Penn Earnings: Stock Tumbles On Larger Than Expected ESPN Bet Loss

Written By

Updated on


The ESPN Bet app made a much bigger splash than anyone, even the executives at Penn Entertainment, expected.

Penn CEO Jay Snowden spun the Nov. 14 launch of ESPN Bet as a positive, saying bettors out of promotional funds from the beginning of the NFL season would be incentivized to try the app. He was right: ESPN Bet saw more than 1 million first-time depositors in a month and a half, which is more than they expected in the first year.

That led to an interactive adjusted EBITDA loss of $333.8 million for the fourth quarter, a stark difference from the $100 million to $150 million in losses Penn guided to in its third-quarter call. Also hurting EBITDA were customer friendly sports betting results mentioned by other operators, as Snowden said those first two weeks in November were two of the NFL weeks with the lowest hold of the season.

Those losses, announced Thursday in its fourth quarter earnings release, dragged the entire company to an adjusted EBITDA loss of $39.6 million for the fourth quarter.

Penn stock nears 52-week low

The overall adjusted EBITDA loss upset the market with PENN falling around 10% in premarket trading. The stock eventually closed at $19.39, down 13.84% from Wednesday‘s close on more than four times its average volume of 5.1 million.

The stock dipped as low as $18.89. Penn’s 52-week closing low of $18.41 came Oct. 27 in the lead-up to the company’s third quarter earnings.

More losses coming

Snowden expects the first quarter of 2024 to have the biggest adjusted EBITDA loss of the year. The Q1 loss should come in at around half of Q4 2023’s loss, or ~$165 million.

The same-store loss for 2024 should be around $330 million, but since New York and North Carolina are coming online that total loss will be closer to $400 million, he said. Penn bought Wynn‘s New York sports betting license for $25 million on Tuesday.

Snowden said Penn will not be the highest in terms of promotions this year, but does not anticipate being the lowest, either. The brand also needs time to improve its parlay mix, which Snowden said is “below market” with Penn around a 7% to 8% theoretical hold that should gradually grow to double digits.

The interactive segment should break even in 2025, with the first meaningful adjusted EBITDA results coming in 2026.

Can ESPN Bet keep customers?

Now that Penn has multitudes more customers than expected to start 2024, the company has an even bigger obligation to show it can retain those bettors. The influx of customers grew Penn’s interactive database by more than 50%.

While the $200 in bonus bets is much smaller than the more than $3,000 Caesars made available when mobile NY sports betting went live, the story is similar.

Investors will be even less happy over the next few quarters if Penn simply rented these bettors, only for them to return to their sportsbook of choice once their bonus bets run dry. That proved to be the case with many Caesars customers.

So far, cash handle was up 289% at the end of January compared to October, when the sportsbook was still Barstool-branded but was not being promoted. Promo expense as a percentage of handle was just 2.8% in January compared to 32.2% in November and 10.7% in December.

ESPN Bet on the leadership hunt

Those interactive losses are amplified by the fact that its head of interactive, Benjie Levy, is leaving the company with the rest of his family in April. The Levys joined Penn after the $2 billion acquisition of theScore announced in August 2021.

Snowden said “several talented leaders” from an “incredibly deep bench across Penn Interactive” are ready to step up and take more responsibility in the coming months.

Penn also started a “quiet search” for a replacement in the fourth quarter so the news did not get out before they wanted. Snowden said the company is “very far along” in that process.

“I can’t comment on exactly where we are but you should rest assured that we’re very deep in the process,” he said. “We’re very close and we’re very excited on the level of talent that we are considering is incredible. And I think the market will see it that way when we announce what we’re doing but I just can’t – I can’t communicate any further on that today.”

Penn adding more female customers

One notable difference between Penn and its competitors is female-centric ads led by Elle Duncan and Erin Dolan. The campaign helped Penn see a 35% increase in the mix of female bettors in its database as of Dec. 31 compared to the prior year.

Another stat specifically called out by Penn was the increase in parlays once ESPN Bet took over, a notable statement considering Barstool’s customer base.

Parlay handle for the period of Nov. 14 through Jan. 31 jumped 360% compared to the same period in the prior year. That led to a 63% growth in parlay share of total handle.

Snowden also noted 100% uptime for the Super Bowl and “had no hiccups.”

iGaming gains on ESPN Bet launch, too

Penn’s presentation was mostly about ESPN Bet, as there was just one slide out of 18 focused on its massive retail casino business. Another single slide called out Penn’s iGaming growth since Nov. 14.

Monthly active users of the Hollywood Casino within the EPSN Bet app were up 280% in the fourth quarter compared to the prior year.

NY means better marketing returns

The addition of a big state means better returns on marketing dollars at a national level. That is one positive about New York, at state where Snowden previously lamented that no one would make money because of its 51% tax rate and zero promotional deductions after learning Penn’s bid with Fanatics lost.

Once New York and North Carolina come online, there will be a 20% reduction in per capita spend, Penn noted in its presentation. That means the $150 million in annual marketing spend by PENN stretches farther.

Online North Carolina sportsbooks launch March 11. Penn expects to launch in New York before the start of the NFL betting season.