Penn Entertainment should have one of the more interesting earnings reports this quarter as management balances pressure from investors with ramping up ESPN Bet ahead of its first full NFL betting season.
Penn will report its second quarter results at 7 a.m. ET on Aug. 8, followed by its earnings call at 9 a.m. ET.
Investors are still waiting for the business turnaround hoped for when Penn swapped out Barstool for ESPN Bet last summer. At least some are tired of waiting, evidenced by the stock’s near 20% jump following a letter from a key shareholder questioning company strategy and leadership. Others believe the upcoming football season has the potential to help the app hit key milestones.
All eyes on ESPN Bet
Online gaming revenue was down significantly in Q1, both from Wall Street estimates and Penn’s prior guidance. The app’s lackluster financials have grown to overshadow Penn’s retail business, though CEO Jay Snowden urged investors to take stock in his long-term plan.
Product changes scheduled for ESPN Bet ahead of football season include integration with ESPN’s slew of media assets, a standalone iGaming app, and expanded same-game parlay offerings.
The eventuality of those changes was a chief selling point in committing up to $2 billion to ESPN over the next 10 years. Snowden announced the plan during the company’s last earnings call.
How have layoffs affected ESPN Bet roadmap?
Since then, Penn laid off as many as 100 employees, including a portion of its workforce tasked with those product changes. Snowden, meanwhile, maintains ESPN Bet “is well-positioned.”
Former ESPN Chief Technology Officer Aaron LaBerge took over the interactive division in July, shortly before the layoffs. In a recent LinkedIn post, he touts some improvements made to theScore. Expect him or Snowden to provide more insight on the work he is doing to refine the product.
ESPN Bet’s growth also suffered in the massive drop of promotions between when it launched in 18 states at once and now. Users were down 11% last quarter, but promotions could be on the rise again, as football season approaches and ESPN Bet prepares to launch in New York.
How is ESPN Bet holding up?
ESPN Bet would have performed much better last quarter had bettors not been as successful, according to Snowden. The particularly unfavorable quarter of sports outcomes was felt by the entire industry; however, Penn’s 4.4% hold was among the worst.
However, handle was up nearly twice as much from Q1 2023.
Through April, ESPN Bet was holding at 8.5%, a level Penn guided investors to expect for the rest of Q2. Penn’s ability to continue taking more bets in typically slow Q2 could be a determining factor in the company’s online gaming revenue story, along with hold.
Early handle reports have not been so encouraging. According to Citizens JMP Securities, ESPN Bet was sixth in second-quarter handle share at 3.2%, down from 4.7% in the first quarter, though that was without key states like Arizona, Illinois and Ohio reporting June figures.
Addressing the elephant in the room
Management will undoubtedly face questions about the letter from Donerail Group prompted in part by its poor sports betting results.
Boyd‘s appointment of a director with a history of financing and advisory roles fueled speculation about the Penn rival as a potential buyer. A subsequent report from TheDeal.com suggests that FanDuel parent Flutter could potentially acquire the bones of Penn’s betting apps if a sale were to occur.
Snowden has been silent on the letter, and Disney provided little insight into its partnership with Penn. Investors will undoubtedly be interested in what would happen to ESPN Bet if Penn sells, as it could have significant ramifications across the entire industry.
