Penn Entertainment Inc. had high hopes for Barstool Sports when it bought the online media company in two deals totaling hundreds of millions of dollars.
(Bloomberg) — Penn Entertainment Inc. had high hopes for Barstool Sports when it bought the online media company in two deals totaling hundreds of millions of dollars.
Now, the regional casino operator is selling the business back to its controversial founder Dave Portnoy for just $1. Penn said Wednesday it will record a loss of up to $850 million on the transaction.
The unraveling of the Barstool relationship underscored the challenges a regulated casino company faced in partnering with a figure like Portnoy. In its place, Penn found a new, less problematic partner to tackle sports betting. On Tuesday, the company announced a $1.5 billion 10-year deal to use Walt Disney Co.’s ESPN brand for a new online betting app.
“It just became obvious to both parties that there’s probably long term only one natural owner of Barstool Sports, and that’s Dave Portnoy,” Penn Chief Executive Officer Jay Snowden said on a conference call with investors Wednesday. “Being part of a publicly held, highly regulated, licensed gaming company, it became clear that we were an unnatural owner.”
Penn’s relationship with Barstool began with an investment in early 2020. Snowden bet that the brand would help attract a younger audience. But the Barstool Sportsbook struggled to compete in an industry dominated by FanDuel and DraftKings Inc. In the second quarter of this year, it had a 2% share of the US online sports betting market, according to SVB MoffettNathanson.
Barstool Sportsbook failed to take off, in part, because gamblers preferred other apps with better technology, said Chris Grove, a partner emeritus at the research firm Eilers & Krejcik Gaming LLC. Penn lacked a large existing base of fantasy sports players, which Grove said has been “a massive advantage” for rivals. Although Barstool Sports has a loyal group of followers, known as “Stoolies,” its reach pales in comparison to ESPN.
Barstool created headaches for Penn in the gambling industry. Snowden urged investors to be patient after articles on the website Insider detailed sexual misconduct claims against Portnoy. Portnoy denied the allegations and said any sexual relations were consensual. But the accusations led some state regulators to review Penn’s business.
While seeking a sports betting license in Massachusetts, Penn executives faced tough questions from state regulators. During a hearing, one commissioner expressed concerns over Barstool’s “character and reputation and honesty.” The state eventually approved Penn’s betting license, with conditions.
In 2021, Indiana regulators fined Barstool $10,000 after an employee posted a video discussing gambling losses. Earlier this year, Barstool agreed to pay a $250,000 fine after Ohio regulators found it broke rules on advertising near a college campus and targeting customers under 21. In May, Penn’s stock price fell 14% after a Barstool employee was fired for saying a racial slur.
In a video posted Tuesday, Portnoy said Barstool and Penn “underestimated just how tough it is for myself and Barstool to operate in a regulated world.” Portnoy suggested Penn had been denied gambling licenses because of him.
Portnoy founded Barstool two decades ago as a newspaper in Boston. He wrote the articles, delivered the newspaper to commuters and put images of women in bikinis on the cover. Over the years, it has branched out into podcasts and online video.
But ultimately it wasn’t much of a business, reflecting the challenges other online media companies like Vox Media Inc. and BuzzFeed Inc. have faced. Barstool lost $16.1 million on sales of $80.9 million over the first six months of 2023, Penn said in a filing.
Penn and Barstool’s divorce raises more questions about the merging of betting and media. Last month, Fox Corp. said it’s closing Fox Bet, a partnership with Flutter Entertainment Plc. Last year, MaximBet, a collaboration between a gaming company and the men’s magazine known for its scantily-clad models, shut down. A sports betting app that uses the Sports Illustrated brand name has failed to capture a large share of the US market.
And now Penn must get back to work with an entirely new partner. On the Wednesday conference call, Snowden said that in addition to the roughly $150 million a year Penn is paying ESPN, the company will spend an equal amount with other media outlets. More costs will come as the company offers free bets to customers in new markets to introduce the brand.
“We certainly can’t wait to roll up our sleeves and get started with our partners at ESPN starting today,” he said.
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