For many years, Penn National Gaming has been the third-largest gaming company in the United States, trailing only Caesars Entertainment and MGM Resorts. Penn has managed to avoid the financial difficulties that have surrounded the top two, but few people realize that Penn has been an innovator for its entire existence as well.
To start with, Penn National founder Peter Carlino truly redefined the term “racino” when Pennsylvania entered the gaming market and his Penn National Race Course was one of the first casinos to open. Carlino’s racinos weren’t just slot parlors attached to racetracks. They were full-fledged casinos that also offered horse racing. And those casinos were “Hollywood” branded—a brand that could adapt to every budget with different levels, with quality at every turn.
Then Carlino invented the gaming real estate investment trust when he founded Gaming & Leisure Properties Inc. (GLPI). It led to an avalanche of gaming REITs, all of which have grown quickly and successfully over the past few years.
Former Harrah’s executive Tim Wilmott was Carlino’s successor, and brought the Harrah’s family-style organization into Penn National, without the Harrah’s bureaucracy. In his 20 years as president, he led Penn through several purchases of rival regional gaming companies. And now that Wilmott has stepped down, his successor, another former Harrah’s executive, Jay Snowden, is taking Penn into the next generation of omnichannel gaming companies that are able to reach out to customers 24/7 to create memorable experiences.
Even following the pandemic, Snowden is positive about the future of the company.
“I couldn’t feel better about where the company is, all that we were able to do in the last 18 months, around launching our digital products in Pennsylvania and three other states,” he says. “And we’re going to be live in a total of nine states by the start of football season.
“Our core brick-and-mortar business is producing revenues and EBITDA and margins like we’ve never seen before in the history of the industry.
“We now own a media business that is one of the fastest-growing sports media businesses in the world. And I couldn’t feel better about how all three of those come together, and essentially how we think about building this out in the future. I think what we’re attempting to do really transcends any of those individual verticals of business.”
It was a risk, says Snowden, to take on the online gaming options when they first launched. But then the pandemic happened, turning everything on its head.
Penn is now active in two states that have both online gaming and sports betting. New Jersey will be the third by the time the football season starts up in September, and several others have already been added to the list.
“We found in Pennsylvania and Michigan that, in some cases, you’ve got customers who had traditionally been brick-and-mortar casino players only, because it was the only form of casino gambling at the time that was legal,” says Snowden. “And at the advent of online casino and online sports betting, the ones who decided to participate in both forms, maybe their play was down a little bit on the bricks-and-mortar side, but if you were to add what their engagement and their total spend was across the different platforms, in every scenario, it was higher.”
The purchase of Barstool Sports in 2020 allowed Penn to concentrate on great service and platforms, says Snowden.
“The Barstool ownership, and not having to get into the crazy arms race of paid advertising, and TV commercials with the biggest promotions and all of this chase for promiscuous customers, was the key,” he says. “We have a business across all the different verticals that is set up to have the best margin profile. And so, I am indifferent. As long as we have people within this ecosystem that we’ve created, of experiences across sports betting and online casino and bricks-and-mortar casino, we don’t really care which of those you spend most of your time on.
“We want to create experiences that generate loyalty and retention. Our focus right now is on making sure that we get launched in all of the states that are legal. That will create scale. We have to continue to improve our product offering, both from a digital standpoint and a core brick-and-mortar standpoint, and make sure that we’ve got differentiated experiences and content to keep people excited and coming back, because we’re doing things that no one else is doing.”
While the Barstool deal makes sense now a year later, it was really the first of its kind, with a casino company and a media company merging. Snowden says it was a calculated risk.
“You don’t know how a partnership is going to go when you’re working on the deal and getting ready to announce,” he says. “It’s like a honeymoon period. Everybody’s on their best behavior, and everybody’s getting along perfectly. And then after you announce the deal, you’ve got to start figuring out how to execute on the vision that you’ve articulated. So we’re now close to 18 months since we announced this in January 2020, and closed the deal in February 2020. And I take a step back and look at what we’ve been able to accomplish over the 18 months—and I think that (Barstool president and founder) Dave (Portnoy) and (CEO) Erika (Nardini) would certainly say that we’ve delivered on the things that we said we would be able to do, and they have absolutely delivered on the things that they said they would be able to do.”
The Barstool demographic made it very attractive, says Snowden, and it has been reflected in the active sports bettors on the Barstool platform, which Snowden describes as “much younger” than the competing companies.
In addition to Barstool, Penn has recently acquired a game studio, HitPoint, based in Massachusetts. The object of this purchase was to create proprietary content that will only be available on Penn touchpoints.
“We wanted to have control of that content roadmap, as it relates to what we’re going to be able to offer from a digital perspective,” says Snowden. “And we’ll have a few of those live at the start of football season, for online casino. You can expect to see new content coming out from that online studio every couple of months, from now going forward.”
And finally, filling what Snowden calls the “missing piece,” Penn completed a deal for Score Media & Gaming (theScore), giving the company the leading access to sports betting in Canada, which was recently approved, but more importantly, the technology that comes with Score. The deal gives Penn its own technology, enabling it to cut ties with B2B vendors and produce “industry-leading margins.”
“Importantly, the transaction provides us with a path to full control of our own tech stack,” says Snowden. “TheScore has developed a state-of-the-art player account management system and is finalizing the development of an in-house managed risk and trading service platform.”
While all these companies are owned by Penn—Barstool will undoubtedly be owned completely by Penn in a couple of years—the company will run each as separate businesses.
“They’re our partners, and we treat them as partners,” he says. “We don’t treat them as an acquired business. We’re not going to change the way we look at them, and how we think about them as partners, and how we value them. They are a big part of what we do at Penn, and that’s not going to change.”
For years, Penn’s regional casinos have been the focal point of the company. Over the last 20 years, Penn has gobbled up competitors, Hollywood Casinos, Argosy Casinos, Pinnacle Entertainment and many other smaller companies and properties. Its GLPI REIT trailblazed that sector and changed the financial structure of Penn National. But Snowden says, despite the focus on the interactive channels, the land-based casinos are still the company’s bread and butter.
At the recent announcement of the company’s first-quarter earnings, Penn earned praise—and “buy” ratings—from a variety of analysts for its low debt load, impressive cash flow, organic growth and corporate stability.
“In terms of the revenues and cash flow, we are still being predominantly driven by our core business, the brick-and-mortar casinos,” says Snowden.
Penn is heavily invested in the Illinois market, and Snowden admits he’s concerned about a possible casino in downtown Chicago. But if the example of the new Hard Rock casino in Gary, in northern Indiana, which competes directly with Penn’s Ameristar East Chicago in eastern Illinois, is any indication, the impact may not be so bad.
“If you look at our results at Ameristar along with the Horseshoe in Hammond, and Rivers in Des Plaines, all three of us are showing growth over 2019,” he explains. “The Hard Rock property is hitting numbers that they were hoping to hit, doing $20 million to $25 million a month in GGR. So I’m knocking on wood, but it looks like it’s more of a ‘grow the market’ story, than it is a cannibalization story.”
In Las Vegas, Penn bought the M Resort at the far south end of Las Vegas Boulevard during the economic downturn in 2010. Five years later, it grabbed the Strip property Tropicana, but will end its management of that property shortly when Bally’s Corp. takes over. GLPI is still the landlord. Still, Snowden says Penn likes their Las Vegas position with M Resort.
“What an amazing property that is,” he says. “Market share is great, as well as revenue growth and profitability. We’ve got great offerings. We’ve maintained the property very well. The Raiders’ practice facility is next door and we’re the official hotel of the Las Vegas Raiders. We just opened a Raiders lounge and a Raiders café. The property is executed extremely well, and I wouldn’t be surprised in the not-too-distant future if we’re talking about real expansion because we’re starting to bust out of our seams, which is a good problem to have.”
Snowden says he doesn’t believe a Strip location is that important to Penn.
“Given our strategy of omnichannel, it’s a lot more important that we have the best geographic footprint across the U.S.,” he says. “We can participate in land-based entertainment, as well as in digital and interactive entertainment. And our footprint does allow us to do that today.
“Would it make sense for us to acquire a property on the Strip? I think it would have to be right price, right location, and something that we believed was going to attract, not just our loyal customers, but also the Barstool audience. I think at the right time and at the right price, right location, something like that can make a lot of sense. But we’re not trying to chase something down in Vegas.”
As for additional expansion, Snowden thinks their regional penetration is complete. But he admits that markets that haven’t yet been legalized like Texas and Georgia remain options.
“We’re in a good spot right now,” he says. “Our businesses across brick and mortar, and digital and media are all growing, and they’re healthy, and the balance sheet is in great shape, because we did two capital raises last year, and we’re sitting on $3 billion in cash. We can be patient and opportunistic and continue to just build out the offerings and the products and create great experiences for our customers, and just go after M&A where and when it might make sense for us.”
Snowden believes the current trend toward cashless transactions blends well into Penn’s plans for the future. “We’re very bullish on the future of contactless, cardless, cashless technology in the casinos. We refer to it as the three C’s.”
Snowden says the company’s Hollywood Casino at Penn National Race Course near Harrisburg, Pennsylvania, has started operating cashless via a partnership with Everi.
“It’s amazing,” he says. “If you download the mychoice app (Penn’s loyalty program) you can check your account information, and your offers and points. But now through that mychoice app, it now also acts as a wallet. There are lots of different ways that you can fund your wallet—credit, debit, cash at the cage, through the Everi devices that we have, ticket-in, ticket-out across the floor. And you don’t have to carry a piece of plastic anymore, you don’t have to carry cash. It’s fantastic from a security standpoint.”
Snowden knows it’s crucial for cashless payments to be available in every channel and in a simplified manner.
“You want to eliminate the friction,” he says. “You want people to have one account, and be able to bounce around within your app to your other offerings, so it’s seamless for them, it’s the same wallet, you can go to the casino, you can go back home and bet on the Bucks-Suns game tomorrow night. And that’s the vision.”
In addition to being an innovator, Snowden believes there are two factors that make Penn National Gaming a success and able to avoid the financial troubles that sometimes buffet his two largest rivals.
“First of all, I think we have the best people in the industry,” he says. “There’s a certain profile of person that we look for, when we’re hiring from executive all the way to our front line. And it’s people who are really passionate about joining the company, and subscribe to the vision that we’ve created—people who are going to be focused on delivering great experiences.
“And the other factor is that we’ve always been disciplined in how we think about investments, how we think about capital allocation, how we think about M&A. I think our track record’s been really good, where we’ve set the company up for success. We’ve been able to continue to grow. We’ve diversified. We were able to pivot, and move from a horseracing company to a horseracing and casino company.
“And then we started getting into the social gaming business, we spun off our real estate. We’ve been sort of a trailblazer in a lot of different areas, and I don’t think you should expect that to change. If anything, I think you should expect that to accelerate, because we thrive in environments of chaos.
“We’ve proven that a lot over the last 18 months. We welcome it. We think we can navigate it. We operate as a really flat organization, so people are empowered to make decisions. And we move quickly. If we make mistakes, we admit it, and we move on. But we’re not afraid to make those mistakes, and I think that really makes us different.”
Q&A with Erika Nardini
Chief Executive Officer, Barstool Sports
Barstool Sports was founded in 2004 by David Portnoy, respectfully now referred to as “El Presidente.” Erika Nardini was appointed CEO in 2016 and brought smart business sense and a tough negotiating stance to Barstool. The company has experienced explosive growth since that time. With more than 100 million members, Barstool has a wider reach than such sites as ESPN Digital, the Washington Post, Turner Broadcasting and The New York Times.
GGB: You joined Barstool long before sports betting was legalized in the U.S. and before most people thought it would be. Was there any strategy or plan surrounding a possible legalization of sports betting at that time?
Erika Nardini: I joined Barstool in 2016. Dave Portnoy started Barstool in 2004. I think he was betting long before that. So, sports betting was always part of Barstool’s DNA. Dave liked to talk about his bets, he liked to complain about his bets. He brought on Barstool Big Cat, who was doing the same thing. So, I don’t think we could have foreseen PASPA being repealed, and what a tremendous change that would create for us as a company. But once we saw the winds change, and the light at the end of the tunnel, that this could be a reality in the U.S., we knew that was going to be a game-changer for this company.
Once it did become legal, what kind of strategy did you have then? Do you approach other gaming companies, or do they come to you?
Barstool had been working with both FanDuel and DraftKings for years, as well as a lot of different casinos and betting companies. We first really went about what I could call a “rental” strategy, whereby we had multiple sports betting and fantasy partners. We segmented them into different types of programming—we really had a horse racing partner, bringing our content, bringing our personality, and ensuring that converted for multiple partners. It had a positive effect on our revenue, because everyone was competing for a finite set of assets at Barstool.
We set about having a ton of conversations. There’s really not many companies in the industry we didn’t talk to. And Penn ultimately became the right fit.
So, what was it about Penn that made them so special?
There was a couple things about Penn. The first is that we got on with the Penn crew really well. When you start a partnership, you have to consider, could your company mesh up with somebody else’s company? And we had good chemistry, from the start, which is really important to both Dave and myself. The second piece is, Penn had everything we didn’t, which was essentially guns, money, and steel. They had licenses. They had the casinos. They had a lot of margin. They have a national footprint, as the largest retail regional casino operator.
We had everything Penn didn’t. We understood the internet better than anybody. We had a brand that was beloved. We’re making content in sports betting, that I would say is some of the best content out there today. And we had a brand that was recognizable. Two years ago, not many people were talking about Penn or Penn National, the way that they are now. And so, what we felt is the marriage of those two things could be really successful, and really great for both audiences.
So how has your relationship been with Penn, now that you’re in the trenches with them?
It’s been great. We’ve really enjoyed our partnership. We’ve collaborated, we’ve made a lot of different things happen. We’ve tried a lot of different promotions. We’ve launched an app. We’re gunning it to be live in as many states as possible. So, it by all means has been a sprint. I think we’ve learned a lot from them. And I think they’ve learned a lot from us, which is, I think, the best thing you can say from a partnership.
Penn owns 36 percent of Barstool right now, and they have an option to buy the entire company. How will your role and Dave’s role change, if they exercise that option?
That’s a great question. So, hopefully Jay will keep us.
Part of the reason Penn structured the investment in such a way as the acquisition would happen, they didn’t have any experience with a media company or an internet company. And we are decidedly an internet media company. And so, I don’t foresee there being a huge change in either Dave’s role or mine. I think we’ll take on additional responsibility. I think we will bring the companies closer together. I think we may operate some things slightly differently. But, you know, at the end of the day, what we are trying to do is to grow a big, beloved sports betting brand. And we are looking to create an experience that is fun and rewarding for our audience, and we’re looking to showcase that experience, promote that experience, engage people around that experience, using content and the internet.
Barstool is much more than just a sports betting and gambling app. It’s about a lifestyle. Does that make it more sticky than other sports betting apps?
I think consumers care about a bunch of things. I think they care about a good product. And there’s a lot of really good sports betting products out there. There’s a lot of very sophisticated companies in this space. What our differentiator is, is that when you say the words “Barstool Sports” or “Barstool Sportsbook,” or “Big Cat” or “Dave Portnoy” or “Kayce Smith” or “Ryan Whitney,” it means something. It conjures up the idea of a person. And we have a brand that is human, and, yes, flawed and fallible and magic and funny and self-deprecating and authoritative. We have all of those things. So when they bet with Barstool Sports, it’s like they’re betting with Dave, or they’re betting with Big Cat—they’re part of something. And you cannot buy or strategize your way into being part of something. Being part of something means that you’ve created something that is memorable, and stands for something, and has feeling associated with it. And that’s really why we are so cultural.
It looks like you really look out for your core demographics. From unboxing frozen pizza products during the pandemic, which gave visibility to struggling businesses, to the recent drive to raise money for small businesses that were negatively impacted during this time. It takes a compassion to do that. It seems like that’s not really planned to any extent; that really comes from the heart.
Yeah, it does. We kind of do it, and then figure out how to do it. We’ve done a lot of that. When the NCAA women’s golfers were not able to play in their regional final, it was really upsetting. So within 72 hours, we created an incredible golf tournament, just for female athletes. The Barstool Fund—we’ve raised over $41 million for small businesses, at a time when the government wasn’t stepping up, the legislators hadn’t stepped up, chambers of commerce hadn’t stepped up. So we stepped up for small businesses.
We didn’t have a PowerPoint or a plan at the beginning of 2020 to say, “Hey, we’re gonna raise money for small businesses.” It happened on a Friday afternoon. We had it in motion by Sunday. You know, just today, we announced that we’re creating our own 501(c)(3), for the Barstool Fund, so we’ll continue to help small businesses. So, there is a lot of compassion in this company. There’s also a lot of “Do it first and figure it out later,” which I also think is part of what makes us so exciting.
Penn has also branded its bricks-and-mortar sportsbooks as Barstool Sportsbooks. How do you ensure that the Barstool online experience translates to the in-person experience?
That’s very important to us. One of the things that’s so important to us is that when you see Barstool, you know it’s Barstool. It should look like Barstool, it should smell like Barstool, it should taste like Barstool. So, we’re maniacs, if you ask the Penn people, about that. You know, we are very eager to have our own line of sports bars. We’re not going to retrofit our brand into things that just don’t feel right. And we’re pretty ornery about that, I would say. But it’s important, because that’s the fastest way to kill something, to make it not stand for anything.
How do you find employees who really “get it,” and create loyalty throughout the brand?
That’s the hardest thing. First, we’ve been fortunate in that we have eyes for the internet, so we can understand people who really work and can stand out on the internet. I think in a way where we can get people earlier than anyone else can. I think the second thing is, we have an incredible college program, whereby, we’re finding people to intern for us, when they’re 18, 19 years old. And by the time they enter the workforce, they get our brand; we’ve seen who’s good and who’s not good. So, we’re able to have our pick. We’re fortunate in that people want to work here; we’re really grateful for that. But we also want to choose the best.