PENN surges on sports betting deal with ESPN, divests Barstool Sports to founder Dave Portnoy

Shares of PENN Entertainment Inc (NASDAQ:) soared 19% after-hours Tuesday after the company announced it entered into an exclusive U.S. online sports betting agreement with Walt Disney Company’s (NYSE:) ESPN. At the same time, the company announced it has sold 100% of Barstool Sports back to founder David Portnoy.

The news sent shares of online sports betting leader DraftKings (NASDAQ:) down 9% after-hours.

Under the agreement, PENN has secured the exclusive right to the ESPN Bet trademark for online sports betting in the U.S. for an initial 10-year term which may be extended for an additional 10 years upon mutual agreement.

In the upcoming autumn of 2023, the online Barstool Sportsbook is set to undergo a rebranding as ESPN Bet. Meanwhile, theScore Bet will maintain its operations within Canada.

Managed by PENN Interactive, ESPN Bet will gain exclusive promotional advantages throughout ESPN platforms, encompassing programming, content, and the opportunity to engage with ESPN’s talented individuals.

Under the terms, PENN will pay ESPN $1.5 billion in cash over a decade and grant $500 million worth of warrants for about 31.8M PENN common shares, vesting evenly over 10 years, in exchange for media, marketing, brand, and other rights. Additional bonus warrants could be awarded to ESPN if ESPN Bet meets specific U.S. OSB market share performance criteria, allowing the purchase of approximately 6.4M more PENN shares. ESPN holds the choice to assign a non-voting Board observer or, after three years, a Board member, contingent on gaming regulatory approval and minimum ownership conditions.

PENN said the deal provides an estimated $500M to $1.0B or more of annual long-term Adjusted EBITDA potential in its Interactive segment.

Jay Snowden, Chief Executive Officer and President of PENN, commented, “This transformative, exclusive agreement with ESPN marks another major milestone in PENN’s evolution from a pure-play U.S. regional gaming operator to a North American entertainment leader. ESPN Bet will be deeply integrated with ESPN’s broad editorial, content, digital and linear product, and sports programming ecosystem. ESPN Bet will also benefit from PENN’s operational experience, extensive market access and proprietary technology platform, which successfully debuted in the U.S. this July.”

On the divesting of Barstool Sports to founder David Portnoy, the company sold 100% of the Barstool Sports, Inc. common stock to Mr. Portnoy in exchange for certain non-compete and other restrictive covenants. PENN also has the right to receive 50% of the gross proceeds received by Portnoy in any subsequent sale or other monetization event of the company.