ESPN Bet’s Future in Doubt as Penn Faces Mounting Pressure

Penn Entertainment’s (NASDAQ: PENN) ESPN Bet division could face an uncertain future next year if it fails to gain significant traction before the close of 2026. 

The sports betting venture, launched in partnership with ESPN, has struggled to establish itself as a serious contender in the highly competitive online gaming market. 

While Penn’s other gambling brands were more successful, ESPN Bet triggered an EBITDA loss of more than $109 million.

The Walk-Away Clause, “Always Out There”

In August 2023, Penn inked a 10-year, $2 billion agreement with ESPN parent company, Walt Disney (NYSE: DIS), granting both parties the option to walk away after the third year. 

During Penn’s recent fourth-quarter earnings call, chief executive officer Jay Snowden acknowledged the looming decision.

“But if for whatever reason we’re not hitting the levels that we need to, then obviously as you’re approaching that third anniversary, you have a three-year clause in the contract that both sides will have to do what’s in their best interests,” Snowden explained in response to a question from Deutsche Bank analyst Carlo Santarelli. 

“And so, that’s always out there.”, the CEO, who expanded its stake in the operator by purchasing 54,200 shares for around $1 million in September 2024, added. 

The ESPN partnership required Penn to divest from Barstool Sports, selling it back to founder David Portnoy for a symbolic $1. 

Meanwhile, ESPN severed its collaborations with Caesars Entertainment (NASDAQ: CZR) and DraftKings (NASDAQ: DKNG) to align with Penn.

Penn Envisioned Top-Three Position

When ESPN Bet launched, Penn envisioned it as a challenger to industry powerhouses DraftKings and FanDuel, aiming for a top-three spot in the U.S. sports betting market, something it previously failed to achieve with Barstool Sportsbook.

“When we announced our partnership with ESPN in the summer of ’23, both sides of this partnership made it very clear that we expected to compete for a seat at the podium,” Snowden stated. “And we’re not on pace right now to do that.”, the CEO added. 

Currently, DraftKings and Flutter Entertainment’s (NYSE: FLUT) FanDuel dominate, while BetMGM occupies a distant third. 

With ESPN Bet holding just a 2.35% market share, far from its 20% target by 2027, its future remains in question.

CEO, Still Optimistic  

However, Snowden has adopted a similarly optimistic stand to his November 2024 position when he remained bullish on ESPN Bet despite their mixed third-quarter results. 

The CEO cited strong momentum for Penn’s iGaming offerings in Michigan and Pennsylvania while speaking about the “tremendous plans in place for 2025 and 2026” aimed at improving ESPN Bet’s position.

Meanwhile, some investors would prefer to see Penn exit online sports betting altogether. 

One example is that of Hedge fund HG Vora, which is getting ready for a proxy fight, seeking board seats while further emphasizing Penn’s struggles in this sector. 

Similarly, Donerail Group has criticized the company’s performance, arguing that sports betting is dragging down Penn’s stock value and distracting from its core casino operations. 

While the earnings call avoided any mention of shareholder activism, pressure on Penn’s leadership is mounting.