Barstool Owner Ignores Net Gaming Revenues in $2B Score Purchase

Penn National Gaming recently announced that it has entered into a definitive agreement to buy Score Media and Gaming for around $2 billion ($34/share, +87% premium to prior day’s close). Unlike most recent sports betting mergers and acquisitions, though, this deal does not appear to be about user acquisition within the burgeoning U.S. market. “Barstool has 66 million monthly uniques. That’s more than enough [to drive significant domestic market share]. This seems more like a tech-slash-Canada play,” David VanEgmond (CEO, Bettor Capital) said. Penn president and CEO Jay Snowden confirmed as much in a statement. But theScore’s lack of experience developing best-in-class sports betting technology and struggles successfully converting app users into sports bettors within several U.S. markets have some believing Penn’s latest bet on content is a long shot.

Our Take: Most of Penn’s top competitors have in-sourced technology, or they have constructed huge product and engineering teams. So, it is logical that the company would want to own and control its own tech stack, too. And there are significant savings that can be realized by eliminating the costly revenue share deals associated with the third-party tech providers currently powering its sportsbook (think: >10%).

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The problem is theScore is not a sports-betting tech company. It is a digital media company with a strong tech stack for that particular business. Only now is it developing sports-betting tech, and there is no guarantee it will be any better than what Penn currently uses. And should it falter and cost the operator market share, the savings realized may not be negligible. It is fair to wonder, if Penn was after sports-betting tech, why didn’t it buy a more established provider like Kambi or White Hat Gaming?

Jon Kaplowitz, head of Penn Interactive said: “The reason we went after theScore vs. more established players was because theScore built their technology for the North American market. They are the only fully integrated sports media and sports betting company, and we see considerable value in this.” Kambi and White Hat were both built overseas.

Penn seems to be making a big bet on a company with an unproven sports-betting tech stack (there are no applications currently running on it) and six straight quarters of negative net gaming revenues. But Slane Advisory founder Sara Slane explained: “Penn is buying a strategy, not cash flows. They have been very effective in pivoting Barstool readers into customers (and keeping customer acquisition costs down in the process). And now, with theScore, their distribution channel has gotten a lot bigger in the U.S. and Canada, which just legalized single-sports wagering.”

The gaming industry consultant also isn’t convinced Penn did this deal for theScore’s sports betting tech. While it is part of the package, “It’s not the tip of the spear for them,” Slane said. “They’re buying a content distribution technology company.”

If Barstool is the comp, it is hard to justify the $2 billion price tag. Remember, Penn bought Barstool at a $450 million valuation. And it’s certainly not as if theScore has been so effective at driving app users to a sports betting platform that it deserves a significantly higher multiple (see: <1% of handle in New Jersey). The $2 billion sum represents 111x past years’ sales. They posted just $5.1 million in revenue during the most recent quarter.

But there is an argument to be made that Penn underpaid for Barstool, and the digital sports and pop-culture company didn’t come with the tech, market access or database of users theScore has, either. “When you think about theScore’s assets in totality and where the digital sports betting industry is heading, [the valuation] lines up correctly for a publicly traded online gaming company,” Slane said.

Remember, theScore has market access in upwards of 20 states, including several through a preexisting relationship with Penn (mobile sublicenses that Penn will now be able to sell again). For informational purposes, Slane said each skin could bring in “multiple millions of dollars a year” and in some cases be traded for equity in an upstart operator.

In addition to the tech, talent and database of users Penn will acquire, and the skins they will regain control of, theScore acquisition should in theory give the company a competitive advantage within Canada—a potential $4 billion market. The company has the largest sports app in the country.

But the largest U.S. media companies are not the ones dominating this marketplace, and there are reasons to doubt theScore will north of the border. There are operators currently in the grey or black market, like Bet365, and DraftKings and FanDuel have daily fantasy user bases they’ll look to convert into sports bettors when the market opens. Much like in New Jersey, if theScore’s competitors are providing better products and offering bigger bonuses, customers are going to gravitate there (which is why owning the tech stack is so important in the first place).

Kaplowitz thinks the lack of success to date in New Jersey has more to do with the company’s approach than their abilities. He said “theScore has focused on a building a solid product in the U.S. Unlike competitors that are buying market share unprofitably, theScore has waited until they enhanced their product, and they had scale, to start significantly investing in marketing. In CA, theScore is like ESPN. Every person in Ontario uses their app. We believe their considerable brand recognition, great tech, and ramped up marketing will give them success in Canada.”

When considering the $2 billion price tag, one must also consider the land grab environment operators are competing in. “Time is an important consideration,” Slane said. “Can you afford to build when you can acquire something that you can stand up immediately? Operators just do not have the luxury of time right now. They need to get up and running and differentiate their product. TheScore empowers Penn through flexibility of product by controlling their tech stack directly and acquiring top talent to do so.”

Public investors seem to be encouraged by the deal. Shares of SCR and PENN are up 80% (to $32.69) and 7% (to $71.06), respectively, since news of the acquisition broke.

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