PENN Entertainment is in a “hurry up and wait” situation with its interactive segment as the Barstool Sportsbook tech change is set for July.
The company expects to launch its own proprietary tech stack across all of its live states during the MLB All-Star break, which is in mid-July. The time is ideal with few sports happening at the time to minimize disruption, PENN CEO Jay Snowden said on the company’s fourth-quarter earnings call Thursday.
The new platform for its Barstool Sportsbook and online casino will open up more opportunities for growth in the US and should lead to the company’s first profitable year for its interactive segment.
PENN’s shares dipped around 4% in pre-market trading and was down around 4.4% as of 1:30 pm Eastern following the earnings release.
Barstool Sportsbook US share ‘fallen a bit behind’
Because PENN has paid third-party costs to Kambi for its platform while the company works toward the tech transition, the US product has fallen off a bit compared to Ontario, Snowden said.
“We have not been able to throw the resources at [the US products] to innovate and iterate and really focus on enhancement. So we’ve fallen a bit behind and I think our market share in sports betting this fall and this winter here in the US has softened up a little bit. And we really haven’t been as focused on driving acquisition knowing that our product isn’t as competitive currently here in the US as it was compared to everyone else a year ago.
So we made the conscious decision that we’re OK with that, we want to focus on retention here in the US, we want to focus on acquisition and retention in Ontario, but we’re very pleased with the progress that we’re seeing across all metrics in Ontario that’s going to allow us to really lean-in once we convert over and migrate to our own platform.”
Ontario seeing ‘really nice trends’
There have been promising trends around Ontario sports betting and online casino, where theScore Bet was transitioned onto proprietary tech last summer. That led to an 85% increase in three-month customer retention and a 19% improvement in cross-sell to online casino.
PENN closed its $2 billion acquisition of Score Media in October 2021.
The province is now the top market for both online sports betting and online casino, Snowden said, and that is despite about a 50% increase in number of operators.
“We’ve seen really nice trends in Ontario that we believe we can duplicate here in the US second half of the year,” Snowden said.
Marketing spend to increase on Barstool
Snowden expects the company to get louder from a marketing standpoint for Barstool Sportsbook in the US heading into football season, which should lead to negative EBITDA for the third quarter. That is a shift in strategy for Barstool, which initially touted its low-cost model for customer acquisition because of its built-in media database.
The first two quarters should be around break even, he said, with the profit coming in the fourth quarter.
Overall, PENN expects a $100 million EBITDA swing for interactive. The company reported negative EBITDA of $74.9 million last year, so expect positive EBITDA around $25 million for full year 2023.
Ohio best online launch for Barstool
Ohio was the company’s best online sports betting launch for PENN, Executive VP of Operations Todd George said.
The launch ranked best in first-time depositors and saw more than half of its online handle from the company’s mychoice database. Executives did not reference how that database crosses with Barstool’s consumer list.
One of PENN’s four properties hit an all-time daily high for volume on a Saturday last month. Snowden attributed a “good portion” of that volume to the addition of retail sports betting and younger customers coming in.
Snowden said the company feels really good about revenue and market share in Ohio sports betting so far and expects similar results when online Massachusetts sportsbooks go live before March Madness.
More Barstool Sportsbook US stats
The interactive segment reported positive EBITDA of $5.2 million in the fourth quarter on $208 million in revenue. That includes a $10 million hit from Mattress Mack‘s winning bet on the Houston Astros.
Ryan Sighdal of Craig Hallum congratulated the team on the positive interactive turn and said he expects PENN to be the only company to report that for the fourth quarter.
Interactive’s impact is felt throughout the company, with 18.5% of average daily theoretical win coming from the 21-34 and 35-44 age demographics, according to the company’s investor presentation. Compare that to:
- 17.8% in 2021
- 15.9% in 2020
- 12.6% in 2019
That is why PENN will spend $100 million this year to upgrade hotel rooms and add more Barstool Sportsbooks, CFO Felicia Hendrix said. There are 31 retail sportsbooks in 14 states that have an 18% market share, excluding Nevada.
Completing Barstool acquisition Feb. 17
PENN will buy the remaining 64% of Barstool Sports the company does not own for approximately $388 million on Feb. 17, Hendrix said.
That includes $320 million in cash.
The company will have more to share about the Barstool Sports purchase on its first-quarter call, Snowden said.
