Penn Entertainment Warns 2026 Could Bring End of ESPN Bet

• ESPN Bet could be on borrowed time
• There’s a three-year out clause in contract between Penn and Disney

Penn Entertainment’s (NASDAQ: PENN) ESPN Bet unit could be on the chopping block next year if the online sportsbook doesn’t garner more momentum between now and the end of 2026.

When the regional casino operator and ESPN parent Walt Disney (NYSE: DIS) struck a 10-year, $2 billion deal in August 2023, the agreement contained a provision under which either side could depart after the third year. Penn CEO Jay Snowden mentioned that anniversary on the company’s fourth-quarter earnings conference call last week.

But if for whatever reason we’re not hitting the levels that we need to, then obviously as you’re approaching that third anniversary, you have a three-year clause in the contract that both sides will have to do what’s in their best interests,” said Snowden in response to a question from Deutsche Bank analyst Carlo Santarelli. “And so, that’s always out there.”

Penn’s agreement with ESPN resulted in the former taking a major loss on its acquisition of Barstool Sports, which it sold back to founder David Portnoy for just $1. The sports broadcaster ended agreements with Caesars Entertainment (NASDAQ: CZR) and DraftKings (NASDAQ: DKNG) to work with Penn.

ESPN Bet Seeking ‘Podium’ Position

When ESPN Bet was created nearly two years ago, Penn’s hope was that it could challenge industry juggernauts DraftKings and FanDuel for a place in the upper tier of the US sports betting landscape — something it was unable to do with Bartstool Sportsbook.

“When we announced our partnership with ESPN in the summer of ’23, both sides of this partnership made it very clear that we expected to compete for a seat at the podium,” said Snowden on the call. “And we’re not on pace right now to do that.”

By some estimates, ESPN Bet holds just 2.35% share of the US online sports betting market — well short of its stated goal of 20% by 2027. In highlighting strong starts for Penn’s revamped iGaming platform in Michigan and Pennsylvania, Snowden said the operator has “tremendous plans in place for 2025 and 2026” for ESPN Bet.

Some Investors Would Be Happen to See ESPN Bet Die

ESPN Bet’s timeline for surviving remains to be seen, but what’s not in doubt is the point that some Penn investors would be happy to see the gaming operator depart the internet sports wagering space for good.

Hedge fund HG Vora is readying a proxy battle against Penn, pushing for three board seats with a central theme being the operator’s missteps in sports betting. That echoes the sentiment of the Donerail Group, another Penn shareholder, which said in a letter to Penn’s board last May that the company is failing in the sports betting.

Those investors and some analysts argue that sports wagering has been an overhang on Penn shares – one compelling market participants to overlook value in the operator’s core regional casino business. No remarks about the proxy fight or the involvement of activist investors were made on the conference call.