In a surprising turn of events, Dave Portnoy has purchased Barstool Sports back from Penn Entertainment for a mere $1. This acquisition marks a dramatic shift for the sports and pop culture media company that Portnoy originally founded.
The Background of the Deal
Earlier, Penn Entertainment invested around $550 million to gain full control of Barstool Sports. However, the casino and online gambling operator has now decided to divest itself of the brand. In a recent 10-Q filing, Penn reported that it sold all outstanding shares of Barstool to Portnoy for a nominal cash consideration, along with certain non-compete clauses and other restrictions.
Financial Implications for Penn Entertainment
The decision to sell Barstool Sports will lead to significant financial repercussions for Penn, with an anticipated pre-tax non-cash loss between $800 million and $850 million. This figure includes an estimated $705 million to $720 million in write-offs related to goodwill and intangible assets, all of which will be reflected in the company’s third-quarter earnings for 2023.
Future Earnings and Ownership Structure
Under the terms of the agreement, Penn will retain the right to receive 50% of any gross proceeds Portnoy may earn from a future sale or monetization of Barstool. However, Portnoy has publicly declared his intention to never sell the brand again.
The Shift in Strategy
This rapid sale comes on the heels of Penn’s new partnership with ESPN, which involves rebranding Barstool Sportsbook as ESPN Bet. The deal requires Penn to pay ESPN $1.5 billion in cash over ten years, in addition to granting ESPN approximately $500 million in warrants to purchase shares in the company.
Portnoy’s Perspective
In a video announcement, Portnoy expressed that operating Barstool within a regulated environment proved to be more challenging than anticipated. He stated, “We underestimated just how tough it is for Barstool to operate in a regulated world,” adding that the company faced denials for gambling licenses largely due to his past actions.
CEO’s Insights
During Penn’s second-quarter earnings call, CEO Jay Snowden emphasized that Barstool Sports was never a natural fit for a publicly traded and heavily regulated gaming company. He acknowledged Portnoy’s candid “emergency press conference” as an accurate representation of the challenges faced.
Snowden remarked, “It became clear to both parties that there’s probably long-term only one natural owner of Barstool Sports, and that’s Dave Portnoy,” signifying a mutual understanding that the brand is best suited under Portnoy’s leadership.
