PENN Entertainment is getting heat from investors regarding the direction of its business after The Donerail Group, a shareholder, published a letter last week.
The Pennsylvania company, based in Wyomissing, declined comment to PlayPennsylvania on Wednesday.
While PENN Entertainment has more three dozen retail Hollywood Casinos, including four in the Keystone State, the recent performance of its online gambling vertical has not met expectations, according to some shareholders.
PENN Entertainment CEO, Jay Snowden, has become something of a target of many important investors. That was clear in the Donerail Group’s letter to PENN’s board of directors.
Top shareholder questions PENN’s leadership
Over the last five years, PENN has experienced a lot of change in regards to gambling partners. After buying Barstool and selling it back late last year, PENN teamed up with ESPN, launching the ESPN BET Sportsbook in numerous states, including Pennsylvania.
ESPN BET Sportsbook has not gained the traction shareholders had been looking for, which triggered a response from The Donerail Group.
“After four years of effort, attention, and billions of dollars of shareholder capital invested, the Company has been unable to disintermediate the online sports betting landscape, as it had forecast,” The Donerail Group wrote.
“Moreover, the growing pattern of guidance misses, alongside a demonstrated unyielding appetite to continue to invest in the Company’s fledgling Interactive projects, irrespective of past results and without a clear return framework, has significantly damaged the credibility of this management team and Board of Directors (the “Board”).
“We question whether such credibility is beyond repair, as PENN’s shares are now down over 80% in the last three years because of such damage.”
The letter also called into question the Board of Director’s confidence in Snowden while paying him “exorbitant amounts of money.”
This note comes on the heels of PENN’s “excessive” use of the two private jets it owns, according to Earnings+More, which reported the company made made 621 flights in the past two-and-a-half years.
ESPN BET losing PA market share since launch
PENN has made major investments into online gambling that have not, yet, worked out.
The company completed the Barstool acquisition in January 2023, buying the media company for $550 million. Eight months later, PENN sold Barstool back to founder, Dave Portnoy, for just $1, and made a $1.5 billion investment in ESPN.
During that process, PENN announced a new partnership with ESPN, which hoped to be more of a success than the Barstool transaction. However, the results do not seem to be meeting expectations.
PENN’s investors presentation last August predicted that ESPN BET could generate up to 20% market share by 2027.
“We’re not doing this deal to be 4% or 5% market share players,” Snowden said in August. “That’s not going to be acceptable for us. It’s not going to be acceptable for ESPN.”
Despite those comments, ESPN BET is trending the wrong way, especially among PA online sportsbooks. The operator has completed five full months in the state, and has lost market share handle in nearly all of them:
- December: 8.9%
- January: 8.9%
- February: 7.9%
- March: 6.8%
- April: 6.4%
While the evidence is there that PENN’s online vertical hasn’t lived up to the hype, The Donerail Group said that the retail locations could be more than double the company’s current market capitalization.
Could PENN end up selling?
The Donerail Group proposed a solution for investors in its letter, stating:
“Given our understanding of the Company’s assets, however, alongside an understanding of the industry participants’ current strategic appetite to grow inorganically, we do believe that a sale of the Company’s assets, if undertaken, could generate meaningful and certain value creation for equity investors.”
Earnings+More speculated two candidates to buy PENN should it go that direction. The most likely of which could be Boyd Gaming, which would buy out PENN and then sell the interactive arm of the business because of the company’s 5% stake in FanDuel. An investment source said to Earnings+More:
“Boyd would be able to realize value from a sale of the interactive arm, which would reduce the multiple paid on the regional business.”
Hard Rock would be another option, as PENN’s regional business would be attractive, too. Earnings+More also predicted that Hard Rock would keep the digital business.
The direction of PENN can go any which way. Time will tell which way that will be.
