Penn-Score acquisition + Q2
The top line
Penn National is buying Toronto-listed Score Media & Gaming for $2bn in cash and shares. The deal will complete in Q122. Penn said it expects the deal to add c$200m in EBITDA within two years and $500m-plus at maturity.
As per the pre-announced earnings last month, Q221 revenue rose by over $1.2bn YoY to $1.56bn (21% up MoM, 13% up on Q219) while adjusted EBITDA came in at $470.1m, up 38% on Q219. Adjusted EBITDAr margins came in at 37.9%, up 722 bps versus Q219.
Scores on the doors: On a busy earnings call – featuring Penn National’s CEO Jay Snowden, his counterpart at Score Media & Gaming John Levy and Dave Portnoy and Erica Nardini from Barstool – the word synergistic was very much to the fore. The mutual backslapping was perhaps understandable given the evident closeness between Levy and the Barstool team as Portnoy insisted theScore was an acquisition he would have liked to have pursued when Barstool was under previous ownership. Snowden said the deal was adding a “powerful new flywheel” to the Penn engine.
Thank you and goodnight: Gaining greater control of the online tech stack was a prime reason for the deal. In what sounded like ‘fond farewell’ remarks, Snowden said third-party partners White Hat Gaming and Kambi had done a sterling job but “at the end of the day, given how important this is to us, we just have to be in control of our tech stack.” Levy said that having recently launched its own PAM system and with risk and trading coming very soon, theScoreBet platform (based originally on a Bet.works framework) was already “90% under our control” with the final pieces of the puzzle coming within the next year.
Jumping the gun: Far from everyone was impressed with Snowden’s tech talk. Kristian Nylén, Kambi CEO, congratulated Penn on the deal but added that he “respectfully disagree(s)” with the view on vertical integration.
“The entity they have acquired has yet to develop a proprietary sportsbook, and certainly not one to a similar high standard as what we offer,” Nylén added.
Kambi’s shareholders took fright nonetheless. The shares tanked, down a third on the day.
Risky business: The analyst reaction to the deal wasn’t universally positive either. Penn perma-bears Deutsche Bank didn’t hold back. “We get that Penn needed a tech stack, but buying a media company for a tech stack, knowing the challenges peers have had buying tech companies with sports-betting tech stacks, seems a bit strange, and frankly, risky,” the team said. They also noted there was no discussion on the call over the actual earnings, despite regional gaming trends being so strong.
“That said, when you pay $2bn and an almost 90% premium to the equity for a bolt-on amenity to a sports and icasino business, to augment a strategy which was billed as requiring little in the way of incremental spend, it likely requires some rationalization,” Deutsche Bank added.
Defensive posture: Deutsche Bank noted Barstool is achieving only mid- to high single digit market shares in sports-betting and is a distant seventh or worse in igaming. Indeed, the only note of defensiveness from the call came with oblique mentions about market shares. “We’re not concerned with where market share has been; we’re just concerned about where it’s going to be,” said Snowden. Which is just as well; in June Barstool Sportsbook slipped to fourth in Pennsylvania with 8.6% while in Michigan, after a relatively decent launch, Barstool has also slipped to fourth with 7% share.
