PENNed in: Where does ESPN Bet go from here?

“This is a big technical feat from the team here at PENN as well as at ESPN,” heralded PENN Entertainment CEO Jay Snowden on the company’s Q3 earnings call in November. “It’s great having partners where there’s alignment in vision, where we want to take this thing and exactly how ESPN Bet integrations will play into the total ESPN sports fandom.”

He was referencing account linking between ESPN Bet and the ESPN app, which is expected to drive incremental user signups to the sportsbook. The integration came 12 months after ESPN Bet launched in November 2023, during which time PENN burnt through millions of dollars, drew the ire of investors, was the subject of M&A talk and, perhaps tellingly, failed to surpass the marker it set with Barstool Sportsbook.

The deal to create ESPN Bet saw PENN seal a $1.5bn, 10-year licensing deal with ESPN’s parent company, Disney, as it sold the Barstool assets back to founder Dave Portnoy for a nominal $1. That was after PENN splashed out $551m to acquire the controversial media brand.

PENN, with its heritage as a land-based casino and racetrack operator, is now on its second attempt to crack online sports betting. Away from the duopoly of FanDuel and DraftKings, and more concerningly for PENN, its similar-sized challengers are also on the way to positive adjusted EBITDA returns for full-year 2025. So, why hasn’t the plan come together?

Chris Grove, partner emeritus at boutique analyst firm Eilers & Krejcik Gaming (EKG), comments: “That brand-centric strategy works best when the market doesn’t have other strong brands, or all operators have close to product parity. Neither is the case in the US, where DraftKings and FanDuel have
established brands and superior products relative to the rest of the market.”

Snowden has previously spoken on record about his aims to disrupt the duopoly at the top of the market. The reality, around 14 months since ESPN Bet’s launch, is the brand has barely laid a glove on the opposition. And while it has been a relatively short lifespan for ESPN Bet, investors and industry observers have yet to be overly impressed by PENN’s online operations.

Citizens JMP analyst Jordan Bender says the business cannot be consigned to failure as of now, but the runway isn’t as long as those firms that have stuck on a single track since PASPA was repealed in 2018. “If they’re building the funnel, underlying technology and cross-sell, and getting the business to where it needs to be, we’re not writing that off,” he says. “But I would say, as we sit here today, there’s still a lot of questions [from investors] that see [PENN] has spent a lot of money.”

It’s important to note PENN isn’t just ESPN Bet. Consisting of 43 properties across North America, the land-based arm made $417.4m in adjusted EBITDAR in Q3 2024 on the back of $1.4bn in revenue. In Canada, theScore is one of the largest sports media brands in the market, with PENN acquiring the business for $2bn in October 2021. In hindsight, PENN paid way over the odds, but it was a particularly frothy market at the time with sky-high valuations.

Meanwhile, its igaming proposition, Hollywood Casino, finally has a standalone app, having launched in Pennsylvania in December. But the business has become synonymous with ESPN Bet, despite evident success in other facets of the company. Bender adds: “They’re able to cross-sell their casino database of
35 million people into igaming, which is a good funnel. It’s just the ESPN crowd is not being cross-sold into sports betting and then into igaming.”

Data crunching

The data, of course, varies. EKG pegged ESPN Bet’s market share at a meagre 1.5% in November, as per the EKG Line weekly newsletter. That comes after the November 2023 launch when the analyst firm reported the brand generated circa 8% of online sports betting gross gambling revenue (GGR) in its debut month, making it the third-largest operator in the US. This share was boosted by a major promo push from PENN, as its newly minted brand went live in 17 markets at once.

Come September 2024, ESPN Bet was live in 19 states, including New York, meaning the brand is available to 46% of the US population. However, the Empire State launch was not without difficulty for PENN after acquiring Wynn Interactive’s sports betting licence as it failed to launch in time for the start of the 2024 NFL season. ESPN Bet generated just $6.8m in GGR from launch on 27 September until the end of November, according to the New York State Gaming Commission.

While those figures could be viewed as cause for concern, December data from research firm YouGov claimed ESPN Bet was the fifth most-used sportsbook in the US. According to YouGov, the customer base is more engaged with soccer, tennis and esports than users of FanDuel or DraftKings. YouGov said ESPN Bet’s gains here demonstrated “an appeal to a younger demographic, often more attuned to emerging sports categories”.

And while those are shoots of positivity, among all adult Americans, just 4% said they would consider placing their next bet with ESPN Bet, compared to 9% for DraftKings and 8% for FanDuel. That percentage climbs to 13% among ESPN fans, but still, somewhat surprisingly, lags behind 15% for DraftKings and 14% for FanDuel.

Another dataset that throws up an alternative view comes from HoldCrunch, a market analysis company established by former FanDuel vice-president Tom Johnson. HoldCrunch’s model adds price into publicly available data such as handle, GGR, promotional spend and net gambling revenue (NGR) to produce ‘NGR+’, a figure Johnson says provides a more accurate picture of the US online sports betting arena.

NGR+ is calculated by subtracting promo spend and the HoldCrunch percentage (ie the cost to hold of competing on price) from GGR. As per HoldCrunch, ESPN Bet’s NGR+ market share remained flat at around 3% in 2024, above Fanatics, which has used extensive promotional spend, and behind Caesars on almost 5%. That is despite ESPN Bet’s market share based on handle sliding in 2024. Speaking to EGR, Johnson says the data indicates ESPN Bet forms part of a chasing pack several rungs below FanDuel and DraftKings, rather than an underperforming outlier.

“There are two messages,” Johnson says. “One is the challengers are in the same boat. They just have different profiles without HoldCrunch data. Somebody might say, ‘Whoa. Fanatics is doing great, but ESPN Bet isn’t’. They’re actually all in the same boat.

“Message number two is do any of them have a chance? Well, we have to say they do, but they all have the same challenge. They’ve got to compete harder on the two things DraftKings and FanDuel consistently lead in: price and product. Maybe the duopoly [of DraftKings and FanDuel] just keeps going. It’s genuinely hard,” Johnson continues.

Aside from opinion, estimations and extrapolated data models, there are the cold, hard numbers in the Wyomissing-based firm’s P&L. In the nine months to 30 September, adjusted EBITDAR losses for the interactive arm soared to $389.7m, compared to a $68.7m loss in the same period in 2023. Add those nine months to Q4 2023, when ESPN Bet launched and adjusted EBITDAR losses amounted to $333.8m alone, that’s a whole lot of expenditure in its first year of operation. Losses did shrink in Q3 2024 amid a tightening of the promo belt, but after an NFL season with little material improvement over Barstool Sportsbook, it will be written up as a disappointment.

Grove says: “Market share for US sports betting is relatively calcified at this stage of the game, and the leaders have meaningful structural advantages. PENN has made visible progress, but it’s unrealistic to issue a definitive judgement this early on in a market where share will not shift quickly.”

Shareholder backlash

The lack of progress has led to investor frustration. Significant shareholder HG Vora, which has a stake of around 18% in the business, has publicly hit out at PENN for violating Pennsylvania Business Corporation Law and is actively seeking a seat on the company’s board. The Donerail Group, another PENN investor, also issued a public letter in May 2024 accusing management of “destroying shareholder value” and
calling for a return to focus on the regional land-based gaming assets.

And in June, more than a third of shareholders voted against Snowden’s $15.5m remuneration for 2023 and CFO Felicia Hendrix’s $4m pay package for the same period. The pair’s earnings are inflated by stock options, with Snowden’s base salary set at $1.8m and $844,808 for Hendrix. The compensation packages were backed by a majority of shareholders, although a third voting against it illustrated an undercurrent of unease.  

Will Wyatt, The Donerail Group’s managing partner, called out Snowden’s management skills, claiming the company’s investment thesis has “drastically” changed under his leadership and that he has been “handsomely paid despite extremely poor performance”. In the past 12 months, the company’s stock has fallen around a quarter to $19, at the time of writing. It’s also way off the peak of $130 reached in 2021.

On shareholder expectations, Johnson adds: “Hindsight is a wonderful thing. I imagine there’s different levels of [shareholder] patience and anger, whether that’s justified or not. They are all in
the same position, so ESPN Bet maybe suffers from having such an obvious second go [after Barstool Sportsbook]. But I think that’s unfair.”

That second go as it pertains to the previous Barstool Sportsbook incarnation has become a stick for critics to beat PENN with. Despite the media leverage gained through ESPN Bet, including account linking, and the addition of former ESPN exec Aaron LaBerge as chief technology officer, ESPN Bet hasn’t been able to surge ahead of its fellow challenger brands.

On the strategy of using a media brand to drive customer acquisition, Bender says that while this sounds attractive on paper, it hasn’t been executed in the industry, bar the anomaly of Sky Bet in the UK. “What they’re pitching sounds good, but if you step back, you’ll hear a lot of analyst talk about how media doesn’t work. It historically hasn’t worked, except for Flutter. They’re the only company to actually make it work. And why have they made it work? Because they have a very good product.”

He continues: “If you’re an investor [asking for] a proof point that this does work, they’re going to point to theScore up in Canada. Well, theScore has been operating there forever, in a great market. They just have a ton of mind share. It’s not like they launched from day one; if anything, they’ve had the
biggest advantage in that market.”

Mightier than the sword?

With the future of the US online sports betting race remaining both clear and cloudy at the same time, it leaves PENN in a peculiar predicament. There is the case to call it quits, let FanDuel and DraftKings’ moat get ever larger and focus on its profitable bricks-and-mortar business. But after such an outlay, and two bites at the cherry, a desire to make this venture work is also driving strategy.

The other option is M&A, with Boyd Gaming rumoured to be incredibly keen to snap up PENN. The speculation is Boyd would take the regional casinos and that Flutter is potentially interested in the digital division. But shareholders don’t like to wait, and patience can wear thin when the sums involved fail to return expected outcomes.

The 1.5% market share reported by EKG does not make for pretty reading. Especially as Snowden previously talked up the aim of ESPN Bet snaring a 20% US market share by 2027 in an investor presentation in August 2023. And while the standalone Hollywood Casino app represents a positive step, the lack of progress made in igaming legislation could stifle long-term growth.

Grove notes: “It’s clear that PENN isn’t getting much, if any, credit for its digital business. That’s a shame, as PENN does have real assets and potential. They could take a page from Caesars’ playbook and triple down on icasino with a multiple-brand strategy, an approach that is generating positive results for Caesars.

“They could look to spin out their digital business, perhaps in combination with another asset. Whatever the plan, it’s clear that some kind of catalyst is necessary for the markets to give PENN’s digital business a second look. PENN will continue to be a fixture of M&A scuttlebutt in the year ahead. Whether or not that talk translates into any action is an entirely separate question,” he adds.

And with the break clause looming in November 2026, ESPN could well look to cut ties and try again, or step back from a media-led sportsbook altogether. If that were to be the case, the question of PENN’s online sports betting future becomes even more unclear. The path forward does not appear to be linear, but instead potholed with investor expectations and external factors that could make PENN a future casualty of the US online sports betting race.