Analysis: Penn-Barstool deal different from other sports betting partnerships Howard Stutz, CDC Gaming Reports · February 3, 2020 at 7:00 am The ink wasn’t dry on the U.S. Supreme Court ruling that allowed states to legalize sports betting when partnership agreements between leagues, gaming companies, sportsbook operators and related businesses began to materialize. The American Gaming Association said more than 70 such agreements have been reached in the 20 months since the justices’ decision and the number could reach 100 by the end of the year. Last week’s $163 million deal between regional casino operator Penn National Gaming and media platform Barstool Sports, however, caught everyone’s attention. Penn National is banking on at least a portion of Barstool’s 66 million monthly visitors becoming customers at the company’s 41 casinos in 19 states – and, ideally, wagering on Penn’s soon-to-launch Barstool-branded sports betting app. “Barstool had a large national brand with a database of loyal ‘stoolies,’” Penn National Senior Vice President of Interactive Gaming Jon Kaplowitz, using the nickname given to Barstool’s fan base, said in an interview Friday. “They are engaged with the brand, and they have (a) high propensity to bet.” The Penn-Barstool agreement is a 40-year deal. The initial investment for 36% ownership of Barstool Sports includes $135 million in cash and $28 million in shares of non-voting convertible preferred Penn stock. Kaplowitz noted that Barstool executives, including founder David Portnoy and CEO Erika Nardini, wanted equity in the casino company. “(Barstool) believed in our vision of an omnichannel product. They were the perfect partner,” he said. David Portnoy, Erika Nardini of Barstool Sports and Penn CEO Jay Snowden discuss the deal with CNBC’s Jim Cramer/Photo via CNBC Stock market love The investment community liked the partnership, sending shares of Penn up almost 11% the day the deal was announced. Macquarie Securities gaming analyst Chad Beynon believes the reaction won’t be just a one-day event. He titled his research note, “Don’t fall off your bar stool; we think the deal could be worth more than $5 a share to Penn.” The key, Beynon and other analysts said, is audience engagement. The average age of the more than 20 million customers in Penn’s loyalty program is in the mid-50s. Roughly half Barstool’s audience is Millennial or Generation X, a decade or more younger. Sports betting in now taking place in 14 states, with six more set to launch this year. Another 14 states are considering sport betting legalization. Beynon said online and mobile sports wagering “has proven to be a larger piece of the overall sports betting pie,” accounting for between 70% and 85% of all sports wagers. Penn, he said, projects roughly 85% of the nation’s total sports bets by 2025 will come from mobile wagering. Kaplowitz said Penn will brand both its wagering app and retail sportsbooks as Barstool. Another Barstool concept, a pizza outlet called One Bite, could be added to Penn’s retail sportsbooks. “It’s a powerful brand,” Kaplowitz said. “It’s a partnership that sets us apart from others because Barstool is a true partner.” He said Barstool personnel will collaborate with Penn’s team on a mobile sports betting app that is expected to launch by the start of football season in August. Barstool will promote Penn National’s casinos on its platform, and the media company will retain full editorial control of its content. ‘Long-term opportunity’ SunTrust Bank gaming analyst Barry Jonas said Penn believes the Barstool-branded app and sportsbooks will help the company gain the top three market share in states where it has sports betting. Penn currently operates 14 sportsbooks in six states and will launch this year in four additional states. “We view the transaction very favorably, with a meaningful long-term opportunity that supports Penn management’s strategic sports betting and online gaming vision while minimizing potential short-term hurdles,” Jonas told investors. “Penn management does not expect meaningful positive (cash flow) contribution in the near-term, consistent with other U.S. sports betting operators.” Jonas and other analysts said Penn’s access to the Barstool database means the company will spend less on customer acquisition than its rivals. Union Gaming Group analyst John DeCree said Penn might have spent more than $100 million alone just on initial marketing and customer acquisition. The transaction is also separate from the agreement Penn National announced last summer in which the company signed deals for online sports betting skins with DraftKings, theScore, PointsBet and Stars Group. Those deals cover more than 30 regional casinos. Kaplowitz said Penn kept the primary skin in each market specifically with the Barstool deal in mind. “We all share in the success of our skin partners,” Kaplowitz said. “We want everyone to do well.” Barstool all-in Barstool Sports was founded in 2003 as a Boston-area print publication focused on fantasy sports and sports betting before evolving into a broader sports and pop culture website. In 2016, the Chernin Group, a New York-based media holding company, acquired 60% of Barstool. After the deal closes, Penn and Cherin will each own 36% of Barstool. The remaining 28% will be owned by employees, including Portnoy and Nardini, who will continue to operate the business. #exclusive – Analysis: Penn-Barstool deal different from other sports betting partnerships. –@howardstutz, CDC Gaming Reports. https://t.co/RVGxfU5bQf @PNGamingInc @barstoolsports #CDCgaming — CDC Gaming Reports (@CDCNewswire) February 3, 2020 Nardini, a former AOL executive who joined Barstool in 2016, told CNBC’s Jim Cramer last week that Penn National was the right partner. “They had all the things we wanted. They wanted the Barstool Sports brand. They had the largest retail footprint in the United States,” she said. “They have a great management team and they have a shared vision of winning in sports betting, which was something Dave’s thought about for a long time and that we were very committed to as a company.” Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at firstname.lastname@example.org. Follow @howardstutz on Twitter.