ESPN and Penn Entertainment, Inc. announced a landmark sports betting partnership on Tuesday that includes the launch of ESPN Bet, a rebrand of Barstool Sportsbook that would be ESPN’s first branded and exclusive sportsbook.
The 10-year partnership sees Penn paying ESPN about $2 billion combined in cash payments and share options over the next decade. ESPN Bet is expected to launch sometime in the fall, in the middle of the football season, but before Thanksgiving.
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The market has already reacted to the news as DraftKings, who is second in market share among sportsbooks, saw its stock drop nearly 10% since the Penn and ESPN announcement.
But what exactly could this partnership mean for both the sports media and sports betting industry?
TheStreet got the thoughts of Eric Tsytsylin, partner for brand strategy at Lippincott and Brandon DuBreuil, Head of Content at Covers, about how the deal affects the sports media and betting industry.
How could the deal affect ESPN and sports media?
ESPN is in a tenuous spot right now. Bob Iger announced last month that The Walt Disney Co. (DIS) -) is looking for strategic partners to help ESPN with content and distribution, and some of the candidates are big tech industry names like Apple and Amazon, according to recent reports.
ESPN has struggled to maintain its subscribers, and its major direct-to-consumer plan isn’t expected until 2025 or 2026, so Tsytsylin believes this partnership with Penn is essential because an exclusive sportsbook offers another revenue stream for the company.
“Strong, healthy brands balance strategic focus with flexibility: creating new categories, extending into new markets, and unlocking new revenue streams. Few companies do this better than Disney,” Tsytsylin told TheStreet. “It couldn’t come at a better time: as one [cord-cutting and streaming] erodes its core business, [sports betting] creates an opportunity for growth.”
He’s also bullish that the Disney company will find ways to be creative and leverage its brand to enhance the sports betting experience.
“This move is akin to the (long-rumored) idea of Nike launching its own secondary marketplace for sneakers: using one’s brand equity and built-in audience to capitalize on a meaningful trend and deliver unique value through one’s ecosystem,” Tsytsylin wrote. “For ESPN, that may mean a truly integrated viewing and betting experience, or product features and educational content that enable more responsible gaming.”
But while this is going to be ESPN’s first foray into its own sportsbook, the Disney company has not kept its hands clean of the gambling industry as it had partnerships with Caesar Sportsbook and DraftKings in the past, alongside several on-air betting shows and segments. That’s why DuBreuil is a little more skeptical about ESPN’s ability to make a significant change.
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“ESPN itself has already been involved in the sports betting space via content for quite some time,” DuBreuil wrote. “Sure, we’ll likely see more betting content from ESPN in the coming years, but it’s not like this is brand new for ESPN.”
Another contentious point that may change in the sports media world is the the integration of gambling alongside companies that implore journalists and also partner with leagues through media rights deals. Looming over this point is that ESPN is reportedly also exploring selling equity to leagues like the NBA and NFL.
But DuBreuil isn’t too worried about this, again citing that this has been practiced in the industry for a while.
“[It’s] important to remember that ESPN won’t be controlling the sportsbook operation,” DuBreuil wrote. “Penn will set the odds, move the markets, and deal with the risk. You can also be sure that ESPN’s journalists and their inside information will be kept far away from Penn’s trading room. It is not worth the risk of having ESPN being seen as manipulating betting markets.”
How could the deal affect the world of sports betting?
FanDuel and DraftKings rule the sports betting space with the two combining for about two-thirds of the market share. Barstool Sportsbook only had about 3% of market share before this acquisition, so Penn is betting big that the brand equity of ESPN will eat into the market leaders and allow them to be a third major player in the market.
“We have learned a lot over the last few years about the recipe for success in the sports betting industry… It all starts with brand recognition among sports bands,” Penn Entertainment CEO Jay Snowden said during their Q2 earnings call on Wednesday. “There is not a brand more powerful in this space than ESPN.”
Snowden also pointed out ESPN’s massive fantasy and casino database and other media integrations as a key piece to the success of the sportsbook.
This seems like attractive logic, but DuBreuil points out that many companies have tried and failed to combat the two leaders, including another media outlet in Fox which announced at the end of July that it would be closing Fox Bet.
“I’m not convinced ESPN Bet changes much in the US sports betting landscape,” DuBreuil wrote. “Sure, it looks like ESPN joining the industry is a big shift but it’s important to remember that the professional leagues themselves are already on board with regulated sports betting, and all of them have numerous official sportsbook partners already … Mainstream media accepting sports betting is not new.”
DuBreuil said that it’s not just brand recognition, but also the quality of the product technology that people look for in sports betting. And its what has set apart the two leaders is their superior product.
“At least out of the gate, ESPN Bet is going to be an inferior product than what is already available in the market — and we know this because at launch this fall it will simply be a reskin of Barstool Sportsbook,” DuBreuil wrote. “One of the big reasons Barstool didn’t succeed is because other products, namely FanDuel and DraftKings, are far superior for the user … Penn has a lot of work ahead of it to catch up to the market leaders in terms of product.”
Though Snowden did say that developing the technology is another major part of the business model, it may take a while to catch its competitors, especially given how close the launch is.
PENN Entertainment CEO Jay Snowden has opened the company's Q2 earnings call by speaking on the ESPN Bet deal. It's expected to launch this fall.
— Colin Salao (@colincsalao) August 9, 2023
Attached are some of the key slides of PENN's presentation. pic.twitter.com/uaK7xprTDo
There are clearly different viewpoints to this partnership and its overall effect on the sports media and betting world, and the answers will come in the months and maybe years to follow.
