Two of the most prominent U.S. operators, Caesars Entertainment and Penn Entertainment, experienced marked jumps in share prices May 31 for very different reasons.
Caesars stock soared more than 15 percent on the news that billionaire activist investor Carl Icahn had acquired a sizable stake in the company for the second time in the last decade.
Conversely, Penn surged 20 percent after Donerail Capital managing partner Will Wyatt penned an open letter to the company’s board of directors blasting its recent business strategies, especially its multibillion-dollar partnership with ESPN to create ESPN Bet.
Regarding Caesars, Bloomberg first reported via unnamed sources that Icahn had “amassed a sizable position” in the company, but the exact amount has still not been confirmed. Regardless, the stock rose as much as 18 percent on the news, its best one-day performance since November 2022.
Immediately after the report was published, Icahn went on CNBC and was cavalier about the purchase, saying, “I like Caesars and I own some stock, I would never do activism in Caesars.”
The comments were interesting considering that Icahn did just that less than 10 years ago. In 2018 he began building a stake in the company that eventually grew to 25 percent.
The stake allowed Icahn to shake up the company’s board of directors by installing three of his associates, and his influence eventually paved the way for Caesars’ $17.3 billion sale to Eldorado Resorts, which created the current iteration of the company. The deal was announced June 24, 2019 and closed a year later.
In July 2020, shortly after the deal was completed, Icahn then sold off his holdings to less than 2 percent and his associates eventually left the board.
According to the Nevada Independent, Caesars has not commented on the recent report or made any filings to the Securities and Exchange Commission (SEC), which would be required for an acquisition of 5 percent or greater.
Icahn has a long and successful history of investing in gaming, including profitable ventures with the Strat, Tropicana Entertainment and the Fontainebleau Las Vegas.
For the first quarter of 2024, Caesars reported revenue and cash flow declines of 1 and 10 percent, respectively. But its digital division saw a year-over-year revenue increase of 19 percent, and CEO Tom Reeg—who was installed as part of the Eldorado merger—told investors on the earnings call that the company “feels good about where we’re sitting [and] what the rest of the year looks like.”
Penn’s share boost was attributed to Wyatt’s letter despite the fact that Donerail does not appear to have any significant stake in the operator through SEC filings. It has also not filed hedge-fund forms with the SEC since 2020.
Nevertheless, investors seemed to believe Wyatt’s criticism that Penn has misallocated capital in its attempts to make inroads in the digital space could spark future change.
“The company eschewed its tried-and-true strategy of expanding its brick-and-mortar casino operations in lieu of a ‘bet the house’ focus on constructing an online sports betting business to compete with market leaders DraftKings and FanDuel,” he wrote.
Penn’s purchase and subsequent sale of Barstool Sportsbook en route to its ESPN Bet partnership resulted in a loss of nearly $1 billion. Its $2 billion acquisition of Canadian platform theScore in 2021 was seen by some as an overpay given its performance to that point.
While ESPN Bet is certainly promising thus far, its ultimate success is still far from guaranteed as FanDuel, DraftKings and others continue to grow.
“While we understand that ESPN Bet appears as the Company’s newest bright and shiny object that may very well have significant value under the right owners, we ask that the Board take a moment to reflect objectively on the past four years of execution, assess the shareholder capital that has been destroyed, and recognize that shareholders may simply be tired of continued gambling on uncertain outcomes,” Wyatt concluded.
Penn’s stock has lost more than 80 percent of its value in the last three-plus years, and hit a four-year low of $13.50 in May. Shares crested over $17.50 by the end of trading May 31 in reaction to the letter.
