Penn could have learned more, says theScoreBet founder
The future of ESPN Bet appears increasingly uncertain, prompting a wave of criticism directed at Penn Entertainment from multiple industry stakeholders.
In late February, CEO Jay Snowden ignited concerns within the wagering community when he suggested the possibility of either Penn Entertainment or ESPN terminating their 10-year partnership regarding ESPN Bet, scheduled for review in 2026. This statement has led to negative repercussions for Penn’s stock valuation, with some analysts downgrading their recommendations. Notably, John Levy, the founder of theScore and theScoreBet, voiced his perspective shortly thereafter, amplifying the dissent among investors.
Prior to Levy’s comments, two investment groups raised alarms over Penn’s management of its interactive strategy. In May 2024, Donerail Group criticized the executive team’s credibility due to what they termed “guidance misses.” Similarly, in January, HG Vora accused Penn of “reckless spending” related to its digital projects.
Levy highlighted the challenges stemming from Penn’s acquisition of theScore, referring to it as a “very good story for us in Canada” after Penn’s purchase in 2021. However, he expressed frustration over the transition strategy and execution post-acquisition.
“You had to trust the people who brought you to the party, which was us,” Levy stated at the NEXT Summit gaming conference. “After acquiring us, there was a sense of, ‘We’ll take it from here.’ This was challenging for those of us deeply involved in the business.”
Levy and his family exited their roles at Penn between February and April 2024, having observed significant missteps, particularly regarding the partnership with Barstool Sports. This collaboration, which attempted to fuse a bold brand with a traditionally conservative casino operator, ultimately faltered.
The $2 billion acquisition of Score Media and Gaming Inc. included theScoreBet’s technology stack, enabling Penn to maintain its technological infrastructure in-house, a crucial aspect for many online gaming enterprises aiming for agility and responsiveness in their operations.
The partnership with Barstool Sports spanned just over three years. Initially, in February 2020, Penn acquired a 36% stake, before completing the $551 million full acquisition in February 2023. A mere six months later, Penn sold Barstool back to its founder, Dave Portnoy, for a nominal $1. This rapid reversal coincided with the announcement of a $2 billion agreement with ESPN for the development of ESPN Bet as the designated online sportsbook.
The regulatory landscape for Barstool was contentious, particularly in Massachusetts, where the Gaming Commission scrutinized Penn’s control over Barstool’s advertising and marketing strategies. Concerns arose regarding Barstool’s image and its alignment with responsible gambling and consumer protection measures, delaying the issuance of a wagering license.
Despite the eventual license approval, Barstool Sportsbook faced fines in 2023, including a $250,000 penalty in Ohio for targeting underage students with marketing campaigns and a $25,000 fine in Massachusetts for advertising noncompliance.
Levy: Bad Management at the Core?
Throughout this tumultuous period, theScoreBet has thrived under Penn’s ownership in Ontario, where digital betting launched in April 2022.
“Ontario is our leading market in North America regarding revenues, gross profit, and contribution margin, and we reported strong performance in 2024,” Snowden noted during a recent earnings call. “We anticipate similar success in Alberta pending regulatory approvals, given the brand loyalty towards theScore across Canada.”
Conversely, Penn has struggled to mirror this success in the U.S. market, facing challenges with both the Barstool Sports partnership and ESPN Bet.
“The Barstool relationship was a fiasco from the start,” Levy asserted. “While Dave Portnoy is remarkably savvy, the partnership required adequate management to harness the necessary synergies. Events like his university pregame parties resulted in huge sign-ups, but follow-up was lacking.”
This deficiency in execution, according to Levy, remains evident in the ESPN Bet operations.
“If you analyze the current situation, it resembles Barstool – the original concept may have been sound, but the execution faltered due to a lack of cohesive management. The approach was disjointed and poorly managed.”
Potential Downsizing on the Horizon
During the fourth-quarter earnings call on February 27, Snowden discussed the ESPN Bet partnership, stating intentions to achieve a 20% national market share. However, analysts estimate that, 16 months in, ESPN Bet holds less than 4% market share, with competitors DraftKings and FanDuel commanding approximately three-quarters of it. BetMGM trails with about 12%, while other operators have yet to surpass double digits.
The breakdown of June’s Ohio sports betting revenue market share is telling:
- FanDuel – 44.9%
- DraftKings – 30.3%
- Bet365 – 9.1%
- BetMGM – 4.9%
- ESPN Bet – 3.5%
- Fanatics – 2.7%
- Caesars – 1.4%
- Hard Rock – 1.3%
- Remaining 11 sportsbooks combined – 2%
In his earnings call comments, Snowden conceded that either Penn or ESPN might exit the partnership after three years, as early as August 2026. He also acknowledged that the operational cost structure was designed for scalability, a goal not yet realized.
“We currently have a cost structure aligned with our expectation to be a major player, as does ESPN. If the trend does not exhibit positive movement, a reassessment of our operational framework will be necessary,” he stated.
Narrowing Focus: A Strategic Necessity
Wall Street analysts have been adjusting their expectations for Penn. On March 17, Stifel analyst Steven Wieczynski downgraded his rating from “buy” to “hold,” reducing the price target from $22 to $19. Of a survey encompassing seven analysts, opinions were mixed, with some lowering targets while others saw potential for growth.
Since its peak of $130.47 on March 12, 2021, Penn’s stock price plummeted to $17.40 by March 19, 2024.
Stifel’s analysts recommend refocusing efforts on online casino ventures while reconsidering the ESPN Bet partnership. Other alternatives involve amplifying market share for ESPN Bet or divesting digital or land-based assets to sharpen operational focus.
Recent developments indicate a burgeoning online platform, as Penn launches its Hollywood Casino brand across Michigan, New Jersey, and Pennsylvania. Although initial performance metrics are yet unavailable, many analysts advocate for online casinos as a preferable investment avenue. Historically, online casino operations not only yield higher revenue compared to sports betting—illustrated by Pennsylvania Gaming Control Board data highlighting December 2024 iGaming gross revenue of $221 million against $47.3 million from sports betting gross revenue—but also present greater profitability prospects.
A Call for Change at Penn
The insights shared by Stifel resonate with the sentiments expressed by Donerail Group and HG Vora. In an open letter, Donerail opined: “While ESPN Bet may be perceived as a bright and attractive opportunity, we urge the board to carefully examine the past four years’ execution, assess the shareholder capital lost, and recognize that the continual gamble on uncertain outcomes may have fatigued investors.”
HG Vora echoed this sentiment, emphasizing a lack of accountability for the board regarding dismal shareholder returns. “We maintain that the board’s questionable decision-making, along with the disenfranchisement of shareholders, coupled with excessive CEO compensation, undermines governance at Penn.”
