ESPN is dipping its toes into the sports betting game with a 10-year, $150 million per year ($1.5 billion total) licensing deal involving Penn National.
(ESPN also receives $500 million in stock warrants.)
The deal importantly includes an opt-out clause after three years if certain unspecified market share thresholds are not met.
As part of the agreement, Penn is also forced to admit defeat on their Barstool Sports investment, selling the company back to its former owner Dave Portnoy for $1 just three years after they paid $550 million for the company.
The high-risk, high-reward maneuvers by Penn has all the makings of an extravagant expenditure akin to an incendiary display of Penn’s fiscal recourses.
In total, they will have spent $2 billion on licensing between Barstool and ESPN.
“This deal is, in a sense, an admission of, ‘Hey, we didn’t make the best decision with Barstool, paid for it a couple different ways, and now we have a chance to take another at-bat,’” Gambling.com (NASQ: GAMB) Vice President Max Bichsel told The Post.
Now they get to double down on another established – more conventional – name like ESPN to lead the charge, but the product needs to show improvement before anything.
“You can have the audience and the brand, but without the product, they have effectively nothing,” Bichsel said.
Online sports betting, though, has become a simple battle of technology.
The company with the most straightforward transition from account opening to scrolling through innovative betting options will likely win out and grab the most market share.
Currently, those companies are FanDuel and DraftKings, who combined make up roughly 70 percent of the online sports betting business.
Penn National CEO Jay Snowden said in an earnings call that the expectation is for Penn to grab a 20 percent market share with the addition of ESPN branding and integration.
This would mark a massive gain considering the 5% percent stake they’ve carved out up to this point.
“We’re not doing this deal to be 4% or 5% market-share players,” Snowden said. “That’s not going to be acceptable for us. That’s not going to be acceptable for ESPN.”
In order to get anywhere near that level of success in this deal, ESPN will need to fully integrate ESPN Bet across their platforms and fully immerse their top talent in the product.
That means top personalities Stephen A. Smith, Scott Van Pelt, and maybe even reporter Adrian Wojnarowski getting involved, on top of Pat McAfee, who recently came over from FanDuel.
ESPN Bet could be heavily featured on “Monday Night Football,” and the new ESPN NFL Wild Card game.
That’s likely what success would look like for Penn in the interim as they attempt to make a dent in their lofty market share goals.
Even still, those goals will be tough to maintain without more technology and interface upgrades combined with innovative betting options.
In the long term, Bichsel explains, “Anything above 10 percent market share is a huge success,” despite the 20 percent projection that Penn put out Wednesday. “But the value of that 10% market share has to be more than the $150 million (per year) that they paid for it.”
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Bichsel was sure to mention that the full details of ESPN’s deal with Penn have not been released, but there are likely many stipulations involved in order for the Worldwide Leader to get the full $1.5 billion from Penn.
“The devil is in those details,” Bichsel said. “Right now, the headline is ‘Penn is paying ESPN $150 million for X amount of years,’ but there are likely many strings attached to this deal that is likely a couple of hundred pages long with a lot of ‘if this happens, that happens.’”
Even with the strings attached, ESPN gets a massive haul for its name, likely one that no other sportsbook could’ve come close to matching.
“ESPN gets to cash checks just for existing,” sports betting executive Dustin Gouker told The Post. “If Penn is literally just getting the ability to slap the ESPN brand on the sportsbook, it’s not great.”
Another major media outlet, FOX, closed its doors on an unsuccessful sports betting business in July.
Another cautionary tale for the sports betting market, Gouker explains.
“A strong brand is a decent starting place for a sportsbook, but it’s definitely not the equivalent of turning on a spigot of new customers. It’s also the same cautionary tale of Barstool, to be honest. You have access to a lot of sports fans, but you still have to convert them and retain them,” Gouker said.
Snowden has his work cut out for him over the next few years as the leader of Penn National to churn out a lucrative and profitable online sports betting business.
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