Penn Entertainment Stakeholder Nominates New Board Members

Capital management firm, HG Vora, has nominated three directors to take seats on Penn Entertainment’s board after accusing the parent company of ESPN BET of gross mismanagement.

No More Playing Nice

Penn Entertainment’s foray into the mobile sports betting market has been fraught with expensive decisions and poor results. In March 2021 Penn stock reached $130 per share, but nearly four years later, shares have plummeted to just over $20, and the natives are getting restless.

Shareholder Criticism

Last year a scathing rebuke of Penn management came in the form of a public letter by Will Wyatt, managing partner of the Donerail Group, to Penn’s chairman David Handler and his board. The main focus of the criticism has been the $550 million Penn paid for Barstool Sports to enter the mobile sports betting market as Barstool Sportsbook, only to dissolve it within months of the completion of the sale as a prerequisite to spending $1.5 billion on a 10-year agreement with ESPN to brand ESPN BET.

Wyatt’s letter read in part, “What may be additionally troubling for shareholders is that the operating losses that are growing meaningfully—and have become a central part of the PENN equity narrative—sit within an interactive business that currently has no operating leadership. What gives this Board any confidence in PENN’s future under this strategy?”

ESPN BET Struggles

The juice has not been worth the squeeze as ESPN BET has experienced only minimal gains from where they were with Barstool Sportsbook. It has been reported ESPN BET has only a 4% market share in the mobile sports betting sector, with DraftKings and FanDuel controlling roughly 74% of the market.

And in a much more recent example of shareholder disenchantment, Parag Vora, portfolio manager and founder of HG Vora, issued the following statement:

“PENN’s Board has overseen a misguided Interactive strategy that has resulted in the reckless spending of nearly $4 billion — greater than the Company’s entire market capitalization — on overpriced, poorly negotiated M&A transactions and media partnerships that have resulted in large ongoing operating losses due to an inability to execute. The Company’s Interactive strategy has been an abject failure due to a pattern of overpaying, overpromising, and not delivering.”

Making Changes

Earlier in January, HG Vora decreased its stake in the company to less than 5% and has recently submitted three names, all with extensive experience in the gaming industry, to take seats on Penn’s board.

Bill Clifford previously served as the CFO at Penn until 2013, when he took over as CFO of REIT Gaming & Leisure Properties until 2018: “During his more than 12 years as Chief Financial Officer of Penn National Gaming, Mr. Clifford was instrumental in the company’s exponential growth, which drove an approximately 20x return for shareholders,” the letter said.

The former CEO of Superbet, Johnny Hartnett, and Flutter executive for over 20 years is the second name being proposed.

Carlos Ruisanchez was the CFO of Pinnacle Entertainment for five years before its sale in 2018 to Penn Entertainment. He engineered a “nearly 5x total return for shareholders” in his capacity as CFO.

Whether any or all of these men will be chosen to sit on the board is uncertain, but Penn confirmed receiving HG Vora’s proposal on Wednesday evening.