ESPN and PENN Entertainment (PENN) announced a blockbuster deal on Tuesday that will see ESPN operate branded sportsbooks as the so-called Worldwide Leader in Sports makes its biggest push yet into the sports gambling market.
As part of the deal, the companies will launch a branded sportsbook, ESPN BET, this fall in the 16 states where PENN currently operates mobile sportsbooks. PENN will pay ESPN $1.5 billion over the next 10 years while granting ESPN warrants to purchase 31.8 million shares of PENN worth $500 million, which will vest over the same period.
PENN Entertainment stock rose as much as 18% in pre-market trading Wednesday morning following the news and the company’s second quarter earnings release. PENN reported second quarter revenue of $1.67 billion, in line with Wall Street’s expectations while it’s $0.48 adjusted earnings per share came in higher than estimates for $0.45. PENN is expected to host its earnings call at 9 a.m. ET Wednesday morning.
Meanwhile, ESPN’s parent company, Disney (DIS), is scheduled to report earnings after the bell on Wednesday.
As part of the announcement, PENN also said it sold Barstool Sports back to its founder, Dave Portnoy. PENN initially purchased a 36% stake in Barstool for $163 million back in 2019; earlier this year, the company purchased the balance of Barstool for an additional $388 million.
PENN said in a press release Tuesday the company, “also has the right to receive 50% of the gross proceeds received by David Portnoy in any subsequent sale or other monetization event of Barstool.”
ESPN’s entrance into sports gambling had been the most highly anticipated shoe to drop in the quickly growing industry.
Market leaders FanDuel and DraftKings (DKNG) had previously advertised with ESPN to get their odds and product in front of sports fans. DraftKings shares fell nearly 10% in after hours trading on Tuesday following the PENN-ESPN announcement.
In a press release, ESPN said ESPN BET will become the network’s exclusive sportsbook, and PENN Entertainment will receive “odds attribution, promotional services inclusive of digital product integrations, traditional media and content integrations, and ESPN talent access, among other services that collectively generate maximum fan awareness of ESPN BET.”
ESPN Chairman Jimmy Pitaro said in a release, “The strategy here is simple: to give fans what they’ve been requesting and expecting from ESPN. PENN Entertainment is the perfect partner to build an unmatched user experience for sports betting with ESPN BET.”
The deal also brings an end to PENN’s tumultuous venture with Barstool Sports. The casino operator initially took a stake in the sports media company with the thought that Barstool’s content would provide in-house promotion for its online sportsbook.
But the mobile sportsbook has lagged other major operators and its relationship with Barstool and its controversial founder, Portnoy, had weighed on the stock.
After the announcement of the sale, Portnoy posted a video on X, formerly known as Twitter, to share his thoughts on the deal.
“We did this deal about three years ago and I think both parties were like, ‘We’re going to take this thing to moon’,” Portnoy said. “And I think we underestimated how tough it is for myself and Barstool to operate in a regulated world where gambling operators, the New York Times, Business Insider hit pieces (are) f****** with the stock price. Every time we did something it was one step forward, two steps back.
“We got denied licenses because of me, you name it. So the regulated industry probably [is not] the best place for Barstool Sports and type of content we make.”
Josh Schafer is a reporter for Yahoo Finance.