Penn Management Not Rattled by Investor Demand for Sale

Posted on: June 6, 2024, 06:03h. 

Last updated on: June 7, 2024, 09:13h.

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

It’s been nearly a week since Penn Entertainment (NASDAQ: PENN) investor the Donerail Group sent a scathing letter to the gaming company’s board of directors urging it to consider a sale following a series of costly missteps in the online sports betting industry. Penn management doesn’t appear moved by the missive.

ESPN Bet
The ESPN and Penn Entertainment logos. Analysts say Penn is staying the course with ESPN Bet and doesn’t appear moved by a recent investor letter calling for a sale. (Image: Barrett Sports Media)

In recent meetings with sell-side analysts, Penn executives appeared willing to stay the course with ESPN Bet, which makes sense because the operator launched that mobile sports betting application last November. Donerail criticized the capital expenditures the regional casino operator has directed toward sports betting, including the $1.5 billion Penn is paying ESPN over 10 years for use of that brand, plus another $500 million in equity warrants.

Management was understandably limited in how they could address the letter during the meetings, though our sense based on historical commentary is PENN remains committed to proving out the ESPN Bet thesis at minimum through 2024/25 football season when they expect betting product to be closer to parity with more enhanced ESPN integrations,” wrote Stifel analyst Steven Wiecyzinski in a note.

The analyst, who rates Penn “hold” with a $19 price target, said the Donerail letter facilitated a short squeeze on the stock, but it probably isn’t enough to bring new investors into the shares at this point.

Penn Focusing on Bolstering ESPN Bet

Much of Donerail’s criticism of Penn, and that of other investors for that matter, boils down to the point that company’s widely publicized forays and missteps into online gaming have overshadowed the operator’s attractive portfolio of land-based regional casinos.

In other words, many investors now view Penn as a digital gaming play when in reality, the company is the largest regional casino operator, and land-based venues drive a substantial portion of its earnings and revenue. Recent data indicate that ESPN Bet ranks fifth in terms of market share in most of the states in which it operates.

The gaming company “continues to be focused on top-of-funnel acquisition from the ESPN database and reiterated its laser focus on ESPN BET product improvements and ESPN ecosystem integrations ahead of the football season, which management believes will ultimately grow its wallet share,” noted JPMorgan analyst Joseph Greff in a report.

Greff recently met with Penn CEO Jay Snowden, CFO Felicia Hendrix, and Treasurer Mike Nieves, saying their commentary on the Donerail letter, which included ample criticism of Snowden’s compensation, was “limited.”

Some Optimism on ESPN Bet

Penn executives aren’t in the business of talking down any of their units, including ESPN Bet. Rather, they appear somewhat optimistic that with the online betting segment being operational for the entirety of the 2024 football season, some market share gains are possible.

Additionally, management is bullish on the addition of former Walt Disney (NYSE: DIS) executive Aaron LaBerge as chief technology officer (CTO).

LaBerge “will likely bring an experienced team with him and sees increased integrations with ESPN properties improving the user experience and increasing engagement,” concluded Greff.