PENN Entertainment Reports Mixed Q2 Results Amid Interactive Challenges

PENN Entertainment has delivered its latest financial health report, showing a slight decline in revenue for the second quarter ending June 30, with total earnings dipping 0.7% to $1.66 billion. While the gaming sector, including interactive platforms, saw a modest 3% uptick, this was offset by a substantial 13.4% downturn in food, beverage, hotel, and other revenue streams.

A regional breakdown also reveals a mixed performance. While the Midwest, Northeast, and West segments reported modest year-over-year growth, these gains were eclipsed by declines in the South region.

Revenue by region:

• Northeast: $696.3 million, up 1.1%
• Midwest: $298.1 million, up 1.6%
• West: $135.3 million, up 4.1%
• South: $298.2 million, down 3.3%

CEO Jay Snowden expressed satisfaction with the performance of PENN’s retail properties, crediting the company’s “best-in-class” operational team and diverse portfolio of market-leading assets. The Interactive segment also delivered better-than-expected revenue and adjusted EBITDA (earnings before interest, taxes, depreciation and amortization), driven by improvements in risk and trading execution, along with refined promotional strategies.

However, the Interactive division, which houses the much-scrutinized ESPN Bet platform, saw a 9.7% decline in revenue to $232.6 million. While Snowden attributed this to enhanced risk and trading practices, the underperformance of ESPN Bet has sparked speculation about a potential sale.

Asset sales not on the table

Amidst rumors of a joint bid by Boyd Gaming and FanDuel to acquire PENN and divest its land-based and interactive businesses, Snowden countered by highlighting ESPN Bet’s growth prospects. In addition, during the company’s earnings call Thursday morning, Snowden reiterated PENN’s confidence in its growth strategies. He also downplayed questions that sought comments on possible asset sales.

Despite an adjusted EBITDA loss of $102.8 million from PENN Interactive, the figure was not as poor as analyst expectations. This contributed to PENN exceeding analyst forecasts for adjusted EBITDAR (EBITDA including restructuring or rent costs), reaching $367 million for the quarter.

On the land-based side, PENN generated $1.4 billion in revenue, results Snowden characterized as “stable.” The company’s focus on database growth and engagement yielded market share gains in Ohio, Maryland, and Iowa. Strategic investments in gaming and non-gaming offerings, coupled with local and national food and beverage partnerships, have also driven growth.

PENN’s development pipeline remains on track, with projects including the relocation of two Illinois riverboat casinos to land, a new hotel in Ohio, and an expansion of Nevada’s M Resort.

However, the company’s expansion efforts come at a cost. Operating expenses surged 8.2% to $1.59 billion, primarily due to a 22.3% increase in gaming costs. This resulted in a $74.5 million operating profit and a net loss of $26.8 million for the quarter. Adjusted EBITDAR declined by 23% year-over-year to $367 million, although it surpassed analyst expectations.

Betting big on ESPN Bet

PENN has big plans for ESPN Bet; the launch of the betting platform in New York, slated for later this month, is seen as a pivotal moment. This expansion will extend the platform’s reach to 46% of the U.S. population, capitalizing on the state’s 10 million monthly active users of ESPN’s media brands.

PENN is also intensifying its collaboration with ESPN to enhance ESPN Bet’s media integration. This includes deeper ties with ESPN’s fantasy football product, which boasts over 12 million active users, and the integration of ESPN Bet into TheScore’s media app, featuring a convenient “add to betslip” functionality.

To bolster its product proposition, PENN showcased improvements in its user interface and experience, along with new features such as early win payouts and a referral program. These enhancements are coupled with strong player growth, as evidenced by a more than doubling of average monthly active users for sports betting to 465,000 in Q2.

On the DraftKings surcharge controversy

During the earnings call, the topic of DraftKings and its controversial decision to place a surcharge on wagers in high-performing states came up. The sportsbook announced last week that it will charge a fee on winning bets in certain states, partially in response to a tax increase in Illinois.

The decision has led to division in the betting industry. There’s still no clear indication of how the increase will impact DraftKings’ bottom line, or the larger betting industry in general, and many operators are taking a wait-and-see approach before deciding how to react.

PENN is among those operators. It confirmed that it currently doesn’t see a need to implement any such changes, as it’s confident it can build its business on its current strengths. However, PENN left the door open. The executives admitted they will follow the developments and, if the surcharge proves positive for DraftKings when it’s implemented next year, ESPN Bet may do the same.