When ESPN Bet hit the legal and regulated US online sports betting market in November 2023, it created a tremendous buzz. The entrance of the world sports leader into the online sports betting realm could prove to be a game changer, thought industry insiders.
Less than two years later, everyone is rethinking that belief. Including, it would appear, Penn Entertainment, which partners with ESPN in ESPN Bet. There is strong speculation that both sides might even be thinking about pulling the plug on ESPN Bet.
Speaking to investors during a recent fourth quarter earnings call, Penn Entertainment CEO Jay Snowden acknowledged to shareholders that ESPN Bet is not hitting anticipated benchmarks.
At the outset, there were projections that ESPN Bet could grab anywhere from 12-20% of the US online sports betting market. Instead, the site is garnering an average of around 3% in the 19 states in which an ESPN sportsbook operates. That number ranks ESPN Bet sixth among US and NJ sportsbook operators. ESPN Bet has online sports betting sites in both New Jersey and New York.
Hedge fund HG Vora Capital Management, a significant stakeholder in Penn Entertainment, was harshly critical of the company in a recent filing with the SEC.
“PENN’s Board has overseen a misguided Interactive strategy that has resulted in the reckless spending of nearly $4 billion,” Parag Vora, portfolio manager and founder of HG Vora, said in the statement. “The Company’s Interactive strategy has been an abject failure due to a pattern of overpaying, overpromising, and not delivering.”
HG Vora has expressed that it would prefer for Penn Entertainment to get out of the online sports betting side of the business and instead focus the company’s energy in the more lucrative iCasino industry. Penn Entertainment operates the Hollywood Casino online franchise.
Significant Costs Incurred In Online Sports Betting
Penn Entertainment originally launched Barstool Sportsbook, but immediately found the relationship with the oft-controversial sports site to be problematic. Barstool Sportsbook proved very effective at getting new players to sign up. However, long-term retention of customers was not nearly as efficient.
In making the switch to ESPN Bet in the fall of 2023, Penn Entertainment took an $850 million loss on its deal with Barstool. The company invested another $1.5 billion to enter into partnership with ESPN on ESPN Bet.
Snowden has vowed to turn ESPN Bet’s fortunes around in 2025. His promise to investors was to grow the site’s footprint in the US online sports betting markets to 5% by year end.
His plan to make this happen includes increases in market share via an upgraded product, better integrations and improved promotional opportunities designed to ramp up customer retention.
Former theScore Bet Owner Critical Of Penn Entertainment
Interestingly, theScore Bet, Penn’s Canadian online sportsbook, is doing remarkably well in the Ontario market. In the last quarter, sports betting revenue at theScore Bet was up 16%, while iGaming increased 43%.
These numbers arrived at the same time as John Levy, who sold theScore Bet to Penn Entertainment for $2 billion in 2021, was harshly critical of the company according to a report on the website Awful Announcing.
Levy described the relationship with Barstool Sports as “a fiasco from the get go.” He believes that he’s witnessing the same dynamic unfolding with ESPN Bet.
“You just have to look at what’s happening,” Levy said of ESPN Bet during an appearance at the NEXT Summit gaming industry conference in New York. “It’s kind of like Barstool. Barstool in conception was right but then in execution fell off.
“There wasn’t a unified approach and they weren’t managed properly in my view.”
ESPN does hold an opt-out clause that it can get out of its ESPN Bet commitment with Penn Entertainment in August 2026 if specific market share objectives come up short of the goal.
