Don’t Carry All Your Casino Eggs in the Brick-and-Mortar Basket

Penn Entertainment, until recently known as Penn National Gaming, has announced it will exercise its call rights and acquire a full 100 percent stake in Dave Portnoy-founded digital media outlet Barstool Sports. The initial deal was signed just a couple of months before the pandemic hit the world and since then has proven to be an astonishingly successful bet on an omnichannel presence and online marketing strategy for the Pennsylvania-based gaming giant.

In January 2020, Penn acquired 36 percent of the shares in Barstool for $163 million in a cash and stock transaction bringing the valuation of Portnoy’s creation to $450 million. According to the deal, Penn would purchase an additional 14 percent stake for $62 million within three years and would then have the option to buy the remaining 50 percent based on a new valuation.

“PENN Entertainment, Inc. (“PENN” or the “Company”) has call rights with respect to all of the outstanding shares of common stock of Barstool Sports, Inc. (“Barstool”) not already owned by PENN. PENN has exercised these call rights to bring its ownership of Barstool to 100%. The acquisition of the remaining Barstool shares is expected to be completed in February 2023, after which Barstool will be a wholly-owned subsidiary of PENN,” the company informed the Securities and Exchange Commission (SEK) via an 8-K filing in August.

The price of the remaining 50 percent of Barstool Sports has been determined at $325 million, setting the whole acquisition consideration at $550 million and testifying for the growing worth of the media channel.

According to a statement by Penn president and chief executive Jay Snowden from last year, Barstool’s organic reach in social media had expanded during the Covid-19 pandemic after the 36-percent acquisition to reach a 26-million followership on TikTok and 52 million on Instagram.

Entering Online Space

Gaming giant Penn Entertainment, valued at $5.67 billion, operates 44 brick-and-mortar casino, horse racing or sports betting establishments throughout the US and Canada. In September 2020, Penn ventured into online casino and sportsbook space through a Barstool-branded mobile app.

In the month of its launch in Pennsylvania, the app registered 72,000 customers and generated a total turnover of $300 million. Now, residents of 8 states, including Illinois, Colorado, Virginia, Tennessee, Arizona, Iowa, Indiana, and Louisiana, can bet on sports, and users from 4 states – Pennsylvania, Michigan, New Jersey, and West Virginia, can play roulette online among other casino games besides sports wagering on the app.

The Barstool Sportsbook app offers betting markets in 20 sports including baseball, basketball, football, box, hockey and golf. Users also get the opportunity to interact with Barstool personalities.

“Our investment in Barstool Sports provides us with a fully integrated media platform to support our evolution from the nation’s largest regional gaming operator to the best-in-class omnichannel provider of retail and online gaming and sports entertainment,” Snowden said.

The Barstool deal not only gave Penn the chance to go omnichannel using a well established digital brand during the pandemic times when brick-and-mortar gaming properties suffered temporary closures and travel limitations, but the company also acquired a powerful marketing tool.

While other large operators such as FanDuel and DraftKings spend enormous chunks of cash on advertising, Penn is now able to count on the massive organic reach provided by Barstool Sports and save many millions with virtually no ads budget.

Dave Portnoy’s role after the 100 percent acquisition is still unclear, but last year he said that he was “trying to build the most forward-thinking sports gambling company” by converging sports media and gambling on sports.

One year ago, Penn acquired Toronto-based Score Media and Gaming with its TheScore online betting app in a $2 billion deal involving cash and stock options. Penn will use TheScore to target the Canadian mobile sports betting market, while the Barstool-branded app will focus on the US.

The last years have seen more and more brick-and-mortar gambling operators venture into online space through acquired brands or using their own name like MGM International and its BetMGM platform, with the pandemic only speeding up the trend. The omnichannel approach to gambling and betting offerings where online and offline collaborate has proven to be the way to the future of gaming.