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Income Taxes | 12 Months Ended
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Dec. 31, 2023
Income Tax Disclosure [Abstract] |
Income Taxes | Note 14—Income Taxes The following table summarizes the tax effects of temporary differences between the Consolidated Financial Statements carrying amount of assets and liabilities and their respective tax basis, which are recorded at the prevailing enacted tax rate that will be in effect when these differences are settled or realized. These temporary differences result in taxable or deductible amounts in future years. The Company assessed all available positive and negative evidence to estimate whether sufficient future taxable income will be generated to realize our existing net deferred tax assets. The components of the Company’s deferred tax assets and liabilities were as follows:
| December 31,
(in millions) | 2023 |  | 2022
Deferred tax assets: |  |  |
Stock-based compensation expense | $ | 7.6 |  |  | $ | 8.1 |
Accrued expenses | 128.6 |  |  | 86.1 |
Financing and operating leasing obligations | 2,292.8 |  |  | 2,619.3 |
Unrecognized tax benefits | 9.9 |  |  | 9.8 |
Investments in and advances to unconsolidated affiliates | 15.2 |  |  | 13.0 |
Discount on convertible notes | 0.3 |  |  | 0.4 |
Net operating losses and tax credit carryforwards | 138.4 |  |  | 108.2 |
Capital loss carryforwards | 126.1 |  |  | 4.5 |
Interest limitation carryforwards | 12.1 |  |  | — |
Gross deferred tax assets | 2,731.0 |  |  | 2,849.4 |
Less: Valuation allowance | (210.5) |  |  | (31.2) |
Net deferred tax assets | 2,520.5 |  |  | 2,818.2 |
Deferred tax liabilities: |  |  |
Property and equipment, not subject to the Master Leases | (123.9) |  |  | (99.1) |
Property and equipment, subject to the Master Leases | (635.0) |  |  | (925.0) |
Intangible assets | (259.1) |  |  | (263.7) |
Lease right-of-use assets | (1,620.1) |  |  | (1,564.3) |
Net deferred tax liabilities | (2,638.1) |  |  | (2,852.1) |
Long-term deferred tax liabilities, net | $ | (117.6) |  |  | $ | (33.9) |
The realizability of the net deferred tax assets is evaluated quarterly by assessing the need for a valuation allowance and by adjusting the amount of the allowance, if necessary. Pursuant to ASC 740, the Company considers all available (both quantitative and qualitative) positive and negative evidence including, but not limited to, statutory carryback periods, projected future taxable income, and feasible tax planning strategies that could be implemented as a source of positive evidence to realize the net deferred tax assets. In accordance with ASC 740, the most objectively verifiable form of evidence is to evaluate an entity’s three-year history of pre-tax book income or loss by jurisdiction. ASC 740 suggests that additional scrutiny should be given to deferred taxes of an entity with cumulative pre-tax book losses during the three most recent years and is considered significant negative evidence that is objectively verifiable and therefore, an entity would need sufficient quality and quantity to support a conclusion to overcome. During 2023, there were no material changes to our core business operations that altered our prior year conclusion to release the valuation allowance against the federal, foreign, and state net deferred tax assets for the portion that is more-likely-than-not to be realized. The Company continued to generate significant positive evidence in the U.S. with three-year cumulative domestic pre-tax book income of $518.7 million, despite the significant pre-tax book charge related to the sale of Barstool Sports and the $130.6 million impairment charges recorded during the year. The Company maintained a valuation allowance of $210.5 million, as of December 31, 2023, against certain net deferred tax assets primarily related to (i) a capital loss realized on the sale of Barstool Sports of $126.1 million, (ii) foreign jurisdictions that were in a three-year cumulative pre-tax loss position as of the balance sheet date of $47.1 million, (iii) certain state net operating loss (“NOL”) carryforwards of $30.6 million, and (iv) other state deferred tax assets of $6.7 million. The Company intends to continue to maintain a valuation allowance on its net deferred tax assets until there is sufficient objectively verifiable positive evidence to support the realization of all or some portion of these deferred tax assets. In the event the Company determines that the deferred income tax assets would be realized in the future more than their net recorded amount, an adjustment to the valuation allowance would be recorded, which would reduce the provision for income taxes. As of December 31, 2023, the Company had the following pre-tax carryforwards: (i) pre-tax U.S. federal NOL carryforwards of $100.3 million, $88.0 million will expire at various dates through 2037, and the residual being carried forward indefinitely; (ii) pre-tax foreign NOL carryforwards of $189.4 million that will expire through 2042; (iii) pre-tax capital losses of $500.0 million, the majority of which was generated from the Barstool divestiture and will expire in 2028; and (iv) pre-tax interest expense limitation carryforwards of $48.5 million that can be carried forward indefinitely. All acquired tax attributes are subject to limitations under the Internal Revenue Code and underlying Treasury Regulations. As of December 31, 2023, the Company also had $1.2 billion of pre-tax state NOL carryforwards, primarily generated in the Commonwealth of Pennsylvania, Colorado, Illinois, Iowa, Louisiana, Maryland, Michigan, Missouri, New Mexico, and localities within Ohio and Michigan. The tax benefit associated with these NOL carryforwards was $65.4 million and a partial valuation allowance as mentioned above has been recorded due to negative evidence of certain statutorily limitations and level of earnings projections in the respective jurisdictions. The majority of the state NOL carryforwards will expire at various dates from December 31, 2023 through December 31, 2042 with the remaining being carried forward indefinitely. In general, the Company has not recognized any U.S. tax expense on undistributed foreign earnings, as we intend to reinvest and expand into new markets outside the U.S. for the foreseeable future. If our intent changes or if these earnings are needed for our U.S. operations, we would be required to accrue and pay U.S. taxes on a portion or all of these undistributed earnings. It is not practicable to estimate the amount of deferred tax liability related to investments in these foreign subsidiaries. The undistributed foreign earnings were immaterial at December 31, 2023. The domestic and foreign components of income (loss) before income taxes for the years ended December 31, 2023, 2022, and 2021 were as follows:
| For the year ended December 31,
(in millions) | 2023 |  | 2022 |  | 2021
Domestic | $ | (382.6) |  |  | $ | 295.3 |  |  | $ | 606.0 |
Foreign | (117.0) |  |  | (120.0) |  |  | (66.9) |
Total | $ | (499.6) |  |  | $ | 175.3 |  |  | $ | 539.1 |
The components of income tax benefit (expense) for the years ended December 31, 2023, 2022, and 2021 were as follows:
| For the year ended December 31,
(in millions) | 2023 |  | 2022 |  | 2021
Current tax expense |  |  |  |  |
Federal | $ | (20.8) |  |  | $ | (89.0) |  |  | $ | (100.0) |
State | (4.9) |  |  | (15.3) |  |  | (23.1) |
Total current | (25.7) |  |  | (104.3) |  |  | (123.1) |
Deferred tax benefit (expense) |  |  |  |  |
Federal | 13.2 |  |  | 33.7 |  |  | (11.9) |
State | 22.8 |  |  | 78.5 |  |  | 13.3 |
Foreign | (2.1) |  |  | 38.5 |  |  | 3.1 |
Total deferred | 33.9 |  |  | 150.7 |  |  | 4.5 |
Total income tax benefit (expense) | $ | 8.2 |  |  | $ | 46.4 |  |  | $ | (118.6) |
The following table reconciles the statutory federal income tax rate to the actual effective income tax rate, and related amounts of income tax benefit (expense), for the years ended December 31, 2023, 2022, and 2021:
| For the year ended December 31,
| 2023 |  | 2022 |  | 2021
(in millions, except tax rates) |  |  |  |  |
Amount of pre-tax income |  |  |  |  |
Federal statutory rate | $ | 105.0 |  |  | $ | (36.8) |  |  | $ | (113.2) |
State and local income taxes, net of federal benefits | 16.1 |  |  | (5.2) |  |  | (7.7) |
Tax law change | — |  |  | (10.8) |  |  | — |
Nondeductible expenses | (48.5) |  |  | (7.8) |  |  | (13.3) |
Compensation | (7.2) |  |  | (6.2) |  |  | 6.5 |
Foreign | 1.9 |  |  | 0.9 |  |  | 0.9 |
Valuation allowance | (56.4) |  |  | 113.4 |  |  | (5.9) |
Tax credits | 4.9 |  |  | 4.6 |  |  | 5.8 |
Equity investment write-off | (2.6) |  |  | — |  |  | 11.3 |
Other | (5.0) |  |  | (5.7) |  |  | (3.0) |
Income tax benefit (expense) | $ | 8.2 |  |  | $ | 46.4 |  |  | $ | (118.6) |
Effective Tax Rate | 1.7 | % |  | (26.5) | % |  | 22.0 | %
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
(in millions) | Unrecognized tax benefits
Unrecognized tax benefits as of January 1, 2021 | $ | 36.3 |
Additions based on prior year positions | 3.8 |
Decreases due to settlements and/or reduction in reserves | (0.1) |
Unrecognized tax benefits as of December 31, 2021 | 40.0 |
Additions based on prior year positions | 2.9 |
Decreases due to settlements and/or reduction in reserves | (0.2) |
Unrecognized tax benefits as of December 31, 2022 | 42.7 |
Additions based on prior year positions | 2.2 |
Decreases due to settlements and/or reduction in reserves | (1.3) |
Unrecognized tax benefits as of December 31, 2023 | $ | 43.6 |
During the year ended December 31, 2023, we did not record any new tax reserves, and accrued interest or penalties related to current year uncertain tax positions. Regarding prior year tax positions, we recorded $3.8 million of tax reserves and accrued interest and reversed $3.1 million of previously recorded tax reserves and accrued interest for uncertain tax positions. As of December 31, 2023 and 2022, unrecognized tax benefits, inclusive of accruals for income tax related penalties and interest, of $47.2 million and $46.0 million, respectively, were included in “Other long-term liabilities” within the Company’s Consolidated Balance Sheets. Overall, the Company recorded a net tax expense of $1.1 million in connection with its uncertain tax positions for the year ended December 31, 2023. The liability for unrecognized tax benefits as of December 31, 2023 and 2022 included $37.3 million and $36.3 million, respectively, of tax positions that, if reversed, would affect the effective tax rate. During the year ended December 31, 2023, we recognized income of $0.2 million to interest and penalties, net of deferred taxes, as compared to an expense of $0.6 million and $0.7 million to interest and penalties, net of deferred taxes for the years ended December 31, 2022 and 2021, respectively. In addition, the Company had an immaterial amount of reductions in previously accrued interest and penalties for the year ended December 31, 2023 and no reductions for the year ended December 31, 2022. We classify any income tax related penalties and interest accrued related to unrecognized tax benefits in “Income tax benefit (expense)” within the Consolidated Statements of Operations. The Company is currently in various stages of the examination process in connection with its open audits. Generally, it is difficult to determine when these examinations will be closed, but the Company reasonably expects that its ASC 740 liabilities will not significantly change over the next twelve months. As of December 31, 2023, the Company has open tax years 2019 through 2021 that could be subject to examination for U.S. federal income taxes. In addition, we are subject to state and local income tax examinations for various tax years in the taxing jurisdictions in which we operate. Such audits could result in increased tax liabilities, interest and penalties. While the Company believes its tax positions are appropriate, we cannot assure the outcome will remain consistent with our expectation. The Company believes we have adequately reserved for potential audit exposures of uncertain tax positions. In the event the final outcome of these matters is different than the amounts recorded, such differences will impact our income tax provision in the period in which the determination is made. As of December 31, 2023 and 2022, prepaid income taxes of $65.3 million and $15.2 million, respectively, were included in “Prepaid expenses” within the Company’s Consolidated Balance Sheets. Tax Legislation Inflation Reduction Act. On August 16, 2022, The Inflation Reduction Act of 2022 (“IRA”) was signed into law. The IRA contains several provisions including a 15% corporate alternative minimum tax (“CAMT”) for certain large corporations that have at least an average of $1.0 billion adjusted financial statement income over a three-year period effective for tax years beginning after December 31, 2022. A CAMT credit would also be allowed to offset regular federal tax in future years. The IRA also includes a 1% excise tax on corporate stock repurchases after January 1, 2023. Based on our analysis of the IRA and subsequent guidance, management does not expect the CAMT to have a material effect on our future cash flows and results of operations. In 2023, the 1% excise tax on corporate stock repurchases was an immaterial amount.

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