Penn Entertainment CEO Jay Snowden refused to comment on speculation of competitors teaming up to acquire the operator during Thursday's quarterly earnings call. Instead, he talked up deeper and deeper integrations with partner ESPN.
On Thursday’s (8 August) earnings call, Snowden said the company will be live in the biggest legal market in the US – New York – by the start of the college football season. He also addressed the controversial winners’ surcharge that DraftKings is floating. But his main focus was acquisition rumours.
The ESPN Bet launch last November brought the premier sports media brand into the betting sector. Snowden said it was a milestone moment. But it hasn’t yet translated into a podium position for Penn Entertainment.
Blended market share across six states averaged 6% for March, and investors have started to question Penn’s digital strategy. This led to rumours of a sale, suggesting Boyd Gaming would bite. Those rumours evolved into a joint approach with FanDuel to acquire the operator.
However in response to analyst questions on Penn’s H1 earnings call CEO Snowden said he wouldn’t comment on rumours and speculation.
“As a company and as a board we always have and always will evaluate opportunities to enhance value and continue to take action in the best interests of our company and our shareholders,” he said.
Snowden is very confident of delivering value in the short and medium term. “Don’t believe everything you read,” he added.
Will closer ties with ESPN drive that value?
Penn is banking on deeper integrations with ESPN throughout its core digital products to drive ESPN Bet’s audience growth as the football season approaches. Later in August the betting product will form part of the ESPN Fantasy app, serving players with personalised in-app betting offers and unique experiences based on their rosters.
The sportsbook will also become more visible in the core ESPN app. It currently features in ESPN Gamecast but will display odds around live scores. By Q4, ESPN and ESPN Fantasy accounts will link directly to the betting product.
The goal is to make everything under the ESPN brand feel “inextricably linked”, Snowden says. That will drive engagement and customer acquisition at a lower price point, he said.
“That will drive top of funnel and a lot of engagement with our app,” Snowden explained. “That is going to be [our] biggest driver of acquisition.”
It will continue to pursue some customer acquisition outside of the ESPN ecosystem, however.
Goal is a “frictionless ecosystem”
New chief technology officer Aaron LaBarge said this closed loop “creates a frictionless ecosystem for fans. We don’t just want to compete here, we want to win.
“No matter what platform you bet on today, you’re then on ESPN tracking your bet,” he said. “Being able to place a bet on ESPN Bet then seamlessly package together how you track that bet will be a huge competitive advantage for us.”
The ultimate goal, however, remains direct integration. Snowden said the integration of theScore Bet – Penn’s other media property – into theScore media app “points to some of the stuff we want to do with ESPN”. Penn acquired Canada-based theScore and theScoreBet in 2021.
“[We] are working with ESPN to make sure[…] you can move between these apps really fluidly and get what you want where you want it.”
New York state of mind
ESPN Bet’s launch in New York later this month is being talked up as a milestone for Penn. The rollout, pending regulatory approval, increases its reach to almost 50% of the US population and a market with more than 10 million average monthly visitors to ESPN media sites and apps.
That means acquisition will be “healthy but cost-effective” Snowden said. “We’re going to continue to take a different approach in terms of launching in New York to what we did launching across 17 states last year.”
It has a ready-made connection with “millions and millions” of New York sports fans, but the biggest opportunity is around reactivation, he said. “We have significant database. You see them in the app, but we need to continue to drive better retention and higher share of wallet.”
In terms of timing he said the app would be taking bets before the college football season starts on 24 August. In the interim, Penn is rolling out a range of enhancements to the ESPN Bet app product ranging from cosmetic (a dark mode and a parlay carousel) to features such as a referral programme and early win payouts.
Penn raises interactive EBITDA guidance
Penn CFO Felicia Hendrix announced slightly improved adjusted EBITDA guidance partially based on that New York rollout and leveraging ESPN to reduce customer acquisition costs in New York.
The EBITDA loss for 2024 is now expected to fall in the range of $460m to $510m. That factors in higher sports betting taxes in Illinois and severance costs related to recent layoffs at Penn Interactive.
“I want to reiterate that 2024 is an investment year in Penn,” Snowden said. “Our biggest losses in digital are behind us.” They will continue into 2025, however, with 2026 the year the interactive arm is expected to make a positive contribution. “In sum we’re all very excited about what future holds.”
The interactive business will expand further, in the medium term through the launch of a standalone online casino app under the Hollywood Casino brand, due to go live 2025. Sports betting and igaming in Alberta are expected to launch next year and may provide additional upside in Q1 2025. Snowden expects that market to be strong thanks to the power of theScore Bet across Canada.
Gaming surcharge: “I hesitate to never say never”
However, it remains to be seen whether earnings improvements will come from a gaming surcharge. DraftKings’ plans to impose a surcharge on winning bettors in high tax states has attracted ire from bettors and analysts alike. Rush Street Interactive is the first – and so far only – operator to say it won’t follow suit.
Snowden did not suggest Penn was planning a similar surcharge. Nor did he rule it out.
“We find it to be very interesting,” he said. “It was unexpected from our perspective. We have a lot going on in front of us in the coming quarters. It’s not even on our radar, I hesitate to never say never, we’re really focused on continuing to enhance the product and drive loyalty and retention.”
The operator will, however, monitor the planned rollout in January and its impact on DraftKings’ business.
Deutsche Bank’s Carlo Santarelli described a surcharge as “a difficult manoeuvre” for Penn.
It is preparing to launch in New York, where it faces a 51% GGR tax, and “upsetting the apple cart shortly after acquiring customers seems illogical”. Further, it is headquartered in Pennsylvania (36% of GGR) where it has a significant land-based presence, meaning a move that may upset regulators would be risky.
Finally, ESPN Bet’s low market share in Illinois meant the state’s progressive tax rate would have a “negligible” impact Santarelli said.
