
A recent letter by a stockholder activist criticizing Penn’s management propelled the stock to rise 20% last Friday but whether a change at the top is imminent remains in doubt.
C-Suite Sideswipe
Penn Entertainment stock has dropped precipitously from its high in March 2021 of $130.47 to what is currently $17.07 per share, a slight dip from its Friday close of $17.50. Since Jay Snowden took over as CEO in January 2020, the numbers show the stock has plummeted 42.8% under his watch. Several deep-pocketed investments in the digital gambling realm are seemingly to blame for the stock’s malaise.
Penn has historically been a land-based casino brand but Snowden has made several forays into the mobile sports betting realm that has cost the company significant capital with little returns to show for it. This has prompted an outcry from Will Wyatt, managing partner of the Donerail Group, who wrote a public letter to Penn’s chairman David Handler, and the board.
“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.”
Investor Frenzy
Once the letter was published, the stock rose 20% and its average daily trading volume nearly quadrupled. It is apparent Wyatt was saying the quiet thing out loud and his fellow investors rallied because of it. What compounds the frustration for many investors is Snowden’s compensation was $99.3 million between 2020 and 2023.
“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,” Wyatt said. “What gives this Board any confidence in PENN’s future under this strategy?”
Bad Business
Among many of the questionable moves made under Snowden’s tenure was the purchase of the Barstool Sports brand, made famous by its controversial founder Dave “El Presidente” Portnoy. The company paid $163 million for a 36% stake in the media company only weeks after Snowden assumed his leadership position, paving the way for the use of its brand name as Barstool Sportsbook.
“At just 12 months in, it was clear that the bet would not pay off as digital gains were weaker than management had initially forecast, and integration efforts were lackluster,” he continued. “Yet, in early 2023, PENN paid an additional $388 million to purchase the balance of the Barstool shares it did not own, taking full control.”
Big Moves, Bigger Stakes
The total acquisition cost for Barstool Sports was over half a billion dollars but shortly after the final sum was paid, Snowden pivoted and pursued a deal with ESPN to use its name and digital platform to launch ESPN BET. Penn would pay ESPN $1.5 billion in cash in a 10-year deal and grant ESPN $500 million of warrants to purchase approximately 31.8 million common shares of Penn.
However, the caveat ESPN demanded in the deal instructed Penn to divest itself from the controversial Barstool brand entirely before the agreement would be signed. Time was of the essence and only months after completing the purchase of Barstool, Penn sold the media company back to Portnoy for $1 with the stipulation that Penn would get 50% of any future sale of the brand. It also dissolved the Barstool Sportsbook with the promise it could not be resurrected in the future.