In a recent development that has stirred the waters in the iGaming sector, Will Wyatt of the Donerail Group has publicly questioned Penn Entertainment’s acquisition of Canadian sports media and betting company Score Media and Gaming (theScore). The 2021 acquisition, valued at approximately $2.1 billion USD, aimed to enhance Penn’s digital media and gaming strategy. However, Wyatt argues that the deal has not yielded the expected financial returns and has called into question the motivations behind such a significant investment.
Penn’s leadership had projected a substantial increase in adjusted EBITDA following the acquisition, but this has not materialized. Instead, Wyatt suggests that the primary driver for the acquisition was to advance Penn’s technical capabilities rather than significantly boost revenue. Furthermore, he highlights that the integration of theScore has not been successful, with the leadership team acquired during the deal having since departed from Penn.
With Q1 2024 results for Penn’s Interactive division (including theScore Bet and ESPN Bet) displaying an 11.1% decrease in revenue, further scrutiny is being brought upon the acquisition. The CEO of Penn Entertainment, Jay Snowden, remains optimistic about the performance of theScore, mentioning that it’s performing well within Ontario. He also mentions plans to integrate theScore Bet’s functionalities into its legacy sports media app, which might extend to ESPN Bet in the U.S.
Wyatt’s letter calls for Penn to consider selling its assets, arguing that the company’s leadership has lost credibility. He notes that Penn’s stock has plummeted by over 80% in the past three years. The investor’s critique is not limited to theScore acquisition; he also points to the $2.7 million CAD ESPN Bet venture, which recorded an adjusted EBITDA loss of $196 million USD in Q1 2024.
In light of these challenges, Wyatt urges Penn’s Board of Directors to reassess its strategies and recognize the substantial shareholder capital that has been lost. Following Wyatt’s letter, Penn’s shares saw a 15% increase, indicating potential market interest in a change of direction. Wyatt suggests that a potential sale of Penn could value the company at up to $6.9 billion USD, compared to its current enterprise value of $4.1 billion USD.
This public scrutiny highlights the ongoing challenges and strategic missteps in the iGaming sector, particularly in the competitive online sports betting landscape. As Penn navigates these turbulent waters, stakeholders will be closely watching for any strategic pivots or leadership changes that could impact the company’s future.
