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Truist Report: Penn could survive without ESPN Bet

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According to a new report by Truist Securities, Penn will continue operating as usual if ESPN Bet fails. Its Interactive division would keep it afloat.

Truist upgraded Penn’s rating as well from Hold to Purchase. Truist downgraded Penn’s rating from Hold to Buy in August last year, after the company announced that it would relaunch Barstool Sportsbook under the name ESPN Bet as part of a $1.5bn agreement with broadcasting giant ESPN.

Penn sold Barstool Sports back to Barstool’s founder Dave Portnoy at $1. ESPN Bet was launched in 17 US States by November 2023. Mike Morrison said that the launch of ESPN’s sports betting division was “very smooth”.

In the case of ESPN Bet failing, the equity report stated that Penn Interactive’s operations would be a boon to the company.

The report stated that “What the market seems to be missing is the fact that Penn Interactive has multiple business units beyond ESPN Bet.” If ESPN Bet fails, we believe Interactive will still be worth something to Penn.

Truist admitted in ESPN Bet that although it is early, Penn has a great opportunity to capitalize on ESPN Bet’s success.

We see an opportunity for Penn Sports to take advantage of the ESPN name and become a leader in the [online sportsbook] market.

Ongoing value in Penn Interactive

Penn Interactive’s report cites online licences, a result of their land-based presence, and the igaming multi-channel connection as its benefits. Truist also highlighted the value of theScore, Penn’s Canadian social gaming company, although he admitted it was “perhaps not” worth the $2bn Penn spent on it.

Truist also highlighted Penn’s omnichannel presence and stated that the company would benefit from an increase in the legalisation of igaming state by state expected to occur over the next several years.

Truist’s price target of $23 (PT) is based on the value Truist sees in Hollywood iGaming, TheScore Ontario and Penn’s fees.

We think that there are (likely to be) other profitable Digital Businesses, even if ESPN Bet ends up being abandoned.

Truist stated that they believe expectations for ESPN Bet are too low at the moment, and that the current market sentiment is “too negative” for this sportsbook – assuming that there’s no value in the other Penn Interactive businesses.

ESPN Bet is doing well among customers

Truist’s 2024 Interactive Gaming Survey, released this month, found that ESPN Bet could challenge US sports betting leader DraftKings and FanDuel.

Truist, in his equity research report cited this survey as evidence that ESPN Bet is eagerly anticipated. In the survey, Truist cited this poll to support his claim that ESPN Bet’s full roll-out is highly anticipated. The total number of respondents was 45% who said this is possible. Only 3% thought it was unlikely.

The report states that “we see an opportunity for ESPN Bet” to attract these players. The report states that “execution risk is the main obstacle. If Bet Mode proves to be as smooth as we expect, then we believe Penn’s share of market could rise above 10 %+.”

ESPN’s inherent credibility has received a lot of attention, given its reputation for trustworthiness. Reports stated that Aaron LaBerge, a former Disney executive who was appointed as Penn’s CTO this week could be viewed as a catalyst to ESPN Bet’s continued progress and even increase its credibility.

It continued, “We think Mr. LaBerge is already heavily involved in ESPN Bet and should be ready to take off on the new side,” the report said. His arrival may give investors more confidence in Penn’s ESPN Bet story and the total Interactive story.

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