One, two, three, four: Penn Entertainment’s Q1 earnings have given the clearest indication yet that Penn has finally managed to find a path to producing profits from online after its calamitous Barstool and ESPN Bet adventures.

• The interactive segment produced a $78m YoY swing and cut losses to just $10.8m in the first three months of the year.
• The only thing stopping the unit from getting into the black is $20m of upcoming launch expenses in Alberta.

What are we fighting for? “Outside of Alberta, our break-even interactive guide for the year is unchanged,” said CEO Jay Snowden, who noted the trough would come in Q3 before interactive moves into profitability in Q4.

• Q1 showed interactive revenue rising 23% to $358m, driven by a 15% uplift in iCasino.
• OSB revenue was down ~5%, but it was the dramatic 65% fall in marketing expenses that was telling.
• Total revenue rose over 6% to $1.78bn with adj. EBITDA climbing 53% to $266m, helped by consensus-beating percentage rises in the B&M gaming segments of the South and Midwest.
• Analysts at Citizens said the exit rate from Q1 suggested consumer demand was “encouraging.”

I ain’t marching anymore: The digital turnaround came after the company pivoted in the wake of the ending of its ESPN Bet partnership toward its position in Canada with theScore and a refocusing in the US toward the Hollywood Casino-branded iCasino operations.

• In the wake of these moves the company also sought out a resolution to its long-running dispute with activist investor HG Vora.
• “Canada is really driving a lot of our results, Hollywood standalone iCasino in the US driving results and OSB being maybe less important overall to the interactive story,” Snowden told the analysts.

I’m just a typical American boy: Snowden has previously been vocal about the impact of prediction markets on the US online ecosystem, and on the Q1 call he noted their rise was having an impact across the online business.

• “Since prediction markets have really gotten aggressive on spending, and it appears there’s some impact, at least on the customer acquisition cost side and potentially on the OSB handle side of things,” he said.
• The acknowledgement that prediction market spend is pressuring CAC echoes the commentary from BetMGM’s Adam Greenblatt.
• He said mid-month during his company’s Q1 earnings call that the “most significant change in the operating environment for OSB during the quarter has been a significant increase in CPAs.”

From a typical American town: Snowden did not add to his previous calls for state regulators to “go to war” over prediction markets. As per his comments at the East Coast Gaming Congress last week, Snowden said he believes the regulators and operators “have to work together.”

• “From my perspective, this can’t get in front of the US Supreme Court fast enough,” he told attendees in Atlantic City.
• He warned then that commodity prediction market slot machines could be next, showing a video of a slot machine he created within 30 seconds using artificial intelligence.
• “This is coming.” Snowden said. “This has to be a call to action for our industry.”

Maple syrup: The Alberta launch on July 13 is being positioned as a near-replica of Penn’s Ontario playbook, and digital chief Aaron LaBerge offered a useful data point on theScore’s pre-existing footprint in the province.

• “We have as many people on theScore in Alberta as we do in Ontario, so it’s very strong,” he told the analysts.
• LaBerge conceded the competitive backdrop is tougher than Ontario’s 2022 opening and that there were “a lot more applicants.”
• But Penn is modeling similar player behavior and similar market share outcomes.
• The $20m EBITDA drag in 2026 sits within the range flagged on the February call, with Q3 bearing the brunt of the promotional spend.

Relief rally: The news on potential online profitability was welcomed by investors, who sent Penn’s share up 17% yesterday.

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