Penn Entertainment is offering a prime example of how market factors can force an abrupt change of business strategy, potentially reshaping part of the U.S. sportsbook landscape in the process.
The sports betting and casino company has paid $25 million to acquire the New York sports betting license previously held by Wynn Resorts, and will use that license to bring ESPN Bet into the industry’s largest individual U.S. market. ESPN Bet is now set to debut in New York later this year.
In a late 2021 earnings call, Penn Entertainment CEO Jay Snowden said the high operating costs of New York, particularly a 51% tax on operators’ gross gaming revenues, would preclude any company from being profitable in the Empire State, calling the locale “a margin killer.”
“I don’t think a single operator will make money in New York,” Snowden told analysts then, when the company was still aligned with Barstool Sports. “So I’ve always struggled with that. Would you rather be in or not? I think objectively speaking, you’d rather be in than not be in. But it’s one of those states where if you’re not in, you’re not crushed by that either.”
A little more than two years later, Snowden is conveying a very different mood. This week he called the deal “an important development that will bring ESPN Bet to the largest regulated online sports wagering market in North America.”
So what changed? Most obviously, Penn Entertainment last summer struck a $2 billion deal to bring the biggest brand in sports media to legal sports betting, and that agreement carries a series of aggressive growth targets for the venture as it challenges established market leaders FanDuel and DraftKings.
Too Big to Ignore
New York, meanwhile, has solidified its status by far as the country’s top sports betting market—particularly as the larger-population states of California, Texas, and Florida have yet to fully embrace legalization—and ended 2023 with $19.1 billion in total handle, an 18% increase over ’22, and $1.7 billion in gross gaming revenue. That handle is also nearly 60% larger than the No. 2 state, New Jersey. And even with the potential of smaller operating margins and the current market dominance of FanDuel and DraftKings, New York is simply too large a force in sports betting to ignore.
“Operating in the New York market is key as we grow ESPN Bet across the U.S.,” Snowden said.
