or 5% market share players. That’s not going to be acceptable for us. It’s not going to be acceptable for ESPN. And so, you should assume if those are the ranges you’re in, that’s not going to work out long term.

But we think we’re going to be certainly within the range that we provided here on slide 9 in our investor presentation, and we think we can go beyond there, long term..

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

Curious, will ESPN Bet offer iGaming in states where legal to leverage that OSB/iGaming cross-sell that peers have had so much success with?.

Well, the answer is that we will have a Hollywood-branded iCasino offering within the ESPN sports betting -- ESPN Bet sports betting offering and platform in all states where online casino is legal. We’ve thought a lot about -- online sports betting, obviously, we believe we have the best brand in the world to lead with.

On the online casino side, we’re of the opinion, as I think most are, by the way, that you really need multiple brands long term. Some might cater more to a slot player, some might cater more and appeal more to a table game player. So, we thought a lot about that.

We thought it was a good time for us to pivot to really focusing on Hollywood Casino and the Hollywood brand. The Hollywood brand for us on the brick-and-mortar side is roughly two-thirds of our properties.

We’ve invested a lot of capital across the portfolio, and we feel -- we’re very proud of that Hollywood brand, and we think that it creates a really nice linkage from digital online casino. The five markets that we’re live in today, that’s going to grow over time.

And we think in markets where we’ve got land-based casinos, branded Hollywood, it creates a really nice cross-sell opportunity, not just digitally but also on the brick-and-mortar side..

Jay, just a clarification, I do have a separate follow-up. You said within the -- within something.

Is it within the apps, it will be a cohesive experience, or is it -- I guess, will they be separate apps?.

No, no. I mean, we will have at some point a standalone Hollywood Casino app. We’re not there yet. But it will be integrated.

So if you’re in the state of Pennsylvania, for example and you’re within ESPN Bet betting on sports, you’ll be able to wager by clicking on the Casino icon and go to Hollywood Casino seamlessly within the same app and platform the way that you can today between Barstool Sportsbook and Barstool iCasino..

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

So, Jay, just want to go back to some of the financial parameters here, like a little bit.

Maybe if we could start with just if we think about your initial plan here for Barstool, maybe the initial budgets that we were given, was there some amount of marketing and build up already contemplated and sort of how you’re building to 2023, just as you knew you were moving back on your tech platform? I’m trying to kind of get a sense of -- really where I’m going with this is how much of, let’s call it, this total $300 million or certainly some of the big spending in the fourth quarter was already contemplated.

So, how much is incremental? And how much was sort of already built into what you were expecting before?.

Yes. I would say a good portion of it is incremental, although we did have a pretty solid marketing plan for launch this football season, if we hadn’t gotten to the finish line with ESPN for ESPN Bet.

So I don’t know, maybe 1/3 of it was already built in and 2/3 of it now incremental when you consider the ESPN investment and some of the additional off-channel marketing investments, something like that..

That’s helpful. And then maybe sort of a strategic question behind that as we think out to ‘24 and beyond. You kind of mentioned you’re in this for the long haul, and you’re certainly going pretty big here.

So, can you just help us think about the -- maybe the depth and duration? So if you talked about, let’s call it, this 5 times parameter, which I assume is lease-adjusted net debt, if we think about that, does that hold throughout 2024? And sort of how long in your own mind do you need to kind of start to see cost leverage in this? I mean, historically, maybe we’ve seen 12- to 24-month paybacks.

I think those have actually accelerated a little bit on promotions in more recent cohorts of states.

But how do you think about it? And when do you think you start to really show or turn the corner here for what you want this business to be?.

Yes, it’s a great question. We’ll cover a lot of that, Shaun, in our Investor Day before the end of the year. But I think at a high level, sort of think about where we are in the journey versus maybe the other top players is we’re probably with this announcement today a yearish behind in terms of that inflection point.

Others are sort of getting there soon in the fourth quarter. And I think second quarter was profitable for a lot of operators, not a ton of money but profitable. But I think you’re going to see people, at least based on what they’ve committed to, show some real profit in the fourth quarter of this year.

We obviously will not as we’re launching the product this year. And we’re going to be really focused on customer acquisition and retention and cross-sell over the course of the next 12 months. And I think going into football season next year, we want to make sure we feel like we’ve left anything out there on the acquisition side.

We’re continuing to be aggressive going into football season given that we’re going to miss the first couple of months of football season this year. But I think things will start to settle out for us, and we’ll have a good handle on how things are going to look in 2025 and beyond from a profitability standpoint. But they will certainly be profitable.

And I think it depends on what level of scale and where we are on the podium as to what ‘25 and beyond look like, but that will certainly be the year where you really start to see the returns starting to come through the P&L..

Our next question comes from Steve Wieczynski with Stifel..

So, Jay, you kind of just touched on my first question, but something we’ve -- one of the questions we’ve got from investors over the last, call it, 16 or 18 hours is, are you guys late to the game? Meaning, if you don’t launch until middle of the NFL season, how difficult is it going to be for you guys to gain market share and maybe not so much this year, but over time, given a lot of potential customers will already be tied into other platforms?.

Yes. Look, we received that question a lot before we launched in October of 2020 with Barstool Sportsbook. And we came out of the gate pretty strong back then at over 10% market share that was sustained for, I don’t know, close to a year. And so I don’t -- we’ve been at the path, but was overturned 5 years ago.

We’ve sort of been in the online sports betting space for 3 or 4 years, a lot of markets, it’s been a year or two. It’s not been decades. I think we have an opportunity to really get in here and be a major player. And I actually think the timing of our launch in November is good because it’s not going to get lost at the launch of football season.

Being a football season is so noisy. Everybody is spending like crazy, trying to drive top of funnel on the acquisition side. I like how this plays out. Now it’s a product-led decision for us to launch with ESPN Bet in November.

But strategically, I like it because we’re going to be out there launching at a time where maybe with everyone else, new customers have kind of burned through those promotional dollars on first-time deposit match and we’re going to be mid-season offering something that probably isn’t being offered by others or it’s already been utilized with the other competitors.

And so, we like it. And we’re fine with this being a show me story. We’ll be happy to share results and you’re going to see those real-time November, December heading into 2024. And we’ll have a lot more to share on our overall thoughts. But we feel like the launch timeline is actually really good in this case..

Okay. Got you. And then, Jay, if we sat here a couple -- I think it was three years ago, you originally invested into Barstool. And if I remember correctly, when you did that call, I think you made some claims about how great of a partnership Barstool was going to be.

And so, I guess, I’m just trying to understand why this deal is so much different versus Barstool. Look, I understand ESPN is a whole different animal. I get that.

But maybe a different way of asking that is, what did you overestimate with Barstool? Or maybe what did you get wrong with Barstool? And I’m trying to ask that as nicely as I can as you look back on that deal. And I probably assume you’re somewhat restricted in terms of how you can answer that..

Well, I guess, the way I would answer it is that we felt great at the time that we were partnering and launching with Barstool. And we’ve had a great 3.5-year run with our partners at Barstool. And I’m sure most, if not all of you, watched Dave’s emergency press conference on this last night. I thought he summed it up really well.

It just became obvious to both parties that there’s probably long term only one natural owner of Barstool Sports, and that’s Dave Portnoy and Barstool Sports. And being part of a publicly held, highly regulated, licensed gaming company, it became clear that we were an unnatural owner. And so, I think today is a -- it’s a great day.

It’s great for Dave and Barstool Sports. It’s great for Stoolies. It’s great for PENNs, great for ESPN. Everyone’s feeling great about the future and where we’re headed. And we’re not really focused or going to spend too much time talking about the past. We’re going to really stay focused on where we’re headed..

Our next question comes from Joe Stauff with Susquehanna..

Jay, I was wondering if you could maybe just touch on a few things. In terms of your new tech stack and the product offering, question is largely about kind of just how stress-tested and kind of ready for prime time and higher levels of capacity going into the football season is.

Can you talk about your Parlay product? Is that product something that you are pricing? Or do you outsource certain pieces of it? And maybe some of the plans that you have in terms of maybe getting into New York, or how far or how long it will take if you were able to integrate ESPN’s maybe streaming signal within the app, things like that?.

Yes. There’s a lot there, Joe, things like that. There’s a lot there. I’ll try to tackle those. And if I don’t address your question specifically, then just jump back in.

Part of why we’re launching in November is that we want to make sure we have the time not just to do the reskinning of the app to ESPN Bet in a way that is branded appropriately but also has, of course, a great UI and UX. It also is because we want to make sure that we have the capacity to handle significantly more volume as we move forward.

And so, that’s part of why it’s being driven by a November launch. There’s a lot of hardware that’s -- we already had hardware, but we’re going to be ordering more servers to handle more volume. And I think those are good problems to have. But stress-tested, we’ve gotten through a full year of operating in Ontario, including Super Bowl.

We’ve got, I think, best-in-class technology and products and engineering team in our Penn Interactive unit. And we feel great about handling significantly more volume as we move forward, and we’ll be ready for that when we launch in November. With regard to how we think about risk and trading services, nothing really changes.

We have our own risk and trading team that’s been built out, proven. We’re very happy with the progress that we’ve made in Ontario as well as here in the U.S. post migration.

We’ve already seen a lot of benefits around having your own risk and trading team and what that can do for how you price not just Parlays, but how you even think about taking VIP bets and at what levels. And so feel really good about that. Of course, you’re taking some of your feeds from third parties. Everybody does that to some extent.

But I think the value of owning your own risk and trading team is really making those little decisions that can make a big difference in terms of what your overall hold percentage looks like and how you price your Parlays, both in-game as well as just general Parlays.

So that hasn’t changed, but we certainly are getting better and better at that all the time and seeing really good progress as it relates to overall whole percentage trends. And with regard -- I was going to address your last one, and then feel free to jump in there on access to other states.

Look, I think with -- and Dave covered some of this in his emergency press conference. I think going in with ESPN Bet sets you up to get access pretty much anywhere. Now in some states, there’s limited licenses and things of that nature.

But there’s -- I think where there’s a will, there’s a way, and there’s creative ways to get into some of the states that we’re not currently in. And that’s something that’s a high priority for both us and ESPN, and we’ll continue to make that a high priority..

I see. That makes a lot of sense.

And again, like I’m sure it’s something that’s on the come, but is there plans eventually to maybe integrate the signal, ESPN’s in particular, within your app, I don’t know, in ‘24, or how long does that -- would that take in theory?.

Yes. I would say that’s a real forward-looking question, Joe. The answer is, of course, those are things that we’re going to prioritize, but I’d rather wait until our Investor Day more toward the end of this year. And we’re really focused on launch and ramping and getting through football season.

But we’ll have a lot more to share with you of how we’re thinking about product road map and enhancements in media integrations between ESPN and ESPN Bet and feeds and the other questions you have. We’ll be happy to address all of those or as many of those as we can later this year..

Our next question comes from Brandt Montour with Barclays..

So, we covered a lot. My first question is the retail sportsbook -- the Barstool brand and retail sportsbook that you’ve been rolling out.

What happens to those? And can you -- do you have access to the ESPN Bet brand in sort of potentially rebranding those ESPN Bet sportsbooks?.

Yes, good question. So, we have invested pretty significant capital. I think we have best-in-class retail sportsbooks across the portfolio today, which is awesome.

The arrangement that we have with Dave and team at Barstool is that we’ve got a period of time to -- they need some support from us as we transition, and we’re going to need to have some time to obviously get the ESPN Bet app launched as well as take down some of the Barstool-specific branding inside of our retail sportsbooks.

But we’re working cooperatively together on a number of issues and transition issues. And with regard to what does that end up being or looking like, that’s a TBD. We’re still -- we’re working through ESPN. Folks have not had a chance to visit our properties yet. And so we’re going to go through a process.

And there can be some -- potentially some ESPN-branded retail sportsbooks on plan. And if not, we still have what we believe to be best-in-class destinations on the retail sports betting side, and sports bars connected to almost all of them..

Okay. Thanks for that. And then just as a follow-up, I mean, you went over this a little bit, but the extra $150-ish million of off-channel marketing, recognize that that’s not -- you have a $150 million commitment to ESPN through a fee. This is in addition to that, but this is not necessarily with ESPN.

Is this extra $150-ish million completely discretionary, or is it part of the agreement with ESPN that you’re going to be doing this off-channel marketing just to support the product? Is there a connectivity with broader Disney assets that you could utilize to spend that? And then, where did you just -- how do you just come up with that level? Where do you -- why do you think that’s the right number?.

Yes. I mean we’ve put a lot of thought into what we believe we’re trying to accomplish, scaling and in addition to the support and marketing service that we’re getting from ESPN, what are we missing. And so, we feel like that level of spend allows you to do really most, if not all, of everything else that you want to do or plan to do.

There’s no commitment, to your first part of your question, Brandt, on how much we will or won’t spend in off-channel as part of this deal. This is what we believe is the right level of spend and our partners at ESPN feel good about it, too. So, we’re both excited about marketing spend both within the ESPN ecosystem as well as outside of that..

Our next question comes from John DeCree with CBRE..

Maybe one. I think you -- in Joe’s question, you kind of talked about the incremental spend in 4Q, but I was wondering if you could give us some parameters on what the annual kind of marketing spend, $150 million at ESPN and roughly $150 million off-channel compares to what you were doing prior using the Barstool brand.

How much of an uptick is this relative to, say, the last year or two in terms of total marketing dollars?.

Yes. Well, we’ve -- I think we’ve talked about this before. And John, it’s a good question. We were going through product migration for the last 12, almost 18 months, as I mentioned in my prepared remarks.

And so, we were very careful not to be aggressive in marketing spend outside of the things that we were doing on an integration basis organically with our friends and partners at Barstool. And so, that’s now done. We feel great about the products. We feel great about how migration occurred. It was seamless.

It was uneventful, and that’s amazing given that we converted all 16 of our markets in the U.S. in a matter of 24 hours. So again, hats off to Benjie and the team at Penn Interactive on that. So I think, generally speaking, we feel really good about where things are as it sits today.

And we obviously can pivot and -- whatever we want to do on a go-forward basis, but we feel good..

Okay. Got it. Fair enough. Maybe one question you touched on earlier about, I think, some of the ESPN maybe email, the fantasy database subscriber list.

Are you able to directly market to those emails or are there restrictions around that? And then, I guess, the second part of that question would be ESPN Bet customers, is that -- are those customers and customer information owned by PENN or ESPN or shared?.

Well, ultimately, anyone who is in the ESPN Bet, specifically the ESPN Bet ecosystem, is owned by PENN. You have to be fully regulated and licensed to be able to have that information on gaming customers. And so, that’s pretty clear cut. I think as it relates to the emailable database at ESPN, we’re not going to get into a ton of specifics on that.

I would just say that, again, ESPN has been working on this for some time behind the scenes. And they’ve got a robust plan. It’s comprehensive. It’s exciting.

And they also -- if you read the -- which I’m sure most of you did, if you read the release that ESPN put out yesterday, one of the things that we have a tremendous amount of alignment on and they take very seriously is around responsible gaming.

And they’re putting together a committee within ESPN that will work very closely with the folks that are on our committee here at PENN.

And we feel like we’ve got a path forward and a road map on how to market to the database in a very responsible way and make sure that those we’re marketing to in certain ways, we have age verification completed and all the things that we would typically think about on the gaming side..

Our next question comes from Stephen Grambling with Morgan Stanley..

Many of the other media partnerships, I think, ultimately acquired customers that then lost them or we saw them dwindle in year two.

How will you measure conversion effectiveness with ESPN and/or track KPIs to ensure that you’re acquiring beyond that kind of first test? And as a related follow-up, how do the CAC assumptions embedded in your market share projections compared to what you provided in the past for the digital business?.

Good questions, Stephen. And look, I would say with regard to some of the KPIs, we’ll get into more of that at the end of the year in our investor presentation. Again, we’re really focused on launch right now. But I don’t -- I think we’re getting a lot of questions around other media deals. And I just -- I think it’s apples to eggplants.

People go to ESPN to consume sports content every day, all day, scores, stats, stories. I mean they’re the best in the world. And so, we’re going to be able to retain people because they love the brand. They have an affinity for it. We’re going to have a best-in-class products.

And we’re going to give them every reason in the world to stay in an ecosystem and treat them amazingly well. And people are going to be going back over and over again to ESPN media assets and be reminded in case they forgot that we’re still there.

And we feel great about what our year two retention capabilities will be, cross-sell opportunities, such a great brand. And with regard to CAC, I think we’ve always been pretty clear that we think that because of our media relationships that we can run best-in-class customer acquisition costs.

I would expect that the environment right now has been good. We haven’t sent into it because we didn’t have a competitive product. Now we do. And so, I think, the environment is good. You’re seeing customer acquisition costs in that $200 to $300 range, in some cases, lower. And I think those are pretty healthy levels.

And so, assuming that the environment is there or better, then I think it gives us a great opportunity to spend and feel good about LTV and how you’re thinking about returns on those customer acquisition costs..

On that then, would you be willing to -- if the ROI is there and the CAC is lower, would you be willing to go above the 5 turns of leverage, or is there a way to get additional capital infused into this to pursue market share more aggressively?.

Yes. I mean, look, let’s wait and see, Stephen. I think right now, we’ve got a really good plan that I’ve laid out for everybody and given you some parameters on how we’re thinking about the business.

And by Investor Day, assuming we do that sometime in December, we’ll have been live for, call it, a few weeks and I think have some really good information to share in how we’re thinking about some of the topics that you’ve raised. But I think it would be premature to get into that now. We feel good about the plan in front of us..

Our next question comes from David Katz with Jefferies..

Congrats on your deal.

I wanted to ask -- and Jay, I think you’ve talked about this a bit, but I wanted to get any thoughts you may have on how from a product perspective you’re thinking about defining yours in a differentiated way, right? We’ve seen over the past several months to a year that there are some differences in the kinds of offerings and the matter in which apps are defining themselves to capture not only share but do so profitably..

Yes. It’s a good question. I think that really the key differentiation for us medium term, long term, David, is going to be the things that we can do around integration, media integrations, video and maybe potentially live streaming.

There’s a lot of things that we can do because of who our partner is here that others won’t be able to do in the same way. I think there’s been a lot of attention, as there should have been, given to same-game Parlays and who’s best at those.

And to me, those are going to end up being largely commoditized because they’re betting offerings that we’re all going to be at the same level in a very short period of time. But there are certain things that we’re going to be able to do because of the media partnership and who ESPN is that others just won’t be able to emulate..

Understood. And if I may just follow up quickly. With respect to the cross-selling opportunities here, have you talked about sort of the concentric circles around customers in one database versus the other? Obviously, one is much, much larger than the other.

But how many of your PENN people are ESPN people and/or vice versa?.

We don’t have a good feel for that today, David. I’d imagine that there’s going to be some overlap but not a lot. I mean, this is a huge opportunity to partner with ESPN. And yes, I think most of it is going to be incremental to what we have today. Frank, if we can maybe just do one question that would be great..

Our next question comes from Jason Tilchen with Canaccord Genuity..

I’m just curious in terms of -- I know you mentioned market access earlier, specifically when it comes to Connecticut given Rush Street’s plans to exit there, given that ESPN’s home state, how you would handicap your chances of obtaining that third license and where in that process you currently stand?.

Yes. That decision hasn’t been made yet, and we obviously would like to be in Connecticut. So we’ll see where that -- when that decision is made and if we’re fortunate to be a new operator in Connecticut. And we’ve talked before about New York.

I don’t -- no one loves the tax rate in New York, but there could be opportunities in the short term or medium term to get access to New York creatively. And those are things that we’re working on behind the scenes. It’s -- like I said earlier, it’s really important to be a scale player to have access to the states that matter.

And I don’t think anybody is really making money in New York today, but I think from a database cultivation and hopefully, down the road, there’s opportunities to work with the state on a win-win scenario between the state and the operators to have a more favorable operating environment there.

So, those are things that we’re going to be working on behind the scenes, and we’ll keep everyone posted with regard to how we’re thinking about market access. We could have some updates potentially by the time we have our Investor Day..

Great. Thank you..

All right. Thank you, everyone, for joining this morning. Very excited. Look forward to continuing to connect with you on this what we view to be such an amazing strategic alliance. And the future looks bright. So, look forward to continuing to talk.

Thanks for spending time with us this morning and for all the analysts for having great questions, as always. We’ll talk to you soon..

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..