Investor Criticizes Penn Entertainment's Acquisition of theScore

A significant investor has raised concerns about Penn Entertainment's strategic decisions, specifically targeting the acquisition of Canadian sports media and betting brand Score Media and Gaming.

In the latter half of 2021, Penn acquired Toronto-based theScore for approximately $2.1 billion USD (around $2.5 billion CAD at the time). The acquisition was touted as a move to enhance Penn's digital media and gaming strategy, aiming to create "a complete one-stop entertainment destination." Penn highlighted theScore's pool of Canadian engineering and technology talent as a key attraction.

However, in an open letter to Penn Chairman David Handler, the Donerail Group, a major investor in Penn, expressed doubts about the benefits of this acquisition. Donerail's managing partner, Will Wyatt, argued that theScore's integration has not delivered the expected returns and questioned the rationale behind the purchase. Wyatt pointed out that theScore, a relatively small company with less than $25 million USD in annual revenue, did not significantly boost Penn's revenue or size. Instead, the acquisition was primarily intended to advance Penn’s technological capabilities. Wyatt suggested that a more digitally experienced leadership might have achieved this goal more cost-effectively.

Furthermore, Wyatt noted that the promised "incremental $200 million+ medium-term adjusted EBITDA" from the acquisition has not materialized, and the leadership team from theScore has since left Penn.

Despite poor Q1 2024 results, including an 11.1% revenue drop in the Interactive division (which includes theScore Bet and ESPN Bet), Penn's CEO Jay Snowden defended the acquisition during a May 2 earnings call. He stated that theScore Bet is performing well in Ontario, holding a low double-digit market share in both online sports betting and online casino sectors. Snowden also announced plans to integrate theScore Bet's wagering functionalities into theScore’s sports media app, potentially extending this integration to ESPN Bet in the U.S.

However, amid broader disappointing results, the acquisition is under increased scrutiny.

Donerail Calls for Penn to Consider Selling

Wyatt criticized Penn’s performance in the online sports betting sector and suggested that the company consider a sale, arguing that its leadership has lost credibility. Over the past three years, Penn's shares have fallen by over 80%.

"After four years of effort, attention, and billions of dollars of shareholder capital invested, the company has been unable to disrupt the online sports betting landscape as forecasted," Wyatt stated.

Wyatt also questioned Penn’s $2.7 million CAD ESPN Bet venture, which posted an adjusted EBITDA loss of $196 million USD ($268 million CAD) in Q1 2024. Penn projects a $500 million USD ($682 million CAD) loss for its Interactive segment, which includes iGaming, in 2024.

"The pattern of missed guidance, coupled with continued investment in fledgling Interactive projects without a clear return framework, has significantly damaged the credibility of Penn's management team and Board of Directors," Wyatt added.

Wyatt urged the Board to objectively assess the past four years, consider the shareholder capital lost, and recognize that shareholders might be weary of ongoing investments in uncertain outcomes.

Following Wyatt’s letter, Penn’s shares rose by more than 15% on Friday, May 31. Wyatt claimed that a potential sale of Penn could be worth up to $6.9 billion USD ($9.4 billion CAD), compared to Penn’s current enterprise value of roughly $4.1 billion USD ($5.6 billion CAD).