ESPN Bet may shut down in 2026 as Penn Entertainment (NASDAQ: PENN) considers packing up the sports betting project.
Penn Entertainment entered a 10-year contract with Walt Disney to relaunch and rebrand its sportsbook as ESPN Bet in 2023. Both companies hoped to make ESPN Bet a household name and a major competitor to DraftKings, FanDuel, and BetMGM.
Nearly two years since the agreement, the sports betting unit has struggled to build sustainable momentum or reach expected numbers.
Penn Entertainment and Walt Disney agreed to a $2 billion deal that will run for 10 years in August 2023. However, both firms agreed that either of them may walk away from the contract after the first three years. Jay Snowden, Penn CEO, is now open to exploring this clause based on recent comments during the company’s fourth-quarter earnings conference call last week.
“But if for whatever reason we’re not hitting the levels that we need to, then obviously as you’re approaching that third anniversary, you have a three-year clause in the contract that both sides will have to do what’s in their best interests. And so, that’s always out there.” Snowden says in response to a question from Deutsche Bank analyst Carlo Santarelli.
While ESPN Bet is yet to reach two years in the industry, Penn expected a better outing than the brand’s current reality, especially since the operator suffered a major acquisition loss for the deal. Penn had purchased Barstool Sports but resold it to founder David Portnoy for $1 to pursue the ESPN Bet project. The objective from the start was to make the sports betting brand one of the top three industry’s titans, earning it a ‘podium’ spot.
Snowden mentions “When we announced our partnership with ESPN in the summer of ’23, both sides of this partnership made it very clear that we expected to compete for a seat at the podium and we’re not on pace right now to do that.”
DraftKings and FanDuel lead the industry in market share, while BetMGM sits at a distant third, barely holding off Caesars Sportsbook. Penn expected ESPN Bet to displace BetMGM and Caesars. However, the brand is currently struggling with a 2.35% share, making its goal of hitting a 20% share by 2027 near impossible.
Since setting up the contract, Penn stock has plunged by 32.69% in the last two years, and the company will likely cancel the deal in 2026. A number of investors are supporting this motion, making Snowdon's recent statements even more significant.
Hedge Fund HG Vora is set to take on Penn in a proxy battle, pushing for three board seats by capitalizing on the operator's supposed missteps in the sports betting space.
Donerail Group, another Penn shareholder, shares the sentiment of the Hedge Fund. In a letter to Penn’s board last May, the company mentioned that the company is failing in sports betting.