Acquisitions

3 Months Ended

Mar. 31, 2023

Business Combination and Asset Acquisition [Abstract]

Barstool

On February 17, 2023, we acquired the remaining 64% of the outstanding shares of Barstool common stock not already owned by us for a consideration of approximately $405.5 million, which is inclusive of cash and common stock issuance, repayment of Barstool indebtedness of $23.8 million, transaction expenses and other purchase price adjustments in accordance with GAAP (the “Barstool Acquisition”). Prior to the acquisition, we held a 36% ownership interest, which was accounted for under the equity method. At the closing of the Barstool Acquisition, we obtained 100% of the Barstool common stock of which the fair value of Barstool was determined to be $660.0 million based on market participant assumptions discussed below. Upon the completion of the Barstool Acquisition, Barstool became an indirect wholly owned subsidiary of PENN. The acquisition provides us with a greater ability to execute our organic cross-sell strategy through Barstool’s resources, audience, and strong brand recognition. We issued 2,442,809 shares of our common stock to certain former stockholders of Barstool for the Barstool Acquisition (see Note 13, “Stockholders’ Equity and Stock-Based Compensation” for further information) and utilized $315.3 million of cash to complete the Barstool Acquisition, inclusive of transaction expenses and repayment of Barstool indebtedness.

The Company held 36% of the outstanding shares of Barstool common stock prior to the Barstool Acquisition and, as such, the acquisition date estimated fair value of this previously held investment was a component of the purchase consideration. Based on the acquisition date fair value of Barstool of $660.0 million and the carrying amount of this investment of $171.1 million, the Company recorded a gain of $66.5 million related to remeasurement of the equity investment immediately prior to the acquisition date, which is included in “Gain on Barstool Acquisition, net” within our unaudited Consolidated Statements of Operations. The Company also recorded a gain of $16.9 million related to the acquisition of the remaining 64% of Barstool common stock, which is included in “Gain on Barstool Acquisition, net” within our unaudited Consolidated Statements of Operations.

The following table reflects the preliminary allocation of the purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed, with the excess recorded as goodwill.


(in millions)	Estimated fair value
Cash and cash equivalents	$	10.1
Accounts receivable	44.8
Inventory	25.2
Other current assets	5.0
Lease right-of-use assets	13.5
Property and equipment	3.8
Goodwill	231.9
Other intangible assets
Barstool tradename	420.0
Advertising relationships	32.0
Other tradenames and brands	29.0
Customer relationships	11.0
Other long-term assets	18.7
Total assets	$	845.0

Accounts payable, accrued expenses and other current liabilities	$	38.7
Deferred income taxes	115.9
Other long-term liabilities	30.4
Total liabilities	185.0
Net assets acquired	$	660.0

The Company used the income, or cost approach for the valuation, as appropriate, and used valuation inputs in these models and analyses that were based on market participant assumptions. Market participants are considered to be buyers and sellers unrelated to the Company in the principal or most advantageous market for the asset or liability.

Acquired identifiable intangible assets consist of the Barstool tradename, advertising relationships, other tradenames and brands, and customer relationships. The Barstool tradename is an indefinite-lived intangible asset. All other intangible assets are definite-lived with assigned useful lives primarily ranging from 2-5 years.

Goodwill, none of which is deductible for tax purposes, is approximately 35.1% of the net assets acquired and has been allocated to the Company’s Interactive segment. Goodwill is primarily attributable to synergies and cross selling opportunities to Barstool’s existing customer base.

The following valuation approaches were utilized to determine the fair value of each intangible asset:


Intangible Asset						Valuation Approach
Barstool tradename						Relief-from-royalty (variation of income approach)
Advertising relationships						With-and-without (variation of income approach)
Other tradenames and brands						Relief-from-royalty (variation of income approach)
Customer relationships						Replacement cost

For the period beginning February 17, 2023 through March 31, 2023, Barstool’s revenue and net loss included in the unaudited Consolidated Statements of Operations were $28.2 million and $3.3 million, respectively.

Unaudited Pro Forma Financial Information

The following table includes unaudited pro forma consolidated financial information assuming our acquisition of Barstool had occurred as of January 1, 2022. The pro forma amounts include the historical operating results of PENN and Barstool prior to our acquisition. The pro forma financial information does not necessarily represent the results that may occur in the future. For the three months ended March 31, 2023 and 2022, pro forma adjustments directly attributable to the acquisition include acquisition and transaction related costs of $1.3 million incurred by both PENN and Barstool and a gain on the Barstool Acquisition of $83.4 million. Additionally, for the three months ended March 31, 2023 and 2022, pro forma adjustments included a gain of $3.1 million and $4.1 million, respectively, related to remeasurement and settlement of Barstool put/call options.


	For the three months ended March 31,
(in millions)	2023		2022
Revenues	$	1,693.0	$	1,604.8
Net income	$	439.3	$	106.6