The start of something new

ESPN Bet has been live for a week now (at the time of our interview). What are your initial thoughts on the venture?
 It’s met expectations so far after launch. Over the first two or three days it was the most downloaded app in the Apple Store. That was something ESPN Bet representatives and Penn Entertainment representatives really keyed in on over the first couple of days.
 It’s been pretty smooth. I haven’t heard of any catastrophic failures with the app. There’s a marked improvement over the old Barstool Sports app. That app tended to be buggy and slow; it did not hold a candle to DraftKings or FanDuel. The new ESPN Bet app is sleek. It’s intuitive. I haven’t heard many people complain that it’s difficult to use or that it crashes. It’s very straightforward. I wish I had some money figures to talk about with you but those won’t come for another couple of weeks when data starts reporting. It’s hit the marks that it wanted to hit. It’s got some great publicity and nothing has gone wrong so far with the launch.
 I don’t want to discount its popularity, but I will say that it did require users to redownload the app, though you still had millions of people downloading it. It’s hard to talk about as it’s only been a week, we don’t know how many people are using it, but it does seem like it’s gone just about as well as ESPN and Penn representatives hoped it would.

As you said, the download numbers were impressive. It was around 622,000 on the first day and the next nearest was 50,000 - things that’ll average out over time. The big question is downloads against conversion. That’s a totally different challenge, right?
 Absolutely. They still have a long way to go. Penn CEO Jay Snowden has said that they’ve got a 10-year plan. They have publicly stated that by 2027 they want a 20% sports betting market share that would put them on a pedestal with DraftKings and FanDuel. We’re a week in and we still have many years to go. But they’re being aggressive, you can tell. They’ve said they didn’t make this partnership just to be in the top 10 operators in the country like they were when they had the partnership with Barstool. I think Snowden realised that there had to be an aggressive move if they wanted to shoot up that ladder and potentially reach the top three.
 There are incentives baked into the deal; ESPN will get $500m in warrants to purchase an additional 31.8 million Penn shares, depending on certain goals that are met. Just anecdotally, in every interview that Snowden gives, he has the top three in mind.
 You’ve seen a lot of money being spent so far on marketing the promos, people are going wild about the ones being offered in the first couple of days. It’s been very aggressive, and they publicly said that they’re going to continue to spend money. This is not just a first-week bonus type thing. This is going to be a lot of money being spent over the next couple of months to get that customer base up – get that customer retention and loyalty up – and really set that base for the next couple of years.
 So, if there’s one word to describe everything so far, it would be aggressive.

You’ve mentioned the CEO a few times already. His strategy is aggressive; it’s a gamble. Is this ultimately such a big gamble that if it doesn’t go well, this could be his time over at Penn? Secondly, all the commentators I’ve spoken to are cautious about ESPN’s success. They don’t have a natural inclination that ESPN will be a market leader and instead are curious to see what they can do. Do you share this opinion?
 I’m not going to touch that first question with a 10-foot pole. I don’t know what’s going on in the background of Penn. There’s a saying here in the States that you never talk about another person’s job. I don’t know if it will work; you can wait and see what happens with ESPN Bet. I don’t think that is a controversial thing to say.
 People were really touting the original partnership with Barstool Sportsbook as a complete win when it happened, but then you saw over the couple of years they had that partnership it was not going to work. The Barstool media personalities made it difficult for Penn. This is a highly regulated market space, but you had these personalities who were saying things on air that really rankled a lot of regulators. It put Dave Portnoy in a tough spot where he had to fire an employee. I think the employee said a heinous racial slur on air. But Portnoy pushed back against public perception from regulators and the industry and said that he should be fired; eventually he agreed to fire the employee, which in turn rankled the Barstool fans and readers who said he became a turncoat.
 The Barstool partnership just offered so many difficulties for Penn that I think it’s almost a breath of fresh air that they’re going with ESPN now. You’re not going to have the controversies that Barstool courted almost every single month. Every month it seemed like a new state was bringing up some article from The New York Times or some of Portnoy’s transgressions from the past.

So where do they go from here?
 Let’s see what happens with this partnership, but right off the bat, they’re on much more stable ground with ESPN. ESPN is the largest sports media company in the world. There’s so much content they can integrate into the sportsbook app that they didn’t have with Barstool. They’ve said one of the big things they’re going to be doing is allowing people to browse ESPN and put in their betting slips while they’re browsing the content. It’s just seamless. Integration is what they really promoted with this. You didn’t have that with Barstool.
 I think the biggest controversy you’re gonna have with ESPN, if you even want to call it a controversy, is how on-air employees and on-air journalists are going to speak on sports betting. Some states, like Massachusetts, have very strict regulations. Like, what if Pat McAfee says you should bet on this tonight? Are we going to see that in the app? That could sway people who use it. I think that’s a work in progress, but when you think about that problem compared with all the other problems they had with Barstool, it’s a drop in the bucket really.

You mentioned licensing, and I’m hoping this question can align itself with your specific expertise. Are there any states or areas where you think ESPN has a greater chance of success?
 Sure. They’re in 17 states now, and I would imagine they’ll have great success in states like Ohio or New Jersey; some of the bigger markets. I look more to where they could go from this. I think New York is the target that everyone is talking about with ESPN Bet. They are waiting to see if they get in and how they get in. Right now New York is by far and away the biggest sports betting market in the country, if not the world. They do in a month what other states wish they could do in a year. Penn had aspirations to be one of the first nine sports betting operators in the state. Their bid was obviously not selected – that was when they were with Barstool – but Snowden has said if you’re gonna be one of these major players you have to be in the top markets. No operator is making a lot of money in New York. I think maybe two have broken even and the rest are losing money. But New York’s the top market in the state.
 How do they get into New York? There are rumours that New York could open up this year to additional operators. With additional operators, there’s always been a plan to potentially lower the tax rate. I’m not sure if they’re going to do that, but that’s always been the talk when they expand the licences. I think the easier and quicker way would be some type of acquisition with one or two operators in the state.
 New York I would say is the next big state they’re looking at. I think they’ll have success in the 17 states they’re in. It’s gonna be really interesting to see when those first numbers come out if they have a home run right off the bat. But you gotta be in the big states. You gotta be in the big market if you’re going to be considered one of the top three operators in the state. So New York should be on their radar.

This last question is not strictly about ESPN, but in some ways it is by association. Fanatics has a similar situation coming in from another industry. If you were to pick out the chances of success – and again, we don’t have a crystal ball – who do you think is better suited? And if they’re going to take market share, who are they gonna take it off?
 Basically, you’re asking who I think has the rosier outlook in terms of Fanatics and ESPN Bet and who they could potentially take share from? I’ll put it this way, I think both ESPN Bet and Fanatics have different goals. Penn Entertainment has said that 20% market share is the goal. I think with anything less than that they’d be disappointed.
 Fanatics has said they’re taking the long road in the sports betting market. They are focusing on expanding their brand slowly. They just launched in West Virginia, they’re piloting their Fanatics casino in West Virginia. This just happened last week, they’re focusing on iGaming as well. I think they are focused on really securing their base right now. You’ve seen their handle numbers improve in just about every state they’re operating in. It hasn’t been this tremendous boom, but they are improving every single month. Would they like to be a top three operator in the country? Of course, who wouldn’t? But they also have this base as a sports merchandise and apparel giant. They don’t need to have these very aggressive goals in the state. Just as long as they’re bringing in money I think they’re going to be happy.
 I think the two situations are very different. ESPN has been extraordinarily aggressive. You haven’t seen that aggressiveness out of Fanatics. I mean, in half of the states they began in, they beta-tested for months. It’s been a much slower rollout for Fanatics Betting and Gaming. Where they could potentially take market share from… I don’t know if I’d be able to give a great answer to that. I don’t think my crystal ball is as clear on that one. It’s gonna have to come from somewhere.
 The two biggest operators in the country; DraftKings and FanDuel… if you’re gonna crack that top three, you’re gonna have to take some of their market share, right? I don’t know who ESPN would be poised to take the most from, but it’s just common sense that you’re gonna have to cut into some of the giants in this country if you want to be up there as well. I don’t know if it’s gonna happen. I’m not saying it is going to happen, but it’s just common sense.

Is there anything else you’d like to add?
It’s just a waiting game right now, you know? There’s so much excitement. There’s so much publicity. They’re covering so much of this and we’re a week into a potential 20-year partnership. The original partnership is for 10 years, then they have another 10-year option. Look; it’s ESPN. They’ve said a number of times that ESPN and Disney don’t just jump into something to get into something. They’re not just jumping into this market to say: “well, let’s see what happens.” They have a goal in mind. Penn has a goal in mind. They have a lot of content and a lot of personalities they can throw into this. They’ve got a lot of viewers on their programming every single day, a great social media presence… They’re set up for success – let’s see what happens.