Disney’s sports entertainment division, ESPN, is set to make a significant move into the sports betting domain. In collaboration with U.S. gambling firm Penn Entertainment, ESPN will rebrand and relaunch its sportsbook as “ESPN Bet.” This venture marks the first instance of the ESPN brand being associated with a sports betting platform. ESPN Bet will replace Penn’s existing Barstool Sportsbook and is slated for a fall launch in the 16 states where betting is legalized.
The partnership with Penn Entertainment comes after ESPN’s prolonged search for a suitable collaborator in the sports betting industry. Former CEO Bob Chapek had previously mentioned ESPN’s interest in allying with a gambling entity, clarifying that ESPN would never directly engage in betting.
This collaboration promises mutual benefits. For ESPN, it offers an alternative revenue source amidst the challenges posed by cord-cutting in the traditional TV sector. Concurrently, it provides Disney with an opportunity to bolster its finances, especially as it faces losses from its streaming division and a potential acquisition of Comcast’s stake in Hulu next year.
Disney CEO Bob Iger recently hinted at the company’s interest in finding a strategic partner and possibly divesting its cable-TV networks.
Under the terms of the announced deal, Penn Entertainment will hold exclusive rights to the ESPN Bet trademark in the U.S. for a decade, with a potential extension of another ten years upon mutual agreement. Penn will compensate ESPN with $1.5 billion in cash over this period. Additionally, ESPN will receive warrants worth about $500 million, allowing them to purchase roughly 31.8 million Penn common shares over the decade.
ESPN also gains the privilege to nominate a non-voting board observer to Penn’s board. After three years, they can designate a board member, contingent on specific regulatory approvals and a minimum ownership threshold.
Penn will transfer its Barstool stock to its founder, David Portnoy. Penn had previously acquired Barstool for $388 million in February, becoming its sole owner. The current agreement entitles Penn to half of the gross proceeds from any future sale or monetization of Barstool by Portnoy.
Following the announcement, Penn’s stock witnessed a 20% surge in after-hours trading on Tuesday, with Disney also experiencing a slight uptick. Both companies are set to announce their earnings on Wednesday.
Penn anticipates that this partnership will augment its annual long-term adjusted earnings potential in its interactive segment by an estimated $500 million to $1 billion.
Last March, Penn reported its sports betting business’s profitability for the last fiscal quarter, becoming the first U.S. sports gambling company to achieve this feat during that timeframe. The company credited its success to its unique marketing strategy and the cross-platform promotion from Barstool.