Major acquisitions typically trigger all kinds of shifts within an organization, and most significantly, rounds of layoffs follow an acquisition event.
This is typical in the normal course of (big) business, or at least, that is the angle the CEO of one of the biggest sports betting companies is taking to justify his organization’s latest round of layoffs.
Jay Snowden, CEO of PENN Entertainment, notified staff members in an internal email that the company is letting go of about 100 employees, CNBC reported Thursday.
“When PENN acquired theScore, we hit the ground running with the build-out of our proprietary tech stack and the migration of our sportsbook to theScore’s best-in-class platform,” Snowden wrote in the memo. “This led us to temporarily set aside any potential organizational changes that would typically follow a major acquisition.”
The company is poised to embark on a new phase of growth in its interactive business, which includes ESPN BET. Truist gaming analyst Barry Jonas commented that PENN’s release of new ESPN BET features this fall during football season should meaningfully improve its product.
Impatient peanut gallery
ESPN BET came with a $1.5 billion price tag for PENN to link up with Disney’s ESPN for the online sports betting site, which followed the over $550 million PENN spent to acquire 100% of Barstool Sports between 2020 and 2023 to brand Barstool Sportsbook. Investors are growing impatient with PENN’s management of ESPN BET, however, questioning the company’s sustainability in the online sports betting and iGaming space.
The Donerail Group, one of PENN’s major shareholders whose group has invested in the company for over a decade, recently scrutinized PENN leadership and even called for a sale of brick-and-mortar assets to cover the massive losses sunk into the online sports betting business.
“While we understand that ESPN BET appears as the Company’s newest bright and shiny object that may very well have significant value under the right owners, we ask that the Board take a moment to reflect objectively on the past four years of execution, assess the shareholder capital that has been destroyed, and recognize that shareholders may simply be tired of continued gambling on uncertain outcomes,” wrote Donerail Group managing partner Will Wyatt in the public letter published in June.
Uphill battle
Barstool Sportsbook was PENN’s first foray into the post-PASPA era of legal sports betting in the US, which was eventually rebranded to ESPN BET in 2023. Neither sportsbook play has yet to eclipse double digits in national market share since the Supreme Court struck down the federal wagering ban in 2018.
Even at a 10% market share, it could take PENN years to break even from the previous expenditures, especially considering how ESPN BET has performed out of the gate.
Although the launch of ESPN BET drove more than one million downloads and expanded PENN’s digital database by more than 50%, PENN reported a 12% year-over-year decline in Q4 revenue and missed its target by 10%.
The company reported net income of almost $222 million in 2022 but lost nearly $500 million across its entire business in 2023.
The Barstool deal will also be recorded as a write-off of over $900 million. Other major casino brands like Caesars and BetMGM are starting to show profits after years of losses, while Wynn and Churchill Downs have effectively ended their online gaming efforts after far smaller investment losses than PENN's.
