Penn Entertainment, the parent company of ESPN Bet, is mired in a proxy battle due to its considerable expenditures since entering the mobile sports betting industry, which has yielded little success at this point.
Shifting Gears
Penn Entertainment CEO Jay Snowden has spent a considerable amount of money trying to find the right recipe for success in the mobile sports betting industry. Initially, the company spent $650 million to purchase the bro-culture Barstool Media empire, founded by Dave Portnoy, with the express intent of using the name to form a mobile sportsbook.
The idea was to attract young males who had an allegiance to the Barstool culture and grow its audience from there. However, within six months of completing the sale, Snowden decided to shift gears and entered into a 10-year agreement with ESPN for $1.5 billion to form ESPN Bet.
One glaring caveat to the sale was that Penn had to divest itself of Barstool Sports and do it quickly to consummate the deal with ESPN. Penn then sold Barstool Sports (sans the sportsbook, which it was forced to dissolve per the ESPN agreement) back to Portnoy for the princely sum of $1 and the rights to 50% of the profits of any future sale of the media company. Portnoy has vowed never to sell.
Struggling to Gain a Foothold
Money spent has not led to money earned, and this has Penn’s investors getting restless. So much so that a proxy battle has been launched by HG Vora, with the firm declaring Penn Entertainment an “abject failure.”
The digital wing of Penn Entertainment, known as Penn Interactive, has three brands, including:
- ESPN Bet
- Hollywood Casino
- theScore
The three of them posted Q4 revenues of $275 million. Despite the revenue numbers, it was an EBITDA loss of $109.8 million.
And although this was a $224 million increase over last year, ESPN Bet’s market share during football season was roughly 3% of the six reporting sportsbooks. This is far removed from the lofty goals Snowden had upon founding ESPN Bet, believing it could challenge as one of the nation’s top sportsbooks.
“While that opportunity and strategy are very much intact, we haven’t met this one yet,” Snowden said of ESPN Bet’s goal of being a market leader. “We believe that’s about to change.”
Make-or-Break Moment
The change Penn’s C-suite is anticipating is an increase in ESPN Bet’s market share to 5% by the next fourth quarter, which means the NFL and college football season could be the make-it-or-break-it five months for the brand due to an opt-out clause in August 2026 that both parties have in the agreement.
“If for whatever reason we’re not hitting the levels that we need to, then obviously as you’re approaching that third-year anniversary, you have a three-year clause in the contract that both sides will have to do what’s in their best interest. That’s always out there,” said Snowden.
Chief Technology Officer Aaron LaBerge stressed the importance of fully integrating ESPN Bet with the ESPN app as critical to the brand’s visibility and traffic. “The integrations are just going to continue to get deeper and more meaningful, and we’re very excited about that. We think that’s going to yield a positive result,” said LaBerge.
