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Acquisitions and Dispositions | 6 Months Ended
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Jun. 30, 2023
Business Combination and Asset Acquisition [Abstract] |
Acquisitions and Dispositions | Acquisitions and Dispositions 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, and determined the fair value of Barstool to be $660.0 million based on market participant assumptions, as discussed below. Upon the completion of the Barstool Acquisition, Barstool became an indirect wholly owned subsidiary of PENN. 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 at the February 17, 2023 acquisition date.
(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 consisted of the Barstool tradename, advertising relationships, other tradenames and brands, and customer relationships. The Barstool tradename was determined to be an indefinite-lived intangible asset. All other intangible assets were determined to be definite-lived with assigned useful lives primarily ranging from 2-5 years. Goodwill, none of which was deductible for tax purposes, is approximately 35.1% of the net assets acquired and was allocated to the Company’s Interactive segment. Goodwill was 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 at the February 17, 2023 acquisition date:
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
Barstool’s revenue and net loss are included in our results for the period beginning February 17, 2023 through June 30, 2023. Barstool’s revenue and net loss for the three months ended June 30, 2023, included in the unaudited Consolidated Statements of Operations, were $52.7 million and $12.8 million, respectively. Barstool’s revenue and net loss for the six months ended June 30, 2023, included in the unaudited Consolidated Statements of Operations, were $80.9 million and $16.1 million, respectively. On August 8, 2023, PENN entered into a Sportsbook Agreement (the “Sportsbook Agreement”) with ESPN, which provides for a long-term strategic relationship between PENN and ESPN relating to online sports betting in the United States. Pursuant to the Sportsbook Agreement, PENN will rebrand its existing Barstool Sportsbook across all online platforms in the United States as ESPN Bet (the “Sportsbook”) and will oversee daily operations of the Sportsbook. See Note 17, “Subsequent Events” for more information related to the Sportsbook Agreement. In connection with PENN’s decision to rebrand our online sports betting business from Barstool Sportsbook to ESPN Bet pursuant to the Sportsbook Agreement as discussed above, PENN entered into a stock purchase agreement with David Portnoy (the “Barstool SPA”) on August 8, 2023. Pursuant to the Barstool SPA, PENN sold 100% of the outstanding shares of Barstool to David Portnoy in exchange for a nominal cash consideration ($1.00 dollar) and certain non-compete and other restrictive covenants. Pursuant to the Barstool SPA, PENN has the right to receive 50% of the gross proceeds received by David Portnoy in any subsequent sale or other monetization event of Barstool. On August 8, 2023, the Company’s Board of Directors approved the sale to David Portnoy and we classified the assets and liabilities to be disposed in connection with the Barstool SPA as held-for-sale which are measured at the lower of (i) the carrying value when we classified the disposal group as held-for-sale and (ii) the fair value of the disposal group, less costs to sell. The classification of the Barstool business as held-for-sale was considered an event or change in circumstance which requires an assessment of the goodwill and intangible assets of the disposal group for impairment each reporting period until disposal. We are currently quantifying the impact of the Barstool SPA to our unaudited Consolidated Financial Statements, however we expect the carrying value of the net assets held-for-sale to be greater than their fair value, less costs to sell, which is expected to result in a material non-cash loss and the corresponding reversal of the net deferred tax liability of approximately $115.9 million that will have a significant impact to income taxes. See Note 11, “Income Taxes.” The pre-tax non-cash loss on disposal is estimated to be between $800.0 million and $850.0 million (inclusive of $705.0 million to $720.0 million in goodwill and intangible assets write offs) to be incurred in the third quarter of 2023. These material adjustments will be reflected in our September 30, 2023 unaudited Consolidated Statements of Operations and unaudited Consolidated Balance Sheets. Pursuant to the Barstool SPA, PENN will indemnify Barstool and its subsidiaries and David Portnoy for certain tax matters. We are unable to assess the potential financial impact to the Company of this indemnification. As a result, we cannot estimate the potential amount of future payments under this indemnity. To the extent that a claim is made under this indemnity and/or becomes probable and reasonably estimable, liabilities associated with this indemnity will be recorded and included in the Company’s commitments and contingencies disclosure in Note 12 “Commitments and Contingencies.” 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 June 30, 2023 and 2022, pro forma adjustments directly attributable to the acquisition include acquisition and transaction related costs of $1.0 million, as compared to $2.3 million for the six months ended June 30, 2023 and 2022, incurred by both PENN and Barstool. Pro forma adjustments also included a $83.4 million gain on the Barstool Acquisition for the six months ended June 30, 2023 and 2022. Additionally, for the six months ended June 30, 2023 pro forma adjustments included a gain of $3.1 million, as compared to a gain of $1.5 million and $5.6 million for the three and six months ended June 30, 2022, respectively, related to remeasurement and settlement of Barstool put/call options.
| For the three months ended June 30, |  | For the six months ended June 30,
(in millions) | 2023 |  | 2022 |  | 2023 |  | 2022
Revenues | $ | 1,674.8 |  |  | $ | 1,680.7 |  |  | $ | 3,367.8 |  |  | $ | 3,285.5 |
Net income | $ | 79.2 |  |  | $ | 32.3 |  |  | $ | 518.5 |  |  | $ | 139.6 |

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 805 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//805/tableOfContent Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 205 -SubTopic 20 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//205-20/tableOfContent + Details
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