In a strategic shift, Penn Entertainment has decided to end its partnership with ESPN Bet, less than three years into their ambitious collaboration. This decision marks the closure of a high-profile but underachieving venture, which cost Penn $150 million annually while only capturing a modest 3% of the US sports betting market.
The termination of the partnership between ESPN and Penn was mutually agreed upon and announced during Penn’s third-quarter financial report. Initially, the deal was a decade-long commitment, set to run until 2033. However, both companies were given the option to reassess their collaboration after three years if the market share targets, set between 10% and 20%, were not met. As it turns out, the partnership did not yield the expected results, prompting both parties to amicably part ways earlier than planned.
Jay Snowden, President and CEO of Penn Entertainment, recognized the substantial efforts made in improving the product offering and creating a cohesive ecosystem with ESPN. However, he noted, the challenging market dynamics required a realignment of their digital strategy. “We have mutually agreed to wind down our collaboration while focusing on our iCasino business, capitalizing on our omnichannel advantage as a leading regional retail casino operator,” Snowden explained.
Moving forward, Penn plans to revive theScore Bet in the United States. The relaunch is targeted for December 1st, aligning with the anticipated opening of sports betting in Missouri. Snowden emphasized the potential of theScore Bet to “leverage connectivity with theScore media app,” which boasts 4 million monthly users across North America. This strategic move is significant, given Penn’s acquisition of theScore in 2021 for $2 billion, followed by a temporary withdrawal from the US market in 2022 to concentrate on Canada.
Previously, Penn had attempted to break into the sportsbook arena through a costly partnership with Barstool Sports. That venture also ended due to underwhelming performance, leading to a pivot towards ESPN. The cycle of high expectations followed by disappointing market performance raises questions about the effectiveness of media partnerships in securing desired market shares in the highly competitive sports betting industry.
As part of the termination agreement with ESPN, Penn will incur a $38.1 million payment to ESPN, owned by Disney, in the fourth quarter. Additionally, Penn will allocate $5 million for marketing theScore Bet and Hollywood Casino. It is required to cease using the ESPN brand by December 15th. ESPN, on its part, is restricted from licensing the ESPN Bet brand for 15 months following December 1st.
ESPN Chairman Jimmy Pitaro remarked on the unique collaboration with Penn, highlighting that ESPN drove over 2.9 million new users to the Penn ecosystem and significantly increased first-time bettors. However, the decision to part ways reflects both companies’ desire to explore other media and marketing opportunities in the sports betting domain.
Despite the end of the ESPN Bet venture, Penn retains the 2.9 million users gained during the partnership. ESPN, meanwhile, holds vested warrants to acquire nearly 8 million Penn shares at a strike price of $28.95. Both companies have agreed to continue cooperating on marketing and media fronts, with ESPN pursuing a new marketing agreement with DraftKings.
Penn’s strategic realignment involves a concentrated focus on its iCasino operations, leveraging theScore as a funnel to its Hollywood Casino iCasino app. The company intends to optimize its marketing approach by transitioning from fixed media spending to performance-based and regionally targeted strategies. This shift aims to enhance unit economics and profitability through targeted investment in North American markets with strong growth potential.
In the third quarter, Penn’s land-based operations remained stable, generating $1.4 billion in revenue. However, the online segment underperformed with revenues of $297.7 million and an adjusted EBITDA loss of $76.6 million, attributed to lower-than-expected sports betting volumes and “customer-friendly” betting holds. Nevertheless, Snowden expressed confidence in the iCasino segment, which demonstrated a 40% year-over-year increase in quarterly revenue, driven by rising monthly active users (MAUs).
The decision to end the ESPN Bet partnership marks the second time Penn has concluded a media collaboration due to subpar results in the sports betting sector. The earlier partnership with Barstool Sports also fell short of transforming media followers into a substantial sports betting market share, leading to its dissolution.
Meanwhile, ESPN swiftly transitioned to a new partnership with DraftKings. This agreement designates DraftKings as the official sportsbook and odds provider for ESPN, commencing December 1st. Pitaro underscored ESPN’s commitment to delivering an integrated betting experience to its audience and expressed optimism about the collaboration with DraftKings, a recognized leader in the sports betting arena.
The partnership will see DraftKings products integrated into the ESPN ecosystem, including features such as sportsbook access and daily fantasy sports. DraftKings CEO Jason Robins emphasized the synergy between ESPN’s extensive sports visibility and DraftKings’ innovative digital sports entertainment offerings. The collaboration aims to provide an engaging and responsible fan experience, enhancing how enthusiasts connect with live sports.
As ESPN Bet transitions to a sports betting content brand, it will feature DraftKings Sportsbook integrations, including the ESPN Bet Live sports betting show, as part of its new direction. This move underscores the dynamic and rapidly evolving landscape of sports betting partnerships, as companies seek to align with the most advantageous platforms and strategies to capture market share in the competitive US market.
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