Penn Entertainment launched ESPN BET in November but the cash drain from the promotional giveaways has caused an unexpected deficit and stockholders are understandably concerned.
Spend Money to Make Money
Penn Entertainment spent $1.5 billion in a deal with sports media giant ESPN to essentially use its name and platform to promote its newly-branded ESPN BET. The company was forced to divest itself of anything pertaining to Barstool Sports as part of the deal, a small sacrifice for a potentially big-time gain.
However, even the most optimistic projections regarding signups to the ESPN BET sports betting app went well beyond expectations with reportedly more than one million new customers over a six-week period swelling their ranks by over 50 percent.
That would normally be the stuff of heady corporate news but the promotional bonuses given to woo new customers took their toll on the bottom line. Penn had been anticipating losses of $100-$150 million for new customer acquisition but the stunning number of new accounts caused a net loss of $358.8 million, brought about by a $333.8 million adjusted EBITDA loss from PENN Interactive, the digital wing of the company.
PENN Entertainment CEO, Jay Snowden, wrote in an earnings release, “ESPN BET attracted significantly more first-time depositors (FTDs) than we anticipated, which drove higher than expected promotional expense.”
“Our successful launch led to substantial expansion in key performance indicators (KPIs) including monthly active users (MAUs), handle, and cash handle,” Snowden added. “Importantly, strong early retention and consistent user acquisition have led to steady month-over-month increases in cash handle as our promotional expense has started to normalize entering 2024.”
All In On ESPN
The term “average monthly active users” is an important metric in any online business, and if there is one major reason to be bullish on Penn Entertainment going forward, it is precisely this data that was reported from the recent wave of new subscribers.
PENN defines monthly active users as the “number of unique paid users per month that had at least one real money paid engagement across the company’s Online Sports Betting (OSB) and Online Casino products.” In Q4 2022, Penn averaged approximately 189,000 average monthly active users but that number skyrocketed to 771,000 in Q4 2023.
Parlays are where the sportsbooks make a great deal of their money, which is why we often see odds boosts on same-game parlays or even parlays in general. Penn has reported that new users of ESPN BET have triggered a 63% increase in parlay-style wagers.
Snowden said, “ESPN BET has attracted the mass market sports fan, highlighting the potential to expand the appeal of sports betting and grow the overall market. This foundation sets the stage for continued growth and market share gains as we introduce further product enhancements and deeper integrations into the ESPN media ecosystem.”
As for the promotions that caught the eyes of millions of bettors, Penn said that it has decreased promotional spending substantially since initially spending 39% on promotions as a total percentage of the handle, which has dipped precipitously to 10.7% in December and was reportedly under double digits in January.
JMP Securities analyst, Jordan Bender, wrote in a research note, “We expect the company to scale back on its spending, and for commentary around losses to now be first-half weighted over the course of the first three-year period of operations.”
