Penn National positive on Barstool Sports deal

Even without real sports for the past eight weeks due to the coronavirus pandemic, it’s been a banner two months for media platform Barstool Sports.

The company, which is 36% owned by regional casino operator Penn National Gaming, saw blog traffic jump 20% during April while social media views across Twitter, Instagram, TikTok, and other accounts are up 50%.

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What does that mean for Penn National? Millions of dollars said one gaming analyst.

Penn spent $136 million for its Barstool stake to boost the casino operator’s push into retail sportsbooks and mobile sports betting while growing Penn’s online gaming presence.

“Penn will have its Barstool (sports betting) app running by the third quarter,” said Macquarie’s Chad Beynon, “and we believe the app (and the Barstool) database can be worth $10-to-$25 per share of equity over time.”

Penn National CEO Jay Snowden said Barstool’s database of 66 million viewers has grown since the companies announced their joint venture in January. Two months later, COVID-19 closed all of Penn’s 41 casinos in 19 states and shelved professional and college sports, including March Madness, the NHL and NBA playoffs, and opening day for Major League Baseball.

“(Barstool) continued to generate highly creative and engaging new content for their loyal followers stuck at home in April,” Snowden said on Penn’s first-quarter conference call Thursday. “April also represented their best ever commerce month, which speaks to the power of Barstool’s brand and it being about more than just sports.”

By marketing Penn’s retail sportsbooks as Barstool-branded and jointly launching the mobile sports wagering app, Penn hopes to infuse its 20 million-member customer loyalty program with Barstool’s younger demographic. Penn’s loyalty program is in the mid-50s. Roughly half of Barstool’s audience are Millennials or Generation X.

“Penn’s ability to acquire customers at a lower cost (without) a major customer acquisition investment this year, puts the company ahead of the pack for digital expansion,” Beynon said.

That message was one reason Snowden spent a great deal of time Thursday touting Barstool. Sports betting and the company’s “omnichannel” growth strategy are the focus elements as Penn’s casinos start reopening later this month and into June.

“We believe the Barstool brand and marketing engine should help drive meaningful market share as the product is introduced,” Snowden said, crediting the Barstool team, company founder Dave Portnoy, and CEO Erika Nardini. “Barstool has shown continued success in utilizing emerging platforms to expand its reach.”

Barstool’s primary Twitter feed has 2.3 million followers and 8 million followers on its Instagram page. Portnoy has 1.3 million Twitter followers and another 2.2 million Instagram followers. As a comparison, Penn National’s Twitter page has 14,000 followers.

Penn National CFO David Williams said the company will spend $8 million to $10 million to develop the sports betting app and rebrand its existing sportsbooks. He acknowledged new sportsbooks at Greektown in Detroit and Ameristar Black Hawk in Colorado. Michigan and Colorado recently became the 17th and 18th states to launch legal sports betting.

Penn’s shares shot up more than 15% on Thursday on the Nasdaq. The company closed the week at $18.43, which included another 1.38% bounce on Friday.

Snowden told CNBC Thursday that more states will legalize sports betting as a way to generate tax revenues lost as an economic consequence of COVID-19.

Union Gaming analyst John DeCree noted Penn’s shares are trading at where they were last August. The stock jumped to nearly $40 per share after the Barstool deal was announced.

“The business outlook for the iGaming and sports wagering in the U.S. has only improved since the pandemic and the opportunity to get in at a favorable valuation is knocking once again,” he said.

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