PENN NATIONAL G A M I NG, INC . 2019 ANNUAL REPORT 60023_Cover_Web.indd 1 4/15/20 7:59 AM UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2019 or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ☐ For the transition period from __________ to __________ Commission file number 0-24206 PENN NATIONAL GAMING, INC. Pennsylvania 23-2234473 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 825 Berkshire Blvd., Suite 200 Wyomissing, Pennsylvania 19610 (610) 373-2400 Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading symbol Name of each exchange on which registered Common Stock, $0.01 par value per share PENN The NASDAQ Stock Market LLC Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated ☑ Accelerated filer Non-accelerated Smaller reporting Emerging growth filer ☐ filer ☐ company ☐ company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No As of June 30, 2019, the aggregate market value of the voting common stock held by non-affiliates of the registrant was $2.2 billion. Such aggregate market value was computed by reference to the closing price of the common stock as reported on the NASDAQ Global Select Market on June 28, 2019. As of February 21, 2020, the number of shares of the registrant’s common stock outstanding was 116,864,066. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant’s definitive 2020 proxy statement, anticipated to be filed with the Securities and Exchange Commission within 120 days after the end of the registrant’s fiscal year, are incorporated by reference into Part III of this Form 10-K. PENN NATIONAL GAMING, INC. TABLE OF CONTENTS PART I ITEM 1. Business .....................................................................................................................................................1 ITEM 1A. Risk Factors ............................................................................................................................................ 13 ITEM 1B. Unresolved Staff Comments .................................................................................................................... 31 ITEM 2. Properties ................................................................................................................................................. 32 ITEM 3. Legal Proceedings.................................................................................................................................... 33 ITEM 4. Mine Safety Disclosures .......................................................................................................................... 33 PART II ITEM 5. Market For Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities ...................................................................................................................................... 33 ITEM 6. Selected Financial Data ........................................................................................................................... 34 ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results Of Operations ................. 35 ITEM 7A. Quantitative and Qualitative Disclosure About Market Risk .................................................................. 64 ITEM 8. Financial Statements and Supplementary Data ........................................................................................ 65 ITEM 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure ................ 124 ITEM 9A. Controls and Procedures ........................................................................................................................ 125 ITEM 9B. Other Information .................................................................................................................................. 127 PART III ITEM 10. Directors, Executive Officers and Corporate Governance ..................................................................... 127 ITEM 11. Executive Compensation ....................................................................................................................... 127 ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters ................................................................................................................................................... 127 ITEM 13. Certain Relationships and Related Transactions and Director Independence ........................................ 127 ITEM 14. Principal Accounting Fees and Services ................................................................................................ 127 PART IV ITEM 15. Exhibits, Financial Statement Schedules ............................................................................................... 128 ITEM 16. Form 10-K Summary ............................................................................................................................. 128 Signatures i PART I ITEM 1. BUSINESS Overview Penn National Gaming, Inc., together with its subsidiaries, is a leading, diversified, multi-jurisdictional owner and manager of gaming and racing properties and video gaming terminal (“VGT”) operations. We currently offer live sports betting at our properties in Indiana, Iowa, Mississippi, Nevada, Pennsylvania and West Virginia. We operate an interactive gaming (“iGaming”) division through our subsidiary, Penn Interactive Ventures, LLC (“Penn Interactive”), which recently launched an online casino (“iCasino”) in Pennsylvania through our HollywoodCasino.com gaming platform and entered into multi-year agreements with leading sports betting operators for online sports betting and iGaming market access across our portfolio of properties. Our MYCHOICE® customer loyalty program currently has over 20 million members and provides such members with various benefits, including complimentary goods and/or services. References in this Annual Report on Form 10-K, to “Penn National,” the “Company,” “we,” “our,” or “us” refer to Penn National Gaming, Inc. and its subsidiaries, except where stated or the context otherwise indicates. As of December 31, 2019, we owned, managed, or had ownership interests in 41 properties in 19 states. The majority of the real estate assets (i.e., land and buildings) used in the Company’s operations are subject to triple net master leases; the most significant of which are the Penn Master Lease and the Pinnacle Master Lease (as such terms are defined in the “Triple Net Leases” section below and collectively referred to as the “Master Leases”), with Gaming and Leisure Properties, Inc. (NASDAQ: GLPI) (“GLPI”), a real estate investment trust (“REIT”). In addition, we are currently developing two Category 4 satellite gaming casinos in Pennsylvania: Hollywood Casino York and Hollywood Casino Morgantown, both of which are expected to commence operations by the end of 2020. In February 2020, we closed on our investment in Barstool Sports, Inc. (“Barstool Sports”), a leading digital sports, entertainment and media platform, pursuant to a stock purchase agreement with Barstool Sports and stockholders of Barstool Sports, in which we purchased approximately 36% of the common stock of Barstool Sports for a purchase price of approximately $163 million. The purchase price consisted of approximately $135 million in cash and $28 million in shares of non-voting convertible preferred stock. Furthermore, three years after the closing of the transaction (or earlier at our election), we will increase our ownership in Barstool Sports to approximately 50% with an incremental investment of approximately $62 million, consistent