PENN Entertainment Inc

SWB:PN1

Earnings Call Analysis

Penn Entertainment Reports Strong Market Growth and Plans for Future Expansion

In its recent earnings call, Penn Entertainment reported a third-quarter revenue of $1.4 billion and adjusted EBITDA of $472 million. The company noted impressive year-over-year market share growth in states like Ohio and Kansas, helping to offset challenges in the Northeast due to weather disruptions and hotel renovations. Looking ahead, Penn anticipates fourth-quarter retail revenues between $1.36 billion and $1.38 billion. The Interactive segment shows promise, with expected adjusted EBITDA improving over time. Upcoming launches include the Hollywood Casino app early next year, aimed to enhance cross-sell opportunities, especially with ESPN partnerships.

Penn Entertainment's Strong Market Performance

In the third quarter of 2024, Penn Entertainment demonstrated impressive year-over-year market share growth, particularly in Ohio, Massachusetts, and Kansas. This growth compensated for challenging conditions in the Northeast due to lower than expected revenue per customer and adverse weather impacts in the Southern segments. Notably, slot volumes improved by 3.6% year-over-year in the first month of Q4, building upon March's flat volume performance in Q3. Optimistically, Penn projects ongoing growth despite new competitor pressure in some regions.

Progress in Hotel Renovations

Penn is currently executing a significant hotel remodel at its L'Auberge Casino in Lake Charles, which is about halfway to completion. The renovations are expected to enhance the gaming experience and could drive increased spending per customer, with projections for project completion by the end of January 2025. This aligns with Penn's strategy to reimagine and enhance customer experiences across its properties.

Introduction of ESPN BET and User Growth

Incorporating innovative features into the ESPN BET brand is proving successful for Penn. Seven new retail sportsbooks were launched this quarter, leveraging the expansive digital platform. The company now boasts nearly 4 million members in its digital database, marking a 27% increase in monthly active users compared to the previous year. The presence of ESPN BET has expanded into 19 U.S. states, serving approximately 46% of the population, and average daily handle per user in states like New York is reported to be 228% higher than existing markets.

Significant Growth in Interactive Gambling

The Interactive segment experienced a remarkable surge, with online sports betting new gross revenue growth exceeding 200% year-over-year in Q3. Factors contributing to this success included improved product quality, a higher mix of parlays, and effectively managed promotional expenses. This suggests a shift towards retention and reactivation of existing users, which is strengthening Penn's competitive position in the market.

Improving Adjusted EBITDA and Strategic Outlook

Penn reported adjusted EBITDA of approximately $472 million in Q3, slightly above expectations, reflecting stable consumer demand where new competition is absent. Financial projections for Q4 anticipate revenue between $1.36 billion and $1.38 billion, with adjusted EBITDA expected to range from $140 million to $460 million. The company is also on a trajectory for positive free cash flow generation in 2025, with projected EBITDA improvements, aided by many growth projects expected to complete by early 2026.

Challenges from Competition and Economic Conditions

Acknowledging the competitive landscape and evolving market dynamics, Penn expects to face obstacles in certain areas including Nebraska and Chicago due to new entries. However, they express confidence in their operations outside these regions and have seen sequential month-over-month volume improvements continuing into November. The management remains optimistic about overcoming cost pressures and maintaining stable operational margins moving forward.

Future Growth Projects and Capital Expenditure Plans

The company is committed to its growth strategy with planned capital expenditures of approximately $500 million for 2024, focusing $275 million on project-specific initiatives. Four major retail growth projects are noted, which are on schedule and expected to open in the first half of 2026. This proactive approach towards capital allocation aims to both enhance existing facilities and expand their market reach.

Technological Innovations and Account Integration

The integration of account linking between ESPN and ESPN BET has seen encouraging uptake, allowing users to seamlessly monitor their betting activities across platforms. Initial results indicate that linked users are placing more bets and engaging with ESPN content at significantly higher rates. This underscores Penn's commitment to personalizing the user experience, with expectations of increased monetization through tailored offers and promotions.

Long-Term Prospects and Market Positioning

Penn is strategically positioning itself to capitalize on the burgeoning online gaming market while reinforcing its land-based operations. With a focus on interactive growth and enhancing consumer offerings through innovative technology and partnerships, the company aims to sustain its upward trajectory in both segments. Looking ahead, detailed guidance for 2025 will be provided in February, alongside updates on cost management strategies to ensure further operational efficiency.

Earnings Call Transcript 2024-Q3

[Operator]

Greetings, and welcome to the Penn Entertainment Third Quarter 2024 Earnings Call. I would now like to turn the conference over to Mr. Joe Jaffoni, Investor Relations. Please go ahead.

[Joseph Jaffoni]

Thank you, Cindy. Good morning, and thanks, everyone, for joining Penn Entertainment's 2024 quarter conference call. We'll get to management's presentation and comments momentarily as well as your questions and answers. During the Q&A session, we ask that everyone please limit themselves to 1 question and 1 follow-up.

I'll now read the safe harbor disclosure, and then we'll get into the call. 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.

With that, it's now my pleasure to turn the call over to the company's CEO, Jay Snowden. Jay, please go ahead.

[Jay Snowden, executive]

Thanks, Joe. Good morning, everyone. I'm happy to be here in Wyomissing with our CFO, Felicia Hendrix; Head of Operations, Todd George; and our CTO, Aaron LaBerge; as well as other members of our senior management team.

It was great to see many of you at our investor event on October 7 of the M Resort in Las Vegas. Some of you may have missed it. We highlighted some of the significant product enhancements we recently implemented for ESPN BET as well as some early KPIs related to feature upgrades. We also provided a hands-on demonstration of our industry-leading 3Cs technology and attendees got to see some of our new property automations in action, along with several key business updates that we will review or highlight again with all of you here today.

Turning to the results in the third quarter. Strong year-over-year market share growth in Ohio, Massachusetts and Kansas have helped offset unfavorable hold in Northeast segment and volume declines in our South segment, largely as a result of severe weather disruptions and our accelerated hotel remodel of L'Auberge Casino in Lake Charles. We are roughly halfway through the plan room renovations there, which have been driving gaming spend per customer. We look forward to completing this project by the end of January 2025.

Meanwhile, we are continuing to mitigate pressure from no new supply in Nebraska, and Chicago land through our ongoing efforts to reimagine our properties to improve the customer experience and drive loyalty. Overall, we are seeing stable consumer demand and are performing well in those markets not impacted by new competition, profitably gaining market share in several of them, thanks to our best-in-class operators across the country. We saw sequential month-over-month improvement throughout the third quarter and continuing into the month of October. The first several days of November showed improved volumes as well with a strong first weekend. Finally, as noted on Slide 4, we have seen 3.6% year-over-year slot volume growth through the first in Q4 compared to flat year-over-year spot volumes in the third quarter, led by our properties in Michigan, Ohio and St. Louis. The trends we are seeing around the country provide us with continued optimism about our 4 new growth projects, which are highlighted on Slide 5. These projects remain on budget and on schedule, with Hollywood Joliet expected to open ahead of schedule during the second half of 2025.

Turning to Slide 6. We unveiled 7 new ESPN BET branded retail sports books during the quarter as we continue to implement our rebranding strategy our portfolio. On the interactive side, as I referenced earlier, prior to the start of football season, we released several product enhancements and ESP integrations to our ESPN BET offering. These product improvements helped contribute to a higher parlay mix and higher structural hold during the quarter.

Slide 7 highlights the meaningful growth ESPN BET has generated digital database and active user base, providing a strong foundation for future growth as we introduce additional product improvement. We are now approaching 4 million members in our digital database, and we saw 27% year-over-year growth in monthly active users in Q3 '24 versus Q3 '23.

As noted on Slide 9, our interactive statements saw year-over-year OSB NGR growth of more than 200% in Q3, driven by a combination of higher parlay mix from our improving products and lower promotional expenses. While we saw an increase in promotional spend at the beginning of football season from the competition, we have remained disciplined as we primarily focus on reactivation and retention efforts given our deep digital database.

As noted on Slide 11, we have seen momentum from September into October, and we are seeing encouraging trends in volumes and handle per user. The September launch of ESPN BET in New York expanded our online betting footprint to 19 U.S. states, representing approximately 46% of the U.S. population. Average daily handle per user in New York is 228% higher than the average in our existing states, and our average deposits there are over 87% larger. And with over 10 million average monthly visitors on ESPN, New York provides us significantly greater scale as we leverage ESPN's vast media reach and integrations for efficient customer acquisition.

Turning to Slide 13. As of October 30, account linking between ESPN BET and ESPN is now available for customers. By linking accounts, fans now have the ability to seamlessly track upcoming live and settled bets within the ESPN app and on espn.com. Bringing this new feature to market is an important step towards creating an industry-leading personalized sports betting experience across the ESPN ecosystem. This will help to further drive monetization through enhanced engagement, retention and reactivation.

This was a tremendous achievement for the talented Penn and ESPN technology teams and really speaks to the depth of our partnership with ESPN. We have some exciting additional product enhancements coming soon as we accelerate our product road map. These include an improved same game parlay experience, enhanced branding and IP and upgraded in-play betting.

Finally, on the iCasino side, as you'll see on Slide 15, Hollywood Casino experienced solid growth in the quarter as well. That momentum has continued into October and will be helped by our recently introduced Penn play promo credit redemption offering. We're excited for the launch of our Hollywood Casino app in Pennsylvania in early Q1, subject to final regulatory approvals, of course, with additional jurisdictions to follow.

I'll now turn it over to Felicia for additional financial details for the quarter.

[Felicia Kantor Hendrix, executive]

Thanks, Jay. Our third quarter retail revenue and adjusted EBITDA results of $1.4 billion and $472 million or slightly above the midpoint of the third quarter preliminary results we reported on October 7. In markets where we are not facing new supply, demand remains stable. October volumes improved over September and continued to improve sequentially through the first weekend in November.

For our Interactive segment, adjusted revenues, excluding our skin tax, the tax gross sub where $141 million and Interactive adjusted EBITDA in the quarter was a loss of $91 million, better than expected driven by a higher parlay mix from our improving product and lower promotional expenses drove the upside in the quarter relative to the original guidance we provided on August 8. These results are at the high end of the third quarter preliminary results we reported on October 7 and also reflects a 12% sequential improvement from our second quarter Interactive adjusted EBITDA results.

As usual, you will find on Page 8 of our earnings release a table that summarizes our cash expenditure in the quarter, including cash payments to our REIT landlords and cash taxes, cash interest and total CapEx. Of our total $132 million CapEx in the quarter, $69 million was project CapEx related to our core development projects. We ended the third quarter of 2024 with total liquidity of $1.8 billion in of $834 million in cash and cash equivalents. As you know, have no debt maturities until 2026, which are our $330 million convertible notes.

Our lease adjusted net leverage peaked in the third quarter of 2024, and we're excited to begin our delevering trajectory driven by organic EBITDA growth and our ability to access GLPI's balance sheet as our growth projects reach completion. We continue to expect to generate positive free cash flow in 2025 and beyond bolstered by our Interactive segment, which should generate meaningful adjusted EBITDA in 2026 and our 4 retail growth projects, which should all be complete by the first half of 2026.

I will now provide guidance for our Retail and interactive segments. For the Retail segment, we expect the fourth quarter 24 revenues to range from $1.36 billion to $1.38 billion and adjusted EBITDA to range from $140 million to $460 million. Our forecast assumes continued construction disruption in Lake Charles due to the room remodeling project, which completed by the end of January 2025. We also continue to absorb new competition in a few markets, such as Louisiana, Nebraska and Chicago land as properties open and make efforts to drive trial.

As I mentioned earlier, we are stable consumer demand, and we are performing well in the market, not impacted by new competition. For Interactive, given that fourth quarter industry-wide hold has been negatively impacted by customer funds outcomes quarter-to-date. We think it's prudent for now to reiterate the midpoint of our 2024 interactive EBITDA guidance, which is unchanged from our last call. We expect 2024 corporate expense of roughly $105 million, inclusive of our cash settled stock-based awards.

Total CapEx for 2024 will be approximately $500 million inclusive of $275 million of project CapEx for cash interest expense, we forecast approximately $175 million for the full year 2024 or roughly $20 million of interest income. For cash taxes, we are projecting a small tax refund in '24, and our basic share count as of the end of the third quarter was 152.2 million shares, and we typically have of diluted shares, inclusive of the $14 million share dilution from the conversion.

And with that, I'll turn it back over to Jay.

[Jay Snowden, executive]

All right. Thanks, Felicia. In closing, I'm proud to report that our efforts to ensure diversity of background perspective within our corporate boardroom have been recognized for the fourth straight year by the Forum of Executive Women who named us as one of their Champions of Board diversity. In addition, we're proud to have been recently named one of the best of the best 2024 top diverse employers by Diversity Com Magazine. Finally, our LEAP internship program which stands for Leadership Excellence at Penn, has been recognized as one of the top 100 internship programs of 2024 by the nation's largest DEI recruitment platform.

And with that, Cindy, can we open up the line for our first question.

[Operator]

[Operator Instructions] First question from Mr. Barry Jonas of Truist Securities.

[Barry Jonas, analyst]

Maybe starting with ESPN BET. You're achieving mid-teens share in weekly active users but more closer to mid-single digits, let's say, in GGR. Given your mass market focus, what degree do you think you can bridge that delta over time and drive higher spend per user?

[Jay Snowden, executive]

Yes. Barry, it's one of those topics we've hit, I think, on a quarterly basis for the last several quarters. I think what's encouraging for us is that if you look at our average per user. We're seeing really nice growth from, call it, we to where we are through week 9, every week we're seeing sequential growth and handle per user. So I think part of this is exactly what you said that ESPN BET certainly draws in a more casual mass market base. We think that's great for the long term. Higher propensity to bet on parlays and player props is terrific, maybe average wager, but we are seeing that average wager continue to grow from where we were even just a few weeks ago.

So we would expect to see that continue to grow throughout season as we head out into March Madness as well. It's a big focus for us right now. And we think retention, we're in a really good place, but continuing to improve monetization is going to be key for us.

[Barry Jonas, analyst]

Great. And then just a follow-up on land-based gaming. Maybe at a high level, as we think about 25, I know there's a few puts and takes, but do you think regional land-based gaming can grow next year?

[Jay Snowden, executive]

We're not going to go fully into 2025. Barry, I appreciate the question. I would say that what we're seeing right now with the core business across the country if you exclude the markets where there's new things are really stable. And we've actually seen a really nice uptick here in the fourth quarter that I'd be guessing if I said I knew exactly what's driving that, whether that's election, preelection, postelection, not really sure. But Q4, we've seen a nice bump up from where we were in the third quarter. October, really nice sequential growth in September.

So we're feeling good about that. I think as you're looking out into 2025, we've highlighted these, but the things that you want to keep in mind in terms of new supply would be Nebraska, Chicago Land and then in Louisiana, there's 3 projects there. Caesars New Orleans just opened their expansion, it could be an impact there. We don't have a -- there's not a ton of competition with Caesars, New Orleans, but there is some. And then, of course, we've already highlighted Treasure Chest, the Boy Projects and then Bossier City, the Cordis project is going to be open believe sometime in Q1, maybe Q2, somewhere in that time frame.

So those are the big ones to keep in mind. The nice thing about Chicago Land, as you sort of circle that 1 is that's really sort of a first 9, 10, 11 months of 2025 dynamic for us because we'll be opening our Joliet relocated land-based projects sometime before the end of the year. And then, of course, our Hale Hollywood, Aurora relocation project, which is going to be a fantastic asset for us. That's going to be in early '26. So Chicago land, where we'll be able to mitigate, I think, pretty well in '25, but in '26 it's time for us to really start to play offense there as well as in Las Vegas with the M-Resort Tower completion and in Columbus, Ohio with the Hollywood project, hotel expansion as well.

[Operator]

Next question from Carlo Santarelli from Deutsche Bank.

[Carlo Santarelli, analyst]

Jay, I'm respecting the fact that you don't want to give a lot as it pertains to 2025. I know the message so far on the interactive side has been getting closer to breakeven next year. And if you just kind of look at the guidance range, you're talking somewhere in the ballpark of $400-plus million of an EBITDA swing. And just picture, I wanted to understand like the way you guys think about that, obviously, net revenue growth substantial promos coming out, et cetera, some launch costs coming out. But then thinking further in terms of expenses and the path to where you see kind of larger, chunkier costs coming out of the business. Is there any color you'd be able to provide on kind of that sequencing and transition over 2025?

[Jay Snowden, executive]

Yes, we'll definitely provide a lot more color on this in February when we put out guidance for 2025, both for the retail business as well as interactive. I would say 1 of the things before we get into cost that you didn't mention, you mentioned things on the online sports betting side that will be vast improvements on a year-over-year basis. Both have to keep in mind that we're going to be launching our stand-alone Hollywood iCasino offering in Pennsylvania, again, pending regulatory approval sometime in early Q1. And we should be able to follow pretty quickly in states like Michigan, again, pending regulatory approval. New Jersey, West Virginia and in Ontario, we think Hollywood Casino will perform very well.

So we think that's going to be a really nice shot in the arm for us in terms of continuing to grow our online casino business. Obviously, that said, really good margin profile. OSB with parlayed mix is getting better, but the margin profile for online gaming, obviously, a lot stronger. And I think as you think about the cost structure, continue to have -- as we grow and scale, you get efficiencies. And that's with regard to your third-party providers and being able to negotiate, you get better economics, of course, the more scale that you have, which will have a stronger scale.

And we also have the marketing spend outside of ESPN. I think we've really figured out or continuing to figure out what's effective, what's working. We're seeing attractive CPAs in our paid digital performance digital spend. And so we're getting smarter and smarter about what need to spend on the marketing side of things. That will continue through the rest of this year and into 2025. So I would say with the level of specificity, we'll provide more in February, but that's the way to be thinking about it at a high level.

[Carlo Santarelli, analyst]

Great. And then if I could, just one follow-up on the brick-and-mortar business as it relates to the fourth quarter, it looks like more or less at the midpoint of the net revenue guidance, you're flattish effectively year-over-year, whereas kind of the midpoint of EBITDA looks to be $25 million lower year-over-year. Is that essentially just a reflection of -- is that a good baseline for kind of what the cost increase looks like from a year-over-year perspective? And could you shed any light on kind of how to think about the outlook for next year as it pertains to kind of cost creep, cost mitigation? Obviously, some of the benefits you'll have from anniversarying some of the competition and some of the disruptions more notably.

[Todd George, executive]

Carlo, this is Todd. So yes, typically, there's a seasonality with margins in Q4 as traditionally always the lowest margin percentage. So I wouldn't look at that as kind of a guide for next year unless you're thinking about Q4 of next year. Also keep in mind, we had some onetime good guys last year in Q4. So that kind of is the reconciling item for the difference year-over-year in the EBITDA flow-through. Outside of that, like Jay talked about for '25, we'll get into much more detail in February.

[Operator]

Your next question is from Brandt Montour of Barclays.

[Brandt Montour, analyst]

So the first question is on the fourth quarter interactive guidance. You guys beat the third quarter -- your own third quarter guidance by $30 million in EBITDA, and then you reiterated the full year end. So the question is, is that sort of not flowing through that third quarter. Is that how we should think about the direct impact from October hold? Or is there any other adjustments you made to your core or otherwise KPIs in the fourth quarter we should think about?

[Jay Snowden, executive]

Yes, you should think about it as entirely hold related. That's -- it's been a rough start to the fourth quarter documented by many of you. You can see it in the New York weekly results even before the October monthly has come out. You can see it in West Virginia weekly results, having a higher parlay mix is great other than when all the favorites are hitting and parlays are also hitting. So that's really been the last 5 weeks and the first weekend of November was very consistent with what we saw in October unfortunately.

Now that it's just a -- it's a luck thing. It does change. It switches it reverses course. And so we just help as opposed to pulling through the difference between the hold impact in Q4 and what the beat was in Q3. And then now you're sort of banking on hold being an exact number for the rest of Q4. We thought it just made sense. Let's not touch the number. If things improve on the hold percentage side, that will be like conservative approach. But why bring some of that through, if we're not sure exactly the hold is going to end up for the remainder of Q4.

[Brandt Montour, analyst]

That's super helpful. And then a follow-up on the -- congratulations on the announcement on the linkages of the account between ESPN and ESPN BET &. Curious, the initial sort of success rates on getting people to upgrade to that and to actually link the accounts, if you've seen any sort of increased activity related to those accounts that have linked? And then the last follow-up to that would just be maybe a refresh on the road map specifically regarding that linkage sort of product development on top of it?

[Jay Snowden, executive]

Yes. Let me ask Aaron to speak to that one.

[Aaron LaBerge, executive]

Yes. Great. Happy to. Yes, we're pretty excited about account linking. We've had tens of thousands of people linked already, as you'd expect. They're all placing significantly more best higher handle, higher GDR and also impressive they're consuming significantly more ESPN content as well. So these are super fans that are linking. We're incredibly happy with the progress so far. I don't know if you've had an opportunity to link, but it's an incredibly seamless and quick process.

And what it really does, to get to your second question, it's really a development that allows us to now personalize every element of your betting experience, not only on a so that we can start serving you personalized promos and offers and content related to your favorite teams and your interest, but also in how that manifests all across ESPN's digital platforms.

And so in terms of bet tracking like that, you'll start to see sort of the seamless integration of highlighting of players and teams and results on ESPN without you doing any work. And we think fans are really going -- and of course, the placement of account linking once your My Bet module is activated is right there on the home page of ESPN and then the ESPN app. It's an incredible experience, and it's only going to get better from here.

[Jay Snowden, executive]

Yes. The last thing I would add is, and I mentioned it in my prepared remarks, this is a big technical feed from the team here at Penn as well as at ESPN. And it's great having partners where there's alignment and vision where we want to take this thing and exactly how ESPN bet integrations will play into the ESPN Sports and the consumption of sports content. So really happy with the execution, and now it's time to start marketing the linked betting opportunity, and people are grabbing on to it very quickly. As Aaron mentioned, it's been tens of thousands, and it's really picked up even in the last 24 hours.

[Operator]

And your next question is from Joe Greff of JPMorgan.

[Joseph Greff, analyst]

Jay, I just wanted to ask you about New York and as we think about the inclusion of your efforts in New York going forward, how so far and how you're thinking about promos in relation to handle with the inclusion of New York, how do you think that trends in the near term and how you think about it more medium and longer term?

[Jay Snowden, executive]

Yes. We talked about it before, Joe, and I'd say my answer is really no different. What we're seeing in New York so far, not surprisingly, is a higher customer, the ones that we have gotten through top of funnel, we're seeing higher average deposit and not surprisingly higher average handle per user. We've been very disciplined on the promo side. The tax rate is extremely high at over 50%, and you don't have any promote deduction opportunity before you pay taxes. And so we're later to the game, but it has been a for us to grow our user base.

Obviously, New York is a really important market for us and ESPN, and there's a lot of people that work in New York but live in other states like New Jersey and Pennsylvania so there's pretty neat cross-sell opportunities depending on whether somebody -- it's a weekday versus a weekend, whether they're commuting or they're at home. And so New York was a critical market for us to launch, but we're going to remain very disciplined in we're not as worried about handle market share in New York, the way that we are focused on that in all the other states, especially those that are combination OSB and iCasino.

I think what's interesting is that the results that we shared with regard to October, we're feeling good about the momentum sequentially. So September, we actually from a -- this is all -- I'm pivoting a little bit, but I think it's important your question, if you exclude New York because New York we launched, and I believe it was late September, so there's a little bit of noise in September and a lot more in October.

But if you look at our handle year-over-year growth for ESPN BET, in the month member, again, excluding New York to keep it apples-to-apples. It was 32% year-over-year. And in October, excluding New York, it was 45% year-over-year. And that was with our promos as a percentage of handle down a bit from ember to October. So we're growing handle organically. We're doing it through our retention efforts.

We have profit boost tools that we didn't have a year ago. These things are all working, and we're seeing improvement sequentially from September into October other than, obviously, hold percentage has been an impact of just over 5% versus what it was in September.

[Joseph Greff, analyst]

Excellent. And then good to hear the first 5 weeks the start of this quarter from a spot volume perspective, strong. If we were to exclude Michigan, Ohio in the states that you referenced is leading the way, would you say there's still based growth in slot volume. Obviously, if you exclude those, you're also sort of including those markets with competition. My question is like how broad-based or how concentrated is that 3.6% in volume growth year-over-year to those select markets?

[Jay Snowden, executive]

Yes, it's been surprisingly to the good news side, it's been broad-based. But Todd, maybe you can speak to that a little more specificity?

[Todd George, executive]

Yes. Joe, this is Todd. Really, this last weekend, Jan, I and others were talking after weekend results. It was 1 of the best weekends we've seen in quite some time, and that's really kind of continued through this week. So you would reference the competitive markets where there's new competition coming in. Obviously, those are not performing as well. But I would say across the board, we're pleased with results and volumes everywhere, and there are some other key markets that we're seeing that kind of effect from the sports betting.

And as that comes in, we're seeing growth not only in the states that we referenced, but Plainridge in Massachusetts has been a strong market for us. So we're pleased with headed and I think continue through this week and getting through Tuesday and letting kind of people settle in to how they feel about the economy in the future.

[Operator]

Your next question from Mr. Joe Stauff of Susquehanna.

[Joseph Stauff, analyst]

Jay, Todd Felicia, I had a question, realizing it's very difficult in your previous answer, Jay, to the 2025 revenue outlook. I'm wondering how you guys think about CapEx in '25. Is there an opportunity to say -- assume that it could be flat to down or is that more dynamic? What's the right way to think about that? And then maybe just a follow-up on the digital side for Aaron. With respect to account linking, I appreciate the commentary, and certainly, it's early in that launch of that product. But are you able to deliver, say, a personalized promos that, I guess, essentially get fed from fantasy lineups into real sports betting. Is that something that you are able to deliver now? Or is that something that maybe is would occur a little bit later?

[Jay Snowden, executive]

Okay. Jill we'll take both of those, Todd and I will tag team, the first one. I would say look at a high level, again, excluding the markets with new supply because you're always going to feel impact of a bit different market to market there, and we'll now obviously when we're sitting on the call in February and have a couple -- a few more months under our belt seen with some of the new competition.

I would say other than that, we're certainly feeling a lot better on a year-over-year basis going into 25 from an OpEx perspective than we were in '24. '24, there were major insurance headwinds there were markets of labor headwinds and renegotiated union agreements and labor agreement. So at a high level, I would say we're feeling better. Todd, feel free to jump in there.

[Todd George, executive]

Yes, Jay, I agree with all that. And the only thing I would add is, as we continue to kind of pursue technology, it's changing the way that we communicate with people from a marketing standpoint. So yesterday, we were in a meeting looking at our overall costs, and we're moving away from things like postage and mailing costs and printing costs and moving more to that digital communication. Those are big dollars for us also with the way that our properties are laid out now.

We have set up kind of these clusters of properties where we can create synergies. We can share marketing expenses. We can share labor expenses. And we do a really good job of that, but we are turning over every stone. So more to come. But if you were to kind of -- again, the way you phrase your question up, down flat, we're always looking for that flat to downward trajectory without negatively impacting the guest experience.

[Aaron LaBerge, executive]

And this is Aaron. I'll take the second question. So yes, absolutely. So account linking does unlock the ability for us to know your fantasy rosters and to create and target content based on that.

[Jay Snowden, executive]

If you look at this year for fantasy football, we actually had a really slick integration with ESPN bed around that, that was pseudo personalized. Remember this was pre account linking. So of course, we know who's on everyone's roster, and we have markets around all those players so we could target you based on who was on your roster. And even that implementation that wasn't super personalized had a 20% engagement. So we integrated that through a modal pop-up, and it was highly engaged.

And of course, now that we have account linking know your roster, you're going to see that integration natively integrated into ESPN's actual game. So it won't be a pop-up, it will be part of the actual experience. So we're super excited based on that early engagement, we know that fantasy players love and they love this content and they're hyper engaged. And so this just allows us to take this now to the next level. So we're super excited about it.

[Unknown Executive]

Your next question is from Shaun Kelley of Bank of America.

[Shaun Kelley, analyst]

I just wanted to touch on the online casino relaunch as we get into 2025. I don't think we've talked about this too much here. But can you just give us a little sense or a little preview on some of the plans there? We have seen when people refocused on efforts there, they wanted to have some incremental marketing support for that. So is that something we should expect to be baking to the plans? And then maybe strategy question is, is it going to be sort of -- what's your kind of cross-sell plan? Are you going to lean more to the casino channel in the brick-and-mortar side or a little bit more to the OSB cross-sell, just given the success so far with ESPN?

[Jay Snowden, executive]

I'll hit the cross-sell part of it first, and I'm sure Aaron and Todd have some thoughts in terms of the launch itself and what's going to be unique and different about the launch. What -- so take a step back for a minute. We haven't had the opportunity other than when we initially launched years ago our casino offering in the state of Pennsylvania. We had a branded pollywood casino, but it was with third-party platform, IGT. And that was discontinued about a year ago. And so we really haven't had the opportunity.

And again, just going back in time, when we launched the Hollywood Casino in Pennsylvania on that third-party platform. We saw a pretty strong market share. We were high single digit for most of that time. And obviously, the biggest reason is the cross-sell opportunity with your land-based casinos. Remember that we have land-based casinos in the state of Pennsylvania. They're all flagged Hollywood. We have 1 in Michigan, 1 of the 3 land-based commercial casinos, again, flagged Hollywood at Greentown.

And so the cross-sell opportunities for us are going to be very significant when we launched that stand-alone Hollywood Casino app. What we're doing right now is messy because you're your marketing to your land-based casino database at Hollywood properties and telling them that they should down the ESPN BET app to play their favorite slot machine. So it's messy and we know a big opportunity. We've watched our competition, launched stand-alone eye casino apps with great success. And in many times, it was the same brand. It was just led iCasino. And so for us, it's not only leading with iCasino in that app but it's also the brand connection, which is going to be, I think, probably very -- well, we believe pretty powerful for us.

With regard to the marketing plans for that launch, it will be into our guidance, for sure. It doesn't change what we've said about how we thought at a high level but we're definitely going to make sure that we've got some dollars put aside to market new stand-alone iCasino apps because, again, great business, great margins and great cross-sell opportunities, both with regard to OSB and our land-based business.

[Aaron LaBerge, executive]

Yes. And I think just to build on what Jay was saying, we're seeing a lot of the success in cross-sell from OSB to iCasino. What the stand-alone applets assume there's a whole cohort of iGamers who, as Jay said, don't get into the fact that they have to access our casino through our sportsbook. And so this completely unlocks that. And then of course, building on that further is we have the entire omnichannel opportunity where people are in our casinos, and we can now clearly market to them the same branded product, the same product they're playing on site as they go interactive. And so we think that's also going to just be incremental to all the things we're doing here.

[Todd George, executive]

Well said. The only thing I would add, we've actually had great conversations starting at G2E with some of the slot manufacturers so working with them to get some unique products that offering. We also have a rather sizable database all across Pennsylvania that we'll tap into and kind of look at last first. But we'll also be able to do some unique items that we're working on, where we'll actually put live the over studio inside of our properties. So we're just kind of looking at everything and how differentiated our approach can be.

[Jay Snowden, executive]

Todd triggered another idea or thought that I wanted to share as well with regard to the actual launch. But not surprisingly, we lean a lot more table games today because the only way to get Hollywood casinos through ESPN BET. And so most online sports betters play table games as compared to slots, whereas people that would be coming into Hollywood Casino as a stand-alone app who are land-based retail customers and avid casino and slot players, casino visitors and slot players I think you'll see that the product launch and the product offering for Hollywood iCasino will definitely be targeting slots first second versus ESPN BET, Hollywood Casino is more of a table games for a slot second. So that's a difference that you'll see with this launch as well.

[Operator]

Next question from Dan Politzer of Wells Fargo.

[Daniel Politzer, analyst]

I just wanted to follow up on just kind of that fourth quarter interactive guide that you gave. If we think about kind of the hold impact, which I think equates to about $35 million or that's the change. I guess how much of that $35 million is hold versus kind of other moving pieces in the quarter, account linking the New York launch? And then yes, does that $35 million swing, assuming that is the correct number or does that reflect maybe a change in promotional behavior given your customers have been winning?

[Jay Snowden, executive]

It's entirely hold percentage, Dan. It's not -- and I mentioned earlier, we're not down 35 million right now, but we've had a rough start from a hold percentage perspective. So we thought it was just prudent to just keep it flat to last quarter because we're in a hole right now that's not thing. You'll hear this, I'm sure, from others reporting later this week and next week.

So we thought let's just take the conservative if hold percentage bounces back and we make up for the really low hold in October and early November, then this is going to turn out to be a very conservative approach, but it's hold percentage related. It's not any of the other stuff where our promo as a percentage of handle. We've got a very good handle on account linking was built into our marketing plan for the quarter. So there's nothing new or different other than hold percentage.

[Daniel Politzer, analyst]

Got it. That's helpful. And then just a follow-up on iGaming. Is there any research that you've done or any kind of insight you can on where your current brick-and-mortar database is playing? Is it other omnichannel providers? Or is it kind of the digital first good competitors. And as you think about taking share from those, what are kind of the different buckets as you look at it?

[Jay Snowden, executive]

Yes. I'm not sure that we know that answer. I would -- my best guess would be probably a little bit of everything. They're probably playing a little bit with us, some of them and others having connected the whole ESPN bed. If you're not a sports better, that there's an iCasino that's waiting for you that branded. So I would say, think about this as, obviously, we have the program connection that we're going to be able to introduce more aggressively with people to make sure it's very clear that you can use your linkage between what you play and earn on the land-based side and what you plan to earn within the digital ecosystem.

And so if you're looking to redeem promo credits that you've earned in the land-based side, within the iCasino app, you can actually do that now, but we haven't been able to market it as aggressively just because, again, the brand disconnect. So I think with the loyalty program connection and linkage, it's going to be pretty powerful for us.

[Operator]

Next question from Chad Beynon of Macquarie.

[Chad Beynon, analyst]

I wanted to ask about initial thoughts on the Missouri sports betting vote plans for that state. And if you think outcome of this could have any potential impact on some other states, either in that part of the country or in other regions? And then also related to the tax rate that was announced in that market?

[Jay Snowden, executive]

Yes, happy to, Chad. We're talking 48 hours ago, but we did have a good feel for whether it was going to pass or not. We know what the structure is. I think Missouri is an interesting state. It's probably one of the last states in the country, obviously, excluding the California and Texas but 1 of the last states outside of those 3 that we know that there's real sports fandom. You've got 2 major cities really into sports between St. Louis and Kansas City. And of course, we have 3 land-based casinos the state of Missouri, 2 in the St. Louis MSA, 1 of City MSA. We have another property on the Kansas side of Kansas City.

So we're -- we think we're pretty well positioned. Tax rate is attractive. I think the structure was attractive. And -- there's been some commentary out there about the land-based casino company is only getting 1 skin for the whole state. And we're reading again, publicly what I think others can read that maybe that's not the read of the regulators there that it's going to be each of the casino operators that have multiple properties would then have multiple skins in the state. So we're clarifying that with the regulators, but that's our understanding as we sit here today. So we think this is good news for Penn, obviously, good news for us launching ESPN BET and we feel like we've got a nice database that we can tap into across the day.

[Chad Beynon, analyst]

Appreciate it. And then just thinking about seasonality on hold and maybe what a lot of us saw out there with the World Series and the really strong national numbers and viewership. Do you think the hold rates for non-NFL sports have a lot of way to go in terms of improvement.

[Jay Snowden, executive]

I think I did, Chad, if not, just jump in at the end. With regard to seasonality and World Series, obviously, there was more attention on the World Series and wages this year given the matchup was 2 powerhouse cities versus what it was last year as a Yankee fan, it was a World Series, but it also wasn't super helpful on the betting side, I think people were definitely feeling as though the Dodgers were going to win that series, especially the way that it started. So I would say World Series every year, it's hard to say that there's going to be any seasonality at related to World Series. It really depends on the match up and the favorite and where the money is landing.

Generally speaking, we would expect the fourth quarter to be a solid sort of in-market hold quarter for us. The good news about quarter even where we sit today is that October is the lightest betting months of the quarter. If you look at handled by month historically, typically, it's around 30%, 31% in October and then the rest in November and December. So around, we've got heavier volume months ahead of us where it could really help make up some of what's been lost so far quarter to date.

[Operator]

Next question from Bernie McTernan from Needham.

[Bernard McTernan, analyst]

Just want to focus on account linking. Aaron, talked about personalization. I know there's bet tracking within the account linking right now, but is there actual personalization that's happening with bets and promotions right now? And if it is driving it up with embedded the account linking. Is there anything you could do to get customers to more aggressively adopt account like that is something you could look at is organically the way to go?

[Aaron LaBerge, executive]

No. We're actually really focused on driving people towards account linking. As Jay mentioned previously, we just started promoting it in the last few days, the results have been really great. We'll continue both on the ESPN and ESPN BET side to promote the benefits of account linking. -- you'll see it all throughout your experiences, whether signing up for new products, signing up for games, just a targeted approach as to getting into link and sharing the benefits.

Back to your first question, in order to personalize your bets and your bet tracking and everything that's going to go with it, we had to link accounts first. So we are literally a few days into that. So obviously, as we move forward, you will start to see personalized content that offers all throughout ESPN and ESP BET, and it will just start happening organically. It's not going to be a launch. It's just your experience is going to start getting smarter and you'll see it in a bunch of different places, including in that module on the ESP home feed as well.

[Operator]

Next question from Jordan Bender is Citizens JMP.

[Jordan Bender, analyst]

When we look at the 3.9 million digital database and then the 1.8% you've added since the launch of ESPN BET. Are you maybe able to help us break down how many of those people have come directly through just an ESPN channel versus we want to go on in other channel?

[Jay Snowden, executive]

We haven't provided that level of detail, Jordan. I would say that since the launch of ESPN BET, you should assume that most of those that have come through were from the ESPN ecosystem, but we haven't provided any more detail than that, but it is definitely most.

[Jordan Bender, analyst]

Okay. And then are you seeing just any -- in terms of churn rates? Are you seeing any difference between people coming in to the ESPN channel versus, again, kind of other bucket?

[Jay Snowden, executive]

Yes. Retention tends to be stronger with those that come in through ESPN. And obviously, when you add the integrations and account linking, that just continues to get stronger. We're quite pleased with what retention looks -- we've got this really large base of mass market casual betters, and I mentioned earlier, we're continuing to see higher engagement, better handle per user monetization is improving.

So we're very focused on that, and we have to simultaneously of course, continue to attract new and reactivate those that have not reactivated who maybe came in, in that November, December, January, February time frame, use promotions cash wage or better to and then disappeared. And so continuing to focus on reactivating is the highest priority for us. And then, of course, we're seeing outside of ESPN, as I mentioned earlier, on our digital performance. like we're really getting a good feel for what's working, what's not from a CPA perspective, and those CPAs continue to look pretty good, both within the ESPN to the best, but they're looking pretty good outside of ESPN as well.

[Operator]

Next question from Ryan Sigdahl from Craig-Hallum.

[Ryan Sigdahl, analyst]

Just one on the player linking to follow up on that. Is there a potential to offer, say, ESPN Plus memberships for free or if you have for linking it or if you have some status on ESPN that membership free, where you can really try and drive cross synergies from ESPN? Or is that, I guess, too difficult given Disney and Penn are 2 different companies?

[Jay Snowden, executive]

Well, I think I'm going to let Todd take that one.

[Todd George, executive]

Great question. It's a great timing. We actually are working with ESPN Disney on an on for our database to get ESPN Plus, and that will be coming out shortly. It will be a 1-month trial membership. And again, it just shows the teamwork that we have between these companies and everything that we can do together to communicate engage with our fans.

[Ryan Sigdahl, analyst]

Excellent. Switching over the land-based side, you're shutting down the Freehold Raceway in New Jersey. I guess, is there opportunity to further optimize noncore assets in portfolio, either sale, further closures, et cetera? Or is that kind of a one-off?

[Jay Snowden, executive]

I wouldn't consider that one, Ryan, a one-off. That was stand-alone horse racing. And so really, as you look at our portfolio, we like we're in really good shape. All of our land base and barge, Riverboat casinos, all of them are profitable both before and after rent, not even close to being unprofitable and give them. So wouldn't be any thoughts around any necessary closures or anything of that nature.

And I think as you look at the rest of our horseracing portfolio, one, they're either at close or above breakeven on a stand-alone basis. And they're also -- we believe some of those are great development options for us down the road for land-based casino legalization or expansion in some of those markets, certainly, Texas is top of mind there.

[Ryan Sigdahl, analyst]

And no hard feelings on your disrespect towards Minnesota loyal sports fans are not having OSB yet.

[Operator]

Next question from Stephen Grambling with Morgan Stanley.

[Stephen Grambling, analyst]

This is Stephen. I wanted to touch on digital, but with a focus on Toronto and Canada, specifically, I guess how does the customer spend and other aspects in that market compared to the U.S. as we think about ESPN customers? And is that segment EBITDA positive on its own or even if you separate out kind of media and betting?

[Jay Snowden, executive]

Yes. It's certainly a contribution margin positive. It depends obviously on how you would allocate some of those shared expenses beyond that. Ontario has been -- continues to be a really good story for us, which is part of why pretty bold up on Alberta opportunity whenever that does present itself. It certainly has moved into 2025. We'll wait on the government and the regulators there to tell us exactly when the go live launch would be.

We've got significant number of users. It's interesting because the makeup of our database in Ontario is quite similar to what we're seeing here in the U.S. with ESPN BET, large mass market, casual, certainly have some VIP play, but of the users are more in that casual segment. Our parlay mix in Ontario because we've been added a bit there is comfortably in the low 30s as a percentage of handle and that's up year-over-year from the mid- to high 20s. So we're already ahead in Ontario of what we're seeing here in the U.S. We're moving in the right direction here in the U.S. that mid- to high 20s, parlays as a percentage of handle.

So we look at Ontario sort of being maybe a year or 18 months ahead of things are here in the U.S. from an ESPN that perspective and everything that we saw in Ontario trend-wise, we're seen as we go in the U.S. as well.

[Stephen Grambling, analyst]

And then maybe a quick follow-up on that is the cross-sell and iGaming in Ontario also similar? Or do you think that that's generally going to be a little bit of a different animal just given differences in the retail business there?

[Jay Snowden, executive]

It's really just -- it's grown over time. Again, we've been at it longer in Ontario the markets here in the U.S., our cross-sell percentages are a little bit higher in Ontario. So that tells us we've got opportunity, not just on the land-based cross-sell that Todd and I talked about earlier, but also on the OSB cross-sell in the you have both. So it's a good template for us to look at as we think about what the opportunities in front of us here in the U.S. with ESPN BET given our experiences and what we've seen in the results in Ontario.

Cindy, if we can have 1 more question realizing that we had an investor event just a month ago, and we're getting close to the end of the hour, but we'll do 1 more question.

[Operator]

Okay. Question from David Katz of Jefferies.

[David Katz, analyst]

Sorry about that. I'm sitting here looking at your Slide 4 and I see your math with all the properties, et cetera. And the focus on building out the digital and doing it in a disciplined way, with a land-based is that stable but not growing. Any thought towards you might consider looking at some properties that aren't growing and maybe redeploying some of those resources by selling them toward digital? And the second part of my question, which I'll put out up front is I see you do have a presence in Texas. There's obviously events of the week that maybe refocus or changes view about whether Texas might legalize some things [indiscernible] Patrick might move on. Are you physicians and interested in participating in Texas, should it move in a legalization direction?

[Jay Snowden, executive]

Thanks, David. I'll hit the second one first. The answer is definitely yes. We think we're positioned actually very well in Texas. We've got ownership of several stand-alone horse tracks in Texas and [ Retama ] in San Antonio, and Sam Houston at the Greater Houston MSA, and those are 2 of the 3 Class 1 horse tracks in the state of Texas. So we are have to be engaged in conversations with the appropriate people in Texas and horse racing is very likely to be involved in whatever happens down the road. I'm not going to make predictions on when and how that will happen. There's some new Senate positions that just got so we need to see how the dust settles in Texas and the new presidency and how that may or may not affect others in Texas in terms of potentially joining that administration.

So I think more to come in Texas, but definitely well positioned, extremely interested and engaged and will continue to be. With regard to your first question, look, we have Liquidity is not an issue. We have $1.8 billion of liquidity. And so we're going to spend where we we should be spending and need to be spending across the portfolio, both on the retail side as on the digital side. We don't have a plan to sell any of our assets. None of those are on the market. Every once in a while, there's something in the read in the paper, and I don't know where those rumors come from. But that's not the case.

And we feel like we're strongly positioned. We've got some momentum in the business right now. We've got 4 growth projects that are going to be very exciting additions to our land-based portfolio 1 at the end of '25, which is not far away and the other 3 in early '26. So we'll continue to invest where we we're going to get the best returns and that becomes clearer and clearer for us every day on both the retail side as well as on the digital side.

Thank you, everyone, for joining especially if you also joined us in Las Vegas. Some of this was redundant, but hopefully, you got some new information and takeaways, and we look forward to catching up with all of you again in a few months in February.

[Operator]

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.