Penn Entertainment shocked the sports betting industry today and, for once, it wasn’t something controversial a Barstool personality said.
In fact, Penn Entertainment is ditching Barstool Media altogether and rebranding its existing sportsbook ESPN BET as part of a blockbuster multi-billion partnership. This fall, the existing Barstool Sportsbooks in the 20 states where Penn operates sports betting will be rebranded .as ESPN BET.
The deal gives Penn exclusive rights to the ESPN BET trademark for 10 years. In exchange, Penn will pay ESPN $1.5 billion in cash payments and grant approximately $500 million of stock warrants to purchase nearly 32 million in Penn common shares in addition to another 6.4 million shares that are triggered with certain performance achievements.
Penn believes the deal will generate $500 million to $1 billion of adjusted long-term EBITDA to its bottom line.
Say goodbye to Barstool Sportsbook
In order to move forward with ESPN, Penn is moving away from Barstool Media.
Penn and Barstool only finalized what amounted to a $524 million deal for the company to acquire Barstool in February.
“Barstool, combined with theScore’s reach and highly engaged user base, creates a massive digital footprint and ecosystem that will serve to propel Barstool Sportsbook and our uniquely integrated media and gaming business,” Penn Entertainment CEO Jay Snowden said at the time.
Now, Penn has sold the company back to founder Dave Portnoy, though the terms of the deal are a little unclear.
In the release, Penn described the deal this way:
“Penn sold 100% of the Barstool Sports, Inc. (“Barstool”) common stock to David Portnoy in exchange for certain non-compete and other restrictive covenants. PENN also has the right to receive 50% of the gross proceeds received by David Portnoy in any subsequent sale or other monetization event of Barstool.”
In addition to the agreement, Portnoy paid the company $1 to get Barstool Sports back.
Portnoy posted one of his signature emergency press conferences on Twitter about the sale, but did not mention the ESPN facet of the deal.
“We underestimated just how tough it is for myself and Barstool to operate in a regulated world,” Portnoy admitted. He also claimed he has no plans to ever sell Barstool again.
What to expect from ESPN BET
“This transformative, exclusive agreement with ESPN marks another major milestone in PENN’s evolution from a pure-play U.S. regional gaming operator to a North American entertainment leader. ESPN BET will be deeply integrated with ESPN’s broad editorial, content, digital and linear product, and sports programming ecosystem. ESPN BET will also benefit from PENN’s operational experience, extensive market access, and proprietary technology platform, which successfully debuted in the U.S. this July,” said Snowden of the company’s big pivot.
Penn acquired theScore and its tech platform in another pricey acquisition that cost the company $2 billion. The Barstool Sportsbook product moved over to the platform from its old Kambi platform less than a month ago. The ESPN BET app will be the same as the one used now, just reskinned with branding from the worldwide leader in sports.
While Snowden and Penn often hailed the loyalty and scope of the Barstool audience, the belief now is the power of the ESPN brand has what it takes for Penn to contend with FanDuel and DraftKings for market share.
“Our agreement with ESPN will provide us access to the largest ecosystem in sports, with 105 million+ monthly unique digital visitors, an audience of more than 370 million across social platforms, 25 million ESPN+ subscribers, and the nation’s #1 fantasy database. PENN’s ability to leverage the leading sports media brands in both the U.S. and Canada with ESPN and theScore, combined with our newly launched sports betting app, will allow us to significantly expand our digital footprint and catapult ESPN BET into a strong podium position in this space. We believe we can achieve substantial adjusted EBITDA in our Interactive Segment over the coming years – and this will translate to very strong free cash flow generation for the Company and value creation for our shareholders,” Snowden added.
“Our primary focus is always to serve sports fans and we know they want both betting content and the ability to place bets with less friction from within our products,” ESPN Chairman Jimmy Pitaro said. “The strategy here is simple: to give fans what they’ve been requesting and expecting from ESPN.”
And what about online casino?
ESPN may be getting into the sports betting game but it is not getting into the casino game. Instead, the online casino apps branded with Barstool will switch over to Penn’s original online casino brand, Hollywood Casino. The move also aligns the online casino with the primary name on Penn’s brick-and-mortar casinos across the US.
There will be continued cross-sell across both the online casino and online sportsbook products, they will just no longer bear the same name.
$PENN prices up
Even though the company possibly just took a half a billion dollar loss on Barstool and is shelling out 10 figures on ESPN, confidence is on the rise. After hours trading on PENN is up 20% and ESPN’s parent company, Disney, also saw a slight uptick.