Penn National to acquire Canadian sportsbook theScore for $2B

Penn National Gaming, which owns Barstool Sports, announced Thursday that it has entered into a definitive agreement to acquire Toronto-based Score Media and Gaming, owner of theScore, for approximately $2.0 billion in cash and stock. 

The transaction has been unanimously approved by the boards of directors of both companies and is currently expected to close in the first quarter of 2022. Upon completion of the transaction, current Penn National and theScore shareholders will hold approximately 93% and 7% respectively, of the company’s outstanding shares. Penn National expects to fund the approximately $1 billion cash portion of the consideration using existing cash on its balance sheet.

Jay Snowden, President and Chief Executive spoke in a press release about this new purchase. 

“When we add the Score’s unique integrated media and betting platform and modern, state-of-the-art technology to the massive audience of Barstool Sports and its wildly popular personalities and content, we’ll be creating North America’s leading digital sports content, gaming and technology company”, Snowden predicted. “We anticipate that the acquisition of the Score will provide adjusted EBITDA accretion by Year 2, an incremental $200 million medium term adjusted EBITDA, and $500 million of incremental long term adjusted EBITDA upside”. 

He added that "users will enjoy a unique mobile sports betting and iCasino platform with highly customized bets and enhanced in-gaming wagering opportunities, along with highly engaging, personalized sports and entertainment content, and real time scores and stats. We believe this powerful new flywheel will result in best-in-class engagement and retention".

We announced today that we are acquiring theScore, creating North America's leading digital sports content, gaming, and technology company. More info: https://t.co/cNHnQyUZZ0 pic.twitter.com/xH0JwhV3jF

— Penn National Gaming (@PNGamingInc) August 5, 2021

Snowden spoke about this transaction and explained that it “provides us with a path to full control of our own tech stack. 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. This should lead to significant savings in third party platform costs and allow us to broaden our product offerings – providing the missing piece for operating at what we expect to be industry leading margins. In addition to the synergies, we’ll be gaining access to theScore’s deep pool of product and engineering talent and data-driven user analytics which will help drive our customer acquisition, engagement, retention strategies and cash flows".

John Levy, Chairman and Chief Executive Officer of theScore, commented, “This deal brings together two companies that share a vision for how media and gaming intersect, and we could not be more excited to join the Penn National family. I’m proud of theScore team and all of our accomplishments, and believe the time is right to take the next step and align with a company in Penn National with the resources and scale to accelerate our business. We are excited to join forces with Penn to form the most powerful media and gaming company in North America."

“We’ve built an innovative, technology-led integrated media and gaming business that has us poised for success across North America, including the highly anticipated upcoming rollout of commercial sports betting in Canada,” continued Levy. “With Penn’s support, we will continue to invest in building our Canadian operations, growing our footprint and expanding our workforce. On a personal note, Benjie and I are very much looking forward to continuing to head up theScore as part of the new combined company.

Second Quarter 2021 financial results

Also on Thursday, the company released a report on their financial results for the second quarter of 2021.

According to a press release, the report on Q2 2021 highlights: 

• Revenues of $1,545.8 million year over year and $223 million versus 2019.
• Net income of $198.7 million and net income margin of 12.9% as compared to a net loss of $214.4 million and 70.2% respectively, in the prior year and net income of $51.4 million and net margin of 39% in 2019
• Adjusted EBITDA of $470.1 million, an increase of $549.4 million year over year and $153.6 million versus 2019. 
• Adjusted EBITDAR of $586.6 million, an increase of $562.1 million year over year and $180,1 million versus 2019.
• Adjusted EBITDAR margin of 37.9%, up 2,993 basis points year over year and 722 basis points versus 2019. 

Based on these results, CEO Jay Snowden said “compared to Q2 2019 pro forma results, revenues increased 13%, Adjusted EBITDAR grew 38% and Adjusted EBITDAR margins increased 694 basis points. The strong results were driven by exceptional performance across our portfolio of core gaming business properties. Contributions from Barstool Sports, the media company, were also positive. Further, we saw strong revenue growth across our Penn Interactive segment, which operated near breakeven for the quarter despite being live in only four states”.

Traditional net debt as of June 30, 2021 was $116 million, a decrease of $237 million during the quarter. Net leverage was 4.0x based on Adjusted EBITDAR through the trailing 12 months ended June 30, 2021. On July 1, 2021, the company closed on an eight-year $400 million unsecured notes offering priced at 4.125%. Pro forma for this transaction, cash on the balance sheet stands at $2.7 billion, which combined with our fully undrawn revolver, drives its liquidity to nearly $3.4 billion.

In reference to the recovery of the gaming business, Snowden said that “sequentially improved visitation and length of play across all age segments of our player database led to our record results in the second quarter. Spend-per-visit has remained high since reopening last year, and our overall visitation numbers are encouraging as restrictions continue to be lifted. We have seen this strength across all geographic regions, with the South Region leading the way as demonstrated by the segment’s outsized performance in both revenues and EBITDAR”.

The company’s Chief Executive anticipated that Penn Interactive will generate “meaningful EBITDA contributions beginning in 2023, inclusive of significant planned investments in marketing, product and additional state launches”.