Operator News
US – Pent up casino demand and online sports betting drive Penn National’s results
By Phil - 7 May 2021
Penn National Gaming said it ‘benefitted from strong demand’ as it reopened its land-based casinos, generating first quarter net income margin of seven per cent and record first quarter adjusted EBITDAR margin of 35 per cent. It said though its ‘focus remains on driving profitable online gaming revenue with Q1 launches in Michigan and Illinois.’
For the first quarter ended March 31, 2021, Penn National generated revenues of $1,274.9m and Adjusted EBITDAR of $447m. Revenues declined six per cent compared to Q1 2019 pro forma results while Adjusted EBITDAR was up seven per cent and Adjusted EBITDAR margins increased 434 basis points based on the pro forma comparison. The strong results were driven by contributions from the online Barstool Sportsbook and iCasino platforms, and land-based gaming properties despite COVID-19 related closures in Pennsylvania and Illinois for parts of January, and Zia Park in New Mexico not reopening until early March. Further, when adjusting for the days the company’s casinos were mandated to close and excluding the contribution from Penn Interactive, revenues declined nine per cent and Adjusted EBITDAR increased 12 per cent, which equates to margin improvement of more than 700 basis points compared to pro forma Q1 2019.
Jay Snowden, President and Chief Executive Officer, commented: “Penn National kicked off the year with record results in Q1 2021 from our land-based business and the launch of our online Barstool Sportsbook in Michigan and Illinois. In addition, we fully integrated our mychoice player loyalty program across all our retail and digital offerings, which bolsters Penn National’s ecosystem and further expands our competitive advantage. Equally exciting was our inclusion in the S&P 500 in March, which underscores the investment community’s confidence in our digital transformation and our position as the nation’s largest regional gaming operator. This milestone is a testament to the hard work, determination and commitment of all our team members at the property and corporate levels as well as our valued partners at Barstool Sports.
“Last month we filed our proxy statement which included an in-depth ESG report on our ongoing efforts to care for our people, our communities and our planet. Highlights include the launch of a new Diversity Scholarship program in March, which reflects our commitment to equity in post-secondary education opportunities for the children of our team members. With an annual commitment of $1 million, we plan to extend up to 65 scholarships this year. In addition, we implemented a supplier diversity initiative with the goal of developing new opportunities for minority-owned businesses. Last month, we hosted companywide ‘Days of Listening’ to gather feedback from team members on all matters of diversity and inclusion. Finally, on May 15, we will launch a new initiative to honor our active-duty military, veterans and first responders. The ‘myheroes’ program is an exclusive, fully integrated extension of Penn National’s industry leading mychoice rewards loyalty program, which will provide our nation’s heroes access to exclusive discounts and offers at Penn National’s 41 properties in 19 states.”
Mr. Snowden continued: “Despite COVID-related restrictions and closures in January and harsh winter weather in the South segment in February, visitation and length of play continue to improve across all age segments of our player database. Moreover, we saw volumes in the month of March that we have not seen since 2019. Recall, when we reopened our properties in the summer of 2020, we saw very high spend-per-visit, but visitation was well below pre-COVID levels. Today, we’re still seeing spend-per-visit that is much higher than it was pre-COVID, and visitation is at or near 2019 levels in most of our markets, which is a great combination. Importantly, the younger demographic continues to choose gaming as a viable entertainment option while the 55+ age group has been returning to our casinos as vaccines continue to roll out. Unrated play continues to show strength that mirrors what we have seen from our rated guests. This top-line demand coupled with the structural changes we put in place at the start of the pandemic has resulted in remarkable and sustainable margin improvement. Meanwhile, the South segment outperformed with margin improvement of greater than 1,100 basis points compared to the same period in 2019 given the less restrictive COVID protocols in the region, the removal of loss-leading or lower margin amenities, more efficient labor management and a very rational marketing and promotional environment. The Midwest also reported impressive margin gains of nearly 900 basis points despite an uneven playing field related to COVID restrictions in certain key markets.
Mr. Snowden continued, “We remain focused on garnering top-three gaming revenue market share for the Barstool Sportsbook and driving best in class profitability. Since launching our product just over seven months ago, we have registered more than 400,000 customers and generated over $660 million and $61 million in handle and gaming revenue, respectively. We plan for the online Barstool Sportsbook to be live in eight states by football season and in at least 10 states before the end of the year.
“As previously disclosed, on March 11, we successfully launched the Barstool Sportsbook in Illinois, ahead of the 2021 NCAA Basketball Tournament. The initial results for the first 30 days of operations exceeded our expectations, with better first-time deposit conversions relative to what we had generated in Pennsylvania or Michigan. During this period, we registered over 54,700 new customers and generated total handle and gaming revenue of $67.7 million and $6.5 million, respectively. We also experienced high engagement, with 54% of our Illinois customers wagering on Barstool-exclusive bets.
“Our ability to deliver unique and engaging content through Barstool Sports sets us apart from our peers. Barstool’s social media reach, creative promotions, custom parlays, and exclusive bets have been key drivers of customer acquisition for the online sportsbook and have led to enhanced engagement and retention, particularly among more casual bettors. In addition, Barstool’s promotion of Penn National’s retail sportsbooks has driven significant awareness and visitation to our land-based properties, highlighting the unique benefits of our fully integrated media and omnichannel strategy. Overall, we have seen very strong results at our properties that have opened Barstool-branded retail sportsbooks, and we plan to open/rebrand six more retail sportsbooks by the end of 2021.
“The power of our mychoice customer base combined with the fierce loyalty of Barstool’s audience allows us to successfully cross-sell our online offerings. In Michigan, for instance, despite limited game selection, over 50% of our online sports betting MUPs placed a wager on our iCasino product during the month of March, which was above our initial expectations. We are excited to translate this success to our Barstool iCasino in Pennsylvania, which launched yesterday and will provide another great option combined with our HollywoodCasino.com offering in the state, which has resonated well with our mychoice players. We expect to add significantly more third-party content to our Barstool-branded iCasino product later this year. Further, our recently announced acquisition of HitPoint Studios will be the centerpiece of our newly formed Penn Game Studios allowing us to create customized Barstool-themed and casino branded content that we believe will lead to even greater cross-sell opportunities.
“Barstool Sports, the media company, has maintained its incredible momentum from 2020 into the new year, with strong financial performance and audience growth. Today, Barstool’s sports, entertainment and lifestyle content drives a loyal base of 21 to 40-year old customers to our sportsbook. As Barstool continues to broaden its reach with relevant influencers and other media and sports personalities, we have seen this audience expand. Further, the continued growth and diversification of the brand’s advertising, licensing and merchandise revenue streams has enhanced the value of the media asset, which we believe is currently underappreciated.
“We are continuing to execute on our exciting growth opportunities, which will drive prospective revenue and EBITDAR growth. We view investments in technology as imperative to enhancing the customer experience, delivering unique content, and gaining mindshare. Our mychoice mobile app, which we launched last quarter, has had over 333,000 downloads with approximately 115,000 monthly active users. Our app allows us to engage with our guests more effectively, provide targeted promotions, and drive revenue growth. Similarly, we believe the implementation of our cashless, cardless, and contactless (“3Cs”) technology will resonate well with our guests, especially the younger demographic. We have seen continued momentum in mychoice app downloads in all our markets across all age groups. Ultimately, these technology investments will further increase our communication effectiveness with our guests. In addition, this will improve our efficiencies and benefit revenue flow-through as expenses are further reduced.
“We will be launching the 3Cs experience throughout the remainder of 2021 at our four casinos in Pennsylvania with the first launch near the end of Q2 2021, pending regulatory approval. Included in the list of our four Pennsylvania casinos is Hollywood Casino York, set to open in August and Hollywood Casino Morgantown, which we expect to open later this year. In Maryland, we remain on track to close the Hollywood Casino Perryville acquisition in early Q3 2021, which will provide us market access to our 20th state. Each of these properties will feature a Barstool Sportsbook, which combined with our mychoice player affinity program, highlights our expanding omni-channel presence.
