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Penn Entertainment is ending its ESPN Bet partnership early after failing to reach its market share goals, marking another costly exit for it from a major media collaboration.
Penn Entertainment is pulling the plug on ESPN Bet less than three years into its high-profile partnership with the sports media giant, ending an ambitious but underperforming sportsbook venture that cost the company $150 million annually and captured just 3% of the US market.
ESPN and Penn mutually agreed to the early termination of their partnership, which initially was a 10-year deal set to go through 2033, according to Penn’s third quarter report Thursday. Penn paid $150 million per year for ESPN’s media, marketing and the exclusive right to ESPN Bet. The deal gave either company the option to end the partnership after the third year if market share performances were not met. The companies had aimed to secure 10-20% market share after three years.
“When we first announced our partnership with ESPN, both sides made it clear that we expected to compete for a podium position in the space,” Penn President and CEO Jay Snowden said in a statement. “Although we made significant progress in improving our product offering and building a cohesive ecosystem with ESPN, we have mutually and amicably agreed to wind down our collaboration. We plan to realign our digital focus on our growing iCasino business, while continuing to capitalize on our omnichannel advantage as the nation’s leading regional retail casino operator.”
Penn readies theScore Bet for US relaunch
In ESPN Bet’s place, Penn will relaunch its theScore Bet product in the United States, with a goal of having it ready by 1 December to coincide with the start of Missouri sports betting. The ESPN Bet app will be automatically updated to theScore Bet when opened on the date of transition, according to Snowden.
Snowden said theScore Bet will “leverage connectivity with theScore media app.” He said the media app has 4 million monthly users in North America.
Penn purchased theScore in 2021 for $2 billion. The sportsbook then ended its US operations in 2022 to focus on the Canadian market.
In a previous sportsbook partnership that proved costly, Penn purchased Barstool Sports to use that company’s brand before giving it up — after similarly dismal performance — to restart in the new relationship with ESPN.
Penn shelves ESPN Bet
Penn will pay $38.1 million in the fourth quarter to Disney-owned ESPN, as well as an additional $5 million for marketing of theScore Bet and Hollywood Casino, according to the company’s 8-K filing.
The company must stop using the ESPN brand by 15 December. Disney, meanwhile, cannot license the ESPN Bet brand for at least 15 months after 1 December.
“Together, ESPN and PENN created a truly unique offering with unparalleled integrations across our various media assets,” ESPN Chairman Jimmy Pitaro said. “ESPN drove over 2.9 million new users into the PENN ecosystem, with a strong uptick in first time bettors this fall. We appreciate the collaboration we had with PENN and are now pursuing other media and marketing opportunities within this space.”
Penn retains the 2.9 million users acquired during the ESPN relationship. ESPN retains vested warrants to purchase nearly 8 million shares with a strike price of $28.95.
The release said the two companies will continue to work together in marketing and media. ESPN also announced a new marketing agreement with DraftKings Thursday morning.
Penn refocuses on iCasino
Snowden said theScore will continue to act as a funnel to Penn’s Hollywood Casino iCasino app and the company will continue to focus on cross-selling its 33 million Penn Play program members.
“Our OSB offerings will continue to provide top of funnel acquisition and cross-sell opportunities for our Hollywood-branded iCasino, which will remain integrated into our OSB product in states where legal, in addition to serving as a standalone iCasino app,” he said. “We will operate with a more efficient cost structure, including replacing fixed media spending with performance based and regionally targeted marketing that complement our casino footprint. The realignment will free up resources to strategically invest in the North American markets with strong return potential which we expect will drive enhanced unit economics and profitability.”
In the third quarter, the land-based business was stable with $1.4 billion in revenue, according to the company’s earnings report.
Online struggled, with revenues of $297.7 million and an adjusted EBITDA loss of $76.6 million, which were below expectations. Snowden said the loss was because of “customer-friendly hold” and lower than anticipated online sports betting volumes.
Still, he highlighted the strength of Penn’s iCasino products, including a 40% year-over-year boost in quarterly revenue.
“The momentum in our iCasino business continues to benefit from growing average MAUs, which experienced the third consecutive quarter of year-over-year and quarter-over-quarter increases,” Snowden said.
Second failed media partnership
It is the second partnership Penn has ended based on poor performance in the sports betting space despite strong potential and goals.
In 2023, the company ended its partnership with Barstool Sports, which it initially purchased a share of in 2020. The company later acquired the remaining shares in 2022 for a total of $551 million.
Penn sold Barstool back to founder Dave Portnoy for $1 in 2023, following disappointing conversion of the media company’s audience into meaningful sports betting market share.
DraftKings snaps up ESPN partnership
Shortly after Penn and ESPN announced the ESPN Bet termination, ESPN and DraftKings announced a new partnership. The deal makes DraftKings the official sportsbook and odds provider of ESPN, beginning 1 December.
“Our betting approach has focused on offering an integrated experience within our products,” Pitaro said. “Working with DraftKings, a leader in the space, will allow us to build upon that foundation, continue to super-serve passionate sports fans and grow our ESPN direct-to-consumer business. We are excited about this new collaboration with DraftKings.”
DraftKings products will be integrated across the ESPN ecosystem, including access to sportsbook, daily fantasy and DraftKings Pick6 products. That includes a betting tab within the ESPN app.
“ESPN’s unmatched visibility across the world of sports make this collaboration a natural fit,” DraftKings co-founder and CEO Jason Robins said. “As an innovative leader in digital sports entertainment, DraftKings is uniquely positioned to integrate our technology and products with ESPN’s iconic brand and storytelling power. Together, we’re delivering a seamless, engaging, and responsible experience that elevates how fans connect with live sports.”
ESPN Bet will turn to a sports betting content brand with DraftKings Sportsbook integrations, including “ESPN Bet Live”, the network’s sports betting show.
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