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  • From Barstool Sportsbook to ESPN Bet: A closer look at Penn’s $2bn deal
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With the buzz subsiding after Penn Entertainment’s potentially game-changing licensing pact with ESPN, iGaming NEXT zooms in on the key details.

The deal at a glance

Penn Entertainment has ended its association with Barstool Sports and inked a significant $2bn deal with ESPN to establish ESPN Bet.

Under the terms of the arrangement, Barstool Sportsbook will undergo a name change to become ESPN Bet and will make its debut in the 16 US states where Penn Entertainment holds licences.

The launch is scheduled for autumn, with a probable go live date in November.

Penn has successfully obtained an exclusive 10-year privilege for the ESPN Bet trademark, with the option to prolong it for a further 10 years.

What are Penn’s plans?

Penn Entertainment’s CEO Jay Snowden has left no room for doubt – the casino behemoth has big ambitions.

Speaking during Penn’s Q2 earnings call, Snowden said: “This is not a typical media sportsbook commercial agreement.

“This is an exclusive and comprehensive alliance that will redefine the sports betting landscape with a highly aligned partner that long-term, like us, wants to see ESPN Bet at the top.”

Snowden believes the agreement will assist its Interactive segment in generating annual adjusted EBITDA of between $500m and $1bn by 2027.

For context, Penn’s Interactive division made an adjusted EBITDA loss of $12.8m in Q2 2023.

At present, Barstool Sportsbook commands a US sports betting market share of less than 5%. This percentage will not suffice in future, according to Snowden.

He said: “We’re not doing this deal to be 4% or 5% market share players. That’s not going to be acceptable for us. It’s not going to be acceptable for ESPN.”

Should ESPN Bet fail to achieve the level of share projected by Penn, the agreement includes provisions to terminate the arrangement after three years.

While Snowden refrained from divulging the precise criteria that would trigger the three-year exit option, he did provide a general sense of the anticipated conditions, referencing a 20% market share benchmark.

“We’re not doing this deal to be 4% or 5% market share players. That’s not going to be acceptable for us. It’s not going to be acceptable for ESPN.”
Jay Snowden, CEO of Penn Entertainment

What to expect in the coming months

With this target in mind, Penn will continue to make strategic investments in its Interactive segment for the remainder of 2023 and into 2024.

“We will be focused on launch, execution, sustainable market share growth, and continuing to iterate upon our best-in-class technology,” he said.

Penn committed to spending $150m in annual cash payments to ESPN for marketing services over the initial 10-year term.  

“We also anticipate an additional amount of promotional spending as we launch the ESPN Bet product and welcome newly engaged fans as first-time and reactivated depositors in the ecosystem.

“Bottom line, we are in this to win,” he said.

“We’re going to be really focused on customer acquisition and retention and cross-sell over the course of the next 12 months,” he said and stressed that ESPN Bet’s approach will be “aggressive”.

This stance is particularly important this year, Snowden said, as the sportsbook will miss the initial months of the football season due to the anticipated November launch.

The November launch date for ESPN Bet is primarily guided by product, revealed Snowden.

He explained that since new customers tend to exhaust their promotional funds on first-time deposit matches early in the season, launching mid-season provides an opportunity to present something unique that competitors may not be offering or have already used.

What does ESPN get?

With ESPN Bet, the Disney-owned sports network takes its inaugural stride into the domain of sports betting, presenting a prospect to diversify its revenue streams.

Disney CEO Bob Iger, speaking during the company’s recent earnings call, underscored that this agreement offers a pathway to “substantially enhance engagement with ESPN consumers, particularly young consumers”.

Given Penn’s current market standing, an upswing in market share, driven by ESPN, would validate the strategy of aligning with a broadcasting network—a path that has rarely yielded success in the past.

Prior initiatives from sports streaming services and operators such as fuboTV, Bally’s, Fox, and PointsBet, which aimed to integrate exclusive sports broadcasts with proprietary live odds, have either resulted in their sportsbooks being acquired or shut down altogether.

Reaction to the deal

The key question revolves around how ESPN Bet will progressively expand its market share and whether it will be able to land a glove on current leaders such as FanDuel and DraftKings.

Chris Krafcik, managing director of Eilers & Krejcik Gaming (EKG), characterised ESPN Bet as a “late mover” and asked the question: “A big overhang for the ESPN OSB story has long been: have many ESPN OSBers already been acquired?”

Davis Catlin, managing partner at Discerning Capital, views the deal as “the latest version of Penn overspending to try to reach the scale required to be a national player.”

In a LinkedIn post, he explained that Penn’s technology and UX currently lags behind key competitors, suggesting they “will still lose out to DraftKings, FanDuel, BetMGM, Caesars, and possibly Fanatics”.

He pointed out that most major betting brands are now “adjusted EBITDA positive,” positioning them well ahead in the race for scale.

Catlin also highlighted Penn’s struggles in deploying capital effectively for digital returns and achieving the necessary scale for profitability.

He mentioned Penn’s previous acquisition of TheScore for $2bn, a move that perplexed industry insiders at the time. It has however allowed them to build a functional proprietary sportsbook product.

Catlin also questioned ESPN’s relevance in today’s market, likening it to a titan losing significance.

“If this deal doesn’t move the needle for them, I’m not sure what cards Penn will have left to play on the digital front.”
Investor and strategic adviser Benjie Cherniak

Investor and strategic adviser Benjie Cherniak offered a slightly more positive outlook on the deal to counter Catlin’s viewpoint.

He noted that ESPN represents a significant upgrade in branding and reach compared to Barstool, suggesting it could enhance Penn’s national status as a betting brand by reaching more consumers.

“If this deal doesn’t move the needle for them, I’m not sure what cards Penn will have left to play on the digital front,” Cherniak added.

What about Barstool?

Analysts and sector experts agree that the biggest winner of the deal is Dave Portnoy, the outspoken founder of Barstool Sports.

Penn previously acquired Barstool for a sum of $551m, employing a two-phase arrangement that commenced in early 2020 and concluded in February of this year.

Portnoy has repurchased the company from Penn for $0 and is now the 100% owner for the first time in years.

Nevertheless, he has agreed to specific noncompete obligations in the sportsbook sector and will owe Penn 50% of a potential sale or monetisation occurrence in the future.

The partnership with Barstool drew unwanted attention for Penn on several occasions due to the controversial nature of the former’s core content. Portnoy has since admitted that Barstool does not belong in a highly regulated environment such as online gambling.

Penn CEO Snowden said: “We felt great at the time we were partnering and launching with Barstool. And we’ve had a great 3.5-year run with our partners at Barstool.

“It just became obvious to both parties that there’s probably long term only one natural owner of Barstool Sports, and that’s Dave Portnoy.”

In a live press conference broadcast on X, Portnoy said it was “back to the pirate ship” without any restrictions on what he can say or do.

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