ESPN is finally getting into sports betting.
The Disney (NYSE: DIS) unit is partnering with Penn National (Nasdaq: PENN) to rebrand its Barstool Sportsbook as ESPN Bet, which will launch in the 16 states where Penn is licensed later this year. Alongside the transaction, Penn has agreed to sell 100% of the full Barstool media company back to founder David Portnoy “in exchange for certain non-compete and other restrictive covenants.”
Penn has agreed to pay ESPN $1.5 billion in cash over the initial 10-year agreement for ESPN Bet, according to a statement. The company will also grant ESPN approximately $500 million of warrants to buy 31.8 million Penn shares that will vest over the next decade. ESPN could receive a bonus of up to 6.4 million more Penn shares if ESPN Bet hits certain undisclosed thresholds.
The news ends years of speculation about whether (and how) ESPN might eventually wade into the booming U.S. sports betting industry. Up until now, the company has partnered with sportsbooks like Caesars and DraftKings on advertising and odds partnerships, but it had stopped short of putting its name on a sportsbook.
Penn stock jumped as much as 30% in after-hours trading on the news. Disney stock stayed relatively flat.
“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,” ESPN chairman Jimmy Pitaro 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.”
In short, Penn is going from one media partner (Barstool), to another (ESPN). Its been common for media companies to launch branded sportsbooks to try to capitalize on their name recognition and traffic, and many have struggled to gain significant market share. The biggest sportsbooks in the country, by contrast, are either former fantasy sports startups (DraftKings, FanDuel) or gambling legacy brands (BetMGM, Caesars). Fox Bet, one of the first of these tie-ups, will cease operations in the coming months.
Penn purchased Barstool in a series of transactions, all hinged around converting the site’s rabid fanbase into avid customers. Penn initially paid $163 million for 36% of the company, then bought the other 64% for $388 million, for an implied valuation of about $606 million.
As part of the Barstool divesture, Penn said it will also receive 50% of the gross proceeds Portnoy gets in any subsequent sale. Portnoy said in a video posted on social media that the company would return to its “pirate ship” style from before the acquisition.
“For the first time in forever we don’t have to watch what we say, how we talk, what we do,” Portnoy said.
He also admitted that operating a regulated sportsbook was harder than he thought it would be a few years ago.
“We underestimated just how tough it is for myself and Barstool to operate in a regulated world,” he said. “We got denied licenses because of me, you name it. So the regulated industry is probably not the best place for Barstool Sports and the type of content we make.”
ESPN Bet will now become the exclusive sportsbook of the ESPN family, and Penn National will receive odds attributions and access to ESPN talent, among other services.
(This has been updated in the headline and throughout the article with additional details of the deal.)
