HG Vora Calls for Overhaul at PENN Entertainment (PENN), Citing Years of Underperformance and Board Entrenchment

Summary

Dear Fellow PENN Shareholders,

HG Vora Capital Management, LLC (together with its affiliates, “HG Vora,” “we” or “us”) is one of the largest shareholders of PENN Entertainment, Inc. (“PENN” or the “Company”). We are long-term shareholders and currently own approximately 4.8% of the Company’s outstanding shares.

PENN’s stock has underperformed those of its publicly traded gaming peers1 over the last two, three, four, five, six, seven, eight, nine and ten years, and during the tenure of the Company’s CEO and most of the independent directors.2 In our view, this is the direct result of an unsuccessful strategic shift that has been plagued by value-destructive deal-making, reckless capital allocation and poor execution. We believe PENN trades at a discount to its intrinsic value because its management team and Board of Directors (the “Board”) have lost credibility and investors fear further value destructive decisions.

Surprisingly, it seems that the Board thinks PENN’s performance has been laudable. In the Company’s proxy statement, for example, the Board claims that there has been a “substantial increase in shareholder value… over the last decade.”3 That is simply not true. PENN’s stock price has declined over the last ten years.4

Despite the Company’s severe and objective underperformance, the Board appears unwilling to accept responsibility for its failures. Instead, it has taken extraordinary measures to avoid accountability and disenfranchise shareholders. Among other tactics, the Company publicly advocated to a state gaming regulator that HG Vora not be permitted to nominate director candidates, and the Board subsequently threatened to invalidate our nomination notice to prevent us from nominating candidates.

But perhaps the most brazen act of entrenchment was the Board’s last-minute move to reduce the number of directors up for election at the 2025 Annual Meeting of Shareholders (the “Annual Meeting”) from three to two, after we had properly nominated three director candidates. The Board did so just ten days after declaring to us there were three seats up for election. We believe this desperate maneuver not only deprives shareholders of their fundamental right to elect directors of their choosing but is also a violation of law and a breach of the Board’s fiduciary duties.

We believe shareholders should not tolerate such a manipulation of the electoral process, nor should they continue to accept PENN’s dismal performance. Shareholders deserve a Board that welcomes their input, is dedicated to serving their interests, is committed to holding management accountable and is open to all avenues for maximizing value.

Accordingly, we urge all PENN shareholders to vote “FOR” all three independent director candidates nominated by HG Vora using the GOLD Proxy Card. By using the GOLD Proxy Card, shareholders can express their disapproval of the incumbent Board.

PENN’s Strategy Has Destroyed Significant Shareholder Value

We invested in PENN because we believe it owns the best portfolio of geographically diverse regional casinos in the country and, prior to the distractions introduced by the current management team, had a track record of industry-leading efficiency in its core brick-and-mortar business. We were attracted to the consistency, predictability and steady growth of the core business as well as the potential upside opportunity from online casino gaming, an area in which we believe PENN is well positioned to succeed as a large scale omni-channel operator with a combination of the established Hollywood Casino brand and significant cross-sale opportunities from its large retail database.

However, under the leadership of its President and CEO, Jay Snowden, and Board Chair, David Handler, PENN has been pursuing a misguided transformation from a best-in-class regional casino operator to a sports, media and technology conglomerate. Unfortunately, this transformation has been characterized by massively overpaying for acquisitions and poor execution.

Since the beginning of 2020, PENN has invested heavily in online sports betting, committing more than $4.3 billion5 of shareholder capital — nearly double PENN’s entire equity market value today — to several value-destructive acquisitions and partnerships.6 Under the oversight of the Board and Mr. Handler — who purports to be an expert in gaming and technology M&A7 — PENN has executed a string of transactions that, in our view, stand among the worst in the industry’s history. PENN paid more than $2 billion for Score Media and Gaming, a small Canadian company that was generating less than $25 million in annual revenue,8 and more than $500 million for Barstool Sports,9 whose controversial brand and outspoken founder reportedly threatened PENN’s relationships with its gaming regulators, putting the entire PENN franchise at risk.10 PENN has also committed to paying Disney more than $2 billion for the right to the ESPN Bet trademark for ten years, 11 a sum that Disney’s CEO noted was substantially more than other suitors were willing to pay.12

Despite this prolific spending, we believe that PENN’s online sports betting strategy has failed. Nearly two years after Mr. Snowden announced that the Company was targeting double-digit market share13 and a “podium position,”14 ESPN Bet is the 8th-ranked online sports betting platform in the U.S., with its market share hovering around 2%.15 Additionally, by nearly all relevant measures, the Company is less profitable and less valuable than it was before the Company embarked on its digital transformation. Earnings, Adjusted EBITDAR, return on invested capital and free cash flow have all declined over the last five years, while the Company’s share count and leverage have increased significantly.16

Nevertheless, the Board continues to insist that success is just around the corner, assuring shareholders that the digital business is nearing an “inflection point”17 and will turn profitable in 2026.18 Shareholders have heard these claims before. PENN also said that it expected its digital business to achieve profitability in 2021,19 2022,20 202321 and 2025.22 Why should shareholders trust that this time will be different when the strategy, management team and a majority of the Board members remain the same?

PENN’s Compensation Is Excessive and Misaligned with Shareholders

Even as the Company’s fundamental performance has deteriorated, management’s attempt to build a digital business has floundered, and most shareholders have seen the value of their investment decline substantially, PENN’s executives — especially Mr. Snowden — have been lavishly rewarded by the Board. While PENN’s market value has declined by approximately $11 billion since the beginning of 2021,23 Mr. Snowden has been paid more than $120 million.24

Despite PENN’s abysmal track record during his tenure, Mr. Snowden is now the second highest-paid CEO among his peers after the Company rewarded him with a greater than 70% increase to his target compensation in 2024.25 This increase in target compensation is particularly tone-deaf, in our view, given the fact that PENN’s stock price declined for the third consecutive year in 2023, underperforming the Company’s publicly traded gaming peers by nearly 30 percentage points.26 Institutional Shareholder Services — a leading independent proxy advisory firm — recognized this disconnect between pay and performance even before the massive increase in pay in 2024, assigning PENN a score of -100 on its “Relative Degree of Alignment” evaluation, the lowest possible score, with respect to PENN’s 2023 executive compensation.27

Genuine Change Is Urgently Needed at PENN

To ensure that the Company’s future does not look like the last five years under the leadership of Mr. Snowden and Mr. Handler, we believe genuine change is needed at PENN. But this change is unlikely to come from the very executives and directors that devised the current strategy, a strategy on which they claim to remain “laser focused.”28 Instead, in our view, PENN needs a Board that will ask tough questions, challenge the status quo and make difficult but necessary decisions about the Company and Board’s leadership.

PENN’s incumbent directors have seemingly refused to objectively evaluate PENN’s situation and have instead put up every roadblock possible to interfere with the election of three new highly qualified independent directors. Accordingly, for the first time in our firm’s history, we decided to take our case directly to shareholders.

The Three Independent Candidates Can Help Enhance Oversight and Restore Accountability

We have nominated three candidates — William Clifford, Johnny Hartnett and Carlos Ruisanchez — who are independent of both the Company and HG Vora for election at the Annual Meeting. Each candidate has a track record of success in the gaming and hospitality industry, and we believe each will pursue all opportunities to deliver enhanced value to PENN shareholders.

PENN’s Board also seemingly recognizes that some change is inevitable and has therefore indicated that it intends to nominate two of our proposed candidates, Mr. Hartnett and Mr. Ruisanchez, at the Annual Meeting. While the anticipated election of Messrs. Hartnett and Ruisanchez is a step in the right direction, we believe PENN should welcome all three HG Vora-nominated candidates, including Mr. Clifford, to the Board.

Mr. Clifford has more than 30 years of experience delivering excellent returns for shareholders in the gaming industry, including 17 years as CFO of PENN and Gaming and Leisure Properties, the real estate investment trust that owns most of PENN’s real estate assets and that spun out of the Company in 2013. At PENN, he helped source, negotiate, execute and integrate more than a dozen acquisitions of gaming and hospitality assets.29 He is known as a “proven value creator”30 who, during his tenure at PENN, compounded shareholder returns at approximately 23% annually, nearly double the rate of PENN’s publicly traded gaming peers.31

We believe Mr. Clifford’s deep knowledge of PENN’s operations and expertise in M&A in the gaming industry make him particularly well-suited to challenge the Board and management to address its disappointing capital allocation track record and improve performance. In our view, that is precisely why PENN’s directors reduced the number of Board seats available at the Annual Meeting. We believe PENN’s directors do not want Mr. Clifford in the boardroom to scrutinize their dealmaking or question their strategy or leadership — even though that is exactly what is needed.

We believe that fair elections are the cornerstone of corporate democracy. We have therefore commenced litigation against the Company to ensure that shareholders have the opportunity to elect all three HG Vora-nominated candidates at the Annual Meeting.

Shareholders Should Vote the GOLD Proxy Card to Support Change at PENN

This election is about more than improving the Board’s composition; it is about catalyzing meaningful change at PENN. It is imperative that shareholders send a clear and unambiguous message that continued ineffective leadership, lack of accountability and entrenching actions will no longer be tolerated.

We strongly urge shareholders to vote the GOLD proxy card for the election of each of the three HG Vora-nominated candidates. By voting HG Vora’s GOLD proxy card — and not the Company’s proxy card — you can convey that the status quo is no longer acceptable, and that it is time for genuine change. Join us in voting for accountability, fresh thinking and a better future for PENN. Vote GOLD to Win at PENN.

Thank you for your support.

Sincerely,

Parag Vora
Portfolio Manager & Founder
HG Vora Capital Management, LLC

Source:

https://www.sec.gov/Archives/edgar/data/921738/000121465925007507/f5513251dfan14a.htm