Dave Portnoy acquires Barstool Sports for $1, while Penn Entertainment invests $1.5 billion in ESPN partnership, a highly coveted deal in sports betting.

Dave Portnoy acquires Barstool Sports for $1, while Penn Entertainment invests $1.5 billion in ESPN partnership, a highly coveted deal in sports betting.

ESPN Makes a Bold Bet on Sports Betting with Penn National Gaming

ESPN and Penn National Gaming

In a surprising move, ESPN, the renowned sports media giant, has entered into a groundbreaking $1.5 billion licensing deal with Penn National Gaming, one of the largest and fastest-growing casino operators in the United States. The agreement will allow Penn National Gaming to use the ESPN brand name for its sports betting operation over the next decade.

The deal signifies the growing trend of gambling companies seeking to align themselves with established sports media brands, as well as ESPN’s response to its struggles amidst declining cable viewership. According to John Holden, a management professor at Oklahoma State University who specializes in the sports media and gambling industries, “ESPN has been out there as a sort of white whale for a long time. It was somewhat inevitable that at some point, ESPN was going to jump into this industry.”

Previously, Penn National Gaming’s sportsbooks were branded with Barstool Sports, a popular sports media company founded by Dave Portnoy. However, to facilitate the new partnership with ESPN, Penn will sell Barstool back to Portnoy for just $1 and 50% of any future sale proceeds. The move not only allows Penn to join forces with ESPN but also gives Barstool the freedom to regain its editorial independence, which was compromised by the regulated nature of the gambling industry.

The decision by ESPN to venture into the sports betting market is a departure from its previous cautious stance. As a subsidiary of Disney, ESPN had been hesitant to engage in sports gambling due to concerns about its family-friendly image. However, with declining revenue from cable subscriptions and mounting financial pressure, ESPN has had to consider new avenues for growth. There are even rumors that Disney is contemplating a partial sale of ESPN to an investor with significant resources.

Barstool Sports, on the other hand, built its reputation on its irreverent and edgy sports commentary, closely intertwined with sports betting. Despite its popularity, Barstool’s name recognition pales in comparison to the global ESPN brand. Erika Ayers, CEO of Barstool, previously emphasized their conversational approach to sports betting, integrating it naturally into their content.

The deal between Penn National Gaming and ESPN highlights the former’s desire to leverage the power and recognition of a global brand like ESPN. Penn Gaming initially acquired a 36% stake in Barstool Sports in 2020 for $163 million before acquiring the remainder for $388 million in February. The company aimed to use the Barstool trademark in its betting operations without incurring ongoing licensing fees. However, the expected marketing boost from the Barstool deal didn’t materialize, leading Penn to seek a partnership with ESPN.

Presently, FanDuel holds the largest market share in the sportsbook industry with 47%, followed by DraftKings with 32%. In pursuit of capturing a significant market share, Penn’s deal with ESPN includes additional payments if it reaches a 20% to 25% market share in online sports betting.

While ESPN will not operate the new sportsbooks, named ESPN BET, it will promote them extensively on its various television and streaming platforms. This aligns with Disney CEO Bob Iger’s vision for ESPN’s involvement in sports gambling, as he believed there was ample room for the network to cater to sports enthusiasts who also enjoy betting without directly engaging in the gambling business itself. ESPN BET will include a mobile app, a website, a mobile website, and physical retail locations.

Entering the sports betting market comes with inherent risks, especially for a brand like Disney and ESPN, which have traditionally avoided gambling-related activities. However, their strong brand recognition and strategic partnerships mitigate some of these risks. John Holden asserts, “I don’t think they have a lot of risk here… There’s a lot of upside for them if everything goes right, but they don’t have a lot of risk from the deals.”

Since the overturning of the Professional and Amateur Sports Protection Act in 2018, sports betting has become legal in the United States on a state-by-state basis. In 2022, the industry generated $7.5 billion in revenue, a remarkable 72.7% increase from the previous year. Currently, 34 states and Washington D.C. have legalized sports betting, with another four states having approved legislation set to go into effect.

With the industry continuing to grow and innovate, the competition among major sportsbook companies intensifies. In addition to FanDuel and DraftKings, legacy casinos like MGM and Caesars are also entering the online sportsbook market. Furthermore, Michael Rubin’s sports memorabilia juggernaut, Fanatics, recently acquired the Australian sportsbook Pointsbet for $225 million, further diversifying the landscape.

In this increasingly crowded marketplace, the success of ESPN’s foray into sports betting will ultimately be determined by the checks clearing. And with their partnership with Penn National Gaming, ESPN has poised itself to navigate this evolving sector, while Penn looks to leverage the network’s unrivaled brand to maximize market share.