A day after PENN Entertainment announced its strategic partnership with ESPN, PENN CEO Jay Snowden proclaimed that the online sports betting operator is ready to compete with industry giants FanDuel and DraftKings. 

“We’ve all watched market share and online sports betting continue to consolidate really amongst the top two players, and you’ve gotta have scale to compete,” Snowden said during the company’s second-quarter earnings call on Wednesday. “There’s a certain recipe to get to scale … and we think that we check the boxes with that recipe. We’re ready to compete at a scale level.” 

The deal, in essence, will transform Barstool Sportsbook into ESPN BET, with the transition expected around November. As part of Tuesday’s transaction, PENN sold 100% of its Barstool Sports, Inc. common stock back to founder Dave Portnoy to complete the swap.

20% market share?

PENN’s quarterly earnings call included a slide predicting that the company can obtain 20% market share in the online sports betting (OSB) space by 2027. By then, the company estimates it can reach 16% market share in the iCasino space. PENN estimated it could reach $1 billion in adjusted EBITDA by 2027 if it hits those market-share projections. 

FanDuel accounts for 47% of the national OSB market share, parent company Flutter said Wednesday, with DraftKings in second among operators at 35%. Barstool Sportsbook’s market share is roughly 5%.

Snowden believes ESPN’s well-known brand should play an integral role in building the size of PENN’s player database and helping the operator compete nationally. The 10-year, $1.5 billion deal with ESPN gives PENN access to ESPN personalities and channels, which include live sports, studio shows, and written articles. 

Sign Up For The Sports Handle Newsletter!

While the two sides are excited about a long-term partnership, the deal can be terminated after three years if PENN doesn’t reach certain market-share thresholds. Snowden declined to share specifics on what number needs to be reached for the agreement to reach Year 4. 

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

PENN’s stock price jumped to just over $31 Tuesday evening, and it was trading Wednesday at $29 when the market opened. The stock price was $25 on Monday evening. 

The company also reported second-quarter earnings per share of $0.48, above analyst estimates of $0.45. Revenue for the company across Q2 was $1.67 billion. PENN also reported adjusted EBITDAR (earnings before interest, taxes, depreciation, amortization, and restructuring or rental costs) of $476.8 million, a decrease of 5.5% year-over-year.


Barstool Sports split logical

The move toward ESPN and away from Barstool Sports is one that’s been applauded by analysts. 

“The Barstool partnership wasn’t working, the risks were too significant, and PENN was at a crossroads,” Deutsche Bank analyst Carlo Santarelli said.

Partnering with Barstool’s highly popular sports media brand gave PENN what it hoped was a path to customer acquisition with lower marketing costs than competitors. That plan didn’t work out as PENN had hoped. As a result, the company is switching gears to work with a globally recognized sports media entity. Barstool skews toward a younger demographic of college-aged males and young professionals than ESPN. 

“It’s a double-edged sword: While Barstool brought authenticity and a dedicated audience, it also perpetuated some stereotypes that the industry is trying to move away from,” Jeffrey Kamys, chief investment strategist for the Inherent Wealth Fund’s iBET Sports Betting & Gaming ETF, said.

Even Portnoy admitted there were challenges to his company’s style meshing with state gambling regulators. PENN and Portnoy faced scrutiny from regulators in several states, including Massachusetts and Ohio. In Ohio, the state’s sports betting regulator fined the operator for sharing a promotional signup code at a college football show hosted on the University of Toledo’s campus. 

“We underestimated just how tough it is for myself and Barstool to operate in a regulated world, where gambling regulators, The New York Times, and Business Insider hit pieces are f**king with the stock price,” Portnoy said Tuesday in a social media video. “Every time we did something, it was one step forward, two steps back. We got denied licenses because of me, you name it. So the regulated industry is probably not the best place for Barstool Sports and the type of content we make.”

The deal, which gives Portnoy 100% of Barstool Sports, includes “certain non-compete and other restrictive covenants,” according to a press release from PENN. Should Portnoy sell Barstool Sports again, PENN has the right to receive 50% of the gross proceeds.

PENN’s media partnership switch has changed the Inherent Wealth Fund’s view of the company. 

“Our fund had previously divested from Penn, but this recent development prompted us to reinvest,” Kamys said. “This strategic move was essential for Penn to stand any chance at securing a substantial market share.”

Added Lloyd Danzig, managing partner of Sharp Alpha Advisors: “Dave Portnoy appears to have made one of the greatest trades of all time after selling Barstool for over $500 million and buying it back for little more than a non-compete, restrictive covenants, and a claim on certain future proceeds.”

Product enhancements

Earlier this spring, Snowden shared an honest assessment of Barstool Sportsbook’s app during the company’s Q1 earnings call, referring to the platform as “an inferior product.” 

Then, during the MLB All-Star Break, Snowden’s team completed an overhaul of the Barstool Sportsbook and Casino app. The company moved off Kambi’s third-party platform — the same technology that powers BetRivers — and onto its own platform, which also powers theScore Bet. 

Snowden then sung the praises of the new app, which will soon be ESPN BET, a few months later. 

“We think it’s very competitive with other top-tier online sports betting platform offerings, and we feel like when we go live here in November with ESPN BET, we’ll be able to say the same thing,” Snowden said. “The beauty of what we have here is that we’ve built this from the ground up, and it was really built for the North American markets. We’re gonna be able to continue to iterate.”

penn-entertainment-user-experience-slide ESPN BET will be available in 16 states. There, customers will see a product that includes increased wagering markets; streamlined navigation and search; greater personalization; faster load times, deposits and withdrawals; and improved cash-out availability compared to the earliest versions of the Barstool Sportsbook app. 

A sports betting consultant, who requested anonymity given their current employment in the industry, told Sports Handle that moving to an in-house tech platform gives a sportsbook operator significantly more flexibility for personalized promotions, among other benefits. The consultant, who has worked with a mobile sports betting operator using the Kambi platform, said it left that operator behind its online sports betting peers.

“You’re essentially in a queue to get anything approved,” the consultant said. “I was doing some work with their promotions team, and they would essentially have to submit whatever their promotions were for the weekend on like Thursday morning. It’s obviously suboptimal, to say the least, but in reality it’s almost like you’re playing with one hand tied behind your back.”

Snowden’s hope is that the ESPN app will eventually integrate with ESPN BET, allowing users to populate bet slips while scanning through scores and stats. In Ontario, customers using theScore media app have a similar experience, as they can be on theScore’s media app and populate a bet slip. Once ready to wager, they can quickly switch to theScore Bet app. 

“It feels like it’s all the same app,” Snowden said. “Obviously, that’s the path we’re going to head down here in the U.S. as well.”

The bottom line

While Snowden gracefully danced around a question about what went wrong with the PENN Entertainment-Barstool Sports partnership, the fact remains that loyal Barstool Sports fans didn’t translate into significant online sports betting market share for PENN. 

“Viewing them as the underdog in the industry, this partnership [with ESPN] was a lifeline for PENN, especially in light of their dwindling position,” Kamys said.

The deal also comes as Fanatics Sportsbook gears up for the launch of its fully operational mobile sportsbook ahead of the 2023 football season. Fanatics’ beta version is available in a few states, but the operator — which boasts substantial financial backing and unique marketing channels — hopes to make a play for market share alongside FanDuel, DraftKings, BetMGM, and others beginning this fall. 

“Given yet another entrant with Fanatics now part of the scene, it’s clear why PENN was willing to invest as heavily as they did,” Kamys said.

In Snowden’s eyes, FanDuel and DraftKings clearly lead the online sports betting market, but there’s room for more competition at the top.

“I think this narrative or this notion that the market share that’s established is sort of permanent here in the U.S., to me that’s crazy talk,” Snowden said.

Matt Rybaltowski contributed to this report.

Source link

Previous post Unlocking the Metaverse: Matthew Ball’s Keynote at SBC Summit Barcelona 2023
Next post bet365 Bonus Code SHNEWS Yields $200 With First Wager on Wednesday MLB, Any Event
Social profiles