DraftKings + Barstool Sports = Yikes For Penn, ESPN Bet
Well, that escalated quickly.
Just a few months after Penn Entertainment sold Barstool Sports back to founder Dave Portnoy for $1 and shuttered the Barstool Sportsbook brand, we have more news from that awkward wind-down.
Great reporting from Sportico here, which says DraftKings and Barstool are in “advanced talks” on a marketing deal that is worth eight figures.
We’ll get to the DraftKings part of this, which is interesting. But the continued realization of how bad the Barstool Sportsbook failure and ensuing “sale” of the media company were continues to be a fascinating topic.
To recap:
Penn first bought a minority stake in Barstool and then the rest of the company for more than half a billion dollars in total. Its blended marketshare in U.S. sports betting ended up at less than 5%.
The company then negotiated a licensing and marketing deal with ESPN worth potentially $2 billion so it could rebrand as ESPN Bet.
As part of that new deal, Penn cut ties with Barstool, writing it off as a loss of more than $850 million and selling the company back to founder Dave Portnoy for $1 (yes, one American dollar). Penn also got the rights to some of the proceeds of a future sale, but Portnoy promptly said he would never sell and would instead give it to someone that’s already a part of his media empire.
So, things were already very not good for Penn on the Barstool side of things. The only positive was that they got out from under the Barstool purchase so that they could leverage the ESPN brand on the idea it had a higher ceiling in the U.S. market (which it certainly does).
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Now, we learn (assuming the report is true) that Barstool is back in the gambling marketing business, partnering with one of the companies that Penn is hoping to overtake in the gambling space. And this will happen only about six months after the sale to Portnoy.
Not great! Not only did Penn offload Barstool for nothing, but it also couldn’t even get a non-compete that kept Barstool from working with a competitor for a meaningful amount of time. This has to be one of the most lopsided negotiations in the history of the gambling space. While I’ve been a critic of Portnoy, he’s come out of this extremely well despite the fact that the company failed in creating a critical mass of sports bettors under the Penn umbrella. The whole thing was a bad idea, poor execution, or some combination of both.
The DraftKings deal also underlines what Penn should have done in the beginning: enter into a marketing and licensing agreement with Barstool to use their name. That would have been far less costly and would have been easier to cut ties while burning less money on fire. Of course, this is all easily said via hindsight; Penn thought it would be better to own the brand itself and be in control of its marketing arm entirely. Sitting here in 2024, we all know this was a giant mistake.
On the DraftKings side of things (more from Chris Grove here), I think the deal is fine, even though the temptation is to look at it through the lens of the Penn failure. DraftKings is just using Barstool as another marketing avenue (albeit one with an eye-catching pricetag). With Penn, it’s important to note that Barstool was most of the marketing and customer acquisition strategy, not just a small part of it.
DraftKings gets some branding, some acquisition, and some retention out of the Barstool deal. Barstool, despite failing as a proper funnel for its own sportsbook, is still very good at marketing products. Combined with DraftKings’ guidance and input, I’ll bet that DraftKings will do fine out of the deal, and will also succeed at funneling Barstool fans to casino.
The truly interesting part, as Grove notes, is the possible hit to ESPN Bet in all this. Despite not reaching its potential as Barstool Sportsbook, Penn still acquired a lot of users via Barstool. Penn tried to reactivate/retain those customers with a bonus at ESPN Bet in November. What will happen to those users? Do they stick around? Once Portnoy and his friends tell Barstool fans to go to DraftKings, will Penn lose some of those users? Given the nature and loyalty of the typical Barstool user, you have to imagine some will shift a portion of their wallet, if not leave ESPN Bet altogether.
So even if the deal itself is neutral or negative from a direct ROI standpoint, you get to screw with one of the companies that has a legitimate chance to eat into your marketshare. Seems like a smart deal to me.
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Sportsbooks and crooks. Like love and marriage, you can’t have one without the other. Great job by you !