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Disney is pushing into the US sports betting industry, tying its ESPN cable network to the casino and online gambling company Penn Entertainment in a $2bn deal.
Penn would rebrand its US sports betting portals, available in 16 states and currently known as Barstool Sportsbook, to ESPN Bet, the companies said on Tuesday. The move comes less than six months after Penn completed a $551mn acquisition of Barstool, the sports gambling and entertainment site founded by Dave Portnoy in 2003 and which has become known in the US for its boisterous and occasionally controversial commentary.
Under the terms of the agreement, Penn will pay ESPN $1.5bn in cash payments over a 10-year term and grant $500mn in warrants for Penn stock. The rebranding will take effect this autumn.
Penn will sell the entirety of common stock in Barstool back to Portnoy “in exchange for certain non-compete and other restrictive covenants”.
The deal between Penn and ESPN is a watershed moment for Disney’s sports cable network as it continues to build out its streaming platform ESPN+ and it has tapped advisers to examine its options.
In a video statement posted to his Twitter account, Portnoy alluded to “hit pieces” by The New York Times and Insider as among the reasons for the divestiture and said Barstool and Penn were “denied licences because of me”.
The New York Times in 2022 profiled Portnoy as someone who promoted irresponsible gambling, while the previous year Insider spoke with several women who accused him of sexual misconduct.
“We underestimated just how tough it is for myself and Barstool to operate in a regulated world,” said Portnoy. Following the divestiture, “we don’t have to watch what we say, how we talk, what we do, it’s back to the pirate ship”, he said.
Jay Snowden, chief executive of Penn, touted ESPN’s broad reach across linear and streaming viewers and social channels, which include more than 105mn monthly digital visitors and 25mn subscribers to ESPN+.
Sports betting is a relatively young industry in the US, in effect launching after a 2018 US Supreme Court ruling struck down a federal ban. Since then, 34 states and the District of Columbia have legalised the practice, according to the American Gaming Association, a trade group.
As such, the battle for market share has been swift and fierce, with daily fantasy groups FanDuel and DraftKings commanding a combined 70 per cent market share over the 12 months ended in July, according to Eilers & Krejcik Gaming. Penn held approximately 2 per cent of the market through its Barstool Sportsbook.
Disney acquired a 5 per cent stake in DraftKings in 2019 when it bought 21st Century Fox. It also made a deal with Caesars Entertainment that gave it the exclusive right to provide sports betting odds to ESPN. Those deals are expected to be wound down following the closure of the Penn deal.
The move is a reversal for Disney chief executive Bob Iger, who for years avoided sports betting because he believed it was too racy for Disney’s family-friendly brand. In 2019 he told investors that he did not expect Disney to get involved.
Iger earlier this year indicated that he was loosening his stance.
“I was probably on the more conservative side about this for a long time. But I’ve changed because I think the acceptance of sports betting has grown significantly,” he told Time magazine in April.
Disney is scheduled to report quarterly results on Wednesday.
Jimmy Pitaro, chair of ESPN, said that the network’s alliance with Penn was borne out of increased demand for sports betting products among its viewers.
“We know [sports fans] want both betting content and the ability to place bets with less friction from within our products,” he said in a statement.
Shares of Penn surged nearly 10 per cent to $27.20 in after-hours trading, while shares of Disney rose slightly to $88.
Additional reporting by Sujeet Indap in New York and Oliver Barnes in London