ESPN Forays into Sports Betting with Penn Deal

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ESPN, a subsidiary of The Walt Disney Co., has entered into an exclusive agreement with regional casino operator Penn Entertainment Inc to launch in the sports betting industry.

Under the terms of the deal, Penn National will rebrand its Barstool Sportsbook as ESPN BET and launch the platform in 16 states where it currently holds licenses.

Related: Penn Entertainment finalizes Barstool Sports deal.

The agreement will also see Penn sell 100% of the Barstool media company to its founder David Portnoy "in exchange for certain non-compete and other restrictive covenants."

According to an official statement, ESPN will receive $1.5 billion over the duration of 10 years in cash from Penn. The latter will also offer approximately $500 million of warrants to purchase 31.8 million Penn shares, which will become vested within the next ten years.

Additionally, ESPN could gain a potential bonus of up to 6.4 million more Penn shares if ESPN BET achieves specific undisclosed thresholds.

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. 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.

Jimmy PitaroESPN Chairman

ESPN's Future in Sports Betting

For a number of years, there had been speculations about whether ESPN will foray into sports betting. While ESPN had collaborated with sportsbooks such as Caesars and DraftKings for advertising and odds partnerships, it had refrained from directly associating its name with a sportsbook until now.

With the latest development, ESPN BET will now become the sole sportsbook within the ESPN network. In return, Penn National will gain odds attributions, access to ESPN's talented personnel, and various other services.

Following the partnership announcement, Penn's stock surged by up to 30% during after-hours trading while Disney's stock remained relatively stable.

Barstool Divesture

ESPN is the second popular media company Penn will partner with in recent times. In 2019, Penn acquired Barstool through a series of transactions with a strategic focus on converting the active fanbase of the site into dedicated customers.

However, the mobile sportsbook has fallen behind other prominent operators, and its association with Barstool and its founder, Portnoy, has exerted negatively on the company's stock.

It is therefore not surprising that with the new ESPN deal, the American entertainment company is now closing the chapter on Barstool and relinquishing ownership by selling it back to its previous owner.

However, Penn stated that it will receive 50% of the gross proceeds Barstool makes in any subsequent sale.

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