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ESPN to launch sportsbook as Penn Entertainment offloads Barstool

Barstool Sportsbook to rebrand as ESPN Bet in autumn 2023.

9 Aug 2023 Ed Dixon

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  • Penn to pay ESPN US$1.5bn over initial ten-year deal
  • US gambling operator sells Barstool back to founder Dave Portnoy

ESPN has partnered with Penn Entertainment to rebrand and relaunch the US gambling company’s sportsbook as ESPN Bet.

The revamped sports betting platform, which takes over Penn’s Barstool Sportsbook, will be rolled out this autumn in the 16 states where betting is legal and Penn has a license.

The agreement secures Penn the exclusive right to the ESPN Bet trademark in the US for an initial ten years, which may be extended for an additional decade. Penn will operate the sportsbook, which is getting extensive promotion across ESPN’s various platforms as the broadcaster’s exclusive sportsbook.

As part of the deal, Penn has agreed to pay US$1.5 billion in cash to ESPN over the initial ten-year term. The arrangement also grants ESPN approximately US$500 million of warrants to purchase about 31.8 million Penn common shares that will vest over the same period. ESPN could receive bonus warrants to purchase up to an additional approximately 6.4 million Penn common shares.

In addition, ESPN has the option to designate one non-voting board observer to Penn’s board or, after three years of the agreement, designate a board member subject to satisfying gaming regulatory approvals and a minimum ownership threshold.

“Our primary focus is always to serve sports fans and we know they want both betting content and the ability to place bets with less friction from within our products,” said Jimmy Pitaro, chairman of ESPN.

“The strategy here is simple: to give fans what they’ve been requesting and expecting from ESPN. Penn Entertainment is the perfect partner to build an unmatched user experience for sports betting with ESPN Bet.”

Jay Snowden, chief executive and president of Penn Entertainment, added: “This agreement with ESPN and collaboration on ESPN Bet allows us to take another step forward as an industry leader.

“Together, we can utilise each other’s strengths to create the type of experience that existing and new bettors will expect from both companies, and we can’t wait to get started.”

Penn has also announced it has sold Barstool Sports back to the digital media platform’s founder Dave Portnoy, having only become the sole owner of the company in February.

Barstool was valued at US$606 million when Penn bought the rest of the company it didn’t already own for approximately US$388 million, having taken an initial 36 per cent stake in 2020.

According to a securities filing cited by The Hollywood Reporter, Portnoy has acquired Barstool for just US$1.

The latest agreement also means Penn has the right to receive 50 per cent of the gross proceeds received by Portnoy in any subsequent sale or other monetisation of Barstool.

SportsPro says…

ESPN has previously teamed up with the likes of Caesars and DraftKings for betting partnerships but this marks the Disney-owned network’s biggest foray into the sportsbook space.

While Disney’s chief executive at the time Bob Chapek said last September that ESPN would not take bets itself, the broadcaster has been looking for a partner to help it enter the market. This deal also opens up another revenue stream as ESPN prepares to fully go direct-to-consumer (DTC) and the wider Disney business continues to navigate heavy streaming losses. 

According to Variety, the pact with Penn is separate from ESPN’s reported interest in bringing in minority investors.

For Penn, the deal is expected to add an estimated US$500 million to US$1 billion in annual long-term adjusted earnings potential in its interactive segment. The decision to part ways with Barstool largely appears to be down to a clash of styles in a heavily regulated industry. The platform posts popular, but often antagonising content and ESPN is a far more natural fit for Penn. 

Snowden says the divestiture allows Barstool to “return to its roots”. For Portnoy, that means “back to the pirate ship”.

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