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PENN Entertainment (NASDAQ:PENN) broke sharply higher in postmarket trading on Tuesday after the company inked an exclusive deal with ESPN (DIS) and sold its Barstool property in sector-rattling deals.
The deal will see PENN (PENN) pay ESPN $1.5B over 10 years as part of the strategic partnership, and the company will rebrand the Barstool Sportsbook as ESPN Bet for the upcoming 2023 NFL season and get an exclusive trademark for ten years. For its part, PENN gets access to ESPN’s +105M monthly unique digital visitors, an audience of 370M on social platforms, 25M ESPN+ subscribers, and a fantasy database. ESPN receives $1.5B in cash over the initial term for marketing and branding, $500M in warrants with strike prices at $26 per PENN share and higher, and bonus warrants if it hits certain market shares. PENN (PENN) management indicated that the company could generate an estimated long-term value of $500M to $1B of adjusted. EBITDA annually for PENN’s Interactive segment. Meanwhile, the financial terms for the sale of the Barstool media property to Dave Portnoy were not disclosed, although a non-compete and an agreement to split equally the proceeds from a future sale of the business were said to be part of the arrangement.
On Wall Street, Bank of America analyst Shaun Kelly attributed the positive reaction for PENN shares to a cautious investor setup around domestic core gaming concerns and uncertainty around Barstool. Kelly sees a constructive risk-reward rationale for PENN entering the deal due to the huge ESPN database of sports content subscribers, but is also increasingly convinced that the product and tech barriers DraftKings (NASDAQ:DKNG) and FanDuel (OTCPK:PDYPY) are creating make market share moves increasingly difficult. The deal is seen as a likely drag on PENN earnings for at least 12-24 months.
Wells Fargo said it is too early to conclude that the ESPN deal is a game changer. Analyst Daniel Polizer said ESPN is the media leader in sports, but noted Caesars Entertainment (CZR) and DraftKings (DKNG) had mixed success with their ESPN marketing partnerships, while media partnerships such as Bally’s, Fox Bet, and PointsBet-NBC have not lived up to the initial buzz.
The ESPN BET will launch this fall in the heat of the college and pro football seasons. The launch will be closely watched as the battle for market share continues even as sports betting operators eye profitability. Investors will also be watching to see if other partnership announcements or acquisitions could be in the mix.
Sports betting/iGaming plays: FanDuel/Flutter Entertainment (OTCPK:PDYPY), Caesars Entertainment (CZR), Penn National Gaming (PENN), Wynn Resorts (WYNN), MGM Resorts (MGM), Entain (OTCPK:GMVHF), GAN (GAN), fuboTV (FUBO), Churchill Downs (CHDN), International Game Technology (IGT), Skillz (SKLZ), Bally’s (BALY), Golden Matrix Group (GMGI), Bragg Gaming Group (BRAG), Elys Game Technology (ELYS), Paysafe (PSFE), Playtech (OTCPK:PYTCF), Esports Entertainment (GMBL), Sportradar (SRAD), Genius Sports (GENI), Gambling.com (GAMB) and Boyd Gaming (BYD).
PENN gained 12.96% in postmarket trading on Tuesday, while DraftKings (DKNG) fell 4.95%.
