Wall Street Sends Mixed Signals on ESPN-Penn Breakup

Wall Street doesn’t know yet what to make of Penn Entertainment’s accelerated divorce from ESPN. 

The initial hours following the early Thursday announcement from the two companies to shutter the ESPN Bet sportsbook brought a whirlwind of activity, but also left plenty of questions.

Initially, investors cheered the deal, with Penn Entertainment stock shooting up about 10% in premarket trading, and then by about 5% at the opening bell. Those gains, however, were quickly erased, as by mid-morning shares were in negative territory. Penn Entertainment stock ended the day down more than 10% to $14.65 per share. ESPN parent company Disney saw its shares fall by less than 1% while stock in DraftKings, reunited with ESPN in a multiyear deal based around content and marketing, rose marginally.

The demise of ESPN Bet is an acknowledgment of the clear and, for the two companies, painful reality: ESPN Bet was stuck at a low, single-digit percentage of market share in most key states with legal sports betting, and was never going to get anywhere near the intended 20% position by 2027 as the sports duopoly of FanDuel and DraftKings remains largely intact. 

Cutting ties now allows Penn Entertainment to save hundreds of millions of dollars in fees and stock warrants to ESPN, as well as in marketing costs. The 10-year, $2 billion deal, reached in August 2023, had called for $150 million in annual cash payments from Penn Entertainment to ESPN, as well as about $500 million in warrants.

Penn Entertainment will now rebrand its U.S. sportsbook to theScore, a brand it already works with in Ontario.

“We view the ESPN Bet termination as a significant positive for Penn,” JPMorgan analysts wrote Thursday in a research note. “ESPN Bet/Penn’s expensive [online sports betting] has been a distraction for investors and management for several years (going back to Barstool) and overshadowed a fairly solid land-based business that offered an attractive pipeline of growth projects.”

Company Path

Penn Entertainment said its brick-and-mortar casinos and racetracks will indeed be a key focus going forward. Third-quarter earnings, also released Thursday, however, revealed a net loss that soared from a prior $37.5 million to $865.1 million. Revenue grew 5% to $1.7 billion, but company executives said a heightened focus on profitability will be paramount in a post-ESPN era.

“We made these digital investments to make money, to deliver a return for our shareholders. We have not done that yet,” Penn Entertainment CEO and president Jay Snowden said Thursday in an earnings call. “That’s the focus in 2026, and moving forward, to deliver profitability for our shareholders, which will only grow over time.”

In the final termination agreement, ESPN will retain vested warrants to purchase 7.96 million shares of Penn Entertainment with a weighted strike price of $28.95, a figure much closer to the company’s stock value when the deal was originally made more than two years ago. Since then, Penn Entertainment shares have fallen by more than a third. 

All other unvested and performance-based warrants, potentially worth hundreds of millions of dollars, have been forfeited by ESPN.