Disney’s ESPN is making a foray into the world of sports betting with the launch of a betting sportsbook, signaling a deeper engagement in the wagering realm for its sports entertainment division.
Penn Entertainment, a prominent U.S. gambling company, has announced a collaborative effort with ESPN to rebrand and reintroduce its sportsbook as ESPN Bet. This marks the first instance of ESPN’s brand being associated with a sports betting platform.
Taking over Penn’s existing Barstool Sportsbook, ESPN Bet will emerge as the exclusive betting operation under the ESPN umbrella. The platform is set to debut in the upcoming fall within the 16 states where sports betting has been legalized.
ESPN had been actively seeking a strategic partner within the sports betting industry. Last autumn, former CEO Bob Chapek emphasized that while ESPN wouldn’t directly facilitate bets, it was interested in forming a partnership with a gambling enterprise.
The partnership not only provides ESPN with an additional revenue stream, which is especially valuable given the challenges posed by cord-cutting in the traditional TV sector, but it also allows Disney to strengthen its financial position as it grapples with losses from its streaming segment. Furthermore, Disney’s intention to acquire Comcast’s stake in Hulu in the near future adds more incentive for this arrangement.
Recently, Disney CEO Bob Iger hinted at the possibility of finding a strategic partner and potentially divesting its cable-TV networks, which aligns with the company’s evolving business strategy.
Under the terms of the agreement announced on Tuesday, Penn secures exclusive rights to the ESPN Bet trademark in the United States for a 10-year duration, extendable for an additional 10 years through mutual consent.
In return, Penn will pay ESPN a total of $1.5 billion in cash over the course of a decade. The deal also entails approximately $500 million worth of warrants, permitting ESPN to purchase around 31.8 million common shares of Penn that will vest over the same period.
Additionally, ESPN will have the option to appoint a non-voting board observer to Penn’s board or, after a three-year period, nominate a board member, subject to regulatory approvals and a minimum ownership threshold.
As part of this agreement, Penn is divesting its shares in Barstool to its founder, David Portnoy. Penn attained full ownership of Barstool in February following its $388 million acquisition.
Moreover, Penn stands to gain 50% of the gross proceeds that Portnoy might receive from any future sale or monetization of Barstool, as outlined in this new agreement.
In response to this announcement, Penn’s stock experienced an approximate 20% increase in after-hours trading on Tuesday, while Disney observed a modest increase. Both companies are scheduled to release their earnings reports on the following day.
According to a statement released by Penn on Tuesday, this partnership is projected to contribute between $500 million and $1 billion in annual adjusted earnings potential within Penn’s interactive division over the long term.
Earlier in the year, Penn reported a profitable sports betting business in the final three months of the fiscal year, a notable feat during a period when U.S. sports gambling companies typically struggle due to elevated marketing expenses and promotions during the football season. The success was attributed, in part, to Penn’s effective marketing approach and leveraging cross-platform promotion from Barstool.
