Penn Entertainment announced a layoff of 100 people in an internal memo and the company says it will now shift its focus to ESPN BET as the upcoming football season looms.
Let’s take a closer look at the details behind this layoff and how it might impact top-rated sportsbooks.
Shifting Gears
An internal memo by Penn Entertainment’s CEO, Jay Snowden, stated the company would be laying off 100 people, a tiny fraction of the 20,000 Penn employees, and shifting its focus to its mobile sports betting brand, ESPN BET. The announcement does reveal a sense of urgency in the C-suite regarding the company’s underwhelming progress in the online sports betting market.
According to the memo, the layoffs will allow its interactive business to better “streamline reporting lines, enhance operational efficiencies, and leverage shared resources.”
“When PENN acquired theScore, we hit the ground running with the build-out of our proprietary tech stack and the migration of our sportsbook to theScore’s best-in-class platform,” Snowden wrote in the memo. “This led us to temporarily set aside any potential organizational changes that would typically follow a major acquisition.”
Growing Restless
Penn investors have been restless about the company’s foray into the mobile sports betting realm as the market share it has gained by spending $2 billion to use the ESPN name has been negligible. This acquisition came hot off the heels of the company spending over $550 million to purchase Barstool Sports and using that brand to create Barstool Sportsbook.
However, ESPN’s caveat in agreeing to lease the ESPN name over 10 years in exchange for $1.5 billion and another $500 million worth of warrants was that Penn had to divest itself of Barstool. Disney-owned ESPN did not want any affiliation with the bro-culture of Barstool Sports, which forced Penn into selling the company they had just finished purchasing only six months prior back to the former owner, Dave “El Presidente” Portnoy, for one dollar. That is not a misprint.
It was a stunning and costly reversal for Penn and the only two demands it had in the sale back to Portnoy were that the Barstool Sportsbook would be defunct and could not be resurrected under Portnoy and Barstool Sports. The second was that should Portnoy ever sell his Barstool Sports media company, Penn would receive 50% of the sale price. Portnoy has vowed never to sell.
Therefore, it’s not hard to understand why Penn investors have begun to grow uneasy and suspect of the decision-making at the top. CEO Jay Snowden has made an estimated $98 million since taking the reins in 2020 but the stock has plummeted under his watch.
Truist gaming analyst Barry Jonas wrote, “Investors continue to wonder what an ESPN Bet success could look like, and how much more investment it’ll take to reach.”
And in a public letter by Will Wyatt, managing partner of the Donerail Group, to Penn’s chairman David Handler, and the board, he essentially said out loud what many investors had been thinking privately.
“We believe that the significant criticism from the investment community regarding PENN’s recent capital allocation is understandable, however,” Wyatt said. “After four years of effort, attention, and billions of dollars of shareholder capital invested, the company has been unable to disintermediate the online sports betting landscape, as it had forecast.”
Wyatt continued by saying, “What may be additionally troubling for shareholders is that the operating losses that are growing meaningfully – and have become a central part of the PENN equity narrative – sit within an interactive business that currently has no operating leadership. What gives this Board any confidence in PENN’s future under this strategy?”
Although the stock has rebounded somewhat since that letter, a sale at this juncture, is unlikely.
