Timing — good and bad — is everything. And the timing looked perfect for Penn National Gaming.
The company made a bold play on Jan. 29 to enter the sports betting market, buying a huge chunk of the upstart bad-boy blog, Barstool Sports, as its entry wedge to a ready-made fanbase.
Penn National had big ambitions
Penn had already transformed from a lone horse track stuck in the middle of Pennsyltucky to a top regional casino operator with 41 properties in 19 states. The Barstool move was seen as an essential part of the company’s continued evolution, on the verge of joining the top tier of casino companies.
The company’s founder, Peter D. Carlino, died in 2013 after running horse race meets beginning in 1972 and then expanding the company incrementally over the years. The company made a significant play when it bought Pinnacle Entertainment in a cash-and-stock deal valued at about $2.8 billion.
And while that 2018 deal cemented the company’s status as a top regional operator, it also complicated further property buys due to prohibitions against economic concentrations in gambling markets.
The founder’s successor and son, Peter M. Carlino, who reigned for 25 years since the company went public in 1994, ratcheted back to emeritus status last May due to anti-trust issues raised by his other business holdings and the real estate involved.
Last November, longtime executive Tim Wilmott exited, executive Jay Snowden moved up, and there were other executive shuffles.
Penn looking to join the top tier
And then came the Barstool deal.
The buy of Barstool involved a 36% share of the then-booming sports and pop culture blog. In return, Barstool received $135 million in cash and $28 million in non-voting convertible preferred stock.
The deal also further allows Penn National to increase its ownership in Barstool Sports to approximately 50% after three years or earlier. That increase is up to Penn National and would require additional incremental investments.
Online sports betting plans center on Barstool
Penn planned to use the Barstool brand for its planned online sportsbook and online casino table games, while Penn’s established Hollywood Casino app would remain focused on online slots.
Penn’s big plan was to launch sports betting under the Barstool brand name in the third quarter. For Penn, Barstool is a way to springboard into the established online sports betting market with a built-in customer base.
As Snowden said:
“This exciting new partnership with Barstool Sports reflects our strategy to continue evolving from the nation’s largest regional gaming operator, with 41 properties in 19 states, to a best-in-class omni-channel provider of retail and online gaming and sports betting entertainment.”
Virus upends plans
And then came the virus.
While Penn National is still hiring toward an eventual Barstool launch, most of its more than 28,000 employees are home.
In PA, Hollywood Casino at Penn National Racing and Meadows Racetrack & Casino are shut down indefinitely as a precaution against the spread of the virus, as are the company’s 39 other gaming properties. But online wagering continues.
There are almost no sports in play, again to slow the spread of COVID-19. That means there is, of course, not a whole lot of live sports betting.
Work on Penn mini-casinos in York and Morgantown has halted, both due to state orders and to preserve cash, with no ETA on when construction might resume. The company used $430 million in credit as a lifeline, drawn from its $700 million in revolving credit.
Penn National sells assets to stay ahead of the wave
The company also announced a planned sale of two of their real estate assets to Penn’s principal landlord, Gaming & Leisure Properties (GLPI). That company is controlled by Peter M. Carlino, Penn’s former leader.
The deal means the real estate tied to Penn’s Tropicana Las Vegas property and also the halted mini-casino in Morgantown, PA, now is owned by GLPI. Penn will also have a future option to take over operations of GLPI’s Hollywood Casino in Perryville, MD.
In exchange, Penn got $337.5 million in rental credits, lessening the company’s financial obligations.
Tsunami washes over Penn’s stock
The company’s stock tells the story of its Barstool deal.
On January 29, Penn National was $29.02 per share. That was the day of the deal announcement.
When the deal closed on February 20, the company, which trades as PENN on NASDAQ, was priced at $38.17.
And then the bottom fell out, as it did for all gaming stocks. PENN reached the bottom on March 18 at $4.52 a share.
Lately, PENN shares have been in the $9-something to just more than $14 range. Shares closed Monday at $14.08.
What looked like a perfect wave rising in late January masked an impending economic tsunami.
Returning from the fall
Eric Schippers, a spokesman and vice president for Penn recently told a West Virginia news site it has frozen all spending but is discussing how it might come back when the time is right.
Under consideration are plans to turn off every other slot machine, close poker rooms and buffets, and place sanitizer misters in the ceilings. There is even talk of closing the facility every few hours for deep cleaning.
There was no mention of plans for Barstool.