The recent collaboration between PENN Entertainment and ESPN, encapsulated in the formation of ESPN Bet, holds one main objective at its core: securing a stronger foothold in the cutthroat online sports betting arena, with a keen eye on New York's tantalizing market. This ambition finds its basis in New York’s expansive sports betting ecosystem, which currently evades PENN due to licensing restrictions.
The terms of the $2 billion deal stretch over a decade, with provisions to extend it for another ten years. Yet, a notable clause suggests that the partnership might dissolve prematurely—just after three years—if the duo falls short of certain market share targets.
Though PENN CEO Jay Snowden remained tight-lipped about these specifics during a recent discussion, he unequivocally underlined the partnership's aspirations. The modest 4-5% market share, currently held by PENN’s Barstool Sportsbook, will simply not suffice for the new alliance. The repeated emphasis on "getting on the podium" hints at ambitions to surge into the top three operator slots.
Given the current landscape, PENN faces two primary challenges. Firstly, boosting its market share from the modest 4% to a robust 20%, which would catalyze stock bonus incentives. Secondly, and arguably more daunting, is maneuvering its way into New York's coveted sports betting circle.
New York's stringent policies present a formidable barrier. A limited list of nine operators received New York’s stamp of approval two years ago through a competitive bid. While Barstool had initially partnered with Fanatics for a slice of this pie, the bid was unsuccessful. Though Fanatics is on the brink of making its NY debut via its prospective acquisition of PointsBet, options for PENN remain constricted.
Suggestions of expanding New York's operator pool have been circulating but have yet to see any legislative momentum. Consequently, akin to Fanatics, PENN might have to opt for an acquisition strategy. The behemoths like FanDuel, DraftKings, Caesars Sportsbook, and BetMGM remain unattainable. Other players like Bally BET, WynnBET, and BetRivers, owing to various strategic reasons, appear off the table for acquisition as well.
This points to Resorts World Bet as the most probable entry point for PENN. However, complications arise as Resorts World harbors aspirations for a comprehensive casino license in New York, which could dissuade them from selling their platform.
Snowden, fully cognizant of New York's imperative role in actualizing PENN's objectives with ESPN Bet, recognizes the hurdles. Despite the state's hefty 51% tax on operator revenues, Snowden remains optimistic. He highlighted ongoing backstage efforts to secure a position in New York and alluded to innovative strategies that could expedite ESPN Bet’s entry.
He emphasized the significance of being a major player in pivotal states. Although the current profit margins in New York might be slim, the potential for database cultivation and future collaborations with the state could reshape the operating landscape, benefiting both the state and the operators.
In this evolving scenario, it's evident that PENN's aspirations, combined with ESPN’s clout, are steadfastly directed towards conquering the challenges posed by the New York sports betting domain.