Penn National acquires 36% interest in Barstool Sports platform

Penn National Gaming announced Wednesday that it has entered into an agreement to acquire a 36% interest in Barstool Sports, a digital sports media company, for approximately $163 million in cash and convertible preferred stock. 

According to Jay Snowden, President and Chief Executive Officer of Penn National, the new deal reflects the company’s strategy to continue evolving from "the nation’s largest regional gaming operator, with 41 properties in 19 states, to a best-in-class omnichannel provider of retail and online gaming and sports betting entertainment."

Penn National Gaming, North America’s largest regional gaming operator, teams up with @barstoolsports, America’s most influential sports lifestyle brand, to create a one-of-a-kind sports betting experience.https://t.co/DlDOPBA4VU pic.twitter.com/r6lORkNWM3

— Penn National Gaming (@PNGamingInc) January 29, 2020

"With its leading digital content, well-known brand and deep roots in sports betting, Barstool Sports is the ideal partner for Penn National and will enable us to attract a new, younger demographic, which will nicely complement our existing customer database," Snowden continued. "In addition, with 66 million monthly unique visitors, we believe the significant reach of Barstool Sports and loyalty of its audience will lead to meaningful reductions in customer acquisition and promotional costs for our sports betting and online products, significantly enhancing profitability and driving value for our shareholders."

Penn National’s initial investment for 36% of the equity of Barstool Sports is comprised of approximately $135 million in cash and $28 million in shares of non-voting convertible preferred stock. After three years, Penn National will increase its ownership to approximately 50% with an incremental investment of approximately $62 million, consistent with the implied valuation at the time of the initial purchase.

According to Snowden, as the Pennsylvania-based company continues to execute on its omnichannel strategy, it plans to remain focused on its efforts to de-lever its balance sheet while building on its long-term progress in expanding operating margins at its regional casinos. "As previously announced, our goal is to achieve a lease-adjusted net leverage level of 5.0x by the end of 2020," he explained.

Jon Kaplowitz, Head of Penn Interactive, added: "We look forward to introducing our 20 million mychoice customers to the Barstool Sportsbook brand through our retail sportsbooks and our interactive products. Our growing team of product and engineering talent at Penn Interactive is focused on what we anticipate will be a best-in-class sports betting app, which is expected to launch in the third quarter of 2020. Our team is excited to begin collaborating with Barstool Sports on ways to utilize its key talent and leading content to drive audiences to Penn National’s online gaming products and retail locations, as well as to special events and fan experiences."

Under the terms of the agreement, Penn National has immediately exercisable call rights, and the existing Barstool Sports shareholders have put rights exercisable beginning three years from closing, for the remaining Barstool Sports shares based on a fair market value calculation to be performed at the time of exercise. Penn National also has the option to bring in another partner who would acquire a portion of Penn National’s shares of Barstool Sports. Penn National will have customary governance rights, including initially two seats on Barstool Sports’ seven-member board of directors.

Erika Nardini, Chief Executive Officer of Barstool Sports, said, "Barstool Sports is a dynamic content company that has grown into a media juggernaut thanks to some of the best talent and fans in the world. Over the last five years, Barstool Sports has brought its audience, creativity, and expertise to the biggest sports betting and DFS operators in the country with great results. The chance to combine our content and fans with Penn National's massive footprint, and to develop a unique and compelling omnichannel approach together, was for us a no brainer."

Dave Portnoy, Founder of Barstool Sports, added, "This opportunity is a dream of mine and why I started Barstool Sports in the first place. Barstool Sports has a deep sports and gaming history and from the moment we met Jay and the Penn National team we knew this could be an exciting and game changing partnership and we can't wait to get started. I think with our shared vision and goals, we are uniquely positioned to be a leader in this business."

Following the close of the transaction, entities affiliated with The Chernin Group (TCG), which previously owned approximately 60% of Barstool Sports, will own 36% of Barstool Sports, and the remaining 28% will be held by Barstool Sports’ employees, including Mr. Portnoy and Ms. Nardini.

Mike Kerns, Partner at TCG, stated, "We’re excited to partner with Penn National on Barstool Sports’ next chapter. We have long believed in the power of Barstool Sports’ unique brand, and with Erika’s leadership and Dave’s vision, the Company has realized remarkable growth over the last four years. We believe the marriage of the Barstool brand and passionate audience with Penn National’s gaming leadership will change the industry."

The companies expect to close the transaction in the first quarter of 2020, subject to customary closing conditions set forth in the purchase agreement.

Penn National Gaming will host an analyst day in June to discuss the Barstool Sports transaction further and expand upon the Company’s omnichannel vision for the convergence of sports betting and casino gaming.