Truist Securities recently enhanced its stance on Penn National Gaming from Hold to Buy, providing a bright outlook for the company’s future. In August of the past year, Penn National Gaming announced a significant relocation of its betting operations through the projected launch of ESPN Bet, pivoting from its former Barstool Sportsbook. This ambitious $1.5 billion partnership with the media colossus, ESPN, led to a more cautious Hold rating from Truist, hinging on the timelines for its implementation.
However, the course of events has proven to be favorable for Penn. The sale of Barstool Sports back to its founder, Dave Portnoy, for a symbolic $1 and the subsequent rollout of ESPN Bet across seventeen states in November 2023, has unfolded without a hitch. Mike Morrison, ESPN’s Vice President of Sports Betting, reported a “very smooth” launch. Despite this success, Truist’s equity research suggests that Penn National’s digital division, Penn Interactive, would remain robust regardless of the potential outcomes for ESPN Bet.
The report highlights that Penn Interactive’s business is not solely dependent on the new sportsbook platform. The diversity of operations under Penn Interactive provides a safety net, and consequently, intrinsic value to the company should ESPN Bet not meet expectations. “In the event that ESPN Bet falls through, then we think Interactive would still have value for Penn,” the report clarifies.
Even with this cautious tone, Truist acknowledged the potential success of ESPN Bet, admitting that, although in its infancy, the venture is in an opportune position for capital growth. The affiliation with the ESPN brand, renowned for its strong market presence, could establish Penn National as a prominent competitor in the online sportsbook industry.
The report emphasized the advantages Penn Interactive derives from online licenses connected to its land-based presence and its igaming omni-channel capabilities. However, Truist expressed reservations about the $2 billion acquisition of theScore, Penn’s Canadian gaming arm, which it deems may not have equaled its price tag. Nonetheless, benefits projected from the increasing legalization of igaming on a state-by-state basis could reinforce Penn’s multi-channel strategy in the coming years.
Furthermore, Truist highlighted the hidden value in offerings such as Hollywood iGaming and theScore Ontario, coupled with fees generated from providing licenses to other operators (referred to as skin fees). These factors contribute to Truist’s optimistic $23 price target per share, even considering a scenario where ESPN Bet theoretically contributes no value.
While sentiments in the market for ESPN Bet may skew towards the bearish side, Truist suggests that this undervalues the other potentially profitable ventures within Penn Interactive’s portfolio. The firm’s 2024 Interactive Gaming Survey intimates that ESPN Bet has the capacity to contend with leading US sports betting entities such as DraftKings and FanDuel.
From the survey, it is apparent that a strong potential customer base could emerge from ESPN’s regular audience interested in integrated betting services, with more than half of these expressing likely preference towards ESPN Bet as their chosen betting platform. This suggests that ESPN Bet could significantly boost Penn National’s market share, provided the execution process remains seamless.
Complementing ESPN Bet’s inherent credibility, which is anchored in ESPN’s established trust with its audience, is the recent appointment of Aaron LaBerge, formerly of Disney, as Penn National’s new CTO. This strategic move further enhances the media investment narrative and investor confidence.
Truist analysts believe LaBerge’s deep involvement with ESPN Bet will seamlessly translate to his new role and energize investor interest. In sum, the report affirms: “His arrival could give Penn’s ESPN Bet and total Interactive story more credibility to investors.” This sets the stage for a potentially thriving chapter in Penn National Gaming’s evolution, backed by the weight of an ESPN partnership and a well-founded digital infrastructure with diverse income streams.
