Penn Entertainment, a casino company, has struck a deal with ESPN to license its brand name for its sports betting operation. Under the agreement, Penn will pay ESPN $1.5 billion over the next 10 years. This move reflects a growing trend among gambling companies to align themselves with sports media brands. For ESPN, it marks the network’s first foray into the sports betting industry and demonstrates its response to declining cable viewership. John Holden, a management professor at Oklahoma State University, believes ESPN’s entry into the industry was inevitable. Previously, Penn’s sportsbooks were branded with Barstool Sports, which it fully acquired in February. As part of the new ESPN partnership, Penn will sell Barstool back to its founder, Dave Portnoy, for $1 and 50% of any future sale proceeds.
Portnoy expressed his support for the deal, stating that it restores the editorial freedom he felt he had lost due to the heavily regulated nature of the gambling industry. However, his conduct, including allegations of sexual harassment, clashed with the clean image preferred by state gambling regulators. This branding shift leaves both ESPN and Barstool Sports in new positions. ESPN, owned by Disney, has previously been hesitant to enter the sports gambling market, considering it incompatible with its family-friendly image. However, ESPN is facing financial pressure due to declining cable revenue and is now exploring new avenues for growth, including a potential partial sale of ESPN.
Barstool Sports, on the other hand, gained recognition for its edgy sports commentary and heavy integration of sports betting content. However, its name recognition falls short compared to ESPN’s. Penn initially acquired a 36% stake in Barstool in 2020, eventually buying the rest for $388 million. This acquisition allowed Penn to utilize Barstool’s trademark without ongoing licensing fees and leverage their large audience to attract bettors to its own casinos and online gaming sites.
Penn’s latest agreement with ESPN indicates that the previous partnership with Barstool may not have provided the desired marketing boost. FanDuel and DraftKings currently dominate the sportsbook market with 47% and 32% market share, respectively. Penn’s deal with ESPN includes additional payments if it reaches 20% to 25% market share in online sports betting. Although ESPN will not operate the new sportsbooks, it will actively promote them on its TV and streaming platforms.
The legalization of sports betting in the U.S. in 2018 opened the door for immense growth in the industry. In 2022, the sports betting industry generated $7.5 billion in revenue, a significant increase from the previous year. Currently, 34 states and Washington D.C. have legalized sports betting, with four more states awaiting the implementation of approved legislation. As the market continues to expand, companies like FanDuel, DraftKings, MGM, and Caesars are striving to maintain their positions. Industry experts believe that success for ESPN in this crowded market simply boils down to financial success.
In conclusion, Penn Entertainment’s partnership with ESPN signifies a strategic move to elevate its gambling business. By associating with a renowned sports media brand like ESPN, Penn aims to improve its market position and attract a wider audience. This deal also highlights ESPN’s shift in strategy to embrace sports betting as a means to counter declining cable revenue. Both companies hope to capitalize on the growing popularity of sports betting and secure a strong foothold in this lucrative market.
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