Penn believes ESPN will get them to 20% sportsbook market share

ESPN Camera
Image: Shutterstock / Adam McCullough

A call Wednesday morning was ostensibly about both Penn Entertainment’s Q2 earnings results and the ESPN deal, but the recently announced partnership between the two dominated the conversation.

Penn Entertainment CEO Jay Snowden spoke confidently about the new partnership and the goals set forth in an investor presentation regarding the deal. In that presentation, the company noted that it expects to have 20% of the online sports betting market by 2027.

The Penn team did not offer a specific date for when the rebrand will happen but did mention November as a good ballpark. While the work that needs to go into the product is dictating the calendar, Snowden does think the mid-season debut has its perks.

He noted that most users will have used up their sign-up bonuses from the start of football season by then. Additionally, the ESPN Bet brand will not have to compete for attention in the crowded start-of-season news cycle.

Penn expects to be podium position in most sportsbook states

“I think if we’re at scale, and we’re on the podium in every state, or most every state, which we plan to be, then we think we can probably get close to the margins,” Snowden predicted.

Barstool Sportsbook currently holds less than 5% of the market. That number will not cut it going forward, as Snowden noted a 4-5% market share is simply not acceptable to ESPN or Penn. He also thinks that, though FanDuel and DraftKings are the big dogs now, the market will inevitably adjust as sports betting matures.

“I think this narrative that the market share that’s established is sort of permanent here in the US–to me, that’s crazy talk. I’m not saying that it’s going to be wildly different from what it is today, but it’s going to ebb and flow,” he noted. “And what we announced this morning or last night and this morning is, is something new and different to think about. That probably wasn’t in the consideration set for anybody a day ago, so it’s going to have an impact on what that overall market share looks like. And we think we’re going to be a major player.”

Penn and ESPN can terminate deal after three years

If the experiment with ESPN does not prove to be the smashing success Penn predicts, there are measures in the agreement for Penn to pull the plug three years into the deal.

Snowden would not disclose the exact details of what would trigger the three-year opt-out but did give a ballpark idea of where expectations are.

“I would just say that it’s probably safe to assume that the bottom end of the range [of our preditions] is going to be a level that we’re starting to get excited about at both ESPN and Penn and below there is not really exciting, so just sort of think about it that way,” Snowden said, referencing the 20% market share threshold.

Penn committed to nine figures of off-channel marketing

Part of becoming a major player and hitting those market share and revenue goals will include not just the $150 million investment each year to ESPN but also what Snowden said would be a “comparable” amount in off-channel marketing.

“We put a lot of thought into what we believe we’re trying to accomplish scaling and, in addition to the support and marketing service that we’re getting from ESPN, what are we missing? We felt like that level of spend allows you to do really most, if not all of everything else that you want to do or plan to do.”

Penn has traditionally steered away from using affiliates to promote the Barstool Sportsbook brand, regularly citing the media arm of the company and the loyalty of the audience as the core means of customer acquisition.

Under the ESPN deal, he is singing a different tune.

“I think we’ve always been pretty clear that we think that because of our media relationships that we can run best-in-class customer acquisition costs. The environment right now has been good. We haven’t spent into it because we didn’t have a competitive product. Now we do,” Snowden said. “You’re seeing customer acquisition costs in that $200 to $300 range and, in some cases, lower and I think those are pretty healthy levels. Assuming that the environment is there, then I think it gives us a great opportunity to spend and feel good about LTV and how you’re thinking about returns on those
customer acquisition costs.”

“We’re certainly not going to be cheap about our approach,” he added. “We don’t want to have regrets about how we launched the products and how we launched the brand.”

Penn’s ownership of Barstool was ‘unnatural’

Snowden did offer some insight about the impact the Barstool brand had on Penn Interactive, noting that the average age of their user is currently 29 years old. Snowden also credited Barstool with bringing 1.5 million users to the company’s digital database.

Nonetheless, Snowden acknowledged what Dave Portnoy said in his emergency press conference yesterday in terms of the partnership never really gelling.

“It became clear we were an unnatural owner,” he said.

“There’s probably long-term only one natural owner of Barstool Sports and that’s Dave Portnoy.”

Can ESPN BET find a way into NY?

Right now, Penn is on the outside looking in when it comes to New York. Snowden did concede that the company is looking for ways to get into the state even if the onerous tax rate makes it unappealing.

“No one loves the tax rate in New York but there could be opportunities in the short-term or medium-term to get access to New York creatively. Those are things that we’re working on behind the scenes,” he said.

“It’s really important to be a scale player to have access to the states that matter. And I don’t think anybody’s really making money in New York today, but I think from a database cultivation [standpoint] and hopefully down the road, there’s opportunities to work with the state on a win-win scenario between the state and the operators to have a more favorable operating environment there.”