Penn Entertainment to Complete Acquisition of Barstool Sports

The casino and racetrack operator has exercised its right to acquire the remaining shares of Barstool Sports that it does not already own.
Aug. 18, 2022
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Penn Entertainment, Inc. (NASDAQ: PENN), formally Penn National Gaming, will exercise its rights to acquire all of Barstool Sports -- a sports and pop culture digital media company. Penn, already a major shareholder in the company, will purchase the last remaining shares in Barstool Sports by February 2023 after exercising its call rights.

Why is Penn Entertainment acquiring Barstool Sports?

Penn Entertainment has been trying to diversify its revenue streams over the past few years away from its flagship casinos. In the company's second-quarter earnings call, CEO Jay Snowden claimed that the company was evolving into "North America's leading provider of integrated entertainment, sports content and casino gaming experiences." 

One of the reasons Penn initially purchased a stake in Barstool Sports was to try and reach a younger audience and create cross-selling opportunities. The company has since created several Barstool Sports branded products, such as its retail handle Barstool Sportsbooks, which has helped to drive the segments' revenues to $179.3 million for the quarter, up from $162 million last year. 

By outright owning Barstool Sports, Penn Entertainment can leverage the brand to attract more and younger customers to engage in its wide product base more cost-effectively.  This will give it an edge over rivals with higher customer acquisition costs. 

What does Penn's Acquisition of Barstool Sports mean for investors?

Penn Entertainment acquired a 36% stake in Barstool Sports for $161.2 million in 2020. Penn later grew its stake in the media company to 50% for an additional $62 million, and will now own the company outright for a total of $450 million. 

Investors were not impressed with this news, causing the company's share price to drop by 1.02% today. This is due to controversy surrounding the founder and CEO of the sports media company, David Portnoy. In February of this year, Insider published articles detailing sexual misconduct allegations against Portnoy, who has denied any wrongdoing. 

Should Mr. Portnoy have an executive position in Penn Entertainment, then it is likely that the controversy surrounding him will stain the company's reputation and potentially its share price.  Mr. Portnoy is viewed as the face of Barstool Sports and one of the reasons for Penn Entertainment's investment in the company. He has also been the driving force behind the publicity of Barstool Sportsbook. 

Although the acquisition will generate more revenue for Penn Entertainment through full control of the company's profits, cross-selling, and creating new branded products, the cloud around Portnoy could steal the spotlight and make it a costly mistake. This leaves questions of what to do with the media company's founder and CEO. Should he stay or should he go? Only time will tell what the company decides.


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