Opinion: Is ESPN a losing bet for Penn?
Sharpr is a weekly newsletter covering the intersection of esports, betting, and Gen Z.
Hi everyone, Cody here.
Today’s story may feel like a departure from our regular coverage, but it’s part of a recent expansion to include the next generation of consumers (Gen Z) in the conversation and deliver the news through that lens. This is an organic evolution of Sharpr that I’ll speak to in greater detail at a later time as to why we made this change and what you can expect as a reader.
But first, we’re taking an in-depth look at the watershed deal between ESPN and Penn Entertainment, and more specifically, whether the sportsbook operator gave up the advantage when it released Barstool this week.
Let’s dig in.
Opinion: Is ESPN a losing bet for Penn?
After a few years of rumors that ESPN would make a play in sports betting, the company is finally seeing its day after striking a landmark deal with Penn Entertainment on Tuesday to launch a branded sportsbook.
ESPN BET will debut in the United States in November in 16 states where Penn is licensed.
The deal will cost Penn $2B, including rights to the ESPN brand, a $150M monthly marketing commitment over 10 years, and $500M in warrants to purchase its stock.
Penn has also divested Barstool Sports, the digital media company it acquired for upwards of $500M to serve as the face of its US sports betting operations.
The news has been covered high-and-low, so I’ll spare everyone any more of a backdrop here, nor will I try to undercut any of the incredible reporting that’s come out already on this story.
This is far from a one-dimensional announcement with reporters rightfully asking what role ESPN’s insiders may play here, how the media giant could be poised for a spinoff from Disney through the agreement, and the insufferable Twitter (X?) threads about how Dave Portnoy is secretly the shrewdest businessman of our generation. There is truly a lot in play here.
But my question is this: is ESPN a winning or losing bet for Penn Entertainment?
My initial reactions were that Penn traded access to a younger demographic for a more mature customer cohort and marketing channels. Most people thought this was a good thing, and maybe it is, but it felt like this move was giving up the high ground.
Looking past the 5% OSB market share Barstool Sportsbook holds in the US, Penn’s strategy with the media company seemingly had all the ingredients of a successful partnership.
Barstool has the type of street cred and reach among younger fans that you’d expect to move the needle, claiming to reach more than 66M users monthly, 46% of which are between 18 and 34-years old.
This young Millennial and Gen Z cohort represents the minority of the US sports betting industry where bettors 35-and-up represent 61% of the market. For most operators, Millennials, Gen X and Boomers are the coveted demographic, so in theory, targeting the niche and attempting to own that slice of the market could have given Penn an edge over juggernauts DraftKings and FanDuel.
To an extent, it did. Last year Penn said that customers between 21 and 44-years old accounted for roughly 20% of its revenue, a figure that had doubled over the past several years since partnering with Barstool.
Not only did Barstool meet next generation, cord-cutting fans where they were, but Portnoy’s media company also delivered content through more relevant means. Younger fans are consuming sports differently, ditching live TV and in-depth stories for social media highlights, podcasts, and influencers. For example, 48% of the content Gen Z consumes comes from creators versus produced content.
On the other hand, younger consumers are watching and betting less on sports in general. Approximately 62% of Gen Z adults say they’d never bet on sports and 73% said they aren’t even interested in sports altogether.
So while ESPN may not reach a unique audience in that sense, there’s no questioning its ability to get in front of that core demographic of 35-and-up sports fans. But it also puts them squarely in the ring with DraftKings and FanDuel competing for the same customer cohort.
Penn CEO Jay Snowden said during the company’s quarterly earnings call this week that its deal with ESPN is “not a typical media sportsbook commercial agreement.” He added that comparisons to other media deals were “apples to eggplants,” and that no other company can stand up to ESPN’s brand resonance.
ESPN’s brand equity is somewhat tough to argue, but still, by that logic, arrangements with theScore and Barstool would have panned out better if they converted users the way they were intended to. Penn is running the exact same playbook, just in a league with far more competitive opponents.
The company says it won’t be “cheap” in its launch strategy this Fall, noting it would spend an additional $150M on marketing outside of ESPN.
If Penn’s strategy is to get on the podium by competing on capital and playing the market share game, then good luck.
Customers don’t reward excessive bonuses beyond an initial bump in registrations, unless of course you can afford to play the long game, although this has historically ended in operators bleeding themselves out in an endless cycle of player subsidy.
We’ve seen this a dozen times already: bettors gleefully take up free money from sportsbooks then immediately transition right back to whichever platform they enjoy most from a product standpoint. Operators are left holding the bag and are forced to close up shop.
In my eyes, the key for ESPN BET will be to come out of the gate with:
A strong and proprietary product that not only comes out of the box with speed and functionality, but exclusive features that can differentiate them from other sportsbooks.
An organic marketing strategy that successfully leans into the emotional connection associated with the ESPN brand and its relationship to timeless moments in sports, because let’s be honest, nostalgia is a great motivator.
In the end, until US operators can reach that inflection point in the market, they are paper tigers. Yes, ESPN looks great on paper, and so does Fanatics. But by that measure, especially from a legacy media tie-in perspective, so did Fubo, Fox, theScore, and Barstool.
🗞 In the news
Fantasy esports platform Clout Fantasy has launched a desktop app.
GG.BET has received a Ukrainian betting and casino license.
Eilers & Krejcik has published its US sports betting forecast.
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Disclaimer: All opinions expressed are solely my own.