Barstool Sports will soon become a wholly-owned subsidiary of Penn Entertainment. The transaction, expected to be completed in February, will see the latter exercise its contractual right to acquire the remaining shares of Barstool.
Penn Entertainment (still known as Penn National Gaming at the time) first invested in Barstool in 2020. It acquired a 36% stake at the time for $163 million. To take control of the rest of the company, Penn Entertainment will first pay $62 million to increase its stake to 50%. After that, it will pay an additional $325 million for the remaining Barstool shares. Fans of Dave Portnoy’s media and betting company have to reach younger audiences, Penn said in presenting its Q2 financial results.
Penn announced those results in early August, showing that its business continues to grow. Highlights of the August results included:
- Revenue of $1.6 billion, an increase of 5.2% year-over-year
- Net income of $26.1 million and net income margin of 1.6%, compared to net income of $198.7 million and a net income margin of 12.9% in the prior year
- Adjusted EBITDA of $476.5 million, representing an increase of 1.4% year-over-year
- Adjusted EBITDAR of $504.5 million, representing a decrease of 14.0% year-over-year
Penn-Barstool Deal to Impact Online Casino Products
While Penn taking a 100% stake in Barstool will affect sports betting more than anything. The development also promises to impact Penn-owned casino products. The question is whether Barstool will be Penn’s primary brand moving forward for both its sportsbooks and casinos.
That could mean phasing out the Penn-owned Hollywood Casino brand for online play. Penn has only ever launched a real-money Hollywood online casino in Pennsylvania. Meanwhile, Barstool Casino operates alongside the sportsbook in New Jersey, Michigan, and West Virginia, as well as in Pennsylvania.
Meanwhile, the Hollywood social casino product has already rebranded to My Choice Casino. It is unclear whether – and to what extent – Penn Entertainment plans to continue using the Hollywood name for online products once it fully controls Barstool.
A Divide-and-Conquer Strategy for North America
Penn Entertainment will now be the full owner of both theScore Bet and Barstool Sportsbook. In that light, this summer’s decision to cease US operations for theScore Bet makes much more sense. Now, it will focus on the Canadian market with that brand while leading with Barstool Sports in the US.
TheScore President and COO Benjie Levy said as much at the time of the announcement that theScore Bet would leave the US:
Since Penn’s acquisition of theScore, the company’s plan has been to lead with Barstool Sportsbook in the U.S. and theScore Bet in Canada, given our strong brand equity there.
With the benefit of hindsight, that was probably when it became inevitable that Penn would take full ownership of Barstool.
Is Penn Taking on a Liability as Well as an Asset?
There are risks associated with Penn’s plan.
Any company that works with Barstool risks turning away potential customers due to the brand’s endless controversies. These come from the brand’s image, its fan base, and the actions of Portnoy himself.
However, Penn has had a stake in Barstool for three years at this point. It knows how many people feel about Barstool and seemingly hasn’t experienced significant drawbacks. More importantly, Penn has seen – and benefited from – the fact that Barstool is a massive, fast-growing business as both a media outlet and a sportsbook.
As Barstool’s platforms continue to grow and sports betting continues to become legal in more and more states, it’s easy to see why this is a chance Penn is willing to take.