Penn Entertainment has raised its full-year guidance for revenue after completing its full acquisition of Barstool Sports in February as well as launching the Barstool Sportsbook in Ohio and Massachusetts during Q1.
Publishing its Q1 financial results, Penn declared total revenues of $1.67bn, marking an increase of 7% year-over-year. Retail revenues accounted for $1.44bn of this total, an increase of 1.4% YoY, meanwhile, the interactive unit comprised $233.5m of revenue, up 65% on Q1 of 2022.
Interactive boosted by proprietary platform and US launches
Penn launched the Barstool Sportsbook brand in both Ohio and Massachusetts in Q1, which the firm stated explained the advantages of an omnichannel strategy that harnesses organic customer acquisition techniques.
This has been shown through the declining promo spend that the operator spent in Ohio as it increasingly relied upon its omnichannel strategy rather than promo credit spending.
However, the investment made into those two state launches, as well as the subsequent low hold rate endured throughout the quarter impacted Penn’s interactive bottom line, with adjusted EBITDA for the unit sitting at negative $5.7m.
Meanwhile, in Canada, Penn has experienced a material benefit from the rollout of its proprietary platform in Ontario via theScore, which the group stated has led to “material market share” in the Ontario igaming market.
Having reaped the benefits of the Ontario rollout, Penn reiterated that its tech stack will roll out in the US in Q3 when its deal with Kambi concludes.
Jay Snowden, Penn Entertainment CEO, said: “Having full control of our product roadmap in the US, which remains on track for July, will enable us to connect with our customers on a more personalized level and quickly add new features and betting markets to the Barstool Sportsbook, while also enhancing our icasino product with new content and bonus mechanics.
“In addition, with an improved guest experience post-migration, we will be well positioned to drive stronger loyalty and retention, while offering seamless cross-play in our omni-channel ecosystem.”
On the media side of the interactive unit, Penn stated that Barstool has experienced revenue growth of around a double since it made its initial investment in the business over three years ago, whilst growing a loyal audience and a cross-sell business.
theScore media, too, is delivering “strong results”, according to Snowden, with improving revenue and engagement metrics, whilst total user sessions improved by 22% YoY.
High taxes lead to retail EBITDAR margins shrinking
On the retail side of the business, Penn noted revenues of $1.44bn, up slightly on one year ago. This was largely driven by strong performance in its northeastern properties, potentially boosted by sports betting introduced in Massachusetts. However, these gains were offset by declining revenues in southern areas of the US.
The primary driver of strong performance came from the increasing engagement with older demographics as well as VIP customers increasing. The VIP database grew by over 350,000 members in the first quarter, representing a 13% increase YoY.
Adjusted EBITDAR in the retail segment stood at $511.2m in Q1, down 3.3% on the $528.4m recorded in Q1 of 2022.
Snowden blamed this on a shift in gaming revenues coming from jurisdictions with higher taxes compared to previous years as well as property litigation matters.
He added: “Operationally, our broader portfolio benefited in the first quarter from the improvement of our older demographic’s retail theoretical while we experienced consistent engagement from our younger 21-44-year-old demographic.
“Our properties also proved to be more resilient than initially anticipated given the increased supply in a few of our markets. Additionally, VIP play remained strong across our properties, driven by both guest count increases and frequency of visitation.”
EBITDA hurt but confidence in the future
Looking at the whole group, adjusted EBITDA stood at $478.2m, marking a decline of 3.3% YoY. However, when taking away rental arrears, a bleaker picture is painted as the figure stood at $332.2m, down by nearly a quarter (23.6%) YoY, while the adjusted EBITDAR margin was 28.6%, down 300 basis points YoY.
Nevertheless, there is still optimism in Penn’s camp both over the short and long term health of the business going forward. The group’s net income stood at $514.4m at a margin of 30.7%, up exponentially from the $51.6m recorded in Q1 of 2022.
And, as aforementioned, Penn has raised its full-year revenue guidance after witnessing the onboarding of the Barstool Sports brand in February. Full year revenue is anticipated to be in the region of $6.37bn – $6.81bn. Meanwhile, the Barstool acquisition is EBITDAR neutral, leaving the group to reiterate its initial forecasts of $1.87bn – $2bn.
Snowden concluded in Penn’s report: “We are pleased to report that PENN delivered another solid quarter in what remains an uncertain macroeconomic environment. PENN generated first quarter revenues of $1.67bn and Adjusted EBITDAR of $478.2m as strong performance in the Northeast mostly offset softer YoY results in the South.
“Our proprietary sports betting and icasino technology platform, which is live in Ontario, continues to drive compelling results and market share. As previously announced, on February 17th we completed our acquisition of the remainder of Barstool Sports. Accordingly, we are raising our prior 2023 revenue guidance range to $6.37bn ‒ $6.81bn to reflect the Barstool acquisition, which is neutral to Adjusted EBITDAR.”