Penn Entertainment expects handle share for ESPN Bet to remain in the low single digits for NFL season despite new features and a deeper NFL relationship with ESPN.
CFO Felicia Hendrix said on Thursday’s earnings call that the company expects “modest” sports betting market share improvement to 3.4% in the third quarter and 4% in the fourth quarter, though both forecasts exclude New York.
Those expectations are despite the upcoming launch of FanCenter and two recent announcements from Disney: a direct-to-consumer ESPN product and more NFL content coming to ESPN.
Penn’s stock opened up 1.3% from Wednesday‘s close as interactive revenue hit a new record and land-based revenue in markets without new supply grew 4%.
Snowden notes ‘strategic optionality’ for ESPN Bet
CEO Jay Snowden noted that there is still “plenty of work to do” on the interactive side, noting that handle share year-to-date hasn’t met internal expectations.
This is the last season of NFL betting before the three-year anniversary of Penn’s $2 billion deal with Disney next August, when either side can opt out of the deal.
“We’re very appreciative of the hard work, strong partnership, and long hours from our friends at ESPN, particularly as we collectively prepared for the start of this football season over the last several months,” Snowden said. “We’re excited and optimistic about our new products enhancements.
“However, we, we do still maintain strategic optionality as discussed previously in the digital business.”
New interactive guidance
Penn now expects an interactive adjusted EBITDA loss of between $65 million and $45 million in the third quarter, which would be an improvement of around $36 million at the midpoint, Hendrix said.
The fourth quarter should inflect positive with adjusted EBITDA at $5 million at the midpoint, she added.
Online casino gross revenue share is expected to be 3% in the third quarter and 3.2% in the fourth quarter.
Penn expects a $10 million drag on EBITDA from the launch of Missouri sports betting on Dec. 1.
Solid online casino results from standalone app
The standalone Hollywood Casino app has shown its strength in a number of areas since it launched late last year.
Online casino players in Pennsylvania and Michigan are increasing their spending across both retail and online channels. Retail theoretical play is up 19% in Pennsylvania and 28% in Michigan while online theoretical play is up 133% and 242%, respectively, according to Snowden.
More than 70% of revenue since the launch of the standalone app is from retail customers or reactivated users. Improved cross-selling from online sports betting has also driven “material growth” in online casino handle, revenue and market share, Snowden added.
The standalone app seems to be targeting slots players while the integrated casino within ESPN Bet is slanted more toward table games, which follows the trends of mainly casino players vs. mainly sports bettors.
ESPN Bet improvements
Online sports betting has seen “strong and consistent” year-over-year growth in first-time bettors since the spring, Snowden said.
July saw first-time bettors grow 50% with first-time depositors more than doubling.
Part of the issue is eliminating friction between the ESPN app and ESPN Bet, Snowden said. Penn remains focused on getting more customers into the top of the funnel and then retaining those customers that give them a shot, he added.
“We’re gonna be paying very close attention to every day, every week as we move forward,” Snowden said. “We’ve gotta be able to keep the folks that come in and test us or try us out for the first time or come in on a reactivated basis.”
New directors giving input
While he couldn’t get into specifics, Snowden noted new directors Johnny Hartnett and Carlos Ruisanchez have been “as engaged as you would expect them to be.”
The two directors were nominated by shareholder HG Vora, which is suing Penn because its third suggested director was put forward for a board seat.
There could be ongoing legal expenses related to that case in the second half, Hendrix noted, but they should be “significantly below” the $17.1 million spend on legal and advisory costs in the first half.
HG Vora was most recently in the news in relation to Maverick Gaming filing for bankruptcy. The investment firm helped fund Maverick’s expansions in Colorado and Washington and has pushed for significant changes in Penn.
