HG Vora made the move it has been working toward, nominating three directors to take seats on the board of ESPN Bet parent company Penn Entertainment.
The investor pulled no punches in its statement filed Wednesday evening with the SEC. Penn has launched two sports betting brands, replacing Barstool Sportsbook with ESPN Bet in 2023, with little to show for it.
“PENN’s Board has overseen a misguided Interactive strategy that has resulted in the reckless spending of nearly $4 billion — greater than the Company’s entire market capitalization — on overpriced, poorly negotiated M&A transactions and media partnerships that have resulted in large ongoing operating losses due to an inability to execute,” said Parag Vora, portfolio manager and founder of HG Vora. “The Company’s Interactive strategy has been an abject failure due to a pattern of overpaying, overpromising, and not delivering.”
PENN opened Thursday at $20.90, up slightly from Wednesday’s close.
ESPN Bet parent to review nominees
Penn confirmed receiving HG Vora’s proposal later Wednesday evening.
“The PENN Board and management team are committed to creating long-term value for all shareholders and will continue to take actions to achieve that objective. We regularly solicit feedback and engage with the investment community about our strategy, performance and business priorities,” the letter said.
“The Board’s Nominating and Corporate Governance Committee will carefully review HG Vora’s proposed director nominees, in line with PENN’s normal evaluation procedures, and present its formal recommendation regarding the election of directors in the Company’s proxy materials, which will be filed with the U.S. Securities and Exchange Commission ahead of the 2025 Annual Meeting.”
The Wall Street Journal reported at the end of 2023 that HG Vora was interested in taking seats on Penn’s board. HG Vora decreased its ownership stake earlier in January to below 5%, which is typically the point at which regulators require a stakeholder be investigated and licensed.
Vets nominated for ESPN Bet parent
HG Vora proposed three men with extensive gaming backgrounds as new directors of Penn.
Bill Clifford previously served as the CFO at Penn until 2013 when he took over as CFO of the gaming REIT Gaming & Leisure Properties through 2018: “During his more than 12 years as Chief Financial Officer of Penn National Gaming, Mr. Clifford was instrumental in the company’s exponential growth which drove an approximately 20x return for shareholders,” the letter said.
Johnny Hartnett is the former CEO of Superbet Group and now serves as a non-executive director with the brand. Before Superbet, Hartnett worked in multiple positions with Flutter over 20 years.
Carlos Ruisanchez was the CFO of Pinnacle Entertainment for five years before its sale in 2018 to Penn. He drove a “nearly 5x total return for shareholders” in the role.
Shareholder return a key argument
HG Vora leaned into the significant underperformance of Penn’s stock compared to its peers.
“HG Vora believes there is significant unrealized value in PENN’s regional casino portfolio and collection of Interactive assets,” the letter said. “However, PENN’s Board has numerous deficiencies which have translated directly into abysmal returns for shareholders.
“Over the past four years, PENN’s shares have declined -81%, dramatically underperforming the S&P 500 Index and its closest peer, Boyd Gaming, which have returned +69% and +73%, respectively, over the same period.”
ESPN Bet has struggled to gain ground in the US sports betting market. Penn reported that its average bet size was increasing while the brand attracted more casual bettors during its third quarter report in November.
No repercussions for ‘bad judgment’
HG Vora partly blamed the company’s “weak corporate governance” for the path Penn has taken.
“To date, there have been no repercussions for the Board’s persistent bad judgment and disappointing shareholder returns,” the letter said. “We believe this is in part due to PENN’s weak corporate governance, which disenfranchises shareholders and entrenches board members while rewarding its CEO with excessive compensation.
“It should be clear to all stakeholders that change is urgently needed to address these failings and help PENN achieve its full potential. To that end, this is the first time in our firm’s 15-year history that HG Vora has decided nominating directors is necessary.
“We believe these three highly qualified, independent director nominees bring proven track records of enhancing shareholder value and the skills and industry expertise to help maximize value for all PENN shareholders.”