Penn stock investors are upset with CEO Jay Snowden and the company’s sports betting spend

Last Friday, Penn Entertainment’s stock jumped nearly 20%. That was after an investor letter aimed at CEO Jay Snowden for the company’s online sports betting spend. On Friday morning, Donerail Group managing partner Will Wyatt addressed chairman David Handler and the rest of the board. He had this to say.

“We believe that the significant criticism from the investment community regarding PENN’s recent capital allocation is understandable, however,” Wyatt said. “After four years of effort, attention, and billions of dollars of shareholder capital invested, the company has been unable to disintermediate the online sports betting landscape, as it had forecast.”

Penn Entertainment is being faulted for spending billions on interactive

Will Wyatt’s first example of Penn’s failed investments includes their former partnership with Barstool Sports. He noted this demonstrated the “failure of this strategic initiative”. Just weeks after Jay Snowden became CEO, he purchased 36% of Barstool Sports for $163 million. One year into their partnership, it was apparent that their digital gains were not what they projected. Despite that, Penn paid another $388 million to purchase the rest of Barstool. They now had full control. 

However, Penn ended up selling Barstool Sports back to Dave Portnoy for just $1. Penn had reached a deal with ESPN Bet. Their disinvestment cost nearly $1 billion in non-cash losses. Will Wyatt’s next example was Penn’s purchase of theScore in 2021. They spent another $2.1 million to make that possible. The integration of theScore failed and it did not lead to the $200 million promised in incremental adjusted EBITDA. 

The final example used by Mr. Wyatt was notes on ESPN Bet. In the fourth quarter of 2023, ESPN Bet had an adjusted EBITDA loss of more than $300 million. Over the last five years, Penn’s stock has been down (25.9%) with Jay Snowden as the company’s CEO. Will Wyatt had this to say.

“What may be additionally troubling for shareholders is that the operating losses that are growing meaningfully – and have become a central part of the PENN equity narrative – sit within an interactive business that currently has no operating leadership,” Wyatt said. “What gives this Board any confidence in PENN’s future under this strategy?”

On July 1, Aaron LeBerge will oversee the interactive division at Penn. Mr. LeBerge was formerly the chief technology officer at the Walt Disney Company.