Bally's Corp (BALY)

ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review Item 1A. “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” in this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

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Executive Overview

During 2024, we continued to expand our business by actively pursuing new gaming opportunities and strategically allocating capital to our growth initiatives and existing operations.

•In connection with our development plans for Bally’s Chicago, we secured a $940 million financing arrangement with GLPI for constructing our flagship casino in downtown Chicago, with construction slated for early 2025.

•The controlled demolition of the Tropicana Las Vegas hotel towers advanced our stadium construction plans and site redevelopment.

•We expanded our iGaming presence by launching the Bally Bet Casino app in Rhode Island and enhancing the Bally Bet sportsbook app’s reach in 13 US states and Ontario.

•During the fourth quarter of 2024, we successfully disposed of portions of our international interactive business in Asian and certain other international markets. In addition, we transferred ownership of certain intellectual property used in the business into a purpose trust, which began receiving license fees under a new commercial license arrangement. We also purchased a warrant representing a 19.99% fully diluted equity interest in the Carved-Out Business.

These steps continue to position us as a prominent, full-service, vertically integrated iGaming company, with physical casinos and online gaming solutions united under a single, leading brand.

Business Development Projects

Our business development projects are summarized above in “Our Strategy and Business Developments” section above and in Note 7 “Business Combinations” to our consolidated financial statements presented in Part II, Item 8 of this Annual Report on Form 10-K.

Macroeconomic and Other Factors

Our business is subject to risks caused by global economic challenges, including those caused by public health crises such as the COVID-19 pandemic, the impact of global and regional conflicts, 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.

Key Performance Indicators

The key performance indicator used in managing our business is consolidated Adjusted EBITDA and segment Adjusted EBITDAR which are non-GAAP measures. Adjusted EBITDA is defined as earnings, or loss, 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) expense, 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. Segment Adjusted EBITDAR is Adjusted EBITDA (as defined above) for the Company’s reportable segments, plus rent expense associated with triple net operating leases with GLPI for the real estate assets used in the operation of the Bally’s casinos and the assumption of the lease for real estate and land underlying the operations of the Bally’s Lake Tahoe property.

We use consolidated Adjusted EBITDA and segment Adjusted EBITDAR to analyze the performance of our business and they are used as determining factors for performance-based compensation for members of our management team. We use consolidated Adjusted EBITDA and segment Adjusted EBITDAR 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 consolidated Adjusted EBITDA and segment Adjusted EBITDAR because they are used by some investors and creditors as indicators 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. Consolidated Adjusted EBITDA and segment Adjusted EBITDAR information is presented because management believes that they are commonly used measures of performance in the gaming industry and that they are considered by many to be key indicators of our operating results.

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Consolidated Adjusted EBITDAR is used outside of our financial statements solely as a valuation metric. Consolidated Adjusted EBITDAR is defined as consolidated Adjusted EBITDA plus rent expense associated with triple net operating leases. Consolidated 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 Consolidated Adjusted EBITDAR is used by gaming operator analysts and investors to determine the equity value of gaming operators and (ii) financial analysts refer to Consolidated Adjusted EBITDAR when valuing our business. We believe Consolidated 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 Consolidated 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.

Consolidated Adjusted EBITDA and segment Adjusted EBITDAR should not be construed as alternatives to net income, the most directly comparable GAAP measure, as indicators of our performance. In addition, consolidated Adjusted EBITDA and segment 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. Consolidated 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.

Results of Operations

The following table presents, for the periods indicated, certain revenue and income items:

The following table presents, for the periods indicated, certain income and expense items expressed as a percentage of total revenue:

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Note: Amounts in table may not subtotal due to rounding.

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Segment Information

The Company has three reportable segments: Casinos & Resorts, International Interactive and North America Interactive. Refer to “Our Operating Structure” in Part I, Item 1 “Business” of this Annual Report on Form 10-K and Note 23 “Segment Reporting” to our consolidated financial statements presented in Part II, Item 8 of this Annual Report on Form 10-K for additional information on our segment reporting structure. The following table sets forth certain financial information associated with results of operations for the years ended December 31, 2024, 2023 and 2022. Non-gaming revenue includes hotel, food and beverage, licensing and retail, entertainment and other revenue. Non-gaming expenses include hotel, food and beverage, licensing and retail, entertainment and other expenses.

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Year ended December 31, 2024 compared to year ended December 31, 2023

Total revenue

Our total revenue for the years ended December 31, 2024 and 2023 consisted of the following (in thousands):

Total revenue for the year ended December 31, 2024 remained consistent when compared to the year ended December 31, 2023. Revenue from our Casinos & Resorts reportable segment increased 6% to $1.01 billion, mainly due to the inclusion of our Bally’s Chicago temporary casino property, which contributed an incremental increase of approximately $96.5 million during the year ended December 31, 2024, partially offset by the incremental decrease in revenue associated with the closure of our Tropicana Las Vegas property during the second quarter of 2024 of approximately $77.8 million. The expanded operating jurisdictions within our North America Interactive reportable segment also contributed additional incremental revenue of approximately $37.8 million for the year ended December 31, 2024, compared to the prior year. Additionally, within our International Interactive reportable segment, we experienced decreased revenue within our previous markets associated with the sale of the Carved-Out Business, which was partially offset by the incremental increase of $6.9 million from our licensing revenue stream and additional growth within our UK market of approximately $67.5 million.

Gaming and non-gaming expenses

Gaming and non-gaming expenses for the year ended December 31, 2024 increased $18.0 million when compared to the year ended December 31, 2023. The overall increase in gaming and non-gaming expenses from the prior year was mainly attributable to the inclusion of expenses from our recently opened Bally’s Chicago temporary casino which contributed approximately $52.8 million to the increase in both gaming and non-gaming expenses during the year ended December 31, 2024, partially offset by the incremental decrease in expense associated with the closure of our Tropicana Las Vegas property of $42.1 million.

General and administrative

General and administrative expenses for the year ended December 31, 2024 decreased $70.5 million from $1.11 billion, in 2023. The year to date fluctuation in general and administrative expense is primarily attributable to the $144.9 million Diamond Sports Group non-cash settlement in 2023 and decreased acquisition and integration costs and severance and employee related restructuring costs compared to prior year, partially offset by the Loss on disposal of business of $27.8 million recorded in the current year related to the sale of the Carved-Out Business in the fourth quarter of 2024, and increased Merger Agreement costs in 2024.

Impairment charges

In 2024, we recorded total impairment charges of $248.9 million which included $125.9 million, $71.6 million and $12.8 million impairment charges in the International Interactive segment related to its intangible assets, goodwill and certain other long-lived assets, respectively. In addition, we also recorded $38.6 million of impairment charges on gaming licenses in connection with our Casinos & Resorts reporting segment.

Depreciation and amortization

Depreciation and amortization for the year ended December 31, 2024 was $379.5 million, compared to $350.4 million in 2023. The year to date increase was primarily driven by our Tropicana Las Vegas property, where we recorded accelerated depreciation of $80.1 million on assets as a result of the recent closure of the property on April 2, 2024, partially offset by the decreased expense related to the assets sold in the fourth quarter of 2024 as part of the Carved-Out Business.

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(Loss) income from operations

Loss from operations was $258.3 million for the year ended December 31, 2024 compared to income from operations of $104.0 million in 2023. The change year-over-year was driven by the net gain on sale-leaseback of $86.3 million in the current year, made up of the $150.0 million loss related to the lease modification event involving the real estate underlying the Bally’s Chicago project and the $236.3 million gains recorded related to the sale of the Bally’s Kansas City and Bally’s Shreveport assets, compared to the gain on sale-leaseback of $374.3 million recorded in 2023 related to our Hard Rock Biloxi and Bally’s Tiverton properties, combined with the increased impairment charges in the current year, as noted above.

Other (income) expense

Total other expense, net remained consistent, when compared to the year ended December 31, 2023. During the year, we experienced an increase in interest expense due to higher interest rates of our borrowings year-over-year, which were offset by increased foreign currency gains and increased interest income recognized on our derivative instruments.

Provision for income taxes

Provision for income taxes for the year ended December 31, 2024 was $15.3 million, compared to $1.8 million in 2023. The effective tax rate for the year ended December 31, 2024 was (2.8)% compared to (0.9)% in 2023. The 2024 year to date effective tax rate differed from the US federal statutory rate of 21%, creating a provision for income tax on the Company’s Loss before income taxes, largely due to an increase in the valuation allowance and the negative rate differential driven by the increased impairment charges within our foreign entities.

On December 15, 2022, the European Union (“EU”) Member States formally adopted the EU’s Pillar Two Directive, which generally provides for a minimum effective tax rate of 15%, as established by the Organization for Economic Co-operation and Development Pillar Two Framework that was supported by over 130 countries worldwide. The EU effective dates are January 1, 2024 and January 1, 2025, for different aspects of the directive. A significant number of other countries are also implementing similar legislation. The estimated impact of this directive is immaterial to the Company’s consolidated financial statements in the current year.

Net loss and loss per share

Net loss for the year ended December 31, 2024 was $567.8 million compared to $187.5 million in 2023. As a percentage of revenue, net loss increased from 7.7% for the year ended December 31, 2023 to a net loss of 23.2% for the year ended December 31, 2024. Diluted loss per share for the year ended December 31, 2024 and 2023 was $11.71 and $3.51, respectively, and was impacted by the factors noted above.

Adjusted EBITDA and Adjusted EBITDAR by Segment

Consolidated Adjusted EBITDA was $495.6 million for the year ended December 31, 2024, a decrease of $31.7 million, or 6.0%, from $527.3 million in 2023.

Adjusted EBITDAR for the Casinos & Resorts segment for the year ended December 31, 2024 was $370.5 million, a decrease of $58.5 million, or 13.6%, for the year ended December 31, 2024 compared to $429.0 million in 2023. These decreases were primarily attributable to weather impacts across multiple properties and the closure of the Tropicana Las Vegas in the current year, partially offset by the inclusion of Bally’s Chicago that opened at the end of the third quarter of 2023.

Adjusted EBITDAR for the International Interactive segment for the year ended December 31, 2024 was $336.5 million, a decrease of $7.1 million, or 2.1%, compared to $343.6 million, mainly due to softness in our non-UK operations year-over-year.

Adjusted EBITDAR loss for the North America Interactive segment for the year ended December 31, 2024 was $40.2 million compared to $55.7 million in 2023. The decrease in adjusted EBITDAR losses is largely driven by expanded operating jurisdictions and stronger performance in iGaming and sportsbook in the current year.

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The following table presents segment Adjusted EBITDAR, which is our reportable segment GAAP measure and our primary measure for profit or loss for our reportable segments, and reconciles Adjusted EBITDAR 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 consolidated financial statements.

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(1)    Consists of the operating lease components contained within our triple net leases with GLPI for the real estate assets used in the operations of certain Casinos & Resorts properties, and the triple net lease associated with the real estate and land underlying the operations of the Bally’s Lake Tahoe facility.

(2)    Non-operating expense, net includes: (i) change in value of performance warrants, (ii) gain on extinguishment of debt, (iii) non-operating items of equity method investments including our share of net income or loss on an investment and depreciation expense related to our Rhode Island joint venture, and (iv) other (income) expense, net.

(3)    Includes acquisition, integration and other transaction related costs, and financing costs incurred in connection with the Company's sale lease-back transactions.

(4)    Restructuring charges representing the severance and employee related benefits related to the announced Interactive business restructuring initiatives and the closure of the Company’s Tropicana Las Vegas property on April 2, 2024.

(5)    Demolition and closure costs associated with the Tropicana Las Vegas property which is part of the plan to redevelop the site with a state-of-the-art integrated resort and ballpark. As part of the binding term sheet, GLPI has reimbursed the Company for its demolition expenses and had increased rent to reflect the additional funding.

(6)    Gain on sale-leaseback, net is related to Bally’s Kansas City, Bally’s Shreveport and the Company’s Bally’s Chicago project during the year ended December 31, 2024, the Hard Rock Biloxi and Bally’s Tiverton properties during the year ended December 31, 2023, and Bally’s Quad Cities and Bally’s Black Hawk (“Bally's Black Hawk”) during the year ended December 31, 2022.

(7)    Loss on disposal of business of $27.8 million recorded in 2024 related to the sale of its interactive business in Asia and certain other international markets in its International Interactive reportable segment in the fourth quarter of 2024.

(8)    Impairment charges for 2024 includes $125.9 million, $71.6 million and $12.8 million impairment charges in the International Interactive segment related to its intangible assets, goodwill and certain other long-lived assets, respectively, as well as $38.6 million of impairment charges on gaming licenses in connection with our Casinos & Resorts reporting segment. Impairment charges in 2023 included $54.0 million in the International Interactive segment related to a long-standing indefinite lived trademark acquired as part of the Gamesys acquisition, $58.6 million impairment on indefinite-lived gaming licenses in the Casinos & Resorts segment, $5.7 million of impairment charges related to the interactive restructuring program representing the impairment of certain technology which will no longer be utilized, and $3.8 million of impairment on related to assets held-for-sale in 2023. Impairment charges in 2022 include $390.7 million related to our North America Interactive segment as part of our annual goodwill and asset impairment analysis and $73.3 million in the International Interactive segment related to a long-standing indefinite lived trademark acquired as part of the Gamesys acquisition.

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(9)    Costs incurred in connection with the Company’s merger with Standard General.

(10)    In the third quarter of 2024, the Company recorded a $6.3 million charge to reduce amounts due from payment service providers (“PSP”) due to a circumstance whereby the payment processer for certain online sports wagering deposits failed to capture and settle funds with patrons of the Company. The Company was not able to recover the full amount due from the payment service provider, resulting in a write down to the recoverable amount. In addition to amounts recovered, the Company received $5.1 million from the PSP as a signing bonus for entering into an extension agreement.

(11)    Non-cash reserve to reflect the remaining Diamond commercial rights intangible asset offset by forgiveness of the liability.

(12)    Other includes the following items: (i) non-routine legal expenses, contract termination charges, and settlement costs for matters outside the normal course of business, (ii) storm related insurance and business interruption recoveries, and (iii) other individually de minimis expenses.

Year ended December 31, 2023 compared to year ended December 31, 2022

This information can be found under Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Year ended December 31, 2023 compared to year ended December 31, 2022” in our Annual Report on Form 10-K for the year ended December 31, 2023.

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

A description of changes in cash flows comparing the years ended December 31, 2023 and 2022 can be found in Part II. Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” of our Annual Report on Form 10-K for the year ended December 31, 2023.

Operating Activities

Net cash provided by operating activities was $114.0 million for the year ended December 31, 2024, compared to $188.6 million in 2023. The decrease in cash provided by operating activities was primarily driven by the changes in working capital, offset by increased foreign currency losses in the current year.

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Investing Activities

Net cash provided by investing activities was $97.8 million for the year ended December 31, 2024, compared to net cash used in investing activities of $207.8 million in 2023. This change was primarily driven a $111.7 million decrease in cash paid for capital expenditures year-over-year, combined with the $135.3 million of gaming license fees paid in 2023 in connection with the opening of our Bally’s Chicago temporary casino.

Financing Activities

Net cash used in financing activities was $287.8 million for the year ended December 31, 2024, compared to net cash provided by financing activities of $65.8 million in the prior year. This increase was mainly attributable to an increase in long-term debt repayments made in 2024, partially offset by decreased stock repurchases when compared to the prior year.

Capital Return Program

As of December 31, 2024, there was $95.5 million available for use under the Capital Return Program, subject to limitations in our regulatory and debt agreements. 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.

We did not pay cash dividends during the year ended December 31, 2024, 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.

Unsecured 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. On October 1, 2021, upon the closing of the Gamesys acquisition, we assumed the issuer obligation under the unsecured notes.

The indenture 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.

Secured Notes

In connection with the closing of the merger on February 7, 2025, we entered into a note purchase agreement and issued $500 million in aggregate principal amount of first lien senior secured notes due October 2, 2028, at an annual interest rate of 11%, payable quarterly. These notes are guaranteed by our restricted subsidiaries and secured by the same collateral securing the Credit Facility. The agreement mandates redemption offers in certain situations, such as asset sales and unpermitted debt issuances, with specific redemption premiums applicable within the first two years. After two years, notes can be redeemed at par. The agreement also includes covenants limiting additional indebtedness, dividend payments, asset sales, investments, and liens, subject to certain exceptions and qualifications.

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.

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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 also includes certain financial covenants the Company is required to maintain throughout the term of the credit facility. These financial covenants include a provision where, in the event borrowings under the Revolving Credit Facility exceed 30% of the total revolving commitment, the Company is required to maintain a first lien secured indebtedness to Adjusted EBITDA ratio of 5.00 to 1.00. As of December 31, 2024, the Company was in compliance with all applicable covenants.

During 2023, the Company entered into certain currency swaps to synthetically convert $500 million of its Term Loan Facility to an equivalent fixed-rate Euro-denominated instrument, due October 2028, with a weighted average fixed interest rate of approximately 6.69% per annum. The Company also entered into additional currency swaps to synthetically convert $200 million, notional, of its floating rate Term Loan Facility, to an equivalent GBP-denominated floating rate instrument, due October 2026. Additionally, as part of the Company’s risk management program to manage its overall interest rate exposure, the Company entered into a notional aggregate amount of $500 million interest rate collar arrangements maturing in 2028 where the Company’s SOFR floating rate interest under its Term Loan Facility is capped at 4.25%, with a weighted average SOFR floor rate of 3.22%, pursuant to the interest rate collar arrangements.

During 2024, the Company settled $500.0 million of notional interest rate collars and received $3.9 million in termination payments, reflecting the fair value on the settlement date. Additionally, the Company simultaneously entered into a series of interest rate contracts in a notional aggregate amount of $1.00 billion, to further manage the Company’s exposure to interest rate movements associated with the Company’s variable rate Term Loan Facility through its synthetic conversion to fixed rate debt. The tenor of these contracts were matched with the maturity of the Term Loan Facility tranche maturing on October 1, 2028.

Refer to Note 17 “Long-Term Debt” in Item 8 of this Annual Report on Form 10-K for further information.

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 $4.86 billion as of December 31, 2024, of which $199.7 million is due within the next twelve months. Refer to Note 18 “Leases” in Item 8 of this Annual Report on Form 10-K for further information.

GLPI leases

As of December 31, 2024, 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 No.1”) with GLPI. The Master Lease No.1 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.

In addition to the properties under the Master Lease No.1 explained above, the Company also entered into a lease with GLPI for the land associated with Tropicana Las Vegas. 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. In 2024, the Company modified the lease and GLPI paid $48.6 million to the Company to fund the demolition of the building at the Tropicana Las Vegas site in exchange for increasing annual rent by $4.1 million, subject to a minimum 1% annual increase or greater based on CPI, for a total modified annual rent of $14.6 million.

In 2024, the Company completed the sale lease-back transaction of certain real property interests underlying Bally’s Kansas City and Bally’s Shreveport to GLPI for $394.8 million under the terms of a new master lease agreement (the “Master Lease No.2”), with an initial term of 15 years, including four, five-year options to renew and minimum annual payments of $32.2 million, subject to minimum 1% annual escalation or greater escalation dependent on CPI. 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. Under the terms of the Master Lease No.2, the Company assigned its rights and obligations related to existing ground leases underlying the Bally’s Kansas City and Bally’s Shreveport properties to GLPI, while remaining responsible to GLPI for rent under these leases as additional charges. This resulted in the termination of the previous right of use assets and lease liabilities related to the land leases and a gain of $26.4 million. In connection with the sale of the Bally’s Kansas City and Bally’s Shreveport assets, the Company recorded a gain of $209.8 million representing the difference in the transaction price and the derecognition of assets.

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In 2024, GLP acquired the real estate underlying the Bally’s Chicago project, assuming the existing lease, for which the Company was subject to a $200.0 million financing obligation. Reclassifying the lease as an operating lease due to the transfer of control of the land asset from the Company to the lessor, permitted sale recognition, resulting in the Company derecognizing the $350.0 million land asset and the $200.0 million the long-term financing obligation, and recording a $150.0 million loss on sale-leaseback.

Additionally, the Company entered into a Binding Term Sheet to form a strategic construction and financing arrangement with GLP, which includes the funding to complete the construction of Bally’s Chicago permanent casino. GLP will amend the existing land lease through a new master lease agreement with Bally’s Chicago Operating Company, LLC (“Chicago MLA”). The Chicago MLA includes annual rent of $20 million, subject to customary escalation provisions. The Chicago MLA will also provide up to $940 million in construction financing, subject to conditions and approvals. The Company will pay additional rent under the Chicago MLA based on a 8.5% capitalization rate on funded amounts. The initial lease term for the Chicago MLA is 15 years with renewal options to be agreed upon by the parties.

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 year ended December 31, 2024, capital expenditures were $199.8 million compared to $311.5 million in 2023. In 2024, we continued our spending on our planned projects and maintenance at our casino properties, the most significant being our future Bally’s Chicago permanent facility. We expect that capital expenditures, outside of our planned development of the Bally’s Chicago permanent facility, will be relatively flat in 2025 compared to 2024 as we continue our 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, both of which opened in the first half of 2023. Approximately $45.1 million of the committed investment remains as of December 31, 2024.

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, 20,000 square feet of exhibition space, 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 commenced operations on September 9, 2023 at the Medinah Temple and includes approximately 800 gaming positions and 3 food and beverage venues. In 2024, we spent approximately $133.6 million related to the construction and development of our permanent casino and resort, which is expected to open to the public in 2026. We expect future funding of the permanent casino construction to be financed through the GPLI agreement noted above.

In connection with the entry into the host community agreement with the City of Chicago, 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.

In furtherance of these obligations, the host community agreement requires us to spend at least $1.34 billion on the design, construction and outfitting of our temporary casino and our permanent resort and casino. The actual cost of the development may exceed this minimum capital investment requirement. In addition, land acquisition costs and financing costs, among other types of costs, do not count towards satisfying such minimum expenditure.

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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 December 31, 2024, obligations related to these agreements were $125.4 million, with contracts extending through 2036.

Interactive Technology Partnerships - The Company has certain multi-year agreements with its various market access and content providers, as well as its online sports betting platform partners, that require the Company to pay variable fees based on revenue, with minimum annual guarantees. As of December 31, 2024, the cumulative minimum obligation committed in these agreements is approximately $52.4 million, extending through 2029.

Critical Accounting Estimates

The preparation of our consolidated financial statements in accordance with US GAAP requires us to make estimates and apply judgments that affect reported amounts. These estimates and judgements are based on past events and/or expectations of future outcomes. Actual results may differ from our estimates. We discuss our significant accounting policies used in preparing the financial statements in Note 2 of our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. The following is a summary of our critical accounting estimates and how they are applied in preparation of our consolidated financial statements.

Goodwill and Intangible Assets

Assessing goodwill and indefinite-lived intangible assets for impairment is a process that involves significant judgment and requires a qualitative and quantitative analysis with many assumptions which fluctuate based on our business. We review goodwill and indefinite-lived intangible assets at least annually and between annual test dates if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. We have elected to perform our annual tests for indications of impairment as of the first day of the fourth quarter of each year. The evaluation of goodwill and indefinite-lived intangible assets requires the use of estimates about future operating results of each reporting unit and asset to determine the estimated fair value of the reporting unit and the indefinite lived intangible assets. The Company must make various assumptions and estimates in performing its impairment testing, including assumptions and estimates about future cash flows. Changes in estimates and assumptions used in estimating future cash flows could produce significantly different results. If our ongoing estimates of future cash flows are not met, we may have to record impairment charges in future periods.

When assessing goodwill for impairment, first, qualitative factors are assessed to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. A qualitative impairment assessment involves analyzing relevant events and circumstances, with greater weight assigned to events and circumstances that most affect the fair value or the carrying amounts of a reporting unit’s assets. Items that are generally considered include, but are not limited to, the following: macroeconomic conditions, industry and market conditions and overall financial performance. If the results of the qualitative assessment are not conclusive, a quantitative goodwill test is performed. For the quantitative goodwill impairment test, we estimate the fair value of the reporting unit using both income and market-based approaches. Specifically, the Company applies the discounted cash flow (“DCF”) model under the income approach and the guideline company method under the market approach and weighs the results of the two valuation methodologies based on the facts and circumstances surrounding the reporting unit. For the DCF model, we rely on the present value of expected future cash flows, including terminal value, utilizing a market-based weighted average cost of capital (“WACC”) determined separately for the reporting unit as of the valuation date. The determination of fair value under the DCF model involves the use of significant estimates and assumptions, including revenue growth rates driven by future gaming activity, operating margins, capital expenditures, working capital requirements, tax rates, terminal growth rates, and discount rates. For the market approach, we utilize a comparison of the reporting unit to comparable publicly-traded companies and transactions and, based on the observed earnings multiples, ultimately selects multiples to apply to the reporting unit. We then compare the fair value of our reporting units to the carrying amounts. If the carrying amount of the reporting unit exceeds the fair value, an impairment is recorded equal to the amount of the excess (not to exceed the amount of goodwill allocated to the reporting unit).

Assumptions and estimates about future cash flow levels and multiples by individual reporting units are complex and subjective. The Company continuously monitors for events and circumstances that could negatively impact the key assumptions in determining the fair value of goodwill, including long-term revenue growth projections, profitability, discount rates, external factors, such as industry, market and macro-economic conditions, and internal factors, such as changes in the Company’s business strategy, which may re-allocate capital and resources to different or new opportunities but, in turn, may be to the detriment of an individual reporting unit.

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The Company completed its annual assessment for goodwill impairment as of October 1, 2024, which resulted in no impairment charges to goodwill. Reporting units with goodwill which were identified as having less than a substantial cushion were subject to a sensitivity analysis to determine the potential impairment losses. The carrying value of the International Interactive reporting unit was $2.3 billion as of October 1, 2024 and the estimated fair value exceeded this amount by 12%. The most sensitive inputs to the estimated fair value of the International Interactive reporting unit were the discount rate and terminal growth rate. A hypothetical 50 basis point increase in the WACC or a 50 basis point decline in the terminal growth rate would not have resulted in any impairment charge. Material changes in these estimates could occur and result in additional impairment in future periods.

Income Taxes

We prepare our income tax provision in accordance with Accounting Standards Codification (“ASC”) 740, Income Taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statements carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carryforwards.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that the rate change is enacted. A valuation allowance is required when it is “more likely than not” that all or a portion of the deferred tax assets will not be realized. The consolidated financial statements reflect expected future tax consequences of uncertain tax positions presuming the taxing authorities’ full knowledge of the position and all relevant facts. We assessed our deferred tax liabilities arising from taxable temporary differences and concluded such liabilities are not a sufficient source of income for the realization of deferred tax assets, including indefinite life taxable temporary differences which offset, subject to limitation, deferred tax assets with unlimited carryovers, such as the Section 163(j) interest limitation. Accordingly, the Company’s valuation allowance of $234.6 million reflects an increase of $79.7 million recorded during the year ended December 31, 2024.

The allocation of shared costs and intangible assets among our subsidiaries in various U.S. domestic, state and international jurisdictions is an estimate based on the principles of IRC Section 482, 1060 and 338 which is a critical estimate in the computation of U.S. and international tax provisions.

The interpretation of the IRC regulations related to the Tax Cuts and Jobs Acts, as it pertains to Section 163(j), is a critical estimate in the computation of U.S. federal taxes, and conforming states.

Recently Issued Accounting Pronouncements

For a discussion of recently issued financial accounting standards, refer to Note 5 “Recently Issued Accounting Pronouncements,” of Part II. Item 8 of this Annual Report on Form 10-K for further detail.

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ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review Item 1A. “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” in this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

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Executive Overview

During 2023, we continued to grow our business by actively pursuing new gaming opportunities and reinvesting in our existing operations.

In our Casinos & Resorts segment, we:

•announced a binding deal with the Oakland Athletics of Major League Baseball to site their new ballpark on a portion of our Bally’s Las Vegas property;

•opened our temporary casino at the Medinah Temple in Chicago, Illinois and are on track to break ground to develop a permanent flagship destination casino resort in downtown Chicago, Illinois;

•opened our property expansion at Bally’s Kansas City and Bally’s Twin River, which provides for enhanced amenities to improve the customer experience; and

•we acquired Bally’s Golf Links at Ferry Point in the Bronx, New York.

In our International Interactive and North America Interactive segments, we:

•rolled out our new Bally Bet sportsbook app with our new partners, Kambi and White Hat Gaming in seven US states;

•launched iGaming app in Pennsylvania;

•launched Bally Casino, an iGaming app, and Bally Bet Sportsbook & Casino, our first combined casino and sportsbook app; and

•anticipate launching a new iGaming app in Rhode Island following the legalization of iGaming in Rhode Island.

These steps continue to position us as a prominent, full-service, vertically integrated iGaming company, with physical casinos and online gaming solutions united under a single, leading brand.

Acquisitions and Development Projects

Our acquisitions and business development projects are summarized above in “Our Strategy and Business Developments” section above and in Note 6 “Business Combinations” to our consolidated financial statements presented in Part II, Item 8 of this Annual Report on Form 10-K.

Macroeconomic and Other Factors

Our business is subject to risks caused by global economic challenges, including those caused by public health crises such as the COVID-19 pandemic, the impact of global and regional conflicts, 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.

Key Performance Indicators

The key performance indicator used in managing our business is consolidated Adjusted EBITDA and segment Adjusted EBITDAR which are non-GAAP measures. Adjusted EBITDA is defined as earnings, or loss, 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) expense, 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. Segment Adjusted EBITDAR is Adjusted EBITDA (as defined above) for the Company’s reportable segments, plus rent expense associated with triple net operating leases with GLPI for the real estate assets used in the operation of the Bally’s casinos and the assumption of the lease for real estate and land underlying the operations of the Bally’s Lake Tahoe property.

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We use consolidated Adjusted EBITDA and segment Adjusted EBITDAR to analyze the performance of our business and they are used as determining factors for performance-based compensation for members of our management team. We use consolidated Adjusted EBITDA and segment Adjusted EBITDAR 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 consolidated Adjusted EBITDA and segment Adjusted EBITDAR because they are used by some investors and creditors as indicators 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. Consolidated Adjusted EBITDA and segment Adjusted EBITDAR information is presented because management believes that they are commonly used measures of performance in the gaming industry and that they are considered by many to be key indicators of our operating results.

Consolidated Adjusted EBITDAR is used outside of our financial statements solely as a valuation metric. Consolidated Adjusted EBITDAR is defined as consolidated Adjusted EBITDA plus rent expense associated with triple net operating leases. Consolidated 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 Consolidated Adjusted EBITDAR is used by gaming operator analysts and investors to determine the equity value of gaming operators and (ii) financial analysts refer to Consolidated Adjusted EBITDAR when valuing our business. We believe Consolidated 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 Consolidated 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.

Consolidated Adjusted EBITDA and segment Adjusted EBITDAR should not be construed as alternatives to net income, the most directly comparable GAAP measure, as indicators of our performance. In addition, consolidated Adjusted EBITDA and segment 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. Consolidated 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.

Results of Operations

In connection with the finalization of the financial close process for the year ended December 31, 2023, and subsequent to the publication of the Company’s unaudited Statements of Operations and Balance Sheet data included within its earnings press release on February 21, 2024, the Company recorded additional impairment charges of $18.1 million as it relates to its annual impairment test on indefinite-lived intangible assets, a balance sheet reclassification resulting in a $12.9 million increase to restricted cash from other current assets and, a $3.2 million net adjustment to the provision for income taxes reflecting the tax effect of these and other adjustments. Amounts included in the audited financial statements in this Annual Report on Form 10-K reflect the effect of these adjustments and no other amounts presented in the earnings release have been revised.

The following table presents, for the periods indicated, certain revenue and income items:

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The following table presents, for the periods indicated, certain income and expense items expressed as a percentage of total revenue:

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Note: Amounts in table may not subtotal due to rounding.

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Segment Information

The Company has three reportable segments: Casinos & Resorts, International Interactive and North America Interactive. Refer to “Our Operating Structure” in Part I, Item 1 “Business” of this Annual Report on Form 10-K and Note 23 “Segment Reporting” to our consolidated financial statements presented in Part II, Item 8 of this Annual Report on Form 10-K for additional information on our segment reporting structure. The following table sets forth certain financial information associated with results of operations for the years ended December 31, 2023, 2022 and 2021. Non-gaming revenue includes hotel, food and beverage and retail, entertainment and other revenue. Non-gaming expenses include hotel, food and beverage and retail, entertainment and other expenses.

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Year ended December 31, 2023 compared to year ended December 31, 2022

Total revenue

Our total revenue for the years ended December 31, 2023 and 2022 consisted of the following (in thousands):

Revenue for the year ended December 31, 2023 increased 8.6% compared to the year ended December 31, 2022. We saw gaming revenue increase across all reporting segments year over year through organic growth. Additionally, we saw incremental revenue from our recent acquisitions of Tropicana Las Vegas, Bally’s Golf Links and Casino Secret (collectively “Recent Acquisitions”), as well as our Bally’s Chicago temporary casino property which commenced operations on September 9, 2023.

Gaming and non-gaming expenses

Gaming and non-gaming expenses for the year ended December 31, 2023 increased $76.0 million and $19.9 million. The increased gaming expense from the prior year was primarily attributable to the expenses related to the launch of our mobile iGaming and Bally Bet sportsbook apps across several North American jurisdictions. The inclusion of expenses from our recently opened Bally’s Chicago temporary casino property and the incremental gaming expenses from our Recent Acquisitions also contributed to the increase in both gaming and non-gaming expenses compared to prior year.

General and administrative

General and administrative expenses for the year ended December 31, 2023 increased $288.3 million from $825.7 million, in 2022. These increases were primarily attributable to the Diamond Sports Group (“Diamond”) legal reserve, higher operating lease expenses, severance charges in connection with the Interactive restructuring plan, and incremental general and administrative expenses attributable to our Recent Acquisitions and the opening of our Bally’s Chicago temporary casino property.

Impairment charges

In 2023, we recorded total impairment charges of $149.8 million which included $54.0 million in the International Interactive segment related to a long-standing indefinite lived trademark acquired as part of the Gamesys acquisition that is being de-emphasized for other newer brands in Asia and Rest of World, impairment charges of $9.4 million and $4.0 million on goodwill and intangible assets held for sale, respectively, $5.7 million of impairment charges related to our interactive restructuring program representing the impairment of certain technology which will no longer be utilized, and $76.7 million of impairment on gaming licenses in connection with our Casinos and Resorts segment.

Depreciation and amortization

Depreciation and amortization for the year ended December 31, 2023 was $350.4 million, compared to $300.6 million in 2022. This increase was largely driven by our Tropicana Las Vegas property where we recorded accelerated depreciation on assets as a result of our recently announced impending closure in April 2024. These accelerated depreciation charges will extend through the first quarter of 2024.

Income (loss) from operations

Income from operations was $104.0 million for the year ended December 31, 2023 compared to loss from operations of $293.0 million in 2022. These changes year-over-year were driven by a gain on sale-leaseback recorded during the current year related to our Hard Rock Biloxi and Bally’s Tiverton properties, organic revenue growth, benefits from our recently opened Bally’s Chicago temporary casino property and Recent Acquisitions, offset by increased general and administrative expenses and impairment charges, as noted above.

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Other (income) expense

Total other expense, net increased to $289.7 million for the year ended December 31, 2023 from $161.5 million in 2022. This increase was driven by increased interest expense on our debt, coupled with an increase in the value of our commercial rights liabilities, and a foreign exchange loss in the current year, compared to a gain in the prior year.

Provision (benefit) for income taxes

Provision for income taxes for the year ended December 31, 2023 was $1.8 million, compared to a benefit for income tax of $28.9 million in 2022. The effective tax rate for the year ended December 31, 2023 was (0.9)% compared to 6.4% in 2022. The 2023 year to date effective tax rate differed from the US federal statutory tax rate of 21%, creating a provision for income tax on the Company’s Loss before income taxes, largely due to an increase in the valuation allowance and the impact of the federal tax on global intangible low-taxed income, partially offset by the rate differential created by our foreign entities.

On December 15, 2022, the European Union (“EU”) Member States formally adopted the EU’s Pillar Two Directive, which generally provides for a minimum effective tax rate of 15%, as established by the Organization for Economic Co-operation and Development Pillar Two Framework that was supported by over 130 countries worldwide. The EU effective dates are January 1, 2024 and January 1, 2025, for different aspects of the directive. A significant number of other countries are also implementing similar legislation. The Company is currently in the process of evaluating the impact of this on its consolidated financial statements.

Net loss and loss per share

Net loss for the year ended December 31, 2023 was $187.5 million compared to $425.5 million in 2022. As a percentage of revenue, net loss decreased from 18.9% for the year ended December 31, 2022 to a net loss of 7.7% for the year ended December 31, 2023. Diluted loss per share for the year ended December 31, 2023 and 2022 was $3.51 and $7.32, respectively, and was impacted by the factors noted above.

Adjusted EBITDA and Adjusted EBITDAR by Segment

Consolidated Adjusted EBITDA was $527.3 million for the year ended December 31, 2023, a decrease of $21.2 million, or 3.9%, from $548.5 million in 2022.

Adjusted EBITDAR for the Casinos & Resorts segment for the year ended December 31, 2023 was $429.0 million, an increase of $30.0 million, or 7.5%, for the year ended December 31, 2023 compared to $398.9 million in 2022. The increase from the prior year is mainly attributable to the inclusion of our Bally’s Chicago temporary casino and Tropicana Las Vegas properties and strong performance at Bally’s Atlantic City in the current year, partially offset by softening in the market from decreased consumer spend.

Adjusted EBITDAR for the International Interactive segment for the year ended December 31, 2023 was $343.6 million, an increase of $21.9 million, or 6.8%, compared to $321.7 million, mainly due to stronger performance in the United Kingdom year-over-year.

Adjusted EBITDAR loss for the North America Interactive segment for the year ended December 31, 2023 was $55.7 million compared to $65.7 million in 2022. The reduction in adjusted EBITDAR losses are largely driven by stronger performance in mobile iGaming in New Jersey coupled with cost-savings in connection with the execution of the restructuring plan of our interactive segments.

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The following table presents segment Adjusted EBITDAR, which is our reportable segment GAAP measure and our primary measure for profit or loss for our reportable segments, and reconciles Adjusted EBITDAR 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 consolidated financial statements.

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(1)    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.

(2)    Non-operating (income) expense includes: (i) change in value of commercial rights liabilities, (ii) (gain) loss on extinguishment of debt, (iii) non-operating items of equity method investments including our share of net income or loss on an investment and depreciation expense related to our Rhode Island joint venture, (iv) (gain) adjustment on bargain purchases, and (v) other (income) expense, net.

(3)    Includes acquisition, integration and other transaction related costs, financing costs incurred in connection with sale lease-back transactions, the prior year tender offer process, and costs incurred to address the Standard General takeover bid.

(4)    Restructuring charges representing the severance and employee related benefits related to the announced Interactive business restructuring initiatives.

(5)    Costs related to the decommissioning of the Company’s sports betting platform in favor of outsourcing the platform solution to third parties.

(6)    Losses related to a North America Interactive business that Bally’s is marketing as held-for-sale as of December 31, 2023.

(7)    Non-cash impairment charges for 2023 included $54.0 million in the International Interactive segment related to a long-standing indefinite lived trademark acquired as part of the Gamesys acquisition, $76.7 million impairment on indefinite-lived gaming licenses in our Casinos & Resorts segment, $5.7 million of impairment charges related to our interactive restructuring program representing the impairment of certain technology which will no longer be utilized, and $9.4 million and $4.0 million of impairment on goodwill and intangible assets, respectively, held for sale. Non-cash impairment charges for 2022 included $390.7 million related to our North America Interactive segment as part of our annual goodwill and asset impairment analysis and $73.3 million in the International Interactive segment related to a long-standing indefinite lived trademark acquired as part of the Gamesys acquisition.

(8)    Non-cash reserve to reflect the remaining Diamond commercial rights intangible asset offset by forgiveness of the liability. Refer to Note 22 “Commitments and Contingencies” to our consolidated financial statements presented in Part II, Item 8 of this Annual Report on Form 10-K.

(9)    Contract termination expense related to the early termination of retail and online sportsbook operating agreements with William Hill at certain of our casino properties.

(10)     Other includes the following items: (i) non-routine legal expenses and settlement charges for matters outside the normal course of business, (ii) storm related insurance and business interruption recoveries, (iii) rebranding expenses in connection with Bally’s corporate name change, (iv) professional fees and other costs incurred to establish the partnership with Sinclair and acquire Bally Interactive, and (v) other individually de minimis expenses.

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Year ended December 31, 2022 compared to year ended December 31, 2021

This information can be found under Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Year ended December 31, 2022 compared to year ended December 31, 2021” in our Annual Report on Form 10-K for the year ended December 31, 2022.

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

A description of changes in cash flows comparing the years ended December 31, 2022 and 2021 can be found in Part II. Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” of our Annual Report on Form 10-K for the year ended December 31, 2022.

Operating Activities

The decrease in cash provided by operating activities was primarily attributable to a decrease in net loss increased gains on sale-leaseback transactions, coupled with decreased impairment charges compared to prior year. These negative effects on cash provided by operating activities were partially offset by a year-over-year decrease in net loss, the increased Diamond legal reserve, and increased in depreciation and amortization.

Investing Activities

Net cash used in investing activities for 2023 was driven by capital expenditures and $135.3 million of gaming license fees in connection with the opening of our Bally’s Chicago temporary casino and cash paid for acquisitions in the year, offset by proceeds from our Tiverton and Hard Rock Biloxi sale-leaseback transactions. In 2022, cash used in investing activities was driven by capital expenditures attributable to our expansion and renovation projects at Bally’s Atlantic City, Bally’s Twin River and Bally’s Kansas City and cash paid for acquisitions.

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Financing Activities

Cash provided by financing activities increased year-over-year due to a decrease in stock repurchases coupled with the decrease in repayments of long-term debt, partially offset by a decrease in the issuance of long-term debt year-over-year.

Capital Return Program

We have a Board approved capital return program under which we may expend a total of up to $700 million for a share repurchases and payment of dividends.

During the year ended December 31, 2023 we repurchased 7,581,428 common shares for an aggregate purchase price of $99.1 million. As of December 31, 2023, there was $95.5 million available for use under the Capital Return Program, subject to limitations in our regulatory and debt agreements. 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.

We did not pay cash dividends during the year ended December 31, 2023, 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.

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”). On October 1, 2021, upon the closing of the Gamesys acquisition, we assumed the issuer obligation under the Senior Notes.

The indenture 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 also includes certain financial covenants the Company is required to maintain throughout the term of the credit facility. These financial covenants include a provision where, in the event borrowings under the Revolving Credit Facility exceed 30% of the total revolving commitment, the Company is required to maintain a first lien secured indebtedness to Adjusted EBITDA ratio of 5.00 to 1.00. As of December 31, 2023, the Company was in compliance with all applicable covenants and expects to be in compliance for the next twelve months.

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During 2023, the Company entered into certain currency swaps to synthetically convert $500 million of its Term Loan Facility to an equivalent fixed-rate Euro-denominated instrument, due October 2028, with a weighted average fixed interest rate of approximately 6.69% per annum. The Company also entered into additional currency swaps to synthetically convert $200 million, notional, of its floating rate Term Loan Facility, to an equivalent GBP-denominated floating rate instrument, due October 2026. Additionally, as part of the Company’s risk management program to manage its overall interest rate exposure, the Company entered into a notional aggregate amount of $500 million interest rate collar arrangements maturing in 2028 where the Company’s SOFR floating rate interest under its Term Loan Facility is capped at 4.25%, with a weighted average SOFR floor rate of 3.22%, pursuant to the interest rate collar arrangements.

Refer to Note 16 “Long-Term Debt” in Item 8 of this Annual Report on Form 10-K for further information.

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 $2.31 billion as of December 31, 2023, of which $138.1 million is due within the next twelve months. Refer to Note 17 “Leases” in Item 8 of this Annual Report on Form 10-K for further information.

GLPI leases

As of December 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.

During 2023, 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 under the Master Lease by $48.5 million.

In addition to the properties under the Master Lease, the Company has also entered into a sale-leaseback transaction with GLPI for the non-land assets of Tropicana Las Vegas, which the Company acquired during the fourth 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.

Financing Obligation

Bally’s Chicago Operating Company, LLC, an indirect wholly-owned subsidiary of the Company, has entered into an agreement to lease 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. The Company recorded this lease with a corresponding long-term financing obligation of $200.0 million as of December 31, 2023 and 2022.

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 year ended December 31, 2023, capital expenditures were $311.5 million compared to $212.3 million in 2022. In 2023, we continued our spending on our planned projects and maintenance of our casino properties, making significant progress on our Bally’s Chicago, Bally’s Twin River and Bally’s Kansas City properties. We expect that capital expenditures, outside of our planned development of the Bally’s Chicago permanent facility, will be relatively flat in 2024 compared to 2023 as we continue our focus on generating cash flows to invest in long-term growth opportunities for the entire Bally’s portfolio.

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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, both of which opened in the first half of 2023. Approximately $64 million of the committed investment remains as of December 31, 2023. With the addition of the live dealer studio to the property and other customer facing growth initiatives, we expect to apply approximately $5 million of expenditures in 2024 towards the master contract commitment.

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. Approximately $7.7 million of the committed investment remains as of December 31, 2023.

Bally’s Kansas City - We began construction on the planned redevelopment project of Bally’s Kansas City in November 2021 and completed the project in the third quarter of 2023. We believe the redevelopment of the property, which includes a 40,000 square foot land-based building, restaurant, bar and retail space, has improved the property and guest experience and will drive growth and our return on investment in the coming years. Spending on the project during 2023 was approximately $37 million.

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, which remain pending, 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, 20,000 square feet of exhibition space, 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 commenced operations on September 9, 2023 at the Medinah Temple and includes approximately 800 gaming positions and 3 food and beverage venues. The Company currently estimates the permanent casino construction to be completed by the end of 2026. In 2024, we estimate spending of approximately $100 to 200 million primarily dedicated to demolition and site preparation.

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.

In furtherance of these obligations, the host community agreement requires us to spend at least $1.34 billion on the design, construction and outfitting of our temporary casino and our permanent resort and casino. The actual cost of the development may exceed this minimum capital investment requirement. In addition, land acquisition costs and financing costs, among other types of costs, do not count towards satisfying such minimum expenditure.

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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 December 31, 2023, obligations related to these agreements were $135.0 million, of which $18.1 million is expected to be paid in 2024, with contracts extending through June 2036

Interactive Technology Partnerships - The Company has certain multi-year agreements with its various market access and content providers, as well as its online sports betting platform partners, that require the Company to pay variable fees based on revenue, with minimum annual guarantees. The cumulative minimum obligation committed in these agreements is approximately $55.4 million, of which $14.1 million is expected to be paid in 2024, extending through 2028.

Critical Accounting Estimates

The preparation of our consolidated financial statements in accordance with US GAAP requires us to make estimates and apply judgments that affect reported amounts. These estimates and judgements are based on past events and/or expectations of future outcomes. Actual results may differ from our estimates. We discuss our significant accounting policies used in preparing the financial statements in Note 2 of our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. The following is a summary of our critical accounting estimates and how they are applied in preparation of our consolidated financial statements.

Goodwill and Intangible Assets

Assessing goodwill and indefinite-lived intangible assets for impairment is a process that involves significant judgment and requires a qualitative and quantitative analysis with many assumptions which fluctuate based on our business. We review goodwill and indefinite-lived intangible assets at least annually and between annual test dates if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. We have elected to perform our annual tests for indications of impairment as of the first day of the fourth quarter of each year. The evaluation of goodwill and indefinite-lived intangible assets requires the use of estimates about future operating results of each reporting unit to determine the estimated fair value of the reporting unit and the indefinite lived intangible assets. The Company must make various assumptions and estimates in performing its impairment testing, including assumptions and estimates about future cash flows. Changes in estimates and assumptions used in estimating future cash flows could produce significantly different results. If our ongoing estimates of future cash flows are not met, we may have to record impairment charges in future periods.

When assessing goodwill for impairment, first, qualitative factors are assessed to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. A qualitative impairment assessment involves analyzing relevant events and circumstances, with greater weight assigned to events and circumstances that most affect the fair value or the carrying amounts of a reporting unit’s assets. Items that are generally considered include, but are not limited to, the following: macroeconomic conditions, industry and market conditions and overall financial performance. If the results of the qualitative assessment are not conclusive, a quantitative goodwill test is performed. For the quantitative goodwill impairment test, we estimate the fair value of the reporting unit using both income and market-based approaches. Specifically, the Company applies the discounted cash flow (“DCF”) model under the income approach and the guideline company method under the market approach and weighs the results of the two valuation methodologies based on the facts and circumstances surrounding the reporting unit. For the DCF model, we rely on the present value of expected future cash flows, including terminal value, utilizing a market-based weighted average cost of capital (“WACC”) determined separately for the reporting unit as of the valuation date. The determination of fair value under the DCF model involves the use of significant estimates and assumptions, including revenue growth rates driven by future gaming activity, operating margins, capital expenditures, working capital requirements, tax rates, terminal growth rates, and discount rates. For the market approach, we utilize a comparison of the reporting unit to comparable publicly-traded companies and transactions and, based on the observed earnings multiples, ultimately selects multiples to apply to the reporting unit. We then compare the fair value of our reporting units to the carrying amounts. If the carrying amount of the reporting unit exceeds the fair value, an impairment is recorded equal to the amount of the excess (not to exceed the amount of goodwill allocated to the reporting unit).

Assumptions and estimates about future cash flow levels and multiples by individual reporting units are complex and subjective. The Company continuously monitors for events and circumstances that could negatively impact the key assumptions in determining the fair value of goodwill, including long-term revenue growth projections, profitability, discount rates, external factors, such as industry, market and macro-economic conditions, and internal factors, such as changes in the Company’s business strategy, which may re-allocate capital and resources to different or new opportunities but, in turn, may be to the detriment of an individual reporting unit.

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The Company completed its annual assessment for goodwill impairment as of October 1, 2023, which resulted in no impairment charges to goodwill. Reporting units with goodwill which were identified as having less than a substantial cushion were subject to a sensitivity analysis to determine the potential impairment losses. The carrying value of the International Interactive reporting unit was $2.4 billion as of October 1, 2023 and the estimated fair value exceeded this amount by 7%. The most sensitive inputs to the estimated fair value of the International Interactive reporting unit were the discount rate and terminal growth rate. A hypothetical 100 basis point increase in the discount rate or a 100 basis point decline in the terminal growth rate would not have resulted in any impairment charge. Material changes in these estimates could occur and result in additional impairment in future periods.

We consider certain of our gaming licenses and tradenames as indefinite-lived intangible assets that do not require amortization based on our future expectations to operate our gaming properties indefinitely as well as our historical experience in renewing these intangible assets at minimal cost with various state commissions. Rather, these intangible assets are tested annually for impairment, or more frequently if indicators of impairment exist. If the carrying amounts of the indefinite-lived intangible assets exceed their fair value, an impairment loss is recognized. We assess the fair value of our gaming licenses and tradenames using the Greenfield Method and relief-from-royalty method, respectively, both under the income approach.

Based on the annual impairment assessment of intangible assets, the Company recognized an impairment loss of $54.0 million related to one trademark used within the International Interactive segment. The trademark was determined to no longer have an indefinite life and is being de-emphasized for other newer brands in Asia, resulting in a decline in actual and projected revenues attributable to the trademark as compared to when the fair value was previously determined. The fair value of the trademark was determined using a relief from royalty method, which utilized Level 3 inputs such as projected revenue, discount rates, long term growth rates and royalty rates. To the extent revenues associated with the trademark decline in the near future, discount rates increase significantly, or selected royalty rates decline, we may recognize further impairments. The selected royalty rate represents the most sensitive input in our estimates and a hypothetical decrease of 50 basis points in the royalty rates would result in additional impairment of approximately $0.4 million.

Additionally, the Company recognized an impairment loss of $76.7 million on three gaming licenses within the Casinos & Resorts segment. The impairment was triggered by declines in actual revenues and operating cash flows compared to when the licenses were originally valued at acquisition. The Company valued the gaming licenses using the Greenfield Method under the income approach which estimates the fair value of the gaming license using a discounted cash flow model assuming the Company built a new casino with similar utility to that of the existing casino. The primary inputs to the valuation involve estimating projected revenues and operating cash flows, estimated construction costs, and pre-opening expenses and is discounted at a rate that reflects the level of risk associated with receiving cash flows attributable to the license. The most sensitive inputs to the estimated fair value of the licenses are the discount rate and terminal growth rates applied. A hypothetical 50 basis point increase in the discount rate or a 50 basis point decline in the terminal growth rate would have resulted in incremental impairment charges of $21.3 million or $19.8 million, respectively.

Income Taxes

We prepare our income tax provision in accordance with Accounting Standards Codification (“ASC”) 740, Income Taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statements carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carryforwards.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that the rate change is enacted. A valuation allowance is required when it is “more likely than not” that all or a portion of the deferred tax assets will not be realized. The consolidated financial statements reflect expected future tax consequences of uncertain tax positions presuming the taxing authorities’ full knowledge of the position and all relevant facts. We assessed our deferred tax liabilities arising from taxable temporary differences and concluded such liabilities are not a sufficient source of income for the realization of deferred tax assets, including indefinite life taxable temporary differences which offset, subject to limitation, deferred tax assets with unlimited carryovers, such as the Section 163(j) interest limitation. Accordingly, the Company’s valuation allowance of $154.9 million reflects an increase of $94.9 million recorded during the year ended December 31, 2023.

The allocation of shared costs and intangible assets among our subsidiaries in various U.S. domestic, state and international jurisdictions is an estimate based on the principles of IRC Section 482, 1060 and 338 which is a critical estimate in the computation of U.S. and international tax provisions.

The interpretation of the IRC regulations related to the Tax Cuts and Jobs Acts, as it pertains to Section 163(j), is a critical estimate in the computation of U.S. federal taxes, and conforming states.

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Recently Issued Accounting Pronouncements

For a discussion of recently issued financial accounting standards, refer to Note 4 “Recently Issued Accounting Pronouncements,” of Part II. Item 8 of this Annual Report on Form 10-K for further detail.

ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review Item 1A. “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” in this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

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Executive Overview

During 2022, we continued to grow our business by actively pursuing the acquisition and development of new gaming opportunities and reinvesting in our existing operations. We completed our acquisition of Tropicana Las Vegas, providing us with a presence on the Las Vegas Strip. We signed an agreement to develop Bally’s Chicago, a flagship destination casino resort in downtown Chicago, Illinois. We made significant progress on our capital improvement and expansion projects at our Bally’s Atlantic City, Bally’s Lincoln, and Bally’s Kansas City properties focusing on enhancing amenities to improve the customer experience. We launched Bally Casino, an iCasino app, and Bally Bet Sportsbook & Casino, our first combined casino and sportsbook app. These steps continue to position us as a prominent, full-service, vertically integrated iGaming company, with physical casinos and online gaming solutions united under a single, leading brand.

Acquisitions and Development Projects

Our acquisitions and business development projects are summarized above in “Our Strategy and Business Developments” section above and in Note 6 “Business Combinations” to our consolidated financial statements presented in Part II, Item 8 of this Annual Report on Form 10-K.

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.

Key Performance Indicators

The key performance indicator used in managing our business is adjusted earnings before interest, taxes, depreciation and amortization (“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.

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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.

Results of Operations

The following table presents, for the periods indicated, certain revenue and income items:

The following table presents, for the periods indicated, certain income and expense items expressed as a percentage of total revenue:

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Note: Amounts in table may not subtotal due to rounding.

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Segment Information

The Company has three reportable segments: Casinos & Resorts, North America Interactive and International Interactive. Refer to “Our Operating Structure” in Part I, Item 1 “Business” of this Annual Report on Form 10-K and Note 21 “Segment Reporting” to our consolidated financial statements presented in Part II, Item 8 of this Annual Report on Form 10-K for additional information on our segment reporting structure . The following table sets forth certain financial information associated with results of operations for the years ended December 31, 2022, 2021 and 2020. Non-gaming revenue includes hotel, food and beverage and retail, entertainment and other revenue. Non-gaming expenses include hotel, food and beverage and retail, entertainment and other expenses.

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Year ended December 31, 2022 compared to year ended December 31, 2021

Total revenue

Our total revenue for the years ended December 31, 2022 and 2021 consisted of the following (in thousands):

We saw gaming, hotel, food and beverage, and retail, entertainment and other revenues grow, as we were able to operate with fewer restrictions across our properties compared to the prior year period as a result of developments in the COVID-19 pandemic and an increase in consumer confidence. Incremental revenues from the recent acquisition of Tropicana Las Vegas and the acquisitions completed in 2021, including Gamesys, Bally’s Evansville, Bally’s Lake Tahoe, Bally’s Quad Cities and our North America Interactive acquisitions (collectively the “2021 Acquisitions”), contributed, in the aggregate, $868.7 million.

Gaming and non-gaming expenses

Gaming and non-gaming expenses for the year ended December 31, 2022 increased $405.9 million and $68.3 million, respectively, primarily due to the acquisition of Tropicana Las Vegas and our 2021 Acquisitions which contributed, in the aggregate, $419.2 million to gaming expenses and $55.1 million to non-gaming expense.

General and administrative

General and administrative expenses for the year ended December 31, 2022 increased $230.4 million from $544.5 million, in 2021, primarily due to inclusion of expenses from our acquisition of Tropicana Las Vegas and our 2021 Acquisitions which contributed, in the aggregate, $201.7 million.

Impairment Charges

In 2022, we recorded total impairment charges of $464.0 million which included $390.7 million as a result of our annual goodwill and asset impairment analysis related to our North America Interactive segment and $73.3 million in the International Interactive segment related to a long-standing indefinite lived trademark acquired as part of the Gamesys acquisition that is being de-emphasized for other newer brands in Asia and Rest of World.

Depreciation and amortization

Depreciation and amortization for the year ended December 31, 2022 was $300.6 million, compared to $144.8 million in 2021 driven by the inclusion of incremental expense from our acquisition of Tropicana Las Vegas and our 2021 Acquisitions, which contributed, in the aggregate, $159.4 million year-over-year.

Income (loss) from operations

Loss from operations was $293.0 million for the year ended December 31, 2022 compared to income from operations of $93.4 million in 2021. This change year-over-year was primarily driven by the impairment charges noted above, partially offset by an overall benefit of $14.7 million from our acquisition of Tropicana Las Vegas and our 2021 Acquisitions.

Other (income) expense

Total other expense, net decreased to $161.5 million for the year ended December 31, 2022 from $212.5 million in 2021. This decrease was driven by a loss on extinguishment of debt in the prior year of $103.0 million in connection with the termination of our obligations under our prior revolving credit facility and prior term loan facility and the redemption of our 6.75% senior notes due 2027 in connection with our credit facility entered into on October 1, 2021, coupled with a foreign exchange loss of $33.5 million in the prior year, compared to a gain of $0.5 million in 2022. These decreases were offset by increased interest expense on our debt due to the timing of borrowings and interest rates.

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Benefit for income taxes

Benefit for income taxes for the years ended December 31, 2022 and 2021 was $28.9 million and $4.4 million, respectively. The effective tax rate for the year ended December 31, 2022 was 6.4% compared to 3.7% in 2021. The increase in the effective tax rate was due to increases in state tax expense and nondeductible costs related to the acquisition of Gamesys during 2021 offset by the impact of a current year goodwill impairment charge and a valuation allowance established associated with the potential to not be able to utilize certain deferred tax assets in the future. Lower bargain purchase gains activity and less CARES act related tax benefits in 2022 as compared to 2021 also contributed to the increase in the effective tax rate.

Net loss and loss per share

Net loss for the year ended December 31, 2022 was $425.5 million compared to $114.7 million in 2021. As a percentage of revenue, net loss increased from 8.7% for the year ended December 31, 2021 to a net loss of 18.9% for the year ended December 31, 2022. Diluted loss per share for the year ended December 31, 2022 and 2021 was $7.32 and $2.31, respectively, and was impacted by the factors noted above.

Adjusted EBITDA and Adjusted EBITDAR by Segment

Consolidated Adjusted EBITDA was $548.5 million for the year ended December 31, 2022, an increase of $218.6 million, or 66.3%, from $329.9 million in 2021.

Adjusted EBITDA for the Casinos & Resorts segment for the year ended December 31, 2022 increased $27.9 million, or 8.8%, to $345.6 million from $317.7 million in 2021. Casinos & Resorts Adjusted EBITDAR was $398.9 million for the year ended December 31, 2022, which further adjusts Adjusted EBITDA for rent expense associated with our operating leases, as defined below. The growth in 2022 was primarily driven by increases in customer volumes at certain casino properties, partially offset by local regulatory changes, such as smoking bans, adversely impacting the performance of certain other properties.

Adjusted EBITDA for the North America Interactive segment for the year ended December 31, 2022 was $(65.7) million compared to $(12.4) million in 2021. The decrease from prior year is attributable to the acquisition of various businesses throughout 2021, as well as costs of launching in new markets.

Adjusted EBITDA for the International Interactive segment for the year ended December 31, 2022 increased $251.7 million, or 359.9%, to $321.7 million from $69.9 million in 2021, directly attributable to our acquisition of Gamesys on October 1, 2021.

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The following tables reconcile Adjusted EBITDA and Adjusted EBITDAR, non-GAAP measures, to net income, as derived from our financial statements (in thousands):

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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, financing related expenses, Bally’s Chicago costs, and restructuring costs.

(3)    Losses related to a North America Interactive business that Bally’s is marketing as held-for-sale as of December 31, 2022.

(4)    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 (vi) other individually de minimis expenses.

(5)    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 and Bally’s Black Hawk, 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.

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