Cantankerous David Portnoy Not Problematic for Penn Entertainment, Says Analyst

Posted on: March 16, 2023, 02:32h. 

Last updated on: March 17, 2023, 01:19h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Barstool Sports founder David Portnoy is no stranger to controversy. Some might say he even embraces and enjoys it. Fortunately for investors, at least one analyst believes that’s not problematic for Penn Entertainment (NASDAQ: PENN).

Penn stock
Barstool Sports founder David Portnoy in one of his famed pizza reviews. An analyst says he’s not a problem for Penn Entertainment. (Image: The Verge)

Last month, the regional casino operator completed its acquisition of Barstool, paying $388 million for 64% of the sports and entertainment media outlet it didn’t previously own. That transaction occurred almost exactly three years after it paid $163 million in cash and stock to purchase a 36% interest in Portnoy’s company.

Portnoy’s association with Penn and the involvement of other well-known Barstool personalities has recently been a thorny issue for regulators in some states, including Massachusetts and New York, where Penn sought sports betting permits. At issue was the employment status of Portnoy and others who dispense sports wagering advice and are believed to place their bets through Penn-owned Barstool Sportsbook.

Management noted that Dave’s and [Dan “Big Cat” Katz’s] employment contracts are done through a loan-out company, which removes their requirements to hold a gaming license,” wrote J.P. Morgan analyst Joseph Greff.

Greff issued those remarks following a meeting with Penn CFO Felicia Hendrix at the J.P. Morgan Gaming, Lodging, Restaurant & Leisure Management Access Forum, held in Las Vegas earlier this week.

Portnoy Has Penchant for Ruffling Feathers

Portnoy has a documented history of irking people of nearly all political persuasions and walks of life.

For example, he interviewed then-President Donald Trump at the White House in July 2020. Combine that with frequent appearances on Fox News, and there was speculation his politics leaned right.

In five months last year, Portnoy praised Elon Musk’s purchase of Twitter, bashed the Supreme Court’s decision to overturn Roe v. Wade, and publicly toyed with the idea of leaving New York to establish residency in Florida, which is far more tax-friendly.

None of that includes allegations of his sexual proclivities, which landed him in hot water in the court of public opinion following a series of articles published by Insider detailing raunchy elements of some of his encounters. He later sued Insider, and, it’s important to note, he did not face criminal charges.

In their chat, Greff and Hendrix didn’t unpack the aforementioned controversies. But the Penn chief financial officer told the analyst that Portnoy and Katz are essentially consultants, and they, along with Barstool CEO Erica Nardini, have employment contracts with Penn. The trio remains investors in both Barstool and the casino operator. Portnoy’s contract expires in 2025, while the Katz and Nardini pacts expire the following year.

Penn Benefiting from Barstool Association

While there’s already speculation regarding Barstool’s future under the Penn umbrella, the more important near-term challenge for the operator is proving to investors that there are benefits to owning Portnoy’s company. It appears that’s happening on the advertising and commerce fronts.

“The former is benefiting from shows, social, personalities, and the latter is benefiting from its loyal following,” noted Greff.

The analyst forecasts that Barstool Sportsbook will ramp up marketing spending ahead of the 2023 football season to gain more market share, but won’t get carried away with those expenditures.

“This increased marketing spend will not be in the form of TV advertising, but more so through digital and social channels,” concluded Greff.