The $2 billion bet by Penn Entertainment to create a large-scale sports betting brand through ESPN is showing more struggles. Some investors are now growing restless, and maybe Penn Entertainment is, too.

Penn Entertainment said Thursday it posted an adjusted fourth-quarter loss of $109.8 million from its interactive division that includes ESPN Bet’s online business. Penn Entertainment’s overall results, meanwhile, $1.67 billion in revenue and $133.8 million in net losses, missed analyst forecasts.

Those broader financial results follow the relatively meager standing ESPN Bet still holds in many key states. In the most recent data available, ESPN Bet ranked seventh in revenue in New York, Illinois, and New Jersey—the top three individual states for sports betting. In these key locales, ESPN Bet generally holds 1% to 2% of the market in terms of revenue, a far cry from the 20% share that Penn Entertainment and ESPN ultimately intend to garner by 2027.

Now nearly two years into the deal between Penn Entertainment and ESPN, sports betting leaders FanDuel and DraftKings continue to dominate the industry, and neither behemoth has seen any meaningful reduction in its market power. 

Penn Entertainment president and CEO Jay Snowden acknowledged the uphill climb in an earnings call Thursday morning with analysts.

“We have more work to do to unlock the full potential and value of our partnership with ESPN,” Snowden said.

He then continued, and suggested that Penn Entertainment could even exercise an opt-out clause in its 10-year ESPN deal that is available in 2026.

“When we announced our partnership, both sides made it very clear that we expected to compete for a seat at the podium. And we’re not on pace right now to do that,” Snowden said. “We have tremendous plans in place for 2025 and 2026. But if, for whatever reason, we’re not hitting the levels that we need to, then obviously as you’re approaching the third anniversary, you have a three-year clause in that contract that both sides will have to do what’s in their best interests. And so that’s always out there.”

A Coming Reckoning?

Before that could happen, though, Penn Entertainment is also facing an activist investor effort to claim three board seats due to heavy dissatisfaction with the company’s interactive strategy. HG Vora Capital is seeking to reform what it calls “reckless spending,” in part through media partnerships like the one with ESPN.

“The company’s interactive strategy has been an abject failure due to a pattern of overpaying, overpromising, and not delivering,” said Parag Vora, HG Vora founder and portfolio manager.

Penn Entertainment previously spent $551 million purchasing Barstool Sports before selling the company back to founder Dave Portnoy for $1 to help finalize its ESPN partnership.

Snowden did not directly address the proxy fight Thursday, but the company has said it is “committed to creating long-term value for shareholders.” Penn Entertainment shares were essentially flat in early Thursday trading, but remain less than one-sixth of their value compared to early 2021. 

Ironically, the situation bears some similarity to a separate, and ultimately unsuccessful, effort last year by activist investor Nelson Peltz to assume multiple Disney board seats. Among Peltz’s objections was ESPN’s digital strategy, now heightening with the pending debut of a direct-to-consumer service.

INDIANAPOLIS — The NFL is moving forward with major rules and operational changes that could alleviate several controversial issues from recent years.

Starting with the 2025 season, the league plans to use Hawk-Eye technology to virtually determine whether a team has gained a first down after the referee manually spots the ball, NFL EVP of football operations Troy Vincent said Wednesday at the NFL combine. The traditional “chain gang” will remain on the sidelines as a backup if needed.

Spotting of the football became a hot topic during the playoffs after Bills quarterback Josh Allen fell inches short of converting a crucial fourth down against the Chiefs in the AFC championship game. The hope is that the new first-down technology will lead to quicker and more efficient calls, although it wouldn’t be able to change a close spot like Allen’s.

More technology could also be in play by expanding the use of replay assist for penalties called on the field, Vincent said. Calls around roughing the passer, unnecessary roughness on a defenseless player, and facemasks are under consideration. But replay assist will not allow officials to call a penalty after a play has ended.

Game Time

The NFL is also exploring another change to its overtime rules for the regular season, Vincent said. 

Currently, the first team to possess the ball can win if it scores a touchdown. But the playoff overtime rules give both teams a chance to score no matter what, which could be used in the regular season. Team owners would need to ratify any change at one of their league meetings this offseason.

Additionally, overtime could be lengthened from 10 to 15 minutes.

Don’t expect Warner Bros. Discovery to be a highly aggressive player in pursuing additional sports rights.

The TNT Sports parent has spent the last year reconstructing much of its sports portfolio, in part by losing and then retooling its NBA relationship, acquiring French Open and Unrivaled rights, and deepening its ties in college sports.

The company, however, made it very clear Thursday that it will maintain a “disciplined” and “opportunistic” approach with regard to any future rights, such as those now becoming available with entities such as Major League Baseball and UFC. 

“We don’t need any more sports anywhere in the world in order to support our business,” WBD CEO David Zaslav said in an earnings call with analysts. “It’s going to get more difficult, some of those prices being paid.”

Zaslav’s comment bears some similarity to the infamous one he made in 2022 in which he said WBD “didn’t have to have” a new deal with the NBA. That remark ultimately foretold what the company now describes as a “far more efficient long-term relationship with the league,” but one without live game rights. 

Broader Results

WBD’s current sentiment regarding sports certainly does not exist in a vacuum. Rather, the company is navigating a delicate situation in which its streaming operations continue to show strong growth, but challenges in other parts of the business are dragging down their broader financial picture.

The fourth quarter ended with WBD holding 116.9 million streaming subscribers, mostly on Max, an increase of 6.4 million from the prior period—with expectations now forming to hit 150 million subscribers by the end of 2026. That DTC operation is also increasingly profitable, posting $677 million in adjusted earnings last year, more than six times the comparable $103 million for 2023. Max has been an industry standout, in part due to a particularly fruitful alliance with Disney.

Overall, though, WBD posted declines last year in revenue, adjusted earnings, and free cash flow as the company was particularly hit by a decline in linear advertising. 

“The U.S. linear advertising market has deteriorated faster than we expected, as evidenced by our results over the last several quarters,” WBD acknowledged in a letter to shareholders.

Because of that, Zaslav has repeatedly touted the virtues of developing film and TV properties it “could own” and leverage long-term, as opposed to shorter licensing agreements in sports.

“We would buy sports [content] if we think it would enhance our business,” he said.