There’s a shoot-out at the U.S. fantasy sports factory today as ESPN BET, putative rival of FanDuel and DraftKings, is ripped by a major back investor revolt at its flailing parent PENN Entertainment.
Self-described activist-investors Los Angeles-based Donerail Group have launched a swingeing attack on interactive corporate strategy at PENN, following their controversial US$1 divestiture of Barstool Sports and re-branding of the sportsbook, in league with the Walt Disney Company, as PENN BET.
But the PENN BET launch–designed to take-on the might of U.S. sportsbook leaders FanDuel and DraftKings–has, to date, been a significant, if not abject, failure, following billions of dollars of investment, and it has further supercharged the precipitous, 80 percent, fall of PENN shares over the last three-years.
Attack
Now William Wyatt, Managing Partner of Donerail, which holds a significant but undisclosed stake in PENN Entertainment, has launched a blistering attack on the gambling Omnichannel in an Open Letter to PENN Chair David Handler.
“After four years of effort, attention, and billions of dollars of shareholder capital invested, the company [PENN Entertainment] has been unable to disintermediate the online sports betting landscape, as it had forecast,” stormed Wyatt (pictured, left).
In partnership with Disney-owned ESPN, PENN launched ESPN BET in November last year — after jettisoning its Barstool Sportsbook brand and selling it back to Barstool founder Dave Portnoy for US$1.
It’s estimated that the PENN-Disney combo has spent some US$2 billion (£1.56bn) on their ESPN BET joint-venture; which, in digital parlance, has effectively failed to launch — much less challenge the dominance of market leaders FanDuel, DraftKings and BetMGM.
The new sportsbook posted an Adjusted EBITDA loss of US$196 million (£153.72m) in Q1 this year. And PENN has conceded that it expects its Interactive division to lose around US$500 million (£392.15m) in 2024.
Donerail’s denunciation–which also claimed that PENN was worth perhaps treble its current US$2 billion (£1.56bn) market capitalisation, with its extensive land resorts seriously undervalued–immediately triggered takeover speculation and the company’s shares have surged by some 15 percent since the verbal assault at the weekend.
PENN’s digital travails began in 2020 when they acquired a 36 percent stake in Barstool for US$163 million (£127.84m). They then bought the sportsbook outright for another US$388 million (£304.3m) in February 2023 — remarkably, only months before selling it back to Portnoy for US$1; albeit lumbered with an estimated US$1 billion (£784.3m) of associated debt.
J’Accuse
Another mega misstep, claimed Donerail’s Wyatt in his “J’Accuse”, was PENN’s US$2 billion (£1.56bn) over-the-top acquisition of media and gaming outfit theScore, designed to steal a march on competitors when Canada’s Ontario province opened to regulated iGaming and sports betting in 2021.
And, despite “significant financial underperformance and stock price declines”, Wyatt also questioned the “excessive” US$100 million remuneration given to PENN Entertainment CEO Jay Snowden over this period of time.
Added Wyatt: “What may be additionally troubling for shareholders is that the operating losses that are growing meaningfully–and have become a central part of the PENN equity narrative–sit within an interactive business that currently has no operating leadership
“What gives this Board any confidence in PENN’s future under this strategy?”
Earlier this year, in response to PENN Entertainment’s poor Q1 performance, CEO Jay Snowden claimed the results were “driven by bad circumstance[s]” and that “green shoots of recovery” could be seen in the numbers.
Contentious at best.
Given his recent share dealing, one man who definitely sees that the grass is greener–but on the other side of the fence–is his very own Chair David Handler.
Watch this space.
