ESPN BET Loses Market Share, BoA Slashes Price Target for PENN Stock

ESPN BET Loses Market Share, BoA Slashes Price Target for PENN Stock

 

ESPN BET-operator PENN Entertainment is struggling to grow and even maintain its branding partnership with the “Worldwide Leader in Sports.” Of course, ESPN BET launched its sportsbook in mid-November of 2023.

ESPN BET made up 8.1% of the market in November 2023, had a market share in online sports betting of 3.7% in March

The sportsbook made up 8.1% of the market in its first month, exceeding initial projections. ESPN BET was on pace to represent between 10-20% of the market share by 2027, per Business Insider’s James Faris.

However, those higher percentages seem improbable now. Six months later, its market share in online sports betting in March was 3.7%, an increase from a disastrous 2.5% in January, according to Bank of America.

Bets on the online platform are only a fraction of what DraftKings and FanDuel bring in. This news also comes a little over a year after PENN sold Barstool Sports for just $1 and reached a multi-billion-dollar deal with ESPN.

A number of industry experts labeled the move a brilliant strategy in 2023. Who could have imagined that ESPN BET would be performing worse than BETMGM, especially after the NCAA’s March Madness?

Things will only get worse for ESPN BET if it doesn’t start performing better than Barstool Sportsbook. According to BofA, the firm’s gaming analysts downgraded the sportsbook’s stock to neutral and slashed its price target by 37.5%.

Penn’s interactive segment headlined by ESPN BET lost about $200 million on an adjusted basis in the first quarter. For the online sportsbook to break even, its market share would have to double from its 3-4% range, per Bank of America gaming analyst Shaun Kelley.

PENN Entertainment’s online sportsbook’s promotions make up almost 50% of its gross gaming revenue

It should be noted that ESPN BET’s promotions make up nearly 50% of its gross gaming revenue (GGR). GGR is the revenue that a company takes in from bets after paying out winnings. On average, promotions for licensed sportsbook operators comprises about 30% of their GGR.

According to BofA, the best method ESPN BET can utilize to recover is to “grow revenue while cutting costs by building a loyal customer base that wagers frequently with limited promotions.”

That’s easier said than done. The legalization of online sports betting in the U.S. has only expanded the competitive market and will continue to do so for the foreseeable future. A total of 38 states and Washington D.C. offer some form of legalized wagering.

At the moment, PENN is actively working on enhancing ESPN BET with improved parlay bets and account sharing. Even then, those tasks on the agenda are still months away for the sportsbook’s members.

If ESPN BET manages to draw in new customers during the 2024 NFL and college football seasons, PENN will still be still facing a $300 million hit during the second and third quarters, per BofA.

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