When Penn Entertainment Inc. introduced plans on Tuesday to launch an ESPN-branded on-line sports-betting service, shares of the on line casino operator initially rallied. But afterward, some Wall Street analysts appeared much less positive in regards to the enthusiasm, saying that whereas the potential good points have been huge, the street to succeed in them might make for a bumpy journey.
Truist analyst Barry Jonas on Thursday downgraded the inventory to carry from purchase, saying that regardless of the potential positives, the advantages might take time to play out, and that there have been “sizable execution risks that may not resolve soon.”
He added: “With even [management] admitting they’re a show-me story, we advise waiting before adding to positions.”
Over at Stifel, analysts had primarily the identical ideas.
“On paper, this long-term ESPN Interactive deal makes sense,” they stated on Wednesday. “However, we believe [Penn] shares in the near term remain a ‘show me’ story until management can actually prove the long-term financial prospects of this deal are legit.”
Shares of Penn
PENN,
have been down 4.2% on Thursday. Of the 17 analyst rankings on Penn’s inventory tracked by FactSet, 10 are holds.
Penn on Wednesday reported second-quarter outcomes that beat expectations. But a lot of the give attention to the corporate’s earnings name was on the take care of ESPN.
Under that 10-year deal — which could be prolonged for one more 10 years — Penn will rebrand its present on-line sports-betting platform, Barstool Sportsbook, as ESPN Bet within the U.S. During Penn’s earnings name on Wednesday, administration stated the launch would seemingly occur sooner or later across the center of soccer season, “certainly before Thanksgiving.” Penn pays $1.5 billion in money to ESPN over these 10 years, or $150 million per 12 months.
Penn, in a submitting, additionally stated that both aspect can terminate the deal after 12 months 3 of the settlement if the brand new betting platform “has not achieved a specified level of market share based on gross gaming revenue in the states in which the Sportsbook operates while branded ESPN Bet.”
The take care of ESPN got here a number of months after Penn absolutely purchased the favored sports activities and pop-culture web site Barstool Sports, after first investing within the web site in 2020 and constructing out the Barstool Sportsbook platform. The worth of these investments, in 2020 and this 12 months, totaled round $550 million. But on Wednesday, it offered Barstool Sports again to its founder, Dave Portnoy, for $1. Penn didn’t instantly reply to a request for extra details about the sale of Barstool Sports again to Portnoy.
During Penn’s earnings name, Chief Executive Jay Snowden declined to supply particulars about how the take care of ESPN got here collectively, however he stated ESPN had already been engaged on a betting platform.
“I would just say that as we got to know the folks at ESPN led by [Chair] Jimmy Pitaro, it felt good,” he stated. “And we’ve met a lot of people at ESPN. And what I’ve been blown away by and the folks that we’ve spent time with is they share a passion for wanting to be the best at everything that they do. And ESPN Bet is no different. They’ve been working on this behind the scenes for some time.”
He additionally stated that the Barstool demographic skewed youthful. A take care of ESPN, he stated, represented an opportunity to attraction to everybody.
“It’s not an old brand. It’s not a young brand. It’s an everything brand,” he stated.
Bob Iger, the chief government of Walt Disney Co.
DIS,
which owns ESPN, stated throughout Disney’s earnings name on Wednesday that the deal between Penn and ESPN represented an opportunity to attract extra youthful customers to the sports activities franchise. He additionally stated Penn had the most effective provide.
“Why Penn? Because 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,” he stated.
But the analysts at Stifel, of their notice on Wednesday, had different considerations.
“Given the fact [Penn’s] long-term projections for this partnership are almost four years down the road, we do believe this deal has given [Penn] some near-term breathing room if market share gains take longer than expected to play out,” they stated. “[Penn] has now put all their chips on the table with this partnership, and we wonder if their $150M ++ stated annual marketing spend eventually drifts higher as they have to chase market share down the road.”
They additionally attributed the transfer greater in Penn’s inventory earlier this week to its separation from Portnoy.
“We believe today’s move in [Penn] shares (+9% vs. S&P 500 -0.5%) has more to do with [Penn] removing Dave Portnoy from the equation versus investors ascribing any material long-term value to their new ESPN deal,” the Stifel analysts stated.
“Guess we would be in the camp of ‘not sure yet what we think of the deal,’” they added.
Portnoy, in a submit Tuesday on X, the platform previously often known as Twitter, stated that Penn and Barstool had been denied licenses due to him as they contended with laws and news tales that he known as “hit pieces” from shops just like the New York Times and Insider.
The New York Times ran an article final 12 months detailing considerations that Portnoy was selling playing irresponsibly. Insider reported on allegations of sexual misconduct in opposition to Portnoy, which Portnoy denied. A defamation lawsuit introduced by Portnoy in opposition to Insider over that reporting was dismissed.
Source web site: www.marketwatch.com
