This was really clearly explained in Matt Levine's column yesterday [0].
Basically, Penn purchased Barstool for the exclusive right to use it to advertise sports gambling. Then, after the exclusivity term was up and people were more comfortable with sports gambling, Barstool was too toxic to stick with and ESPN was available. They had to ditch Barstool with the requirement that it not advertise different sports betting with a similar name, and the only person who wanted it (see toxic, above) was Dave Portnoy, so they sold it back to him. Effectively they paid ~$200million a year to have exclusive sports betting advertising through a big sports website, which is not insane.
I'll be vaguer than the actual info but reference Penn's online presence netted them a fair bit less than $200m last year, so yes that number is insane.
The reality is that Penn could probably have smoothed the ongoing toxicity over with regulators if the deal made sense. They apparently didn't know what everyone else knew: Portnoys community are all squares with no disposable income. They're terrible for handle and a burden on customer service. The purchase didn't move the needle.
They also shit the bed on theScore purchase ($2b, worth nothing like that outside of hype), which allegedly Portnoy had a hand in in some fashion.
ESPN deal is $150m a year over 10 years with ESPN having a get out at 3 years if they don't like how it's going. I'd put good money on them taking it.
For reference ESPN approached FD and DK and they both rejected a deal because the financial made no sense.
Penn leadership has been floundering for a strategy for years. The base question is: why do they need a brand to hide behind at all? They're not a big player because like most square shops their business model sucks.
You could invest 150m a year over 10 years into actually doing their own market making and risk management rather then copying offshore books (who are the real market makers that almost all US books copy) and become a brand know for an actual bettors shop.
My guess is within 5 years were going to see full management change and packaging up what's left of the business for a sale.
For those confused how the numbers make sense, it's important to understand that in 2020, online sports gambling was just picking up steam. Penn paid $500M to Barstool to get themselves in the space because Barstool readers have an affinity towards online sports gambling.
Now, to become even larger, Penn wants to license with ESPN instead, agreeing on a 10-year deal at $2B. Think about the $500M acquisition cost of Barstool as a cost amortized over 3 years and it's basically what they have agreed to with ESPN except they are paying more because ESPN is a larger partner.
I will never understand why someones personal sexual encounters get aired out in public like this. If a crime was committed, take it to court where it becomes public record. Otherwise the story from every party involved is presumed to be horseshit and its none of my business anyway.
People's bad behavior has consequences. When you tie your identity to a brand, your personal behavior will be tied to the value of that brand. Every public persona knows this.
This was confusing to me too at face value. Based on the article this is what sounds like happened:
1. Penn acquires Barstool (the whole business) for $550M
2. Penn decides ESPN Bet is a better brand for what they just bought
3. Portnoy wants the name back now that Penn doesn't need it
4. Penn sells him the brand for $1 on the condition that if he sells it to someone else they get 50%.
So Portnoy gets a bunch of cash (from before) and the ability to restart Barstool's business and tech, Penn gets a turnkey app to call whatever they want, and gets a cut of future sales which at this point is just upside for them. Sounds like both parties came out ahead in their own way.
Where y is the ratchet rate, and x is the percent Portnoy owned.
He could have easily owned 20% of the company or less. Assuming no ratchet, that could still be well over $30M after taxes - but it's an order of magnitude away from $550M.
And assuming a ratchet rate close to 2 - that's almost nothing - even if he owned 80% of the company.
Selling a company for $500 million and buying it back for $1 sounds impressive, but what is he actually buying? Did ESPN roll the actual business and audience into their own system and then just sell him the brand name?
This is also a huge footnote:
> Portnoy also agreed to give Penn 50 percent of the proceeds from any future sale of Barstool Sports
I think they’re just getting ridding of the Sportsbook and partnership so barstool goes back to privately owned content generation rather than content + Sportsbook.
That's right. An analysis I read said that the contract to give the company back to Portnoy specifically forbids him from running a sportsbook. He cannot in anyway compete with what Penn is doing. Again, according to the analysis I read.
The rumor I heard is that it came with a ton of restrictions:
- If Barstool sells, Penn gets 50%
- Barstool cannot accept gambling adds for several years (which would compete with Penn)
- Barstool cannot go into the gambling business
Since Penn is going to partner with ESPN, they had to get rid of Barstool, but that's too controversial for many players to take over.
Does anyone know how this makes sense? Seemingly barstool must have said no to any deal and it was worth it for Penn to take the loss in order to partner with ESPN?
This also lets barstool partner with another book which will be a massive partnership undoubtedly.
I believe if you read around you will find that apart from the duty of care and the duty of loyalty, there are no duties to the shareholder to maximize value.
I doubt it, the Levine article lays it out quite nicely. ESPN is acquiring (partnering?) the sportsbook and is going to rebrand it. Penn sold the Barstool media/brand business back to Portnoy for $1 and preferential liquidation rights (50%) in any future sale.
They don't need it anymore. Give it back to the guy that grew the business to $500M+ and let continue to do it for 50% of any future sale. I'd be long on that bet any day of the week.
Basically, Penn purchased Barstool for the exclusive right to use it to advertise sports gambling. Then, after the exclusivity term was up and people were more comfortable with sports gambling, Barstool was too toxic to stick with and ESPN was available. They had to ditch Barstool with the requirement that it not advertise different sports betting with a similar name, and the only person who wanted it (see toxic, above) was Dave Portnoy, so they sold it back to him. Effectively they paid ~$200million a year to have exclusive sports betting advertising through a big sports website, which is not insane.
[0] https://www.bloomberg.com/opinion/articles/2023-08-09/barsto...