One Penn investor thinks company bungled theScore acquisition

Donerail Group's Will Wyatt questioned motivations behind 2021 deal

In a widely circulated letter scrutinising Penn Entertainment’s strategic operations, a significant investor has questioned the wisdom of the company’s acquisition of Canadian sports media and betting brand Score Media and Gaming.

Penn bought Toronto-based theScore in the second half of 2021 for around $2.1 billion USD, then equivalent to about $2.5 billion CAD.

At that time, Penn said the acquisition fortified its digital media and gaming strategy and would create “a complete one-stop entertainment destination.” The company added that it was attracted to theScore, in part, for its ready access to a deep pool of Canadian engineering and technology expertise.

However, in an open letter to Penn Chairman David Handler questioning Penn’s operations, prominent Penn investor the Donerail Group said the acquisition has not paid dividends and questioned the motivations behind the move. Will Wyatt, Donerail’s managing partner, said bringing theScore on board has not precipitated the projected adjusted EBITDA increase.

The company’s $2.1 billion USD acquisition of theScore, a small Canadian-based sports media company with less than $25 million USD of annual revenue, highlighted just how drastically the Penn investment thesis had changed under Mr. [Jay] Snowden’s watch.

The principal rationale for acquiring theScore at such a high price was not related to meaningfully increasing revenue or the size of the company, but rather, advancing Penn’s technical sophistications. Had a digitally native and more experienced leadership been at the helm, shareholders have to wonder if this could have been done in a more cost-effective manner from the onset.

Further, the failed integration of theScore meant that the “incremental $200mm+ medium term adjusted EBITDA” that Mr. Snowden promised when the deal was announced was never achieved, and the entire leadership team that was acquired in the transaction has since left Penn.

– Will Wyatt, Donerail Group managing partner

Canadian Gaming Business reached out to Penn for comment.

Snowden said at Penn’s earnings call on May 2 that despite poor Q1 2024 results including an 11.1% dip in revenue for the Interactive division that includes theScore Bet and ESPN Bet, theScore Bet is continuing to perform “really well” in the Ontario market. The made-in-Ontario sportsbook app is thought to be in the low double digits for market share in the province in both online sports betting and online casino.

Snowden also revealed at that time that plans are afoot to tie theScore Bet’s wagering functionalities directly into theScore’s legacy sports media app, something that could be extended to ESPN Bet, Penn’s sportsbook brand in the U.S.

However, amid the wider underwhelming results, the acquisition three years ago is coming under increased scrutiny.

Donerail calls for Penn to sell up

Snowden was bullish when forecasting the rest of Penn’s year at the earnings call, telling investors that Penn Interactive is in a strong position to post growth throughout the remainder of 2024.

However, Wyatt asserted that the company has failed to meet expectations for its online sports betting business.

He called for the entertainment and gaming giant to consider a sale, arguing that its leadership has suffered a loss of credibility. Over the last three years, shares of Penn are down by more than 80%.

“After four years of effort, attention, and billions of dollars of shareholder capital invested, the company has been unable to disintermediate the online sports betting landscape as it had forecast,” added Wyatt.

The acquisition of theScore Bet is far from the only operational move Wyatt called out. He also questioned Penn’s $2.7 million CAD ESPN Bet venture. The sportsbook posted an adjusted EBITDA loss of $196 million USD ($268 million CAD) in Q1 2024. Overall, Penn projects its Interactive segment, which also includes iGaming, will report a $500 million USD ($682 million CAD) loss in 2024.

“Moreover, the growing pattern of guidance misses, alongside a demonstrated unyielding appetite to continue to invest in the company’s fledgling Interactive projects, irrespective of past results and without a clear return framework, has significantly damaged the credibility of this management team and Board of Directors,” added Wyatt.

“Unfortunately, after less than a year into pivoting its attention to ESPN Bet, there has been no improvement in the company’s ability to execute in Interactive. While we understand that ESPN Bet appears as the company’s newest bright and shiny object that may very well have significant value under the right owners, we ask that the Board take a moment to reflect objectively on the past four years of execution, assess the shareholder capital that has been destroyed, and recognize that shareholders may simply be tired of continued gambling on uncertain outcomes.”

Shares of PENN grew by more than 15% on Friday, May 31 after Wyatt’s letter went public. Wyatt claimed a potential sale of the Pennsylvania-based company could be worth up to $6.9 billion USD ($9.4 billion CAD). He said Penn’s current enterprise value is roughly $4.1 billion USD ($5.6 billion CAD).

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