Analysis: Has Barstool Sportsbook Already Hit A Ceiling?

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Barstool Sportsbook

Barstool Sportsbook has always been pitched as a contender for a podium position in US sports betting.

In February, Penn National CEO Jay Snowden told analysts:

“You should assume we are going to be top three. We said that before we ever launched and we’re delivering on that. We’re going to be profitable faster than anyone else, and we’re delivering on that.”

The latest state figures suggest Barstool actually might not be delivering on that just yet.

Now, in full disclosure: trying to tease out true insight from monthly reports is tricky. Revenue and handle can be quite variable from month to month. 

But there are some interesting trends to pick out, starting with the PA sports betting market.

Barstool Sportsbook has steady share in PA

The February state report marked the fifth full month of the Barstool Sportsbook in the first market where it launched.

In those months, online handle share essentially hovered in a low-teens range:

Barstool Sportsbook PA online handle share

Bonusing rising in kind

But at the same time, the company significantly ramped up the amount of bonuses it dishes out:

In December, for example, promotional credits equalled 1.1% of handle. By February that was up to 8.8%.

In other words, the company’s market share is flat despite a massive increase in bonusing.

As Loop Capital analyst Daniel Adam said in a recent note:

The surge we saw in Penn’s promotional spend last month to win a few points of share in PA seems to contradict the company’s messaging. Clearly, ‘just relying on the Barstool Media partnership’ is not enough for PENN to ‘generate meaningful market share.’”

A similar story in Michigan sports betting?

Over in Michigan, Barstool share of handle slipped from 23.9% in the first ten days of the market to 13.3% in February. That’s despite a broadly similar level of bonusing on a per-day basis.

So what’s going on?

One answer is the Dave Portnoy effect. The Barstool Sportsbook cast of characters were in Pennsylvania for the launch of the app there. More recently, they were Michigan for the opening of that market. 

With Portnoy alone betting $50,000 a pop at his own shop, it is not unreasonable to think the Barstool squad could have a material effect on handle.

Of course, they recently were in Illinois betting March Madness so expect Barstool’s debut in the Land of Lincoln to be pretty strong. But the April data from Illinois will likely offer the more pertinent information.

Underdelivering then?

Based on PA and MI then, a reasonable expectation for the Barstool Sportsbook seems to be fourth in the US betting market with a low-teens share behind FanDuel, DraftKings, and BetMGM.

That is not quite the podium position that Snowden promised, and it is taking an uptick in bonusing to hold even that level. That means the pledge of “unmatched profitability” might also be in jeopardy.

As a result, Penn’s massive stock run-up over the last year looks a little harder to justify.

Detached from fundamentals

Following Penn’s earnings call in February, Deutsche Bank analyst Carlo Santarelli estimated the betting/igaming part of the business was being valued by the market at $12.5 to $14.2 billion.

He calculated that by subtracting the value of the retail business – easier to project and value –  from the overall market cap.

And Santarelli was far from impressed with that valuation.

He wrote: “We continue to believe the Penn stonk is completely detached from fundamentals and trades primarily on momentum, social media hype, and a long term story that we doubt ever materializes.”

Back to reality for Penn

Of course, Santorelli is a well-known Penn bear, and his notes show just how tiring that has been over the past year. Here he is after the last earnings call:

“What is there to actually analyze in a market/stock where apparently nothing is discounted and valuation is a combination of yesterday’s closing price plus today’s news or memes.”

But the market might have changed its tune. At the time of writing, Penn stock is down some 25% from its recent high.

There are plenty of factors at play of course. But the market may also be noticing that Barstool Sportsbook is not yet living up to its hype.