Bally's Corp - Quarter Report: 2023 March (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the quarterly period ended March 31, 2023
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
Commission file number: 001-38850
Bally’s Corporation
(Exact name of registrant as specified in its charter)
| Delaware | 20-0904604 | |||||||||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||
100 Westminster Street | Providence, | RI | 02903 | |||||||||||
| (Address of principal executive offices) | (Zip Code) | |||||||||||||
(401) 475-8474
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||
| Common stock, $0.01 par value | BALY | New York Stock Exchange | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer | ☒ | Accelerated filer | ☐ | |||||||||||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||||||||||
Emerging growth company | ☐ | |||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of April 28, 2023, the number of shares of the registrant’s $0.01 par value common stock outstanding was 46,147,103.
For additional information regarding the Company’s shares outstanding, refer to Note 17 “Stockholders’ Equity.”
BALLY’S CORPORATION
TABLE OF CONTENTS
| Page No. | ||||||||
2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
BALLY’S CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(In thousands, except share data)
| March 31, 2023 | December 31, 2022 | ||||||||||
| Assets | |||||||||||
| Cash and cash equivalents | $ | 344,266 | $ | 212,515 | |||||||
| Restricted cash | 52,596 | 52,669 | |||||||||
| Accounts receivable, net | 67,196 | 71,673 | |||||||||
| Inventory | 14,288 | 14,191 | |||||||||
| Tax receivable | 16,836 | 53,771 | |||||||||
| Prepaid expenses and other current assets | 93,223 | 100,717 | |||||||||
| Assets held for sale | 15,801 | 17,177 | |||||||||
| Total current assets | 604,206 | 522,713 | |||||||||
| Property and equipment, net | 1,111,714 | 1,202,102 | |||||||||
| Right of use assets, net | 1,192,633 | 808,926 | |||||||||
| Goodwill | 1,795,038 | 1,746,202 | |||||||||
| Intangible assets, net | 1,967,589 | 1,961,938 | |||||||||
| Deferred tax asset | 18,198 | 25,544 | |||||||||
| Other assets | 71,024 | 32,688 | |||||||||
| Total assets | $ | 6,760,402 | $ | 6,300,113 | |||||||
| Liabilities and Stockholders’ Equity | |||||||||||
| Current portion of long-term debt | $ | 19,450 | $ | 19,450 | |||||||
| Current portion of lease liabilities | 47,243 | 32,929 | |||||||||
| Accounts payable | 58,563 | 70,071 | |||||||||
| Accrued income taxes | 76,208 | 56,012 | |||||||||
| Accrued liabilities | 454,726 | 573,931 | |||||||||
| Liabilities related to assets held for sale | 1,773 | 3,409 | |||||||||
| Total current liabilities | 657,963 | 755,802 | |||||||||
| Long-term debt, net | 3,315,064 | 3,469,105 | |||||||||
| Long-term portion of financing obligation | 200,000 | 200,000 | |||||||||
| Long-term portion of lease liabilities | 1,177,704 | 803,212 | |||||||||
| Deferred tax liability | 204,841 | 138,017 | |||||||||
| Naming rights liabilities | 107,756 | 109,807 | |||||||||
| Other long-term liabilities | 75,462 | 17,923 | |||||||||
| Total liabilities | 5,738,790 | 5,493,866 | |||||||||
Commitments and contingencies (Note 18) | |||||||||||
| Stockholders’ equity: | |||||||||||
Common stock ($0.01 par value, 200,000,000 shares authorized; 45,767,764 and 46,670,057 shares issued; 45,767,764 and 46,670,057 shares outstanding) | 457 | 466 | |||||||||
Preferred stock ($0.01 par value; 10,000,000 shares authorized; no shares outstanding) | — | — | |||||||||
| Additional paid-in-capital | 1,605,087 | 1,636,366 | |||||||||
| Treasury stock, at cost | — | — | |||||||||
| Accumulated deficit | (340,793) | (535,373) | |||||||||
| Accumulated other comprehensive loss | (243,567) | (295,640) | |||||||||
| Total Bally’s Corporation stockholders’ equity | 1,021,184 | 805,819 | |||||||||
| Non-controlling interest | 428 | 428 | |||||||||
| Total stockholders’ equity | 1,021,612 | 806,247 | |||||||||
| Total liabilities and stockholders’ equity | $ | 6,760,402 | $ | 6,300,113 | |||||||
See accompanying notes to condensed consolidated financial statements.
3
BALLY’S CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(In thousands, except per share data)
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Revenue: | |||||||||||
| Gaming | $ | 486,895 | $ | 463,702 | |||||||
| Non-gaming | 111,825 | 84,569 | |||||||||
| Total revenue | 598,720 | 548,271 | |||||||||
| Operating (income) costs and expenses: | |||||||||||
| Gaming | 217,661 | 219,212 | |||||||||
| Non-gaming | 52,344 | 40,637 | |||||||||
| General and administrative | 251,608 | 187,021 | |||||||||
| Gain from sale-leaseback, net | (374,186) | — | |||||||||
| Depreciation and amortization | 74,561 | 78,881 | |||||||||
| Total operating costs and expenses | 221,988 | 525,751 | |||||||||
| Income from operations | 376,732 | 22,520 | |||||||||
| Other income (expense): | |||||||||||
| Interest expense, net of amounts capitalized | (63,264) | (45,685) | |||||||||
| Other non-operating income, net | 2,610 | 19,479 | |||||||||
| Total other income (expense), net | (60,654) | (26,206) | |||||||||
| Income (loss) before income taxes | 316,078 | (3,686) | |||||||||
| Provision (benefit) for income taxes | 137,742 | (5,575) | |||||||||
| Net income | $ | 178,336 | $ | 1,889 | |||||||
| Basic earnings per share | $ | 3.28 | $ | 0.03 | |||||||
| Weighted average common shares outstanding - basic | 54,420 | 60,017 | |||||||||
| Diluted earnings per share | $ | 3.24 | $ | 0.03 | |||||||
| Weighted average common shares outstanding - diluted | 55,089 | 60,120 | |||||||||
See accompanying notes to condensed consolidated financial statements.
4
BALLY’S CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)
(In thousands)
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Net income | $ | 178,336 | $ | 1,889 | |||||||
| Other comprehensive income (loss): | |||||||||||
| Foreign currency translation adjustment, net of tax | 52,073 | (71,542) | |||||||||
| Other comprehensive income (loss) | 52,073 | (71,542) | |||||||||
| Total comprehensive income (loss) | $ | 230,409 | $ | (69,653) | |||||||
See accompanying notes to condensed consolidated financial statements.
5
BALLY’S CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)
(In thousands, except share data)
| Common Stock | Additional Paid-in Capital | Treasury Stock | Retained (Deficit) Earnings | Accumulated Other Comprehensive Loss | Non-controlling Interest | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||
| Shares Outstanding | Amount | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2022 | 46,670,057 | $ | 466 | $ | 1,636,366 | $ | — | $ | (535,373) | $ | (295,640) | $ | 428 | $ | 806,247 | ||||||||||||||||||||||||||||||||
| Release of restricted stock and other stock awards | 124,050 | 1 | (1,332) | — | — | — | — | (1,331) | |||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | 6,040 | — | — | — | — | 6,040 | |||||||||||||||||||||||||||||||||||||||
| Retirement of treasury shares | — | (10) | (35,987) | 19,753 | 16,244 | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Share repurchases | (1,026,343) | — | — | (19,753) | — | — | — | (19,753) | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | 52,073 | — | 52,073 | |||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | 178,336 | — | — | 178,336 | |||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2023 | 45,767,764 | $ | 457 | $ | 1,605,087 | $ | — | $ | (340,793) | $ | (243,567) | $ | 428 | $ | 1,021,612 | ||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Treasury Stock | Retained (Deficit) Earnings | Accumulated Other Comprehensive Loss | Non-controlling Interest | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||
| Shares Outstanding | Amount | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2021 | 52,254,477 | $ | 530 | $ | 1,849,068 | $ | (29,166) | $ | (181,581) | $ | (26,809) | $ | 3,760 | $ | 1,615,802 | ||||||||||||||||||||||||||||||||
| Release of restricted stock and other stock awards | 122,849 | 1 | (2,534) | — | — | — | — | (2,533) | |||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | 5,095 | — | — | — | — | 5,095 | |||||||||||||||||||||||||||||||||||||||
| Stock options exercised | 20,000 | — | 86 | — | — | — | — | 86 | |||||||||||||||||||||||||||||||||||||||
| Penny warrants exercised | 383,934 | 4 | — | — | — | — | — | 4 | |||||||||||||||||||||||||||||||||||||||
| Retirement of treasury shares | — | (11) | (35,200) | 42,454 | (7,243) | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Share repurchases | (350,616) | — | — | (13,288) | — | — | — | (13,288) | |||||||||||||||||||||||||||||||||||||||
| Issuance of MKF penny warrants | — | — | 12,010 | — | — | — | — | 12,010 | |||||||||||||||||||||||||||||||||||||||
| Settlement of consideration to SportCaller | 107,832 | 1 | 3,699 | — | — | — | — | 3,700 | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | (71,542) | — | (71,542) | |||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | 1,889 | — | — | 1,889 | |||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2022 | 52,538,476 | $ | 525 | $ | 1,832,224 | $ | — | $ | (186,935) | $ | (98,351) | $ | 3,760 | $ | 1,551,223 | ||||||||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
6
BALLY’S CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
| Three Months Ended March 31, | |||||||||||
| (in thousands) | 2023 | 2022 | |||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | 178,336 | $ | 1,889 | |||||||
| Adjustments to reconcile net income to net cash (used in) provided by operating activities: | |||||||||||
| Depreciation and amortization | 74,561 | 78,881 | |||||||||
| Non-cash lease expense | 13,972 | 7,221 | |||||||||
| Share-based compensation | 6,040 | 5,095 | |||||||||
| Amortization of debt discount and debt issuance costs | 2,766 | 2,417 | |||||||||
| Gain on sale-leaseback | (374,186) | — | |||||||||
| Gain on extinguishment of debt | (4,044) | — | |||||||||
| Deferred income taxes | 58,818 | (18,594) | |||||||||
| Loss on assets and liabilities measured at fair value | (310) | 139 | |||||||||
| Change in value of naming rights liabilities | 267 | (13,379) | |||||||||
| Change in contingent consideration payable | 1,206 | (5,859) | |||||||||
| Adjustment on bargain purchase | — | 107 | |||||||||
| Foreign exchange loss (gain) | 4,308 | (175) | |||||||||
| Other operating activities | (693) | 1,925 | |||||||||
| Changes in current operating assets and liabilities | 22,847 | (38,857) | |||||||||
| Net cash (used in) provided by operating activities | (16,112) | 20,810 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Cash paid for acquisitions, net of cash acquired | (38,243) | — | |||||||||
| Proceeds from sale-leaseback | 411,000 | — | |||||||||
| Capital expenditures | (43,678) | (54,516) | |||||||||
| Cash paid for internally developed software | (7,143) | (14,956) | |||||||||
| Acquisition of gaming licenses | (1,900) | (860) | |||||||||
| Other intangible asset acquisitions | — | (1,500) | |||||||||
| Other investing activities | (400) | (123) | |||||||||
| Net cash provided by (used in) investing activities | 319,636 | (71,955) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Issuance of long-term debt | — | 105,000 | |||||||||
| Repayments of long-term debt | (152,483) | (84,863) | |||||||||
| Share repurchases | (19,753) | (13,288) | |||||||||
| Other financing activities | (1,332) | (2,444) | |||||||||
| Net cash (used in) provided by financing activities | (173,568) | 4,405 | |||||||||
| Effect of foreign currency on cash and cash equivalents | 2,819 | (4,430) | |||||||||
| Change in cash and cash equivalents held for sale | (1,097) | — | |||||||||
| Net change in cash and cash equivalents and restricted cash | 131,678 | (51,170) | |||||||||
| Cash and cash equivalents and restricted cash, beginning of period | 265,184 | 274,840 | |||||||||
| Cash and cash equivalents and restricted cash, end of period | $ | 396,862 | $ | 223,670 | |||||||
| Supplemental disclosure of cash flow information: | |||||||||||
| Cash paid for interest, net of amounts capitalized | $ | 82,724 | $ | 67,015 | |||||||
| Cash received from income tax refunds, net of cash paid | 6,113 | 3,427 | |||||||||
| Non-cash investing and financing activities: | |||||||||||
| Unpaid property and equipment | $ | 32,095 | $ | 33,743 | |||||||
| Bally’s Chicago - land development liability | 142,567 | — | |||||||||
| Investment in GLP Capital, L.P. | 14,412 | — | |||||||||
| Investment in RI Joint Venture | 17,832 | — | |||||||||
7
BALLY’S CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
| March 31, | December 31, | ||||||||||
| Reconciliation of cash and cash equivalents and restricted cash: | 2023 | 2022 | |||||||||
| Cash and cash equivalents | $ | 344,266 | $ | 212,515 | |||||||
| Restricted cash | 52,596 | 52,669 | |||||||||
| Total cash and cash equivalents and restricted cash | $ | 396,862 | $ | 265,184 | |||||||
See accompanying notes to condensed consolidated financial statements.
8
BALLY’S CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. GENERAL INFORMATION
Description of Business
Bally’s Corporation (the “Company,” or “Bally’s”) is a global gaming, hospitality and entertainment company with casinos and resorts and online gaming (“iGaming”) businesses. The Company owns and manages the following casino and resort properties:
| Casinos and Resorts | Location | Type | Built/Acquired | |||||||||||||||||
Bally’s Twin River Lincoln Casino Resort (“Bally’s Twin River”) | Lincoln, Rhode Island | Casino and Resort | 2004 | |||||||||||||||||
Bally’s Arapahoe Park | Aurora, Colorado | Racetrack/OTB Site | 2004 | |||||||||||||||||
Hard Rock Hotel & Casino Biloxi (“Hard Rock Biloxi”)(2) | Biloxi, Mississippi | Casino and Resort | 2014 | |||||||||||||||||
Bally’s Tiverton Casino & Hotel (“Bally’s Tiverton”)(2) | Tiverton, Rhode Island | Casino and Hotel | 2018 | |||||||||||||||||
Bally’s Dover Casino Resort (“Bally’s Dover”)(2) | Dover, Delaware | Casino, Resort and Raceway | 2019 | |||||||||||||||||
Bally’s Black Hawk(1)(2) | Black Hawk, Colorado | Three Casinos | 2020 | |||||||||||||||||
Bally’s Kansas City Casino (“Bally’s Kansas City”) | Kansas City, Missouri | Casino | 2020 | |||||||||||||||||
Bally’s Vicksburg Casino (“Bally’s Vicksburg”) | Vicksburg, Mississippi | Casino and Hotel | 2020 | |||||||||||||||||
Bally’s Atlantic City Casino Resort (“Bally’s Atlantic City”) | Atlantic City, New Jersey | Casino and Resort | 2020 | |||||||||||||||||
Bally’s Shreveport Casino & Hotel (“Bally’s Shreveport”) | Shreveport, Louisiana | Casino and Hotel | 2020 | |||||||||||||||||
Bally’s Lake Tahoe Casino Resort (“Bally’s Lake Tahoe”) | Lake Tahoe, Nevada | Casino and Resort | 2021 | |||||||||||||||||
Bally’s Evansville Casino & Hotel (“Bally’s Evansville”)(2) | Evansville, Indiana | Casino and Hotel | 2021 | |||||||||||||||||
Bally’s Quad Cities Casino & Hotel (“Bally’s Quad Cities”)(2) | Rock Island, Illinois | Casino and Hotel | 2021 | |||||||||||||||||
Tropicana Las Vegas Casino and Resort (“Tropicana Las Vegas”)(2) | Las Vegas, Nevada | Casino and Resort | 2022 | |||||||||||||||||
__________________________________
(1) Includes Bally’s Black Hawk North Casino, Bally’s Black Hawk West Casino and Bally’s Black Hawk East Casino.
(2) Properties leased from Gaming and Leisure Properties, Inc. (“GLPI”). Refer to Note 15 “Leases” for further information.
The North America Interactive reportable segment includes a portfolio of sports betting, iGaming and free-to-play gaming brands and the North American operations of Gamesys Group Ltd. (“Gamesys”), an iCasino and online bingo platform provider and operator.
The Company’s International Interactive reportable segment includes the interactive activities in Europe and Asia of Gamesys.
Refer to Note 19 “Segment Reporting” for further information.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company, its majority-owned subsidiaries and entities the Company identifies as variable interest entities (“VIEs”), of which the Company is determined to be the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform to the current year’s presentation. The financial statements of our foreign subsidiaries are translated into US dollars using exchange rates in effect at period-end for assets and liabilities and average exchange rates during each reporting period for results of operations. Adjustments resulting from financial statement translations are reflected as a separate component of accumulated other comprehensive income (loss). Foreign currency transaction gains and losses are included in net income.
9
BALLY’S CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules of the Securities and Exchange Commission (the “SEC”) for interim financial information, including the instructions to Form 10-Q and Rule 10-01 of the SEC’s Regulation S-X. Accordingly, certain information and note disclosures normally required in complete financial statements prepared in conformity with accounting principles generally accepted in the United States have been condensed or omitted. In the Company’s opinion, these condensed consolidated financial statements include all adjustments necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented.
These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. There were no material changes in significant accounting policies from those described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
We have made estimates and judgments affecting the amounts reported in our condensed consolidated financial statements and the accompanying notes. The actual results that we experience may differ materially from our estimates.
Rhode Island Joint Venture
On January 1, 2023, the Company and International Game Technology PLC (“IGT”) contributed certain tangible assets and leases to Rhode Island VLT Company, LLC (“RIVLT”) in exchange for equity interests of RIVLT. The Company contributed video lottery terminals (“VLTs”) and player tracking equipment to the joint venture for a 40% equity interest of RIVLT. The joint venture will be accounted for under the equity method of accounting whereby the Company will record its 40% share of the total joint venture net income or loss each period within Other non-operating income, net” in the condensed consolidated statements of operations. For the three months ended March 31, 2023, the Company recorded equity income of $2.1 million.
Variable Interest Entities
The Company evaluates entities for which control is achieved through means other than voting rights to determine if it is the primary beneficiary of a VIE. An entity is a VIE if it has any of the following characteristics (i) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support (ii) equity holders, as a group, lack the characteristics of a controlling financial interest or (iii) the entity is structured with non-substantive voting rights. The primary beneficiary of the VIE is generally the entity that has (a) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (b) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. The Company consolidates its investment in a VIE when it determines that it is its primary beneficiary.
In determining whether it is the primary beneficiary of the VIE, the Company considers qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities and significance of the Company’s investment and other means of participation in the VIE’s expected profits/losses. Significant judgments related to these determinations include estimates about the current and future fair values and performance of assets held by these VIEs and general market conditions.
Management has analyzed and concluded that Breckenridge Curacao B.V. (“Breckenridge”) is a VIE because it does not have sufficient equity investment at risk. The Company has determined that it is the primary beneficiary and consolidates the VIE because (a) although the Company does not control all decisions of Breckenridge, the Company has the power to direct the activities of Breckenridge that most significantly impact its economic performance through various contracts with the entity and (b) the nature of these agreements between Breckenridge and the Company provides the Company with the obligation to absorb losses and the right to receive benefits based on fees that are based upon off-market rates and commensurate to the level of services provided. The Company receives significant benefits in the form of fees that are not at market and commensurate to the level of services provided. As a result, the Company consolidates all of the assets, liabilities and results of operations of Breckenridge and its subsidiaries in the accompanying condensed consolidated financial statements. As of March 31, 2023 and December 31, 2022, Breckenridge had total assets of $147.3 million and $93.4 million, respectively, and total liabilities of $81.1 million and $77.1 million, respectively. Breckenridge had revenues of $84.0 million and $86.9 million for the three months ended March 31, 2023 and 2022, respectively.
The Company may change its original assessment of a VIE upon subsequent events such as the modification of contractual arrangements that affect the characteristics or adequacy of the entity’s equity investments at risk and the disposition of all or a portion of an interest held by the primary beneficiary. The Company performs this analysis on an ongoing basis.
10
BALLY’S CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Cash and Cash Equivalents and Restricted Cash
Cash and cash equivalents includes cash balances and highly liquid investments with an original maturity of three months or less. Restricted cash includes player deposits, payment service provider deposits, and Video Lottery Terminal (“VLT”) and table games related cash payable to certain states where we operate, which are unavailable for the Company’s use.
Accounts Receivable, Net
Accounts receivable, net consists of the following:
| March 31, | December 31, | ||||||||||
| (in thousands) | 2023 | 2022 | |||||||||
Amounts due from Rhode Island and Delaware(1) | $ | 14,130 | $ | 15,865 | |||||||
| Gaming receivables | 17,092 | 19,065 | |||||||||
| Non-gaming receivables | 41,333 | 42,532 | |||||||||
| Accounts receivable | 72,555 | 77,462 | |||||||||
| Less: Allowance for doubtful accounts | (5,359) | (5,789) | |||||||||
| Accounts receivable, net | $ | 67,196 | $ | 71,673 | |||||||
__________________________________
(1) Represents the Company’s share of VLT and table games revenue for Bally’s Twin River and Bally’s Tiverton due from the State of Rhode Island and from the State of Delaware for Bally’s Dover.
Gaming Expenses
Gaming expenses include, among other things, payroll costs and expenses associated with the operation of VLTs, slots and table games, including gaming taxes payable to jurisdictions in which the Company operates outside of Rhode Island and Delaware, and marketing costs directly associated with the Company’s iGaming products and services. These marketing expenses are included within Gaming expenses in the condensed consolidated statements of operations and were $45.9 million and $57.7 million for the three months ended March 31, 2023 and 2022, respectively. Gaming expenses also include racing expenses comprised of payroll costs, off track betting (“OTB”) commissions and other expenses associated with the operation of live racing and simulcasting.
Advertising Expense
The Company expenses advertising costs as incurred. For the three months ended March 31, 2023 and 2022, advertising expense was $5.4 million and $7.5 million, respectively, and are included in “Gaming and administrative” on the condensed consolidated statement of operations.
Earnings (Loss) Per Share
Basic earnings (loss) per common share is calculated in accordance with Accounting Standards Codification (“ASC”) 260, Earnings Per Share, which requires entities that have issued securities other than common stock that participate in dividends with common stock (“participating securities”) to apply the two-class method to compute basic earnings (loss) per common share. The two-class method is an earnings allocation method under which basic earnings (loss) per common share is calculated for each class of common stock and participating security as if all such earnings had been distributed during the period. To calculate basic earnings (loss) per share, the earnings allocated to common shares is divided by the weighted average number of common shares outstanding, contingently issuable warrants and RSUs, RSAs and PSUs for which no future service is required as a condition to the delivery of the underlying common stock (collectively, basic shares).
Fair Value Measurements
Fair value is determined using the principles of ASC 820, Fair Value Measurement. Fair value is described as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy prioritizes and defines the inputs to valuation techniques as follows:
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BALLY’S CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
•Level 1: Observable quoted prices (unadjusted) for identical assets or liabilities in active markets.
•Level 2: Inputs are observable for the asset or liability either directly or through corroboration with observable market data.
•Level 3: Unobservable inputs.
The inputs used to measure the fair value of an asset or a liability are categorized within levels of the fair value hierarchy. The fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the measurement.
Strategic Partnership - Sinclair Broadcast Group
On November 18, 2020, the Company and Sinclair Broadcast Group, Inc. (“Sinclair”) entered into a Framework Agreement (the “Sinclair Agreement”), which provides for a long-term strategic relationship between the Company and Sinclair combining Bally’s integrated, proprietary sports betting technology with Sinclair’s portfolio of local broadcast stations and its Tennis Channel, Stadium sports network and STIRR streaming service. The Company received naming rights to the regional sports networks and certain integrations to network programming in exchange for annual fees paid in cash, the issuance of warrants and options and an agreement to share in certain tax benefits resulting from the Tax Receivable Agreement (“TRA”) with Sinclair. The initial term of the agreement is ten years from the commencement date of the re-branded Sinclair regional sports networks and can be renewed for one additional five-year term unless either the Company or Sinclair elect not to renew.
Naming Rights Intangible Asset - Under the terms of the Sinclair Agreement, the Company is required to pay annual naming rights fees to Diamond Sports Group for naming rights of the regional sports networks which escalate annually and total $88.0 million over the 10-year term of the agreement beginning April 1, 2021. The Company accounted for this transaction as an asset acquisition in accordance with the “Acquisition of Assets Rather Than a Business” subsections of ASC 805-50, Business Combinations—Related Issues, using a cost accumulation model. The naming rights intangible asset represents the consideration transferred on the acquisition date comprised of the present value of annual naming rights fees, the fair value of the warrants and options and an estimate of the TRA payments, each explained below. The naming rights intangible asset, net of accumulated amortization, was $247.9 million and $255.6 million as of March 31, 2023 and December 31, 2022, respectively. Amortization began on April 1, 2021, the commencement date of the re-branded Sinclair regional sports networks, and was $7.7 million and $8.4 million for the three months ended March 31, 2023 and 2022, respectively. Refer to Note 10 “Goodwill and Intangible Assets” for further information.
Naming Rights Fees - The present value of the annual naming rights fees was recorded as part of the cost of the naming rights intangible asset with a corresponding liability which will be accreted through interest expense over the life of the agreement. The total value of the liability as of March 31, 2023 and December 31, 2022 was $58.9 million and $59.3 million, respectively. The short-term portion of the liability, which was $6.5 million and $6.0 million as of March 31, 2023 and December 31, 2022, respectively, is recorded within “Accrued liabilities” and the long-term portion of the liability, which was $52.4 million and $53.3 million as of March 31, 2023 and December 31 2022, respectively, is recorded within “Naming rights liabilities” in the condensed consolidated balance sheets. Accretion expense for the three months ended March 31, 2023 and 2022, was $1.1 million and was reported in “Interest expense, net of amounts capitalized” in the condensed consolidated statements of operations.
Warrants and Options - The Company issued to Sinclair (i) an immediately exercisable warrant to purchase up to 4,915,726 shares of the Company at an exercise price of $0.01 per share (“the Penny Warrants”), (ii) a warrant to purchase up to a maximum of 3,279,337 additional shares of the Company at a price of $0.01 per share subject to the achievement of various performance metrics (the “Performance Warrants”) and (iii) an option to purchase up to 1,639,669 additional shares in four tranches with purchase prices ranging from $30.00 to $45.00 per share, exercisable over a seven-year period beginning on the fourth anniversary of the November 18, 2020 closing (the “Options”). The exercise and purchase prices and the number of shares issuable upon exercise of the warrants and options are subject to customary anti-dilution adjustments. The issuance pursuant to the warrants and options of shares in excess of 19.9% of the Company’s currently outstanding shares was subject to the approval of the Company’s stockholders in accordance with the rules of the NYSE, which was obtained on January 27, 2021.
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BALLY’S CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Penny Warrants & Options. The Penny Warrants and Options are equity classified instruments under ASC 815, Derivatives and Hedging, (“ASC 815”). The fair value of the Penny Warrants approximates the fair value of the underlying shares and was $150.4 million on November 18, 2020 at issuance, and was recorded to “Additional paid-in-capital” in the condensed consolidated balance sheets, with an offset to the naming rights intangible asset. The fair value of the Options was $59.7 million as of March 31, 2023 and December 31, 2022, and is recorded within “Additional paid-in-capital” in the condensed consolidated balance sheets.
Performance Warrants. The Performance Warrants are accounted for as a derivative liability because the underlying performance metrics represent an adjustment to the settlement amount that is not indexed to the Company’s own stock and thus equity classification is precluded under ASC 815. Refer to Note 11 “Fair Value Measurements” for further information.
Tax Receivable Agreement - The Company is required to share 60% of the tax benefit the Company receives from the Penny Warrants, Options, Performance Warrants and payments under the TRA with Sinclair over the term of the agreement as tax benefit amounts are determined through the filing of the Company’s annual tax returns. Changes in estimate of the tax benefit to be realized and tax rates in effect at the time, among other changes, are treated as an adjustment to the naming rights intangible asset. The TRA liability was $17.9 million and $19.4 million as of March 31, 2023 and December 31, 2022, respectively, and is included in “Naming rights liabilities” in the condensed consolidated balance sheets. The change in value of the TRA liability is included in “Other non-operating expenses, net” in the condensed consolidated statements of operations.
Provision (Benefit) for Income Taxes
During the three months ended March 31, 2023 and 2022, the Company recorded a provision for income tax of $137.7 million, at an effective year to date tax rate of 43.6% and a benefit for income tax of $5.6 million, at an effective year to date tax rate of 151.2%, respectively. The 2023 year to date effective tax rate was higher than the US federal statutory tax rate of 21%, largely due to an increase in the valuation allowance and a tax liability for a discrete item related to the deferred gain on sale leaseback transactions in Mississippi and Rhode Island. The 2022 year to date effective tax rate was lower than the US federal statutory tax rate of 21%, largely due to a tax benefit recorded in foreign jurisdictions during the year, offset by a discrete item related to the gain on sale leaseback transactions in Colorado and Illinois.
3. CONSOLIDATED FINANCIAL INFORMATION
General and Administrative Expenses
Amounts included in General and administrative for the three months ended March 31, 2023 and 2022 were as follows:
| Three Months Ended March 31, | |||||||||||
| (in thousands) | 2023 | 2022 | |||||||||
| Advertising, general and administrative | $ | 221,005 | $ | 181,741 | |||||||
| Acquisition and transaction related costs | 13,781 | 5,280 | |||||||||
| Restructuring | 16,822 | — | |||||||||
| Total general and administrative | $ | 251,608 | $ | 187,021 | |||||||
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BALLY’S CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Other Non-Operating Income (Expense)
Amounts included in Other non-operating income (expenses), net for the three months ended March 31, 2023 and 2022 were as follows:
| Three Months Ended March 31, | |||||||||||
| (in thousands) | 2023 | 2022 | |||||||||
| Change in value of naming rights liabilities | $ | (267) | $ | 13,379 | |||||||
| Gain on equity method investments | 2,100 | — | |||||||||
| Gain on extinguishment of debt | 4,044 | — | |||||||||
| Foreign exchange (loss) gain | (4,308) | 182 | |||||||||
| Other, net | 1,041 | 5,918 | |||||||||
| Total other non-operating income (expenses), net | $ | 2,610 | $ | 19,479 | |||||||
4. RECENTLY ADOPTED AND ISSUED ACCOUNTING PRONOUNCEMENTS
Recently Issued Accounting Pronouncements
Standards Implemented
In October 2021, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2021-08, Business Combinations (Topic 805) - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendments in this update address diversity in practice and inconsistency related to recognition of an acquired contract liability and the effect of payment terms on subsequent revenue recognition for the acquirer. This update is effective for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years, with early adoption permitted. The Company’s adoption of this ASU in the first quarter of 2023 did not have a material impact to its condensed consolidated financial statements.
Standards to Be Implemented
In December 2022, the Financial Accounting Standards Board issued ASU No. 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848. The amendments in this update defer the sunset date of Topic 848, which applies to entities which have transactions that reference LIBOR or other reference rates which are expected to be discontinued due to reference rate reform, until December 31, 2024. The Company is currently in the process of evaluating the impact of this amendment on its consolidated financial statements.
5. REVENUE RECOGNITION
The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers, which requires companies to recognize revenue in a way that depicts the transfer of promised goods or services. In addition, the standard requires more detailed disclosures to enable readers of the financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company generates revenue from four principal sources: (1) gaming (which includes retail gaming, online gaming, sports betting and racing), (2) hotel, (3) food and beverage and (4) retail, entertainment and other.
The Company determines revenue recognition through the following steps:
•Identify the contract, or contracts, with the customer;
•Identify the performance obligations in the contract;
•Determine the transaction price;
•Allocate the transaction price to performance obligations in the contract; and
•Recognize revenue when or as the Company satisfies performance obligations by transferring the promised goods or services.
The amount of revenue recognized by the Company is measured at the transaction price or the amount of consideration that the Company expects to receive through satisfaction of the identified performance obligations.
14
BALLY’S CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Retail gaming, online gaming and sports betting revenue, each as described below, contain two performance obligations. Retail gaming transactions have an obligation to honor the outcome of a wager and to pay out an amount equal to the stated odds, including the return of the initial wager, if the customer receives a winning hand. These elements of honoring the outcome of the hand of play and generating a payout are considered one performance obligation. Online gaming and sports betting represent a single performance obligation for the Company to operate contests or games and award prizes or payouts to users based on results of the arrangement. Revenue is recognized at the conclusion of each contest, wager or wagering game hand. Incentives can be used across online gaming products. The Company allocates a portion of the transaction price to certain customer incentives that create material future customer rights and are a separate performance obligation. In addition, in the event of a multi-stage contest, the Company will allocate transaction price ratably from contest start to the contest’s final stage. Racing revenue is earned through advance deposit wagering which consists of patrons wagering through an advance deposit account. Each wagering contract contains a single performance obligation.
The transaction price for a gaming wagering contract is the difference between gaming wins and losses, not the total amount wagered. The transaction price for racing operations, inclusive of live racing events conducted at the Company’s racing facilities, is the commission received from the pari-mutuel pool less contractual fees and obligations primarily consisting of purse funding requirements, simulcasting fees, tote fees and certain pari-mutuel taxes that are directly related to the racing operations. The transaction price for hotel, food, beverage, retail, entertainment and other is the net amount collected from the customer for such goods and services. Hotel, food, beverage, retail, entertainment and other services have been determined to be separate, stand-alone performance obligations and revenue is recognized as the good or service is transferred at the point in time of the transaction.
The following contains a description of each of the Company’s revenue streams:
Gaming Revenue
Retail Gaming
The Company recognizes retail gaming revenue as the net win from gaming activities, which is the difference between gaming inflows and outflows, not the total amount wagered. Progressive jackpots are estimated and recognized as revenue at the time the obligation to pay the jackpot is established. Gaming revenues are recognized net of certain cash and free play incentives.
Gaming services contracts have two performance obligations for those customers earning incentives under the Company’s player loyalty programs and a single performance obligation for customers who do not participate in the programs. The Company applies a practical expedient to account for its gaming contracts on a portfolio basis as such wagers have similar characteristics and the Company reasonably expects the impact on the consolidated financial statements of applying the revenue recognition guidance to the portfolio would not differ materially from the application of an individual wagering contract. For purposes of allocating the transaction price in a wagering contract between the wagering performance obligation and the obligation associated with incentives earned under loyalty programs, the Company allocates an amount to the loyalty program contract liability based on the stand-alone selling price of the incentive earned for a hotel room stay, food and beverage or other amenity. The performance obligation related to loyalty program incentives are deferred and recognized as revenue upon redemption by the customer. The amount associated with gaming wagers is recognized at the point the wager occurs, as it is settled immediately.
Gaming revenue includes the share of VLT revenue for Bally’s Twin River and Bally’s Tiverton, in each case, as determined by each property’s respective master VLT contracts with the State of Rhode Island. Bally’s Twin River is entitled to a 28.85% share of VLT revenue on the initial 3,002 units and a 26.00% share on VLT revenue generated from units in excess of 3,002 units. Bally’s Tiverton is entitled to receive a percentage of VLT revenue that is equivalent to the percentage received by Bally’s Twin River. From July 1, 2021 through December 31, 2022, Bally’s Twin River and Bally’s Tiverton were entitled to an additional 7.00% share of revenue, as the Technology Provider, on VLTs owned by the Company. Beginning on January 1, 2023, the Company contributed all of its VLT assets to the Rhode Island Joint Venture and the Rhode Island Joint Venture, as the sole Technology Provider, is now entitled to that additional 7% of VLT revenue.
15
BALLY’S CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Gaming revenue also includes Bally’s Twin River’s and Bally’s Tiverton’s share of table games revenue. Bally’s Twin River and Bally’s Tiverton each were entitled to an 83.5% share of table games revenue generated as of March 31, 2023 and 2022. Revenue is recognized when the wager is settled, which is when the customer has received the benefits of the Company’s gaming services and the Company has a present right to payment. The Company records revenue from its Rhode Island operations on a net basis which is the percentage share of VLT and table games revenue received as the Company acts as an agent in operating the gaming services on behalf of the State of Rhode Island.
Gaming revenue also includes Bally’s Dover’s share of revenue as determined under the Delaware State Lottery Code from the date of its acquisition. Bally’s Dover is authorized to conduct video lottery, sports wagering, table game and internet gaming operations as one of three “Licensed Agents” under the Delaware State Lottery Code. Licensing, administration and control of gaming operations in Delaware is under the Delaware State Lottery Office and Delaware’s Department of Safety and Homeland Security, Division of Gaming Enforcement. As of March 31, 2023 and 2022, Bally’s Dover was entitled to an approximate 42% share of VLT revenue and 80% share of table games revenue. Revenue is recognized when the wager is complete, which is when the customer has received the benefits of the Company’s gaming services and the Company has a present right to payment. The Company records revenue from its Delaware operations on a net basis, which is the percentage share of VLT and table games revenue received, as the Company acts as an agent in operating the gaming services on behalf of the State of Delaware.
Gaming revenue includes casino revenue of the Company’s other properties which is the aggregate net difference between gaming wins and losses, with deferred revenue recognized for prepaid deposits by customers prior to play, for chips outstanding and “ticket-in, ticket-out” coupons in the customers’ possession, and for accruals related to the anticipated payout of progressive jackpots. Progressive slot machines, which contain base jackpots that increase at a progressive rate based on the number of credits played, are charged to revenue as the amount of the progressive jackpots increase.
Online Gaming
The Company’s online gaming operates similarly to land-based casinos, generating revenue from player wagers net of payouts and incentives awarded to players.
Online gaming revenue includes the online bingo and casino revenue of Gamesys since the date of acquisition, beginning October 1, 2021. The revenue is earned from operating online bingo and casino websites, which consists of the difference between total amounts wagered by players less winnings payable to players, bonuses allocated and jackpot contributions. Online gaming revenue is recognized at the point in time when the player completes a gaming session and payout occurs. There is no significant degree of uncertainty involved in quantifying the amount of gaming revenue earned, including bonuses, jackpot contributions and loyalty points. Bonuses, jackpot contributions and loyalty points are measured at fair value at each reporting date.
Sports Betting
Sports betting involves a player wagering money on an outcome or series of outcomes. If a player wins the wager, the Company pays the player a pre-determined amount known as fixed odds. Sports betting revenue is generated through built-in theoretical margins in each sports wagering opportunity offered to players. Revenue is recognized as total wagers net of payouts made and incentives awarded to players.
The Company has entered into several multi-year agreements with third-party operators for online sports betting and iGaming market access in several jurisdictions from which the Company has received or expects to receive one-time, up front market access fees in cash or equity securities (specific to one operator agreement) and certain other fees in cash generally based on a percentage of the gross gaming revenue generated by the operator, with certain annual minimum guarantees due to the Company. The one-time market access fees received have been recorded as deferred revenue and will be recognized as gaming revenue ratably over the respective contract terms, beginning with the commencement of operations of each respective agreement. The Company recognized commissions in certain states from online sports betting and iGaming which are included in gaming revenue for the three months ended March 31, 2023 and 2022. Deferred revenue associated with third-party operators for online sports betting and iGaming market access was $4.1 million as of March 31, 2023 and December 31, 2022, and is included in “Accrued liabilities” and “Other long-term liabilities” in the condensed consolidated balance sheets.
All other revenues, including market access and B2B service revenue generated by the North America Interactive and International Interactive reportable segments, are recognized at the time the goods are sold or the service is provided.
16
BALLY’S CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Racing
Racing revenue includes Bally’s Twin River’s, Bally’s Tiverton’s, Bally’s Arapahoe Park’s and Bally’s Dover’s share of wagering from live racing and the import of simulcast signals. Racing revenue is recognized upon completion of the wager based upon an established take-out percentage. The Company functions as an agent to the pari-mutuel pool. Therefore, fees and obligations related to the Company’s share of purse funding, simulcasting fees, tote fees, pari-mutuel taxes, and other fees directly related to the Company’s racing operations are reported on a net basis and included as a reduction to racing revenue.
Non-gaming Revenue
Non-gaming revenue consists of hotel, food, beverage, retail, entertainment and other revenue. Hotel revenue is recognized at the time of occupancy, which is when the customer obtains control through occupancy of the room. Advance deposits for hotel rooms are recorded as liabilities until revenue recognition criteria are met. Food, beverage and retail revenues are recognized at the time the goods are sold from Company-operated outlets. The estimated standalone selling price of hotel rooms is determined based on observable prices. The standalone selling price of food, beverage, retail, entertainment and other goods and services are determined based upon the actual retail prices charged to customers for those items. Cancellation fees for hotel and meeting space services are recognized upon cancellation by the customer and are included in Non-gaming revenue within our condensed consolidated statements of operations.
The estimated retail value related to goods and services provided to guests without charge or upon redemption under the Company’s player loyalty programs included in departmental revenues, and therefore reducing gaming revenues, are as follows for the three months ended March 31, 2023 and 2022:
| Three Months Ended March 31, | |||||||||||
| (in thousands) | 2023 | 2022 | |||||||||
| Hotel | $ | 22,435 | $ | 15,902 | |||||||
| Food and beverage | 19,474 | 16,710 | |||||||||
| Retail, entertainment and other | 2,591 | 2,207 | |||||||||
| $ | 44,500 | $ | 34,819 | ||||||||
Sales tax and other taxes collected on behalf of governmental authorities are accounted for on a net basis and are not included in revenue or operating expenses.
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BALLY’S CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
The following tables provide a disaggregation of revenue by segment (in thousands):
| Three Months Ended March 31, 2023 | Casinos & Resorts | North America Interactive | International Interactive | Total | |||||||||||||||||||
| Gaming | $ | 233,107 | $ | 16,607 | $ | 237,181 | $ | 486,895 | |||||||||||||||
| Non-gaming: | |||||||||||||||||||||||
| Hotel | 47,332 | — | — | 47,332 | |||||||||||||||||||
| Food and beverage | 33,608 | — | — | 33,608 | |||||||||||||||||||
| Retail, entertainment and other | 14,739 | 7,755 | 8,391 | 30,885 | |||||||||||||||||||
| Total non-gaming revenue | 95,679 | 7,755 | 8,391 | 111,825 | |||||||||||||||||||
| Total revenue | $ | 328,786 | $ | 24,362 | $ | 245,572 | $ | 598,720 | |||||||||||||||
| Three Months Ended March 31, 2022 | |||||||||||||||||||||||
| Gaming | $ | 217,805 | $ | 6,645 | $ | 239,252 | $ | 463,702 | |||||||||||||||
| Non-gaming: | |||||||||||||||||||||||
| Hotel | 26,935 | — | — | 26,935 | |||||||||||||||||||
| Food and beverage | 23,988 | — | — | 23,988 | |||||||||||||||||||
| Retail, entertainment and other | 11,242 | 8,582 | 13,822 | 33,646 | |||||||||||||||||||
| Total non-gaming revenue | 62,165 | 8,582 | 13,822 | 84,569 | |||||||||||||||||||
| Total revenue | $ | 279,970 | $ | 15,227 | $ | 253,074 | $ | 548,271 | |||||||||||||||
Revenue included in operations from Casino Secret from the date of its acquisition, January 5, 2023, is reported in International Interactive and was $11.3 million in the three months ended March 31, 2023. Refer to Note 6 “Business Combinations” for further information.
Contract Assets and Contract Related Liabilities
The Company’s receivables related to contracts with customers are primarily comprised of marker balances and other amounts due from gaming activities, amounts due for hotel stays and amounts due from tracks and OTB locations. The Company’s receivables related to contracts with customers were $43.3 million and $44.0 million as of March 31, 2023 and December 31, 2022, respectively.
The Company has the following liabilities related to contracts with customers: liabilities for loyalty programs, advance deposits made for goods and services yet to be provided and unpaid wagers. All of the contract liabilities are short-term in nature and are included in “Accrued liabilities” in the condensed consolidated balance sheets.
Loyalty program incentives earned by customers are typically redeemed within one year from when they are earned and expire if a customer’s account is inactive for more than 12 months; therefore, the majority of these incentives outstanding at the end of a period will either be redeemed or expire within the next 12 months.
Advance deposits are typically for future banquet events, hotel room reservations and interactive player deposits. The banquet and hotel reservation deposits are usually received weeks or months in advance of the event or hotel stay. The Company holds restricted cash for interactive player deposits and records a corresponding withdrawal liability.
Unpaid wagers include the Company’s outstanding chip liability and unpaid slot, pari-mutuel and sports betting tickets.
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BALLY’S CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Liabilities related to contracts with customers as of March 31, 2023 and December 31, 2022 were as follows:
| March 31, | December 31, | ||||||||||
| (in thousands) | 2023 | 2022 | |||||||||
| Loyalty programs | $ | 21,727 | $ | 20,264 | |||||||
| Advanced deposits from customers | 31,421 | 27,956 | |||||||||
| Unpaid wagers | 13,327 | 14,038 | |||||||||
| Total | $ | 66,475 | $ | 62,258 | |||||||
The Company recognized $5.9 million and $8.3 million of revenue related to loyalty program redemptions for the three months ended March 31, 2023 and 2022, respectively.
6. BUSINESS COMBINATIONS
Casinos & Resorts Acquisition
Tropicana Las Vegas - On September 26, 2022, the Company completed its acquisition of Tropicana Las Vegas. The total purchase price was $148.2 million. Cash paid by the Company at closing net of $1.8 million cash acquired, was $146.4 million, excluding transaction costs. In connection with the acquisition of Tropicana Las Vegas, the Company entered into a lease arrangement with GLPI to lease the land underlying the Tropicana Las Vegas property for an initial term of 50 years at annual rent of $10.5 million.
The following table summarizes the consideration paid and the fair values of the assets acquired and liabilities assumed in connection with the Casinos & Resorts acquisition as of March 31, 2023:
| (in thousands) | Tropicana Las Vegas | ||||
Preliminary(2) | |||||
| Total current assets | $ | 8,141 | |||
| Property and equipment, net | 136,116 | ||||
| Right of use assets, net | 164,884 | ||||
Intangible assets, net(1) | 5,140 | ||||
| Other assets | 766 | ||||
| Goodwill | 8,716 | ||||
| Total current liabilities | (10,268) | ||||
| Lease liabilities | (164,884) | ||||
| Other long-term liabilities | (395) | ||||
| Total purchase price | $ | 148,216 | |||
__________________________________
(1) Intangible assets include rated player relationships, a trade name and pre-bookings of $2.6 million, $1.7 million and $0.8 million, respectively, which are being amortized on a straight-line basis over their estimated useful lives of approximately 9 years, 3 years and 2 years, respectively.
(2) The Company recorded adjustments to the preliminary purchase price allocation during the three months ended March 31, 2023 which increased goodwill by $0.1 million
Goodwill recognized is deductible for local tax purposes and has been assigned as of the acquisition date to the Company’s Casinos & Resorts reportable segment, which includes the reporting unit expected to benefit from the synergies of the acquisition. Qualitative factors that contribute to the recognition of goodwill include an organized workforce and expected synergies from integrating the property into the Company’s casino portfolio and future development of its omni-channel strategy.
The Company incurred $0.8 million and $0.2 million of acquisition costs related to the above Casino & Resorts acquisition during the three months ended March 31, 2023 and 2022, respectively. These costs are included within “General and administrative” of the condensed consolidated statement of operations.
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BALLY’S CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
International Interactive Acquisition
Casino Secret - On January 5, 2023, the Company completed the acquisition of BACA Limited (“Casino Secret”), a European based online casino that offers slots, tables and live dealer games to Asian markets for total consideration of $49.3 million. Cash paid by the Company at closing net of $8.3 million cash acquired was $38.2 million, excluding transaction costs.
The following table summarizes the consideration paid and the fair values of the assets acquired and liabilities assumed in connection with the International Interactive Acquisition:
| (in thousands) | Casino Secret | ||||
| Preliminary | |||||
| Total current assets | $ | 8,862 | |||
| Property and equipment, net | 50 | ||||
| Right of use assets, net | 392 | ||||
Intangible assets, net(1) | 29,471 | ||||
| Goodwill | 18,139 | ||||
| Total current liabilities | (7,163) | ||||
| Lease liabilities | (412) | ||||
| Total purchase price | $ | 49,339 | |||
__________________________________
(1) Casino Secret intangible assets include player relationships and trade names of $26.0 million and $3.5 million, respectively, which are both being amortized on a straight-line basis over their estimated useful lives of approximately 7 years.
Total goodwill recorded in connection with the above International Interactive Acquisition was $18.1 million, and is not deductible for local tax purposes. Qualitative factors that contribute to the recognition of goodwill include certain intangible assets that are not recognized as separate identifiable intangible assets apart from goodwill, which consist primarily of benefits from acquiring a talented technology workforce and management team experienced in the online gaming industry, and securing buyer-specific synergies expected to contribute to the Company’s omni-channel strategy which are expected to increase revenue and profits within the Company’s International Interactive reportable segment. The goodwill of the International Interactive Acquisition has been assigned, as of the acquisition date, to the Company’s International Interactive reportable segment.
The Company incurred $1.2 million of acquisition costs related to the International Interactive Acquisition during the three months ended March 31, 2023. These costs are included within “General and administrative” of the condensed consolidated statement of operations.
7. ASSETS AND LIABILITIES HELD FOR SALE
The Company applies a criteria that must be met before an asset is classified as held for sale, including that management, with the appropriate authority, commits to a plan to sell the asset at a reasonable price in relation to its fair value and is actively seeking a buyer. The Company recognizes assets held for sale at the lower of carrying value or fair market value less costs to sell, as estimated based on comparable asset sales, offers received, or a discounted cash flow model. The Company then compares the estimated future cash flows of the asset, on an undiscounted basis, to the carrying value of the asset. If the undiscounted cash flows do not exceed the carrying value, then an impairment charge may be recorded for any difference between fair value and the carrying value.
As of March 31, 2023 and December 31, 2022, one of the Company’s North America Interactive businesses met the criteria to be classified as assets held for sale but did not qualify as discontinued operations as it did not represent a strategic shift having a major effect on the Company’s operations and financial results.
The major classes of assets and liabilities classified as held for sale as of March 31, 2023 and December 31, 2022 are as follows:
20
BALLY’S CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
| (in thousands) | March 31, 2023 | December 31, 2022 | |||||||||
| Assets: | |||||||||||
| Restricted cash, prepaid expenses and other current assets | $ | 2,380 | $ | 3,756 | |||||||
| Goodwill | 9,399 | 9,399 | |||||||||
| Intangible assets, net | 4,022 | 4,022 | |||||||||
Assets held for sale(1) | $ | 15,801 | $ | 17,177 | |||||||
Liabilities related to assets held for sale(1)(2) | $ | 1,773 | $ | 3,409 | |||||||
__________________________________
(1) All assets and liabilities held for sale were classified as current as it’s probable the sale will be completed within one year.
(2) Liabilities related to assets held for sale were comprised of accounts payable and accrued liabilities.
The revenues and net loss attributable to the business classified as held for sale were not significant for the three months ended March 31, 2023 and 2022.
8. PREPAID EXPENSES AND OTHER CURRENT ASSETS
As of March 31, 2023 and December 31, 2022, prepaid expenses and other current assets was comprised of the following:
March 31, | December 31, | ||||||||||
| (in thousands) | 2023 | 2022 | |||||||||
| Services and license agreements | $ | 28,755 | $ | 31,396 | |||||||
| Due from payment service providers | 26,541 | 30,621 | |||||||||
| Deposits | 9,898 | 2,016 | |||||||||
| Prepaid marketing | 9,875 | 8,042 | |||||||||
| Sales tax | 6,815 | 5,900 | |||||||||
| Prepaid insurance | 2,800 | 6,374 | |||||||||
| Purse funds | 369 | 8,093 | |||||||||
| Other | 8,170 | 8,275 | |||||||||
| Total prepaid expenses and other current assets | $ | 93,223 | $ | 100,717 | |||||||
9. PROPERTY AND EQUIPMENT
As of March 31, 2023 and December 31, 2022, property and equipment was comprised of the following:
| March 31, | December 31, | ||||||||||
| (in thousands) | 2023 | 2022 | |||||||||
| Land | $ | 238,997 | $ | 259,378 | |||||||
| Land improvements | 156,338 | 31,197 | |||||||||
| Building and improvements | 489,691 | 752,964 | |||||||||
| Equipment | 218,342 | 246,340 | |||||||||
| Furniture and fixtures | 65,410 | 63,753 | |||||||||
| Construction in process | 162,098 | 116,181 | |||||||||
| Total property, plant and equipment | 1,330,876 | 1,469,813 | |||||||||
| Less: Accumulated depreciation | (219,162) | (267,711) | |||||||||
| Property and equipment, net | $ | 1,111,714 | $ | 1,202,102 | |||||||
21
BALLY’S CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Depreciation expense relating to property and equipment for the three months ended March 31, 2023 and 2022 was $18.7 million and $16.7 million, respectively. During the three months ended March 31, 2023 and 2022, there was $2.9 million and $0.3 million of capitalized interest, respectively.
Bally’s Chicago Permanent Facility
A wholly-owned indirect subsidiary of the Company, Bally’s Chicago Operating Company, LLC entered into a Lease Termination and Short Term License Agreement with Chicago Tribune Company, LLC (“Tribune”), effective March 31, 2023, which among other things provides that the Company will have possession of 777 West Chicago Avenue, Chicago Illinois 60610 (the “Permanent Chicago Site”) on or before July 5, 2024, subject to $150 million in payments by the Company to Tribune payable in full upon Tribune vacating the site on or prior to July 5, 2024 (the “Payment”). $140 million of the Payment is secured by standby letters of credit, issued by Citizens Bank.
The Company recorded the short-term portion of the payments of $93.9 million within “Accrued liabilities” and the remaining $48.7 million within Other long-term liabilities, with an offsetting increase to “Property and equipment, net” within the condensed consolidated balance sheets as of March 31, 2023.
10. GOODWILL AND INTANGIBLE ASSETS
The change in carrying value of goodwill by reportable segment for the three months ended March 31, 2023 is as follows (in thousands):
| Casinos & Resorts | North America Interactive | International Interactive | Total | ||||||||||||||||||||
Goodwill as of December 31, 2022(1) | $ | 209,257 | $ | 39,740 | $ | 1,497,205 | $ | 1,746,202 | |||||||||||||||
| Goodwill from current year business acquisition | — | — | 18,139 | 18,139 | |||||||||||||||||||
| Effect of foreign exchange | — | 59 | 30,512 | 30,571 | |||||||||||||||||||
| Purchase accounting adjustments on prior year business acquisition | 126 | — | — | 126 | |||||||||||||||||||
Goodwill as of March 31, 2023(1) | $ | 209,383 | $ | 39,799 | $ | 1,545,856 | $ | 1,795,038 | |||||||||||||||
__________________________________
(1) Amounts are shown net of accumulated goodwill impairment charges of $5.4 million and $140.4 million for Casinos and Resorts and North America Interactive, respectively.
The change in intangible assets, net for the three months ended March 31, 2023 is as follows (in thousands):
| Intangible assets, net as of December 31, 2022 | $ | 1,961,938 | |||
| Intangible assets from current year business combinations | 29,471 | ||||
Change in TRA with Sinclair(1) | 28 | ||||
| Effect of foreign exchange | 21,975 | ||||
| Internally developed software | 7,143 | ||||
| Other intangibles acquired | 2,909 | ||||
| Less: Amortization | (55,875) | ||||
Intangible assets, net as of March 31, 2023 | $ | 1,967,589 | |||
(1) Refer to Note 2 “Significant Accounting Policies” for further information.
22
BALLY’S CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
The Company’s identifiable intangible assets consist of the following:
| Weighted average remaining life (in years) | March 31, 2023 | ||||||||||||||||||||||
| (in thousands, except years) | Gross Carrying Amount | Accumulated Amortization | Net | ||||||||||||||||||||
| Amortizable intangible assets: | |||||||||||||||||||||||
Naming rights - Sinclair(1) | 7.9 | $ | 314,613 | $ | (66,728) | $ | 247,885 | ||||||||||||||||
| Trade names | 5.6 | 21,339 | (16,466) | 4,873 | |||||||||||||||||||
| Hard Rock license | 24.2 | 8,000 | (2,121) | 5,879 | |||||||||||||||||||
| Customer relationships | 5.5 | 951,629 | (203,787) | 747,842 | |||||||||||||||||||
| Developed technology | 5.5 | 261,652 | (56,035) | 205,617 | |||||||||||||||||||
| Internally developed software | 3.9 | 32,506 | (7,059) | 25,447 | |||||||||||||||||||
| Gaming licenses | 7.3 | 35,916 | (6,345) | 29,571 | |||||||||||||||||||
| Other | 2.4 | 4,950 | (2,447) | 2,503 | |||||||||||||||||||
| Total amortizable intangible assets | 1,630,605 | (360,988) | 1,269,617 | ||||||||||||||||||||
| Intangible assets not subject to amortization: | |||||||||||||||||||||||
| Gaming licenses | Indefinite | 529,171 | — | 529,171 | |||||||||||||||||||
| Trade names | Indefinite | 167,298 | — | 167,298 | |||||||||||||||||||
| Other | Indefinite | 1,503 | — | 1,503 | |||||||||||||||||||
| Total unamortizable intangible assets | 697,972 | — | 697,972 | ||||||||||||||||||||
| Total intangible assets, net | $ | 2,328,577 | $ | (360,988) | $ | 1,967,589 | |||||||||||||||||
__________________________________
(1) Naming rights intangible asset in connection with Sinclair Agreement. Refer to Note 2 “Significant Accounting Policies” for further information. Amortization began on April 1, 2021, the commencement date of the re-branded Sinclair regional sports networks.
| Weighted average remaining life (in years) | December 31, 2022 | ||||||||||||||||||||||
| (in thousands, except years) | Gross Carrying Amount | Accumulated Amortization | Net | ||||||||||||||||||||
| Amortizable intangible assets: | |||||||||||||||||||||||
Naming rights - Sinclair(2) | 8.1 | $ | 314,585 | $ | (58,982) | $ | 255,603 | ||||||||||||||||
| Trade names | 2.7 | 17,750 | (16,196) | 1,554 | |||||||||||||||||||
| Hard Rock license | 24.5 | 8,000 | (2,061) | 5,939 | |||||||||||||||||||
| Customer relationships | 5.8 | 907,199 | (166,155) | 741,044 | |||||||||||||||||||
| Developed technology | 5.7 | 256,512 | (45,769) | 210,743 | |||||||||||||||||||
| Internally developed software | 4.0 | 26,520 | (5,444) | 21,076 | |||||||||||||||||||
| Gaming licenses | 7.8 | 34,016 | (4,892) | 29,124 | |||||||||||||||||||
| Other | 2.6 | 4,917 | (2,110) | 2,807 | |||||||||||||||||||
| Total amortizable intangible assets | 1,569,499 | (301,609) | 1,267,890 | ||||||||||||||||||||
| Intangible assets not subject to amortization: | |||||||||||||||||||||||
| Gaming licenses | Indefinite | 529,171 | — | 529,171 | |||||||||||||||||||
| Trade names | Indefinite | 164,391 | — | 164,391 | |||||||||||||||||||
| Other | Indefinite | 486 | — | 486 | |||||||||||||||||||
| Total unamortizable intangible assets | 694,048 | — | 694,048 | ||||||||||||||||||||
| Total intangible assets, net | $ | 2,263,547 | $ | (301,609) | $ | 1,961,938 | |||||||||||||||||
__________________________________
(2) See note (1) above.
23
BALLY’S CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Amortization of intangible assets was approximately $55.9 million and $62.1 million for the three months ended March 31, 2023 and 2022, respectively.
The following table reflects the remaining amortization expense associated with the finite-lived intangible assets as of March 31, 2023:
| (in thousands) | |||||
| Remaining 2023 | $ | 164,738 | |||
| 2024 | 217,508 | ||||
| 2025 | 215,382 | ||||
| 2026 | 213,375 | ||||
| 2027 | 212,745 | ||||
| Thereafter | 245,869 | ||||
| Total | $ | 1,269,617 | |||
11. FAIR VALUE MEASUREMENTS
The following tables summarize the Company’s assets and liabilities measured at fair value on a recurring basis. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:
| March 31, 2023 | |||||||||||||||||||||||
| (in thousands) | Balance Sheet Location | Level 1 | Level 2 | Level 3 | |||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash and cash equivalents | Cash and cash equivalents | $ | 344,266 | $ | — | $ | — | ||||||||||||||||
| Restricted cash | Restricted cash | 52,596 | — | — | |||||||||||||||||||
| Convertible loans | Prepaid expenses and other current assets | 692 | — | — | |||||||||||||||||||
| Convertible loans | Other assets | — | — | 10,838 | |||||||||||||||||||
| Investments in equity securities | Other assets | 2,125 | — | — | |||||||||||||||||||
| Investment in GLPI partnership | Other assets | — | 14,923 | — | |||||||||||||||||||
| Total | $ | 399,679 | $ | 14,923 | $ | 10,838 | |||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
Sinclair Performance Warrants | Naming rights liabilities | $ | — | $ | — | $ | 37,254 | ||||||||||||||||
| Contingent consideration | Accrued liabilities | — | — | 9,461 | |||||||||||||||||||
| Total | $ | — | $ | — | $ | 46,715 | |||||||||||||||||
24
BALLY’S CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
| December 31, 2022 | |||||||||||||||||||||||
| (in thousands) | Balance Sheet Location | Level 1 | Level 2 | Level 3 | |||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash and cash equivalents | Cash and cash equivalents | $ | 212,515 | $ | — | $ | — | ||||||||||||||||
| Restricted cash | Restricted cash | 52,669 | — | — | |||||||||||||||||||
| Convertible loans | Prepaid expenses and other current assets | 657 | — | — | |||||||||||||||||||
| Convertible loans | Other assets | — | — | 10,212 | |||||||||||||||||||
| Investments in equity securities | Other assets | 2,395 | — | — | |||||||||||||||||||
| Total | $ | 268,236 | $ | — | $ | 10,212 | |||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Sinclair Performance Warrants | Naming rights liabilities | $ | — | $ | — | $ | 36,987 | ||||||||||||||||
| Contingent consideration | Accrued liabilities | — | — | 8,220 | |||||||||||||||||||
| Total | $ | — | $ | — | $ | 45,207 | |||||||||||||||||
The following table summarizes the changes in fair value of the Company’s Level 3 assets and liabilities:
| (in thousands) | Sinclair Performance Warrants | Contingent Consideration | Convertible Loans | Total | |||||||||||||||||||
| Beginning as of December 31, 2022 | $ | 36,987 | $ | 8,220 | $ | 10,212 | $ | 55,419 | |||||||||||||||
| Additions in the period (acquisition fair value) | — | — | 500 | 500 | |||||||||||||||||||
| Change in fair value | 267 | 1,241 | 126 | 1,634 | |||||||||||||||||||
Ending as of March 31, 2023 | $ | 37,254 | $ | 9,461 | $ | 10,838 | $ | 57,553 | |||||||||||||||
| (in thousands) | Sinclair Performance Warrants | Contingent Consideration | Convertible Loans | Total | |||||||||||||||||||
| Beginning as of December 31, 2021 | $ | 69,564 | $ | 34,931 | $ | 2,025 | $ | 106,520 | |||||||||||||||
| Additions in the period (acquisition fair value) | — | — | 167 | 167 | |||||||||||||||||||
| Reductions in the period | — | (15,862) | — | (15,862) | |||||||||||||||||||
| Change in fair value | (13,379) | (5,992) | (54) | (19,425) | |||||||||||||||||||
Ending as of March 31, 2022 | $ | 56,185 | $ | 13,077 | $ | 2,138 | $ | 71,400 | |||||||||||||||
25
BALLY’S CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
The gains (losses) recognized in the condensed consolidated statement of operations for derivatives not designated as hedging instruments during the three months ended March 31, 2023 and 2022 are as follows:
| Condensed Consolidated Statements of Operations Location | Three Months Ended March 31, | ||||||||||||||||
| (in thousands) | 2023 | 2022 | |||||||||||||||
| Sinclair Performance Warrants | Change in value of naming rights liabilities | $ | (267) | $ | 13,379 | ||||||||||||
Sinclair Performance Warrants
Sinclair Performance Warrants are accounted for as a derivative instrument classified as a liability within Level 3 of the hierarchy as the warrants are not traded in active markets and are subject to certain assumptions and estimates made by management related to the probability of meeting performance milestones. These assumptions and the probability of meeting performance targets may have a significant impact on the value of the warrant. The Performance Warrants are valued using an option pricing model, considering the Company’s estimated probabilities of achieving the performance milestones for each tranche. Inputs to this valuation approach include volatility between 63% and 66%, risk free rates between 1.02% and 4.01%, the Company’s common stock price for each period and expected terms between 3.4 and 8.0 years.
Sinclair Options
Sinclair Options are accounted for as an equity classified instrument under ASC 815, Derivatives and Hedging. The fair value of the options are based on a Black-Scholes model using Level 2 inputs, including volatility rates, risk free rates, the Company’s common stock price and expected term. The fair value of the Options was $59.7 million as of March 31, 2023 and December 31, 2022 and is recorded within “Additional paid-in-capital” in the condensed consolidated balance sheets.
Contingent Consideration
Contingent consideration related to acquisitions is recorded at fair value as a liability on the acquisition date and is remeasured at each reporting date, based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. In connection with the acquisitions of SportCaller and MKF on February 5, 2021 and March 23, 2021, respectively, the Company recorded contingent consideration at fair value of $58.7 million as of the acquisition dates. After the acquisition dates and until the contingencies are resolved, the fair value of contingent consideration payable is adjusted each reporting period based primarily on the expected probability of achievement of the contingency targets which are subject to management’s estimate and the Company’s stock price. These changes in fair value are recognized within “Other, non-operating expenses, net” of the condensed consolidated statements of operations. During the first quarter of 2022, the Company settled contingent consideration of $15.9 million comprised of 393,778 immediately exercisable penny warrants and 107,832 shares of Bally’s Corporation common stock and $0.1 million in cash in satisfaction of contingencies related to the respective acquisition agreements.
Convertible Loans
The Company has certain agreements with vendors to provide a portfolio of games to its customers. Pursuant to these agreements, the Company has issued loans to its vendors and has an option to convert the loans to shares of the vendors’ equity, exercisable within a specified time period. The Company recorded the short-term portion of the instruments within “Prepaid expenses and other current assets” and the long-term portion of the instruments within “Other assets” at their fair value. The fair value of the loans to vendors with share prices quoted on active markets are classified within Level 1 of the hierarchy and the fair value of the loans to vendors with share values based on unobservable inputs are classified within Level 3 of the hierarchy, both with changes to fair value included within “Other non-operating expenses, net” of the condensed consolidated statements of operations.
Investments in Equity Securities
The Company has a long term investment in an unconsolidated entity which it accounts for under the equity method of accounting. The Company has elected the fair value option allowed by ASC 825, Financial Instruments, with respect to this investment. Under the fair value option, the investment is remeasured at fair value at each reporting period through earnings. The Company measures fair value using quoted prices in active markets that are classified within Level 1 of the hierarchy, with changes to fair value included within “Other non-operating expenses, net” of the condensed consolidated statements of operations.
26
BALLY’S CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Investment in GLPI Partnership
The Company holds a limited partnership interest in GLP Capital, L.P., the operating partnership of GLPI. The investment is reported at fair value based on Level 2 inputs, with changes to fair value included within “Other non-operating expenses, net” of the condensed consolidated statements of operations.
Long-Term Debt
The fair value of the Company’s Term Loan Facility and senior notes are estimated based on quoted prices in active markets and are classified as Level 1 measurements. The fair value of the Revolving Credit Facility approximates its carrying amount as it is revolving, variable rate debt, and is also classified as a Level 1 measurement. In the table below, the carrying amounts of the Company’s long-term debt is net of debt issuance costs and debt discounts. Refer to Note 14 “Long-Term Debt” for further information.
| March 31, 2023 | December 31, 2022 | ||||||||||||||||||||||
| (in thousands) | Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||||||||||||
| Term Loan Facility | $ | 1,880,853 | $ | 1,867,511 | $ | 1,884,082 | $ | 1,872,238 | |||||||||||||||
5.625% Senior Notes due 2029 | 734,973 | 553,149 | 734,497 | 555,000 | |||||||||||||||||||
5.875% Senior Notes due 2031 | 718,688 | 527,702 | 732,976 | 529,905 | |||||||||||||||||||
12. ACCRUED LIABILITIES
As of March 31, 2023 and December 31, 2022, accrued liabilities consisted of the following:
| (in thousands) | March 31, 2023 | December 31, 2022 | |||||||||
| Gaming liabilities | $ | 172,609 | $ | 168,386 | |||||||
| Bally’s Chicago - land development liability | 93,872 | — | |||||||||
| Compensation | 68,403 | 60,463 | |||||||||
| Interest payable | 13,531 | 36,173 | |||||||||
GLPI advance deposit(1) | — | 200,000 | |||||||||
| Other | 106,311 | 108,909 | |||||||||
| Total accrued liabilities | $ | 454,726 | $ | 573,931 | |||||||
__________________________________
(1) Refer to Note 15 “Leases” for further information.
27
BALLY’S CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
13. RESTRUCTURING EXPENSE
On January 18, 2023, the Company announced a restructuring plan (the “Plan”) of the Interactive business intended to reduce operating costs and continue the Company’s commitment to achieving profitable operations in its North America Interactive segment. The Plan included a reduction of the Company’s current Interactive workforce by up to 15 percent. During the three months ended March 31, 2023, the Company incurred restructuring charges of $16.8 million, attributable to the workforce reduction representing employee transition costs and severance. These costs are included within “General and administrative” of the condensed consolidated statement of operations.
The restructuring charges by segment are summarized as follows:
| (in thousands) | Three Months Ended March 31, 2023 | |||||||
| North America Interactive | $ | 5,858 | ||||||
| International Interactive | 9,332 | |||||||
| Other | 1,632 | |||||||
| Total restructuring charge | $ | 16,822 | ||||||
The restructuring activity for the three months ended March 31, 2023 is as follows:
| (in thousands) | Workforce Reduction | ||||
Balance as of December 31, 2022 | $ | — | |||
| Charges | 16,822 | ||||
| Payments | (11,934) | ||||
Balance as of March 31, 2023 | $ | 4,888 | |||
The restructuring liability as of March 31, 2023 is included within “Accrued liabilities” on the condensed consolidated balance sheets.
14. LONG-TERM DEBT
As of March 31, 2023 and December 31, 2022, long-term debt consisted of the following:
| (in thousands) | March 31, 2023 | December 31, 2022 | |||||||||
| Term Loan Facility | $ | 1,920,687 | $ | 1,925,550 | |||||||
| Revolving Credit Facility | — | 137,000 | |||||||||
5.625% Senior Notes due 2029 | 750,000 | 750,000 | |||||||||
5.875% Senior Notes due 2031 | 735,000 | 750,000 | |||||||||
| Less: Unamortized original issue discount | (26,666) | (27,729) | |||||||||
| Less: Unamortized deferred financing fees | (44,507) | (46,266) | |||||||||
| Long-term debt, including current portion | 3,334,514 | 3,488,555 | |||||||||
| Less: Current portion of Term Loan and Revolving Credit Facility | (19,450) | (19,450) | |||||||||
| Long-term debt, net of discount and deferred financing fees; excluding current portion | $ | 3,315,064 | $ | 3,469,105 | |||||||
28
BALLY’S CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Senior Notes
On August 20, 2021, two unrestricted subsidiaries (together, the “Escrow Issuers”) of the Company issued $750.0 million aggregate principal amount of 5.625% senior notes due 2029 (the “2029 Notes”) and $750.0 million aggregate principal amount of 5.875% Senior Notes due 2031 (the “2031 Notes” and, together with the 2029 Notes, the “Senior Notes”). The Senior Notes were issued pursuant to an indenture, dated as of August 20, 2021, among the Escrow Issuers and U.S. Bank National Association, as trustee. Certain of the net proceeds from the Senior Notes offering were placed in escrow accounts for use in connection with the Gamesys acquisition. On October 1, 2021, upon the closing of the Gamesys acquisition, the Company assumed the issuer obligation under the Senior Notes. The Senior Notes are guaranteed, jointly and severally, by each of the Company’s restricted subsidiaries that guarantees the Company’s obligations under its Credit Agreement.
The 2029 Notes mature on September 1, 2029 and the 2031 Notes mature on September 1, 2031. Interest is payable on the Senior Notes in cash semi-annually on March 1 and September 1 of each year, beginning on March 1, 2022.
The Company may redeem some or all of the Senior Notes at any time prior to September 1, 2024, in the case of the 2029 Notes, and September 1, 2026, in the case of the 2031 Notes, at prices equal to 100% of the principal amount of the Senior Notes to be redeemed plus certain “make-whole” premiums, plus accrued and unpaid interest. In addition, prior to September 1, 2024, the Company may redeem up to 40% of the original principal amount of each series of the Senior Notes with proceeds of certain equity offerings at a redemption price equal to 105.625% of the principal amount, in the case of the 2029 Notes, and 105.875%, in the case of the 2031 Notes, plus accrued and unpaid interest. The Company may redeem some or all of the Senior Notes at any time on or after September 1, 2024, in the case of the 2029 Notes, and September 1, 2026, in the case of the 2031 Notes, at certain redemption prices set forth in the indenture plus accrued and unpaid interest.
During the three months ended March 31, 2023, the Company repurchased and retired $15.0 million of the 2031 Notes at a weighted average price of 70.80% of the principal. In connection with the repurchase of these 2031 Notes, the Company recorded a gain on extinguishment of debt of $4.0 million recorded within “Other non-operating income (expense), net” in the condensed consolidated statements of operations.
The indenture contains covenants that limit the ability of the Company and its restricted subsidiaries to, among other things, (1) incur additional indebtedness, (2) pay dividends on or make distributions in respect of capital stock or make certain other restricted payments or investments, (3) enter into certain transactions with affiliates, (4) sell or otherwise dispose of assets, (5) create or incur liens and (6) merge, consolidate or sell all or substantially all of the Company’s assets. These covenants are subject to exceptions and qualifications set forth in the indenture.
Credit Facility
On October 1, 2021, the Company and certain of its subsidiaries entered into a credit agreement (the “Credit Agreement”) with Deutsche Bank AG New York Branch, as administrative agent and collateral agent, and the other lenders party thereto, providing for senior secured financing of up to $2.565 billion, consisting of a senior secured term loan facility in an aggregate principal amount of $1.945 billion (the “Term Loan Facility”), which will mature in 2028, and a senior secured revolving credit facility in an aggregate principal amount of $620.0 million (the “Revolving Credit Facility”), which will mature in 2026.
The credit facilities allow the Company to increase the size of the Term Loan Facility or request one or more incremental term loan facilities or increase commitments under the Revolving Credit Facility or add one or more incremental revolving facilities in an aggregate amount not to exceed the greater of $650 million and 100% of the Company’s consolidated EBITDA for the most recent four-quarter period plus or minus certain amounts as specified in the Credit Agreement, including an unlimited amount subject to compliance with a consolidated total secured net leverage ratio as set out in the Credit Agreement.
The credit facilities are guaranteed by the Company’s restricted subsidiaries, subject to certain exceptions, and secured by a first-priority lien on substantially all of the Company’s and each of the guarantors’ assets, subject to certain exceptions.
29
BALLY’S CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Borrowings under the credit facilities bear interest at a rate equal to, at the Company’s option, either (1) LIBOR determined by reference to the costs of funds for USD deposits for the interest period relevant to such borrowing, adjusted for certain additional costs and subject to a floor of 0.50% in the case of term loans and 0.00% in the case of revolving loans or (2) a base rate determined by reference to the greatest of (a) the federal funds rate plus 0.50%, (b) the prime rate, (c) the one-month LIBOR rate plus 1.00%, (d) solely in the case of term loans, 1.50% and (e) solely in the case of revolving loans, 1.00%, in each case of clauses (1) and (2), plus an applicable margin. In addition, on a quarterly basis, the Company is required to pay each lender under the Revolving Credit Facility a 0.50% or 0.375% commitment fee in respect of commitments under the Revolving Credit Facility, with the applicable commitment fee determined based on the Company’s total net leverage ratio.
The credit facilities contain covenants that limit the ability of the Company and its restricted subsidiaries to, among other things, incur additional indebtedness, pay dividends or make certain other restricted payments, sell assets, make certain investments and grant liens. These covenants are subject to exceptions and qualifications set forth in the Credit Agreement. The Revolving Credit Facility contains a financial covenant regarding a maximum first lien net leverage ratio that applies when borrowings under the Revolving Credit Facility exceed 30% of the total revolving commitment. As of March 31, 2023, the Company’s borrowings under the Revolving Credit Facility did not exceed 30% and therefore, financial covenants did not apply.
15. LEASES
Operating Leases
The Company is committed under various operating lease agreements for real estate and property used in operations. Certain leases include various renewal options which are included in the lease term when the Company has determined it is reasonably certain of exercising the options. Certain of these leases include percentage rent payments based on property revenues and/or rent escalation provisions determined by increases in the consumer price index (“CPI”). These percentage rent and escalation provisions are treated as variable lease payments and recognized as lease expense in the period in which the obligation for those payments are incurred. Discount rates used to determine the present value of the lease payments are based on the Company’s incremental borrowing rate commensurate with the term of the lease.
The Company had total operating lease liabilities of $1.22 billion and $836.1 million as of March 31, 2023 and December 31, 2022, respectively, and right of use assets of $1.19 billion and $808.9 million as of March 31, 2023 and December 31, 2022, respectively, which were included in the condensed consolidated balance sheets.
GLPI Leases
As of March 31, 2023, the Company’s Bally’s Evansville, Bally’s Dover, Bally’s Quad Cities, Bally’s Black Hawk, Bally’s Tiverton and Hard Rock Biloxi properties are leased under the terms of a master lease agreement (the “Master Lease”) with GLPI. All GLPI leases are accounted for as operating leases within the provisions of ASC 842 over the lease term or until a re-assessment event occurs. The Master Lease has an initial term of 15 years and includes four, five-year options to renew and requires combined minimum annual payments of $100.5 million, subject to minimum 1% annual escalation or greater escalation dependent on CPI. The renewal options are not reasonably certain of exercise as of March 31, 2023.
In connection with the sale of the real estate for Bally’s Quad Cities and Bally’s Black Hawk during the second quarter of 2022, the Company received proceeds of $150.0 million and recognized a gain of $50.8 million. The gains recorded on the transactions represent the difference in the respective transaction prices and the derecognition of assets and are recorded within “General and administrative” in the condensed consolidated statements of operations.
On January 3, 2023, the Company completed a transaction with GLP Capital, L.P., the operating partnership of GLPI, related to the land and real estate assets of Bally’s Tiverton and Hard Rock Biloxi for total consideration of $625.4 million. The transaction was structured as a tax-free capital contribution and a substantial portion of the proceeds was used to reduce the Company’s debt. These properties were added to the Master Lease, increasing minimum annual payments by $48.5 million. An advance deposit of $200.0 million was received in the third quarter of 2022 in connection with this agreement, which was recorded within “Accrued liabilities” in the condensed consolidated balance sheets as of December 31, 2022. During the three months ended March 31, 2023, the Company recorded a gain of $374.2 million representing the difference in the transaction price and the de-recognition of assets. This gain is reflected as “Gain on sale-leaseback” in the consolidated statements of operations.
30
BALLY’S CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
In addition to the properties under the Master Lease explained above, the Company also entered into a lease with GLPI for the land associated with Tropicana Las Vegas, which the Company acquired during the third quarter of 2022. This lease has an initial term of 50 years (with a maximum term of 99 years with renewal options) at annual rent of $10.5 million, subject to minimum 1% annual escalation or greater escalation dependent on CPI. The renewal options are not reasonably certain of exercise as of March 31, 2023.
Components of lease expense included within “General and administrative” for operating leases during the three months ended March 31, 2023 and 2022 are as follows:
| Three Months Ended March 31, | |||||||||||
| (in thousands) | 2023 | 2022 | |||||||||
| Operating leases: | |||||||||||
| Operating lease cost | $ | 36,819 | $ | 15,299 | |||||||
| Variable lease cost | 2,470 | 1,817 | |||||||||
| Operating lease expense | 39,289 | 17,116 | |||||||||
| Short-term lease expense | 2,326 | 3,737 | |||||||||
| Total lease expense | $ | 41,615 | $ | 20,853 | |||||||
Supplemental cash flow and other information related to operating leases for the three months ended March 31, 2023 and 2022 are as follows:
| Three Months Ended March 31, | |||||||||||
| (in thousands) | 2023 | 2022 | |||||||||
| Cash paid for amounts included in the lease liability - operating cash flows from operating leases | $ | 31,777 | $ | 13,187 | |||||||
| Right of use assets obtained in exchange for operating lease liabilities | $ | 396,565 | $ | 1,363 | |||||||
| March 31, 2023 | December 31, 2022 | ||||||||||
| Weighted average remaining lease term | 18.2 years | 20.7 years | |||||||||
| Weighted average discount rate | 7.5 | % | 6.7 | % | |||||||
As of March 31, 2023, future minimum lease payments under noncancelable operating leases are as follows:
| (in thousands) | March 31, 2023 | ||||
| Remaining 2023 | $ | 99,944 | |||
| 2024 | 136,669 | ||||
| 2025 | 141,228 | ||||
| 2026 | 140,975 | ||||
| 2027 | 135,817 | ||||
| Thereafter | 1,719,249 | ||||
| Total lease payments | 2,373,882 | ||||
| Less: present value discount | (1,148,935) | ||||
| Lease obligations | $ | 1,224,947 | |||
Future minimum lease payments disclosed in the table above include $87.7 million related to extension options that are reasonably certain of being exercised. The table above does not include $18.1 million of payments for leases signed but not yet commenced as of March 31, 2023.
31
BALLY’S CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Financing Obligation
Bally’s Chicago Operating Company, LLC., an indirect wholly-owned subsidiary of the Company, entered into a ground lease for the land on which Bally’s Chicago will be built, which is accounted for as a financing obligation in accordance with ASC 470 Debt as the transaction did not qualify as a sale under ASC 842. The lease commenced November 18, 2022 and has a 99-year term followed by ten separate 20-year renewals at the Company’s option.
The Company recorded land within property and equipment, net of $200.0 million with a corresponding long-term financing obligation of $200.0 million on its consolidated balance sheets as of December 31, 2022. All lease payments are recorded as interest expense and there is no reduction to the financing obligation over the lease term. Bally’s Chicago made cash payments, and recorded corresponding interest expense, of $4.3 million during the three months ended March 31, 2023.
Lessor
The Company leases its hotel rooms to patrons and records the corresponding lessor revenue in “” within our condensed consolidated statements of operations. For the three months ended March 31, 2023 and 2022, the Company recognized $47.3 million and $26.9 million of lessor revenues related to the rental of hotel rooms, respectively. Hotel leasing arrangements vary in duration, but are short-term in nature. The cost and accumulated depreciation of property and equipment associated with hotel rooms is included in “Property and equipment, net” within our condensed consolidated balance sheets.
16. EQUITY PLANS
Equity Incentive Plans
The Company has two equity incentive plans: the 2015 Stock Incentive Plan (“2015 Incentive Plan”) and the Bally’s Corporation 2021 Equity Incentive Plan (“2021 Incentive Plan”), collectively (the “Equity Incentive Plans”).
The 2015 Incentive Plan provided for the grant of stock options, time-based restricted stock units (“RSUs”), restricted stock awards (“RSAs”), performance-based restricted stock units (“PSUs”) and other awards (collectively, “restricted awards”) (including those with performance-based vesting criteria) to employees, directors or consultants of the Company. The 2015 Incentive Plan authorized for the issuance of up to 1,700,000 shares of the Company’s common stock pursuant to grants of awards made under the plan. Effective May 18, 2021, no new awards were granted under the 2015 Incentive Plan as a result of the new 2021 Incentive Plan being approved at the Company’s 2021 Annual Shareholder Meeting. The 2021 Incentive Plan provides for the grant of stock options, RSAs, RSUs, PSUs and other awards (including those with performance-based vesting criteria) to employees, directors or consultants of the Company. The 4,250,000 shares of the Company’s common stock, decreased by the number of shares subject to awards granted under the 2015 Incentive Plan between December 31, 2020 and May 18, 2021, or 221,464 shares, plus any shares subject to awards granted under the 2021 Incentive Plan or the 2015 Incentive Plan that are added back to the share pool under the 2021 Incentive Plan pursuant to the plan’s share counting rules, are authorized for issuance under the 2021 Incentive Plan.
During the three months ended March 31, 2023, the Company granted 1,256,132 restricted awards with an aggregate intrinsic value of $24.1 million under the 2021 Incentive Plan. As of March 31, 2023, 1,553,149 shares remain available for grant under the 2021 Incentive Plan, which includes shares added back to the share pool based on share counting rules. There were 1,785,662 restricted awards outstanding as of March 31, 2023.
Share-Based Compensation
The Company recognized total share-based compensation expense of $6.0 million for the three months ended March 31, 2023 and $5.1 million for the three months ended March 31, 2022. The total income tax benefit for share-based compensation arrangements was $1.6 million and $1.2 million for the three months ended March 31, 2023 and 2022, respectively.
32
BALLY’S CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
17. STOCKHOLDERS’ EQUITY
Capital Return Program
Total share repurchase activity during the three months ended March 31, 2023 and 2022 was as follows:
| Three Months Ended March 31, | |||||||||||
| (in thousands, except share and per share data) | 2023 | 2022 | |||||||||
| Number of common shares repurchased | 1,026,343 | 350,616 | |||||||||
| Total cost | $ | 19,753 | $ | 13,288 | |||||||
| Average cost per share, including commissions | $ | 19.25 | $ | 37.90 | |||||||
Future share repurchases may be effected in various ways, which could include open-market or private repurchase transactions, accelerated stock repurchase programs, tender offers or other transactions. The amount, timing and terms of any return of capital transaction will be determined based on prevailing market conditions and other factors. There is no fixed time period to complete share repurchases.
The Company retired 1,026,343 and 1,146,194 shares of its common stock held in treasury during the three months ended March 31, 2023 and 2022, respectively. The shares were returned to the status of authorized but unissued shares. As of March 31, 2023, there were no shares remaining in treasury.
As of March 31, 2023 and December 31, 2022, $174.8 million and $194.6 million, respectively, remained available for use under the above-mentioned capital return program, subject to regulatory and debt agreements limitations.
Common Stock Offering
On April 20, 2021, the Company completed an underwritten public offering of common stock at a price to the public of $55.00 per share. The Company issued a total of 12,650,000 shares of Bally’s common stock in the offering, which included 1,650,000 shares issued pursuant to the full exercise of the underwriters’ over-allotment option.
The net proceeds from the offering were approximately $671.4 million, after deducting underwriting discounts, but before expenses.
On April 20, 2021, the Company issued to affiliates of Sinclair a warrant to purchase 909,090 common shares for an aggregate purchase price of $50.0 million, the same price per share as the public offering price in Bally’s common stock public offering ($55.00 per share). The net proceeds were used to finance a portion of the purchase price of the Gamesys acquisition.
The exercise price of the warrant is nominal, and its exercise is subject to, among other conditions, requisite gaming authority approvals. Sinclair agreed not to acquire more than 4.9% of Bally’s outstanding common shares without such approvals. In addition, in accordance with the agreements that Bally’s and Sinclair entered into in November 2020, Sinclair exchanged 2,086,908 common shares for substantially identical warrants.
Changes to Authorized Shares
On May 18, 2021, following receipt of required shareholder approvals, the Company amended its Certificate of Incorporation to increase the number of authorized shares of common stock from 100 million to 200 million, and authorize the issuance of up to 10 million shares of preferred stock. As of March 31, 2023 and December 31, 2022, no shares of preferred stock have been issued.
33
BALLY’S CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Shares Outstanding
As of March 31, 2023, the Company had 45,767,764 common shares issued and outstanding. The Company issued warrants, options and other contingent consideration in acquisitions and strategic partnerships that are expected to result in the issuance of common shares in future periods resulting from the exercise of warrants and options or the achievement of certain performance targets. These incremental shares are summarized below:
Sinclair Penny Warrants (Note 2) | 7,911,724 | ||||
Sinclair Performance Warrants (Note 2) | 3,279,337 | ||||
Sinclair Options(1) (Note 2) | 1,639,669 | ||||
MKF penny warrants (Note 11) | 34,455 | ||||
MKF contingent shares (Note 11) | 386,926 | ||||
Telescope contingent shares (Note 11) | 8,626 | ||||
SportCaller contingent shares(2) (Note 11) | 362,129 | ||||
Outstanding awards under Equity Incentive Plans (Note 16) | 1,785,662 | ||||
| 15,408,528 | |||||
(1) Consists of four equal tranches to purchase shares with exercise prices ranging from $30.00 to $45.00 per share, exercisable over a seven-year period beginning on the fourth anniversary of the November 18, 2020 closing of the Sinclair Agreement.
(2) The contingent consideration related to the SportCaller acquisition is 6.5M EUR as of March 31, 2023, payable in shares subject to certain post-acquisition earn-out targets and based on share price at time of payment. For purposes of this estimate, the Company used the EUR>US Dollar conversion rate of 1.0875 as of March 31, 2023 and the closing share price of Company common shares of $19.52 per share to calculate the shares expected to be issued if earn-out targets are met.
Accumulated Other Comprehensive Income (Loss)
The following tables reflect the changes in accumulated other comprehensive loss by component, net of tax, for the three months ended March 31, 2023 and 2022, respectively:
| (in thousands) | Foreign Currency Translation Adjustment | Benefit Plans | Total | ||||||||||||||
| Accumulated other comprehensive loss at December 31, 2022 | $ | (295,984) | $ | 344 | $ | (295,640) | |||||||||||
| Current period other comprehensive income | 52,073 | — | 52,073 | ||||||||||||||
Accumulated other comprehensive loss at March 31, 2023 | $ | (243,911) | $ | 344 | $ | (243,567) | |||||||||||
| (in thousands) | Foreign Currency Translation Adjustment | Benefit Plans | Total | ||||||||||||||
| Accumulated other comprehensive loss at December 31, 2021 | $ | (25,833) | $ | (976) | $ | (26,809) | |||||||||||
| Current period other comprehensive loss | (71,542) | — | (71,542) | ||||||||||||||
Accumulated other comprehensive loss at March 31, 2022 | $ | (97,375) | $ | (976) | $ | (98,351) | |||||||||||
34
BALLY’S CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
18. COMMITMENTS AND CONTINGENCIES
Capital Expenditure Commitments
Bally’s Atlantic City - As part of the regulatory approval process with the State of New Jersey, the Company committed to spend $100 million in capital expenditures over a five year period to invest in and improve the property. The commitment calls for expenditures of no less than $25 million each in 2021, 2022 and 2023 and $85 million in aggregate for 2021, 2022 and 2023. The remaining $15 million of committed capital must be spent over 2024 and 2025. From 2021 through 2025, no less than $35 million must be invested in the hotel and no less than $65 million must be invested in non-hotel projects.
Bally’s Twin River - Per the terms of the Regulatory Agreement in Rhode Island, the Company is committed to invest $100 million in its Rhode Island properties over the term of the master contract through June 30, 2043, including an expansion and the addition of new amenities at Bally’s Twin River.
City of Chicago Guaranty
In connection with the host community agreement, signed by Bally’s Chicago Operating Company, LLC (the “Developer”), a wholly-owned indirect subsidiary of the Company, the Company provided the City of Chicago with a performance guaranty whereby the Company agreed to have and maintain available financial resources in an amount reasonably sufficient to allow the Developer to complete its obligations under the host community agreement. In addition, upon notice from the City of Chicago that the Developer has failed to perform various obligations under the host community agreement, the Company has indemnified the City of Chicago against any and all liability, claim or reasonable and documented expense the City of Chicago may suffer or incur by reason of any nonperformance of any of the Developer’s obligations.
Bally’s Chicago Casino Fees
Under the Illinois Gambling Act, the Company will be responsible to pay various gaming license fees to the Illinois Gaming Board in connection with the Company’s casino operations. These fees include: (i) a $250,000 land based gaming fee to operate the casino on land prior to commencing operations, (ii) a $250,000 license fee prior to receiving an owners license and gambling operations commence, (iii) gaming position fees equal to the minimum initial fee of $30,000 per gaming position to be paid within 30 days of issuance of an owners license or Temporary Operating Permit (“TOP”), (iv) a $15 million reconciliation fee upon issuance of a TOP or an owners license, whichever is earlier, and (v) a reconciliation fee payment three years after the date operations commenced (in a temporary or permanent facility) in an amount equal to 75% of the adjusted gross receipt (“AGR”) for the most lucrative 12-month period of operations, minus the amount equal to the initial payment per gaming position paid.
Sponsorship Commitments
The Company has entered into several sponsorship agreements, totaling $107.5 million over 15 years, with various professional sports leagues and teams, allowing the Company use of official league marks for branding and promotions, among other rights.
35
BALLY’S CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
19. SEGMENT REPORTING
The Company has three operating and reportable segments: Casinos & Resorts, North America Interactive and International Interactive. The “Other” category includes interest expense for the Company and certain unallocated corporate operating expenses and other adjustments, including eliminations of transactions among segments to reconcile to the Company’s consolidated results including, among other expenses, share-based compensation, acquisition and other transaction costs and certain non-recurring charges.
The Company’s three reportable segments as of March 31, 2023 are:
Casinos & Resorts - Includes the Company’s 15 casino and resort properties and one horse race track.
North America Interactive - A portfolio of sports betting, iGaming and free-to-play gaming brands.
International Interactive - Gamesys’ European and Asian operations.
As of March 31, 2023, the Company’s operations were predominately in the US, Europe and Asia with a less substantive footprint in other countries world-wide. For geographical reporting purposes, revenue generated outside of the US has been aggregated into the International Interactive reporting segment, and consists primarily of revenue from the UK and Japan. Revenue generated from the UK and Japan represented approximately 24% and 12% of total revenue, respectively, for the three months ended March 31, 2023, and approximately 26% and 15%, respectively for the three months ended March 31, 2022. The Company does not have any revenues from any individual customers that exceed 10% of total reported revenues.
The Company utilizes Adjusted EBITDA (defined below) as a measure of its performance. Management believes Adjusted EBITDA is representative of its ongoing business operations including its ability to service debt and to fund capital expenditures, acquisitions and operations, in addition to it being a commonly used measure of performance in the gaming industry and used by industry analysts to evaluate operations and operating performance.
The following table sets forth revenue and Adjusted EBITDA for the Company’s three reportable segments and reconciles Adjusted EBITDA on a consolidated basis to net income (loss). The Other category is included in the following tables in order to reconcile the segment information to the Company’s condensed consolidated financial statements.
36
BALLY’S CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
| Three Months Ended March 31, | |||||||||||
| (in thousands) | 2023 | 2022 | |||||||||
| Revenue | |||||||||||
| Casinos & Resorts | $ | 328,786 | $ | 279,970 | |||||||
| North America Interactive | 24,362 | 15,227 | |||||||||
| International Interactive | 245,572 | 253,074 | |||||||||
| Total | $ | 598,720 | $ | 548,271 | |||||||
Adjusted EBITDA(1) | |||||||||||
| Casinos & Resorts | $ | 73,885 | $ | 73,790 | |||||||
| North America Interactive | (10,563) | (19,325) | |||||||||
| International Interactive | 80,301 | 73,327 | |||||||||
| Other | (17,268) | (13,092) | |||||||||
| Total | 126,355 | 114,700 | |||||||||
| Operating income (expense) | |||||||||||
| Depreciation and amortization | (74,561) | (78,881) | |||||||||
| Transaction costs | (22,018) | (6,023) | |||||||||
| Restructuring | (16,822) | — | |||||||||
| Share-based compensation | (6,040) | (5,095) | |||||||||
| Gain on sale-leaseback | 374,186 | — | |||||||||
| Other | (4,368) | (2,181) | |||||||||
| Income from operations | 376,732 | 22,520 | |||||||||
| Other income (expense) | |||||||||||
| Interest expense, net of interest income | (63,264) | (45,685) | |||||||||
| Other | 2,610 | 19,479 | |||||||||
| Total other income (expense), net | (60,654) | (26,206) | |||||||||
| Income (loss) before income taxes | 316,078 | (3,686) | |||||||||
| (Provision) benefit for income taxes | (137,742) | 5,575 | |||||||||
| Net income | $ | 178,336 | $ | 1,889 | |||||||
__________________________________
(1) Adjusted EBITDA is defined as earnings, or loss, for the Company before interest expense, net of interest income, provision (benefit) for income taxes, depreciation and amortization, non-operating (income) expense, acquisition, integration and restructuring expense, share-based compensation, and certain other gains or losses as well as, when presented for our reporting segments, an adjustment related to the allocation of corporate cost among segments. Adjusted EBITDA should not be construed as an alternative to GAAP net income, its most directly comparable GAAP measure, nor is it directly comparable to similarly titled measures presented by other companies.
| Three Months Ended March 31, | |||||||||||
| (in thousands) | 2023 | 2022 | |||||||||
| Capital Expenditures | |||||||||||
| Casinos & Resorts | $ | 25,225 | $ | 48,573 | |||||||
| North America Interactive | 526 | 175 | |||||||||
| International Interactive | 781 | 5,682 | |||||||||
| Other | 17,146 | 86 | |||||||||
| Total | $ | 43,678 | $ | 54,516 | |||||||
37
BALLY’S CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Total assets are not regularly reviewed for each operating segment when assessing segment performance or allocating resources and accordingly, are not presented. As of March 31, 2023, the Company’s long-lived assets located outside of the US, consisting primarily of goodwill and intangible assets, were aggregated into the International Interactive reporting segment as disclosed in Note 10 “Goodwill and Intangible Assets.” Over 98% of property and equipment is located within the US.
20. EARNINGS (LOSS) PER SHARE
Diluted earnings per share includes the determinants of basic earnings per share and, in addition, reflects the dilutive effect of the common stock deliverable for stock options, using the treasury stock method, and for RSUs, RSAs and PSUs for which future service is required as a condition to the delivery of the underlying common stock.
| Three Months Ended March 31, | |||||||||||
| (in thousands, except per share data) | 2023 | 2022 | |||||||||
| Net income applicable to common stockholders | $ | 178,336 | $ | 1,889 | |||||||
| Weighted average common shares outstanding, basic | 54,420 | 60,017 | |||||||||
| Weighted average effect of dilutive securities | 669 | 103 | |||||||||
| Weighted average common shares outstanding, diluted | 55,089 | 60,120 | |||||||||
| Basic earnings per share | $ | 3.28 | $ | 0.03 | |||||||
| Diluted earnings per share | $ | 3.24 | $ | 0.03 | |||||||
There were 5,094,394 and 4,801,394 share-based awards that were considered anti-dilutive for the three months ended March 31, 2023 and 2022, respectively.
On November 18, 2020, the Company issued Penny Warrants, Performance Warrants and Options which participate in dividends with the Company’s common stock subject to certain contingencies. In the period in which the contingencies are met, those instruments are participating securities to which income will be allocated using the two-class method. The Performance Warrants and Options do not participate in net losses. The Penny Warrants were considered exercisable for little to no consideration and are therefore included in basic shares outstanding at their issuance date. For the three months ended March 31, 2023 and 2022, the shares underlying the Performance Warrants were anti-dilutive as certain contingencies were not met. Refer to Note 2 “Significant Accounting Policies” for further information regarding the Sinclair Agreement.
38
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the securities laws. Forward-looking statements are statements as to matters that are not historical facts, and include statements about our plans, objectives, expectations and intentions.
Forward-looking statements are not guarantees and are subject to risks and uncertainties. Forward-looking statements are based on our current expectations and assumptions. Although we believe that our expectations and assumptions are reasonable at this time, they should not be regarded as representations that our expectations will be achieved. Actual results may vary materially. Forward-looking statements speak only as of the time of this report and we do not undertake to update or revise them as more information becomes available, except as required by law.
Important factors beyond those that apply to most businesses, some of which are beyond our control, that could cause actual results to differ materially from our expectations and assumptions include, without limitation:
•unexpected costs, difficulties integrating and other events impacting our completed acquisitions and our ability to realize anticipated benefits;
•risks associated with our rapid growth, including those affecting customer and employee retention, integration and controls;
•risks associated with the impact of the digitalization of gaming on our casino operations, our expansion into sports betting and iGaming and the highly competitive and rapidly changing aspects of our businesses generally;
•the very substantial regulatory restrictions applicable to us, including costs of compliance;
•restrictions and limitations in agreements to which we are subject, including our debt; and
•other risks identified in Part I. Item 1A. “Risk Factors” of Bally’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 as filed with the SEC on March 1, 2023 and other filings with the SEC.
The foregoing list of important factors is not exclusive and does not include matters like changes in general economic conditions that affect substantially all gaming businesses.
You should not place undue reliance on our forward-looking statements.
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Overview
We are a global gaming, hospitality and entertainment company with a portfolio of casinos and resorts and online gaming businesses. We provide our customers with physical and interactive entertainment and gaming experiences, including traditional casino offerings, iCasino, online bingo, sportsbook and free-to-play (“F2P”) games.
As of March 31, 2023, we own and manage 15 land-based casinos and one horse racetrack in ten states across the United States (“US”) operating under the Bally’s brand. Our land-based casino operations include approximately 14,700 slot machines, 500 table games and 5,300 hotel rooms, along with various restaurants, entertainment venues and other amenities. In 2021, we acquired London-based Gamesys Group Ltd. (“Gamesys”) to expand our geographical and product footprints to include an iGaming business with well-known brands providing iCasino and online bingo experiences to our global online customer base with concentrations in Europe and Asia and a growing presence in North America. Our revenues are primarily generated by these gaming and entertainment offerings. We own and operate our proprietary software and technology stack, which is designed to allow us to provide consumers differentiated offerings and exclusive content.
Our Strategy and Business Developments
We seek to continue to grow our business by actively pursuing the acquisition and development of new gaming opportunities and reinvesting in our existing operations. We believe that interactive gaming represents a significant strategic opportunity for the future growth of Bally’s and we will continue to actively focus resources in markets that we believe will regulate iGaming. We seek to increase revenues at our casinos and resorts through enhancing the guest experience by providing popular games, restaurants, hotel accommodations, entertainment and other amenities in attractive surroundings with high-quality guest service. We believe that our recent acquisitions have expanded and diversified us from financial and market exposure perspectives, while continuing to mitigate our susceptibility to regional economic downturns, idiosyncratic regulatory changes and increases in regional competition.
We continue to make progress on the integration of our acquired assets and deploying capital on our strategic growth projects. These steps have positioned us as a prominent, full-service, vertically integrated iGaming company, with physical casinos and online gaming solutions united under a single, leading brand.
Operating Structure
Our business is organized into three reportable segments: (i) Casinos & Resorts, (ii) North America Interactive, and (iii) International Interactive.
Casinos & Resorts - includes our 15 land-based casino properties and one horse racetrack:
| Property Name | Location | |||||||
| Bally’s Atlantic City Casino Resort (“Bally’s Atlantic City”) | Atlantic City, New Jersey | |||||||
Bally’s Black Hawk(1) | Black Hawk, Colorado | |||||||
| Bally’s Dover Casino Resort (“Bally’s Dover”) | Dover, Delaware | |||||||
| Bally’s Evansville Casino & Hotel (“Bally’s Evansville”) | Evansville, Indiana | |||||||
Bally’s Kansas City Casino (“Bally’s Kansas City”) | Kansas City, Missouri | |||||||
| Bally’s Lake Tahoe Casino Resort (“Bally’s Lake Tahoe”) | Lake Tahoe, Nevada | |||||||
| Bally’s Quad Cities Casino & Hotel (“Bally’s Quad Cities”) | Rock Island, Illinois | |||||||
| Bally’s Shreveport Casino & Hotel (“Bally’s Shreveport”) | Shreveport, Louisiana | |||||||
| Bally’s Tiverton Casino & Hotel (“Bally’s Tiverton”) | Tiverton, Rhode Island | |||||||
| Bally’s Twin River Lincoln Casino Resort (“Bally’s Twin River”) | Lincoln, Rhode Island | |||||||
| Bally’s Vicksburg Casino (“Bally’s Vicksburg”) | Vicksburg, Mississippi | |||||||
| Hard Rock Hotel & Casino Biloxi (“Hard Rock Biloxi”) | Biloxi, Mississippi | |||||||
| Tropicana Las Vegas Casino and Resort (“Tropicana Las Vegas”) | Las Vegas, Nevada | |||||||
| Bally’s Arapahoe Park | Aurora, Colorado | |||||||
__________________________________
(1) Consists of three casino properties: Bally’s Black Hawk North Casino, Bally’s Black Hawk West Casino and Bally’s Black Hawk East Casino.
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North America Interactive - includes the following North America businesses:
•Bally’s Interactive, primarily a business-to-consumer (“B2C”) online iCasino operator; and
•Consumer facing service and marketing engines, including SportCaller, a B2B and F2P game provider for sports betting companies; Live at the Bike, an online subscription streaming service featuring livestream and on-demand poker videos and podcasts; and the Association of Volleyball Professionals (“AVP”), a professional beach volleyball organization and host of the longest-running domestic beach volleyball tour.
The North America Interactive reportable segment also includes the North American operations of Gamesys, a B2C iCasino operator.
International Interactive - includes Gamesys.
Refer to Note 19 “Segment Reporting” to our condensed consolidated financial statements for additional information on our segment reporting structure.
Rhode Island Regulatory Agreement
On February 17, 2022, certain of our subsidiaries, the Rhode Island Department of Business Regulation (“DBR”) and the Division of Lotteries (“DoL”) of the Rhode Island Department of Revenue amended and restated our Regulatory Agreement (the “Regulatory Agreement”). The Regulatory Agreement contains financial and other covenants that, among other things, (i) restrict the acquisition of stock and other financial interests in us, (ii) relate to the licensing and composition of members of our management and Board of Directors (the “Board”), (iii) prohibit certain competitive activities and related-party transactions and (iv) restrict our ability to declare or make restricted payments (including dividends), incur additional indebtedness or take certain other actions, if our leverage ratio exceeds 5.50 to 1.00 (in general being gross debt divided by Adjusted EBITDA, each as defined in the Regulatory Agreement).
The Regulatory Agreement also provides affirmative obligations, including setting a minimum number of employees that we must employ in Rhode Island and providing the DBR and DoL with periodic information updates about us. Among other things, the Regulatory Agreement prohibits us and our subsidiaries from owning, operating, managing or providing gaming specific goods and services to any properties in Rhode Island (other than Bally’s Twin River and Bally’s Tiverton), Massachusetts, Connecticut or New Hampshire. A failure to comply with the Regulatory Agreement could subject us to injunctive or monetary relief, payments to the Rhode Island regulatory agencies and ultimately the revocation or suspension of our licenses to operate in Rhode Island.
In addition, our master contracts with Rhode Island were extended through June 30, 2043, and allow for consolidation of promotional points between Bally’s Twin River and Bally’s Tiverton, obligate Bally’s Twin River to build a 50,000 square foot expansion, obligate Bally’s to lease at least 20,000 square feet of commercial space in Providence, and commit us to invest $100 million in Rhode Island over this extended term, including an expansion and the addition of new amenities at Bally’s Twin River. The June 2021 legislation authorized Bally’s Twin River to become a licensed technology provider, which it did on July 1, 2021. As a licensed Technology Provider, Bally’s Twin River was entitled to an additional share of net terminal income on Video Lottery Terminals (“VLTs”) which they owned or leased. This June 2021 legislation also authorized a joint venture between Bally’s and International Gaming Technology PLC (“IGT”) to become a licensed technology provider and supply the State of Rhode Island with all VLTs at both Bally’s Twin River and Bally’s Tiverton for a 20.5-year period starting January 1, 2023. The joint venture was organized as the Rhode Island VLT Company, LLC, with IGT owning 60% of the membership interests and Bally’s or its affiliates owning 40% of the membership interests. On December 30, 2022 Bally’s Twin River and Bally’s Tiverton purchased additional machines directly from IGT to effectively own 40% of the machines. On January 1, 2023 Bally’s Twin River and Bally’s Tiverton contributed all of their machines to Rhode Island VLT Company, LLC in return for an aggregate 40% membership interest, and IGT contributed all of their machines at Bally’s Twin River and Bally’s Tiverton to the Rhode Island VLT Company, LLC in return for a 60% membership interest.
Macroeconomic and Other Factors
Our business is subject to risks caused by global economic challenges, including those caused by the COVID-19 pandemic, the impact of the war in Ukraine, rising inflation, rising interest rates and supply-chain disruptions, that can cause economic uncertainty and volatility. These challenges can negatively impact discretionary consumer spending and could result in a reduction in visitors to our properties, including those that stay in our hotels, or discretionary spending by our customers on entertainment and leisure activities. In addition, inflation generally affects our business by increasing our cost of labor. In periods of sustained inflation, it may be difficult to effectively control such increases to our costs and retain key personnel.
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Key Performance Indicators
The key performance indicator used in managing our business is Adjusted EBITDA, a non-GAAP measure. Adjusted EBITDA is defined as earnings for the Company, or where noted its reporting segments, before, in each case, interest expense, net of interest income, provision (benefit) for income taxes, depreciation and amortization, non-operating income, acquisition and other transaction related costs, share-based compensation and certain other gains or losses as well as, when presented for our reporting segments, an adjustment related to the allocation of corporate cost among segments.
We use Adjusted EBITDA to analyze the performance of our business and it is used as a determining factor for performance based compensation for members of our management team. We have historically used Adjusted EBITDA when evaluating operating performance because we believe that the inclusion or exclusion of certain recurring and non-recurring items is necessary to provide a more fulsome understanding of our core operating results and as a means to evaluate period-to-period performance. Also, we present Adjusted EBITDA because it is used by some investors and creditors as an indicator of the strength and performance of ongoing business operations, including our ability to service debt, and to fund capital expenditures, acquisitions and operations. These calculations are commonly used as a basis for investors, analysts and credit rating agencies to evaluate and compare operating performance and value companies within our industry. Adjusted EBITDA information is presented because management believes that it is a commonly used measure of performance in the gaming industry and that it is considered by many to be a key indicator of our operating results.
Adjusted EBITDAR is used outside of our financial statements solely as a valuation metric. Adjusted EBITDAR is defined as Adjusted EBITDA for our Casinos & Resorts segment plus rent expense associated with triple net operating leases. Adjusted EBITDAR is an additional metric used by analysts in valuing gaming companies subject to triple net leases since it eliminates the effects of variability in leasing methods and capital structures. This metric is included as supplemental disclosure because (i) we believe Adjusted EBITDAR is used by gaming operator analysts and investors to determine the equity value of gaming operators and (ii) financial analysts refer to Adjusted EBITDAR when valuing our business. We believe Adjusted EBITDAR is useful for equity valuation purposes because (i) its calculation isolates the effects of financing real estate, and (ii) using a multiple of Adjusted EBITDAR to calculate enterprise value allows for an adjustment to the balance sheet to recognize estimated liabilities arising from operating leases related to real estate.
Adjusted EBITDA and Adjusted EBITDAR should not be construed as an alternative to net income, the most directly comparable GAAP measure, as an indicator of our performance. In addition, Adjusted EBITDA and Adjusted EBITDAR as used by us may not be defined in the same manner as other companies in our industry, and, as a result, may not be comparable to similarly titled non-GAAP financial measures of other companies. Adjusted EBITDAR should not be viewed as a measure of overall operating performance or considered in isolation or as an alternative to net income, because it excludes the rent expense associated with our triple net operating leases with GLPI and the lease for real estate and land underlying the operations of the Bally’s Lake Tahoe property.
Beginning in the third quarter ended September 30, 2022, we revised our calculation of Adjusted EBITDA to exclude adjustments for launch costs and preopening expenses. The tables below within “Adjusted EBITDA and Adjusted EBITDAR by Segment” have been revised to reflect this new presentation for applicable periods.
First Quarter 2023 Results
The following table presents, for the periods indicated, certain revenue and income items:
| Three Months Ended March 31, | |||||||||||
| (in millions) | 2023 | 2022 | |||||||||
| Total revenue | $ | 598.7 | $ | 548.3 | |||||||
| Income from operations | 376.7 | 22.5 | |||||||||
| Net income | 178.3 | 1.9 | |||||||||
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The following table presents, for the periods indicated, certain income and expense items expressed as a percentage of total revenue:
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Total revenue | 100.0 | % | 100.0 | % | |||||||
| Gaming and non-gaming expenses | 45.1 | % | 47.4 | % | |||||||
| General and administrative | 42.0 | % | 34.1 | % | |||||||
| Gain from sale-leaseback, net | (62.5) | % | — | % | |||||||
| Depreciation and amortization | 12.5 | % | 14.4 | % | |||||||
| Total operating costs and expenses | 37.1 | % | 95.9 | % | |||||||
| Income from operations | 62.9 | % | 4.1 | % | |||||||
| Other income (expense) | |||||||||||
| Interest expense, net of amounts capitalized | (10.6) | % | (8.3) | % | |||||||
| Other non-operating income, net | 0.4 | % | 3.6 | % | |||||||
| Total other income (expense), net | (10.1) | % | (4.8) | % | |||||||
| Income (loss) before income taxes | 52.8 | % | (0.7) | % | |||||||
| Provision (benefit) for income taxes | 23.0 | % | (1.0) | % | |||||||
| Net income | 29.8 | % | 0.3 | % | |||||||
__________________________________
Note: Amounts in table may not subtotal due to rounding.
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Segment Performance
The following table sets forth certain financial information associated with results of operations for the three months ended March 31, 2023 and 2022.
| Three Months Ended March 31, | |||||||||||||||||
| (in thousands, except percentages) | 2023 | 2022 | $ Change | ||||||||||||||
| Revenue: | |||||||||||||||||
| Gaming | |||||||||||||||||
| Casinos & Resorts | $ | 233,107 | $ | 217,805 | $ | 15,302 | |||||||||||
| North America Interactive | 16,607 | 6,645 | 9,962 | ||||||||||||||
| International Interactive | 237,181 | 239,252 | (2,071) | ||||||||||||||
| Total Gaming revenue | 486,895 | 463,702 | 23,193 | ||||||||||||||
| Non-gaming | |||||||||||||||||
| Casinos & Resorts | 95,679 | 62,165 | 33,514 | ||||||||||||||
| North America Interactive | 7,755 | 8,582 | (827) | ||||||||||||||
| International Interactive | 8,391 | 13,822 | (5,431) | ||||||||||||||
| Total Non-gaming revenue | 111,825 | 84,569 | 27,256 | ||||||||||||||
| Total revenue | $ | 598,720 | $ | 548,271 | $ | 50,449 | |||||||||||
| Operating costs and expenses: | |||||||||||||||||
| Gaming | |||||||||||||||||
| Casinos & Resorts | $ | 82,423 | $ | 76,381 | $ | 6,042 | |||||||||||
| North America Interactive | 17,309 | 7,329 | 9,980 | ||||||||||||||
| International Interactive | 117,929 | 135,502 | (17,573) | ||||||||||||||
| Total Gaming expenses | 217,661 | 219,212 | (1,551) | ||||||||||||||
| Non-gaming | |||||||||||||||||
| Casinos & Resorts | 45,279 | 30,048 | 15,231 | ||||||||||||||
| North America Interactive | 2,205 | 1,318 | 887 | ||||||||||||||
| International Interactive | 4,860 | 9,271 | (4,411) | ||||||||||||||
| Total Non-gaming expenses | 52,344 | 40,637 | 11,707 | ||||||||||||||
| General and administrative | |||||||||||||||||
| Casinos & Resorts | 128,117 | 99,587 | 28,530 | ||||||||||||||
| North America Interactive | 24,930 | 27,044 | (2,114) | ||||||||||||||
| International Interactive | 57,927 | 35,315 | 22,612 | ||||||||||||||
| Other | 40,634 | 25,075 | 15,559 | ||||||||||||||
| Total General and administrative | $ | 251,608 | $ | 187,021 | $ | 64,587 | |||||||||||
| Margins: | |||||||||||||||||
| Gaming expenses as a percentage of Gaming revenue | 45 | % | 47 | % | |||||||||||||
| Non-gaming expenses as a percentage of Non-gaming revenue | 47 | % | 48 | % | |||||||||||||
| General and administrative as a percentage of Total revenue | 42 | % | 34 | % | |||||||||||||
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Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022
Total Revenue
Total revenue for the three months ended March 31, 2023 and 2022 consisted of the following (in thousands):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | $ Change | % Change | ||||||||||||||||||||
| Gaming | $ | 486,895 | $ | 463,702 | $ | 23,193 | 5.0 | % | |||||||||||||||
| Hotel | 47,332 | 26,935 | 20,397 | 75.7 | % | ||||||||||||||||||
| Food and beverage | 33,608 | 23,988 | 9,620 | 40.1 | % | ||||||||||||||||||
| Retail, entertainment and other | 30,885 | 33,646 | (2,761) | (8.2) | % | ||||||||||||||||||
| Total revenue | $ | 598,720 | $ | 548,271 | $ | 50,449 | 9.2 | % | |||||||||||||||
Total revenue for the three months ended March 31, 2023 increased 9.2% to $598.7 million, from $548.3 million in the same period last year. We saw gaming, hotel, and food and beverage increase, through organic growth at several of our casino properties. Additionally, we saw incremental revenue from our recent acquisitions of Tropicana Las Vegas and Casino Secret (collectively “Recent Acquisitions”) of $35.1 million.
Gaming and Non-gaming Expenses
Gaming expenses for the three months ended March 31, 2023 decreased $1.6 million, from $219.2 million in 2022. This decrease was primarily attributable to the decrease in marketing costs directly associated with the Company’s iGaming products and services, included within gaming expenses, compared to prior year. Non-gaming expenses for the three months ended March 31, 2023 increased $11.7 million to $52.3 million from the same period last year. This increase was primarily attributable to the addition of our Tropicana Las Vegas casino property, which contributed incremental non-gaming expenses of $10.8 million during the first quarter of 2023.
General and Administrative
General and administrative expense for the three months ended March 31, 2023 increased $64.6 million, or 34.5%, to $251.6 million from $187.0 million in the same period last year. This increase was primarily attributable to an increase in operating lease expense of $20.8 million from prior year, $16.8 million of restructuring charges related to the Interactive business workforce reduction, increased acquisition and transaction related costs, and the inclusion of the Recent Acquisitions, which contributed incremental general and administrative expenses of $12.2 million.
Depreciation and Amortization
Depreciation and amortization for the three months ended March 31, 2023 was $74.6 million, a decrease of $4.3 million, or 5.5%, compared to the same period last year. We recorded impairment charges of $232.4 million in the fourth quarter of 2022, resulting in a decrease in depreciation and amortization expense during the first quarter of 2023.
Income From Operations
Income from operations was $376.7 million, or 62.9% as a percentage of total revenue, for the three months ended March 31, 2023 compared to $22.5 million, or 4.1%, in the same period last year. The change year-over-year was driven by the gain on sale-leaseback recorded during the current period of $374.2 million related to our Hard Rock Biloxi and Bally’s Tiverton properties, coupled with organic revenue growth a benefit from our Recent Acquisitions, offset by increased general and administrative expenses.
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Other Income (Expense)
Total other expense increased $34.4 million to $60.7 million for the first quarter of 2023 from $26.2 million in the same period last year. The increase in other expense was primarily attributable to an increase in interest expense, net of $17.6 million due to higher interest rates of our borrowings year-over-year, and an increase in the naming rights liability for performance warrants associated with our contracts with Sinclair in the first quarter of 2023, compared to a decrease in the liability in the first quarter of 2022. These were partially offset by the gain on extinguishment of debt of $4.0 million recorded in the first quarter of 2023, related to the repurchase and retirement of $15.0 million of our 2031 Senior Notes.
Provision (Benefit) for Income Taxes
Provision for income taxes for the three months ended March 31, 2023 was $137.7 million compared to a benefit of $5.6 million in the prior year. The effective tax rate for the first quarter of 2023 was 43.6% compared to 151.2% in the prior year. The 2023 year to date effective tax rate was higher than the US federal statutory tax rate of 21%, largely due to an increase in the valuation allowance and a tax liability for a discrete item related to the deferred gain on sale leaseback transactions in Mississippi and Rhode Island.
Net Income and Earnings Per Share
Net income for the three months ended March 31, 2023 was $178.3 million, or $3.24 per diluted share, compared to $1.9 million, or $0.03 per diluted share, for the three months ended March 31, 2022.
Adjusted EBITDA and Adjusted EBITDAR by Segment
Consolidated Adjusted EBITDA was $126.4 million for the three months ended March 31, 2023, an increase of $11.7 million, or 10.2%, from $114.7 million in the same period last year.
Adjusted EBITDA for the Casinos & Resorts segment for the three months ended March 31, 2023 increased $0.1 million to $73.9 million compared to the same prior year period. Casinos & Resorts Adjusted EBITDAR was $105.1 million for the three months ended March 31, 2023, which further adjusts Adjusted EBITDA for rent expense associated with our operating leases, as defined below.
Adjusted EBITDA for the North America Interactive segment for the three months ended March 31, 2023 increased $8.8 million to $(10.6) million compared to the same prior year period, mainly due to cost-savings in connection with the execution of the restructuring plan of our interactive business.
Adjusted EBITDA for the International Interactive segment for the three months ended March 31, 2023 increased $7.0 million, or 9.5%, to $80.3 million compared to the same prior year period, mainly due to optimized marketing spend and cost-savings in connection with the execution of the restructuring plan of our interactive business.
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The following tables reconcile Adjusted EBITDA and Casinos & Resorts Adjusted EBITDAR, non-GAAP measures, to net income, as derived from our financial statements (in thousands):
Three Months Ended March 31, 2023 (in thousands) | Casinos & Resorts | North America Interactive | International Interactive | Other | Total | ||||||||||||||||||||||||
| Net income (loss) | $ | 332,885 | $ | (17,534) | $ | 15,580 | $ | (152,595) | $ | 178,336 | |||||||||||||||||||
| Interest expense, net of interest income | 7 | (1) | (186) | 63,444 | 63,264 | ||||||||||||||||||||||||
| Provision (benefit) for income taxes | 74,974 | (7,642) | 342 | 70,068 | 137,742 | ||||||||||||||||||||||||
| Depreciation and amortization | 17,190 | 3,475 | 46,062 | 7,834 | 74,561 | ||||||||||||||||||||||||
Non-operating (income) expense (1) | — | (785) | 203 | (4,236) | (4,818) | ||||||||||||||||||||||||
| Foreign exchange (gain) loss | (2) | 2,066 | 2,855 | (611) | 4,308 | ||||||||||||||||||||||||
Transaction costs(2) | — | 1,233 | 5,509 | 15,276 | 22,018 | ||||||||||||||||||||||||
Restructuring charges(3) | — | 5,858 | 9,332 | 1,632 | 16,822 | ||||||||||||||||||||||||
| Share-based compensation | — | — | — | 6,040 | 6,040 | ||||||||||||||||||||||||
| Gain on sale-leaseback, net | (374,186) | — | — | — | (374,186) | ||||||||||||||||||||||||
Planned business divestiture(4) | — | 1,864 | — | — | 1,864 | ||||||||||||||||||||||||
Other, net(5) | (1,182) | 564 | 604 | 418 | 404 | ||||||||||||||||||||||||
| Allocation of corporate costs | 24,199 | 339 | — | (24,538) | — | ||||||||||||||||||||||||
| Adjusted EBITDA | $ | 73,885 | $ | (10,563) | $ | 80,301 | $ | (17,268) | $ | 126,355 | |||||||||||||||||||
Rent expense associated with triple net operating leases(6) | 31,238 | ||||||||||||||||||||||||||||
| Adjusted EBITDAR | $ | 105,123 | |||||||||||||||||||||||||||
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(1) Non-operating (income) expense for the applicable periods include: (i) change in value of naming rights liabilities, (ii) gain on extinguishment of debt and, (iii) other (income) expense, net.
(2) Includes financing costs incurred in connection with the Hard Rock Biloxi and Tiverton sale lease-back transactions and other acquisition and transaction related costs.
(3) Restructuring costs related to the Interactive business workforce reduction, as described in Note 13.
(4) Losses related to a North America Interactive business that Bally’s is marketing as held-for-sale as of March 31, 2023.
(5) Other includes the following items: (i) non-routine legal expenses, net of recoveries for matters outside the normal course of business, (ii) depreciation expense and a gain on assets related to our Rhode Island joint venture, and (iii) other individually de minimis expenses.
(6) Consists of the operating lease components contained within our triple net master lease dated June 4, 2021 with GLPI for the real estate assets used in the operation of Bally’s Evansville, Bally’s Dover, Bally’s Quad Cities, Bally’s Black Hawk, Hard Rock Biloxi and Bally’s Tiverton, the individual triple net lease with GLPI for the land underlying the operations of Tropicana Las Vegas, and the triple net lease assumed in connection with the acquisition of Bally’s Lake Tahoe for real estate and land underlying the operations of the Bally’s Lake Tahoe facility.
Three Months Ended March 31, 2022 (in thousands) | Casinos & Resorts | North America Interactive | International Interactive | Other | Total | ||||||||||||||||||||||||
| Net income (loss) | $ | 28,023 | $ | (25,373) | $ | 28,808 | $ | (29,569) | $ | 1,889 | |||||||||||||||||||
| Interest expense, net of interest income | 4 | (2) | 166 | 45,517 | 45,685 | ||||||||||||||||||||||||
| Provision (benefit) for income taxes | 9,228 | (2,884) | (3,167) | (8,752) | (5,575) | ||||||||||||||||||||||||
| Depreciation and amortization | 15,353 | 8,974 | 46,064 | 8,490 | 78,881 | ||||||||||||||||||||||||
Non-operating (income) expense(1) | — | — | (305) | (18,992) | (19,297) | ||||||||||||||||||||||||
| Foreign exchange loss | — | (1,595) | 1,420 | (7) | (182) | ||||||||||||||||||||||||
Transaction costs(2) | — | 289 | 341 | 5,393 | 6,023 | ||||||||||||||||||||||||
| Share-based compensation | — | — | — | 5,095 | 5,095 | ||||||||||||||||||||||||
Other, net(3) | (164) | 850 | — | 1,495 | 2,181 | ||||||||||||||||||||||||
| Allocation of corporate costs | 21,346 | 416 | — | (21,762) | — | ||||||||||||||||||||||||
| Adjusted EBITDA | $ | 73,790 | $ | (19,325) | $ | 73,327 | $ | (13,092) | $ | 114,700 | |||||||||||||||||||
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(1) Non-operating (income) expense for the applicable periods include: (i) change in value of naming rights liabilities, (ii) adjustment on bargain purchases and, (iii) other (income) expense, net.
(2) Includes acquisition costs, integration costs related to our Interactive business and financing related expenses.
(3) Other includes the following non-recurring items: (i) non-routine legal expenses, net of recoveries for matters outside the normal course of business, (ii) rebranding expenses in connection with Bally’s corporate name change, and (iii) other individually de minimis expenses.
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Critical Accounting Estimates
There were no material changes in critical accounting estimates during the period covered by this Quarterly Report on Form 10-Q. Refer to Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 for a complete list of our Critical Accounting Estimates.
Recent Accounting Pronouncements
Refer to Note 4 “Recently Adopted and Issued Accounting Pronouncements” in Part I, Item 1 of this Quarterly Report on Form 10-Q for a description of recent accounting pronouncements that affect us.
Liquidity and Capital Resources
Overview
We are a holding company. Our ability to fund our obligations depends on existing cash on hand, cash flow from our subsidiaries and our ability to raise capital. Our primary sources of liquidity and capital resources have been cash on hand, cash flow from operations, borrowings under our Revolving Credit Facility (as defined herein) and proceeds from the issuance of debt and equity securities. We assess liquidity in terms of the ability to generate cash or obtain financing in order to fund operating, investing and debt service requirements. Our primary ongoing cash requirements include the funding of operations, capital expenditures, acquisitions and other investments in line with our business strategy and debt repayment obligations and interest payments. Our strategy has been to maintain moderate leverage and substantial capital resources in order to take advantage of opportunities, to invest in our businesses and acquire properties at what we believe to be attractive valuations. As such, we have continued to invest in our land-based casino business and build on our interactive/iGaming gaming business. We believe that existing cash balances, operating cash flows and availability under our Revolving Credit Facility, as explained below, will be sufficient to meet funding needs for operating, capital expenditure and debt service purposes.
Cash Flows Summary
| Three Months Ended March 31, | |||||||||||
| (in thousands) | 2023 | 2022 | |||||||||
| Net cash (used in) provided by operating activities | $ | (16,112) | $ | 20,810 | |||||||
| Net cash provided by (used in) investing activities | 319,636 | (71,955) | |||||||||
| Net cash (used in) provided by financing activities | (173,568) | 4,405 | |||||||||
| Effect of foreign currency on cash and cash equivalents | 2,819 | (4,430) | |||||||||
| Change in cash and cash equivalents and restricted cash classified as assets held for sale | (1,097) | — | |||||||||
| Net change in cash and cash equivalents and restricted cash | 131,678 | (51,170) | |||||||||
| Cash and cash equivalents and restricted cash, beginning of period | 265,184 | 274,840 | |||||||||
| Cash and cash equivalents and restricted cash, end of period | $ | 396,862 | $ | 223,670 | |||||||
Operating Activities
Net cash used in operating activities for the three months ended March 31, 2023 was $16.1 million, compared to net cash provided by operating activities of $20.8 million for the three months ended March 31, 2022. The increase in cash used in operating activities was primarily driven by the $374.2 million gain on sale-leaseback recorded during the first quarter of 2023 coupled with negative changes in working capital, offset by an increase in net income of $176.4 million from the prior year.
Investing Activities
Net cash provided by investing activities for the three months ended March 31, 2023 was $319.6 million, an increase of $391.6 million compared to net cash used in investing activities of $72.0 million for the three months ended March 31, 2022. The increase in cash provided by investing activities was driven by net proceeds of $411.0 million from the Bally’s Tiverton and Hard Rock Biloxi sale-leaseback transaction in the first quarter of 2023.
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Financing Activities
Net cash used in financing activities for the three months ended March 31, 2023 was $173.6 million compared to net cash provided by financing activities of $4.4 million for the three months ended March 31, 2022. This change was mainly attributable to the increase in repayments of long-term debt of $67.6 million, coupled with the issuance of long-term debt during the first quarter of 2022, as well as the increase in stock repurchases over the same period in prior year.
Capital Return Program
During the three months ended March 31, 2023, we repurchased 1,026,343 common shares for an aggregate price of $19.8 million under our previously announced capital return program. As of March 31, 2023, there was $174.8 million available for use under the capital return program, subject to limitations in our regulatory and debt agreements.
We did not pay cash dividends during the three months ended March 31, 2023 or 2022, nor do we currently intend to pay any dividends on our common stock in the foreseeable future. Any future determinations relating to our dividend policies will be made at the discretion of our Board and will depend on conditions then existing, including our financial condition, results of operations, contractual restrictions, capital and regulatory requirements and other factors our Board may deem relevant.
Debt and Lease Obligations
Senior Notes
On August 20, 2021, we issued $750.0 million aggregate principal amount of 5.625% senior notes due 2029 and $750.0 million aggregate principal amount of 5.875% Senior Notes due 2031 (together, the “Senior Notes”).
During the three months ended March 31, 2023, the Company repurchased and retired $15.0 million of the Senior Notes due 2031 at a weighted average price of 70.80% of the principal. In connection with the repurchase of these Senior Notes due 2031, the Company recorded a gain on extinguishment of debt of $4.0 million.
The indenture governing the Senior Notes contains covenants that limit the ability of the Company and its restricted subsidiaries to, among other things, (i) incur additional indebtedness, (ii) pay dividends on or make distributions in respect of capital stock or make certain other restricted payments or investments, (iii) enter into certain transactions with affiliates, (iv) sell or otherwise dispose of assets, (v) create or incur liens and (vi) merge, consolidate or sell all or substantially all of the Company’s assets. These covenants are subject to exceptions and qualifications set forth in the indenture.
Credit Facility
On October 1, 2021, we entered into the Credit Agreement providing for a senior secured term loan facility in an aggregate principal amount of $1.945 billion (the “Term Loan Facility”), which will mature in 2028, and a senior secured revolving credit facility in an aggregate principal amount of $620.0 million (the “Revolving Credit Facility”), which will mature in 2026.
The credit facilities allow us to increase the size of the Term Loan Facility or request one or more incremental term loan facilities or increase commitments under the Revolving Credit Facility or add one or more incremental revolving facilities in an aggregate amount not to exceed the greater of $650 million and 100% of the Company’s consolidated EBITDA for the most recent four-quarter period plus or minus certain amounts as specified in the Credit Agreement, including an unlimited amount subject to compliance with a consolidated total secured net leverage ratio.
The credit facilities contain covenants that limit the ability of the Company and its restricted subsidiaries to, among other things, incur additional indebtedness, pay dividends or make certain other restricted payments, sell assets, make certain investments, and grant liens. These covenants are subject to exceptions and qualifications set forth in the Credit Agreement. The Revolving Credit Facility contains a financial covenant regarding a maximum first lien net leverage ratio that applies when borrowings under the Revolving Credit Facility exceed 30% of the total revolving commitment.
Refer to Note 14 “Long-Term Debt” in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information.
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Operating Leases
The Company is committed under various operating lease agreements for real estate and property used in operations. Minimum rent payable under operating leases was $2.37 billion as of March 31, 2023. Refer to Note 15 “Leases” in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information.
GLPI Leases
As of March 31, 2023, the Company’s Bally’s Evansville, Bally’s Dover, Bally’s Quad Cities, Bally’s Black Hawk, Bally’s Tiverton and Hard Rock Biloxi properties were leased under the terms of a master lease agreement (the “Master Lease”) with GLPI. The Master Lease has an initial term of 15 years and includes four, five-year options to renew and requires combined minimum annual payments of $100.5 million, subject to a minimum 1% annual escalation or greater escalation dependent on CPI.
The Company’s Bally’s Tiverton and Hard Rock Biloxi properties were added to the master lease on January 3, 2023, as a result of a transaction with GLP Capital, L.P., the operating partnership of GLPI, related to the land and real estate assets for a total consideration of $625.4 million. The transaction was structured as a tax-free capital contribution and a substantial portion of the proceeds were used to reduce the Company’s debt. These properties increased the minimum annual payments of the Master Lease by $48.5 million.
In addition to the properties under the Master Lease, the Company leases the non-land assets of Tropicana Las Vegas, which the Company acquired during the fourth quarter of 2022, from GLPI. This lease has an initial term of 50 years (with a maximum term of 99 years with renewal options) at annual rent of $10.5 million, subject to minimum 1% annual escalation or greater escalation dependent on CPI.
Financing Obligation
Bally’s Chicago Operating Company, LLC, an indirect wholly-owned subsidiary of the Company, leases the land on which Bally’s Chicago will be built. The lease commenced November 18, 2022 and has a 99-year term followed by ten separate 20-year renewals at the Company’s option. As of March 31, 2023, the Company has recorded this lease as a corresponding long-term financing obligation of $200.0 million.
Capital Expenditures
Capital expenditures are accounted for as either project, maintenance or capitalized software expenditures. Project capital expenditures are for fixed asset additions that expand an existing facility or create a new facility. Maintenance capital expenditures are expenditures to replace existing fixed assets with a useful life greater than one year that are obsolete, worn out or no longer cost effective to repair, along with spending on other small projects that do not fit into the project category. Capitalized software expenditures relate to the creation, production and preparation of software for use in our online gaming operations.
For the three months ended March 31, 2023, capital expenditures were $43.7 million compared to $54.5 million in the same period last year. In the first quarter of 2023, we continued our spending on maintenance and planned projects at our casino properties, making significant progress on our Bally’s Twin River and Bally’s Atlantic City properties. Our 2023 capital expenditures are expected to continue to be less than those of 2022 as we focus on generating cash flows to invest in long-term growth opportunities for the entire Bally’s portfolio.
Bally’s Twin River - In connection with our partnership with IGT, we have committed to invest $100 million in Bally’s Twin River over the term of our master contract, ending in 2043, with Rhode Island to expand the property and add additional amenities along with other capital improvements. As a major component of this, we have constructed and opened a 14,000 square foot Korean-style spa, and a 40,000 square foot casino expansion, for a combined investment of $60 million. The spa opened in January 2023 and the expanded casino opened in April 2023.
Bally’s Atlantic City - Construction on our Bally’s Atlantic City property commenced in 2021. We are committed to invest approximately $100 million over five years to refurbish and upgrade Bally’s Atlantic City’s facilities and expand its amenities, including renovated hotel rooms and suites, outdoor beer hall and lobby bar. Spending in 2023 is estimated at approximately $20 million.
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Bally’s Kansas City - We began construction on the planned redevelopment project of Bally’s Kansas City in November 2021. We believe the redevelopment of the property, which includes a 40,000 square foot land-based building, restaurant, bar and retail space, will improve the property and guest experience and drive growth and our return on investment. Spending on the project is estimated to be approximately $50 million, with a target completion date in the second half of 2023.
Centre County, PA - On December 31, 2020, we signed a framework agreement with entities affiliated with an established developer to design, develop, construct and manage a Category 4 licensed casino in Centre County, Pennsylvania. Subject to receipt of regulatory approvals, it will house up to 750 slot machines and 30 table games. The casino will also provide, subject to receipt of separate licenses and certificates, retail sports betting, online sports betting and online gaming. We estimate the total cost of the project, including construction, licensing and iGaming/sports betting operations, to be approximately $120 million. If completed, we will acquire a majority equity interest in the partnership, including 100% of the economic interests of all retail sports betting, online sports betting and iGaming activities associated with the project.
Bally’s Chicago - On June 9, 2022, a wholly-owned indirect subsidiary of the Company, Bally’s Chicago Operating Company, LLC (the “Developer”), signed a host community agreement with the City of Chicago to develop a destination casino resort, to be named Bally’s Chicago, in downtown Chicago, Illinois that will include approximately 3,400 slot machines, 170 table games, 10 food and beverage venues, 500 hotel rooms, a 65,000 square foot entertainment and event center, a 20,000 square foot exhibition, outdoor music venue, 3,300 parking spaces and an outdoor green space. The project also provides the Company with the exclusive right to operate a temporary casino for up to three years while the permanent casino resort is constructed. The temporary casino is expected to be situated in the location of the current Medinah Temple and will include approximately 1,000 gaming positions and 2 food and beverage venues. The Company expects to incur approximately $70.0 million in costs in connection with the design and development of the temporary casino and to open by late summer 2023. The Company currently estimates the permanent casino construction to be completed by the end of 2026.
In connection with the entry into the host community agreement with the City of Chicago, the Company made a one-time up-front payment to the City of Chicago equal to $40.0 million. Beginning on the date of operations commencement, the Company will be required to pay annual fixed host community impact fees of $4.0 million. Additionally, in connection with the host community agreement, the Company provided the City of Chicago with a performance guaranty whereby the Company agreed to have and maintain available financial resources in an amount reasonably sufficient to allow the Developer to complete its obligations under the host community agreement. In addition, upon notice from the City of Chicago that the Developer has failed to perform various obligations under the host community agreement, the Company has indemnified the City of Chicago against any and all liability, claim or reasonable and documented expense the City of Chicago may suffer or incur by reason of any nonperformance of any of the Developer’s obligations.
Chicago Tribune Lease Termination - Bally’s Chicago Operating Company, LLC entered into a Lease Termination and Short Term License Agreement with Chicago Tribune Company, LLC (“Tribune”), effective March 31, 2023, which among other things provides that the Company will have possession of 777 West Chicago Avenue, Chicago Illinois 60610 (the “Permanent Chicago Site”) on or before July 5, 2024, subject to $150 million in payments by the Company to Tribune payable in full upon Tribune vacating the site on or prior to July 5, 2024 (the “Payment”). $140 million of the Payment is secured by standby letters of credit, issued by Citizens Bank.
Bally’s Chicago Casino Fees - Under the Illinois Gambling Act, the Company will be responsible to pay various gaming license fees to the Illinois Gaming Board in connection with the Company’s casino operations. These fees include: (i) a $250,000 land based gaming fee to operate the casino on land prior to commencing operations, (ii) a $250,000 license fee prior to receiving an owners license and gambling operations commence, (iii) gaming position fees equal to the minimum initial fee of $30,000 per gaming position to be paid within 30 days of issuance of an owners license or Temporary Operating Permit (“TOP”), (iv) a $15 million reconciliation fee upon issuance of a TOP or an owners license, whichever is earlier, and (v) a reconciliation fee payment three years after the date operations commenced (in a temporary or permanent facility) in an amount equal to 75% of the adjusted gross receipt (“AGR”) for the most lucrative 12-month period of operations, minus the amount equal to the initial payment per gaming position paid.
Other Contractual Obligations
Sponsorship Commitments - The Company has entered into several sponsorship agreements with various professional sports leagues and teams, allowing the Company use of official league marks for branding and promotions, among other rights. As of March 31, 2023, obligations related to these agreements were $107.5 million, with contracts extending through June 2036.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates and foreign currency exchange rates. We are exposed to changes in interest rates primarily from variable rate long-term debt arrangements and foreign currency risk attributable to our operations outside of the US. Inflation generally affects us by increasing our cost of labor. Bally’s does not believe that inflation had a material effect on our business, financial condition or results of operations during the three months ended March 31, 2023 and 2022.
Interest Rate Risk
As of March 31, 2023, interest on borrowings under our credit facility was subject to fluctuation based on changes in short-term interest rates. On March 31, 2023, we had $1.92 billion of variable rate debt outstanding under our Term Loan and Revolving Credit Facilities and $1.49 billion of unsecured senior notes. Based upon a sensitivity analysis of our debt levels on March 31, 2023, a hypothetical increase of 1% in the effective interest rate would cause an increase in interest expense of approximately $19.2 million over the next 12 months while a decrease of 1% in the effective interest rate, not to exceed the interest rate floor, would cause a decrease in interest expense of approximately $19.2 million over the same period.
We evaluate our exposure to market risk by monitoring interest rates in the marketplace and we have, on occasion, utilized derivative financial instruments to help manage this risk. We have not historically utilized derivative financial instruments for trading purposes. We do not believe that fluctuations in interest rates had a material effect on our business, financial condition or results of operations during the three months ended March 31, 2023 and 2022.
Foreign Currency Risk
We are exposed to fluctuations in currency exchange rates as a result of our net investments and operations in countries other than the US. A vast majority of our revenues are from the UK market and are conducted in British Pound Sterling (“GBP”) and are therefore susceptible to any movements in exchange rates between the GBP and USD. Foreign currency transaction losses for the three ended March 31, 2023 were $4.3 million while foreign currency transaction gains for the three months ended March 31, 2022 were $0.2 million. Movements in currency exchange rates could impact the translation of assets and liabilities of these foreign operations which are translated at the exchange rate in effect on the balance sheet date. We have not historically used operational hedges or forward currency exchange rate contracts to manage the impact of currency exchange rate fluctuations on earnings and cash flows.
ITEM 4. CONTROLS AND PROCEDURES
Management’s Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer (principal executive officer) and chief financial officer (principal financial officer), conducted an evaluation of the effectiveness of our disclosure controls and procedures for the reporting period ended March 31, 2023 as such terms is defined in Rule 13a-15(f) under the Exchange Act. Based on that evaluation, our chief executive officer and chief financial officer concluded that the Company’s controls and procedures were effective as of March 31, 2023.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting that occurred during the first quarter of 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II
ITEM 1. LEGAL PROCEEDINGS
We are party to various legal proceedings that have arisen in the normal course of our business. Such proceedings can be costly, time consuming and unpredictable and, therefore, no assurance can be given that the final outcome of such proceedings will not materially impact our consolidated financial condition or results of operations. While we maintain insurance coverage that we believe is adequate to mitigate the risks of such proceedings, no assurance can be given that the amount or scope of existing insurance coverage will be sufficient to cover losses arising from such matters. Estimated losses are accrued for these proceedings when the loss is probable and can be estimated. The current liability for the estimated losses associated with these proceedings is not material to our consolidated financial condition and those estimated losses are not expected to have a material impact on our results of operations.
ITEM 1A. RISK FACTORS
There have been no material changes to our risk factors contained in Part I. Item IA. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On June 14, 2019, we announced that the Board approved a capital return program (the “Capital Return Program”) under which we may expend a total of up to $250 million for a share repurchase program and payment of dividends. On February 10, 2020 and October 4, 2021, the Board approved an additional $100 million and $350 million, respectively, for stock repurchases and payment of dividends, respectively. Share repurchases may be effected in various ways, which could include open-market or private repurchase transactions, accelerated share repurchase programs, tender offers or other transactions. The amount, timing and terms of any capital transactions will be determined based on prevailing market conditions and other factors, and may be suspended or discontinued at any time. There is no fixed time period to complete the capital returns.
The following table provides information about share repurchases made by the Company of its common stock during the quarter ended March 31, 2023 (in thousands, except average price paid per share):
| Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares (or approximate dollar value) that May Yet be Purchased Under the Plans or Programs | |||||||||||||||||||||||||
| January 1, 2023 - January 31, 2023 | 27 | $ | 18.89 | 27 | $ | 194,045 | |||||||||||||||||||||||
| February 1, 2023 - February 28, 2023 | 275 | 19.45 | 275 | 188,690 | |||||||||||||||||||||||||
| March 1, 2023 - March 31, 2023 | 724 | 19.18 | 724 | 174,805 | |||||||||||||||||||||||||
| 1,026 | $ | 19.25 | (a) | 1,026 | $ | 174,805 | |||||||||||||||||||||||
(a) Weighted-average.
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ITEM 6. EXHIBITS
EXHIBIT INDEX
| Exhibit No. | Description | |||||||
| 10.1** | ||||||||
| 10.2** | ||||||||
| 10.3** | ||||||||
| 31.1* | ||||||||
| 31.2* | ||||||||
| 32.1* | ||||||||
| 32.2* | ||||||||
| 101.INS | XBRL Instance Document - the instance document does not appear in the interactive data file because XBRL tags are embedded within the inline XBRL document | |||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||||||
| 104 | The cover page from Bally’s Corporation’s Quarterly report on Form 10-Q for the quarter ended March 31, 2023, formatted in inline XBRL contained in Exhibit 101 | |||||||
______________________________________________
* Filed herewith.
** Management contracts or compensatory plans or arrangements.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, on May 9, 2023.
| BALLY’S CORPORATION | |||||
| By: | /s/ ROBERT M. LAVAN | ||||
| Robert M. Lavan | |||||
| Chief Financial Officer | |||||
| (Principal Financial and Accounting Officer) | |||||
| /s/ ROBESON M. REEVES | |||||
| Robeson M. Reeves | |||||
| Chief Executive Officer | |||||
| (Principal Executive Officer) | |||||
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