Posted on: February 28, 2023, 02:42h.
Last updated on: February 28, 2023, 02:42h.
It hasn’t even been two weeks since Penn Entertainment (NASDAQ: PENN) completed its acquisition of Barstool Sports, but rumors surfaced the casino operator could eventually part with David Portnoy’s media entity if the economics of such a deal are compelling.
Earlier this month, the regional casino giant purchased the 64% of the sports media property it didn’t previously own for $364 million, about three years after it paid $163 million in cash and stock to purchase a 36% interest in Portnoy’s firm. That’s a total purchase price of $527 million, which is believed to be a substantial discount to Barstool’s fair market value.
They’ll have paid roughly $525 million in total consideration for an asset that most analysts seem to think is worth anywhere from $800 million to $1 billion,” Lloyd Danzig, managing partner, Sharp Alpha Advisors, said in an interview with John Wall Street.
Since purchasing its initial stake in Barstool Sports in 2020, Penn has applied that brand to its online and retail sportsbooks, attempting to leverage “stoolies” affinity for Portnoy and other Barstool personalities into sports wagering success.
While Barstool Sportsbook notched a modest fourth-quarter profit, its overall market share is a scant 2.65%, according to John Wall Street, putting the operator well behind rivals such as FanDuel, DraftKings and BetMGM, among others. That trend was on display in January in Ohio — the first full month of online sports betting in that state. Barstool captured just 2.6% of revenue share in a state in which Penn operates regional casinos. That compares to a combined 77% for FanDuel and DraftKings, neither of which have land-based footprints in the state.
Barstool Valuation Gap
While it’s unlikely that Penn will part ways with Barstool Sports over the near- or even medium-term, it’s not out of the realm of possibility that the gaming company considers such a move if the value of Barstool media continues far outpacing that of the sportsbook operation.
Said another way, Penn isn’t in the media business and if that portion of Barstool gains value while its sportsbook market share languishes, the casino operator could divest the sports media property and license its name.
“If a big enough gap opens up between the value of Barstool the media brand and Barstool the betting brand, PENN could find themselves in a spot where selling Barstool and licensing back the brand for betting creates the greatest value for shareholders,” Chris Grove, co-founding partner, Acies Investments, told John Wall Street.
Grove added such a transaction isn’t in the near-term offing, but Penn CEO Jay Snowden could be compelled to at least examine an offer, particularly if it’s around or above $1 billion.
Not So Fast on Penn Barstool Sale
For a company with a market value of $4.96 billion, selling a single asset for $1 billion or more could be attractive, particularly when it comes to reducing debt.
On the other hand, it’s not readily apparent whom would come calling for Barstool Sports. A dearth of buyers is possible because Barstool and Penn are seen as joined at the hip and the scenario could be further amplified if the casino operator wants to license the brand.
That might eliminate gaming companies from a future bidding process, but other media entities could kick the tires on Portnoy’s sports and pop culture property.