Penn Entertainment Warns 2026 Could Bring End of ESPN Bet

Penn Entertainment Warns 2026 Could Bring End of ESPN Bet

Penn Entertainment’s (NASDAQ: PENN) ESPN Bet division may be up for sale next year unless the online sportsbook gains more traction between now and the conclusion of 2026. 

In August 2023, a 10-year, $2 billion agreement was made between the regional casino operator and ESPN's parent company, Walt Disney (NYSE: DIS), which included a clause allowing either party to exit after three years. Penn CEO Jay Snowden noted the anniversary during the company's fourth-quarter earnings call last week.

"But if for whatever reason we’re not hitting the levels that we need to, then obviously as you’re approaching that third anniversary, you have a three-year clause in the contract that both sides will have to do what’s in their best interests,” said Snowden in response to a question from Deutsche Bank analyst Carlo Santarelli. “And so, that’s always out there.”

Penn's deal with ESPN led to a significant loss on its purchase of Barstool Sports, which it returned to founder David Portnoy for merely $1. The sports broadcaster terminated partnerships with Caesars Entertainment (NASDAQ: CZR) and DraftKings (NASDAQ: DKNG) to collaborate with Penn. 

ESPN Bet Aiming for 'Podium' Status 

When ESPN Bet launched almost two years ago, Penn aimed to rival industry giants DraftKings and FanDuel for a position in the top tier of the US sports betting market — a feat it couldn't achieve with Barstool Sportsbook. 

“When we announced our partnership with ESPN in the summer of ’23, both sides of this partnership made it very clear that we expected to compete for a seat at the podium,” said Snowden on the call. “And we’re not on pace right now to do that.”

Employing the podium metaphor, the gold and silver medals exchange between DraftKings and Flutter Entertainment’s (NYSE: FLUT) FanDuel, both holding substantial advantages over bronze medalist BetMGM. Caesars Sportsbook might compete for the third position, but DraftKings and FanDuel are significantly ahead of all other competitors. 

According to various estimates, ESPN Bet possesses only a 2.35% share of the US online sports betting market — significantly below its target of 20% by 2027. Snowden emphasized the impressive beginnings for Penn’s upgraded iGaming platform in Michigan and Pennsylvania, stating that the operator has “great plans in place for 2025 and 2026” for ESPN Bet. 

Certain investors would be pleased to witness the demise of ESPN Bet. 

The future of ESPN Bet’s survival is uncertain, but it's clear that some investors in Penn would welcome the gaming operator's permanent exit from online sports betting. 

Hedge fund HG Vora is preparing for a proxy fight with Penn, seeking three board positions while emphasizing the operator's errors in sports betting. This reflects the view of the Donerail Group, another shareholder of Penn, which stated in a letter to Penn's board last May that the company is struggling in the sports betting sector. 

Certain investors and some analysts contend that sports betting has negatively impacted Penn shares, leading market participants to ignore the value in the operator's primary regional casino operations. The conference call did not include any comments regarding the proxy battle or the role of activist investors.