Penn National Gaming CEO Jay Snowden told investors on a May 7 earnings call that the company is rethinking its reopening strategy and seeking to ramp up sports betting, after the company reported a net loss of $608.6 million for the first quarter of 2020, due to the Covid-19 shutdown.
Penn National generated revenue of $1.11 billion in the three months ending March 31, a 9.4 percent decline from the same period last year. The company shut all 41 of its gaming venues in mid-March. Earnings fell by half to $154.8 million, and $616.1 million in impairment losses related to gaming licenses, trade names and goodwill resulted in the net loss.
Penn Chairman Jay Snowden, though, struck an upbeat note in his investor call, mainly due to positive numbers in online casino and sports betting operations, and prospects for its Barstool-branded sports-betting platform as major sports get closer to returning in some form.
Sports betting and iGaming revenue nearly doubled to $20.3 million during the quarter. Snowden said Penn Interactive’s real-money iGaming operations in Pennsylvania had enjoyed 60 percent growth from March to April, while social gaming revenue was up 24 percent. On sports betting, Snowden noted the launch of sportsbooks at four Penn casinos in West Virginia, Indiana and Mississippi, which resulted in overall property “revenues that were north of 10 percent year-over-year and EBITDA that was closer to 30 percent growth.”
Snowden said work is continuing on PNG’s Barstool Sports-branded sports betting app, although the engineers are now all working remotely. Penn owns 36 percent of Barstool. “Penn will have its Barstool (sports betting) app running by the third quarter,” said Macquarie’s Chad Beynon, according to CDC Gaming Reports. “And we believe the app (and the Barstool) database can be worth $10-to-$25 per share of equity over time.”
“(Barstool) continued to generate highly creative and engaging new content for their loyal followers stuck at home in April,” Snowden said on the earnings conference call. “April also represented their best ever commerce month, which speaks to the power of Barstool’s brand and it being about more than just sports.”
Snowden told investors the company is rethinking how it will ramp operations back up after the pandemic shutdown, adding, “Tragically, we have lost three of our own valued team members to the coronavirus.” He said the company will be “really thoughtful around how we ramp back up what our operating model looks like.” He said reducing or eliminating cash transactions is definitely on the radar.
“(The casino industry is) probably the last out there that transacts only in cash,” Snowden said. “So we’re working with our regulators right now to see if we can really accelerate this digitalization of payments on our properties.” He said the company also is rethinking direct-mail marketing to cut production and postage costs, amid “rethinking everything that we had been doing and need to do on a go-forward basis.”
Penn National has taken several steps to preserve liquidity while its operations are shut down. The company has launched a new debt offering, and is projecting $250 million will be raised through new debt due in 2026.
Penn National Gaming’s combination stock sale and debt offering grew by more than $100 million last week, with the operator predicting proceeds of $600 million from the transactions.
The company priced more than 16.6 million shares of the company’s stock at $18 per share, which could bring in $300 million. Another $300 million will be raised through a 2.75% convertible debt that comes due in 2026, according to CDC Gaming Reports.
Penn National operates 41 properties in 19 states.
As a result of the current crisis, Snowden said, he believes more U.S. states will legalize sports betting, and the expansion will accelerate as states seek to recoup casino tax losses.
“We think that this legalization process that is happening at the state level stands to accelerate,” Snowden told CNBC in an appearance on the network’s Power Lunch program on May 7, “and we really think we’ll benefit from that, because we operate in more states than any gaming company in the world.”
DraftKings CEO Jason Robins made similar comments to CNBC last month. “I think once the pandemic is under control, and maybe some of the economic impacts that result from it become problematic for state budgets, you could see more focus on things that will generate tax revenues,” he said. “That’s not now. There’s a time and place for that later, but I do think there might be an opportunity to engage with states that previously have been on the fence about passing legislation.”
