The recent announcement that Penn Entertainment will launch the much-anticipated ESPN Bet app Nov. 14 dominated the operator’s Thursday third-quarter earnings call. Analysts posed numerous questions about how the dynamic between Penn and ESPN will play out.
Penn Entertainment is committing $2 billion to ESPN for the partnership, with $1.5 billion in cash to be paid over 10 years and $500 million in warrants to buy shares, along with potentially the ability to appoint a board member.
Penn CEO Jay Snowden admitted that the path to profitability will be incremental and deliberate.
“We’ve talked a lot internally in terms of what success will look like,” Snowden said. “Whatever that market share is in the first couple of months, we want to see that continue to grow over time, and that will speak to the product and to retention. What we don’t want is a giant splash in the first month or two, then leak market share. That wouldn’t be deemed a success.”
Penn Entertainment reported revenue of $1.62 billion for the third quarter 2023. According to Jefferies equity analyst David Katz, that figure was “above our $1.581 billion and the Street’s $1.616 billion.”
“The lower-than-expected results should result in a negative reaction in the shares, given the concerns over trends in regional gaming on the top and bottom lines,” Katz wrote in a statement. “That said, the more important driver for the shares should be the forthcoming ESPN Bet launch in November, which we expect should attract considerable attention and induce trial. Penn could be among the more volatile names in the near term vs. peers, in our view.”
Snowden admitted the company is prepared to withstand losses in 2024 and extending through 2025.
“You should think about the first two years of the launch of ESPN Bet to be really where those cumulative losses are,” Snowden said. “The third full year (2026) is where you would anticipate us inflecting to breakeven and better, probably modest EBITDA growth in that third year, and that bridges you right into 2027 and the ranges we provided in our last call.”
The Nov. 14 launch means ESPN Bet will be available throughout most of the second half of the NFL season, the end of college football’s regular-season schedule, NCAA bowl games and playoffs, NCAA basketball, and the majority of the NBA and NHL’s schedules.
Snowden said one of the reasons he’s confident the launch will succeed from a technical standpoint is that the app has been load tested since the agreement with ESPN was announced in August 2023 and that “has probably been the biggest piece of preparation, honestly, along with the product enhancements.”
Customers who already have the Barstool Sports betting app, Penn’s former partner, will be prompted to download the new ESPN Bet app the day of the launch. Penn Entertainment Chief Financial Officer Felicia Hendrix compared the process of adding the new app to when HBO Max was rebranded as Max.
“It took two seconds,” Hendrix said. “That’s the experience we’ll have with ESPN Bet and part of the thinking there also is that you sort of get an opportunity to just reset everything in terms of the history and the ratings and the comments, so it will be consistent and focused on ESPN Bets.”
The rollout will be similar to Penn’s introduction of the Barstool Sports betting app in that ESPN personalities, according to Snowden, will be prominently featured. Snowden said that those personalities have already indicated they’re onboard in terms of the passion they have for sports and sports betting.
“In our discussion with the team at ESPN, we found a tremendous amount of excitement,” Snowden said. “It wasn’t hard for ESPN to find the first personalities to get involved in creating commercials and you’ll see more and more of that as we get into 2024.”
There is hope that Penn’s partnership with ESPN will carry over into its brick-and-mortar sites. In addition to the rebranding of Barstool Sportsbooks as ESPN sites, Penn Executive Vice President-Operations Todd George anticipates value added from online patrons.
“Somebody that joins us through online channels, then visits a property, plays up at a significant multiple,” George said. “We have goals as a leadership team around making sure that we’re introducing our other offerings to these consumers, whether they find us through online channels or properties, because the multiples we’re seeing are very encouraging. We’ll have more data around this in the future and be able to talk in more detail, but we (already) see how much more valuable they are when they play one, two, three different channels.”