The future of ESPN Bet remains a hot topic of conversation.
This week, news that ESPN Bet continues to fall short of expectations came in a Penn Entertainment letter to shareholders ahead of its June 17 proxy meeting. The letter also revealed a 72% pay raise for CEO Jay Snowden and came on the heels of a week of public back-and-forth with activist investor HG Vora over board seats.
Eighteen months after ESPN Bet, the digital and retail betting partnership between Penn and ESPN, went live, the platform has underperformed against Penn, analyst, and industry projections. In the shareholder letter, Penn wrote that “sports betting is the primary driver of customer acquisition for our entire omnichannel ecosystem … [but] our market share and financial performance in sports betting to date has not met our expectations.”
Snowden addressed this issue during the company’s fourth-quarter earnings call in February when he said, “We’ve got a cost structure that right now is built for us to be a scale player because that’s where we expect to be. That’s where ESPN expects us to be. But if you’re not trending that direction, then obviously you’re not going to be operating a business from a cost structure standpoint at a scaled level.”
He also said the company had “levers operationally” to use if business doesn’t improve. Truist analyst Barry Jonas after the February call wrote that Snowden’s comments “indicate a scaling down of marketing dollars, a slimmed down cost structure and other changes as it approaches the agreement’s three-year anniversary (in 2026), when both sides have opt-outs.”
Things not looking up?
From the tone of the more recent shareholder letter, signed by Snowden and Chairman David Handler, it appears Penn has not seen marked change in the last two months. The company’s Q1 earnings call is set for May 8.
“Our Board and management team are moving swiftly and decisively to recalibrate execution and unlock the full value of this partnership,” reads the shareholder letter. “We have a committed partner and shared desire to compete and build share in a financially responsible way.
“While our initial integrations have expanded reach and driven customer acquisition, we recognize there’s more work to do to deliver on the full potential. As mentioned on our Q4 earnings call, we are optimistic that our joint efforts with ESPN will deliver improved results over the coming quarters, but we maintain optionality and control of our future in this vertical if this does not prove to be the case.”
At launch, Snowden pointed to a goal of 20% market share for ESPN Bet by 2027, but a year-and-a-half in, the platform has less than 5% market share. Among the issues, executives said during the Q4 2023 earnings call, is a struggle to maximize parlays. According to Axios, those operator-friendly wagers account for at least 50% of bets at DraftKings and FanDuel. On ESPN Bet, they account for 30%.
Snowden’s big raise
The shareholder letter includes sections about compensation for executives. Snowden’s $1.8 million salary stayed level from 2023 to 2024, but he was awarded $16.9 million in stock awards as compared to $3.4 million in 2023. His total compensation package last year was $26.7 million compared to $15.5 million in 2023.
The three other executives in the chart also got significant raises, and Chris Rogers, the EVP chief strategy and legal officer and secretary, got a massive bump from $2.9 million in total compensation in 2023 to $5.1 million in 2024. Like Snowden, most of Rogers’ increase came via stock awards.
Battle of the board of directors
The shareholder letter comes against backdrop of a battle with HG Vora, which last year accused Penn of “reckless spending” and called for change. The group nominated three board members in January, but Penn nominated only two — Sorelle Capital co-founder Carlos Ruisanchez and former Superbet CEO Johnny Hartnett. The company left off former Penn CFO William Clifford and changed the number of board seats available from three to two.
HG Vora responded Monday, according to Bloomberg, saying that Penn is stripping “shareholders of their fundamental right to elect directors of their choosing.”
Penn, in the shareholder letter, wrote that it sought a compromise and even offered to appoint Ruisanchez and Hartnett immediately, but HG Vora’s advisers rejected the offer. The adviser, Penn said, required that Penn appoint all three or appoint two plus commit review multiple financial strategies. Penn executives responded by saying that it is legal restricted from making such changes, according to Next.io.
