This week sports history may have been made as ESPN dropped Barstool and entered into a new deal with Penn Entertainment. By doing so, they hope to dominate the red-hot sports betting market.
The $2B deal effectively scuttled Barstool Sportsbook for a new company ESPN BET. It will launch this fall in the 16 states where Penn Entertainment has a gambling license, per an ESPN press release.
“So ESPN’s not becoming the bookie,” media correspondent Dan Folkenflik told NPR. “That’s not going to be the site that you go to to place your bets. But it is essentially renting out its brand to Penn Entertainment, which had had an online betting outfit. It’s challenging some of the bigger named, you know, online bookie firms like DraftKings, FanDuel. And what they’re doing, essentially, getting $150 million and giving it to ESPN every year for the next decade and giving ESPN a stake of about $500 million to do so.”
This is a reversal for Disney, ESPN’s parent company, who once said they wanted no part of the betting business. But apparently, they do want part of the $600B it generates. In order to make the deal, Penn Entertainment, a casino and online gambling operator, sold Barstool back to founder Dave Portnoy for $1 after buying it from him last year for $136M.
“We underestimated just how tough it is for myself and Barstool to operate in a regulated world,” Portnoy said in a YouTube video announcing the sale. He was described in the past as a “degenerate gambler” who filed for bankruptcy in 2004 due to gambling debt.
“We got denied [gambling] licenses because of me,” Portnoy said. “So the regulated industry [is] probably not the best place for Barstool Sports and the type of content we make.”
That content has often been described as crude, racist, and misogynistic, but it hasn’t stopped him from using those very qualities to create Barstool, a multimedia sports company that started in 2003 as a four-page newspaper. Portnoy has over 12M followers on social media and says he now owns 100% of the company. He says there are no hard feelings with Penn Entertainment as he retains his stock ownership in the company which just got more valuable.
Portnoy says he now has free reign to do “content, content, content” and can now produce the kind he prefers without censorship. He says he’ll own Barstool until he dies. Though Portnoy once also said, “I’m uncancellable” and his brand of bro culture has won him and his company millions of fans, this renewed focus on content might mean rough days ahead.
He’s already been accused of sexual misconduct, threatened to fire employees who wanted to unionize, has used the “N” word several times, marketed gambling to college students, and published a “hate” list that included Michael Rapaport, Kanye West, Kyrie Irving, ‘99% of all politicians,’ and several media outlets and personalities.
With their decision to make sports betting legal in 2018, the Supreme Court opened up a free-for-all for dominance of the billion-dollar market.
In the deal with ESPN, Penn will pay the network $1.5 billion in cash over ten years. ESPN will get approximately $500 million of warrants to purchase approximately 31.8 million Penn common shares that will vest over that period, in exchange for media, marketing services, brand, and other rights. So basically ESPN has leveraged its name and brand to bolster Penn Entertainment’s presence in the betting space.
Companies like Draft Kings, Caesars Sportsbook, FanDuel, and BET MGM dominate the market, so it’s likely that ESPN, feels that combining their brand with Penn’s can help them compete.
“Our primary focus is always to serve sports fans and we know they want both betting content and the ability to place bets with less friction from within our products,” Jimmy Pitaro, ESPN Chairman said in a statement. “The strategy here is simple: to give fans what they’ve been requesting and expecting from ESPN. Penn Entertainment is the perfect partner to build an unmatched user experience for sports betting with ESPN BET.”
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