Penn Entertainment has been the subject of takeover rumors after its tumultuous tenure in the online sports betting industry which has caused its stock to plummet. However, the CEO quashed those rumors at the company’s Q2 earnings call.
No Confidence
A scathing rebuke in the form of a letter sent this past May by Will Wyatt, managing partner of the Donerail Group, a major Penn investor, to the company’s chairman David Handler, and the board, left little to the imagination concerning how many of its financial backers feel about its current management and prospects for the future.
“We believe that the significant criticism from the investment community regarding PENN’s recent capital allocation is understandable, however,” Wyatt said. “After four years of effort, attention, and billions of dollars of shareholder capital invested, the company has been unable to disintermediate the online sports betting landscape, as it had forecast.
“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?” Wyatt added.
This came after a series of missteps and misguided strategies that have seen Penn’s stock crater from a high of $130 in March 2021 to $16.70 this past week. It is a manifestation of the trials and tribulations that Penn has endured as a land-based casino business expanding into the fiercely competitive waters of online sports betting.
Both are gambling enterprises but they pose vastly different challenges and Penn Entertainment CEO, Jay Snowden, has not been shy about spending big money to enter the digital sports betting market only to see underwhelming results.
Don’t Believe Everything You Read
Speculation concerning a buyout of Penn Entertainment has been whispered with Las Vegas-based Boyd Gaming to FanDuel’s parent company, Flutter Entertainment as possible suitors. But a recent earnings call saw Snowden douse any flames that had been raging when a JP Morgan analyst asked him about Penn’s availability on the open market.
“We don’t comment on market rumors and speculation. What I will say as a company and as a board, we’re always and always have, always will evaluate opportunities to enhance value,”
Snowden said. “We’ll continue to take actions that we believe are in the best interest of the company and our shareholders.
“And I would say, don’t believe everything you read.”
Investor Dissatisfaction
But that doesn’t mean investors’ dissatisfaction has been quelled as the stock remains in the teens and the pressure will continue to mount unless Penn’s ESPN BET can turn things around this football season. Wyatt’s letter essentially said out loud what everyone was thinking, and not much will change unless the $1.5 billion over 10 years Snowden paid to ESPN to use its name and platforms pays off.
“We question whether such credibility is beyond repair, as PENN’s shares are now down over 80% in the last three years because of such damage,” Wyatt said via the letter.
Potential for Growth
But there are a few rays of light as sports betting’s biggest season looms. ESPN BET only launched last November and will now have a full college and NFL football season to attract new customers. Moreover, ESPN BET will now be much more integrated into the ESPN digital media platform as it will become part of the ESPN app and its odds will be omnipresent.
Technological advances will be evident as well but the greatest boon to its growth will likely be seen when it launches in New York this fall. The Empire State is the largest sports betting market in the nation and despite its onerous 51% tax rate, it is the holy grail for sports betting operators.
“This is an important development that will bring ESPN BET to the largest regulated online sports wagering market in North America,” Snowden said earlier this year. “Together with ESPN, we’re building a brand that is synonymous with sports betting, and operating in the New York market is key as we grow ESPN BET across the U.S.”
