Penn National Gaming + Barstool Sports = Love
Below is a complimentary research note from Gaming, Lodging, and Leisure (GLL) analyst Todd Jordan. If you are an institutional investor interested in accessing our research email sales@hedgeye.com.
After some speculation in the media and actual admittance by Barstool themselves, PENN officially announced it will be acquiring a stake in millennial centric sports media juggernaut, Barstool Sports.
If you’re a millennial or a Gen Xer, you probably know Barstool Sports, and even if not, you’ve probably heard of or seen the antics that the cofounder has pulled in recent years.
Founder Dave Portnoy and CEO Erika Nardini are regular guests in financial media, and Barstool is famous for its original content and engaged audience, particularly when it comes to their sports related podcasts.
For PENN to have a shot at getting a real slice of the sports betting pie, a deal like this was necessary, but it doesn’t guarantee future success in the sports betting category. Barstool is definitely a growing brand, as evidenced by the data that is shared in the IR Deck.
It is interesting to see that Barstool’s points of critical mass tend to skew more towards the Northeast (PA – MA), and has some brand recognition elsewhere, but the level of interest (as measured by google trends) drops significantly outside the Northeast. Nevertheless, PENN’s deck does make a lot of good points about the potential upside of the two, but all of this does warrant more work on our end.
Some additional notes from today’s call:
- Will host analyst day in June 2020
- ROI in Barstool Sports (BSS) will take time to realize but believe that they are leapfrogging by making the investment in BSS – allows them to grow more efficiently and likely profitably in the future
- Will begin rolling out Barstool sportsbooks and online casinos, but will be flexible and willing to operate multiple brands of sports books and online casinos
- Process with BSS began in July last year
- Didn’t buy controlling stake right away so that they could feel the process out and give BSS the freedom to run their company successfully, but they do have the option to driving
- This acquisition is more about low cost customer acquisition for PENN rather than driving immediate upside to their P&L
- Would like to be in the Top 3 in sports betting operator for each market they operate in
- Average age of PENN casinos customers is in the mid 50’s and gong up – sports betting should allow them to solve for that
- Sports bettors are younger and more affluent, and tend to be male
- Have seen some positive impacts from sports betting so far in a few of their markets – IR Deck highlights the positive impact of the sports book at Hollywood Lawrenceburg in Indiana
- Have a team of 50+ engineers that are working on their proprietary app which they will launch in August of 2020 – will look to compete with DraftKings and Fanduel of the world
- PENN will allow Barstool to maintain full control of editorial content, but will receive 2/7 seats on the board
- Strategic rationale – Barstool is the leader in social media marketing with the right demographic. Very captive audience, and they have a very good track record of driving attendance at live events
- Barstool Sports is the fastest growing digital media operator. Revenue growth accelerated from +53% in ’18 to +65% in ’19 --- have grown all their distribution and IP organically so they don’t have major leverage to different rights and contracts
- 38% of Barstool Sports is millennial based. They claim to reach close to 48% of Male millennials and Gen-Xers and 44% of females
- Barstool has 66MM unique users and viewers – lot of overlap around big cities (Chicago à Chicagoland casinos, Boston à Plainridge, Pittsburgh / PA à Hollywood National and The Meadows)
- Slide 18 provides their competitive strategy and positioning
- Deal doesn’t change their goals to bring lease adjusted leverage down to 5x
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