Income Taxes

3 Months Ended

Mar. 31, 2024

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Company calculates the provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate to its year-to-date pre-tax book income or loss. The tax effects of discrete items, including but not limited to, excess tax benefits associated with stock-based compensation, are reported in the interim period in which they occur. The effective tax rate (income taxes as a percentage of income or loss before income taxes) including discrete items was 14.8% for the three months ended March 31, 2024, as compared to 23.8% for the three months ended March 31, 2023. The effective tax rate for the three months ended March 31, 2024, was lower than the statutory federal tax rate of 21% primarily due to non-deductible executive compensation, tax credit utilization, and the decrease in our valuation allowance. We excluded certain foreign losses from our worldwide effective tax rate calculation due to a year-to-date ordinary loss for which no benefit may be recognized. Our effective tax rate can vary from period to period depending on, among other factors, the geographic and business mix of our earnings and changes to our valuation allowance. Certain of these and other factors, including our history and projections of pre-tax earnings, are considered in assessing our ability to realize our net deferred tax assets.

As of each reporting date, the Company considers all available positive and negative evidence that could affect its view of the future realization of deferred tax assets pursuant to ASC Topic 740, “Income Taxes.” As of March 31, 2024, we intend to continue maintaining a valuation allowance on our deferred tax assets not more than likely than not to be realized until there is sufficient positive evidence to support the reversal of all or some portion of these allowances. A reduction in the valuation allowance could result in a significant decrease to income tax expense in the period the release is recorded. Although the exact timing and valuation reversal amount are estimated, the actual determination is contingent upon the earnings level we achieve in 2024 as well as our projected income levels in future periods. During the three months ended March 31, 2024, the Company released a portion of its valuation allowance, in the amount of $5.1 million, on certain state deferred tax assets that are more likely than not to be realized.

During the three months ended March 31, 2023, the Company recorded a net deferred tax liability of $115.9 million with respect to the Barstool stock acquisition on February 17, 2023. These temporary differences were primarily related to existing carryover tax basis, acquired federal and state net operating losses, and other acquired intangible assets excluding goodwill. The net deferred tax liability was subsequently written off as part of the Barstool disposition discussed in Note 5, “Acquisitions and Dispositions.”

As of March 31, 2024 and December 31, 2023, the Company had prepaid income taxes of $7.0 million and $65.3 million, respectively, which were included in “Prepaid expenses” within our unaudited Consolidated Balance Sheets.