ESPN Bet restricts collaboration with Penn Entertainment, as noted by Deutsche Bank analysts
In the world of investments, the outlook for ESPN Bet, a venture by Penn Entertainment, is perceived as relatively low by many within the community. This pessimism is largely due to the challenges anticipated in 2025, such as intense competition, uninspiring same-store trends, and disruptions weighing on performance, as noted by analyst Carlo Santarelli.
Santarelli also expects improvements to be a key focus for investors in 2025. If Penn Entertainment's stock does not meet expectations, a partial portfolio sale could be considered. Potential buyers might include major competitors and partners in the regulated sportsbook and casino market, such as MGM Resorts, as well as market entrants like Kalshi and Robinhood. Investors active in Penn's shares, like Trexquant Investment LP, could also be contenders. These entities are involved either through partnerships or significant industry presence and investment activity related to Penn Entertainment.
Santarelli believes that given Penn's vast asset portfolio, significant customer database, and strong free-cash-flow profile, there would likely be multiple suitors should the operator opt to sell a portfolio of assets or undergo a more comprehensive sale process.
Despite the challenges, Santarelli sees potential in monetizing the online sports betting vertical. This could allow for incremental investment on the iCasino side and show profitable cash flow streams from the B2B and other elements of the Interactive segments. However, Santarelli also acknowledges the challenges with the path of monetizing the online sports betting business, including committed payments to ESPN Bet and potential buyer appetite.
In 2024, ESPN Bet made strides in enhancing its offerings, adding player prop market depth, completing the account linking between ESPN and ESPN Bet, and improving the aesthetics of the app. Despite these improvements, Santarelli states that the product, from a competition perspective, is still playing catch-up to peers as it heads into 2025.
Deutsche Bank has issued a Hold rating for Penn Entertainment shares in 2025. Santarelli's price target for the stock is $18, which is lower than the closing price of $20 in 2024. However, Santarelli believes that the investor mindset is likely to shift to 2026, a presumed growth year, at some point in the second half of 2025.
Deutsche Bank also sees competitive threats waning and solid returns from the four development projects currently underway in 2026. The investor mindset shift and successful completion of these projects could potentially boost Penn Entertainment's stock price.
Lastly, Santarelli emphasises that strategic actions, or lack thereof, will determine the performance of Penn shares in 2025. As more activist holders emerge in 2025, the spotlight will be on Penn Entertainment to make moves that will ensure its long-term success.
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