As PENN Entertainment mulls whether to consider an acquisition bid from Boyd Gaming Corp., a recent report suggests Flutter may enter the fray.

According to a July 5 report from TheDeal.com, Flutter is “sizing up” certain assets of PENN Entertainment, a gambling company that owns more than three dozen casino properties nationwide. A potential power play by Flutter to acquire ESPN BET could present the latest shakeup in a rapidly changing domestic sports betting market. Less than seven years since the historic PASPA decision, the market has already undergone dramatic shifts as a host of mid-sized sportsbooks have shuttered operations. Large-scale industry consolidation has created a market that is predominantly controlled by a handful of major operators.

Last month, PENN shares spiked amid reports that Boyd approached the company about a potential acquisition bid. A bid for PENN by Boyd is fraught with complication considering that the latter is the smaller of the two. When reports surfaced last month, PENN was trading at around $20 a share for a valuation of roughly $9 billion — considerably higher than the $7.8 billion valuation Boyd had at the time. Outside of its retail properties, Boyd owns a 5% stake in FanDuel Group.

Flutter, the parent company of FanDuel, moved its primary listing to the New York Stock Exchange this spring. Despite the move, Flutter is still listed overseas on the London Stock Exchange.

As is the case in nearly every industry, tri-party deals are typically rife with complexity. In 2021, rumors surfaced that MGM Resorts, DraftKings, and Entain may have considered one surrounding the future of BetMGM. At the time, DraftKings made a $22 billion cash-and-stock bid for Entain, one that practically doubled a previous offer by MGM Resorts months earlier. In the end, a deal never came close to materializing as DraftKings withdrew the bid.

Based on simple logic, a merger becomes exponentially more difficult to complete when additional parties appear at the negotiating table. Further complicating matters, numerous other parties would need to sign off on a deal, Deutsche Bank analyst Carlo Santarelli wrote in a July research note. This includes Gaming and Leisure Properties, Inc., a real estate investment trust that owns PENN’s retail casino properties. With the future of ESPN BET at stake, a transaction would require Disney’s consent. From a financing standpoint, a potential transaction will involve a good amount of capital markets participants. Finally, a multibillion-dollar deal could bring anti-trust concerns, requiring potential approval from the Federal Trade Commission.

— BostonianVsTheBook (@BostonVsTheBook) July 8, 2024

On the management side, however, the companies have familiarity with one another. In April, PENN appointed former Disney Entertainment Chief Technology Officer Aaron LaBerge to lead the company’s online division. Last week, Flutter made two additions to its Board of Directors, including the appointment of former Disney executive Christine McCarthy. At one point, McCarthy served as chief finance officer at Disney. Boyd, meanwhile, recently appointed former Barclays banker Michael Hartmeier to its board, fueling speculation that it could be pursuing an M&A transaction.

The M&A rumors have picked up steam in recent weeks after activist investor Donerail Group issued a letter to PENN shareholders calling for the sale of the company. The investor expressed criticism toward PENN for perceived profligate spending on the digital side.

Last August, PENN and ESPN announced a transformative deal that led to the launch of ESPN BET. Given the network’s universally recognized brand, the transaction represented the first time a major network lent its name to a new sportsbook in the U.S. Wayne Kimmel, a prominent venture capitalist with Seventy-Six Capital, believes the operator can eventually vault to the top of the market.

But since ESPN BET has yet to celebrate its first birthday, a valuation for the operator as a standalone asset can be tricky. Remember, ESPN BET launched last November around the midway point of the NFL season. By September, the operator will be live for the first time in the opening week of the season. For ESPN BET, the return of football will bring a massive customer acquisition opportunity. Barry Jonas, an analyst with Truist Securities, views the period as an opportunity for ESPN BET to capitalize on key product milestones.

— Yanni Tesh (@yannitesh22) July 8, 2024

As of April, ESPN BET garnered a national market share of around 6%, according to various estimates. The figures comport with projections from Barclays last year near the launch. At the time, Barclays projected OSB market share of 6.1% in the fourth quarter of 2023, compared with 2.8% in the previous quarter under Barstool Sportsbook. For the second half of this year, Barclays’ models expect ESPN BET to produce a national market share of around 7% . The share is far below PENN Entertainment CEO Jay Snowden’s expectations of 20%+ by the end of 2027.

Under the deal, PENN is paying ESPN $1.5 billion over 10 years, plus an option to acquire $500 million in warrants. The deal contains an opt-out after three years. Given the high customer acquisition costs, PENN noted in May that its interactive segment will face an adjusted EBITDA loss range of $475 million to $525 million in 2024. As it relates to Flutter, questions remain about whether the company will pay a considerable amount to bring on a competitor. Flutter’s balance sheet is in an ideal position if the company decides to pursue new opportunities in M&A, JMP Securities analyst Jordan Bender wrote in a research note released on Tuesday.

PENN traded at $19.70 on Tuesday, down 1.8%. PENN opened the year around $26 a share, but has rebounded from 2024 lows of $14 last month. Flutter posted fractional gains on Tuesday to trade at $198 a share, while Boyd inched up to $54.75.