The Ratings Game: Penn is betting big on ESPN for sports betting. One analyst sees ‘sizable execution risks.’


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When Penn Entertainment Inc. announced plans on Tuesday to launch an ESPN-branded online sports-betting service, shares of the casino operator initially rallied. But afterward, some Wall Street analysts seemed less sure about the enthusiasm, saying that while the potential gains were big, the road to reach them could make for a bumpy ride.

Truist analyst Barry Jonas on Thursday downgraded the stock to hold from buy, saying that despite the potential positives, the benefits could take time to play out, and that there were “sizable execution risks that may not resolve soon.”

He added: “With even [management] admitting they’re a show-me story, we advise waiting before adding to positions.”

Over at Stifel, analysts had essentially the same thoughts.

“On paper, this long-term ESPN Interactive deal makes sense,” they said on Wednesday. “However, we believe [Penn] shares in the near term remain a ‘show me’ story until management can actually prove the long-term financial prospects of this deal are legit.”

Shares of Penn
were down 4.2% on Thursday. Of the 17 analyst ratings on Penn’s stock tracked by FactSet, 10 are holds.

Penn on Wednesday reported second-quarter results that beat expectations. But much of the focus on the company’s earnings call was on the deal with ESPN.

Under that 10-year deal — which can be extended for another 10 years — Penn will rebrand its current online sports-betting platform, Barstool Sportsbook, as ESPN Bet in the U.S. During Penn’s earnings call on Wednesday, management said the launch would likely happen at some point around the middle of football season, “certainly before Thanksgiving.” Penn will pay $1.5 billion in cash to ESPN over those 10 years, or $150 million per year.

Penn, in a filing, also said that either side can terminate the deal after year 3 of the agreement if the new betting platform “has not achieved a specified level of market share based on gross gaming revenue in the states in which the Sportsbook operates while branded ESPN Bet.”

The deal with ESPN came several months after Penn fully bought the popular sports and pop-culture website Barstool Sports, after first investing in the site in 2020 and building out the Barstool Sportsbook platform. The value of those investments, in 2020 and this year, totaled around $550 million. But on Wednesday, it sold Barstool Sports back to its founder, Dave Portnoy, for $1. Penn did not immediately respond to a request for more information about the sale of Barstool Sports back to Portnoy.

During Penn’s earnings call, Chief Executive Jay Snowden declined to offer details about how the deal with ESPN came together, but he said ESPN had already been working on a betting platform.

“I would just say that as we got to know the folks at ESPN led by [Chair] Jimmy Pitaro, it felt good,” he said. “And we’ve met a lot of people at ESPN. And what I’ve been blown away by and the folks that we’ve spent time with is they share a passion for wanting to be the best at everything that they do. And ESPN Bet is no different. They’ve been working on this behind the scenes for some time.”

He also said that the Barstool demographic skewed younger. A deal with ESPN, he said, represented a chance to appeal to everyone.

“It’s not an old brand. It’s not a young brand. It’s an everything brand,” he said.

Bob Iger, the chief executive of Walt Disney Co.
which owns ESPN, said during Disney’s earnings call on Wednesday that the deal between Penn and ESPN represented a chance to draw more younger users to the sports franchise. He also said Penn had the best offer.

“Why Penn? Because Penn stepped up in a very aggressive way and made an offer to us that was better than any of the competitive offers by far,” he said.

But the analysts at Stifel, in their note on Wednesday, had other concerns.

“Given the fact [Penn’s] long-term projections for this partnership are almost four years down the road, we do believe this deal has given [Penn] some near-term breathing room if market share gains take longer than expected to play out,” they said. “[Penn] has now put all their chips on the table with this partnership, and we wonder if their $150M ++ stated annual marketing spend eventually drifts higher as they have to chase market share down the road.”

They also attributed the move higher in Penn’s stock earlier this week to its separation from Portnoy.

“We believe today’s move in [Penn] shares (+9% vs. S&P 500 -0.5%) has more to do with [Penn] removing Dave Portnoy from the equation versus investors ascribing any material long-term value to their new ESPN deal,” the Stifel analysts said.

“Guess we would be in the camp of ‘not sure yet what we think of the deal,’” they added.

Portnoy, in a post Tuesday on X, the platform formerly known as Twitter, said that Penn and Barstool had been denied licenses because of him as they contended with regulations and news stories that he called “hit pieces” from outlets like the New York Times and Insider.

The New York Times ran an article last year detailing concerns that Portnoy was promoting gambling irresponsibly. Insider reported on allegations of sexual misconduct against Portnoy, which Portnoy denied. A defamation lawsuit brought by Portnoy against Insider over that reporting was dismissed.

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Alexandra Williams
Alexandra Williams
Alexandra Williams is a writer and editor. Angeles. She writes about politics, art, and culture for LinkDaddy News.

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