In a critical development, significant shareholder Donerail has issued a direct appeal to the board of directors and board chair David Handler at Penn Entertainment. The hedge fund has implored the company to consider selling off assets to generate “meaningful and certain” value creation for its investors, as concerns continue to mount over Penn’s financial strategies.
Donerail’s letter asserts that Penn’s casino assets alone are valued at more than double the company’s current market capitalization. The hedge fund highlighted how the investment community has severely criticized Penn for its capital allocation approach, with Penn’s shares having plummeted over 80% in the past three years.
“The growing pattern of guidance misses, alongside a demonstrated unyielding appetite to continue to invest in the company’s fledgling interactive projects, irrespective of past results and without a clear return framework, has significantly damaged the credibility of this management team and board of directors,” Donerail remarked.
With other companies looking to grow through mergers and acquisitions, Donerail expressed that Penn should consider selling its assets. They have immense confidence that Penn’s 43 gaming properties spread across 20 states are highly valuable and remain intact with a robust foundation.
This recommendation comes on the heels of Penn’s divestiture of Barstool Sports in 2023, selling the sportsbook back to its founder Dave Portnoy for merely $1, following regulatory pushback. Portnoy himself admitted that Barstool was not a good fit with the gambling industry, citing concerns over his reputation. “We underestimated just how tough it is for myself and Barstool to operate in a regulated world,” Portnoy commented, as reported by ProFootballTalk. “Every time we did something, it was one step forward, two steps back. We got denied [gambling] licenses because of me. So the regulated industry, probably not the best place for Barstool Sports and the type of content we make. It’s back to the pirate ship.”
Donerail’s critique extends beyond Penn’s investment choices to its ability to execute its interactive strategy. The hedge fund stated that the implied value of Penn’s estimated $4 billion investment into the interactive sector was meaningfully negative. This division, which includes ESPN Bet, saw its revenue fall by 11.1% to $207.7 million in Q1, attributed to unfavorable outcomes in major sporting events. Overall, the company’s revenue dropped 3.
.8% to $1.61 billion in the first quarter.
“While we understand that ESPN Bet appears as the company’s newest bright and shiny object that may very well have significant value under the right owners, we ask that the board take a moment to reflect objectively on the past four years of execution, assess the shareholder capital that has been destroyed, and recognize that shareholders may simply be tired of continued gambling on uncertain outcomes,” Donerail insisted.
The hedge fund also questioned whether the loss of management credibility is something that can be repaired. They are advocating for an “immediate strategic shift” to prevent further decline in Penn’s equity price and shareholder returns.
Criticism is also directed toward Jay Snowden, who was appointed as Penn’s CEO in January 2020. Donerail pointed out his failed online gaming investments, such as Barstool Sports, and highlighted the significant compensation he received—$99.3 million between 2020 and 2023. In 2022, when Penn’s stock dropped by over 40%, Snowden received more than $14 million. Other major investors like BlackRock and Vanguard have previously voted against Penn’s executive compensation policies.
“Perhaps most concerning, Mr. Snowden appears to have little confidence in his own strategy or ability to lead Penn to success, given the fact that he has consistently sold stock and is, in fact, responsible for the most stock sales by any Penn executive since being named CEO,” Donerail stated. “Since he was named CEO, Mr. Snowden has sold more than 750,000 shares, for proceeds of approximately $45 million, with several of his sales coming on the heels of the company’s deals and his own seemingly optimistic comments.”
Despite these struggles, a recent report from Truist Securities indicated that Penn could continue operating normally even if ESPN Bet were to fail. The analysts noted that Penn’s interactive division comprises multiple businesses beyond just ESPN Bet, and that it would still hold value for Penn in the event of a collapse.
“What we think the market is missing is that Penn Interactive is comprised of multiple businesses beyond just ESPN Bet,” Truist analysts wrote. “In the event that ESPN Bet falls through, then we think interactive would still have value for Penn.”
As the saga unfolds, all eyes are on Penn Entertainment’s next move and whether the board will heed Donerail’s urgent calls for a strategic overhaul to restore shareholder confidence and stave off further declines in share prices.
