Innovative Betting Venture Launched by ESPN
This image features the SportsCenter at ESPN Headquarters.
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Disney‘s ESPN is venturing into the world of sports betting with the launch of a new sportsbook called ESPN Bet. By partnering with U.S. gambling company Penn Entertainment, ESPN is making its brand presence felt in the sports betting industry for the first time.
ESPN Bet will replace Penn’s Barstool Sportsbook and will exclusively operate under the ESPN umbrella. The launch is scheduled for this fall and will be available in 16 states where sports betting is legalized.
Seeking a suitable partner in the sports betting sector, ESPN’s former CEO, Bob Chapek, expressed the company’s desire to collaborate with a gambling company. This deal allows ESPN to diversify its revenue streams amidst the decline of traditional TV viewership due to cord-cutting. Moreover, Disney stands to strengthen its financial position with cash inflows as it faces losses in its streaming division and prepares to acquire Comcast’s stake in Hulu next year.
In a move to boost its sports betting portfolio, Penn Entertainment has secured exclusive rights to the ESPN Bet trademark in the U.S. for the next 10 years, with an additional extension option for another decade subject to mutual agreement. As part of the agreement, Penn will make a cash payment of $1.5 billion to ESPN over the 10-year period. Additionally, ESPN will receive warrants worth $500 million to purchase approximately 31.8 million common shares of Penn, which will vest over the same duration.
Furthermore, ESPN will have the opportunity to appoint a non-voting board observer to Penn’s board. After three years, ESPN may even designate a board member, subject to regulatory approvals and meeting a specified ownership threshold. In a separate transaction, Penn will divest its stock in Barstool to founder David Portnoy, while retaining the right to 50% of the proceeds from any future sale or monetization of Barstool.
The market responded favorably to the deal, with Penn’s stock recording a 20% increase in after-hours trading. Disney’s stock also saw a slight uptick. Both companies are scheduled to announce earnings on Wednesday. Penn anticipates that this partnership will contribute an estimated $500 million to $1 billion in annual long-term adjusted earnings to its interactive segment.
Penn’s success in the sports betting business was evident in the final three months of the fiscal year, becoming the first U.S. sports gambling company to turn a profit during that period. The profitability was attributed to Penn’s effective marketing approach and leveraging cross-platform promotion from Barstool.
— CNBC’s Alex Sherman contributed to this report.
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