The Q1 fiscal report for Penn Entertainment painted a picture of financial contraction across all centralized business areas during the first quarter ending on March 31. Notably, this included the Interactive segment, an area that has previously been a source of growth for the company.
Land-based gambling saw a uniform slump in regions that include the Northeast, South, West, and Midwest segments. The shortfall is attributed to the adverse weather conditions affecting the U.S. in the early part of the year, which significantly reduced customer visits.
In the Interactive realm, which encompasses the fledgling ESPN Bet brand, revenues also diminished compared to the previous year as big sporting events proved less profitable than anticipated.
However, Penn Entertainment’s CEO and President, Jay Snowden, remains undeterred, indicating that the entertainment conglomerate is well-poised for growth for the rest of 2024. Initiatives aimed at product enhancement, particularly in partnership with ESPN, are set to propel the company forward. Snowden has expressed excitement for the upcoming changes, asserting that they will greatly benefit the company’s expanding customer base by providing unique sports and betting experiences.
To help drive these improvements, Penn Entertainment has recruited Aaron LaBerge as its new Chief Technology Officer, with his tenure starting in July. LaBerge, who brings a wealth of experience from over two decades at The Walt Disney Company, most recently as CTO of Disney Entertainment and ESPN, is expected to play a pivotal role in advancing Penn’s technological agenda and interactive offerings.
This quarter’s financial results indicate where the company has felt the impact most acutely. Gaming revenues saw a decrease of 5.1%, settling at $1.26 billion, while revenues from hospitality including hotel, food, and other services remained steady at about $348.6 million. The Northeast remains the primary source of income for Penn, despite a 2.3% decrease from the previous year, chiefly due to the inclement weather in Q1.
Performance in other segments also trended downward, with the South segment experiencing a 5.2% decline and the Midwest a 1.4% drop. However, the West segment had the smallest decrease at just 0.7%.
Snowden highlighted that despite these challenges, there were successful cross-sell opportunities stemming from retail sportsbooks which buoyed the company’s performance in regions like Ohio and provided a boost to certain properties notably Plainridge Park in Massachusetts and Hollywood Casino at Kansas Speedway. With winter now in the rearview, Snowden is confident about the progress of their growth projects set forth for the remainder of the year.
Focusing on the Interactive segment, Q1 revenues fell by 11.1% to $207.7 million due to less favorable outcomes on major sports events. The segment, responsible for all online sports betting and iGaming operations, saw the brand ESPN Bet launching in North Carolina and acquiring sports betting licenses for the New York market, paving the way for future expansion.
In addition, a significant milestone was reached with the opening of the first ESPN Bet retail facility at the Hollywood Casino at Greektown in Detroit, Michigan. However, financial results showed an impact from decreased holds and player spending.
As Penn forges ahead into the football season, the focus is on refining product offerings and integrating ESPN Bet more deeply into ESPN’s digital media and fantasy products. The company believes these enhancements will lead to a superior customer experience, resulting in increased loyalty and revenue.
Nevertheless, operating expenses rose by 10.5% in Q1 to $1.63 billion, with gaming costs showing a notable uptick. Despite these challenges and a pre-tax loss contrasting with last year’s profit, Penn benefited from tax reliefs and reduced non-controlling interest losses, leading to a net loss of $114.7 million for the quarter.
Truist Securities recently indicated that Penn would remain operational even if ESPN Bet did not meet expectations, thanks to the strength of the Interactive division. Following this assurance and an upgrade to a ‘Buy’ rating, there is an optimistic outlook for Penn, underscored by growth in both online sportsbook handle and gross gaming revenue.
In summary, despite the revenue downturn and heightened operating expenses in the first quarter, Penn Entertainment and its new CTO are steadfast in guiding the company towards a resurgent 2024. They remain buoyant on leveraging their technological prowess, strategic partnerships, and comprehensive product roadmaps to navigate any setbacks and achieve long-term growth.
