Penn still bullish on ESPN BET while remaining mum on proxy battle
Penn Entertainment CEO Jay Snowden addressed Wall Street analysts on Thursday’s quarterly earnings call during a challenging period for the company.
As Penn approaches the two-year anniversary of its partnership with the Walt Disney Co., ESPN BET’s market share still hovers in the low single digits. The performance is far below Snowden’s expectations when Penn signed a 10-year, $1.5 billion agreement with the broadcast giant two summers ago. Complicating matters, Penn is in the midst of a nasty proxy battle with an activist investor concerning the composition of its board.
But as Disney prepares for an announcement next week regarding ESPN’s much-hyped direct-to-consumer platform, Penn is cautiously optimistic on growth prospects from its interactive segment. The company reported considerable gains from the digital business over the first quarter of 2025, leading to the segment’s strongest performance since the launch of ESPN BET.
“Our interactive segment generated significant top and bottom-line year-over-year growth, highlighting the improved flow-through we are seeing in the business,” Snowden said. “Our digital business continues to evolve, supported by our well-known brand-differentiated IP, a fully owned technology stack and newly recruited, industry-leading talent. We are nearing an inflection point.”
Iger: Biggest move since landing full-season NFL
Snowden’s comments came one day after Disney provided an update on ESPN Flagship, the company’s new streaming platform. Disney CEO Bob Iger revealed that the “Flagship” name is simply a placeholder for now. Next week, ESPN President Jimmy Pitaro will reveal the new name and a pricing strategy for the platform, Iger added.
The launch of the direct-to-consumer service is arguably one of the most-anticipated sports broadcasting events in the post-COVID era. ESPN is considering a subscription fee in the range of $25 to $50 a month, The Athletic reported.
For the three-month period ended 31 March, Penn generated revenue of $1.4 billion, missing analysts’ expectations for revenue of $1.7 billion on the quarter. Penn also reported adjusted EBITDAR of $457 million, leading to a net loss of $0.25 per share.
The company slightly topped analysts’ forecasts of per share quarterly losses of $0.29. Penn reported a net loss of $0.79 per share in the same quarter of 2024.
An ‘accelerant’ to delivering on guidance
The unveiling of the streaming service coincides with the rollout of Mint Club, a rewards program that ESPN BET launched on a limited basis during the first quarter. ESPN BET has spent a year honing an account-linking feature that enables users to connect their ESPN and ESPN BET apps at near instantaneous speeds. The rewards program offers additional perks such as exclusive promo offers and real-time bet tracking.
With the streaming service on the horizon, ESPN BET plans to offer “bespoke integrations” that are not currently available on the market, according to Aaron LaBerge, chief technology officer at Penn. The company has already seen encouraging developments from Mint Club, with monthly active users logging in at a 2.7 times greater rate than general users, he explained. The cohort’s weekly volume is also 60% higher than a typical bettor, LaBerge stated, adding that Mint Club members are placing a larger percentage on parlays.
He noted particular intrigue with the capabilities available from a stream-and-bet perspective. Describing the offering as a “best-in-class” product, LaBerge views the new platform as an innovation that can provide an “accelerant” for Penn in delivering on its guidance.
Proxy battle
Ahead of the earnings call, New York-based hedge fund HG Vora Capital Management filed a lawsuit against Penn over the company’s plans to reduce seats on its board of directors. Last month, Penn announced several board changes, including the nomination of Johnny Hartnett and Carlos Ruisanchez, both of whom are backed by the fund. Ruisanchez, a former CFO of Pinnacle Entertainment, currently serves as CEO of Sorelle Capital.
Ron Naples, an independent director since 2013, informed the company of plans to retire, while two others decided not to run for reelection. Penn’s announcement reduced the number of available seats from three to two. HG Vora took exception with the proposal, asserting that it was informed previously that three seats would be up for election. The fund had aimed to nominate former Penn CFO William Clifford to the board.
“Penn’s board reduction scheme, implemented amid a contested election and while facing the prospect of losing three board seats is, in HG Vora’s view, a self-serving action with no legitimate corporate purpose,” HG Vora said.
“HG Vora believes the board’s manipulation of the company’s election rules is an affront to shareholder democracy and only benefits its incumbent directors, notably its chairman and CEO. HG Vora believes that substantial changes are necessary to restore accountability and ensure all options are considered to maximise shareholder value.”
Penn did not address the lawsuit on Thursday in its prepared remarks and analysts did not raise the subject in a question-and-answer session.
Criticism of ‘reckless spending’
Previously Penn’s largest single shareholder, HG Vora recently trimmed its holdings to 4.8% to comply with reporting requirements. Dating to the start of last year, the fund has been critical of Penn for what it described as “reckless spending” on the digital side of the business.
In August 2023, Penn reached a long-term agreement with Walt Disney for the rights for ESPN’s sports betting brand.
On the same day, Penn sold Barstool Sports back to founder Dave Portnoy for $1. Penn completed the final tranche of the Barstool acquisition in 2023 for a total purchasing price of $551 million.
Prior to Thursday’s call, Snowden expressed dissatisfaction in recent months with the performance of ESPN BET. For the month of March, the operator garnered online sports betting market share of 2.7%, according to state data compiled by JMP Securities. While it represented a 200-basis point increase from the same month last year, ESPN BET still finished sixth in national rankings. The operator continues to trail market leaders FanDuel and DraftKings by a considerable margin.
In the leadup to the November 2023 launch of ESPN BET, Snowden had aimed much higher, informing analysts that the company did not complete the deal to be “4% or 5% market share players”. On a long-term basis, he targeted 20% market share by the end of 2027.
Market share metrics
Last month, Snowden and Penn Chairman David Handler released a shareholder letter in which they acknowledged that the company’s market share and financial performance in sports betting did not “meet expectations”.
Under the 10-year partnership, both ESPN and Penn received the option of exiting the partnership after three years. During Penn’s previous earnings call in February, Snowden conceded that if the operator does not hit several performance targets in 2027, each side will have to act in their “best interests”.
Snowden maintained a rosier outlook on Thursday. One feature that ESPN BET has not unveiled yet is a differentiated offering that allows users to wager on props involving players from their fantasy lineups.
For example, if a customer has Saquon Barkley on their fantasy team for a “Monday Night Football” game, he may receive a personalised offer the day before to place a Barkley anytime touchdown wager.
Intrigued by the cross-channelisation opportunities, Snowden emphasised that the Penn and ESPN BET teams are working together on “delivering a differentiated experience”. In addressing the opt-out clause, Snowden noted that it should be obvious not just to Penn, but others in the market, on the path that makes the “most sense”.
Near-term guidance
Penn reported adjusted EBITDA from its interactive segment of -$89 million, an improvement of $106 million from the year-ago quarter. As it relates to near-term outlook, Penn projects second-quarter revenue of $280 million to $320 million within its digital business. On the interactive side, Penn forecasts an adjusted EBITDA loss in the range of $50 million to $70 million, a year-over-year improvement of roughly $43 million at the midpoint, Chief Financial Officer Felicia Hendrix noted.
Importantly, Penn anticipates sequential improvement in each quarter, with expectations for profitability in the fourth quarter. Penn reiterated its guidance for full-year 2026 profitability with its digital business.
As of 11am EST Thursday, Penn traded at $15.51 per share, down 1.27%. Penn is down about 40% since the company announced the partnership with Disney two years ago that led to the launch of ESPN BET.