The conundrum of Barstool Sports and Penn Entertainment
“What’s the future of Barstool Sports and Penn Entertainment?” is one of the more interesting questions to ponder in the US online gambling industry right now.
I am not going to try to reinvent the wheel; here’s a good read this morning on the Barstool/Penn by the numbers over at Legal Sports Report.
That story briefly touches on a recent event where a content creator was fired over using a racial slur on a live stream.
Barstool founder Dave Portnoy chalked the firing up to regulators coming down on Penn/Barstool if the person in question remained employed. The firing was anecdotally (from social media) unpopular with both Barstool employees and fans. This column isn’t going to delve into the right and wrong of all of that, but suffice it to say I think it’s very easy not to say a word like the one in question when doing content and avoid the ensuing mess.
What it comes down to is this: In concert with the numbers behind the sports betting app, controversy past and future with Barstool brings into question if the juice is worth the squeeze.
Things I think about Penn and Barstool
Here are things I think I can say with some confidence about what Penn hoped when it acquired Barstool (as always, feel free to reach out to me if you think I’m wrong!):
Penn legitimately thought it was going to get well more than 5% of the market when it acquired Barstool. I would go so far as to think there was a belief that Barstool Sportsbook could challenge FanDuel and DraftKings for the top of the market. Yes, people can continue to say “it’s early” in the US sports betting market, but it’s not really clear how Penn changes its fortunes even minimally, let alone breaking into the top two. The value was always in the acquisition of users via fans of Barstool and its content channels, and that value has hit its ceiling, it seems (a bit more on that later, though). A better product is coming with the integration of a new tech stack, but will that move the needle? It can spend more on marketing, but that kind of defeats the purpose, and would likely also move Penn away from its goal of significant profitability for its interactive division.
Penn would be an also-ran without Barstool. As much as like to pooh-pooh the deal, Penn would likely have very little of the sports betting market without Barstool. Despite all the market access Penn has for sports betting in different states, it might be half of its current business without Barstool in a bull case, and possibly quite a bit worse.
Despite changing its name from Penn National Gaming to Penn Entertainment, Penn doesn’t really want to be a media company. It’s a retail casino/hospitality company and now also an online gambling company. Yes, it acquired two media companies (theScore, as well), but those acquisitions were focused on the opportunity in gambling. Penn is at corse a casino company; diversifying into media was meant to help that effort. Barstool is certainly a nice media company that has likely improved on that front since Penn first acquired a minority stake in 2020, but miss me with the idea that Penn bought it to get into the media business.
Penn didn’t buy Barstool with the hopes of flipping for it a profit later. That may be one possible outcome of all this, but again it’s not one I would say was a consideration when the original deal went down. The scenario that has been floated is Penn would sell the entity but retain the license to use the Barstool name and partner with them for content. Certainly, a return on investment of a sale would be a win for Penn, should it happen, but I’d say it’s revisionist history to say this was something that was foreseen as an outcome.
Barstool does have upside on generating new users. Yes, a lot of users have signed up because Barstool has their email or fans trust the brand, etc. But the content mill that is Barstool has not done a particularly good job of creating content that will convert new users at the bottom of the funnel. Barstool is a highly authoritative domain for search, and that authority is not being put to work adequately. Portnoy and the rest of the cast as influencers, betting podcasts and live steams, picks posts, etc. are all fine content for branding and retention. The value of the website itself as customer acquisition vehicle and potential search rankings goes underutilized.
What’s it all mean?
I’ll just say it rather than pretending: I’m not sure. I am also not sure Penn and Barstool know, either.
The recent content firing those has laid bare some underlying problems with the deal in the first place:
“Regulated gambling” and “controversial sports content creators” go together like filet mignon and peanut butter (if someone has made this and it tastes good, I don’t really wanna know.) It’s actually kind of crazy that Barstool hasn’t created far more of these moments for Penn over the years than the handful of examples we have seen.
Barstool is a round peg in a square hole. Barstool didn’t very much like being told what to do in this instance. They want to continue building the media empire without the strict parents telling them what to do. What makes Barstool special, like them or not, is they are a controversial and irreverent brand. You start neutering that, and the brand itself has less value. There were legions of Barstool fans decrying Barstool as sellouts in the wake of the firing.
It all just feels like it’s not going to work long term — there will be more pain than we have seen so far — and it feels like it’s going to get worse before it gets better.
History is also littered with my cold takes, so if you want to bet against me, make a bet on Barstool becoming the No. 1 sportsbook by revenue by 2030.
