What was scheduled to be Penn National Gaming’s second-quarter earnings call turned into a recap of the latest blockbuster deal in the gaming industry.
The gaming company Thursday announced it has entered a definitive agreement to acquire Score Media and Gaming, the Canadian digital media and sports betting and technology company known as theScore, for approximately $2.0 billion in cash and stock.
Instead of a perfunctory recitation of Penn’s financials on the call, CEO Jay Snowden was joined by theScore CEO and Chairman John Levy, Dave Portnoy, founder of Barstool Sports, and Erika Nardini, CEO of Barstool Sports.
Snowden said similarly to its deal with Barstool, theScore will operate as a stand-alone business. Penn National purchased Barstool Sports in January 2020 for $450 million.
“This transaction reflects the deep respect we have had for theScore brand over the years and what John’s family has created,” Snowden said. “We have known the Levy family for years, and like our Barstool acquisition, we don’t want to come in and change who they are which is what has made them so successful.”
Based in Toronto, Ontario, theScore was founded by Levy in 2012. The social digital sports media delivers sports scores, data, news, and sportsbook offerings through its mobile app, and was launched in part to compete with TSN, the Canadian sports specialty channel. According to Joseph Greff, an analyst with J. P. Morgan, theScore’s app is No. 1 in Canada and the third most popular in North America.
Portnoy said he’s used theScore’s app for years and previously met with Levy to talk about a partnership. But at the time, Portnoy and Nardini lacked the resources to strike a deal.
“I think it’s so synergistic, what (theScore) does and what we do,” Portnoy said. “I think it continues the belief that I know Jay and I have, and John and I have, which is controlling the media and having the entire ecosystem, where people get scores, they get info and can also place wagers. It just fits so perfectly.”
One of the perks of the deal is theScore’s tech platform. Snowden said the Canadian company has always emphasized digital and technology development, and Levy noted theScore’s popularity in Canada and North America is due to behind-the-scenes work by its tech staff.
When sports betting was legalized in the U.S. and theScore became the only sports digital company to become an operator and not just lease out its user base, the Canadian company started to emphasize building its own platform.
“From a revenue standpoint, it would have been easy to suck up all the dollars everyone was throwing at us to get access to our user base,” Levy said. “But that doesn’t stick. What really sticks is when you focus on the end user and consumer, and how to make it easy for them. So, we decided we had to build our own technology, and that’s what we did.”
The transaction was unanimously approved by the boards of directors of both companies and is expected to close in the first quarter of 2022. Upon completion of the transaction, current Penn National and theScore shareholders will hold approximately 93% and 7% respectively, of the company’s outstanding shares.
“We feel like we have two of the premier sports media brands in North America,” Snowden said. “Our business model’s a bit different from everyone else. I sort of look at what the competitors are doing the space as a rental model, and we’re planning to buy and to build something that’s really differentiated, but still for the long term.”
Greff, the J.P. Morgan analyst, noted that Penn owned a 4.7% stake in theScore prior to Wednesday’s transaction. He thinks that Penn will try to combine and cross-promote theScore and Barstool sports to “grow share, which has been lackluster in the small number of states Penn presently operates in. Penn will be able to incorporate theScore’s product, engineering, and data-driven user analytics for attacking OSB and iCasino and improve upon customer acquisition, engagement, and retention.”
For the second quarter, Penn National reported revenue of $1.5 billion, an increase of $1.2 billion million from 2020 when COVID-19 mandates closed brick-and-mortar casinos. The second quarter also was an increase of $223 million versus over the same period in 2019.
Net income for the quarter was $198.7 million, compared to a net loss of $214.4 million in the prior year, and net income of $51.4 million in the second quarter in 2019.
“The strong results were driven by exceptional performance across our portfolio of core gaming business properties,” Snowden said in a statement. “Contributions from Barstool Sports, the media company, were also positive. Further, we saw strong revenue growth across our Penn Interactive segment, which operated near breakeven for the quarter despite being live in only four states.”
