Penn Entertainment (PENN) and Disney’s (DIS) ESPN announced last week that they are ending their U.S. sports betting partnership and shutting down the ESPN Bet sportsbook. Both parties mutually agreed to terminate the 10-year, $2 billion deal after less than two years due to disappointing online sports betting market share.
ESPN will replace Penn by appointing DraftKings (DKNG) as its official sportsbook and odds provider, with a multi-year exclusive integration across all ESPN platforms set to begin on December 1. DraftKings (DKNG) sportsbook, fantasy products, and Pick6 games will be directly accessible via ESPN’s digital channels, with a wider rollout planned into 2026.
Meanwhile, Penn will rebrand its sportsbook operations as theScore Bet and write down an estimated loss of $825 million following the failed ESPN Bet venture. Penn (PENN) currently operate theScore Bet brand in Ontario, and its online sports betting product across both the U.S. and Canada will now leverage connectivity with the theScore media app, which has approximately 4 million monthly active users across North America. “Our OSB offerings will continue to provide a top of funnel cross-sell opportunity for our Hollywood-branded iCasino, which will remain integrated into our OSB product offering in states where legal, in addition to serving as a standalone iCasino app,” highlighted CEO Jay Snowden. Looking ahead, the company aims to refocus on its core digital and retail casino businesses.
Weighing in on the development, Morgan Stanley analyst Stephen Grambling said the firm expects a fairly positive response to the development as the major ESPN Bet partnership overhang has been eliminated. “While the softer Regional results will be a greater concern post print, we think the PENN/ESPN Bet situation has been a major drag on the stock,” updated Grambling. He noted that ESPN Bet has cumulatively burnt about $1.1 billion in EBITDA since inception without a positive EBITDA quarter.
CBRE Equity Research analyst John Decree upgraded Penn Entertainment (PENN) following the ESPN BET announcement. Decree said although there remains some uncertainty in the company’s interactive segment, he sees less risk going forward with the elimination of $150 million in fixed marketing expenses related to ESPN. He observed that unlike the previous Barstool to ESPN BET migration that required users to re-register and re-deposit, the upcoming rebranding should be relatively seamless on the same technology platform with the same user experience. “We see the potential for upside from better-than-expected customer retention and even some incremental success as PENN leans into its theScore brand and other customer acquisition channels,” he highlighted.
Needham is more cautious on Penn (PENN). Analyst Bernie McTernan said there is risk of a potential negative flywheel with the company cutting back on marketing and other costs when competition is heating up from traditional OSBs and prediction markets. “We have questions on the cost structure of the business and revenue retention/growth, giving us less confidence in this high floor strategy until we learn more and have greater disclosure, creating a less favorable risk reward in our view,” he wrote.
On Seeking Alpha, Howard Jay Klein said PENN (PENN) may still be a Buy despite the sports betting failure. “Roll the dice with my bet that the GGR or brick and mortar casinos will turn around in two years, offering great results for the patient investor,” he advised.
Shares of PENN (PENN) jumped 8.8% in Monday trading.