Penn Entertainment Stock Rises with ESPN Bet Launch

Article ByDavid Weir

November 21, 2023

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Posted in: US Sports Betting News, US Gambling News

Penn Entertainment’s stock price has surged this week, up 7% from Monday, which is largely attributed to the successful launch of its ESPN Bet online sportsbook.

The long-awaited ESPN Bet, a joint venture with veteran sports broadcaster ESPN, debuted in 17 states on November 15.

This launch has garnered significant attention from U.S. sports bettors. ESPN Bet has been the #1 or #2 app in initial download activity on the iOS store for the whole first week of its launch. In that time, it has amassed 865,000 cumulative downloads and a stellar 4.8 app store rating.

Penn signed an agreement with ESPN and owner’s Disney to work on the sportsbook after severing its previous contract with Barstool Sports. It spent some $300 million on acquiring Barstool, only to sell it back to founder Dave Portnoy for a reported $1 fee.

So, the news that ESPN Bet is showing early signs of paying off already will be welcome for Penn.

Analysts’ Positive Outlook and Upgrades

The upbeat market response to ESPN Bet has led to positive reviews from financial analysts.

In a note to financial clients, Bank of America analyst Shaun Kelley upgraded Penn Entertainment’s stock from a “neutral” to a “buy” rating because of the initial success of ESPN Bet. He also revised his expected price target for the stock to $30, up from $27.

Kelley’s optimism stems from the strong download and app activity, as well as what he sees as Penn’s balanced approach in promotional strategies and solid third-quarter earnings from its online division.

The analyst says market share anticipated by Penn for ESPN Bet is in the range of 6% to 7% for online sports betting. That would put it well ahead of competitors like Caesars Sportsbook and BetMGM, but not up there with market-leading DraftKings and FanDuel.

Kelley also highlighted that every 1% extra market share for ESPN Bet could add approximately $2 per share to Penn’s stock value​​​​.

Nationally, DraftKings and FanDuel have been the dominant sports betting operators in the era of legalization. Barstool Sports eventually turned around decent performances, but not enough to gain much ground on the two giants.

However, ESPN Bet, with the broadcaster’s massive brand presence, is expected to be a serious challenger.

“We think ESPN Bet creates an asymmetric risk-reward, with 1) initial download and app activity much stronger than anticipated, 2) initial offers showing promotional discipline, and 3) stable Q3 earnings being better than expected for PENN’s core gaming business,” said the note from Kelley.

Penn’s Big Bet

As part of the agreement, Penn is set to pay ESPN’s parent company, Walt Disney, $1.5 billion over 10 years, along with granting $500 million in warrants to buy shares in Penn.

The partnership also holds potential benefits for Disney, as the success of the stock directly impacts the value of these warrants.

Penn’s stock is also diversified from just sports betting. The gambling operators runs dozens of Hollywood Casinos across the U.S, many in regional markets outside of traditional hubs like Nevada casinos in Las Vegas or the New Jersey casinos in Atlantic City.

The operator also runs Hollywood Casino Online, among online casinos in West Virginia, Pennsylvania, and Michigan. It recently announced it will be integrating these services into the ESPN Bet app in states where both are legal.

Although its $300 million investment on Barstool was by most accounts a failure, it appears this time its even bigger investment to work with established brand ESPN might pay off.