Penn Entertainment Investor HG Vora Criticizes Operator, Wants Seats on Company Board

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HG Vora Capital Management, a noted New York-based investment firm, is leveraging its 18.5% share in Penn Entertainment to push for a change in direction and representation on the company’s board.

As a major shareholder, HG Vora has initiated discussions around Penn Entertainment’s strategic direction, and holds the potential for a management shakeup.  

Despite its recent launch of ESPN Bet, Penn share prices have fallen around 60% in two years.

The investment firm has expressed concerns about this recent performance. It now wants representation on Penn’s board of directors to help steer the company toward long-term value creation for shareholders.

Penn’s recent success with its new ESPN Bet venture has seen share prices rise by some 16% in recent months.

However, the company is still hugely down on its 2022 peak share price. It is currently trading at 10% less than the start of 2023.

Penn’s acquisition and launch of the ESPN Bet brand made our list of the biggest U.S. gambling wins of 2023. On the other hand, the huge loss it made when axing Barstool Sports to make way for ESPN also made our list of the biggest losses for the year.

Penn’s Shares Undervalued

Penn Entertainment has faced criticism from HG Vora over what the investment firm labels as “underperformance” and a failure to deliver long-term shareholder value.

The firm’s recent filing with the Securities and Exchange Commission (SEC) about its investments outlines these concerns.

“The Reporting Persons have deep experience investing in the casino and online gaming sectors, are long-term shareholders of the Issuer, and believe the Issuer’s Common Stock is significantly undervalued,” the filing with the SEC read.

“Given the persistent underperformance of the Common Stock and the Issuer’s capital allocation track record, amongst other areas of concern, the Reporting Persons have requested that the Issuer afford them the right to designate highly qualified directors who would be committed to working with the Issuer’s management and fellow Board members to help the Issuer realize its full potential.”

ESPN Bet Getting Interest

After completing its acquisition of 100% of Barstool Sports in February 2023 for approximately $500 million, Penn later sold the media portion back to founder Dave Portnoy for just $1.

It then committed to spending a rumored $2 billion to use the ESPN branding for its new sportsbook operation.

Initial interest in ESPN Bet seems high, with a record-breaking number of app downloads in its first few weeks. The world-leading sports broadcaster’s brand is huge, and it seems that (and extensive promotional offers) has set the ‘book off to a good start.

However, in a U.S. sports betting market that has shown limited profitability, even for the market leaders FanDuel and DraftKings, high engagement from bettors may not be enough for shareholders who want return on their investment above all.

The Road Ahead for Penn Entertainment

The discussions between HG Vora and Penn Entertainment’s management and board of directors have revolved around a range of topics focused on enhancing shareholder value.

HG Vora’s involvement comes at a crucial time, as Penn aims to expand its market share in the U.S. sports betting industry, with CEO Jay Snowden expressing ambitions to build around a 20% market share over the long term.

However, achieving this goal requires navigating a highly competitive landscape, where promotional spending and customer acquisition costs are substantial. For instance, the ESPN BET venture has seen Penn commit millions in promotional credits for fans of sports betting in Maryland and other markets.

Penn’s shares did rally this week after the news of HG Vora’s proactive position on their Penn investments. However, shares remain down on the start of 2023.

As well as ESPN Bet, Penn also recently announced the groundbreaking of four new expansion projects at its casinos across the U.S.

Various Penn-operated casinos in Pennsylvania, Illinois, and Nevada will all be getting multimillion refurbishments and upgrades going into 2024.

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