Penn’s ESPN Bet struggles continue; Snowden addresses plans if progress stagnates

Saying once again on the company’s fourth-quarter earnings call on Thursday (27 February) that the future is bright, Penn’s CEO placed heavy focus on what is to come versus what has already happened Snowden said Penn is seeing “green shoots” throughout its departments while “we have more work to do to unlock the full potential and value of our partnership with ESPN”.

For digital gaming overall, the company reported revenue of $275 million (£218 million/€$264.7 million) for the fourth quarter. Its $109.8 million in adjusted EBITDA loss was a $224 million improvement compared to the same quarter for 2023, but those numbers still pulled down Penn’s overall performance and were below analyst estimates.

The company overall beat Truist’s adjusted EBITDA forecast with $320.7 million, but that was 1% below general expectations. Penn’s stock price dropped from $20 at the opening bell to $19.28 immediately after the call. It settled at $20.39 when the market closed.

The $461.2 million of adjusted EBITDAR on the land-based side beat the street, while digital losses of $110 million were even with expectations. Net revenue was also a mixed bag, but within 1% in either direction of the Truist and general projections.

Snowden also announced that Penn has plans to buy back “at least” $350 million in stock in the coming year as a show of confidence.

Growth slow and parlays not paying

Since ESPN Bet went live in November 2023, it has been unable to crack the top tier of sports betting platforms. FanDuel and DraftKings continue to have a stranglehold on the top two positions by market share with BetMGM a distant third. The stated goal when the platform replaced Penn’s Barstool Sportsbook was to reach 20% market share by 2027, but ESPN Bet still has less than 5% – the number executives are hoping to hit later this year.

A main challenge for ESPN Bet – beyond several football months that favoured bettors across the industry – is its struggle to capitalise on parlays. The multi-leg bets make up at least 50% of bets placed on DraftKings and FanDuel, according to Axios. They account for just 30% on ESPN Bet. This is relevant because parlays are the most lucrative markets available to operators.

Snowden: More improvements coming

Snowden promised more new integrations and cross-sell for ESPN Bet. The company last fall introduced a more personalised experience for individual bettors and new livestreaming features. The hope is that these draw more consumers and that Penn’s omnichannel approach will pay off.

In the meantime, Penn says its demographic is trending younger and it continues to open more retail locations. Hollywood Joliet (Illinois) is set to open in the fourth quarter of 2025, with three additional land-based locations to follow in 2026. The company also launched online casino products in Michigan and Pennsylvania in the last year.

But Snowden acknowledged that Penn is running ESPN Bet as if it were a “scale player”. If the company does not reach goals for it by the end of the year, he said, “then you’ve got levers operationally. Obviously, there’s a lot of dollars in the marketing category of our digital business.

“We’ve got a cost structure that right now is built for us to be a scale player because that’s where we expect to be. That’s where ESPN expects us to be. But if you’re not trending that direction, then obviously you’re not going to be operating a business from a cost structure standpoint at a scaled level.”

What analysts are saying

Truist analyst Barry Jonas wrote that should the platform not reach an “inflection point” soon then Penn’s comments “indicate a scaling down of marketing dollars, a slimmed down cost structure and other changes as it approaches the agreement’s three-year anniversary (in 2026), when both sides have opt-outs.”

Deustche Bank’s Carlos Santerelli shared in his analyst note that online casino “momentum continues to build”. He also noted a shift in “tone” with regard to the online segment, writing that executives appear to see the digital business as an extremely valuable asset.

“We interpret, and perhaps over interpret, the commentary as a highlighting of the asset value of the technology and brand collections, signalling, perhaps, a willingness to monetise, should performance, specifically on the OSB side, remain below previously stated levels of perceived success,” Santerelli stated.