ESPN BET Launches Today: Key Facts & Figures of the History Making Deal

Penn Entertainment and ESPN Partnership

The deal between Penn Entertainment and ESPN has led to the rebranding of the Barstool Sportsbook to ESPN BET, involving a substantial financial commitment of $1.5 billion over ten years and an additional $500 million in warrants. This announcement was met with immediate market response, as evidenced by a 10% surge in Penn Entertainment’s stock.

The U.S. sports betting market is currently dominated by giants like FanDuel and DraftKings, who together hold a commanding 73% share. These companies have invested heavily and amassed millions of users over the years. Adding to the competitive landscape is Michael Rubin’s Fanatics, which is emerging as a strong competitor.

Penn’s Investment in Barstool Sports

Penn’s foray into sports betting began with a $163 million investment in 2020 for a 36% stake in Barstool Sports, at a time when the company was generating about $100 million in annual revenue. This move was followed by an additional investment of $388 million to acquire the remaining 64% stake, fully integrating Barstool into Penn’s portfolio.

The acquisition of Barstool Sports proved to be a lucrative decision for Penn, as it led to a doubling of Barstool’s revenue to $200 million. This growth was mirrored in Penn’s stock, which increased by 1,500% from its 2020 low. Furthermore, Barstool’s impressive reach, with 200 million social media followers and a production of 100 shows, highlights its strong audience engagement.

Customer Acquisition Costs

In the sports betting market, customer acquisition is notably expensive. This is exemplified by DraftKings’ average expenditure of $371 per customer, underscoring the strategic value of acquiring customers through media leverage, a tactic that could potentially lower these costs.

Despite initial success, the partnership between Penn and Barstool faced challenges, culminating in Penn selling Barstool back to its founder for a mere $1, while recording a substantial loss of $633 million. The partnership struggled to carve out a significant market share, never exceeding 5% in any of the 17 states they operated in.

ESPN’s Reach and Potential

ESPN’s vast reach, with 117 million unique monthly website visitors, 72.5 million linear reach, 26 million ESPN+ subscribers, and over 150 million social media followers, positions ESPN BET for a potentially significant impact in the sports betting market. The initial launch will cover 17 states, leveraging Penn’s existing licenses.

Despite these impressive numbers, there are concerns about the effectiveness of the ESPN-Penn partnership in capturing a significant market share, especially considering the current market dominance of FanDuel and DraftKings and Penn’s previous struggles with Barstool.

Financial Impact on ESPN

The licensing deal with Penn, valued at $2 billion, is expected to bolster ESPN’s revenue by approximately $150 million per year. However, this increment is relatively modest in the context of ESPN’s annual revenue of $16 billion. In the current U.S. online gambling market, DraftKings leads with a 31% share, closely followed by FanDuel at 30%. Other notable players include BetMGM with 16%, Caesars at 6%, and BetRivers holding 5%.

Penn Entertainment and ESPN Partnership

• Deal Overview: Penn Entertainment has rebranded the Barstool Sportsbook to ESPN BET in a monumental deal. This agreement involves a $1.5 billion payment to ESPN over ten years and an additional $500 million in warrants.
• Stock Impact: Following this announcement, Penn Entertainment’s stock saw an immediate 10% increase.

Market Competition

• Current Leaders: The U.S. sports betting market is currently dominated by FanDuel and DraftKings, holding a combined market share of 73%. These companies have significantly invested in this domain, securing millions of users over the years.
• Emerging Players: Michael Rubin’s Fanatics is also making its presence known as a strong contender in the market.

Penn’s Investment in Barstool Sports

• Initial Investment: In 2020, Penn invested $163 million for a 36% stake in Barstool Sports, which was then making about $100 million in annual revenue.
• Further Investment: Penn later completed the acquisition by paying an additional $388 million for the remaining 64% stake.

Performance of Barstool Sports

• Revenue Growth: After the acquisition, Barstool Sports doubled its revenue to $200 million.
• Stock Performance: Post-acquisition, Penn’s stock soared by 1,500% from its 2020 low.
• Audience Engagement: Barstool boasts an impressive 200 million social media followers and produces 100 shows.

Customer Acquisition Costs

• Market Trend: Acquiring customers in the sports betting market is costly, with DraftKings spending an average of $371 per customer.
• Significance: This underscores the importance of media leverage in reducing customer acquisition costs.

The Downfall of Penn-Barstool Partnership

• Sale Details: Penn eventually sold Barstool back to its founder for a nominal $1, incurring a $633 million loss.
• Market Share Struggles: The partnership struggled to gain significant market share, peaking at only 5% in any of the 17 states where they were operational.

ESPN’s Reach and Potential

• Wide Reach: ESPN reaches 117 million unique monthly website visitors and has 72.5 million linear reach, 26 million ESPN+ subscribers, and over 150 million social media followers.
• Launch Scope: ESPN BET is launching in 17 states, capitalizing on Penn’s existing licenses.

The Challenge Ahead

• Market Competition: The effectiveness of the ESPN-Penn partnership faces skepticism, especially considering the current market dominance of FanDuel and DraftKings and Penn’s past challenges with Barstool.

Financial Impact on ESPN

• Revenue Boost: The $2 billion licensing deal with Penn is expected to add approximately $150 million per year to ESPN’s revenue.
• Context: This increase is relatively modest compared to ESPN’s annual revenue of $16 billion.

U.S. Online Gambling Market Shares

Long-Term Outlook

• Market Share Goal: There is skepticism about Penn achieving a 20% U.S. sports betting market share by 2027, considering the competitive market and their past challenges.

Conclusion

As ESPN BET enters the competitive arena of U.S. sports betting, it brings a combination of robust media presence and strategic partnerships. However, the journey ahead is filled with challenges from established market leaders and the nuances of customer acquisition in a rapidly evolving market. The success of this venture remains to be seen, but its impact on the sports betting landscape is unquestionable.