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Fair Value Measurements | 12 Months Ended
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Dec. 31, 2019
Fair Value Disclosures [Abstract] |
Fair Value Measurements | Note 18—Fair Value Measurements ASC Topic 820, “Fair Value Measurements and Disclosures,” establishes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques (market approach, income approach and cost approach). The levels of the hierarchy are described below:
• | Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities.
• | Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; these include quoted prices for similar assets or liabilities in active markets, such as interest rates and yield curves that are observable at commonly quoted intervals.
• | Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions, as there is little, if any, related market activity.
The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of assets and liabilities and their placement within the fair value hierarchy. The following methods and assumptions are used to estimate the fair value of each class of financial instruments for which it is practicable to estimate. The fair value of the Company’s trade accounts receivable and payables approximates the carrying amounts. Cash and Cash Equivalents The fair value of the Company’s cash and cash equivalents approximates their carrying amount, due to the short maturity of the cash equivalents. Equity Securities As of December 31, 2019, we held $40.5 million in equity securities, including ordinary shares and warrants, which are reported as “Other assets” in our Consolidated Balance Sheet. As discussed in Note 2, “Significant Accounting Policies,” these equity securities are the result of Penn Interactive entering into multi-year agreements with third-party sports betting operators for online sports betting and related iGaming market access across our portfolio during the third quarter of 2019. The fair value of the equity securities was determined using Level 2 inputs, which use market approach valuation techniques. The primary inputs to those techniques include the quoted market price of the equity securities, foreign currency exchange rates, a discount for lack of marketability (“DLOM”) with respect to the ordinary shares, and a Black-Scholes option pricing model with respect to the warrants. The DLOM is based on the remaining term of the relevant lock-up periods and the volatility associated with the underlying equity securities. The Black-Scholes option pricing model utilizes the exercise price of the warrants, a risk-free rate, volatility associated with the underlying equity securities and the expected life of the warrants. Held-to-maturity Securities and Promissory Notes We have a management contract with Retama Development Corporation (“RDC”), a local government corporation of the City of Selma, Texas, to manage the day-to-day operations of Retama Park Racetrack, located outside of San Antonio, Texas. In addition, we own 1.0% of the equity of Retama Nominal Holder, LLC, which holds a nominal interest in the racing license used to operate Retama Park Racetrack, and a 75.5% interest in Pinnacle Retama Partners, LLC (“PRP”), which owns the contingent gaming rights that may arise if gaming under the existing racing license becomes legal in Texas in the future. As of December 31, 2019 and 2018, PRP held $15.1 million and $16.9 million, respectively, in promissory notes issued by RDC and $6.7 million and $7.5 million, respectively, in local government corporation bonds issued by RDC, at amortized cost. The promissory notes and the local government corporation bonds are collateralized by the assets of Retama Park Racetrack. As of December 31, 2019 and 2018, the promissory notes and the local government corporation bonds, which have long-term contractual maturities, are included in “Other assets” within our Consolidated Balance Sheets. During the year ended December 31, 2019, principally due to the lack of legislative progress and on-going negative operating results of Retama Park Racetrack, we recorded an other-than-temporary impairment on the promissory notes and the local government corporation bonds totaling $2.5 million, which is included in “Impairment losses” within our Consolidated Statements of Income. The contractual terms of these promissory notes include interest payments due at maturity; however, we have not recorded accrued interest on these promissory notes because uncertainty exists as to RDC’s ability to make interest payments. We have the positive intent and ability to hold the local government corporation bonds to maturity and until the amortized cost is recovered. The estimated fair values of such investments are principally based on appraised values of the land associated with Retama Park Racetrack, which are classified as Level 2 inputs. Long-term Debt The fair value of our Term Loan A Facility, Term Loan B-1 Facility and 5.625% Notes is estimated based on quoted prices in active markets and is classified as a Level 1 measurement. The fair value of our Revolving Credit Facility approximates its carrying amount as it is revolving, variable rate debt, which we also classify as a Level 1 measurement. Other long-term obligations as of December 31, 2019 and 2018 included the relocation fees for Dayton and Mahoning Valley, which are discussed in Note 10, “Long-term Debt,” and the repayment obligation of the hotel and event center located near Hollywood Casino Lawrenceburg. The fair values of these long-term obligations are estimated based on rates consistent with the Company’s credit rating for comparable terms and debt instruments and are classified as Level 2 measurements. Other Liabilities Other liabilities as of December 31, 2019 and 2018 principally consists of contingent purchase price related to Plainridge Park Casino and Absolute Games, LLC, which was acquired by Penn Interactive during the second quarter of 2018. The Plainridge Park Casino contingent purchase price is calculated based on earnings of the gaming operations over the first ten years of operations, which commenced in June 2015. As of December 31, 2019 and 2018, we were contractually obligated to make six and seven additional annual payments, respectively. The Absolute Games, LLC, contingent purchase price is calculated based on earnings over the first two years of operations after the acquisition. As of December 31, 2019, we were contractually obligated to make one additional payment, corresponding to the second year of operations after the acquisition, which will become payable in the third quarter of 2020. The fair value of these liabilities, which are both estimated based on an income approach using a DCF model and have been classified as Level 3 measurements, are included within our Consolidated Balance Sheets in “Accrued expenses and other current liabilities” or “Other long-term liabilities,” depending on the timing of the next payment. The carrying amounts and estimated fair values by input level of the Company’s financial instruments were as follows:
| December 31, 2019
(in millions) | Carrying Amount |  | Fair Value |  | Level 1 |  | Level 2 |  | Level 3
Financial assets: |  |  |  |  |  |  |  |  |
Cash and cash equivalents | $ | 437.4 |  |  | $ | 437.4 |  |  | $ | 437.4 |  |  | $ | — |  |  | $ | — |
Equity securities | $ | 40.5 |  |  | $ | 40.5 |  |  | $ | — |  |  | $ | 40.5 |  |  | $ | — |
Held-to-maturity securities | $ | 6.7 |  |  | $ | 6.7 |  |  | $ | — |  |  | $ | 6.7 |  |  | $ | — |
Promissory notes | $ | 15.1 |  |  | $ | 15.1 |  |  | $ | — |  |  | $ | 15.1 |  |  | $ | — |
Financial liabilities: |  |  |  |  |  |  |  |  |
Long-term debt |  |  |  |  |  |  |  |  |
Senior Secured Credit Facilities | $ | 1,896.5 |  |  | $ | 1,930.6 |  |  | $ | 1,930.6 |  |  | $ | — |  |  | $ | — |
5.625% Notes | $ | 399.4 |  |  | $ | 426.0 |  |  | $ | 426.0 |  |  | $ | — |  |  | $ | — |
Other long-term obligations | $ | 89.2 |  |  | $ | 89.7 |  |  | $ | — |  |  | $ | 89.7 |  |  | $ | — |
Other liabilities | $ | 20.3 |  |  | $ | 20.3 |  |  | $ | — |  |  | $ | 2.8 |  |  | $ | 17.5 |
| December 31, 2018
(in millions) | Carrying Amount |  | Fair Value |  | Level 1 |  | Level 2 |  | Level 3
Financial assets: |  |  |  |  |  |  |  |  |
Cash and cash equivalents | $ | 479.6 |  |  | $ | 479.6 |  |  | $ | 479.6 |  |  | $ | — |  |  | $ | — |
Held-to-maturity securities | $ | 7.5 |  |  | $ | 7.9 |  |  | $ | — |  |  | $ | 7.9 |  |  | $ | — |
Promissory notes | $ | 16.9 |  |  | $ | 17.4 |  |  | $ | — |  |  | $ | 17.4 |  |  | $ | — |
Financial liabilities: |  |  |  |  |  |  |  |  |
Long-term debt |  |  |  |  |  |  |  |  |
Senior Secured Credit Facilities | $ | 1,907.9 |  |  | $ | 1,886.3 |  |  | $ | 1,886.3 |  |  | $ | — |  |  | $ | — |
5.625% Notes | $ | 399.3 |  |  | $ | 360.0 |  |  | $ | 360.0 |  |  | $ | — |  |  | $ | — |
Other long-term obligations | $ | 104.6 |  |  | $ | 96.3 |  |  | $ | — |  |  | $ | 96.3 |  |  | $ | — |
Other liabilities | $ | 21.9 |  |  | $ | 21.8 |  |  | $ | — |  |  | $ | 2.8 |  |  | $ | 19.0 |
The following table summarizes the changes in fair value of our Level 3 liabilities measured on a recurring basis:
| Other Liabilities
(in millions) | Contingent Purchase Price
Balance as of January 1, 2017 | $ | 48.2 |
Additions | 0.9 |
Payments | (19.6 | )
Included in earnings (1) | (6.8 | )
Balance as of December 31, 2017 | 22.7 |
Payments | (4.2 | )
Included in earnings (1) | 0.5 |
Balance as of December 31, 2018 | 19.0 |
Payments | (8.5 | )
Included in earnings (1) | 7.0 |
Balance as of December 31, 2019 | $ | 17.5 |
(1) | The expense is included in “General and administrative” within our Consolidated Statements of Income.
The following table sets forth the assets measured at fair value on a non-recurring basis during the years ended December 31, 2019 and 2018:
(in millions) | Valuation Date |  | Valuation Technique |  | Level 1 |  | Level 2 |  | Level 3 |  | Total Balance |  | Total Reduction in Fair Value Recorded
Goodwill | 10/1/2019 |  | Discounted cash flow and market approach |  | $ | — |  |  | $ | — |  |  | $ | 161.1 |  |  | $ | 161.1 |  |  | $ | (88.0 | )
Gaming licenses | 10/1/2019 |  | Discounted cash flow |  | $ | — |  |  | $ | — |  |  | $ | 290.0 |  |  | $ | 290.0 |  |  | $ | (62.6 | )
Trademarks | 10/1/2019 |  | Discounted cash flow |  | $ | — |  |  | $ | — |  |  | $ | 87.5 |  |  | $ | 87.5 |  |  | $ | (20.0 | )
Property and equipment (1) | 12/31/2018 |  | Cost and market approach |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (34.3 | )
(1) | The fair value, which was concluded to be zero, of our property and equipment associated with Resorts Casino Tunica was determined using Level 2 inputs. See Note 7, “Property and Equipment” for more information.
The following table summarizes the significant unobservable inputs used in calculating fair value for our Level 3 liabilities on a recurring basis as of December 31, 2019:
| Valuation Technique |  | Unobservable Input |  | Discount Rate
Plainridge Park Casino contingent purchase price | Discounted cash flow |  | Discount rate |  | 5.63%
As discussed in Note 8, “Goodwill and Other Intangible Assets,” we recorded impairments on our gaming licenses and trademarks, which are indefinite-lived intangible assets, as a result of our 2019 annual assessment for impairment. The following table presents quantitative information about the significant unobservable inputs used in the fair value measurements of other indefinite-lived intangible assets as of the valuation date below:
(in millions) | Fair Value |  | Valuation Technique |  | Unobservable Input |  | Range or Amount
As of October 1, 2019 |  |  |  |  |  |  |
Gaming licenses | $ | 290.0 |  |  | Discounted cash flow |  | Discount rate |  | 10.5% - 11.25% |
|  |  |  |  | Long-term revenue growth rate |  | 2.0 | %
Trademarks | $ | 87.5 |  |  | Discounted cash flow |  | Discount rate |  | 10.5% - 11.25% |
|  |  |  |  | Long-term revenue growth rate |  | 2.0 | %
|  |  |  |  | Pretax royalty rate |  | 1.0% - 2.0% |

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=117815213&loc=d3e19207-110258 + Details
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