Penn Entertainment's (NASDAQ: PENN) ESPN Bet is having difficulty growing its clientele during football season, which may increase the likelihood that the gaming company's partnership with the massive sports media corporation would be terminated.
According to Stifel analyst Jeffrey Stantial, despite better integrations between the sports betting app and other ESPN offerings, analysis of state-level online sports betting (OSB) data shows that ESPN Bet handle declined quarter over quarter in the July through September period with only slight improvement into the start of football season.
"While initial handle share pullback was attributed to retention/monetization issues, we suspect recent user acquisition may also be pacing below expectations as Sensortower shows ESPN Bet’s share of OSB app downloads down Y/Y in July/August and up only narrowly in September,” observes Stantial.
Stantial reaffirmed his "hold" rating and $19 price target for Penn, calling the company "a best-in-class regional brick & mortar operator."
While Stantial concedes that it may be too soon for CEO Jay Snowden and team to discuss specific strategy details regarding the fate of the ESPN Bet, Penn's third-quarter results are due on November 6. The OSB app isn't making the progress that Penn and its investors had hoped for, suggesting that discontinuing it could be a real possibility.
“While likely still too early for management to update on strategy, stable handle share despite product/integrations improvement supports our view that termination of the ESPN partnership is the most likely scenario when the mutual opt-out option comes in late 2026,” adds the analyst.
As it gets closer to its third anniversary in August 2026, Penn's online sportsbook has fallen short of its target market share. Penn CEO Jay Snowden made this point during the operator's fourth-quarter results conference call in February. At that point, either the gaming firm or ESPN may withdraw from the agreement. In other words, ESPN Bet might only survive for ten more months unless the operator makes substantial increases in market share.
Stantial stated in a March note that "the most value-accretive outcome" for Penn would be to sell theScore and end the ESPN Bet contract, which would probably mean the company would be completely out of the OSB sector.
Investors, analysts, and Penn detractors have long maintained that the operator's mistakes in sports betting, such as Barstool Sports and ESPN Bet, have compelled market players to concentrate on a bad aspect of the Penn investment thesis while disregarding its positive aspects.
These positive developments include strong ramp-ups at several of the operator's freshly renovated regional casinos and remarkable iGaming growth.
“For the stock, we see an increasingly interesting setup as recent OSB handle trends support potential termination of the ESPN Bet relationship potentially removing a key overhang and allowing investors to more cleanly focus on PENN’s Retail & iCasino businesses – where we observe sustained healthy S.S. gross gaming revenue (GGR) growth,” concludes Stantial.
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