During the quarterly earnings call on Thursday, Penn Entertainment’s CEO Jay Snowden declined to make any comments about speculation that competitors were teaming up for an acquisition of the operator. He instead talked about deeper and deeper integrations between ESPN and Penn Entertainment.
Snowden stated that the company would be operating in New York by the beginning of college football season, the largest legal market in America. DraftKings’ controversial winner’s surcharge was also discussed. His main concern was the acquisition rumours.
ESPN Bet launched in November last year, bringing the leading sports media brand to the betting industry. Snowden called it a landmark moment. Penn Entertainment has yet to achieve a podium place.
Investors have begun to doubt Penn’s digital strategies after the combined market share of six states in March averaged at 6%. Boyd Gaming was rumoured to be interested in a possible sale. These rumours led to a joint bid with FanDuel for the operator.
In response to questions from analysts on Penn’s earnings call for H1, CEO Snowden stated that he would not comment on speculation and rumours.
He said, “As an organization and board of directors we have always evaluated and will continue to evaluate opportunities to increase value. We also take actions in our best interest and that of our company.
Snowden has a high level of confidence in his ability to deliver value on a short- and medium-term basis. He added, “Don’t trust everything you hear.”
Will closer links with ESPN increase the value of ESPN?
Penn’s strategy is to increase the audience of ESPN Bet by integrating ESPN into its digital core products. This will help it grow as football season nears. The betting app will be integrated into the ESPN Fantasy App later in August, providing players with unique in-app experiences and personalised betting offers based on rosters.
It will be more prominent in the ESPN App. The sportsbook is already available in ESPN Gamecast, but it will now display odds next to live scores. In Q4, ESPN accounts and ESPN Fantasy will be linked directly to the product.
Snowden states that the goal is for everything to feel “inextricably connected” under the ESPN name. He said that this would drive customer acquisition and engagement at lower prices.
Snowden said that this will help to drive the top of the funnel, and encourage a great deal of engagement in our app. This is [our] main acquisition driver.
However, it will still continue to seek some customers outside the ESPN ecosystem.
The goal is to create a “frictionless eco-system”
Aaron LaBarge, the new chief technology officer at ESPN said that this closed-loop “creates an ecosystem without friction for fans.” “We don’t want to just compete, but we also want to win.”
He said that no matter which platform you use to bet today, ESPN will track your wager. The ability to bet via ESPN Bet and then track your bet seamlessly will give us a competitive edge.
However, the ultimate goal remains direct integration. Snowden stated that the integration of theScoreBet – Penn’s other media properties – into theScore app is “a good example of what we would like to do with ESPN”. Penn purchased Canada’s theScore, theScoreBet and other media properties in 2021.
We are working closely with ESPN so that you can easily move from one app to another, and find what you need.
New York State of Mind
The launch of ESPN Bet in New York, which will take place later this month, is seen as an important milestone by Penn. This rollout will increase its reach, subject to regulatory approval. It now reaches almost half of US residents and an area with 10 million monthly average visitors to ESPN’s media websites and apps.
Snowden explained that the acquisitions will therefore be “healthy, but cost-effective”. Snowden said, “We will continue to launch in New York in a way that is different from what we launched in 17 states in the past year.”
He said that the company has an established connection with “millions of millions” New Yorkers who are sports fans. However, it is reactivation which offers the greatest opportunity. We have a large database. “You can see the users in the app. But we must continue to improve retention and increase share of wallet.”
He said that the app will be accepting bets prior to the start of the college football seasons on the 24th August. Penn will be rolling out enhancements for the ESPN Bet App product in the meantime, ranging from cosmetics (a dark mode) and parlay carsousel to features like a referral program and early payouts.
Penn raises interactive EBITDA guidance
Penn’s CFO Felicia Hendrix has announced slightly better adjusted EBITDA guidelines, partly based on the New York launch and using ESPN to lower customer acquisition costs.
EBITDA losses for 2024 are now estimated to be between $460m and $510m. This includes higher Illinois sports betting taxes and the severance cost associated with recent Penn Interactive layoffs.
Snowden stated that “2024 will be an important year for Penn.” Snowden said that “our biggest digital losses are now behind us.” These losses will continue through 2025. However, 2026 is the expected year for the Interactive arm to contribute positively. We’re excited to see what the future brings.
In the mid-term, the interactive business will continue to expand through the release of an online casino application under the Hollywood Casino name, which is due for launch in 2025. In Alberta, sports betting and online gaming are set to be launched next year. Snowden believes that the market will be very strong due to the popularity of Score Bet in Canada.
Gaming Surcharge: “I hesitate before I say Never”
It remains to be determined whether a gaming fee will improve earnings. DraftKings plans to charge a winning wagerer in a high-tax state if they win a bet has angered both bettors as well as analysts. Rush Street Interactive has been the only operator so far to refuse to follow DraftKings’ lead.
Snowden didn’t suggest Penn planned a surcharge similar to this. He did not rule out the possibility.
He said, “We think it’s very interesting.” It was unexpected. In the next quarters, we have many things to do. “It’s just not on our radar. I’m hesitant to say that it’s never going to happen. We’re focused on improving the product, driving loyalty, and retaining customers.”
Operators will monitor DraftKings business and the impact of the January rollout.
