One of the more interesting discussions in the sports gambling space has been about Penn Entertainment’s shift from a Barstool Sports-branded betting app to an ESPN Bet-branded one. Penn officially launched that rebrand last November, after selling Barstool Sports (which they had previously bought, not just licensed) back to founder Dave Portnoy for $1 last August.
Thus far, the returns have not seemed to match what Penn had hoped for, and the company conducted notable layoffs last week. And a couple of recent posts illustrate the potential issues with their current approach:
The “preparing to fail’ edition:
🧐 Fears expressed over @PENNEntertain‘s @ESPNBet strategy by former insiders.
🧑🔧 Gavin Isaacs appointed @EntainGroup CEO.
📉 @Evo_global ships $2bn in value in post-earnings slump.https://t.co/4xGbX6rMxF pic.twitter.com/TruQtTcIsr— Earnings+More (@earnings_and) July 22, 2024
Where do Penn and ESPN Bet go from here? There’s nowhere to go but up, right? But even that might be optimistic. Amid layoffs and an inability to gain marketshare from the Barstool Sportsbook days, hopes appear to be pinned on a better product. https://t.co/adyxLVUf7W pic.twitter.com/eC1NI6y8Ms
— Dustin Gouker (@DustinGouker) July 23, 2024
Here’s more from that first Earnings+More piece:
Penn Interactive employees let go as part of last week’s layoffs have suggested management is pinning its hopes for ESPN Bet on the strength of the name attached to it much as it did previously with Barstool.
“We were doing the same thing with ESPN that we did with Barstool: we relied on the name and it didn’t work,” said one insider.
They added that the lack of market share for ESPN Bet was now a “big problem.”
A note last week from the analysts at JMP noted ESPN Bet “continues to decline” in operational states, down to ~2% share in June.
And here is some of what Dustin Gouker wrote on ESPN Bet at his The Closing Line Substack:
At this point, it’s fair to question if Penn selling Barstool (FOR ONE AMERICAN DOLLAR) was the right move; the problems seem to go far beyond the name on the sportsbook. Even my relatively tepid expectations for the launch of ESPN Bet — which were on the pessimistic end of the scale — haven’t been met. It’s clearly behind FanDuel/DraftKings/BetMGM right now and is not even a clear No. 4.
I’ve heard a lot made of 1. further integration with ESPN and 2. an improved sportsbook product. I am skeptical that No. 1 is going to create anything beyond incremental gains. If No. 2 is the real gamechanger, Penn shouldn’t have lit money on fire to create a clean break from Barstool and then license the ESPN brand.
If ESPN Bet is going to be a meaningful competitor in the short term and a winner in the long term, change is needed. Layoffs and the same strategy that led to cutting ties with Barstool aren’t going to lead Penn to the promised land.
It’s worth noting here that nothing to date has indicated an imminent exit from Penn or ESPN, and that we haven’t yet hit a year since the announcement of this deal. Perhaps their chugging along in the minimal place they’re in in most states is fine. And perhaps the optimism around further integration could pay off.
But Penn is paying ESPN a whole lot as part of this deal. As Gouker notes, this also led to them selling their stake in Barstool’s operations at an incredible loss. And the market has not proved terribly receptive to their ESPN Bet approach so far.
Maybe this will all work out for Penn in the end. But the “relied on the name” approach has certainly not led to convincing returns. We’ll see if that improves for them going forward, or if the reports of other companies eyeing this business continue to grow.
