BALLY'S CORPORATION
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.
39
--------------------------------------------------------------------------------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 ofTropicana Las Vegas , providing us with a presence on the Las Vegas Strip. We signed an agreement to developBally's Chicago , a flagship destination casino resort in downtownChicago, Illinois . We made significant progress on our capital improvement and expansion projects at ourBally's Atlantic City ,Bally's Lincoln , andBally's Kansas City properties focusing on enhancing amenities to improve the customer experience. We launchedBally 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 inUkraine , 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.
40
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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
Results of Operations
The following table presents, for the periods indicated, certain revenue and
income items:
Years Ended December 31,
(In millions) 2022 2021 2020
Total revenue $ 2,255.7 $ 1,322.4 $ 372.8 (Loss) income from operations (293.0) 93.4 (18.4) Net loss
(425.5) (114.7) (5.5)
The following table presents, for the periods indicated, certain income and expense items expressed as a percentage of total revenue:
Years Ended December 31,
2022 2021 2020
Total revenue 100.0 % 100.0 % 100.0 %
Gaming and non-gaming expenses 44.7 % 40.5 % 37.2 %
General and administrative 34.4 % 41.2 % 55.3 %
Impairment charges 20.6 % 0.4 % 2.3 %
Depreciation and amortization 13.3 % 10.9 % 10.2 %
Total operating costs and expenses 113.0 % 92.9 % 104.9 %
(Loss) income from operations (13.0) % 7.1 % (4.9) %
Other income (expense):
Interest expense, net (9.2) % (8.9) % (16.8) %
Other non-operating expenses, net 2.1 % (7.1) % 1.7 %
Total other expense, net (7.2) % (16.1) % (15.1) %
Loss before provision for income taxes (20.1) % (9.0) % (20.1) %
Benefit for income taxes (1.3) % (0.3) % (18.6) %
Net loss (18.9) % (8.7) % (1.5) %
__________________________________
Note: Amounts in table may not subtotal due to rounding.
41
--------------------------------------------------------------------------------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 endedDecember 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. Years Ended December 31, 2022 over 2021 2021 over 2020 (In thousands, except percentages) 2022 2021 2020 $ Change $ Change Revenue: Gaming Casinos & Resorts$ 907,431 $ 803,940 $ 298,070 $ 103,491 $ 505,870 North America Interactive 38,759 10,442 - 28,317 10,442 International Interactive 899,934 239,110 - 660,824 239,110 Total Gaming revenue 1,846,124 1,053,492 298,070 792,632 755,422 Non-gaming Casinos & Resorts 320,132 228,888 74,722 91,244 154,166 North America Interactive 42,941 27,910 - 15,031 27,910 International Interactive 46,508 12,153 - 34,355 12,153 Total Non-gaming revenue 409,581 268,951 74,722 140,630 194,229 Total revenue$ 2,255,705 $ 1,322,443 $ 372,792 $ 933,262 $ 949,651 Operating costs and expenses: Gaming Casinos & Resorts$ 313,569 $ 263,751 $ 95,901 $ 49,818 $ 167,850 North America Interactive 48,018 10,721 - 37,297 10,721 International Interactive 451,331 132,560 - 318,771 132,560 Total Gaming expenses 812,918 407,032 95,901 405,886 311,131 Non-gaming Casinos & Resorts 147,575 110,090 42,768 37,485 67,322 North America Interactive 14,538 9,299 - 5,239 9,299 International Interactive 34,205 8,658 - 25,547 8,658 Total Non-gaming expenses 196,318 128,047 42,768 68,271 85,279 General and administrative Casinos & Resorts 460,163 343,639 173,249 116,524 170,390 North America Interactive 113,913 46,908 - 67,005 46,908 International Interactive 149,168 43,015 - 106,153 43,015 Other 51,696 110,959 32,759 (59,263) 78,200
Total General and administrative
$ 338,513
Margins:
Gaming expenses as a percentage
of Gaming revenue 44 % 39 % 32 %
Non-gaming expenses as a
percentage of Non-gaming revenue 48 % 48 % 57 %
General and administrative as a
percentage of Total revenue 34 % 41 % 55 %
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Year ended
Total revenue
Our total revenue for the years endedDecember 31, 2022 and 2021 consisted of the following (in thousands): 2022 2021 $ Change % Change Gaming$ 1,846,124 $ 1,053,492 $ 792,632 75.2 % Hotel 153,750 95,356 58,394 61.2 % Food and beverage 115,322 92,906 22,416 24.1 % Retail, entertainment and other 140,509 80,689 59,820 74.1 % Total revenue$ 2,255,705 $ 1,322,443 $ 933,262 70.6 % 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 ofTropicana 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 endedDecember 31, 2022 increased$405.9 million and$68.3 million , respectively, primarily due to the acquisition ofTropicana 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
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 inAsia and Rest of World.
Depreciation and amortization
Depreciation and amortization for the year endedDecember 31, 2022 was$300.6 million , compared to$144.8 million in 2021 driven by the inclusion of incremental expense from our acquisition ofTropicana 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 endedDecember 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 ofTropicana Las Vegas and our 2021 Acquisitions.
Other (income) expense
Total other expense, net decreased to$161.5 million for the year endedDecember 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 onOctober 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. 43 --------------------------------------------------------------------------------
Benefit for income taxes
Benefit for income taxes for the years endedDecember 31, 2022 and 2021 was$28.9 million and$4.4 million , respectively. The effective tax rate for the year endedDecember 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 endedDecember 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 endedDecember 31, 2021 to a net loss of 18.9% for the year endedDecember 31, 2022 . Diluted loss per share for the year endedDecember 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
Adjusted EBITDA for theCasinos & Resorts segment for the year endedDecember 31, 2022 increased$27.9 million , or 8.8%, to$345.6 million from$317.7 million in 2021. Casinos & Resorts Adjusted EBITDAR was$398.9 million for the year endedDecember 31, 2022 , which further adjusts Adjusted EBITDA for rent expense associated with our operating leases, as defined below. The growth in 2022 was primarily driven by increases in customer volumes at certain casino properties, partially offset by local regulatory changes, such as smoking bans, adversely impacting the performance of certain other properties. Adjusted EBITDA for the North America Interactive segment for the year endedDecember 31, 2022 was$(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 endedDecember 31, 2022 increased$251.7 million , or 359.9%, to$321.7 million from$69.9 million in 2021, directly attributable to our acquisition of Gamesys onOctober 1, 2021 . 44 --------------------------------------------------------------------------------
The following tables reconcile Adjusted EBITDA and Adjusted EBITDAR, non-GAAP measures, to net income, as derived from our financial statements (in thousands):
Year Ended
International thousands) Resorts Interactive Interactive Other Total Net income (loss)$ 182,574 $ (428,099)
43 (17) (212) 208,339 208,153
Provision (benefit) for income taxes 57,657 (82,788) (3,320) (472) (28,923)
Depreciation and amortization 65,982 26,823 174,180 33,574 300,559
Non-operating (income) expense(1) - 122 (2,707) (43,591) (46,176)
Foreign exchange (gain) loss, net - (1,466) 977 (27) (516)
Transaction costs(2) 6,079 16,182 9,484 53,859 85,604
Share-based compensation - - - 27,912 27,912
Gain on sale-leaseback (50,766) - - - (50,766)
Impairment charges - 390,656 73,322 - 463,978
Planned business divestiture(3) - 5,585 - - 5,585
Other, net(4) 1,719 4,926 429 1,577 8,651
Allocation of corporate costs 82,329 2,347 - (84,676) -
Adjusted EBITDA $ 345,617 $ (65,729)
53,313
Adjusted EBITDAR $ 398,930 __________________________________
(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 thatBally's is marketing as held-for-sale as ofDecember 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 withBally'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 datedJune 4, 2021 with GLPI for the real estate assets used in the operation ofBally's Evansville ,Bally's Dover ,Bally's Quad Cities andBally's Black Hawk, the individual triple net lease with GLPI for the land underlying the operations ofTropicana Las Vegas , and the triple net lease assumed in connection with the acquisition ofBally's Lake Tahoe for real estate and land underlying the operations of theBally's Lake Tahoe facility. 45 --------------------------------------------------------------------------------
Year Ended
International thousands) Resorts Interactive Interactive Other Total Net income (loss)$ 186,287 $ (36,879)
$ 24,337
37 (15) (27) 117,929 117,924
Provision (benefit) for income taxes 72,128 (8,281) (4,261) (63,963) (4,377)
Depreciation and amortization 54,120 18,096 46,341 26,229 144,786
Non-operating (income)(1) - - (3) 61,074 61,071
Foreign exchange loss, net - 355 643 32,463 33,461
Transaction costs(2) - 12,682 1,444 70,417 84,543
Share-based compensation - - - 20,143 20,143
Gain on sale-leaseback (53,425) - - - (53,425)
Contract termination expense - - - 30,000 30,000
Impairment charges 4,675 - - - 4,675
Other, net(3) (16,334) - 1,470 20,662 5,798
Allocation of corporate costs 70,217 1,629 - (71,846) -
Adjusted EBITDA $ 317,705 $ (12,413) $ 69,944 $ (45,334) $ 329,902 __________________________________
(1) Non-operating income (expense) includes: (i) change in value of naming rights liabilities and (ii) gain on bargain purchases, (iii) loss on extinguishment of debt, and (iv) other, net. (2) Includes acquisition, integration and restructuring costs, costs incurred related to the amended credit agreement, and a lump sum one-time contribution of$12.5 million to support a referendum campaign to legalize sports betting in theState of California . (3) Other includes the following items: (i) professional fees and other costs incurred to establish the partnership with Sinclair and acquireBally Interactive, (ii) storm related gains related to insurance recoveries received due to the effects of Hurricane Zeta on the Company's Hard Rock Biloxi property, (iii) rebranding expenses in connection withBally's corporate name change, (iv) business interruption related recoveries, and (v) other individually de minimis expenses. Casinos & Year Ended December 31, 2020 (in thousands) Resorts Other Total Net income (loss)$ 28,555 $ (34,042) $ (5,487) Interest expense, net of interest income 34 62,602 62,636 Provision (benefit) for income taxes (16,018) (53,306) (69,324) Depreciation and amortization 37,786 56 37,842 Non-operating (income) expense(1) - (6,211) (6,211) Transaction costs(2) 20 14,030 14,050 Share-based compensation - 17,706 17,706 Impairment charges 8,659 - 8,659 Other, net(2) 10,362 (978) 9,384 Allocation of corporate costs 20,515 (20,515) - Adjusted EBITDA$ 89,913 $ (20,658) $ 69,255
__________________________________
(1) Non-operating income (expense) includes: (i) change in value of naming rights liabilities and (ii) gain on bargain purchase. (2) Includes acquisition, integration and restructuring costs and costs incurred related to the amended credit agreement. (3) Other includes the following non-recurring items: (i) rebranding (ii) Employee Retention Credits related to the COVID-19 pandemic, (iv) non-routine legal expenses, (v) storm related losses, and (vi) other individually de minimis expenses.
Year ended
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
46
--------------------------------------------------------------------------------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
Years Ended December 31,
(In thousands) 2022 2021 2020
Net cash provided by operating activities $ 270,971 $ 82,754 $ 19,502
Net cash used in investing activities (302,922) (2,296,904) (444,846)
Net cash provided by financing activities 43,237 2,404,598 366,397
Effect of foreign currency on cash and cash equivalents (20,722)
(42,163) -
Change in cash and cash equivalents and restricted cash classified as assets held for sale
(220) - -
Net change in cash and cash equivalents and restricted cash
(9,656) 148,285 (58,947)
Cash and cash equivalents and restricted cash,
beginning of period 274,840 126,555 185,502
Cash and cash equivalents and restricted cash, end of
period $ 265,184 $ 274,840 $ 126,555 A description of changes in cash flows comparing the years ended
Operating Activities
The increase in cash provided by operating activities was primarily attributable to total impairment charges of$464.0 million in 2022 resulting from our goodwill and asset impairment analysis related to our North America Interactive segment and an impairment charge related to an indefinite lived trademark acquired as part of the Gamesys acquisition, coupled with increased amortization in 2022 related to our 2021 Acquisitions, partially offset by the loss on extinguishment of debt recorded in the prior year.
Investing Activities
The decrease in cash used in investing activities was primarily driven by a decrease in cash paid for acquisitions year-over-year, coupled with a$200.0 million advance deposit received in connection with our transaction with GLPI for ourBally's Tiverton and Hard Rock Biloxi properties, which closed inJanuary 2023 . These decreases were offset by increased capital expenditures mainly attributable to our expansion and renovation projects atBally's Atlantic City ,Bally's Twin River andBally's Kansas City . 47 --------------------------------------------------------------------------------
Financing Activities
The decrease in cash provided by financing activities was driven by the change in our debt borrowings, offset by repayments, as follows:
Years Ended December 31,
2022 2021
Revolver proceeds $ 597,000 $ 375,000
Term loan proceeds - 1,925,550
Senior note proceeds - 1,487,003
Issuance of long-term debt $ 597,000 $ 3,787,553
Revolver repayments $ (545,000) $ (325,000)
Term loan repayments (19,450) (569,125)
Senior note repayments - (525,000)
Repayment of Gamesys' debt - (458,450)
Repayments of long-term debt $ (564,450) $ (1,877,575)
In addition, in 2021, we received proceeds from equity issuances from our public
offering and the issuance of Sinclair penny warrants, coupled with increased
spending in 2022 on share repurchases under our capital return program.
Capital Return Program
We have a Board approved capital return program under which we may expend a
total of up to
During the year endedDecember 31, 2022 , we completed a modified Dutch auction tender offer (the "Offer") and repurchased 4.7 million common shares at a price of$22.00 per common share, at an aggregate purchase price of$103.3 million . We also repurchased 6,621,841 common shares for an aggregate purchase price of$153.4 million during the year endedDecember 31, 2022 . As ofDecember 31, 2022 , there was$194.6 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 endedDecember 31, 2022 , nor do we currently intend to pay any dividends on our common stock in the foreseeable future. Any future determinations relating to our dividend policies will be made at the discretion of our Board and will depend on conditions then existing, including our financial condition, results of operations, contractual restrictions, capital and regulatory requirements and other factors our Board may deem relevant. Senior Notes OnAugust 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"). OnOctober 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
OnOctober 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. 48 -------------------------------------------------------------------------------- The credit facilities allow us to increase the size of the Term Loan Facility or request one or more incremental term loan facilities or increase commitments under the Revolving Credit Facility or add one or more incremental revolving facilities in an aggregate amount not to exceed the greater of$650 million and 100% of the Company's consolidated EBITDA for the most recent four-quarter period plus or minus certain amounts as specified in the Credit Agreement, including an unlimited amount subject to compliance with a consolidated total secured net leverage ratio. The credit facilities contain covenants that limit the ability of the Company and its restricted subsidiaries to, among other things, incur additional indebtedness, pay dividends or make certain other restricted payments, sell assets, make certain investments, and grant liens. These covenants are subject to exceptions and qualifications set forth in the Credit Agreement. The Revolving Credit Facility contains a financial covenant regarding a maximum first lien net leverage ratio that applies when borrowings under the Revolving Credit Facility exceed 30% of the total revolving commitment.
Refer to Note 14 " Long-Term Debt " in 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$1.71 billion as ofDecember 31, 2022 , of which$82.7 million is due within the next twelve months. Refer to Note 15 " Leases " in Item 8 of this Annual Report on Form 10-K for further information.
GLPI leases
As ofDecember 31, 2022 , the Company'sBally's Evansville ,Bally's Dover ,Bally's Quad Cities andBally's Black Hawk 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$52.0 million , subject to a minimum 1% annual escalation or greater escalation dependent on CPI. OnJanuary 3, 2023 , we completed a transaction withGLP Capital, L.P. , the operating partnership of GLPI, related to the land and real estate assets ofBally's Tiverton and Hard Rock Biloxi for a total consideration of$635.0 million . The transaction was structured as a tax-free capital contribution and a substantial portion of the proceeds will be applied to reduce the Company's debt. These properties will be added to the Master Lease, increasing minimum annual payments 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 ofTropicana 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 whichBally's Chicago will be built. The lease commencedNovember 18, 2022 and has a 99-year term followed by ten separate 20-year renewals at the Company's option. As ofDecember 31, 2022 , the Company has recorded this lease as a corresponding long-term financing obligation of$200.0 million .
Capital Expenditures
Capital expenditures are accounted for as either project, maintenance or capitalized software expenditures. Project capital expenditures are for fixed asset additions that expand an existing facility or create a new facility. Maintenance capital expenditures are expenditures to replace existing fixed assets with a useful life greater than one year that are obsolete, worn out or no longer cost effective to repair, along with spending on other small projects that do not fit into the project category. Capitalized software expenditures relate to the creation, production and preparation of software for use in our online gaming operations. For the year endedDecember 31, 2022 , capital expenditures were$212.3 million compared to$97.5 million in 2021. In 2022 we continued our spending on maintenance and planned projects at our casino properties, making significant progress on ourBally's Twin River andBally's Atlantic City properties. We expect that significant capital expenditures in 2023 will decrease as compared to 2022 as we focus on generating cash flows to invest in long-term growth opportunities for the entireBally's portfolio. 49 --------------------------------------------------------------------------------Bally's Twin River - In connection with our partnership with IGT, we have committed to invest$100 million inBally's Twin River over the term of our master contract, ending in 2043, withRhode 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 are currently in the process of constructing a 40,000 square foot casino expansion, for a combined investment of approximately$60 million . The spa opened inJanuary 2023 , and the expanded casino is expected to open in the second quarter of 2023.Bally's Atlantic City - Construction on ourBally's Atlantic City property commenced in 2021. We are committed to invest approximately$100 million over five years to refurbish and upgradeBally's Atlantic City's facilities and expand its amenities, including renovated hotel rooms and suites, an outdoor beer hall and lobby bar. Spending in 2023 is estimated at approximately$20 million .Bally's Kansas City - We began construction on the planned redevelopment project ofBally's Kansas City inNovember 2021 . We believe the redevelopment of the property, which includes a 40,000 square foot land-based building, restaurant, bar and retail space, will improve the property and guest experience and drive growth and return on investment. Spending on the project is estimated to be approximately$50 million , with a target completion date in the summer of 2023.Centre County, PA - OnDecember 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 inCentre County, Pennsylvania . Subject to receipt of regulatory approvals, it will house up to 750 slot machines and 30 table games. The casino will also provide, subject to receipt of separate licenses and certificates, retail sports betting, online sports betting and online gaming. We estimate the total cost of the project, including construction, licensing and iGaming/sports betting operations, to be approximately$120 million . If completed, we will acquire a majority equity interest in the partnership, including 100% of the economic interests of all retail sports betting, online sports betting and iGaming activities associated with the project.Bally's Chicago - OnJune 9, 2022 , a wholly-owned indirect subsidiary of the Company,Bally's Chicago Operating Company, LLC (the "Developer"), signed a host community agreement with theCity of Chicago to develop a$1.7 billion destination casino resort, to be namedBally's Chicago , in downtownChicago, Illinois . Among other features and amenities,Bally's Chicago will include 3,400 slots, 170 table games, 10 food and beverage venues, a 500-room hotel tower with rooftop bar, a 3,000 seat, 65,000 square foot entertainment center, a 20,000 square foot exhibition and an outdoor green space including an expansive public riverwalk with a water taxi stop. The project also provides the Developer with the exclusive right to operate a temporary casino for up to three years while the permanent casino resort is constructed. The temporary casino is expected to open in the second half of 2023, subject to regulatory approval and other customary conditions. In connection with the entry into the host community agreement with theCity of Chicago , the Company made a one-time up-front payment to theCity of Chicago equal to$40.0 million , and the Developer will be required to make ongoing payments based on certain performance and time-based thresholds detailed in the host community agreement. Additionally, in connection with the host community agreement, the Company provided theCity 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 theCity of Chicago that the Developer has failed to perform various obligations under the host community agreement, the Company has indemnified theCity of Chicago against any and all liability, claim or reasonable and documented expense theCity of Chicago may suffer or incur by reason of any nonperformance of any of the Developer's obligations.
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 ofDecember 31, 2022 , obligations related to these agreements were$83.3 million , with contracts extending throughJune 2036 .
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.
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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 and asset group 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
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.
The Company completed its annual assessment for goodwill impairment as of
October 1, 2022 , which resulted in 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 December 31, 2022 and the estimated fair value
exceeded this amount by 8%. 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 decline in the discount
rate or a 50 basis point decline in the terminal growth rate would not have
resulted in an impairment charge. The carrying value for the North America
Interactive reporting unit exceeded its fair value as of October 1, 2022 and the
Company recorded an impairment loss during the year ended December 31, 2022 . The
most sensitive input to the estimated fair value of the North America
Interactive reporting unit was forecasted revenue. A hypothetical 10% decline in
forecasted revenues for the reporting unit would have resulted in an additional
goodwill impairment charge of $10 million . 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, by
comparing the fair value of the recorded assets to their carrying amount. 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
tradenames using the relief-from-royalty method under the income approach.
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Based on the annual impairment assessment of intangible assets, the Company
identified indefinite lived trademarks totaling $206.3 million in the
International Interactive segment that did not significantly exceed their
respective carrying values. The Company recognized an impairment loss of $73.3
million related to one of the trademarks acquired as part of the Gamesys
acquisition. This trademark is being de-emphasized for other newer brands in
Asia and Rest of World, resulting in a decline in actual and projected revenues
attributable to the trademark as compared to when the fair value was determined
during the purchase price allocation of the Gamesys acquisition. The fair value
of the trademarks 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 these
trademarks decline in the near future, discount rates increase significantly, or
selected royalty rates decline, we may recognize further impairments, and such
impairments could be material. The selected royalty rate represents the most
sensitive input in our estimates and a hypothetical increase of 50 bps in the
royalty rates would result in additional impairment of approximately $10.6
million on the assets that do not significantly exceed their carrying values.
Additionally, a hypothetical 10% decline in projected revenue derived from the
trademarks would result in additional impairment of approximately $5.6 million
on the assets that do not significantly exceed their carrying values.
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 bases 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 taxes 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, a$60.1 million valuation allowance has been established as ofDecember 31, 2022 . The allocation of shared costs and intangible assets among our subsidiaries in variousU.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 ofU.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 ofU.S. federal taxes, and conforming states.
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.
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