ESPN's $2 Billion Sportsbook Sees Early Success — But Was It A Good Deal?
The Penn-Barstool-ESPN deal looks more lopsided than ever
What To Expect: Today’s newsletter provides an update on Penn Entertainment’s new $2 billion sportsbook, ESPN BET. We’ll discuss monthly download numbers, stock performance, the backlash from their previous deal with Barstool Sports, future growth opportunities, and more. Enjoy!
When Penn Entertainment agreed to a $2 billion licensing deal with ESPN to form ESPN BET, the investment case was simple. Partnering with the world’s largest sports media brand would lower customer acquisition costs while allowing the Disney-owned company to finally monetize its name in the sports betting space.
But the thought of a promising future blinded many people from the past.
For example, as part of the deal, Penn Entertainment wrote off a $850 million loss on its purchase of Barstool Sports, selling the company back to Dave Portnoy for just $1.
Penn was able to save face because reports indicated there were two stipulations to the $1 sale: 1) A non-compete agreement prohibiting Barstool Sports from working with any sports betting companies in the future and 2) A clause guaranteeing Penn 50% of future proceeds if founder Dave Portnoy ever sold Barstool Sports again.
But as it turns out, that wasn’t true. Sportico reported last week that Barstool’s non-compete only lasts until the end of football season — not into perpetuity — and the company is in “advanced talks” with DraftKings on an eight-figure marketing deal.
So, to recap, here’s what happened:
Penn Entertainment spent half a billion dollars acquiring Barstool Sports but ended up owning less than 5% of the U.S. sports betting market.
Penn Entertainment then ditched Barstool to partner with ESPN, signing a $2 billion marketing deal to rebrand the Barstool Sportsbook as ESPN BET.
Since they had no use for Barstool anymore, Penn sold the company back to Dave Portnoy for $1 (and 50% of future proceeds if he sold it again), writing down an investment loss of $850 million on the deal just six months after closing.
That means not only did Penn offload Barstool for nothing, but they couldn’t even secure a legitimate non-compete. And now their former marketing partner will be making $10 million-plus annually to help one of their direct competitors grow.
It’s no secret that I’ve been bearish on the ESPN BET partnership. Not necessarily for ESPN — they already own a 4% equity stake in DraftKings and will now get to double dip by collecting a $2 billion licensing fee from Penn Entertainment. But this always felt like a hail mary for Penn, and now the deal is getting worse.