Truist also upgraded Penn’s rating from Hold to Buy. Last August, following the announcement that Penn would relaunch its Barstool Sportsbook as ESPN Bet in a $1.5bn deal with the broadcasting giant, it had downgraded Penn to Hold based on implementation timelines.
Penn’s divestment of Barstool Sports saw it sell the sportsbook back to Barstool founder Dave Portnoy for $1. ESPN Bet subsequently launched across 17 US states in November 2023. Reflecting on the launch, Mike Morrison, vice-president of sports betting at ESPN said it had been “very smooth”.
The equity research report pointed out that operations in Penn’s digital arm Penn Interactive would buoy the company in the event of ESPN Bet’s demise.
“What we think the market is missing is that Penn Interactive is comprised of multiple businesses beyond just ESPN Bet,” read the report. “In the event that ESPN Bet falls through, then we think Interactive would still have value for Penn.”
Nonetheless Truist expressed in ESPN Bet, admitting that while it’s early days, Penn is in a good place to capitalise on ESPN Bet’s success.
“We see a real opportunity for Penn to leverage the power of the ESPN brand and cement itself as a podium player in [online sportsbook].”
Ongoing value in Penn Interactive
Online licences – a product of its land-based presence – and igaming omnichannel connections were named in the report as benefits offered by Penn Interactive. Truist also highlighted value in theScore, Penn’s Canadian social gaming business, although admitted that it is “perhaps not worth” the $2bn Penn paid for it.
Truist also highlighted Penn’s omnichannel presence, stating that it would likely benefit from the increase in state-by-state igaming legalisation expected over the next few years.
The report specifically pointed to value in Hollywood iGaming and theScore Ontario, as well as Penn’s skin fees to other operators – which builds to Truist’s $23 price target (PT), its value per share.
“Even if ESPN Bet is ultimately abandoned and hence worth zero – which is now the market’s base case – we think there are other (likely) profitable digital businesses.”
Truist noted that it believes expectations are currently too low for ESPN Bet, adding that the market is “too bearish” on the sportsbook – assuming no value for the other businesses under Penn’s Interactive umbrella.
ESPN Bet holding up well with customers
Truist’s 2024 Interactive Gaming Survey – released earlier this month – found that ESPN Bet was capable of challenging US sports betting leaders DraftKings and FanDuel.
In the equity research report, Truist harked back to this survey to support the idea that ESPN Bet’s full roll-out is highly anticipated. Of the respondents who both frequented ESPN and were interested in betting integration, 52% said it was likely that ESPN would be their preferred wagering platform. A total of 45% said that this was possible, while 3% said that this was not likely.
“We see a sizeable opportunity for ESPN Bet to capture these players,” states the report. “In our eyes, execution risk becomes the primary obstacle here – if wagering through Bet Mode does prove as seamless as we believe it could be, we think Penn’s market share could catapult above 10%+.”
Much has been said about ESPN Bet’s innate credibility, given the inherent trustworthiness built up in ESPN. The report outlined that the appointment of former Disney executive Aaron LaBerge this week as Penn’s new CTO could act as a catalyst for ESPN Bet’s ongoing progress and could even add to its credibility.
“We believe Mr LaBerge was already deeply involved with ESPN Bet and should be able to hit the ground running upon transitioning to the other side of the table,” it continued. “His arrival could give Penn’s ESPN Bet and total Interactive story more credibility to investors.”
Original article: https://igamingbusiness.com/finance/penn-espn-bet/
