ESPN Enters the Sports Betting World with Penn Partnership

espn enters sports arena

ESPN, a part of Disney, is taking a step into the gambling sector by opening a sportsbook soon. They've partnered with Penn Entertainment to transform and relaunch their bookmaker, now known as ESPN Bet. This marks the debut of the ESPN name on a sports betting platform. ESPN Bet will purchase Penn’s Barstool Sportsbook, becoming ESPN's sole operator. The sportsbook is set to launch this fall across the 16 states where sports betting is legal.

For some time, ESPN has been on the lookout for a partner in the sports betting business. Last fall, Bob Chapek, Disney's former CEO, mentioned that ESPN was interested in teaming up with a gambling operator, though it wouldn’t handle wagers directly.

This alliance introduces a new revenue stream for ESPN, pivotal as the traditional TV space faces headwinds from cord-cutting. Concurrently, Disney gains financial stability amidst streaming losses with the necessity to buy out Comcast’s share in Hulu slated for early next year. Disney's Bob Iger recently discussed on CNBC that the company is eager to align with a significant partner and is open to divesting its cable TV holdings. The agreement, finalized on Tuesday, awards Penn the exclusive right to use the ESPN Bet brand across the U.S. for a decade, with the potential of another decade if both parties agree.

As part of the deal, Penn is set to pay ESPN $1.5 billion spanning ten years. Additionally, ESPN will obtain warrants totaling $500 million, allowing them to acquire 31.8 million shares of Penn’s common stock over the same period. Penn plans to divest its Barstool Sports shares back to its founder, David Portnoy. Penn fully acquired Barstool in February for $388 million.

Under the newly inked deal, Penn will be entitled to 50% of any earnings that come from future sales or monetization of Barstool that David Portnoy spearheads. In after-hours trading on Tuesday, Penn’s stock jumped by approximately 20%, while Disney’s saw a mild increase. Both Penn and Disney are scheduled to release earnings reports on Wednesday. In their Tuesday statement, Penn confirmed the deal is projected to boost the interactive segment's long-term annual adjusted earnings by $500 million to $1 billion.

Penn stands out as the only U.S. sports betting operator that declared a profit within this timeframe, having announced in February that their sports betting sector was profitable over the last quarter of the fiscal year. During football season, increased marketing and ad spending often make it challenging for sportsbooks to remain profitable in the latter half of the year. Penn attributed its financial success to Barstool's multi-platform marketing strategy.

ESPN Joins Forces with Penn Entertainment for Sportsbook Venture

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