The sleeping giant of global sports finally entered the US sports betting space Tuesday as ESPN announced plans to launch ESPN BET in partnership with PENN Entertainment.
The entrance of ESPN BET also brings the exit of Barstool Sportsbook. In concert with its announcement of the ESPN sports betting deal, PENN announced a full sale of Barstool Sports back to founder Dave Portnoy.
PENN will pay ESPN $1.5 billion over the term of a 10-year contract. ESPN also receives warrants to purchase up to 31.8 million shares of PENN stock valued at $500 million, with potential performance incentives unlocking another 6.4 million common shares in the future.
PENN will discuss its Q2 earnings Wednesday morning.
ESPN BET app a long time coming
ESPN took an exceptionally slow approach into starting its own sports betting app over the past five years. The Disney-owned company currently maintains a partnership with Caesars Sportsbook for branding and marketing, but Caesars remained the headline name.
ESPN and Disney executives repeatedly discussed a desire to enter the US sports betting space in earnings calls and investor presentations. Its inaction, though, led some to wonder if ESPN waited too long while DraftKings and FanDuel gobbled up market share.
In fact, ESPN President Jimmy Pitaro said as recently as November 2022 that no ESPN sportsbook deal was imminent.
That inaction changes today, in a massive way. All Barstool Sportsbook online properties will rebrand to ESPN BET this fall.
No DraftKings, ESPN deal after all
An October report from Bloomberg indicated ESPN found its sports betting dance partner. However, it identified DraftKings as the sportsbook, which ultimately proved false.
At the time, a DraftKings spokesperson responded to LSR with a statement:
“We have a great, long standing relationship with ESPN. However, we speak to a variety of companies on a regular basis and don’t comment on the specifics of those conversations.”
The companies previously partnered during the heyday of daily fantasy sports before the fall of PASPA in 2018.
Barstool bye bye
The ESPN BET deal closes the unsuccessful chapter of PENN’s investment in Barstool Sports. PENN and Barstool reached an exclusive sports betting and iGaming deal in 2020. The overall transaction finally closed in 2023, with PENN ultimately sinking $550 million into the Barstool purchase.
PENN’s return on that investment proved minimal. LSR estimates Barstool Sportsbook claimed between 3-3.5% of share in markets it served. That number sinks to between 1-1.5% on the national level.
PENN also purchased theScore Bet for $1.5 billion in 2021. The gaming operator subsequently shuttered the brand in the US and migrated users to Barstool. PENN also recently touted plans to move Barstool onto new proprietary technology, which it developed from theScore’s bones years after abandoning its initial efforts.
That makes ESPN’s choice to launch its first-ever US sports betting product on unseen technology a surprising risk after its deliberate search for a partner.
“After meeting with Jay (Snowden) and the PENN team, it was clear that they were the right long-term strategic partner to build ESPN Bet into a leading U.S. sports betting platform,” Pitaro said in a release.
Portnoy signs off as ESPN BET signs on
Portnoy now controls Barstool again, although PENN retains rights to up to 50% of the proceeds of any future sale of Barstool assets. The Barstool founder posted a video to Twitter shortly after the announcement, extolling the company’s ability to again make its controversial content unfettered by PENN.
“We underestimated just how tough it is for myself and Barstool to operate in a regulated world,” Portnoy said.
He continued, “The regulated industry [is] probably not the best place for Barstool Sports and the type of content we make.”
Snowden changes his tune on Portnoy
PENN CEO Jay Snowden consistently defended Portnoy and Barstool through multiple controversies, including fines by state regulators in Ohio and Massachusetts.
Snowden waved off concerns over the Barstool relationship as recently as May:
“I think the public markets and the financial communities have gotten to know Barstool pretty well over the last three-plus years and there’s going to be some drama sometimes. There’s going to be some things that pop up here and there, and we’ll manage through those as we always have.”
On Tuesday, Snowden’s quote in PENN’s release struck a different tone that acknowledged the incompatible relationship.
“Barstool has been a great partner and we are thankful to Dave Portnoy, Erika Ayers, Dan Katz and their team for helping to rapidly scale our digital footprint across 16 jurisdictions in the U.S. and introducing their audience to our retail and digital products. The divestiture allows Barstool to return to its roots of providing unique and authentic content to its loyal audience without the restrictions associated with a publicly traded, licensed gaming company.”