Penn Entertainment CEO Jay Snowden has said the strength of the ESPN brand will allow the company’s new ESPN BET venture to succeed where other media partnerships in the U.S. have not.
The company announced a deal on Tuesday (August 8) with the U.S. sports media giant to rebrand its Barstool Sportsbook as ESPN BET.
Snowden said Wednesday (August 9) during the company’s second-quarter earnings call that although a firm timetable is not in place yet, the rebrand is expected to take effect in the middle of the National Football League season, likely in November.
“You’re talking about a brand that everybody in the world knows about,” Snowden said. “It’s not an old brand, it’s not a young brand, it’s an everything brand.
“There’s a lot of affinity for that brand, and so we think it’s going to be extremely complementary to what we’ve built over the course of the last three years.”
Analysts questioned Snowden on why the ESPN-branded sportsbook would succeed where other major media deals, including the Fox Bet venture and Penn’s own Barstool partnership, have not.
“There’s really no comparison to ESPN in the world,” he said. “I think it’s apples to eggplants.
“People go to ESPN to consume sports content every day, all day, scores, stats, stories,” he continued. “I mean, they’re the best in the world, and so, we’re going to be able to retain people because they love the brand.”
Analysts also focused on a provision that permits each side to terminate the ten-year agreement after three years if the ESPN sportsbook has not achieved a specific level of market share.
Snowden declined to disclose the specific desired share Thursday but hinted that the figure is at least 10 percent of the U.S. market, pointing to examples in a slide deck the company provided highlighting the deal that shows the earnings potential from 10 to 20 percent.
“I would just say that probably safe to assume that the bottom end of the range … is going to be a level that we’re starting to get excited about, both ESPN and Penn.” “And below there is not really exciting.”
“We’re not doing this deal to be 4 percent or 5 percent market share players,” he continued. “That’s not going to be acceptable for us, it’s not going to be acceptable for ESPN, and so, you should assume if those are the ranges we’re in, that’s not going to work out long term.”
Snowden said the company was looking to secure the top three positions in each of the states where it operates following the deal.
“You need scale to drive margins in this space, we all know that,” he said. “Trying to drive 20 percent margins at 5 percent market share is going to be impossible in online sports betting.
“I think if we’re at scale and we’re on the podium in every state or almost every state, which we plan to be, then we think we can probably get close to margins that others have said that they can get to on a [net gaming revenue] basis, but we’ll take a conservative path for now.”
Snowden did not elaborate much further on the decision to sell Barstool back to founder Dave Portnoy in exchange for non-compete and other restrictions, as well as a 50 percent share of future sale proceeds but without any upfront sale price other than a nominal $1 payment.
However, he agreed with Portnoy’s assessment Wednesday that the controversial brand was a difficult fit in the gaming space.
“It just became obvious to both parties that there’s probably long term only one natural owner of Barstool Sports, and that’s Dave Portnoy and Barstool Sports,” Snowden said. “And being part of a publicly held, highly regulated, licensed gaming company, it became clear that we were an unnatural owner.”
Disney CEO Bob Iger said that from ESPN’s standpoint, the deal is something that the company has pursued for some time to boost engagement with young consumers, and that ESPN had talks with several different sports-betting operators.
“Penn stepped up in a very aggressive way and made an offer to us that was better than any of the competitive offers by far,” Iger said on Disney’s own earnings call Wednesday.
“And we liked the fact that Penn is going to use this as a growth engine for their business and that we actually believe and trust in their ability to, in this partnership, grow their business nicely, while we grow ours.”
Penn will pay ESPN $150m annually over the length of the ten-year deal if both parties elect to keep the partnership for the full duration, as well as grant ESPN $500m in stock warrants, plus additional bonus warrants if U.S. online market share exceeds 20 percent.
Some parts of the partnership remain unsettled at this stage, including whether Penn will have the right to operate ESPN-branded retail sportsbooks.
The company had rebranded its retail sportsbooks with the Barstool brand, and Snowden says they will keep that branding in the interim during a transition period.
“With regard to what does that end up being or looking like, that’s a TBD,” Snowden said.
Snowden told analysts that ESPN executives have not had a chance to visit Penn casino properties yet, “and so we’re going to go through a process.”
“There can be potentially some ESPN-branded retail sportsbooks on the plan, and if not, we still have what we believe to be best-in-class destinations on the retail sports-betting side, and sports bars connected to almost all of them.”