Penn National Gaming went out on a limb as the first gaming operator to partner with a sports media brand — and a controversial one at that — for its online sports gambling product. The Barstool Sportsbook officially launched in Pennsylvania on Sept. 18 after a three-day testing period.
Penn and Barstool combined have huge expectations for the app, hoping it can immediately compete with the likes of DraftKings and FanDuel in PA and beyond.
Those hopes rest largely on an ability to leverage Barstool Sports’ millions of followers, the majority of whom are in the young, male demographic target ideal for sports betting customers. Penn went all in on the marketing scheme in late January, buying a 36% stake in Barstool in a deal that gave the latter $163 million in cash and stock.
So where are Penn and Barstool headed now that we finally have a product live? Here’s a look at the stock, opening weekend numbers for the app and how it stacks up in a crowded PA market.
Hype around Barstool launch drives Penn stock
Much hype surrounding the success of last Friday’s launch propelled Penn National’s stock ($PENN) to a new 52-week high of over $76 — quite astounding, considering it dipped below $4 when the pandemic hit in mid-March.
The controversial frontman of Barstool Sports, Dave Portnoy, is the source of much of the fanfare surrounding the Barstool launch and the subsequent Penn stock surge. That is in large part by design. When Penn inked the deal with Barstool, Penn CEO Jay Snowden emphasized the customer acquisition value of the partnership:
“With 66 million monthly unique visitors, we believe the significant reach of Barstool Sports and loyalty of its audience will lead to meaningful reductions in customer acquisition and promotional costs for our sports betting and online products, significantly enhancing profitability and driving value for our shareholders.”
Portnoy is holding up his end of the bargain, tirelessly pumping out videos praising the Barstool sportsbook product and plugging the stock (always accompanied with his “CYA” disclaimer that he’s not a stock expert).
Many stock analysts have attributed movement in the market — not just with Penn — to Portnoy’s messaging as “Davey Day Trader Global,” a persona he took up in the absence of sporting events in the spring. His millions of sports-starved followers purportedly followed him into the stock market in what has become known as “the Barstool effect” in stock circles.
So it’s hardly surprising that Portnoy’s touting of how great the Barstool app launch has been in PA also boosted Penn stock. But he’s had some help from stock analysts as well.
Penn stock dips with public stock offering news
On Thursday, Penn stock took a dive to the tune of 5.1% in premarket trading following Penn’s announcement of a public stock offering of 14 million shares of its common stock.
Based on Wednesday’s closing price of $69, the stock offering would be valued at around a billion dollars. According to the Penn press release:
“We intend to use the net proceeds from the offering for general corporate purposes, which may include, among other things, investments in long-term growth initiatives, our brick-and-mortar properties and our omnichannel strategy.”
This is not the first time even this year that Penn National has turned to a public stock offering to boost company coffers. The cash-strapped PA-based casino company was hit extra hard during the height of the pandemic and had to take many measures to alleviate the damage.
Those measures included tapping $430 million in credit, furloughing and eventually laying off thousands of employees nationwide, selling two of its properties to its landlord and offering up a common stock sale worth $600 million in shares in early May.
The news of the common stock offering was unwelcome to Portnoy, who took to Twitter to express his displeasure. Penn stock closed the day at around $64 but was rebounding to around $68 in early Friday trading.
— Dave Portnoy (@stoolpresidente) September 24, 2020
Barstool Sportsbook download numbers, depositors and handle
In Penn’s stock offering prospectus on Sept. 24, it provided the following data on the Barstool launch:
“From Friday, September 18, 2020, to Monday, September 21, 2020, the Barstool Sportsbook app received approximately 24,000 registrations in Pennsylvania, approximately 30,000 downloads in Pennsylvania (approximately 35,000 including downloads during the test period), approximately 180,000 downloads in the United States, approximately 12,000 first-time depositors in Pennsylvania with an average deposit size of approximately $243, approximately $11 million of total handle (i.e., amount wagered) and an average rating in the iTunes App Store of 4.9. During its launch weekend, the Barstool Sportsbook was the most downloaded of any sports-related app.”
But what does the early Barstool Sportsbook launch data really tell us?
Key takeaways from this data include Pennsylvania-specific downloads, sign-ups, the 12,000 first-time depositors and $11 million in total handle in four days. But first, some broader context of the market the app is joining.
Launch context: Healthy and growing PA sports betting market
Pennsylvania sports betting is currently peaking, with August breaking the state record with nearly $365 million wagered at PA regulated sportsbooks across online and retail. Online continues to dominate as expected, claiming 88% of all bets. With the addition of Barstool, there are now 10 online sports gambling sites to choose from in PA.
That all adds up to a lot of competition in a healthy and growing market. With Pennsylvania’s sports betting tax one of the highest around at 36%, it also means relatively conservative revenues for operators.
August online vs. retail sports betting handle and revenue:
- Online handle: $321.6 million
- Online revenue: $15.4 million
- Retail handle: $43.4 million
- Retail revenue: $2.8 million
The highest online revenue earner in August was FanDuel, which set a single-operator monthly record with nearly $8.9 million. But much more typical of a strong month for a PA online sports betting operator is somewhere in the ballpark of $1.1 million-$1.5 million, as the next five highest revenue earners posted last month.
Online Sportsbook Online Handle Online Revenue
FanDuel (Valley Forge Casino) $144,635,085 $8,865,958
DraftKings (The Meadows) $86,855,018 $1,156,515
PlaySugarHouse (Rivers Philadelphia) $20,306,160 $1,236,042
Fox Bet (Mount Airy) $22,044,056 $1,166,132
BetRivers (Rivers Pittsburgh) $18,980,114 $1,267,294
Parx $22,218,026 $1,501,578
BetAmerica (Presque Isle Downs) $606,139 $33,642
Unibet (Mohegan Sun Pocono) $4,806,580 $156,051
Caesars (Harrah's Philadelphia) $1,102,952 $55,060
Statewide Total $321,554,131 $15,438,273
Is Barstool on track to pass FanDuel and DraftKings in PA?
So, what does the $11 million in handle for Barstool in the first four days of operations tell us?
First of all, it’s pretty good. Bear in mind, though, that Barstool had exceptional press and build-up around the app launch, which also followed the start of the much-anticipated NFL season. That is, the launch benefited from the fullest slate of sports in months (including an exciting weekend of college and NFL games), not to mention the highest demand ever for legal sports betting.
But let’s see how it compares to other books.
- FanDuel daily handle in August was nearly $4.7 million, so a four-day period would, on average, equate to nearly $18.7 million.
- For second-top dog DraftKings, August saw daily handle of approximately $2.8 million, meaning an average four-day handle of $11.2 million.
- Assuming handle of around $20 million (a more realistic target for most sportsbooks), the daily average is about $645K, or $2.6 million, on average for four days.
If Barstool can keep up the early pace of $11 million handle per four days, it would be on track to at least contend with the top dogs in PA. However, this was four busy days, including an NFL Sunday, not including the rest of the week.
The August comparison would land Barstool on par with DraftKings but trailing FanDuel, though both operators should see a boost in September numbers because of the start of NFL.
Is Barstool the answer to Penn National’s cash flow problems?
Still, it’s important to also realize that revenue from online sports betting in one state is not going to move the needle a whole lot for a company like Penn, which reported a net income loss of $214.4 million in Q2. While the sports betting market is certainly healthy and growing, it’s a small piece of a bigger puzzle for most operators.
For comparison, Pennsylvania’s 11 online casinos have brought in upward of $56 million in monthly revenue, doing so in May and August. PA’s top online casinos, also now peaking, are reaching new monthly revenue highs of $5 million-$8.7 million.
Penn now has two iGaming products live in PA, with Hollywood Casino and DraftKings Casino also utilizing its license. Together, the two sites netted $11.8 million in August.
Even a stellar month for Barstool is unlikely to eclipse revenue from online casino any time soon. However, the two verticals could create some cross-sell opportunities and aid customer acquisition, as Penn brass has alluded to.
What do the download numbers mean?
Penn, Portnoy and others have pointed to high numbers of app downloads to indicate launch success. But until we had the specifics on where downloads took place, along with the number of sign-ups and deposits in PA — the only state where the app is live — any comps were mostly unfounded.
As it turns out, only 30,000 downloads (35,000 including downloads during the three-day testing period) of a total 180,000 downloads nationwide took place in Pennsylvania. This kind of distribution is unheard of for other sports betting brand apps, making comparisons misleading.
But it makes sense. Only a relatively small number of “Stoolies” live in PA and can wager on the app. But it’s all the rage right now on the Barstool media front, and many Barstool fans outside of PA or other legal sports betting jurisdictions are downloading the app to check it out — even though they can’t place a bet on it (not yet, at least).
But the 35,000 downloads and, more telling, the approximately 12,000 first-time depositors (FTDs) are good signs for Barstool/Penn sports betting customer acquisition.
Will Barstool dominate PA sports betting out of the gate?
So, is there room in the market for Barstool to succeed? Of course. It’s a healthy and growing market, and Barstool showed good launch numbers and strong early adoption.
But will it immediately dominate and blow FanDuel and DraftKings out of the water? Likely not — but that’s not to say it won’t be able to compete.
As gaming analyst Chris Grove explained via Twitter on Thursday, expected handle for a weekend in September is around $90 million. Based on that figure, he says:
“If Barstool is expanding the market vs taking share, the number should get larger. Still … if you combine that with the other metrics Penn provided, you can reasonably shorthand this as ‘Barstool grabbed double-digit market share in PA on launch,’ which is obviously a good headline for the company.
“Things to watch for: (i) Do they make share or take share, (ii) how much of that handle was driven by promotional credits, (iii) what does the company tell us about second deposits, and (iv) how does the download to deposit hold up as they move out of early adopters?”
Making vs. taking market share
Clearly, much of this is yet to be seen. One fact to consider is Barstool’s high volume of loyal followers. Just look at the 150,000 downloads (83% of the total) happening in states where you cannot yet place wagers.
Based on that, it’s likely that Barstool is doing more expanding of the market (“making share”) vs. taking market share from existing operators. It’s not a far stretch to assume many “Stoolies” are following Davey into the sports betting market just as they did with stocks. And they’ll likely do the same thing in other legal markets as Barstool and legal sports betting expand into additional states.
But Barstool/Penn will still have to contend with other established sports betting brands and compete for market share in new markets too.
So, what do all the launch numbers and Penn’s stock sale tell us?
- Barstool sportsbook looks as if it will secure low double-digit market share in PA out of the gate, while also taking a meaningful share of and helping expand the sports gambling market.
- Barstool will likely be competing with DraftKings for second place in initial full monthly reporting. (Note: Barstool’s first full month of revenue will come in October.)
- And finally, Barstool is yet to pay off for Penn. While the partnership has certainly boosted stock prices in the short term and is saving Penn money on marketing/customer acquisition cost, Penn National’s cash flow problems appear to be lingering as gaming revenues slowly return to pre-pandemic levels and the company continues to invest in online betting infrastructure.