PENN Entertainment, Inc. (PENN) Q2 FY2025 Earnings Call Transcript & Summary

Greetings, and welcome to PENN Entertainment's Second Quarter 2025 Earnings Call. I would now like to turn the program over to Joe Jaffoni, Investor Relations. Please go ahead.

Thank you, Emma. Good morning, everyone, and thank you for joining PENN Entertainment's 2025 Second Quarter Conference Call. We'll get to management's presentation and comments momentarily as well as your Q&A. [Operator Instructions] Now I'll quickly review the safe harbor disclosure. Please note that today's discussion contains forward-looking statements. Forward-looking statements involve risks, assumptions and uncertainties that could cause actual results to differ materially. For more information, please see our press release for details on specific risk factors. It's now my pleasure to turn the call over to PENN's CEO, Jay Snowden. Jay, please go ahead.

Thanks, Joe. Good morning, everyone. Joined here in Wyomissing with Felicia Hendrix, Todd George, Aaron LaBerge as well as other members of our senior management team. As you can see from our earnings release and accompanying investor presentation, our diverse portfolio of retail properties delivered another solid quarter, particularly in those markets not impacted by new supply, where we saw revenue growth of 4% year-over-year. For the second quarter of 2025, we reported retail revenue of $1.4 billion and adjusted EBITDAR of $490 million and adjusted EBITDAR of nearly 34%. As noted on Slide 5, this performance by our best-in-class property teams was highlighted by theoretical revenue growth across all rated age and worth segments as well as year-over-year theoretical revenue growth in unrated play, visitation and spend per visit, the first time we have seen this since Q1 of 2022, all of which have remained consistent through July as well. As you'll see on Slide 6 and 7, we have been absorbing the impact of new supply in a few key geographic markets. Starting with Chicago lands, we are responding with the land site relocations of our Hollywood casinos in Aurora and Joliet to vastly superior locations and with new best-in-class, best-in-market assets. We're also planning to help mitigate the impact of new supply in Nebraska with the land site relocation of our Ameristar casino council blocks property in Iowa, which is currently scheduled to open at the end of 2027 or beginning of 2028. As we've discussed previously, our Margaritaville property is still the market leader, but it has been impacted by the recent new supply in Bossier City, Louisiana. This market has been in decline for 2 decades now, and the new incremental supply, not surprisingly, has mostly cannibalized the incumbent operators. Our focus remains on continuing to enhance the guest experience, in part through property improvements such as our recently renovated hotel rooms. We're also updating our hotel lobby, lobby bar and adding new non-gaming amenities. In addition, on June 16, we were excited to welcome a privately funded 27-acre golf entertainment contracts directly next door to our property, which is part of more than $75 million invested by third parties and PENN on gaming and nongaming amenities in and around the property over the last several years. In Detroit, we expect that the ongoing construction and revitalization of the downtown business corridor adjacent to our Hollywood Greektown Casino will help boost visitation and spend in the Greektown neighborhood and at our property. The project is funded by a $20 million grant from the State of Michigan with a focus on revitalizing public spaces and improving the pedestrian experience with a more inviting environment, including the ability to host live events and festivals in the neighborhood. Construction around our property is scheduled to be completed in Q3 of this year, and the entire project scheduled to be completed in Q2 of 2020. Turning to Slide 8. We are extremely excited for the August 11 opening of Hollywood Casino Joliet. Notably, this opening is occurring on budget in nearly 6 months ahead of its originally scheduled time line. The new Hollywood Joliet is part of Rock Run collection, a super regional commercial and resident development conveniently located adjacent to the Interstate 80 and Interstate 55 interchange southwest of downtown Chicago. From a financial standpoint, there will be no change to our 2025 retail guidance as it relates to the Joliet relocation as the earlier opening date will offset the ramp down of the existing facility the last couple of months to allow for game relocations, the approximate 2-week closure and the marketing ramp of the new property, none of which was built into our original guidance for the year. As you'll see on Slide 9, our other development projects remain on schedule and on budget. Our omnichannel engagement continues to positively impact our results with our online-to-retail player count growing 8% year-over-year and online-to-retail theoretical revenue growing 28% year-over-year. Turning to Slide 10, our pre-existing customers in Pennsylvania and Michigan, who engaged with our stand-alone Hollywood Eye Casino app, are increasing their spend across both our retail and online channels. In Pennsylvania, year-to-date, we have seen year-over-year increases of 19% in retail theoretical play and 133% in online theoretical play from this same cohort. Similarly, in Michigan, year-to-date, we have seen year-over-year increases of 28% in retail theoretical play and 242% in online theoretical plan. These are encouraging trends for sure, having both a retail and digital relationship with your consumer is clearly a major key to success for the industry moving forward. Transitioning to our Interactive segment, we achieved record quarterly gaming revenue in both OSB and iCasino in Q2. And while still plenty of work to do, we delivered significant year-over-year improvements in adjusted revenue and adjusted EBITDA, highlighting strong year-over-year flow-through we are seeing in our business in 2025. These results include approximately $2.9 million in severance costs incurred as part of our strategic workforce adjustments to drive efficiencies and support a modern scalable technology infrastructure. Excluding that onetime expense, we would have come in slightly ahead of the midpoint of our digital Q2 guidance consensus. Our stand-alone iCasino app is continuing to expand its reach with over 70% of gaming revenue life to date through the second quarter generated by newly acquired retail native or reactivated users, which is also encouraging. As you'll see on Slide 12, our Interactive segment, average MAUs have stabilized over the past 2 quarters and actually increased in Q2 '25 on a year-over-year basis. Our has also been an upward trajectory since launch. We are making great strides in advancing our in-house risk and trading platform and expanding our wagering options, including our parlay in in-game products. As a result, over the last 2 quarters, our hold rates have continued to improve, and we expect this trend to continue as we make further refinements. Additionally, the continued month-over-month sequential growth of our Hollywood Casino stand-alone app coupled with our improved OSB cross-sell efforts are driving material growth in our iCasino users, volume, revenues and market share. The success of our stand-alone app is incremental to our overall iCasino performance, with minimal cannibalization of our in-app iCasino products. On top of the Q2 momentum, July marked our highest ever iCasino GGR in both Pennsylvania and Michigan. Turning to Slide 14. We continue to enhance our ESPN Bet offering by introducing engaging new features, such as the ability for customers to evaluate player statistics in relation to player pop bets. The benefits of the continued rollout of our new offerings is driving engagement. Since the spring, we have seen strong and consistent year-over-year growth in first-time betters which are most recently up over 50% year-over-year in July. Similarly, first-time deposits have more than doubled year-over-year in July. Notably, our promotional expense as a percentage of handle has remained stable in the low single digits. Further, as we announced earlier this week, this football season will mark the launch of FanCenter, an exciting feature, which leverages our connectivity with the ESPN ecosystem to enable players to bet on their favorite teams players and fantasy lineups in ESPN Bet. The hub, powered by account linking technology with ESPN, creates the ultimate interconnected media bedding and fantasy experience. In addition to fantasy-related markets within FanCenter, a new Find a Bet icon on the ESPN Fantasy app will allow players view ESPN Bet markets related to their roster and ad selections directly to their ESPN Bet slip. Last year, ESPN Fantasy football set an all-time mark with more than 13 million playing the game. Opportunities like this to leverage the nation's #1 fantasy app is a big part of why we did the deal with ESPN, and we look forward to continuing to work together to unleash the full value of this partnership. And with that, I'll turn it over to Felicia.

Thanks, Jay. As Jay mentioned, our diverse portfolio of retail properties delivered another solid quarter, particularly in markets not impacted by new supply. Our Interactive segment generated CPU adjusted revenues, excluding the skin tax gross-up of $178 million and Interactive adjusted EBITDA of a loss of $62 million. Record quarterly gaming revenue for both OSB and iCasino was driven by higher holes and continued momentum on stand-alone iCasino. Corporate expense of $38.7 million included $9.4 million of legal and advisory costs in connection with our Annual Meeting of Shareholders. The table on Page 7 of our earnings release summarizes our cash expenditures in the quarter, including cash payments to our REIT landlords, cash taxes, cash interest on traditional debt and total CapEx. Of our total $159 million CapEx in the quarter, $100 million was project CapEx related to development projects. We ended the second quarter with total liquidity of $1.2 billion, inclusive of $672 million in cash, cash equivalents. In the second quarter, we repurchased $90 million of shares at an average price of $15.47 per share, which takes us to $115 million of shares repurchased in the first half of the year at an average price of $15.90 per share. We expect to repurchase at least $350 million of shares in 2025, which implies share repurchases equivalent to 9% of our current market cap over the last 5 months of the year. Additionally, on June 20, we repurchased roughly 70% of our convertible notes due 2026 for $233.5 million, which eliminated approximately 9.6 million potentially dilutive shares that were associated with the convertible notes. This transaction is incremental to our $350 million share repurchase target for the year. I will now provide an update on our guidance for the remainder of the year. Our 2025 retail guidance is unchanged from the ranges and drivers we provided in our earnings call in February. The new Joliet property opening is now included in our guidance, and Jay covered the financial puts and takes related to that project earlier. On Interactive, we continue to expect sequential quarter-over-quarter adjusted EBITDA improvement for both the third quarter and the fourth quarter, with the fourth quarter inflecting positive. We are updating our 2025 Interactive guidance to reflect $10 million of incremental costs related to the OSB launch in Missouri in December, which was not contemplated in our prior guidance and the impact of legislative tax increases in Illinois, New Jersey, Louisiana and Maryland. Our new guidance also better aligns with our current volumes and market share trends. Our average MAUs increased in the second quarter year-over-year, and we now forecast modest year-over-year growth in market share for the remainder of the year. We now forecast U.S. OSB handle market share, excluding New York, of 3.4% in the third quarter and 4% in the fourth quarter. For iCasino GGR share, we expect 3% in the third quarter and 3.2% in the fourth quarter. Somewhat offsetting these lower volume assumptions are an expectation for slightly higher sports book hold rates in the second quarter. We're modeling in the mid-9% range for the third and fourth quarter. We have been closing the gap with the market leaders from a hold rate perspective, given improvements in our risk and trading functions as well as solid execution of our parlay, same game parlay and in-play offerings. Further, as a function of our strategic workforce investments, we anticipate run rate savings in G&A of approximately $20 million or roughly $10 million in the second half. For the third quarter '25, our interactive revenue guidance range is $295 million to $335 million, including a $125 million skin tax gross-up, and our adjusted EBITDA guidance range is a loss of $65 million to a loss of $45 million. Our 3Q Interactive adjusted EBITDA guidance represents a year-over-year improvement of roughly $36 million at the midpoint. For the fourth quarter of '25, we expect Interactive adjusted EBITDA of approximately $5 million, assuming normal hold. Other segment adjusted EBITDAR continues to be challenging to forecast this year due to the cost of ongoing litigation. However, with the bulk of our advisory and proxy-related expenses behind us, I can provide you with some metrics to help you with your modeling by running through the various moving parts. In February, we initially provided other segment adjusted EBITDAR guidance, which includes corporate expense of $121 million. Before incremental legal and advisory costs related to this year's AGM, this forecast is unchanged. As we look to the remainder of the year, we may incur incremental legal expenses in the second half of the year, given the ongoing shareholder litigation. While we cannot project at this time the magnitude of the legal expenses we could incur in the second half of the year, we do expect that they will be significantly below the $17.1 million of legal and advisory costs we incurred in the first half. Transitioning to our retail growth projects. As of today, we've received the full $130 million in funding from GLPI for the $185 million Hollywood Joliet project at a cap rate 7.75%. As you know, for the $360 million Aurora, we have already committed to take $225 million of funding from GLPI at a cap rate of 7.75%, and we will draw from GLPI closer to the opening of Aurora. Regarding the M Resort Power and Hollywood Columbus, we will provide funding updates as we get closer to those openings. Our CapEx forecast for 2025 remains $730 million with project CapEx of $490 million. For 2025 net cash interest expense, we project $160 million. And for cash taxes, following the announcement of the Big Beautiful Bill, our 2025 cash tax outlook has shifted meaningfully, reflecting the impact of several onetime items and permanent changes. While our prior guidance projected a $70 million cash tax liability for 2025, we now do not expect to be a cash tax payer this year, which benefits free cash flow before project CapEx by 40%, 4-0 percent. The acceleration of previously unamortized R&E expenses and the utilization of an interest expense carryover generated onetime benefits for this tax year. In addition, the 100% bonus depreciation represents a meaningful benefit given our recurring annual CapEx and our active growth project pipeline. We expect the enactment of the Big Beautiful Bill to continue to be favorable to us in future years. based on what we know today for 2026, we currently anticipate recognizing approximately $50 million less in cash taxes in each of 2026 and 2027. Our basic share count at the end of the second quarter was 145.5 million shares. After the redemption of the convertible notes, we now have 4.5 million potential dilutive shares from the remaining convertible notes stub and about 1 million dilutive shares from RSUs and stock options. And now I'll turn it back to Jay.

All right. Thanks, Felicia. In closing, I want to reiterate that our core retail business has remained strong and are growing in the aggregate. We believe the recent law changes around salt deductions as well as taxes on tips over time and social security benefits could provide to be tailwinds for PENN in addition to anniversarying the new supply in key markets later here in '25 and in early 2016. We're early awaiting the August 11 opening date next week of the first of our growth projects, which we believe will collectively enhance our portfolio, grow our free cash flow profile, reduce leverage and serve as a catalyst for PENN's retail segment and our overall omnichannel strategy. On the Interactive side, we're excited about all the new product enhancements have been -- our teams have been making, including the upcoming launch of FanCenter. This type of integration with the ESPN is what sets the ESPN BET apart from our competitors, and we can't wait for football season to showcase it. We're very appreciative of the hard work, strong partnership and long hours from our friends at ESPN, particularly as we collectively prepared for the start of the football season over the last several months. We're excited and optimistic about our new product enhancements. However, we do still maintain strategic optionality as discussed previously in the digital business as we head into 2026. As I said on our Q1 call, we are nearing an inflection point with our digital business, and we anticipate each quarter of 2025, delivering a lower loss sequentially throughout the year and our Interactive division to be profitable in the fourth quarter of '25 and the full year of '26 and beyond. This is still the case. The significant investments in Interactive are undoubtedly behind us. Our focus for the balance of this year and going forward remains operational execution and transforming our strategic investments into consistent long-term returns and value creation for our shareholders. We believe our share price is undervalued and will be even more active in buying back shares and returning capital to shareholders in the second half of the year as covered previously by Felicia. And with that, we can open up the line for our first question.

[Operator Instructions] We will take our first question from Barry Jonas with Truist Securities.

A lot going on with ESPN between the coming launch of its DTC products and the announced deal with the NFL. How should we be thinking about potential upside for ESPN Bet with both on top of your continuing product enhancements like FanCenter?

Yes. Obviously, it's been a really busy week this week for ESPN. They announced the launch date of their direct-to-consumer streaming offering. And then, of course, earlier this week, they announced the partnership with WWE and then acquiring the NFL media assets from the NFL. So very busy. We really don't have anything to comment on beyond what Disney ESPN has shared publicly and on their earnings call. I would just -- and maybe this is stating the obvious, that we think those are all just going to continue to solidify ESPN's position as the worldwide leader in sports. And all of those announcements are good for the entire ESPN ecosystem of which ESPN BET is certainly part of that. And as we've mentioned before, the launch of the direct-to-consumer offering is going to be deeply integrated with sports betting, ESPN BET, and that's going to be the first time that we've seen anything like that in the space. So we're interested to see what that means for the sports fans of ESPN and our ability to continue to provide a great betting option for people through those deep integrations throughout their digital and stream an ecosystem.

Great. And then just as a follow-up on retail, top line trends that you said were pretty strong at plus 4 outside of new supply markets. Just wanted to get your thoughts on what you think is driving this and to what degree it's sustainable.

I'll mention a couple of things. Todd, I'm sure you want to jump in as well. I think it's -- there's been less new supply hitting us in a number of markets. If you look at the last 12 months, it's certainly there, as we mentioned, in Bossier City, somewhat in Chicago, then although some of that is just us moving assets from Joliet old location to new locations. So I wouldn't overly read into the Midwest. Council Bluffs, I think our property has responded really well. It's a battle, but we're grinding there. And I would say, overall, and we've said this before, there's really one true macroeconomic factor that has a tight correlation to our business, which is employment. And employment has been strong. Americans have jobs. Americans spend money. It's really quite simple as it relates to the regional gaming business, at least as long as I've been doing this. And gas prices have been low and they've stayed low. So those are all helpful tailwinds. Consumer confidence seems to at least be stable. It's a bit volatile month to month. But I would say overall, pretty stable and seems to be moving in the right direction. And I think people, to some extent, has probably been putting off those destination vacations and trips to Vegas, and they're staying closer to home. So all that, of course, would benefit us in the regional markets. Todd, anything to add?

Yes. Perfectly said, Jay, and I would only add, some of the trends we're seeing, it's not just in the gaming revenue side. We're also seeing this in the food and beverage side, the hotel side. So to Jay's point about people staying for a staycation, that obviously is a sign that, that's working. And then I think with some of our capital deployment around the company and the country, we're getting a return on that. So the improvements we've made to our property, whether it's keeping our gaming floors fresh or our nongaming options fresh, really starting to see that pay off. So super excited about the opening of Joliet next week and then on the heels of that, the next 3 growth projects as well as the announcement we made with Shake Shack, so I think we continue to innovate and upgrade our offerings.

It's interesting, too, just one last point. I think the entire retail operations team across the country has really done a great job this past quarter when you think about there were some elevated pockets of promo spend. I think that was well documented throughout the quarter in the space. GGR look higher and how much of that was flowing through to NGR and to EBITDA. And I think our teams did a great job just staying disciplined and making sure that we're investing in the right customers at the right levels and not getting thrown into any sort of marketing battles. Again, I think that will die down quickly, but it was certainly a thing in the second quarter.

We'll take our next question from Brandt Montour with Barclays.

Coming to 2Q, we saw a pretty outstanding hold quarter in June, specifically in June, and some of your peers showed some upside in the sports division. We're not -- we don't really see that in your results. I'm curious if there's something about your mix or the volumes that you saw in the quarter why you didn't really participate in that.

Yes, it cut out a little bit beginning if I got to the question there, Brandt,on the second quarter and hold percentage for the space. We saw a nice hold result as well. Our hold percentage is continuing to really close the gap between where we've been and where the top tier operators are. We held in the mid- to high 9s. I don't have it exactly in front of me for the second quarter.

9.8. At 9.8% versus an estimate of 9%. So we held fine. We've been battling obviously, on the handle side of things, and we will continue to. We're seeing a really nice pickup in terms of first-time betters and first-time deposits and really gearing up for football season with a lot of new deep integrations with fantasy that we covered during our prepared remarks. So we feel like we've got nice momentum. We also obviously had the negative impact of the severance costs of around $3 million for the quarter. But I think you should expect to see our hold percentage sort of in that upper tier. We've seen that for the last several months, really since the early spring to where we are now. I think the same will be true in July. So overall, feeling good about hold percentage. We just got to continue to get more and more people into the top of funnel. And I know Aaron and team, Billy Turchin, who just joined us as our Chief Product Officer, working really hard to just eliminate friction as we did a deep dive on what's worked well for us and the things that haven't. I think eliminating friction between the people clicking on integrations within the ESPN ecosystem and coming over to ESPN Bet, same thing from people click on or go to the Apple Store and download our apps and register and just go through the whole process. But just we're working really hard to get that flow to be frictionless. And so we're feeling like we're in a good spot every quarter getting better. We still got work to do. So I think that's the clear message. But going into football, we feel like we've got a chance to really start to make some progress. The last thing I would say is if you look at handle share on OSB there is still some pretty aggressive promoting by a couple of the private operators. And so we've been really paying more attention to our GGR share and even more so, our NGR share. And we feel like we're making a lot of progress on the NGR side, both here in the U.S. as well as in Canada, which we're pleased with. So we just got to keep grinding and keep going. But Aaron, feel free to jump in with anything.

No, that was good.

Okay. Hopefully, you can hear me. Apologies for my connection. The second question is still on Interactive. I think if I heard Felicia's guidance commentary correctly, you guys are aiming for around $200 million loss for the year, which is right at the low end of the prior range. I also -- I mean, I know you called out lower volumes. The question, I guess, is that really the sort of main driver of that? And/or is there any sort of incremental promos that you guys are planning around FanCenter and/or ESPN regarding their launch?

Yes. It incorporates everything that you mentioned there, Brandt. We want to make sure that we have a successful launch of FanCenter to really bespoke unique feature. Remember also that we, for the first time on this guidance, incorporated now that we have a launch date for Missouri. That was not in our guidance previously. We have tax increases in 4 states in the second half of the year. So we're just truing all those things up in addition to, as we laid out for you, our OSB handle share hasn't year-to-date been where we estimated it. We're still anticipating we'll grow our handle share in Q3 and then even more so in Q4. Same thing for our iCasino GGR share. But we want to make sure we've got realistic targets out there that we've got the ability to make sure that we're showcasing what the new features are and we think that this allows us to do that. And hopefully, it turns out to be a little bit conservative, but it feels like the approach at this stage in the year heading into football season with so many new things coming.

We'll take our next question from Shaun Kelley with Bank of America.

Felicia, just maybe we could zoom out on ESPN bet for a second and just think about 2026. I think in general, the idea has been that we could get to profitable in that business for the full year. Is that targets still on track? And is it incumbent upon further improvement or especially on the core OSB side? Or can we kind of do that on, let's call it, a combination of run rate as you exit this year and just continued market growth in that business?

Yes. I think it's very much dependent, Shaun, as up hitting our targets for the remainder of the year and exiting 2025 on the path that we just laid out. It's not -- these aren't Herculean targets, but we've got to continue to prove it out. and grow our share, not just on handle, but of course, on GGR and NGR and make sure that we're reinvesting at the right levels, consistent with what we have been the last several quarters and then continuing to see progress. Again, nothing Herculean built in -- built out into our assumptions for 2026. We just want to see Q3 this year stronger market share results in iGaming than we did in Q2 with the progress we're making. We think that that's realistic. We've got a really strong product offering. We're enhancing the experience all the time, both in OSB and iCasino. So much like our fourth quarter, which we're anticipating being profitable to the tune of $5 million, we would be exiting with some real momentum heading into 2026, and we would build on that every quarter in 2026 as well. So those are the set of assumptions now. And as I've mentioned before, I think our focus, and you can imagine we've got all sorts of different sensitivity models. There's a lot of variables that play as we go into 2026, and so we're going to be ready for whatever strategic it is that we're doing and to make sure that we deliver on profitability in 2020. That's we're laser-focused on that.

Perfect. And then as my follow-up, I want to go back to the beginning, and I know you commented on this, but I think it just kind of fits strategically here, which is about the sort of ESPN-NFL deal. And just like at its highest level, it would seem like the strategic importance of having sort of a bedding option here as we think about sort of what DTC could mean or a DTC launch? Could a would be pretty paramount strategically. So does this open up your strategic options or dialogue with them. I mean, obviously, there's a very large fixed cost here. But one thing that was unique about the way ESPN and NFL was structured was around equity without at least our read is an ongoing fee structure. So just trying to think out of the box a little bit, but to the extent you could talk about it, it would be helpful.

Yes. Shaun, it's a great question. I'd imagine that we're all going to have more information on exactly the details. That was -- what was announced was not the definitive document. I think it was more where they are currently on the term sheet. So things -- who knows, things might change a little bit. Again, I'm not in those discussions. But as time goes, I think we'll have certainly more to share. We found out about it obviously when the world did this week when it was publicized. And so -- we've talked to ESPN, they're really excited. And they're very excited about the role that ESPN be plays in terms of fan engagement and the overall experience whether you're talking their direct-to-consumer launch, how they think about their relationship with all of their sports league partners, and they see in their own ecosystem, as we've shared before, that those that are part of the Link program with ESPN bet, there's a high level of engagement, higher than average. And so we would expect that to continue to be the case. And the NFL news and WWE as well, we think, just strengthen overall where we are in our relationship with ESPN, but also strengthen their position as the worldwide leader in sports.

Yes.

I would just add, more football is better for fans and for betters. And to point out, FanCenter is going to launch this year with native integration to ESPN's fantasy platform. So if you're a linked user and you're already linked, when you draft the team or more than 1 team, those teams automatically show up in ESPN BET in a way for you to bet it very creatively and easily. We are also going to be on the launch of their DTC platform with bedding integrated through ESPN Bet into the video experience. And so you would imagine those football assets show up in those video experiences. They've announced that they're going to combine ESPN fantasy platform with the NFL, which will make that massive. And again, FanCenter is the fantasy integration. So I think all of those things are just going to be good, not only for fans, but for our business and our partnership.

We'll take our next question from Joseph Stauff with Susquehanna.

I wanted to maybe just follow up on ESPN it maybe from a different angle. As we -- as it gets switched on, on August 21, obviously in the beginning of the football season and all the good seasonal factors associated with that, would you expect to see a pretty big spike or ramp in at least the top of the funnel in terms of like experimentation and so forth?

Yes. I mean -- and Aaron, you'll have thoughts on this. I would say that the NFL news from this week, the WWE News this week and then certainly with now having a date for the DTC launch. One thing we know is that ESPN is in a stronger position today than they were a week ago. And we also know that they're going to be putting a lot of weight behind that DTC launch. And the more ESPN is out there, I think that's really good for us and our brand. And the fact that we're going to have deep integrations this year with fantasy that we didn't have last year and this year with direct-to-consumer, which didn't even exist last year, those should all be positives. Obviously, it's incumbent on us to make sure that when people click on those integrations or give us an opportunity that it's a really smooth, seamless process. When they download, when they register, when they go through the whole process, and we think we're in a much stronger position this year to execute on that and that we keep them. Retention, we're going to be paying very close attention to every day, every week as we move forward. We've got to be able to keep the folks that come in and test us to try us out for the first time or come in on a reactivated basis.

Yes. I would just add, look, ESPN's Fantasy platform, I think Jay mentioned in his opening remarks, had 13 million people playing fantasy football last year. My guess is they're getting records this year. FanCenter alone is natively integrated not only into the ESPN fantasy app, but in the ESPN BET. So there's a huge top of funnel audience that gets new exposure to what is going to be a really cool feature if you're a financing player that you're going to want to try. And so when you think about reactivation, when you think about retention and when you think about new user acquisition, FanCenter is going to drive all of those. And then ESPN is launching a direct-to-consumer product, which we're integrated with. I won't speak to what level or what the product looks like because that product hasn't launched. But we also think that's going to be something that people see and want to experience to be part of because of the way it's implemented. It's very cool and very compelling, and that will also be a driver of interest. And we think that's ultimately going to be good for top of funnel.

Understood. And then if I could follow up on the retail side, the 4 markets, the competitive markets you referenced in the slide deck, Jay, I believe you sort of mentioned, hey, we kind of anniversary this -- the impact of this fully, maybe in the early part of '26. But just trying to think about maybe the new tailwinds that you get from your 4 new projects that will be placed in service later this year, starting in August wondering if you think, say, the competitive headwinds from those 4 markets are offset possibly from those 4 new projects. Could that occur earlier than '26? Or just given the nature of those projects, a lot of them are hotel expansions maybe takes a little bit longer?

Yes. I mean I would say we're going to know a lot soon. We're going to be opening Joliet. Awesome property. We've been there several times, Todd and I the last several weeks. Great location right off of I-80 and I-55, tremendous ingress, egress. It just you roll right into our property from the major road there. So feel great about that. And the rest of our projects are on time and on budget, which we're very proud of. Our design and construction teams executed great despite a lot of tariff noise. The hotels topped out at the right time. We weren't buying tons of steel until after the tariffs were in place. And so we were done with that before the tariffs were in place. So we feel really good about that. And I think the headwinds that we've been facing the last, I don't know, a lot of years, so like it's been forever. Those start to slow down. And once you get past anniversarying what the new opening in Bossier City, Louisiana, really everything from that point on that we can see is PENN. And so yes, I would say that the tailwind should more than offset headwinds, headwinds should slow down, tailwinds speed up. And we feel like we've got a good setup here, and we have a really nice growth story on the retail side and, of course, on the interactive side as well.

We'll take our next question from Dan Politzer, JPMorgan.

First, on the retail side, Jay, I think you guys have talked about mid-teens returns or free cash flow returns on these projects over the next 4 months. Is there any way maybe you could parse that out or rank all some of those returns, just given the products do vary in scope and obviously, cost. But which ones are you most excited about? And where do you see maybe the greatest returns?

I'd get in trouble if I said any of that from the property teams. We really -- we -- I would say, and kidding aside, we really look at all 4 of these as being really solid returns. It's not like one of them is sort of offsetting the other. Look, we're going to be -- this is the first time I can remember, certainly in the industry where we're moving a location miles and miles closer, and you think about just the vehicular traffic, what passes by our current Joliet at properties 10,000 vehicles a day, and that's going to be up 23- or 25-fold or something like that here on Monday. So we're very anxious and curious to see how that goes. Of course, we're going to have another one of those with a hotel in our Aurora market, which is also very exciting right next to the Chicago Premium Outlet. When you're exiting the Chicago Premium Outlet, you're literally at a stoplight staring at our parking garage and it turns green, you can go straight into our garage or turn out to get on the interstate. So we've got a really nice setup in the hotels in Vegas and Columbus. We've needed those for a really long time and for a variety of reasons, we didn't break ground until we did. But we think the return profile for those is also looking good. We've -- in the case of Las Vegas at the M Resort over the years, we've had a lot of demand for group business. We take great care of people. We can provide them a lot of attention and personalization because of us being off Strip and a little smaller, but then they outgrow SMA leave. And so there are a lot of groups that are coming back to the M after having left now that we're doubling the size of the hotel there. So I don't want to rank them, but we do feel good about all 4.

Okay. Fair enough. And then I suppose on Interactive, obviously, this is your second NFL kickoff for the full -- from the get-go, and now it seems like you have kind of more tools in your tool belt and certainly more experience there. I guess, versus last year, what are you looking to do differently then maybe it will improve your market position. Obviously, you have a better product. But like from a strategic or promotional standpoint, are there any changes that you're thinking of making versus the prior go round?

Yes. I mean look, we're going to be paying very close attention to the KPIs that you would imagine we will be, which is what is the top of funnel demand look like, what is the flow-through from people clicking on integrations and getting them to register, download and register the app, make a deposit and make a wager. We've eliminated a lot of friction. I can't stress that enough that we think is going to have really positive results without us needing to go spend more in marketing. It's just making the folks that are interested in these integrations and interested in betting making it a lot easier for them to get through and get to the point where they can do exactly what they intended to do. And we had some sort of basic level fantasy integrations last year. This is -- as Aaron described and I mentioned in the prepared remarks, this is a whole different level, and we're going to be doing things similar to the integrations on direct-to-consumer that haven't been done before. So the idea that you can be in the Fantasy app, you set your roster and then you've got personalized player parlays that are there for you based on your lineup and you can basically decide what you want to do and bet on within fantasy, quick move over to ESPN Bet and place your wagers very powerful. So I would say it's less about how much we're spending in promo and how much we're spending and marketing different we're going to be, I think, disciplined as we have been. We'll make sure that the word gets out about FanCenter because it's a really cool new feature, and it's differentiated. But it's more about our ability to execute at a different level and the experiences that we're offering and integrations we're offering being at a different level than we were last year.

Yes. I mean, I would add also, we have much improved -- we have real personalization this year that not only flows to the app but flows into FanCenter. We do have better brand marketing. We have a truly differentiated feature that no other sports book has. Nobody else is a partner with ESPN fantasy. The biggest fantasy platform in the U.S. that is integrated with our product, and it's going to be clear in our marketing messaging that this is a feature that if you're a fantasy player that you might want to try out, where last year, we were marketing the brand of ESPN Bet, but we didn't have something distinct enough to hook on to make that compelling. We think that's going to matter. We've got improved CRM efforts. We can target cohorts now by fantasy players, by people that play with us actively, that people need to be reactivated. So we're much smarter in how we're targeting people in terms of that. So there's just a lot of improvement almost in every operational channel this year than last. So we're pretty excited about the start of the season.

Our next question is from Chad Beynon with Macquarie.

Jay, during your prepared remarks at the beginning, you talked about some of the retail KPIs that have been the strongest in 3 years. So I would have thought that the flow-through in the second quarter would have been a little bit better. So land-based margins have been down first and second quarter. Felicia, you reiterated the retail guide for the year. So Todd or Jay, can you talk about why this -- why we didn't see better flow-through in Q2? And then more importantly, as we look into the back half of the year for retail, could we start to see margins increase given all the supply kind of wears off and the unrated is working in your favor?

Yes, I'll tackle the first part and Todd, you certainly can tackle the second part in terms of go forward. I mean as we look at the quarter, there's really 2 factors. One, the new supplies impacting us at Bossier City really impactfully, and so that hurts your overall margins. Whereas if you look at the portfolio outside of those markets being impacted by new supply, the flow-through on the top line revenue was strong. But we're definitely feeling the pain in Bossier City more so than we are in the other new supply markets and feeling it some pain in all those new supply markets. And then as I mentioned earlier, we were battling some higher promos in the markets -- many of our markets on the regional side. We stayed the course. We had to do, obviously, a little protection on the VIP side, which you would always do, but we stayed the course. We stayed disciplined. I think margins came in for the quarter just shy of 34% despite the higher promo in the competitive zones. So we feel good about our execution. I think that higher sort of elevated promos in the market that should I'd imagine that would die down. It doesn't usually deliver good returns in these really mature markets. And so overall, we feel like the flow-through for the quarter with those factors, if you remove those factors was very strong, but those were factors in the second quarter.

Yes. I would only add, Jay -- and Jay and I have talked about this a lot. We did have some full game hold percentage challenges at some of our bigger properties in the quarter -- known players, VIP players, but that always comes back. And then to your point about going forward, listen, Q4, traditionally, year in, year out, it's always one of the lower margins. You're bumping up against a lot of holiday competition, but that's baked into our guidance. And then when you look at the ramp of Joliet, that's in there. So we look for a good trajectory there. But we can be very comfortable that we've identified the issues. Jay spoke to them. But I also -- we're already starting to see kind of a more rational reinvestment and promotional environment across the board. We think that will continue and then having the tailwinds behind us. The properties that we're opening, the 2 new properties in Illinois as well as the hotel towers, our properties were built especially for the expansion to heavy. So all the infrastructure is in place, the restaurants are in place. The gaming positions are in place, so these become very margin accretive. And then with the new properties moving from a 3-story traditional river book to a one-story land-based casino, you just build in such efficiencies. So we feel good about the -- starting Monday really. So starting Monday and then forward into the first half of next year, some really good tailwinds behind us.

Yes. We just -- obviously, with the opening, you're going to not see the stronger margins immediately out of the gate. You want to make sure that you're supporting all the preopening efforts, get the word out, make sure your customers have a great time. But as I said earlier, the puts and takes that Joliet wash out for the year, given we're opening earlier and we had to close and there was the whole relocation of games that impacted us in June and July from a top line and bottom line perspective. But overall, clearly, all 4 of those projects, led that Todd said very well, are getting margin accretive for us. You just need a little bit of ramp time.

Okay. Great. And then on the growth in MAUs in the omnichannel journey, how does -- how do predictive markets kind of fit into this strategy? Is that something that you could explore? Or is that something that you are against and you're looking for that to be shut down, which could potentially help market share?

Yes. Not a lot new to say on predictive, we're monitoring. There's a lot going on there, as you know, in terms of how state gaming regulators fill about predictive markets versus what the predictive market space is doing and expanding. So I wouldn't expect us to be a first mover. But if it's something that does end up getting sort of embraced and legalized and regulated, of course, it's something that we would stay very close to and take a look at. And -- but I wouldn't expect us to be a first mover there. We want to see how this plays out. There's a lot going on right now in the courts as well as with the regulators across the country.

Take our next question from Jordan Bender with Citizens.

In your slides, you pointed out that there was a record cross-sell rate into the stand-alone app in June, which is good to see there. Are you able to talk about either the reactivation strategy of the existing players as well as kind of what's working to get new players into cross-sold into that stand-alone app?

I think probably the #1 factor is the fact that we have a casino-first brand on that app, and it's really targeting slot players even more so than table game players. So the Hollywood Casino within ESPN Bet, a little bit more table game focused. Hollywood stand-alone, a little bit more of a slot focused. We're seeing that in our slot mix, which is, I believe, highest in the industry in the states where it's tracked. So very pleased. It's obviously, from a marketing perspective, you can be a lot more successful in targeting your retail database with a brand that they're used to seeing, same brand that's on all of their marketing materials on top of the building that they're walking into. So that's why I think you're seeing so much incrementality as more of a retail customer or a new customer, reactivated customer. And in the case of branding, certainly, that's a strength that we did struggle with trying to get slot players at our retail properties to download ESPN Bet to play slots. It just doesn't really resonate. And so we've been a lot more successful at bringing them in and the retention results have been strong. You can see the 2 states where we have a retail footprint. We've seen really strong market share growth, less so in a state like New Jersey where we don't, we did launch in New Jersey, but we've got work to do there because it's a more mature market, and we don't have a retail footprint. So Pennsylvania and Michigan are certainly leading the efforts for us in terms of picking up market share in a relatively short period of time.

Yes. I would only add, a few years back, we actually rebranded Greektown to Hollywood Greektown to help with that conversion. And I think to all of Jay's points, the stand-alone casino app customer looks a lot like our retail slot player. And so we're seeing great migration and cross-play between the 2. But also the cross-sell between sportsbook and iCasino has been very, very healthy.

And also all the things we talked about that are going to drive new users top of funnel into ESPN BET is also going to be very, very good for our casino business as well.

Great. And then just a quick follow-up. Could or would the timing of Alberta in '26 impact your '26 profitability target?

It would not. When I say profitable in '26, we know that Alberta is going to launch at some point in, we think, early '26 from what we've been told. So that's built into our assumptions. We're targeting right now in Q1, which is the best information we have.

We'll take our next question from Ben Chaiken with Mizuho.

Maybe just stepping back, maybe you could further flush out the opportunities you see to grow share in game -- by gaming over time. Just what is the lowest hanging, maybe your largest opportunity? And then unrelated, on Felicia's commentary, on 2026, did you say it would be $50 million less cash taxes in '26 and '27 in? Or were you saying the cash taxes were $50 million?

And just to start with that, in 2026, our cash taxes will be lower by $50 million in each of '26 and '27.

And then on the iGaming question, I think we're seeing a lot of progress, as I did just a moment ago with regard to slot play and our slot mix, which makes sense, especially in Pennsylvania, where we have 4 land-based casinos, all branded Hollywood and Michigan, where we have Hollywood Greektown, as Todd just referenced. So I think the biggest opportunity for us is to make sure that if you're coming to visit our land-based properties, and you're part of the PENN play loyalty program that we're giving you every reason in the world. When you're not with us, but you decide to game from home or outside the building that you're doing that with Hollywood. So I would say from a marketing strategy perspective, really making sure that we've got the right value proposition there and the loyalty program, mainly for slot players because we know table play is more common I mean from with the cross-sell from within the sports betting app. Feel free to jump in if you have anything.

Yes, that, and again, if you tracked the fact that a few weeks ago, we launched a free-to-play game called Spin It which has brought a lot of users into the platform to try gaming, which has ultimately led to more cash players starting to play. So that's going to continue to ramp. We're going to continue to get smarter about marketing and reactivation. We have a lot more automation coming as it relates to how we distribute offers and the targeted groups of which we distribute us to. So we just still -- we're really just getting started here. I mean we got a fast start because of our retail database, and we're starting to engage them directly through digital mechanisms, and those are working really well, and we're just going to continue to do that.

We'll take our next question from John DeCree with CBRE.

Maybe for Jay or Felicia, kind of a financing question, you took $130 million from GLPI at 7.75% for Joliet. Could you give us some insight as to kind of how you evaluate that versus other alternatives, whether it was cash on hand or a revolver? And then I know you said in your prepared remarks, you will kind of update us as you get closer to Columbus and how to fund those. But if you could kind of give us some insights of the guidepost and how you're evaluating that in the context of share repurchases and so on and so forth?

Yes. Thanks, John. And implicit to your question is we do balance all of those things when we make these decisions. You'll see when we file our 10-Q after the close today, we have, John, on our revolver versus the first quarter mainly covering our share repurchases, but also the repurchase of our convertible notes. So our options for Joliet, and our decision was against a further draw on the revolver, like you said, cash on hand or go into the open markets or to use GLPI's balance sheet. And for us, using GLPI's balance sheet was really the best most prudent option that we considered at this point in time. We also -- like I mentioned before, for AM and Columbus, we also have the optionality around how to finance those projects, and we'll approach that -- each one of those as we get closer. And then for Aurora, as you know, we're committed to GLPI.

Felicia, that's helpful. Maybe one more kind of in a similar capacity. We've got a couple of questions about PENN and your market access fees on Boyd had a unique transaction with Sandland and as part of that monetized some market access fees. Is that a consideration or discussions? I know that was a unique situation, but in terms of kind of a unique asset that you have, that's something that would be a possibility.

Nothing to share on that right now, John. We have skin agreements that all are in that 10- to 20-year time frame from when they were signed. And so we feel like we're in a good spot right now. If there's something that we could do to monetize and it made sense strategically, and both parties wanted to engage on that, of course, we would entertain and consider that. But nothing to share on that front right now.

We'll take our final question from Jeff Stantial with Stifel.

Two questions from us. One, sort of high-level strategic and then one a bit more technical. Maybe starting off with the more strategic question. I recognize it's only been a few months, but Jay, I'd love to just get any initial thoughts on some of the governance changes and in particular, maybe some of the insights that Johnny has been able to bring to the table, help inform interactive strategy what is clearly a sort of pivotal inflection point right now? And if there are any sort of specific examples you can share to add some color, that would be appreciated as well.

So Jeff, you're referencing the 2 new Board members, Carlos Rue Sanchez and Johnny Hartnett. They joined our Board in June, as you know, after the AGM. And we've had several sessions with them getting them up speed, answering a lot of questions and also engaging on the business, which is great. It's always nice to have fresh eyes and perspectives. And I think specifically as it relates to Johnny, we've had a couple of calls, meetings with him. Obviously, really talented, very accomplished and just brings a great perspective. And so we value that. It's great having discussions at the Board level and people that bring different skills to the table. We've always valued that at PENN. And I think Johnny and Carlos are bringing skills to the Board that are different than other board profiles. So I would say, overall, really good. Nothing that I can share, obviously, in terms of what we discussed with our Board members on this call, but I would just say that they're as engaged as you would expect them to be, and we're having really good conversations, and we would expect that to continue as we move forward.

That's great. And maybe sticking on Interactive. Some of the data of the state and I recognize it's not a perfect example, but the data out of the seeds that report promotional level disclosure seems to suggest that your promotional reinvestment on the sports side of things came in a bit Q2 and it looks to be much lower and more rational than sort of market-wide levels both for the nominal now and then also how much in decline by on a year-on-year basis. So Jay or Todd, can you just sort of unpack this a little bit more. Is this sort of a function of user acquisition volumes and maturation and the velocity of that kind of continues to ramp? Is it more efficiencies related? Is there some element of casino ramping and allocation of promo and bonuses more over a casino from sports. Just sort of any color on that would be helpful, if I think it is an interesting trend.

Yes. I mean I would say, overall, we really intend to be at market, both with regard to OSB as well as iCasino. Last year, we were in a different situation. And this year, I think you've seen us really settle into that right around 3%, maybe a little south of 3% most months in most quarters on the OSB side. And on the iGaming side, it's a lot more, I would say, just stable. You don't see irrational spending as much as you do at times on the OSB side from 1 or 2 different competitors. We think we're at a good level of reinvestment right now with everything else that we have going on. And as I mentioned earlier, we have seen our share continue to grow, even though handle share has been more stable, and that's obviously important for us as it flows through the P&L.

Yes. And we run these businesses together. And when iCasino started to get a little traction, we kind of shifted around the low sports season in the last few months. And so we've got to be creative and efficient in how we deploy our marketing resources. And so that's part of the decline we saw in OSB.

All right. Thanks, Jeff, and thank you, everybody, for joining us on the call. I look forward to speaking with you again in November. Or if you join us for the Joliet opening, we'll see you all next week. Thanks.

This does conclude today's program. Thank you. participation. You may disconnect at any time.