PENN Entertainment is receiving backlash from an activist investor over its failure to meet expectations for its online sports betting business.
The investor, the Donerail Group, has called for the entertainment and gaming giant to consider a sale amid its recent capital allocation resulting in a loss of credibility for leadership. Donerail claims the credibility is beyond repair due to a loss in shareholder value. Over the last three years, shares of PENN are down by more than 80%.
“After four years of effort, attention, and billions of dollars of shareholder capital invested, the company has been unable to disintermediate the online sports betting landscape, as it had forecast,” said Donerail Managing Partner Will Wyatt in an open letter to PENN chairman David Handler.
Wyatt’s claim comes after a $2 billion investment by PENN to launch ESPN Bet in partnership with the “Worldwide Leader in Sports.” The launch of ESPN Bet in November 2023 came after PENN shuttered operations of Barstool Sportsbook after selling media brand Barstool Sports back to its founder Dave Portnoy last August for a $1.
In 2020, PENN acquired a 36% stake in Barstool for $163 million before purchasing the remaining 64% in February 2023 for $388 million. Now, ESPN Bet has emerged as PENN’s flagship sportsbook but results have yet to meet expectations amid the heavy investment.
In Q1 2024, ESPN Bet posted an adjusted EBITDA loss of $196 million. PENN projects its Interactive segment, which also includes iGaming, to report a $500 million loss in 2024.
The Donerail Group has also taken exception with PENN’s operations in Canada. PENN acquired theScore in 2021 for $2 billion but the media and gaming company, which offers online wagering in Ontario, generated less than $25 million in revenue at the point of sale.
“Moreover, the growing pattern of guidance misses, alongside a demonstrated unyielding appetite to continue to invest in the company’s fledgling Interactive projects, irrespective of past results and without a clear return framework, has significantly damaged the credibility of this management team and Board of Directors,” added Wyatt.
As of result of Wyatt’s demands, shares of PENN grew by more than 15% on Friday, May 31. A potential sale of the Pennsylvania-based company could fetch up to $6.9 billion, per Wyatt. The Managing Partner gave PENN a current enterprise value of roughly $4.1 billion.
