- ESPN is finally getting its own sportsbook through Penn Entertainment.
- Many view the deal as a “win-win” for ESPN, Penn, and its former partner Barstool Sports.
- Industry insiders say the deal could signal a potential ESPN spinoff, disrupt competition, and more.
Gambling industry insiders thought Disney CEO Bob Iger might make quick work of setting a sports-betting strategy when he took back the reins of the ESPN owner late last year. They were proven right earlier this week. After years of speculation about if, when, and how ESPN would enter the sports-betting fray, the company announced on Tuesday a $2 billion deal with regional casino operator Penn Entertainment to create ESPN Bet. Penn is set to rebrand its US sportsbook with ESPN this fall.
So far, everybody is coming out of this deal looking good, insiders said.
ESPN is getting a $150 million annual marketing commitment from Penn over the initial 10-year terms of the deal — and it can still sell ads to rival sportsbooks, though the deal does grant Penn exclusivity on certain ad and sponsorship opportunities with ESPN. ESPN is also set to get $500 million in warrants to buy Penn stock. And Iger, who’s faced pressure from investors to do more with ESPN, can boast he finally has a sports-betting play.
As part of the agreement, Penn is ditching Barstool Sports, the digital-media company it previously spent north of $500 million to acquire and make the face of its US sportsbook — and trading up with ESPN. Investors don’t seem to mind the pivot with shares up roughly 9% during trading today.
“Penn saw the ceiling for Barstool as a betting brand and decided that ESPN likely had a higher ceiling,” Chris Grove, partner at Acies Investments, told Insider. “You could also argue that ESPN is a tighter fit from an audience demographic and corporate culture perspective.”
Barstool’s founder Dave Portnoy, meanwhile, gets full ownership of his company for the first time in a decade. Portnoy showed on Tuesday evening support for Penn and called the deal a “win-win” in a video posted on X, formerly known as Twitter.
“The regulated industry — probably not the best place for Barstool Sports and the type of content we make,” Portnoy said in the video. “For the first time in forever, we don’t have to watch what we say, how we talk, what we do.”
Insider spoke with nine gambling and media insiders, including executives, consultants, and analysts, who were abuzz about the new possibilities the deal could create — from how a potential ESPN spinoff could propel the sports betting sector, to increased competition, to how ESPN could avoid the pitfalls that befell Fox’s failed gambling venture.
“The formal entrance of ESPN into the world of sports betting may present challenges for competitors seeking to minimize customer-acquisition costs, but should provide a substantially net positive impact on the industry as a whole,” said Sharp Alpha Advisor’s Lloyd Danzig, a gambling industry investor and M&A advisor.
Here’s what industry insiders are saying about the deal:
1. Disney spinning off ESPN could be a boon for the gambling industry
Some gambling-industry insiders are speculating ESPN’s deal with Penn could be a step toward Disney spinning off its sports business into a separate entity.
There have been talks of Disney spinning off ESPN for some time now. Investor Dan Loeb’s hedge fund Third Point penned a letter pushing this agenda last year, in part for the flexibility it might give ESPN to lean into sports betting without risk to the Disney brand.
For the gambling sector, it could also be a boon that takes sports betting to a larger stage. The US industry has long been waiting for a big brand like ESPN or Fanatics to bring sports betting further into the mainstream.
“Some feel ESPN is undervalued within Disney and that it would be worth more as a standalone,” Danzig said. “There also is a lot of pressure from shareholders to make changes given the stock price performance.”
ESPN could be especially attractive to a private-equity firm, several of which have doubled down on sports recently, some insiders pointed out. One could package ESPN’s top-tier sports rights, coveted audience, and budding streaming business with a gambling company, for example.
But the 10-year deal with Penn could also complicate any potential combinations — if, let’s say, a PE firm wanted to combine ESPN with a different gambling operator.
Brandon Nispel, an analyst at KeyBanc Capital who covers Disney, previously told Insider he’s concerned about ESPN’s financial future, though he believes the Mouse House should keep the sports network unless it’s blown away by an offer for it.
But while ESPN’s path forward is murky, Nispel told Insider Wednesday he’s encouraged by the Penn deal, considering Disney is getting a respectable $1.5 billion plus potential equity upside in exchange for simply licensing its brand and plugging the new sportsbook across its platforms.
“It’s not that big, but it’s incremental,” Nispel said of the deal. “It shows monetization of ESPN beyond just the traditional pay-TV environment.”
Nispel also doesn’t see much risk for the Disney brand as gambling gets more widely accepted, adding that many people think of ESPN and Disney as independent brands.
2. ESPN and Fanatics’ entries could reignite competition
Penn is dialing up its marketing budget as it looks to move from a mid-tier operator to a market leader that can truly compete with DraftKings and FanDuel, which currently make up over 70% of the US sports-betting market.
On top of allocating $1.5 billion over 10 years for marketing through ESPN, the company committed to spending $150 million per year on other marketing channels, bringing its annual spend to $300 million. In comparison, in the first six months of this year, FanDuel spent more than $600 million on marketing and DraftKings’ parent spent over $530 million, according to filings.
In terms of market share, Penn still has a long way to go. FanDuel and DraftKings dominate US online sports-betting and gambling market share, followed by BetMGM, according to a July report from Macquarie that analyzed Vixio data.
Penn shared Tuesday evening in an investor presentation that shows it wants to reach 10% to 20% of market share.
“We believe the deal can bring the newly branded [online sportsbook] into the top three in market share across the US and Canada over the next five years,” Zachary Warring, an equity analyst at CFRA Research, wrote in a research note on Wednesday.
Industry insiders like affiliate marketing company Gambling.com’s Max Bichsel aren’t sure about that prediction.
“I’m looking at the dynamics of maintaining 20% market share,” Bichsel said. “There’s enough seats at the table, but I’m not convinced there is enough food to go around for everybody at the table.”
But, regardless, the ESPN deal is a step up for Penn.
“I’m not convinced that ESPN allows Penn to vault into a podium position, but it does increase Penn’s chances of doing so,” Grove said. “It’s also a marquee partnership that should rightly be considered a win for Penn management, assuming the ultimate price tag isn’t stratospheric.”
The new competition from ESPN — as well as Fanatics, which has also entered sports betting — could distract operators from their focus on a path to profitability. But that’s more important to Wall Street now than the growth-at-all-costs approach of sports betting’s early days.
“Should FanDuel and DraftKings be worried? It’s not a positive development for either company, but I don’t think either is quaking in their boots,” Grove said. “And both at least now have some certainty regarding ESPN’s place in the market.”
The biggest risk could come to Fanatics, which has been building its own arsenal to conquer sports betting and will now need to contend with the incumbents and a formidable new entrant in ESPN.
“Fanatics has the most to lose here as they are seeking to employ a similar model, but they won’t ever find media assets to compete with ESPN,” said one betting-industry exec source, who asked for anonymity to speak freely about the market. “Hard to imagine how either of them ends up as a tier-one operator in the space.”
3. How ESPN Bet can avoid a repeat of Fox Bet
While ESPN’s sports-betting entry has the industry abuzz right now, let’s not forget recent history is littered with examples of failed media forays into gambling.
Fox and FanDuel-owner Flutter just shuttered their joint venture, Fox Bet. FuboTV and Maxim Magazine folded their sports-betting platforms in the last year. And 888’s SI Sportsbook, named after Sports Illustrated, hasn’t garnered meaningful market share.
Penn and Barstool’s relationship was largely considered a successful media-gambling match up until it, too, hit roadblocks.
Some industry insiders blame the fall of Fox Bet on being “a side project for Flutter,” with its main focus on FanDuel, in Nispel’s words, while others thought the product itself wasn’t as good as other sportsbooks. Fox Bet had the brand and the audience, but lacked a solid product, Bichsel said.
“The folks that do really well are the folks that focus on product,” Bichsel said. “Penn seemingly was on the track to do it exceptionally well, so if they take those same plans and apply it to ESPN, all things indicate that they will be very successful.”
Disney, in contrast, took its time striking this sports-betting deal rather than rushing in as some of competitors did years earlier, suggesting it’s in it for the long haul.
It also has a built-in fan base that overlaps with sports betting through its fantasy-sports platform, and several other touchpoints to cultivate audiences for the sportsbook.
“You think about ESPN and probably the largest free-to-play fantasy players in the country — they could bring alive the podcast, radio stuff, in all they do,” said Ed Moed, CEO of Hot Paper Lantern, a marketing and communications firm that works with sports and gambling companies. “They have a product that is really relevant already.”
While Fox has other media assets, ESPN is all in on sports, said Dan Wasiolek, an analyst at Morningstar who covers Penn . So although Fox Bet failed, ESPN’s brand identity and larger audience can prevent it from suffering a similar fate.
“ESPN is sports — all-day sports — that’s all it is,” Wasiolek said. “And so I think it makes more sense that ESPN would want to and should be in this fast-growing space of online sports betting than maybe Fox, who is kind of a combination.”
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