‘Portnoy Effect’ Moving The Market: What Does It Mean For Penn National, Other Gaming Stocks?

Posted on June 17, 2020 - Last Updated on June 16, 2020

Locked down at home, with little diversion available from sports, stimulus checks burning holes in their pockets, 1.5 million bored Barstool Bros who follow Dave Portnoy on Twitter have now been transformed into stock gamblers — investors is not the right word — via the influence of his recent role as Davey Day Trader.

He adopted the moniker after Penn National Gaming earlier this year bought a huge stake in Barstool Sports, a sports and lifestyle platform built on raunchy podcasts, Portnoy’s toxic ego and sports gambling blogs.

Penn’s 36% holding of Barstool, which is meant to be remade into the gaming company’s online and retail sports betting brand, meant Portnoy could not talk directly about investing in Penn stock, which hit a high of $38.17.

In the deal, Portnoy got $163 million in cash and stock, and Penn would have the option to buy more of Barstool.

And then boom for Penn — and Portnoy

And then in March, the virus shut down sports, crippled sports betting and closed retail casinos. For a stretch, that tanked the value of Penn’s stock, which bottomed out at $4.52 on March 18.

Overextended, Penn furloughed more than 26,000 employees, tapped a line of credit and sold new stock to increase cash flow.

From that financial carnage, Davy Day Trader Global (DDTG) emerged on several streaming platforms.

Portnoy routinely pushes gaming stocks

The trading day broadcasts are a mix of profane unscripted rants by Portnoy, denigrating others such as the Wall Street “suits,” Warren Buffet and Jeff Bezos, quiet tedium as he scans computer screens and outright boredom as he leaves for yet another cup of coffee.

Along the way, Penn National stock, which he mentions regularly, has come back, with recent prices in the $30 to $35 range. Indeed, he often mentions a fair number of gaming companies, such as GAN and DraftKings. Portnoy is invested in both companies.

DraftKings was in the $12 range when he began trading. Now shares are trading around $40, though the stock took a dip overnight, losing about 3%.

Interesting, since both gaming companies do business with Penn. Some might even say ethically questionable.

GAN touted its affiliation with PENN in an earnings report issued June 16.

As a recent story in Motley Fool warned of his performance antics:

“Ask yourself this: Does Portnoy have something to gain by touting his trading success as he bashes Buffett? He seems to, as most proprietary traders prefer to remain secretive about their activities just to avoid competing with the crowd. Buffett, meanwhile, lets his results speak for themselves.”

Driving casino stocks and possibly ‘pushing the envelope’

The fact that both GAN and DraftKings have business relations with Penn National leads full-time day trader Adam Mesh, whose office is on the same block as Barstool’s Manhattan office, to conclude that Portnoy’s intent is to drive gaming stocks higher.

That raising-all-boats approach pushing gambling shares provides a lift for Penn stock without blatantly pumping it up directly, Mesh thinks.

He’s pushing the envelope on Twitter,” said Mesh, likening Portnoy to businessman Elon Musk.

It’s blatant and ridiculous,” Mesh said of some recent stock moves, such as Hertz, another Portnoy stock buy that perked up after he touted it.

And while many of Portnoy’s picks are up due to a recent overall rally, some, like the bankrupt Hertz, defy all logic other than the “Barstool Effect,” says Mesh, who coined the phrase back in late April.

‘Stoolies’ follow Portnoy while he is Barstooling It

While his stock commentary during trading days is prefaced by a perfunctory warning not to take advice from him because he’s not a financial adviser, plenty of his millennial and Gen Z audience appear to have followed him into the market. He frequently touts subscribing to his DDTG feed to his casual viewers.

Follow him they have. His Barstooling It streams often have more than 100,000 viewers on a trading day. Some of his videos get more than a million views.

And yet Portnoy has said in a Yahoo! Financial story that he “can’t be held responsible for total idiots” who lose money based on his comments.

But “Stoolies,” as his followers are generally called, have often followed his trades. That includes gambling stocks, which now can be purchased without fees from many online brokerages.

Cautionary stories about Portnoy

And that seems to be part of an interesting ride for the market that has spawned a recent spate of cautionary coverage about Portnoy from the New York Times, Bloomberg, MarketWatch, MarketsInsider, Jim Cramer’s The Street, the  Wall Street Journal, the Motley Fool and more.

Most have pointed to his comments’ ability to move the market but have not taken note of him pushing stocks linked to companies doing business with Penn National.

Many of the stories reference the same LinkedIn post by Petter Cecchini, a former managing director at Cantor Fitzgerald. Cecchini’s recent post called the surge of young, inexperienced stock investors the “Portnoy Top,” partially driving a recent resurgence in the market.

Flood of new accounts

Just look at the flood of new brokerage accounts. According to the New York Times:

  • TD Ameritrade reported a record 608,000 new funded accounts during the first quarter, more than triple last year’s pace.
  • Schwab set a record too, with 609,000 new accounts — including 280,000 in March alone.
  • E-Trade had 363,000 new accounts, more than double the same period last year and another record.
  • And in early May, Robinhood said it had added more than three million accounts this year.

An ‘unholy, speculative mix’?

Cecchini’s LinkedIn message warned of Portnoy’s behavior and how it influences his followers. He wrote, in part:

“His attention-getting, wild style is emblematic of just how emotional and extreme equity markets are now. It’s both impulsive and compulsive. His behavior really just explains everything.

“When combined with easy access to markets through platforms like Robinhood (an online stock platform catering to young investors), it’s an unholy speculative mix.

“This may be the reason why David Portnoy just thinks stocks go up and up … can he really be serious? It’s not about him; it’s about what the rants represent.”

Cecchini concluded:

There’s absolutely no reason to own U.S. equities right now — unless one likes low to negative future returns.”

“Stocks are easy” — just ask Davey Day Trader

For his part, Portnoy’s latest mantra dismissing the worries of the “suits” from the Wall Street establishment is “Stocks are easy.”

And maybe they are for now, with federal stimulus money, no-cost brokerages and bored and naive sports fans willing to follow him into the great unknown.

As Nate Geraci, the president of an investment advisory firm, has also warned of Portnoy:

It’s really been a perfect storm. Investors are seeing firsthand the thrill of victory, the agony of defeat, and he’s doing it with large sums of money, so I think for younger investors, that’s really enticing.”

Portnoy, for now, is sticking with his advice: Ignore the suits, and “Stocks only go up.”

It makes for an interesting scenario as Penn National emerges from virus shutdown mode looking to create an online betting platform by fall based on Portnoy, who is both a brand and a person with lots of PENN and other gaming stocks in his portfolio.

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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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