PENN Entertainment investor HG Vora has criticized the operator’s business direction and requested that it has a representative sit on the board of directors to help better deliver long-term value for shareholders.
In an SEC filing, HG Vora, which owns 18.5% of total PENN stock, has stated that it has held discussions with the board of directors to express its concerns over PENN’s “underperformance” amongst other worrying trends.
The investment fund also noted that PENN is failing to provide long-term shareholder value and noted it has an undervalued share price. However, in a stark warning, the equity firm explained it will review its investment on an ongoing basis.
But in a bid to turnaround the operator’s fortunes and improve investor relations, HG Vora is in talks to add a representative to PENN’s board.
The filing reads:
“The Reporting Persons have discussed with the Issuer’s management and its board of directors a range of topics focused on enhancing shareholder value.
“Given the persistent underperformance of the Common Stock and the Issuer’s capital allocation track record, amongst other areas of concern, the Reporting Persons have requested that the Issuer afford them the right to designate highly qualified directors who would be committed to working with the Issuer’s management and fellow Board members to help the Issuer realize its full potential.”
PENN has made a significant effort to improve its performance in the US sports betting market, notably launching ESPN BET in November in a deal that could be worth around $2bn.
This meant ditching the Barstool Sportsbook brand and the Barstool Sports business, which it had completed a 100% acquisition of in February 2023 for around $500 million. Raising eyebrows, PENN sold Barstool back to founder Dave Portnoy for just $1.
The ESPN BET venture has thus far seen PENN commit millions of dollars into promotional credit, spending $13.5 million in just two weeks in Maryland alone in a bid to win customers from other operators.
It is a costly venture that the firm believes will reap rewards, as PENN CEO Jay Snowden aims to build around 20% market share in the US over the long term.
“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.
However, if HG Vora’s filing is anything to go by, there are itchy feet amongst shareholders at PENN and intervention may be required to turn the tide.
As part of its ongoing review of its investment, HG Vora has left nothing off the table, including proposing changes to the management of the firm. It also hinted that it would propose selling assets as part of the review.
Explaining that it aims to have a bigger say on events at PENN, HG Vora’s filing added: “These actions may include, without limitation, proposing changes in the Issuer’s operations, proposing changes to the Board and the Issuer’s management team, proposing changes to the Issuer’s charter, bylaws or governance structure, capitalization or dividend policy, proposing extraordinary corporate transactions, asset sales, soliciting proxies from other stockholders of the Issuer in connection with meetings of stockholders, acquiring additional Common Stock and/or other equity, debt, notes, instruments or other securities of the Issuer.”
Investors in sports betting operators are becoming increasingly agitated as the quest to become profitable intensifies.
For example, Entain’s CEO Jette Nygaard-Andersen succumbed to investor pressure last month, stepping down from her role amid activism from shareholders who criticized the firm’s European M&A strategy in 2023.
