Shares of Penn Entertainment surged 20% on Friday after an activist investor sharply criticized the company’s focus on sports betting and mobile gaming, urging a strategic pivot or potential sale.
In a letter released Friday, Donerail Group Managing Partner Will Wyatt accused Penn’s management of abandoning its successful brick-and-mortar casino operations in favor of an unprofitable online sports betting venture. Wyatt’s letter, addressed to Penn’s board of directors, contended that the company has misallocated about $4 billion in capital since CEO Jay Snowden took the helm in 2019.
“The company eschewed its tried-and-true strategy of expanding its brick-and-mortar casino operations in lieu of a ‘bet the house’ focus on constructing an online sports betting business to compete with market leaders DraftKings and FanDuel,” Wyatt wrote.
Asset manager Donerail Group, founded by Wyatt in 2018, manages funds on behalf of institutional investors. Wyatt previously worked as a trader at activist hedge fund Starboard Value.
The letter highlighted several costly missteps under Snowden’s leadership, including the purchase and subsequent sale of Barstool Sports, which resulted in nearly a $1 billion loss. Other criticized investments include the $2 billion acquisition of Canadian sports betting firm The Score, which had less than $25 million in revenue at the time, and a venture with ESPN Bet, licensed from Walt Disney Co.
“Unfortunately, after less than a year into pivoting its attention to ESPN Bet, there has been no improvement in the company’s ability to execute in (its) Interactive (division),” Wyatt stated. He urged the board to reassess its strategy and recognize shareholder fatigue with continued investments in “uncertain outcomes.”
Penn shares, which had hit a four-year low of $13.50 earlier in May, rose to $17.50 on the New York Stock Exchange on Friday following the release of Wyatt’s letter. Despite the sharp rise, Penn’s stock has lost about one-third of its value in 2024.
Wyatt’s letter suggested that Penn’s casino assets are undervalued and criticized the company’s attempts to compete in the online sports betting market, describing Penn’s strategy as overly risky and unprofitable.
“To shareholder detriment, Penn has not been able to demonstrate the management expertise necessary to build a business that could become a formidable competitor in the online sports betting oligopoly,” Wyatt wrote.
Though activist investors can often drive change by acquiring significant stakes in companies, Donerail’s current holdings in Penn are unclear. Donerail is not listed as a shareholder in recent SEC filings, and it has not filed a hedge fund report with the SEC since 2020.
Jefferies & Co. analyst David Katz echoed the need for strategic reassessment in a note to clients. “Offering competitive product to capture meaningful share has required considerable investment from others, while the tolerance of the current shareholder base is limited, which suggests that something has to change one way or the other,” Katz wrote.
Separately, shares of Caesars Entertainment jumped more than 11% on Friday after Bloomberg News reported that activist investor Carl Icahn had built a large position in the casino and mobile sports betting business.
Original article: https://www.yogonet.com/international/noticias/2024/06/03/72461-penn-entertainment-39s-shares-soar-20-as-activist-investor-criticizes-sports-betting-strategy
