ESPN Bet Off to Solid Start, Says Analyst

Penn Entertainent’s (NASDAQ: ESPN) recently launched ESPN Bet mobile sports wagering application is off to a solid start in select states. However, that strength may be aided by heavy promotional spending.

In a new report to clients, Macquarie analyst Chad Beynon pointed out that in Indiana, Iowa, and Maryland three of the 17 states in which the app is available ESPN Bet is commanding a double-digit slice of gross gaming revenue (GGR) share.

Looking at handle share, we estimate ESPN BET grew its share by roughly 500bps (from the ~1-2% range prior),” wrote the analyst. “From a total addressable market perspective, average handle grew 16% month-over-month in these three states, while in NY a state where ESPN BET doesn t operate grew just 5%. It is also worth noting that these results encompass just half of the month and are from more mature and competitive states. We will continue to monitor the data as it comes in, but we think early indications are positive.”

New York is often the benchmark analysts use in gauging sports wagering GGR success. That s because it’s the largest state where multiple online sportsbook operators conduct business.

After several years of failing to attach its venerable brand to a sports wagering outfit, ESPN announced in August that it was teaming up with Penn to create ESPN Bet. As part of that agreement, Penn is (NYSE: DIS) $1.5 billion over ten years.

The sports media giant also earned rights to $500 million worth of Penn warrants in the deal, which saw the regional casino end its relationship with Barstool Sports, eliminating its Barstool Sportsbook brand in the process. While Barstool Sports is well-known among Gen Z and millennial sports fans, the brand failed to gain traction in the sports wagering world, cobbling together a small market share in most states where it was available.

Although it’s still in its early innings, ESPN Bet performs more strongly than Barstool Sportsbook. That about Penn’s sports betting footprint and worries that the company overpaid to gain access to ESPN branding.

“November data from Iowa, Maryland, and Indiana have shown that ESPN BET has been able to grow its GGR share well into the double digits. However, we have seen that during heavy promo periods, hold rates are much higher,” added Beynon.

The analyst has an “outperform” rating on shares of Penn with a $38 price target, implying upside of 45.2% from Thursday’s close.

Needham recently took a survey of regarding expectations for ESPN Bet’s November sports betting market share, with the average answer being 7.3%. That’s solid, but the Indiana, Iowa, and Maryland data indicate it could be even higher.

That’s a long way from the DraftKings/FanDuel stratosphere. But it appears ESPN Bet is off to a decent start.

“We are cautiously optimistic there could be modest upside to the consensus we observed, as we have a more bullish view of the impact of promotions and the potential for WV data to be an encouraging signal, although lots of assumptions here,” according to Needham.