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Investments in and Advances to Unconsolidated Affiliates
 12 Months Ended
Dec. 31, 2021
Equity Method Investments and Joint Ventures [Abstract]  
Investments in and Advances to Unconsolidated Affiliates
Note 7—Investments in and Advances to Unconsolidated Affiliates
As of December 31, 2021 and 2020, investments in and advances to unconsolidated affiliates primarily consisted of the Company’s 36% interest in Barstool Sports; its 50% investment in Kansas Entertainment, the joint venture with NASCAR that owns Hollywood Casino at Kansas Speedway; its 50% interest in Freehold Raceway; and its 50% joint venture with Sam Houston that owns and operates racetracks in Texas. On August 1, 2021, the Company purchased the remaining 50% ownership interest of Sam Houston. See Note 6, “Acquisitions and Dispositions” for further information.
Investment in Barstool Sports
In February 2020, we closed on our investment in Barstool Sports pursuant to a stock purchase agreement with Barstool Sports and certain stockholders of Barstool Sports, in which we purchased 36% (inclusive of 1% on a delayed basis) of the common stock, par value $0.0001 per share, of Barstool Sports for a purchase price of $161.2 million. The purchase price consisted of $135.0 million in cash and $23.1 million in shares of a new class of non-voting convertible preferred stock of the Company (as discussed below). Within three years after the closing of the transaction or earlier at our election, we will increase our ownership in Barstool Sports to approximately 50% by purchasing approximately $62.0 million worth of additional shares of Barstool Sports common stock, consistent with the implied valuation at the time of the initial investment, which was $450.0 million. With respect to the remaining Barstool Sports shares, we have immediately exercisable call rights, and the existing Barstool Sports stockholders have put rights exercisable beginning three years after closing, all based on a fair market value calculation at the time of exercise (originally subject to a cap of $650.0 million, and subject to such cap, a floor of 2.25 times the annualized revenue of Barstool Sports, all subject to various adjustments).
On October 1, 2021, the terms of the February 2020 stock purchase agreement were amended to (i) set a definitive purchase price of $325.0 million on the second 50% of Barstool Sports common stock, which eliminates the floor of 2.25 times the annual revenue of Barstool Sports and (ii) fix a number of Penn common shares to be delivered to existing February 2020 employee holders of Barstool Sports common stock, to the extent Penn’s stock price exceeds a specified value defined in the amended stock purchase agreement and Penn elects to settle using a combination of cash and equity. Consistent with the February 2020 stock purchase agreement: (i) the Barstool Sports common stock remains subject to our immediately exercisable call rights and the existing Barstool Sports stockholders put rights beginning in February 2023, (ii) the requirement to increase our ownership in Barstool Sports to approximately 50% by purchasing approximately $62.0 million worth of additional shares in Barstool Sports common stock remains consistent with the implied valuation at the time of the initial investment, which was $450.0 million, and (iii), we may settle the call and put options, at our sole election, using either cash or a combination of cash and equity.
On February 20, 2020, the Company issued 883 shares of Series D Preferred Stock, par value $0.01 (the “Series D Preferred Stock”) to certain individual stockholders affiliated with Barstool Sports. 1/1,000th of a share of Series D Preferred Stock is convertible into one share of Penn Common Stock. The Series D Preferred stockholders are entitled to participate equally and ratably in all dividends and distributions paid to holders of Penn Common Stock based on the number of shares of Penn Common Stock into which such Series D Preferred Stock could convert. Series D Preferred Stock is nonvoting stock. The Series D Preferred Stock issued to certain individual stockholders affiliated with Barstool Sports will be available for conversion into Penn Common Stock in tranches over four years as stipulated in the stock purchase agreement, with the first
20% tranche having been available for conversion into Penn Common Stock in the first quarter of 2021. As of December 31, 2021, 26 shares of the Series D Preferred Stock can be converted into Penn Common Stock.
During the first quarter of 2021, the Company acquired 0.3%, and subsequently acquired an additional 0.3% during the third quarter of 2021, of Barstool Sports common stock, par value $0.0001 per share, which represents a partial settlement of the 1% purchase on a delayed basis as noted above. The acquisition of the acquired Barstool Sports common stock was settled through a predetermined number of Series D Preferred Stock as contained within the stock purchase agreement (see Note 15, “Stockholders’ Equity,” and Note 16, “Stock-based Compensation,” for further information).
As a part of the stock purchase agreement, we entered into a commercial agreement that provides us with access to Barstool Sports’ customer list and exclusive advertising on the Barstool Sports platform over the term of the agreement. The initial term of the commercial agreement is ten years and, unless earlier terminated and subject to certain exceptions, will automatically renew for three additional ten-year terms (a total of 40 years assuming all renewals are exercised).
As of December 31, 2021 and 2020, we have an amortizing intangible asset pertaining to the customer list of $0.8 million and $1.6 million, respectively. As of December 31, 2021 and 2020, we have a prepaid expense pertaining to the advertising in the amount of $15.4 million and $16.5 million, respectively, of which $14.2 million and $15.4 million was classified as long-term, respectively. The long-term portion of the prepaid advertising expense is included in “Other assets” within our Consolidated Balance Sheets.
As of December 31, 2021 and 2020, our investment in Barstool Sports was $162.5 million and $147.5 million, respectively. We record our proportionate share of Barstool Sports’ net income or loss one quarter in arrears.
The Company determined that Barstool Sports qualified as a VIE as of December 31, 2021 and 2020. The Company did not consolidate the financial position of Barstool Sports as of and for the year ended December 31, 2021 and 2020, nor the results of operations for the years ended December 31, 2021 and 2020, as the Company determined that it did not qualify as the primary beneficiary of Barstool Sports either at the commencement date of its investment or for subsequent periods, primarily as a result of the Company not having the power to direct the activities of the VIE that most significantly affect Barstool Sports’ economic performance.
Kansas Joint Venture
As of December 31, 2021 and 2020, our investment in Kansas Entertainment was $83.8 million and $85.2 million, respectively. During the years ended December 31, 2021, 2020 and 2019, the Company received distributions from Kansas Entertainment totaling $31.8 million, $20.0 million and $29.0 million, respectively. The Company deems these distributions to be returns on its investment based on the source of those cash flows from the normal business operations of Kansas Entertainment. 
The Company has determined that Kansas Entertainment does not qualify as a VIE. Using the guidance for entities that are not VIEs, the Company determined that it did not have a controlling financial interest in the joint venture, primarily as it did not have the ability to direct the activities of the joint venture that most significantly impacted the joint venture’s economic performance without the input of NASCAR. Therefore, the Company did not consolidate the financial position of Kansas Entertainment as of December 31, 2021 and 2020, nor the results of operations for the years ended December 31, 2021 and 2020.
The following table provides summarized balance sheet and results of operations information related to Kansas Entertainment and our share of income from unconsolidated affiliates from our investment in Kansas Entertainment:
December 31,
(in millions)20212020
Current assets$19.1 $14.7 
Long-term assets$145.1 $151.4 
Current liabilities$11.0 $10.2 
For the year ended December 31,
(in millions)202120202019
Revenues$149.5 $104.2 $162.3 
Operating expenses88.7 75.5 101.3 
Operating income60.8 28.7 61.0 
Net income$60.8 $28.7 $61.0 
Net income attributable to Penn National$30.4 $14.4 $30.5 
Texas and New Jersey Joint Ventures 
The Company had a 50% interest in a joint venture with Sam Houston, which owns and operates the Sam Houston Race Park in Houston, Texas and the Valley Race Park in Harlingen, Texas, and holds a license for a racetrack in Austin, Texas. On August 1, 2021, we completed the acquisition of the remaining 50% ownership interest in Sam Houston. In conjunction with the acquisition we recorded a gain of $29.9 million on our equity method investment, which is included in “Other” within our Consolidated Statements of Operations. See Note 6, “Acquisitions and Dispositions” for further information.
During the first quarter of 2020, we recorded an other-than-temporary impairment on our investment in the joint venture of $4.6 million, which is included in “Impairment losses” within our Consolidated Statements of Operations. No further impairment loss was recorded for the years ended December 31, 2021 and 2020. Sam Houston Race Park hosts thoroughbred and quarter-horse racing and offers daily simulcast operations, and Valley Race Park features dog racing and simulcasting. In addition, through a separate arrangement, the Company has a 50% interest in a joint venture with Greenwood, which owns and operates Freehold Raceway, in Freehold, New Jersey. The property features a half-mile standardbred racetrack and a grandstand. 
As of December 31, 2021 and 2020, we determined that our New Jersey joint venture did not qualify as a VIE, nor did our former interest in our Texas joint venture for the year ended December 31, 2020. Using the guidance for entities that are not VIEs, in both cases, the Company determined that it did not have a controlling financial interest in either of the joint ventures as of and for the years ended December 31, 2021 and 2020, primarily as it did not have the ability to direct the activities of either of the joint ventures that most significantly impacted the joint ventures’ economic performance without the input of Sam Houston or Greenwood, respectively. Therefore, the Company did not consolidate either of its investment in the joint ventures as of and for the years ended December 31, 2021 and 2020.