Penn Entertainment And Espn Enter Into Long-term Exclusive Strategic Alliance For U.s. Online Sports Betting

10 August 2023

PENN Entertainment, Inc. has unveiled a groundbreaking partnership with ESPN, Inc. and ESPN Enterprises, Inc. (collectively referred to as "ESPN") in an exclusive U.S. online sports betting (OSB) collaboration. This announcement coincides with PENN's planned discussion of the ESPN deal and its Q2 2023 results during an upcoming conference call and webcast, scheduled for 9:00 a.m. ET tomorrow. For additional details, a comprehensive presentation about the agreement is available on the company's website.

Key Highlights of the ESPN Partnership:

  • Exclusive Usage Rights: PENN has secured exclusive rights to the ESPN Bet trademark for OSB in the U.S. for an initial 10-year term, extendable by another 10 years by mutual agreement.
  • Transition to ESPN Bet: The online Barstool Sportsbook will be rebranded as ESPN Bet starting in the Fall of 2023. Meanwhile, theScore Bet will continue to operate in Canada.
  • Deep Integration: Operated by PENN Interactive, ESPN Bet will benefit from exclusive promotional services across various ESPN platforms, including programming, content, and access to ESPN's roster of talent.
  • Strengthening Partnership: The collaboration with ESPN facilitates efficient customer acquisition and retention expenditures across premium sports content, fostering an alignment of interests through mutual investments and collaboration.
  • Financial Arrangements: PENN will make cash payments totaling $1.5 billion to ESPN over the initial ten years, alongside granting approximately $500 million worth of warrants allowing ESPN to purchase around 31.8 million PENN common shares over a 10-year vesting period. Further bonus warrants might be awarded to ESPN based on ESPN Bet's performance thresholds in the U.S. OSB market.

Operational Enhancements: The partnership is projected to yield an annual long-term Adjusted EBITDA potential of $500 million to $1.0 billion+ in PENN's Interactive segment.
iCasino Addition: PENN's rebranded app will include a separate Hollywood-branded iCasino product in states where permissible.

Barstool Divestiture:

PENN has divested 100% of Barstool Sports, Inc. ("Barstool") common stock to founder David Portnoy. In exchange, PENN has received specific non-compete and other restrictive covenants. The company retains the right to claim 50% of the gross proceeds from any potential future sale or monetization of Barstool by David Portnoy.

Jay Snowden, PENN's CEO and President, expressed excitement about the exclusive ESPN agreement, highlighting its transformational nature in steering the company from a regional gaming operator to a North American entertainment leader. He emphasized the deep integration of ESPN Bet with ESPN's multi-faceted ecosystem and looked forward to leveraging the strategic collaboration for substantial value creation.

Jimmy Pitaro, ESPN's Chairman, affirmed the company's belief in PENN as the ideal partner to elevate ESPN Bet to a leading U.S. sports betting platform, highlighting the synergies between their extensive audience and PENN's operational expertise.

Snowden further mentioned the divestiture of Barstool to founder David Portnoy, acknowledging Barstool's significant contribution in expanding PENN's digital footprint across the U.S. He expressed appreciation for Barstool's partnership and explained that the divestiture will allow Barstool to regain its roots of delivering distinct content to its devoted audience without the limitations imposed by a publicly traded gaming company.

In conclusion, Snowden highlighted PENN's ability to leverage ESPN and theScore's sports media influence in the U.S. and Canada, along with the newly launched sports betting app, to expand their digital reach and establish ESPN Bet as a prominent player in the sports betting domain. He expressed confidence in achieving substantial Adjusted EBITDA in the Interactive Segment and generating robust free cash flow for the company and its shareholders.

Note on Non-GAAP Financial Measures:

The press release references the use of Adjusted EBITDA as a non-GAAP financial measure. However, Adjusted EBITDA is not meant to replace GAAP-based financial measures. The company defines Adjusted EBITDA and provides explanations for its usage in evaluating performance. The press release offers an extensive explanation of the calculation of Adjusted EBITDA and its importance as a measure of performance in the gaming industry.