Six months ago, Barstool Sports working with any gambling company not named Penn Entertainment seemed possible only in an alternate universe.
After all, the land-based casino and online gaming giant had just completed its $551 million acquisition of Barstool. Its sports betting and gaming app donned the Barstool name across 15 states.
But according to a Sportico report, DraftKings is in advanced talks for a multi-year sports betting marketing partnership with Barstool, which would take effect roughly six months after Penn sold the brand back to founder Dave Portnoy for $1. The deal is rumored to be in the low-eight-figure per year range, likely several millions of dollars less than DraftKings’ deal with Meadowlark Media.
Penn and DraftKings both declined to comment on this story.
Stock market reacts to Barstool, DraftKings report
DKNG shares saw a 4% bump shortly after the report Wednesday, trading 75% over its daily average volume, before returning to $38.57, a fractional increase on the day.
PENN, by comparison, took a 3.7% hit on the day, settling at $23.47, with about 18% less volume than average.
“It’s another channel for DraftKings to find players through a marketing partnership and keep Barstool at arms-length. At the same time, it’s a headline risk for Penn, because now DraftKings appears to be going after that database,” said Jordan Bender, a senior equity research analyst at Citizens JMP Securities. “I don’t think it’s too impactful for DraftKings, but it could turn out to be a minor negative for Penn in terms of the stock reaction or if it helps DraftKings convert more legacy Barstool players.”
Does this put Penn’s work with Barstool at risk?
Per CEO Jay Snowden, ESPN and Penn’s mission is to reach a double-digit share of the online sports betting market, a marked increase from the 4% Penn accounted for under the Barstool brand. Of states to report so far, ESPN Bet accounted for 8.4% of betting handle in the markets it serves during December, 5.4% of which was inflated by promotions but good for third–most behind FanDuel (37%) and DraftKings (35%), according to LSR data.
“I think the stock market’s thought process was, okay, just when we’re getting up to 8% handle share, now you have potentially another competitor,” said Chad Beynon, head of US research at Macquarie Capital. “Peak Penn Barstool was around 4% and a lot of that share converted over because if you logged into Barstool, you were taken to ESPN. What percentage of that 8% came for the Barstool database? If it’s 10% or 20%, this deal could hurt ESPN’s goal of getting double digits.”
Stock analysts with Stifel echoed similar concerns for ESPN Bet in a note Wednesday, calling the current acquisition period ‘crucial’ for Penn:
“A portion of ESPN BET users are likely transitioned ‘Stoolies’. While difficult to quantify precisely, we note PENN held ~2-4% OSB handle share in live states with immaterial marketing/promo spend heading into ESPN Bet launch. We also note the expiration of Barstool’s lock-up period and potential marketing partnership with a competitor comes at a time when proving out ESPN Bet user retention is critical.”
Analysts: short-term noncompete underscores Barstool leverage
As part of Bartsool’s severance from Penn, initial reports indicated a noncompete clause would prevent Portnoy’s brand from partnering with another gaming brand like DraftKings. According to Sportico, that moratorium is believed to expire after the Super Bowl on February 11.
“I was a little surprised to hear that. Most non-competes I’ve heard of are a year at least,” Beynon said.
The reported partnership will involve Barstool promoting DraftKings odds and referring users to the sportsbook in exchange for compensation, in line with traditional affiliate marketing.
“I’d have to believe that Barstool had the leverage at the negotiating table. Penn couldn’t turn this brand around and sell it to someone else; it’s controversial and hasn’t integrated well into another media asset,” Bender said. “Penn gave it back to them for a dollar and Barstool could command what it wanted at that point, given that Penn’s a publicly traded company, wasn’t performing well and the turnaround for the ESPN deal was probably pretty quick.
“If there’s not much value for Penn to sell it and Barstool says no, we’re not buying it back, Barstool can sit at the table and say you have to let us get back into sports betting.”
Low risk for DraftKings
When ESPN Bet was born, it meant DraftKings and Caesars would soon lose their marketing deals with the Worldwide Leader in Sports. Analysts see a potential partnership with Barstool as a way for DraftKings to recapture some of that lost marketing and branding at a fraction of the cost.
“There’s still value in Barstool’s user base. I think it can be sold better than how Penn did it. We’ve learned the product really matters to the success of customer acquisition tools,” Beynon said. “DraftKings is around $1 billion in sales and marketing and with its profit outlook in 2024 and 2026, that line needs to stay close to where it is. If they did do some agreement with Barstool at this low a price, it’s worth it.”
Stifel analysts called it a “strategic decision with family low financial risk,” as the regulatory and licensing concerns that Penn dealt with owning Barstool would be absent under an affiliate marketing agreement.
“A lot of DraftKings customers were already sold from ESPN and you could make the case that many legacy Barstool customers were already sold in,” Bender said. “Are you cross-selling any long-term players that bring value to the enterprise? At a low eight-figure price tag, it could be a lucrative investment to mine into that database of the legacy Barstool audience and see what happens.”