The sports betting world received colossal news on August 8 when Penn Entertainment announced it had partnered with ESPN to be the official sportsbook of the sports giant.
The Pennsylvania-based operator will pay ESPN $2 billion in cash and stock over the 10-year term of the deal and house the ESPN BET app, which is expected to be released this fall. Penn also announced that it has sold 100 percent of Barstool Sports common stock back to the company’s founder, Dave Portnoy.
The new partnership was lauded by officials with both companies.
“This transformative, exclusive agreement with ESPN marks another major milestone in Penn’s evolution from a pure-play U.S. regional gaming operator to a North American entertainment leader,” said Penn Entertainment CEO Jay Snowden in a statement. “ESPN Bet will be deeply integrated with ESPN’s broad editorial, content, digital and linear product, and sports programming ecosystem. ESPN Bet will also benefit from PENN’s operational experience, extensive market access and proprietary technology platform, which successfully debuted in the U.S. this July.”
“After meeting with Jay and the Penn team, it was clear that they were the right long-term strategic partner to build ESPN Bet into a leading U.S. sports betting platform,” said ESPN Chairman Jimmy Pitaro. “We are confident that the combination of our unparalleled audience along with Penn’s operational expertise and state-of-the-art technology provides us with a tremendous opportunity to serve the ever-growing number of consumers interested in betting.”
The ESPN, PENN partnership should challenge the big two online sportsbooks. FanDuel and DraftKings currently have a combined market share of 70 percent. Throw in Caesars and BetMGM, and the combined market share jumps up to 90 percent.
But ESPN BET could cut into that market share considerably. Wall Street certainly believes so. Shares of DraftKings dropped more than 10 percent on the news. Not surprisingly, PENN Entertainment stock went from $24.18 a share to a high of $31.38 following the news.
“Best case, at least in the short term, is ESPN and PENN getting on the podium,” into third place, Dustin Gouker, a sports betting consultant and longtime gaming journalist, told Front Office Sports. “PENN clearly calculated there was far greater upside in this deal than staying with Barstool, and they may have already hit a ceiling with Barstool. So, PENN is clearly saying ESPN is the bigger brand, which it obviously is, and that they can go further now.”
ESPN’s desire to have a sports betting platform was not a secret. The company, owned by Disney, had talked about their desire to get into the sports-betting market for the last five years.
Disney has a branding and marketing deal with Caesars and in October there were reports the company was in talks with DraftKings. Nothing apparently materialized from those discussions.
Pitaro had said that ESPN getting into sports betting was a matter of when, not if.
“Our primary focus is always to serve sports fans and we know they want both betting content and the ability to place bets with less friction from within our products. The strategy here is simple: to give fans what they’ve been requesting and expecting from ESPN. Penn Entertainment is the perfect partner to build an unmatched user experience for sports betting with ESPN BET.”
The partnership, however, doesn’t guarantee success and could bring up some ethical questions.
Flutter announced two weeks ago that they were shutting down FoxBet. The online sportsbook, which was linked with Fox Sports, had consistently underperformed.
Critics said it was unethical of a sports network to have a partnership with a sports betting app. The same criticism will surely be leveled at ESPN.
Meanwhile, Barstool Sports was sold back to Portnoy. PENN had finalized its acquisition in February, paying Portnoy $388 million. The two had a complicated relationship, with several controversies popping up during their time together. Portnoy went on social media to talk about the difficulties.
“We underestimated just how tough it is for myself and Barstool to operate in a regulated world,” Portnoy said. “The regulated industry [is] probably not the best place for Barstool Sports and the type of content we make.”
Snowden, who was a staunch defender of Barstool Sports, said the move should make it easier for Portnoy’s company to thrive.
“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.
