Activist PENN investor slams operator’s digital strategy and CEO leadership

A prominent PENN Entertainment shareholder has slated the group’s online strategy as having “destroyed” shareholder value in a damning open letter to the company’s chair, David Handler.

The Donerail Group published the six-page letter Friday, 31 May, in which it criticised Penn’s floundering share price and market cap, CEO Jay Snowden’s remuneration package, and the move into the digital space that meant “PENN’s long-standing growth strategy radically pivoted”.

The activist investor has suggested PENN Interactive, which oversees ESPN Bet and Hollywood Casino, has “created a cloud over the investment community’s perception of PENN”.

The stinging criticism sent the operator’s shares soaring 19% at one point on the Nasdaq in New York, closing at $17.50 on Friday.

In the letter, signed by Donerail Group managing partner Will Wyatt, the company called for the sale of PENN’s land-based operations to realise the company’s true value.

Wyatt said: “The value of PENN’s regional casino business is being dwarfed by the company’s failed Interactive strategy.

“We believe that this value could be realised if the company were put up for sale, largely due to the financial stability, scale, and diversified geographic revenue base of the company’s regional casino portfolio, alongside the fact that industry players are focused on growing inorganically,” he added.

The letter noted that PENN’s casino properties, if cast off in an M&A move, could “easily fetch” between 6x to 8x of EBITDA, which Donerail Group said was conservative relative to market conditions.

The firm claimed that PENN’s casino business could be worth more than double the current market cap, which stands at $2.6bn at the time of writing following today’s rally. 

Named directly in the correspondence was PENN CEO Jay Snowden, who has led the company since 2019, and according to Donerail Group, has overseen a “value destruction”.

Wyatt said: “To shareholder detriment, PENN has not been able to demonstrate the management expertise necessary to build a business that could become a formidable competitor in the online sports betting oligopoly.

“The company’s inability on each Interactive initiative has resulted in a loss of market confidence and the stock being dragged down with it. The value destruction that has occurred for PENN shareholders under Mr Snowden has been enormous over any measurable period.”

Since Snowden’s appointment, PENN’s stock has plunged more than 40%, with the letter claiming that, on average, PENN’s peers’ shares have risen by more than 60%.

Snowden’s remuneration was also called into question, with the letter stating that between 2020 and 2023 he had received a package worth $99.3m, making him “handsomely compensated”.

The shareholder also touched upon how Snowden has sold more than 750,000 PENN shares since taking the top job, which Donerail Group said pointed to the exec having “little confidence in his own strategy or ability to lead PENN to success”.

Additionally, the acquisition of media brand Barstool Sports, which spawned the now-defunct Barstool Sportsbook, was also criticised after the Wyomissing-based firm parted with almost $450m across two tranches to acquire the controversial company.

Donerail Group’s Will Wyatt

Barstool Sports was eventually sold back to its founder, Dave Portnoy, for $1 as PENN secured a $1.5bn licensing deal with Disney-owned ESPN to launch ESPN Bet, which went live last November.

Wyatt continued: “After its first foray into an online sports gambling platform underwhelmed, PENN thought it wiser to simply give Barstool away in favor of forming a new partnership with ESPN, as the company sought to, yet again, create an entirely new online sports betting business from scratch.

“Unfortunately, after less than a year into pivoting its attention to ESPN BET, there has been no improvement in the company’s ability to execute in Interactive.”

The $2.1bn acquisition of “small” Canadian sports media brand theScore, which provided the in-house tech platform for Barstool Sportsbook before being used to power ESPN Bet, was also highlighted as a shortcoming for its failure to add solid accretive value to the parent company.

Wyatt concluded: “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 recognise that shareholders may simply be tired of continued gambling on uncertain outcomes.”

Donerail Group’s agitation comes after fellow shareholder HG Vora said earlier this year that the business was in a state of “persistent underperformance”.

When contacted by EGR, PENN Entertainment declined to comment on Donerail Group’s letter.