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Penn National Gaming, owner of Barstool Sports and theScore, released its 2021 Q4 earnings report on Thursday, which shows revenues and adjusted EBITDAR exceeded both 2020 and 2019 levels. However, Penn National’s earnings per share came in at 26 cents, significantly short of the 51-cent target.
The company attributes the revenue and adjusted EBITDAR success to an increased focus on its interactive division and marketing strategy that requires less spend than competitors.
Penn National 2021 Q4 Results
The choice to limit marketing and promotions allowed the company to generate a lower-than-expected EBITDA (earnings before interest, taxes, depreciation, and amortization) loss in the interactive segment while launching in two new states – Iowa and West Virginia. The summarized results show:
- Revenues of $1.6 billion
- Net income of $44.8 million, with a net income margin of 2.8%
- Adjusted EBITDAR of $480.5 million
- Adjusted EBITDA of $369.0 million
- Adjusted EBITDAR margins of 30.6%
Revenue, net income, adjusted EBITDAR (earnings before interest, taxes, depreciation, amortization, and rent/restructuring costs), and adjusted EBITDA all increased year-over-year, signaling growth for the company.
The interactive segment saw $157.6 million in revenue, but an EBITDA loss of $5.9 million. The company was anticipating a larger loss in Q4, but managed to limit it by using differentiated marketing tactics that didn’t rely on intro offers or discounts to new players. For example in Q3 of 2021, Penn interactive spent 17.6% of their gross gaming revenue on marketing, compared to a competitor average of 63.7%. CEO Jay Snowden explained in the conference call that the company saw market growth, which allowed running at better margins and limiting marketing spend.
Penn National’s Plans for 2022 and Beyond
As Penn National looks to the future, it has plans to become a major media and entertainment company.
“In the near term, the acquisition of theScore fortifies our position as a leading North American digital sports content, gaming, and technology company by widening our customer acquisition funnel,” explained Snowden.
Key parts of this plan include acquiring the remainder of Barstool Sports, Inc. in early 2023 and leveraging theScore in new markets.
As Penn Interactive, the division overseeing Barstool Sportsbook, grows, the company anticipates an EBITDA loss of $50 million, which will happen primarily over the first three quarters of 2022. The company expects to see a positive EBITDA in Q4 and through 2023. Expanding in-house engineering and creative teams justifies the loss. By expanding the team, the company is hoping to be able to integrate Barstool Sports into theScore US by the second half of 2022.
The growing teams will also be helping the company refine its new technology, the “3Cs” system in ‘mywallet,’ and develop more in-house iCasino entertainment. In 2022, in-house games generated 20% of the iCasino handle, and by developing more games, Penn National hopes to push this percent to 50 or higher in 2023.
New Markets in 2022
With the launch of Louisiana on January 28 and the pending launches of Maryland, Ohio, and Ontario, Canada, Penn National feels ready for growth in these new markets.
In Louisiana, the company accounted for 50% of the sports betting handle since the retail launch in the state on October 31 through its five casinos. It is poised to continue its prominence in the Louisiana market now that online sports betting has gone live, and the company is rebranding its key retail locations across the state.
Ontario is another exciting new market for the company, which is expected to launch in April this year. While Ontario has had a gray market for years prior to the official process coming into place, Penn National is excited to leverage its connections in the province. By purchasing theScore, Penn National is already on 20% of mobile phones in the region. Consumers that use theScore have a low churn and high engagement rate, which makes the news site an optimal funnel for online betting when it goes live. The company hopes this integration will be complete in Q3 for the launch.
The leadership at Penn National is also excited about their experience in differentiated marketing. Ontario will not allow operators to market with promotions to bring in new customers. Because the company already limits the number of promotions in new markets, the strategy in Ontario will not vary too much from promotions in the states. Advertising will focus on educating consumers about the shift from gray market to fully legal betting.
