PENN's Q3 2025 Earnings Call: Contradictions Emerge on ESPN Exit, Marketing Spend, and Digital Strategy

Date of Call: November 06, 2025

Financials Results

• Revenue: $1.4B Retail; $297.7M Interactive (includes $139.5M tax gross-up); North America iCasino gaming revenue up ~40% YOY

Guidance:

• Q4 2025 Retail revenue expected $1.41B–$1.43B; Retail adjusted EBITDAR expected $455M–$475M.
• Q4 2025 Interactive: will incur a loss, but expect the loss to be smaller than Q3; precise guidance limited due to retention uncertainty post-rebrand.
• Interactive 2026 goal unchanged: breakeven or better, with full control of digital cost structure and marketing.
• 2025 project CapEx lowered to $430M; total 2025 CapEx $685M; 2025 net cash interest expense projected $160M.
• New Board-authorized $750M share repurchase program begins Jan 1, 2026.

Business Commentary:

• Digital Business Strategy Shift:
• PENN Entertainment announced the early termination of its exclusive online sports betting marketing agreement with ESPN effective December 1, with the aim to prioritize its digital assets in Canada and Hollywood iCasino.

• The strategic shift is due to the inability to establish ESPN BET as a scale player in the competitive OSB space, and a need to realign resources for enhanced profitability and digital cost control.

• Retail Segment Performance:

• PENN's retail segment generated $1.4 billion in revenue, with adjusted EBITDAR of $465.8 million and a segment adjusted EBITDA margin of 32.8%.

• The performance was impacted by new supply and increased competitor promotional activity in affected markets, though demand remained stable in segments not impacted by these factors.

• North American Digital Realignment:

• As of December 1, PENN will rebrand its U.S. and Canadian OSB brands to theScore Bet, leveraging the existing app and customer information to minimize disruption.

• The rebrand aims to enhance operational efficiency, optimize digital business management, and refocus resources on high-potential markets and customer cohorts.

• iCasino and OSB Interconnection:

• PENN's North American iCasino business achieved its highest quarterly gaming revenue to date, driven by record cross-sell from OSB of 62% and strong stand-alone app growth.
• The interconnected nature of iCasino and OSB is highlighted, with OSB acting as a top-of-funnel acquisition driver for iCasino, contributing to the latter's significant growth.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted digital momentum ("North America iCasino business achieved its highest quarterly gaming revenue to date, an improvement of nearly 40% year-over-year"); reiterated 2026 interactive goal ("breakeven or better"); noted increased financial flexibility from ending ESPN payments and a new $750M repurchase authorization, signaling confidence in cash generation and capital allocation.

Q&A:

• Question from Barry Jonas (Truist Securities): With the ESPN exit, can you talk a bit more about any puts and takes for near-term as well as maybe longer-term profitability for Interactive and then maybe throw in omnichannel's contribution to retail in that as well.
  Response: Exit enables refocus of interactive on higher-return markets and cross-sell; management's priority is to drive digital profitability in 2026 and leverage OSB as top-of-funnel to benefit retail.

• Question from Barry Jonas (Truist Securities): You sort of cited increased competition and promotional activity. Curious how that's been impacting your operations beyond initial expectations and maybe how you're responding.
  Response: Headwinds are concentrated in markets with new supply where promotional reinvestment and temporary labor costs rose; management views these as largely one-time/temporary and expects normalization.

• Question from Brandt Montour (Barclays): If you could just, Jay, focus on the cost side and talk about the fixed cost removal for ESPN, $150 million a year. And you said that would replace that with the marketing you're going to need to support theScore. Is it fair to assume that sort of just looking at those 2 pieces that marketing score should, by definition, come in below what you were paying to ESPN?
  Response: Yes — marketing to support theScore will be significantly below the prior ESPN spend; savings will be redeployed to higher-return cohorts (e.g., Canada, U.S. iCasino) and improve unit economics.

• Question from Brandt Montour (Barclays): I'm assuming the guide down at the EBITDA line at retail was mostly that competition you cited. Could you bifurcate between competition in supply-impacted markets and promotional activity in markets not supply impacted?
  Response: The EBITDA pressure is largely confined to markets with new competition (double impact of new entrants plus competitor promotional response); healthy non-supply-impacted markets remain strong with less labor impact.

• Question from Joseph Stauff (Susquehanna): I wanted to ask just a couple of questions to refamiliarize myself with theScore Bet. Wondering the updated share you have in Ontario and for the U.S. customer database within theScore, is there a concentration of adjacent markets in and around Ontario or wider distribution?
  Response: theScore Media app has ~4M MAUs (roughly 2/3 U.S., 1/3 Canada); Canadian popularity is broad across provinces (not overly Ontario-concentrated); in the U.S. ~2/3 of U.S. users are in states where OSB is legal, aiding cross-sell.

• Question from Joseph Stauff (Susquehanna): Based on your commentary, you own all the customer data associated with ESPN BET. And the second clarifying question is, I didn't see an expiration on the 8 million warrants that ESPN will own going forward.
  Response: PENN retains ownership of the customer data for regulatory reasons; the vested ESPN warrants carry the original 10-year term and expire at the end of 10 years.

• Question from Jordan Bender (Citizens Capital Markets): As you start to dig into databases and expand digitally, does it make sense to look at potentially buying retail properties in Canada to cross-sell and further dig into that customer database?
  Response: Opportunistic acquisitions in Canada would be considered if attractive, but it's not a near-term priority given limited targets; management would act only at the right price.

• Question from Jordan Bender (Citizens Capital Markets): Is there kind of a level or a leverage target that you would roughly want to run the business as we look out into '26, '27, '28?
  Response: Longer-term optimal lease-adjusted leverage target is somewhat below 5x; deleveraging is a priority but may not be perfectly linear due to buybacks and growth investments.

• Question from John DeCree (CBRE): Any initial thoughts about customer retention in the digital channel when you rebrand to theScore? Are there strategies or expectations for retaining those customers?
  Response: Rebrand is seamless (same app, no re-registration), management is confident given improved product and retention this season, and plans include targeted CRM/marketing to retain and re-engage users.

• Question from John DeCree (CBRE): For Columbus funding—anything at this point on financing plans?
  Response: Too early to decide; funding approach for Columbus will be determined closer to opening.

• Question from Daniel Politzer (JPMorgan): On 2026, you've said you'll still be breakeven or better. Directionally, is the outlook better today than a few months ago or unchanged?
  Response: Target for 2026 (breakeven or better) remains unchanged until post-rebrand retention is observed; exiting ESPN early improves runway and makes the goal more achievable.

• Question from Daniel Politzer (JPMorgan): Any background on how you got to the decision to exit early—was there a breaking point or specific metrics that drove it?
  Response: Partnership discussions concluded both sides not on track to meet agreed market-share thresholds by the third anniversary; mutual, professional agreement reached recognizing trajectories.

• Question from Shaun Kelley (Bank of America): Strategically, with Canada, market access, iGaming and OSB, are there further strategic moves or is this the go-to-market for the next year?
  Response: Current strategy is set: Canada remains standalone and strong, market-access revenue is finite, and U.S. iCasino and OSB are tightly interconnected — focus is execution and reallocating resources to higher-return areas.

• Question from Shaun Kelley (Bank of America): Thoughts on prediction markets—are they an existential threat and how should the industry respond?
  Response: Management views prediction markets as a major, near-term threat lacking customer protections; industry must play offense with regulators and lawmakers to find solutions rather than passive monitoring.

• Question from Shaun Kelley (Bank of America): Have you considered casino mechanics or prediction market overlays (e.g., spin-the-slot-like offerings) and how far down that path are you?
  Response: This risk is immediate; prediction market operators could extend to gaming-like contracts quickly, so the company believes industry-wide, proactive responses are necessary to protect regulated market integrity.

• Question from Chad Beynon (Macquarie): Appetite to look at non-North American iCasino markets given your tech and staff?
  Response: Not a near-term priority — primary focus is retention and U.S./Canada execution — but international opportunities would be considered opportunistically if and when appropriate.

• Question from Chad Beynon (Macquarie): On Joliet, have you seen repeat visitation and are early customers behaving like portfolio norms?
  Response: Joliet is exceeding or matching top properties on key KPIs; frequency and spend are in line or better, with a 42% increase in the active database driven by reactivation and new customers.

• Question from Jeffrey Stantial (Stifel): Margins down ~90 bps year-on-year; how trended for assets not impacted by new supply and what drove performance—taxes, wage inflation, other pockets?
  Response: Margin pressure driven by marketing reinvestment and payroll-related costs in supply-impacted markets; controllable expenses and some bad-debt upticks influenced results, but October trends and early Q4 look positive.

• Question from Jeffrey Stantial (Stifel): With marketing/resources freed up from ESPN, what product development and marketing changes should we expect—more games, CRM optimization, shifts in UA vs. lower-funnel spend?
  Response: Marketing will be far more targeted and performance-driven (better CAC), with redeployed spend into iCasino and high-LTV cohorts; product development velocity and casino innovation will accelerate using the same team that improved ESPN BET.

Contradiction Point 1

ESPN BET Exit and Strategic Implications

It involves the strategic shift and financial implications of exiting the ESPN BET deal and moving to theScore, which impacts digital segment profitability and marketing strategies.

Can you discuss how the ESPN exit affects Interactive's short- and long-term profitability and how omnichannel contributes to retail? - [Barry Jonas](Truist Securities)

20251106-2025 Q3: The ESPN exit will significantly reduce fixed media spend, enabling more targeted marketing and increased efficiency. Digital segment's goal is to achieve profitability in 2026. - [Jay Snowden](CEO)

Is the 2026 ESPN BET profitability target still on track? - [Shaun Clisby Kelley](BofA Securities)

2025Q2: Profitability in 2026 is dependent on achieving targets in 2025 and benefiting from new product enhancements. The strategic focus is on increasing MAU and share, with confidence in achieving profitability in the fourth quarter of 2025. - [Jay A. Snowden](CEO)

Contradiction Point 2

Marketing and Promotional Spending

It involves changes in marketing strategy and promotional spending, which directly affect the company's financial projections and competitive positioning.

How are increased competition and promotional activities affecting operations beyond initial expectations? - [Barry Jonas](Truist Securities)

20251106-2025 Q3: Increased marketing costs due to new competition, but these are temporary and expected to normalize. The digital strategy is designed to mitigate these effects. - [Todd George](Executive)

Why didn't you join the Q2 promotions that boosted your peers' hold percentages? - [Brandt Antoine Montour](Barclays Bank PLC)

2025Q2: The growth is driven by several factors, including minimal new supply in many markets, strong employment, low gas prices, and stable consumer confidence. Additionally, there is a trend of people staying closer to home for entertainment rather than traveling to destinations like Las Vegas. The company's capital investments in property improvements and fresh gaming floor options are also contributing to the positive performance. - [Jay A. Snowden](President, CEO & Director), [Todd George](Executive Vice President of Operations)

Contradiction Point 3

ESPN Integration and Customer Retention Strategy

It highlights differing views on the effectiveness of ESPN integration and customer retention strategies, which are crucial for digital segment growth and profitability.

What are your expectations for customer retention with theScore rebrand? - [John DeCree](CBRE)

20251106-2025 Q3: Retention strategies include personalization and targeted marketing. The app's high ratings and customer satisfaction should aid retention. - [Jay Snowden](CEO)

What are the immediate opportunities for customer growth and retention through the ESPN partnership? - [Jordan Bender](Citizens)

2025Q1: ESPN integration includes personalized betting experiences and fantasy football integration. These features will drive growth and retention. - [Aaron LaBerge](CTO)

Contradiction Point 4

iGaming Contribution and Promotional Spend

It involves differing statements regarding the timeline and strategy for iGaming to become self-sustaining, impacting financial expectations and investment decisions.

What is the impact of ESPN's exit on Interactive's near-term and long-term profitability, and how do omnichannel strategies contribute to retail performance? - [Barry Jonas](Truist Securities)

20251106-2025 Q3: Digital segment's goal is to achieve profitability in 2026. - [Jay Snowden](CEO)

What changes have occurred in the digital segment for the rest of the year, particularly in iGaming and OSB share trends? How far is iGaming from a positive contribution? - [Brandt Montour](Barclays)

2025Q1: iGaming is doing well, with 70% of iCasino revenue coming from new, incremental sources. The promotional spend on OSB drives cross-sell to iGaming, but the focus is on organic growth. - [Jay Snowden](CEO)

Contradiction Point 5

ESPN Exit and Digital Strategy

It involves changes in the company's digital strategy and the impact of the ESPN exit, which are crucial for the company's growth and profitability.

What is the impact of ESPN's exit on Interactive's near-term and long-term profitability, and how does omnichannel contribute to retail? - [Barry Jonas](Truist Securities)

20251106-2025 Q3: The ESPN exit will significantly reduce fixed media spend, enabling more targeted marketing and increased efficiency. The digital segment's goal is to achieve profitability in 2026. - [Jay Snowden](CEO)

Could you clarify the decision-making process and timeline for the OSB business specifically regarding 2025 targets? - [Carlo Santarelli](Deutsche Bank)

2024Q4: Our expectations as we're moving through 2025 is that we're continuing to show improvements in both the sports betting business and the online gaming business. If we're not hitting the levels that we expect to as you approach the end of the year, we have levers operationally, obviously there's a lot of dollars in the marketing category of our digital business. Our cost structure is built for us to be a scale player because that's where we expect to be. - [Jay Snowden](CEO)