PENN Entertainment Banking on ESPN BET Improving Market Share

• PENN Entertainment is counting on ESPN BET to vastly improve market share numbers in the U.S. 
• Barstool Sportsbook is estimated to have less than a 5% market share in states where it operated
• ESPN will have extra incentive to gain online sports betting market share through the partnership

Despite paying more than half a billion dollars to acquire Barstool, PENN Entertainment’s Barstool Sportsbook brand lagged in national market share, something the company hopes is vastly improved with its recently announced partnership with ESPN to launch ESPN BET.

ESPN and PENN Entertainment today announced an agreement to launch ESPN BET by fall in 16 states where PENN is licensed to operate. Barstool Sportsbook will be rebranded as ESPN BET as the sports betting operator moves forward in the fall.

PENN Entertainment agreed to pay $1.5 billion to ESPN over the initial 10-year term and grant ESPN approximately $500 million of warrants to purchase 31.8 million PENN common  shares. As part of the deal, PENN Entertainment has included potential financial incentives for ESPN dependent on ESPN BET reaching performance thresholds for North American online sports betting market share.

Barstool Sportsbook Struggled to Gain Foothold

Barstool Sportsbook was operational in 16 states throughout the country, but according to several estimates the sportsbook had less than a 5% market share in its states. This is certainly not what PENN Entertainment envisioned when it fully acquired Barstool Sports this past February.

PENN previously acquired a 36% stake of Barstool in February 2020 and completed the final acquisition of the remaining stake in February 2023 for $388 million. In total, PENN acquired all of Barstool Sports for $551 million. The 2020 agreement included a path for PENN to establish full control and ownership of the company.

But Barstool Sportsbook struggled to gain traction and had difficulty competing with top sports betting operators DraftKings, FanDuel, BetMGM, and Caesars Sportsbook on a national scale. During Ohio’s sports betting launch this past January, Barstool Sportsbook claimed about a 4.5% market share ($45.89 million in handle), while FanDuel and DraftKings claimed about a 45.3% and 31.5% market share, respectively.

PENN Entertainment agreed to sell 100% of its Barstool Sports, Inc. common stock to original founder David Portnoy in exchange for certain non-compete and other restrictive covenants. PENN also has the right to receive 50% of the gross proceeds received by Portnoy if he chooses to sell or agrees to another monetization event of Barstool.

Despite the partnership ending, PENN Entertainment CEO Jay Snowden thanked Barstool for being a “great partner.”

“In connection with the transaction, we are selling Barstool back to founder David Portnoy. Barstool has been a great partner and we are thankful to Dave Portnoy, Erika Ayers, Dan Katz and their team for helping to rapidly scale our digital footprint across 16 jurisdictions in the U.S. and introducing their audience to our retail and digital products. The divestiture allows Barstool to return to its roots of providing unique and authentic content to its loyal audience without the restrictions associated with a publicly traded, licensed gaming company,” Snowden said in a release.

Online Sports Betting Market Share Incentives

PENN Entertainment is certainly banking on the ESPN partnership to capture more of the national market share and has included incentives in its partnership with the sports media giant for online sports betting market percentages it hits. Upon ESPN meeting certain U.S. online sports betting market share, ESPN can receive bonus warrants to purchase up to an additional 6.4 million in PENN shares.

In a PENN Entertainment presentation scheduled for Aug. 9 at 9 a.m., the company laid out just how ESPN BET’s online sports betting market share can effect the company’s financial health.

Described as a “significant value creation,” PENN estimates it could see an annual adjusted EBITDA of $1 billion by 2027 if it captures 20% of the online sports betting market share in North America.