Penn bullish on ESPN BET, remains mum on proxy battle

Introduction to ESPN BET and Industry Challenges

Penn Entertainment’s CEO Jay Snowden addressed Wall Street analysts during a quarterly earnings call, shedding light on the ongoing challenges facing the company as it nears the two-year mark of its partnership with Walt Disney Company. Despite high expectations set during the signing of their $1.5 billion, 10-year deal, ESPN BET’s market share remains disappointingly low, hovering in the low single digits. This is in stark contrast to early projections and represents a significant hurdle for Penn’s growth strategy.

The current landscape is further complicated by a contentious proxy battle with activist investors over board composition, highlighting issues of governance amid a turbulent corporate environment. However, despite these challenges, Snowden expressed cautious optimism regarding the growth potential of Penn’s interactive segment, particularly as Disney prepares to unveil its highly anticipated direct-to-consumer platform next week.

Penn’s Q1 Performance Insights

For the first quarter of 2025, Penn’s revenue reached $1.4 billion, falling short of analysts’ expectations of $1.7 billion. The company reported adjusted EBITDAR of $457 million, culminating in a net loss of $0.25 per share. However, on a brighter note, the loss was slightly better than forecasts predicting a $0.29 per share deficit. Comparatively, last year’s Q1 saw a net loss of $0.79 per share.

Snowden remarked, “Our interactive segment has recorded significant year-over-year growth, underscoring the operational efficiencies we’re beginning to unlock. With a differentiated technology stack and the addition of exceptional industry talent, we are approaching a pivotal moment for our business.”

Transformational Growth via Mint Club

The upcoming launch of the Mint Club rewards program marks an essential development for ESPN BET. This initiative has been designed to incentivize user engagement by allowing seamless linking between ESPN and ESPN BET apps. With exclusive promotional offers and real-time bet tracking, Mint Club aims to create a more compelling user experience.

According to Aaron LaBerge, Chief Technology Officer at Penn, early results from Mint Club show great promise, with monthly active users engaging at a rate 2.7 times higher than typical users. Moreover, these engaged users are significantly more active in placing larger bets, particularly on parlays, which could lead to notable revenue increases.

The Proxy Battle for Board Seats

As discussions unfolded regarding ESPN’s future, a proxy battle emerged as New York’s HG Vora Capital Management filed a lawsuit against Penn Entertainment over recent board restructuring plans. Changes announced last month included the nomination of two new board members, both supported by the hedge fund, amid accusations that the reductions in board seats were intended to block legitimate nominees from gaining influence.

HG Vora criticized the strategies employed as detrimental to shareholder rights, asserting that the board’s actions reflect self-serving interests rather than corporate governance principles. Despite these tensions, the topic remained unaddressed in Penn’s earnings call.

In a recent letter to shareholders, both Snowden and Penn Chairman David Handler acknowledged the discrepancies between performance and expectations, indicating that the potential exit clause in their partnership allows flexibility if aspirations are unmet by 2027. Despite past setbacks, Snowden maintains a positive outlook, emphasizing opportunities for distinct offerings such as fantasy integration in betting applications.

The aim is clear: to offer users a tailored betting experience that complements their fantasy engagements, thus transforming passive viewership into interactive participation, which could fundamentally enhance user engagement and revenue streams.