Five questions from Penn National Gaming’s deal with Barstool Sports

Penn National Gaming announced the acquisition of a 36% stake in online sports media outlet Barstool Sports for $163m last week, in a deal that will see the operator launch a Barstool-branded sportsbook.

EGR North America caught up with head of Penn Interactive, Jon Kaplowitz, to break down some of the deal’s more interesting details.

Were any other media firms in the running?

Back in November, Kaplowitz told EGR NA that Penn was looking for a “fully integrated” partnership over a simple rev share deal like the one between Yahoo Sports and Roar Digital.

On the deal, Kaplowitz said that some media companies had not wanted to licence its IP or brand, and that others “didn’t have the digital and social media chops.”

Kaplowitz said: “We chose Barstool because we believe they figured out how consumers are consuming their content today, especially the 21 to 35-year-olds.

“It’s not about watching TV, it’s about going online to the digital and social media channels that Barstool pretty much owns.”

Did Penn buy high?

Barstool’s valuation increased from $100m in January 2018 (according to Bloomberg) to $450m two years later.

Some industry commentators have suggested the $163m price tag for this deal is too high, but Kaplowitz said organic growth, combined with ad revenue from other betting deals, justified the price.

“They have a diversified mix of revenue that has been growing at hyper speed in the last couple of years,” Kaplowitz told EGR.

“In 2018, their year-over-year top of revenue growth was 53%. In 2019, their year-on-year top line growth is 65%”

He said the value had also gone up on the increased competition in the market, with subscription-based sports media outlet The Athletic having raised around $500m in a recent funding round.

How much integration will there be between the two firms?

According to Kaplowitz, Barstool and its content will remain largely untouched by Penn.

The two firms will establish a cross-functional team to figure out how to integrate the content and brand into the branded sportsbook and casino products.

The process will likely be similar to Fox Bet combining talent from The Stars Group and Fox Sports together to build its product.

Kaplowitz said: “It will be a very close relationship where we are activating the Barstool customers both for online and retail in the best, most efficient way possible.”

“We will be working with [Barstool] to figure out what’s the best way to add their content  to differentiate our online sportsbook and talk to the audience, so there will be very unique integration points.”

Is there a clash in company culture?

There has been much discussion around whether Barstool’s tongue-in-cheek content and company culture will fit in at Penn, a publicly-listed and largely traditional casino firm.

However, Penn has shown through the hire of Kaplowitz (a former Comcast MD) and a couple of his former colleagues that it is forward-thinking and digitally savvy.

“In one sense, I can see that technically we’re a little bit different, but from the culture perspective I can tell you we are a lean organisation. We are gritty, we are aggressive, we love sports betting and we’re passionate about what we do, and so is Barstool,” Kaplowitz added.

Will the deal only focus on online and mobile betting?

Interestingly, the deal puts a major emphasis on retail betting, as Penn’s roadmap includes current and future retail venues being re-branded as Barstool sportsbooks.

Kaplowitz believes that with up to 20 retail books scheduled to go live by the end of 2020, Penn will tap into a significant profit pool, particularly as margins for retail are two to three times higher than online.

“[During] March Madness we will start to rebrand our current sportsbooks to Barstool sportsbooks, as well as new retail sportsbooks [like] the one that we’re going to build at Greektown Casino in Michigan,” he said.

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