Penn Entertainment’s third quarter earnings call confirmed the positive momentum of ESPN Bet that it first discussed during its investor presentation last month.
The interactive division posted an adjusted EBITDA loss of $90.9 million, an improvement from the previously guided midpoint of a $125 million loss, the company reported Thursday. Penn noted that the improvements at ESPN Bet came from a higher parlay mix and lower promotional spending than expected at the investor meeting it held during G2E in Las Vegas.
Penn’s stock reacted positively to the report, which included an update from CEO Jay Snowden that noted the company’s core business trends were “stable” through October.
PENN was up around 4% at 2:30 p.m. Eastern with volume slightly above its daily average.
ESPN Bet takes October hit
One bad thing about a higher parlay mix is when those heavily bet favorites win, Snowden said. That hit operators hard in October and continued into the first weekend of November, he added.
That led CFO Felicia Hendrix to reiterate the loss of $485 million at the midpoint of annual EBITDA guidance. That would put the fourth quarter around a loss of $95 million as the loss through nine months is $389.7 million.
If hold percentage can improve, that might be a conservative guide, Snowden said.
Penn reported an adjusted EBITDA loss of $402.5 million for 2023 after the fourth quarter of 2023 led to a $333.8 million loss after ESPN Bet launched mid-November.
Average bet size on the rise
Improved NFL betting options and casual bettors helped drive parlay mix in September, Snowden said.
Penn saw parlay handle account for 28.3% of total handle in September, up 5.8 percentage points from the same month last year when the app was mid-transition and still branded as Barstool Sportsbook. That helped raise September’s hold to 9.4% from 5.3% previously.
Casual customers typically bet less than rated players in a casino database, but there has been steady growth from Week 2 through Week 9 of the NFL season, Snowden said. ESPN bet has a “really large base” of those mass market customers, he added.
“ESPN Bet certainly draws in a more casual mass market base,” Snowden said. “We think that’s great for the long term; higher propensity to bet on parlays and player props is terrific. Maybe a lower average wager, but we are seeing that average wager continue to grow from where we were even just a few weeks ago.”
Growth expected to continue through Q1
Snowden is bullish on that bet size ticking up through the end of the first quarter and into the NCAA college basketball finals.
“We would expect to see [average wager size] continue to grow throughout football season as we head out into March Madness as well,” Snowden said. “It’s a big focus for us right now. We think retention, we’re in a really good place, but continuing to improve monetization will be key for us.”
Customer retention tends to be stronger with customers that came through the ESPN database, he added. Penn did not give specifics but said “definitely most” customers came through the ESPN ecosystem.
ESPN Bet launched account linking with a customer’s ESPN media account last week.
Details on NY ESPN Bet launch
Part of the reason Penn performed better than expected was its “disciplined” approach to its New York launch.
Despite that, the state is still outperforming the average daily handle and deposit size from existing states.
From launch on Sept. 27 through Oct. 31, the average daily handle per New York sports bettor is 228% more than customers in its other states. Average deposits are 87% larger.
Penn expects multiple MO licenses
One question related to the recently legalized Missouri sports betting market is how many licenses casino operators will get for online sportsbooks.
The Missouri Gaming Commission, which will license and regulate the industry, reads the language as each individual casino will get an online sports betting license. That is different from the previous understanding that operators, not casinos, would get the license.
That means Penn would get three licenses instead of one on the regulator’s read.
“We think we’re pretty well positioned,” Snowden said. “The tax rate is attractive. I think the structure was attractive. … We’re still clarifying that with the regulators, but that’s our understanding as we sit here today.”
Casino breaking free from ESPN Bet
Penn will no longer have to explain how to access its online casino once the standalone Hollywood Casino app launches in the first quarter.
Snowden called the current process of having to download ESPN Bet to play slot machines “messy,” so the standalone app means that friction point disappears.
Casino currently sees good cross-selling from sports betting, though that tends to lead to more table play than slots, he added. Penn had discussions at G2E concerning unique slot products.
The app will first launch in the Pennsylvania online casino market before expanding into Michigan, New Jersey, Ontario and West Virginia, pending regulatory approvals.
