Portnoy, Penn splitsville; Full House fire sale?


Like bad sex, the connubial bliss between Penn Entertainment and Barstool Sports ended abruptly. Cretinous Dave Portnoy becomes someone else’s problem child following the second-quarter-earnings revelation that Barstool was being sold back to its founder, jilted in favor of much comelier ESPN. Considering Penn’s down-market image, ESPN is doing the company a favor by lending its prestige to a company that has dragged its own name through the mud in pursuit of a sadomasochistic marriage to Portnoy.

“Well, it was fun while it lasted, but, in our view, the handwriting has been on the wall for some time,” wrote Deutsche Bank analyst Carlo Santarelli. “The Barstool partnership was not working, the risks were too significant, and PENN was at a crossroads.” Penn chose to “double down with a new strategy,” opined the pundit. He explained that Penn’s reversal “likely speaks to what is presumably a tough road for its core [brick-and-mortar] business on the horizon, as regional gaming rationalizes from post pandemic peaks and competition hampers performance at core PENN assets.” Barstool Sportsbook will become ESPN Bet. Santarelli believes this is in itself a positive, as the Barstool brand wasn’t what it was cracked up to be as a customer-acquisition tool. (Just a bunch of tools.)

Both Santarelli and J.P. Morgan analyst Joseph Greff noted that this was a risk-minimization move by Penn, ridding itself of Portnoy. The latter, Greff diplomatically put it, “has previously received mixed press and scrutiny by gaming regulators.” Portnoy gets his toy back in return for an undisclosed price (probably $0.00), a non-compete agreement and “other restrictive covenants.” Penn “also has the right to receive 50% of the gross proceeds received by Dave in any subsequent sale or monetization event of Barstool.” Greff concluded of the loudmouth that “the loss of Dave (for all the mixed press, he had an ardent social media following) and other Barstool Sports personalities is cushioned by PENN’s access to ESPN personalities.” We’ll say. We’ll see your Portnoy and raise you a Chris Berman.

Although Penn is keep untainted theScore in Canada, it will switch over to ESPN Bet branding in the nick of time for football. That’s the plan anyway. It’s getting the rights for a relative pittance: $1.5 billion for 10 years, plus the option to renew for 10 more. The sports giant can, in turn, buy up as much as 19% of PENN shares. There is also an incentive clause that grants ESPN even more stock warrants if ESPN Bet meets certain market-share thresholds. Greff saw the deal, which supersedes ESPN’s current relationships with Caesars Sportsbook and DraftKings, as somewhat of a boondoggle.

He wrote, “We don’t think either [Caesars or DraftKings] received much in the way of incremental EBITDA and, in fact, were likely sizable EBITDA drags. So based on the (limited) information we have as of today, we have a tough time seeing PENN benefiting (at least close to these long-term targets) when CZR and DKNG did not.” If anything, he added, the latter companies will benefit, in part from the breakup fees they should receive.

DraftKings shares dropped on news of the Barstool/ESPN switcheroo, on account of “(presumably) increased competition and promotional pressure (which we see as a reasonable interpretation) from an OSB/iGaming operator (in PENN) with very small current market share,” one that will have to promote its product more aggressively, particularly at a time when promo wars were finally normalizing. Greff cautioned that ESPN’s database probably overlapped heavily with those of DraftKings, FanDuel, BetMGM and Caesars already. Interestingly, the Penn divestiture comes on the heels of a 2Q23 in which interactive revenues shot up two thirds.

Not feeling the love were most of Penn’s casino divisions, with the Northeast flat and all other regions revenue-negative, as much as 15.5% in the West (read: Las Vegas). Greff called the numbers “softish,” while Santarelli shrugged them off as expected, adding that they were overshadowed by the sports-betting blockbuster news. Penn missed Wall Street‘s cash flow target by $5 million, so that lack of dismay is understandable. More ominously, management yanked its revenue guidance for 3Q23. Santarelli observed, “the guidance range, if provided, is migrating lower, given losses in Interactive are likely to be considerably greater, as PENN spends on marketing and promotions, in conjunction with the new ESPN deal.” Despite the interactive surge, digital operations were still a $13 million negative-ROI proposition, while $100 million in stock repurchases probably mollified some investors.

Regarding the guidance pullback, Greff agreed that “its Interactive guidance is going to be (a lot) different than before given ESPN/Portnoy taking back Barstool.” He had a long list of questions for Penn leadership, including the troubling “Is Portnoy really getting back Barstool Sports without giving any cash consideration to PENN?” What do you want to bet most of Greff’s seven queries go unanswered? In any event, the earnings call is likely to have the feeling of an anticlimax. If a $551 million charge appears on Penn’s balance sheet, though, in the form of a writedown of the Barstool purchase price, expect Wall Street to be very punitive.

Penn CEO Jay Snowden

For his part, Portnoy sulked in his tent, dumped by bromance partner CEO Jay Snowden. He complained that “We underestimated just how tough it is for myself and Barstool to operate in a regulated world. Every time we did something, it was one step forward, two steps back. We got denied licenses because of me,” he fibbed, adding, “I am never going to sell Barstool Sports ever. I’ll hold it ’til I die.” Funeral services will be held at a Penn-branded casino near you.

But seriously … the problem may not have been Portnoy’s big mouth and unsavory character. Argued Action Network, “Stoolies skew younger and have a lower net worth, meaning they have a shorter gambling outlook and fewer dollars to play with. Penn’s Barstool was also late to plenty of markets and its interface was abysmal next to market leaders in DraftKings and FanDuel.” Still, Penn has to be secretly grateful to be shot of a figure who recently cost the company $633 million in market capitalization by dissing it publicly. So long, Portnoy, and don’t let the doorknob hit you in the ass.

In the course of explaining how Full House Resorts could still finance construction of American Place in Waukegan, CEO Dan Lee quietly dropped a bombshell. He said the company had “a stable facility” with a private equity firm to take Full House private. In case one didn’t get the point, Lee added, “Our stock’s pretty cheap.” ($5.12 a share) Of course, that doesn’t mean Full House is necessarily falling into the incompetent clutches of private equity. It refinance its bonds, pay for Waukegan out of free cash flow from Chamonix in Colorado, or sell American Place to a REIT, as Bally’s Corp. is doing with its Chicago megaresort.

Lee seemed largely to be making a point. As he pointed out, Full House is in no hurry to build the permanent casino, especially with construction on hold thanks to resurrected Potowatomi Band litigation on losing out in Illinois for a casino license. However, The Temporary at American Place is only meant to last for three years, so what regulators will make of Lee’s careful ambiguities remains to be seen.

In a refreshing change of pace, Las Vegas sports books aren’t pouting about losing their shirts in the Stanley Cup playoffs. Bettors, wisely, took the Las Vegas Golden Knights for the win and were rewarded heavily. “I talked to a couple of our fellow operators here in town, and everybody was fine with it,” Westgate Las Vegas veep Jay Kornegay told Global Gaming Business. “We are still rooting for our Knights, our Raiders, our Aces and our Rebels.” Why mention the championship-defending Las Vegas Aces third? After the underachieving Las Vegas Raiders? What have the Raiders done from anyone lately?

Smoking in casinos is back in the news. Spectrum Gaming Group gets some of the credit, having seized on modest declines in slot revenue to bash Foxwoods Resort Casino and Mohegan Sun for banning tobacco from their premises. Mohegan Sun, it must be noted, has a cigar lounge at its parent casino and runs pro-smoking Resorts Atlantic City, so it’s engaging in a bit of double-talk here. CEASE, the anti-smoking advocacy group was quick to strike back at Spectrum, accusing it of carrying water for casino-industry reactionaries who want to keep smoke where it is. Said CEASE spokespeople, “this recent claim about casinos in Connecticut is now being shot down by Mohegan Sun and Foxwoods. We applaud these two casinos for making the decision many months ago to protect employees and guests from dangerous secondhand smoke.”

Penn Entertainment’s River City, St. Louis County

It may be necessary for St. Louis to have some casino operators of conscience. The St. Louis County Council, obediently doing Big Gaming’s bidding, overruled its own health department director, Dr. Kamika Cunningham. Against her recommendation it exempted casinos from a new ban on smoking in public areas. Instead, the county council passed a death sentence on casino employees, in part because Penn Entertainment whined about losing business to adjoining counties. The five present members of the council voted for keeping smoking on 50% of all casino floors, while two of their colleagues ran and hid.

As Americans for Nonsmokers Rights President Cynthia Hallett reacted, “The notion of a partial smoking policy in casinos is a failed attempt to address the serious health concerns of casino workers and only serves to appease the gaming and tobacco industries. The evidence is stark, and the message is clear: compromised policies compromise health.” We could hardly agree more.

Failed casino owner Donald Trump still has aspirations to get back into the business, down in Florida. However, leaving everything else Trump has done in his life aside, how can any self-respecting regulatory body award him a privileged license after a New York City judge found it to be “substantially true” that the convicted sexual abuser raped writer E. Jean Carroll. It would fly in the face of every common decency to give the orange-maned grifter a gaming license at this point. It wouldn’t happen in Nevada and it shouldn’t happen in the Sunshine State.

Speaking of Trump, he is the central figure in Stormy Daniels‘ memoir, Full Disclosure. Without getting into Daniels’ motivations for becoming sexually involved with the then-TV star (mainly to land a spot on The Apprentice), they hardly seem worth the trouble. Trump comes across as crashingly banal, a man so uninteresting that if he had a single brain cell it would die from loneliness. And the reputation of Harrah’s Lake Tahoe will never be the same. At minimum, sage should be burnt in the suite where Daniels and Trump did the deed. Perhaps an exorcism is in order.



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Mike McNamara

Mike McNamara

A Las Vegas Realtor since 2008. Mike has a wide range of knowledge around all things Las Vegas.

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