Analyst Jeffrey Stantial has said it is increasingly likely that PENN Entertainment opts out of its current deal with Disney to run sports betting through ESPN Bet.
Stantial is Managing Director in Equity Research at Stifel Financial Corp, which specializes in the betting and gaming sectors. He attributes the increasing likelihood of the deal ending due to a change in directors at PENN and the ongoing struggles of ESPN Bet to make a dent in the US sports betting market.
Despite this, the analyst maintained his hold rating on Penn but increased his target price to $19 from $17 based on slightly higher second-quarter estimates and a positive shift for gaming stocks. The potential ending of the deal with ESPN Bet may already be reflected in PENN’s stock price.
Stantial commented, “On the Interactive front, we see increasing probability PENN exits the ESPN Bet relationship, though likely priced into shares already with overly conservative expectations for long-term iCasino market share.”
ESPN Bet Not Meeting Expectations
PENN signed a 10-year deal with Disney to launch ESPN Bet in August 2023, but the deal includes a three-year break clause, meaning PENN could end the partnership next year.
The company paid $2 billion for the deal, following the failure of its previous sportsbook venture in Barstool Sports. PENN paid $550 million to acquire Barstool before selling the company back to owner Dave Portnoy for $1 as it struggled to obtain operational licenses.
ESPN Bet was expected to hold around 5% of the US sports betting market by the end of this year, but market share fell to 2.3% in May, down from 2.7% in the first quarter this year.
The failures of PENN’s sports betting segment led investor group HG Vora to heavily criticize the company’s directors, leading to a fall in share price. CEO Jay Snowden and Director David Handler bought up a combined 44,000 shares when the price fell to below $15 in May.
Snowden remains confident the company can turn its fortunes around, but has previously stated that he will end the ESPN Bet if the platform continues to underperform.
Speaking back in February, Snowden stated, “When we announced our partnership, both sides made it very clear that we expected to compete for a seat at the podium. And we’re not on pace right now to do that,”
“We have tremendous plans in place for 2025 and 2026. But if, for whatever reason, we’re not hitting the levels that we need to, then obviously, as you’re approaching the third anniversary, you have a three-year clause in that contract that both sides will have to do what’s in their best interests. And so that’s always out there.”
PENN Cutting Back On Sports To Focus On Gaming
In addition to ESPN Bet, PENN’s interactive segment includes theScore, which maintains its presence in Canada’s sports and gaming industry. PENN paid $2 billion to acquire theScore in 2021, but the acquisition has also had mixed fortunes. Last month, PENN announced it was reducing staff, with the majority of jobs cut in the sports sector.
The company has instead launched theScore Casino in Ontario and plans to do the same in Alberta when the province launches regulated online gambling next year.
The acquisitions of theScore, Barstool Sports, and ESPN Bet have all failed to make traction in sports betting. HG Vora said the directors were guilty of “value-destructive deal-making, reckless capital allocation and poor execution”.
The iGaming sector could rescue the company, however. Stantial believes the company will “pivot to an iCasino-led Interactive strategy.”
“Q2TD iCasino GGR share is trending up Q/Q in MI (2.8% from 2.6%) and flat in NJ (1.1%).”
Due to an improvement in the iGaming sector, Stantial now estimates Q2 losses for the interactive segment will be around $52.8 million for the second quarter, compared to $60.1 million as previously predicted. Abandoning the ESPN Bet project could lead to further reductions of the extensive losses the company has suffered due to its sports betting investments.
Penn is scheduled to release its Q2 2025 financial results on Thursday, August 7.
Adam is an experienced writer with years of experience in the gambling industry. He has worked as a content writer and editor for five years on sites such as Oddschecker, CoinTelegraph and Gambling Industry News, bringing excellent knowledge of the world of sports betting and online gambling. Adam focuses on emerging stories in the ever changing landscape of betting in the US. Read the latest on prediction markets, changing legislation, and sweepstakes.
