Wall Street Bets: Analysts examine Penn Entertainment, ESPN, Barstool deals

August 10, 2023 2:21 PM
Photo: CDC Gaming Reports
  • Rege Behe, CDC Gaming Reports
August 10, 2023 2:21 PM

The news that Penn Entertainment is ditching Barstool Sports and entering a $2 billion agreement with ESPN has drawn attention from gaming, media, and sports industries, the mainstream media — even NPR did a segment on the deals – and naturally, Wall Street.

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In this special edition of Wall Street Bets, we’ve rounded up some insights from top gaming analysts.

J. P. Morgan analyst Joseph Greff titled his note “Taking a Wait & See Approach on PENN’s ESPN OSB Pivot.”

“The challenging part in forecasting Penn after today’s news is, obviously, in its interactive (online sport betting/icasino) segment, which loses Barstool but gains a relationship with ESPN,” Greff wrote. “We see losses of $90 million in the third quarter and fourth quarters 2023, though we could be off here.  We note that the exclusive agreement with ESPN won’t begin until some point in November; Penn thinks it will capture ~1/2 of this upcoming 2023-24 football season.”

Steve Ruddock, gambling industry analyst and consultant, in his Straight to the Point newsletter, made a culinary comparison to Penn’s divestiture of Barstool Sports.

“It’s pretty clear that Penn and Barstool entered the relationship with the best intentions and wanted it to work,” Ruddock wrote. “Based on its unique sports-driven content and user engagement, Barstool thought it possessed the perfect recipe for sports betting success. Penn was the chef that could put it all together.

“The result was something less than a Michelin-star restaurant. The Barstool Sportsbook app built on Kambi’s framework was good but not great per Eilers & Krejcik’s testing. The new theScore tech stack scores similarly. The marketing approach was narrow, eschewing affiliates and traditional marketing and instead focusing on Barstool’s social media audience and Penn’s database.

“And then there was the tension as two radically different corporate cultures collided.”

Jefferies equity analyst David Katz titled a note “Lotta Eggs in the Omni-Channel Basket,” referring to a Penn’s second quarter release as “The modest land-based earnings report is overshadowed by the ESPN and Barstool announcements, which increase the stakes for Penn in capturing digital gaming share. We believe ESPN brings Penn a considerable distribution, with remaining question being product execution and timing. Our focus is also on the considerable capital investment in this endeavor, which could be proven out over the longer term. Our updated model and digital DCF leave us at Hold.”

Morningstar, a provider of independent investment insights, noted that “Penn Entertainment shares were surging 8% after the company reached a deal with Walt Disney’s ESPN to rebrand Penn’s sportsbook as ESPN Bet. The stock also got support from an earnings beat. Shares of sports-betting rival DraftKings were down 10%, and FanDuel owner Flutter Entertainment , which also reported results, slumped in London trade.”