ESPN Bet Launch Leads to Big Penn Entertainment Stock Drop
Company Loses Nearly $334 Million With ESPN Bet
Most analysts expected Penn Entertainment to lose money with the Nov. 14 launch of ESPN Bet. But nobody was expecting the types of losses the company announced Thursday. The company announced losses of $333.8 million, which in turn led to a 13.84% Penn Entertainment stock drop the same day.
J.P. Morgan analyst Joseph Greff stated: “Its interactive segment had a much (much) larger loss than what we were expecting, with a $334 million loss versus our $180 million loss and Consensus’ $151 million loss forecasts. We think investors were bracing for a wide range of interactive losses, but the magnitude of the absolute dollar value is, we think, surprising.”
The primary season for the staggering loss is the number of new customers who signed-up for an account – and the bonuses that went along with it. The company was expecting 1 million new customers for the year. Instead, they received that many in the first six weeks. That led to the company spending more money on promotions than was anticipated. New sign-ups received a $200 bonus, although that amount was cut in half right before the Super Bowl.
Penn CEO Jay Snowden tried to put a positive spin on the news when he broke it to investors, but the Penn Entertainment stock drop took place the same day. But Snowden also warned things aren’t going to turn around overnight. He expects another loss in 2024 and for 2025 to be a break even year, but they should show a profit in 2026.
Keeping Customers the Key
Now that Penn Entertainment has a good number of customers who do their sports gambling online, the key is going to be retention. If customers sign-up just for the bonus and bet with other sportsbooks after that money runs out, it’s a bad deal. That could lead to another Penn Entertainment stock drop. But if customers stick with ESPN Bet, it’s a good business strategy. The company is also trying to boost its parlay percentages. Bet ESPN has plenty of customers who partake in point spreads betting. But it does want to see more parlay action, where the house advantage is greater.
The fourth-quarter losses aren’t stopping Penn Entertainment from acquiring more gambling sites. Last week, the company announced it bought WynnBet’s mobile sports betting license in New York for $25 million. Snowden believes that’s huge for the company.
“This is an important development that will bring ESPN Bet to the largest regulated online sports wagering market in North America,” he said in a press release. “Together with ESPN, we’re building a brand that is synonymous with sports betting, and operating in the New York market is key as we grow ESPN BET across the U.S.”
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