Penn Earnings Preview: Is ESPN Bet Gaining Share Without Promos?

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Thursday‘s Penn Entertainment earnings call will be the first time the company can break down a full quarter of data from ESPN Bet.

While much will be said about those results following the 9 am call, ESPN Bet is far from what its final and competitive product should be, which executives intend to include a competitive parlay offering and integration with the main ESPN app.

Still, CEO Jay Snowden mentioned “pretty compelling” data for ESPN Bet early on and ESPN Chairman Jimmy Pitaro said he is “very pleased with what we saw for the first few months,” which makes it sound like there could be some promising numbers to report.

Whether the market is happy or not with ESPN Bet’s growth so far will likely be seen in the stock price. The stock closed Tuesday at $17.43, which is down nearly 36% since Penn presented the details for the partnership Aug. 9.

How heavily did ESPN Bet promo?

It is never simple to separate the noise of promotions when a brand first launches. ESPN Bet was no different with Penn posting negative adjusted EBITDA of $333.8 million in the fourth quarter for the 45 days the brand was live.

That was significantly higher than the $100 million to $150 million loss Penn guided to during its third quarter call. Snowden said the first quarter will have the most significant adjusted EBITDA loss of the year, which should be around $165 million.

Coming in significantly higher on costs again could lead to another selloff as Penn’s stock fell 13.8% on its fourth-quarter earnings announcement. Barry Jonas of Truist, who recently upgraded Penn to buy with a $23 target, said ESPN Bet ranks fourth in terms of cash handle share at 8%:

How is iGaming cross-sell?

Snowden mentioned last month at a JP Morgan forum that cross-selling from sports betting to iGaming can be tough without its own standalone app.

It could be a bit until Hollywood Casino is a standalone app, with Snowden saying it will be available in the next 12 months.

That sounds like missing much, if not all, of 2024 NFL betting is likely. If that is the case, an update on just how that cross-sell message is being received by sports bettors would be ideal.

Snowden said there is no better way to build an online casino business than a robust sports betting database, so a yearlong delay in true cross-selling could be bad for EBITDA.

What does new Interactive head bring?

Penn recently hired Aaron LaBerge as its chief technology officer to replace Benjie Levy as the head of the interactive segment.

LaBerge is more than familiar with ESPN Bet. He joins Penn on July 1 from Walt Disney Company where he served in the same position.

Ideally, Penn can parse out some details about what specifically LaBerge can bring to the team given his experience with ESPN on the other side of the partnership. Otherwise, Penn could be pressed by analysts as to why the company went with LaBerge over someone with gaming experience.

Focus on ESPN Bet again?

ESPN Bet may be the newest and shiniest product for Penn, but it is far from the most important part of its business.

Penn reported $1.5 billion in adjusted EBITDAR for 2023, and stripping interactive’s more than $400 million in losses out bumps that total to $1.9 billion. Yet just one page of its 18-page presentation focused on the company’s successful land-based regional casino business.

Just how confident Penn is in its Q1 results for the sportsbook could dictate how much the retail casino business is discussed.