Sports betting, coupled with igaming, could fuel 1990s-like expansion in the U.S. By Howard Stutz, Executive Editor, CDC Gaming Reports February 9, 2021 at 7:00 pm Barstool Sports, the sports wagering platform for regional casino operator Penn National Gaming, currently operates in two states. Penn’s 41 casinos are located in 19 states. In the recently completed fourth quarter, Penn reported total revenues of nearly $1.03 billion. David Portnoy, Erika Nardini of Barstool Sports and Penn CEO Jay Snowden (right) discuss their $163M deal with CNBC’s Jim Cramer in January 2020/Photo via CNBC The contribution from sports betting was mixed into the company’s “Other” revenue bucket, which totaled $53.4 million — roughly 5% — of the overall quarterly figure. “Other” includes Penn’s stand-alone racing operations, a racetrack-management contract, a televised poker tour, and Penn Interactive, which includes Barstool among its four businesses. So why is the investment community heavily fixated on Penn’s current 36% ownership in Barstool Sports? Penn’s stock price hit an all-time high of $129 on the Nasdaq Friday, ahead of Super Bowl weekend. The price is up some 88% over the last three months and closed Tuesday at $116.82. It’s all due to the publicity and attention given to Barstool. “In our view, the story is one of media network appearances, social-media hype, stock momentum, and some carefully crafted narratives around the business,” Deutsche Bank gaming analyst Carlo Santarelli told investors last week. Sports betting is currently legal in 20 states and Washington, D.C., with another five states expected to launch this year. More than a dozen states are considering legalization, including Texas, California, and Ohio. The rapid growth has taken place in less than three years since a U.S. Supreme Court ruling gave states the approval to legalize and regulate sports betting. In the grand scheme of the casino industry, sports betting is an ancillary revenue driver. During 2019 in Nevada, sports betting accounted for $329.1 million of the state’s $12 billion in gaming revenue — roughly 2.7% of the overall total. In pandemic-skewed 2020, sports betting was a little more than 2% of Nevada’s depressed gaming revenue figure of $7.87 billion. However, sports betting can be a powerful growth vehicle when coupled with the expansion of online casino gaming, which is now in a half-dozen states. “Sports betting and igaming feel like a repeat of the regional markets’ emergence in the early 1990s,” said J.P. Morgan gaming analyst Joe Greff. “States turned to new revenue streams like riverboat gaming to help fund budget deficits. We think states will look to sports betting and igaming in much the same way.” Penn, through its partnership with Barstool, will be “one of the winners in terms of both share and profitability,” Greff added. Barstool launched in Pennsylvania in September and in Michigan last month. Penn National CEO Jay Snowden said a third launch is planned for mid-March in Illinois to coincide with the “March Madness” NCAA basketball tournament. After Illinois, an aggressive rollout could see Barstool in a new state “every three to five weeks,” culminating in 10 or more additional states by the end of 2021. During the Barstool’s first four months in Pennsylvania, Penn took in more than $218.1 million in total sports wagers, including $71.8 million in December. The company did not provide a revenue figure based on the handle. However, during the 10 days at the end of January that Barstool was live in Michigan, Penn said the app took in more than $27.5 million in wagers, which accounted for more than $3.3 million in revenues. The key according to analysts is the lower cost Penn pays for customer acquisition. Barstool came to the table with a built-in loyal following of some 66 million nationwide fans who regularly log on to the platform’s social-media sites. Penn estimated it pays roughly $200 in acquisition cost per customer to get someone to sign up for the Barstool app. Other companies pay an estimated industry average between $300 and $800 per player. “We see an opportunity for Penn to ramp up marketing and potentially climb to the top market-share position in some key states, while still maintaining industry-leading profitability,” said Union Gaming Group analyst John DeCree. Snowden, who brought Barstool onboard last year in a $163 million deal — one of his first acts after taking over as CEO — said Penn plans to own a majority or all of Barstool by the third anniversary of the transaction. Snowden left no doubt about the company’s commitment to its casinos. Penn will launch a cashless and digital payments technology system on its Pennsylvania casino floors by June and roll it out to other regions this year. The company restarted the pandemic-stalled construction of two smaller Pennsylvania casinos that are expected to open late this year. Penn also expects to add the operations of Hollywood Casino Perryville in Maryland to its portfolio in 2021, which could coincide with the state launching sports betting, approved by voters last year. Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at firstname.lastname@example.org. Follow @howardstutz on Twitter.