Penn National Gaming placed a $163 million wager on sports media platform Barstool Sports Wednesday, betting the site’s 66 million monthly visitors will bring their business to one of the regional casino giant’s properties and the company’s expanding digital presence.
“When we first met back in July, we realized pretty quickly that Barstool Sports was a huge opportunity with a strong sports betting brand with a loyal following,” Penn National CEO Jay Snowden said in an interview shortly after announcing the casino company was acquiring a 36% interest in Barstool.
Penn National, which currently operates 41 casinos in 19 states, will attach the Barstool Sports brand on all of the company’s online sports betting products, retail sports betting operations, and online casino sites.
Snowden said the transaction will greatly expand Penn’s customer base by adding a new element to its demographic. The average age of the more than 20 million customers in Penn’s loyalty program is in the mid-50s. Roughly half of the visitors to Barstool’s various media platforms are considered in the Millennial or Generation X category.
That’s one reason Barstool founder David Portnoy posted a video to Twitter announcing the deal. The humorous video, directed to his 1.2 million followers, spent roughly three-and-a-half minutes touting Barstool’s history and telling fans of the website to buy Penn National Gaming stock, and three minutes of a voiceover reading SEC-required safe harbor language.
“We have a younger audience that is deep into gambling,” Portnoy told CDC Gaming. “What Penn is creating is very core to the Barstool audience.”
The investment community was immediately positive on the transaction. Shares of Penn National reached a 52-week high during trading Wednesday on the Nasdaq and were up by as much as 12%. The company’s stock price closed at $29.90, up $2.81 or 10.72%.
The transaction is separate from the agreement Penn National announced last summer in which the company signed deals for online sports betting “skins” with DraftKings, theScore, PointsBet and Stars Group, covering more than 30 regional casinos.
The announcement brought a reaction from both the gaming and media world.
Jefferies Gaming analyst David Katz and deal was consistent Penn’s plan to develop a sports betting and online gaming presence through distribution.
“For sure, Barstool brings an instant following of engaged customers, with the key element being the cost of acquisition in the context of the company’s leverage,” Katz said.
Deutsche Bank gaming analyst Carlo Santarelli agreed the transaction boosts Penn National’s presence in the sports betting market.
“The customer breadth and engagement Barstool provides to Penn is unrivaled in the sports betting community,” Santarelli told investors. “Importantly, the demographic skews younger, a profile not well represented in Penn’s existing customer database.”
Vox’s Peter Kafka told Axios Sports the announcement was “a stunning deal for the digital media industry, coming as many publishers are retrenching after a round of ultimately disappointing Facebook-fueled optimism and investment.”
Sports betting is currently legal and regulated in 14 states with another six and Washington D.C. expected to launch in 2020. The American Gaming Association said Tuesday sports betting legislation is being debated in an additional 14 states.
Penn National currently operates 14 sportsbooks in six states. The company plans to launch sports betting in four additional states that have legalized the activity as soon as regulations are finalized.
Snowden said the company has already seen the business benefits of having a retail sportsbook on a property. He said the Hollywood Casino Lawrenceburg in Indiana saw revenues decline 2% the month before its sportsbook opened. In the month following the opening, revenues grew in all areas of the property, including other casino games and restaurants.
“Retail sports betting can be a powerful driver,” Snowden said. “With its leading digital content, well-known brand and deep roots in sports betting, Barstool Sports is the ideal partner for Penn National.”
Snowden said Penn will continue to oversee the sports betting operations with Malta-based Kambi continuing to provide sports betting technology.
The transaction
The agreement between Penn and Barstool is a 40-year deal. Penn National’s initial investment for 36% of Barstool Sports includes $135 million in cash and $28 million in shares of non-voting convertible preferred stock.
After three years, Penn National will increase its ownership to approximately 50% with an incremental investment of approximately $62 million.
Barstool Sports was founded in 2003 as a Boston-area print publication focused on fantasy sports and sports betting before evolving into a broader sports and pop culture website. In 2016, the Chernin Group, a New York-based media holding company, acquired 60% of Barstool.
After the Penn National deal closes, Cherin will own 36% of Barstool. The remaining 28% will be owned by employees, including Portnoy and Barstool Sports CEO Erika Nardini, who will continue to operate the business.
Nardini said the content company “has grown into a media juggernaut” and the deal will combine its content with Penn’s large casino footprint. “Jay and his team can take this to the next level. They are great partners to have.”
She said the companies will develop “a unique and compelling omni-channel approach together.”
Portnoy added that joining with a casino operator was “a dream of mine and why I started Barstool Sports in the first place. From the moment we met Jay and the Penn National team we knew this could be an exciting and game changing partnership and we can’t wait to get started.”
The transaction is expected to close by the end of March.
Howard Stutz is the executive editor of CDC Gaming. He can be reached at hstutz@cdcgaming.com. Follow @howardstutz on Twitter.
