Football season won’t make or break Penn Entertainment.

But during Thursday’s 2Q24 earnings call, it was clear that Penn’s alliance with ESPN and its promotion of ESPN Bet will give a clearer image of the operator’s future.

“I would say that the environment being healthy right now allows us to continue to focus on being a top performer, mostly through our relationship with ESPN,” said Penn Entertainment CEO Jay Snowden during the call. “We’ll do some spending around that, but again, that’s all built into our guidance for the rest of the year. Remember, we have a digital database of almost four million and a lot of those customers only bet on football, so there’s a huge reactivation opportunity for us. With our much-improved product and all the new features that Aaron (LeBerge, the company’s chief technology officer) and I and Todd (George, executive vice president) will talk about throughout this call, we feel like we have an opportunity to drive better engagement, deeper loyalty and retention, and monetization as we move forward.”

Penn Entertainment reported revenue of $1.4 billion for the second quarter. Adjusted EBITDAR was $496.6 million, with adjusted EBITDAR margins of 34.8%.

Snowden noted that this year, Penn will benefit from a full season; ESPN Bet launched in mid-November last year. He also expressed confidence that the operator’s “deeper integrations” with ESPN’s core digital products will be advantageous. On ESPN Bet’s homepage, wagerers will be able to follow game scores via the ESPN gamecast, for example.

“We’re in a very fortunate position where obviously that will drive top of funnel and a lot of engagement with our app,” Snowden said. “That’s extremely efficient for us and it’s going to be the biggest acquisition driver. There is some other acquisition outside of the ESPN app that we’ll continue to pursue, but the lion’s share of acquisition for us is going to be through the ESPN channel.”

DraftKings recently announced it would levy a surcharge on bettors in states – notably Illinois, New York, Pennsylvania, and Vermont – that tax sports betting revenue at greater than 20%. The plan is expected to be implemented in January, 2025.

Snowden said Penn Entertainment will merely be “observers.”

“We have a lot going on in front of us right now over the coming quarters, so I would say when you’re talking about a potential tax surcharge in early ’25, that’s not even on our radar,” Snowden said. “I hesitate to ever say never — it just means that we’re really focused on continuing to improve the products and drive top of funnel and loyalty and retention, so we wouldn’t be a first mover on something like that. We’re going to stay very close to it, we’ll observe, we’ll see what the reaction is, assuming that it does launch in early ’25.”

Wall Street analysts said overall, Penn’s release was as expected.

Barry Jonas of Truist Securities wrote that the operator “continues to make improvements to its digital product, with more coming before/into football season. Land-based trends remain largely steady and management is leaning into cross-selling digital (eight more ESPN Bet sportsbook rebrands coming in August/September). Net-net, we expected and got a better quarter after two straight misses. Shares are indicating higher before the open. … We reiterate our Buy rating as we see risk/reward here as compelling amidst very low expectations.”

J. P. Morgan’s Joseph Greff wrote, “Relative to our regional estimates, Penn’s Midwest and West properties exceeded our projections, and grew year-over-year, while its Northeast and South segments were below our estimates and experienced year-over-year declines. Penn described its consumer in its land-based casinos as stable and consistent and highlighted market share growth in Ohio, Maryland, and Iowa, with additional momentum called out at its Greektown and M Resort properties.  Penn’s four development projects remain on budget and on schedule.”

And David Katz of Jefferies said, “The generally in-line land-based quarter, coupled with the narrower than expected loss in interactive, are modest positives for the shares. … However, the longer-term direction of the stock is primarily predicated on the forthcoming football season and the interactive-product traction, given the considerable capital deployed.”

Rege Behe is lead contributor to CDC Gaming Reports. He can be reached at [email protected]. Please follow @RegeBehe_exPTR on Twitter.

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