Can Stock Offering & The Barstool Brand Lift A Cash-Strapped Penn National?

Posted on May 11, 2020 - Last Updated on September 11, 2020

Sometimes, it’s what you don’t say. And when you don’t say it.

For example, Penn National Gaming went looking for a cash infusion of $500 million from the stock market Monday morning, May 11. But it was the lack of mention of that plan that raised some eyebrows.

And the stock price moved lower Monday after the announced sale.

Updated May 13: The stock offering was upsized to $600 million.

No mention of PENN stock sale during investor call days earlier

Interestingly, during Penn’s Q1 earnings call Thursday, May 7 there was no mention of the planned stock offering.

Most of the Q1 call dealt with Penn’s “aggressive mitigation measures we have undertaken enterprise-wide to maximize and preserve our liquidity in response to the COVID-19 outbreak.”

The company has furloughed 26,000 employees and shut down brick-and-mortar expansion projects.

And the company tapped $430 million in credit as a lifeline, drawn from its $700 million in revolving credit.

Penn is beating the Barstool brand drum

Barstool received $135 million in cash and $28 million in stock in the deal with Penn National. The agreement called for Penn to invest another $62 million in Barstool within three years while boosting its stake in the company to about 50%.

Looking ahead to Q3, Penn officials mentioned investment in the Barstool Sports blog 25 times during the call, and its founder, Dave Portnoy, got two mentions during an upbeat projection of how Barstool will become a leading sportsbetting app and a retail sportsbook brand for Penn once the online wagering infrastructure is built out for between $8 million and $10 million.

Penn is a relatively staid company that hopes to tap Portnoy’s younger following of sports-crazed fans. Portnoy is often perceived as the opposite of staid.

Many of the upbeat PENN comments focused on Barstool building its audience despite the absence of spectators during the extended sports shutdowns. Penn followed up with a tweet about the growing Barstool audience.

Daily Beast story dropped the same day as Penn earnings call

Just hours after the Penn earnings call, the news and pop culture site Daily Beast dropped a scathing story quoting emails from Barstool editor-in-chief Keith Markovich telling four staffers the site is “hemorrhaging money” and warning one of them not to negatively write about an advertiser.

The full quote as reported by Daily Beast began: “Are you f***ing kidding me?”

It went on:

“We’re two months into a pandemic and the second Great Depression and we’re hemorrhaging money as a company. We need the dollars to stay in business and meet payroll.”

It’s f***ing Barstool. I don’t pretend to be professional,” the editor finished up when the four employees asked him to explain his tone and words. He had called one of the employees “super-retarded.”

Markovich later said his comments were meant to be satirical.

Barstool losing millions in advertising?

The story also quoted Portnoy as previously saying the site was “losing millions of dollars in advertising.” Portnoy had told Business Insider in an April 20 piece that the virus had cut his net worth in half.

However, Portnoy labeled the Beast reporter a “d***head” when asked for comment about his company’s financial condition.

Portnoy refashioned himself into Davey Day Trader to fill the content void after the value of his Penn stock took a dive.

So what does it all mean?

Actions speak louder than words

“Actions speak louder than words,” warns professional day trader Adam Mesh, whose company is two buildings away from Portnoy’s in Manhattan.

“They are selling stock because they are losing money. They are raising money. It’s a sign things are not going well. And the fact that they did not mention it in the call shows they are two-faced.”

He said he learned a life lesson when he worked as a lifeguard. And it seems to apply to Penn.

“When you see someone flailing his arms when he’s drowning, you think twice about going to save him because you may drown, too. Penn is throwing things at the wall and hoping something will stick.”

Can Barstool help Penn compete?

“But I don’t think this investment in Barstool moves the needle for them,” says Mesh.

“I don’t see Barstool competing with DraftKings. They may be on the right side of an idea, but I think it is going to take much longer.”

Regarding Portnoy’s new life in stock trading, Mesh says he’s seen Portnoy evolve somewhat as a day trader, becoming more skeptical of conventional wisdom.

But he added: “He’s still not looking at the numbers. He’s still out of control. He’s not looking at the technical aspects [of a stock’s value].”

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Written by
Kevin Shelly

Kevin C. Shelly is an award-winning career journalist who has spent most of his career in South Jersey. He's the former assistant city editor of The Press of Atlantic City, where he covered the casino industry and Atlantic City government as a reporter. He was also an investigative, narrative enterprise, and features reporter for Gannett’s Courier-Post.

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