ESPN is officially launching ESPN Bet, its first branded sportsbook, on Nov. 14.
This has been in the works since it was announced in August that ESPN DIS would be teaming up with Penn Entertainment PENN to rebrand Barstool Sportsbook into ESPN Bet, a deal that would have Penn pay ESPN $1.5 billion over 10 years and includes an additional $500 million in equity warrants.
During Penn's investor call in the days following the announcement, the company also announced that it is aims to have 20% of the sports betting market share by 2027 despite only having about 2% to 3% of the share as of now.
This would likely mean eating from the two top players in the game — FanDuel and DraftKings — who together control over 70% of the market.
Related: ESPN is jumping into sports betting this month; these states can bet
Sports business expert Joe Pompliano calls the move a "Hail Mary" for Penn since they are struggling to build market share. He said the company probably "didn't have another option" considering how much it was struggling in the past, and that partnering with a major media outlet is an attempt to acquire customers for a lower acquisition cost.
"Sports betting is notoriously expensive to acquire customers — it's just a really expensive market. DraftKings has actually said in the past that their average customer acquisition costs I think was somewhere between like $350 to $400," Pompliano said on his podcast, "The Joe Pomp Show," on Nov. 13. "So being able to acquire customers at a cheaper rate through media leverage can be extremely valuable."
Pompliano also describes the move as a "Hail Mary" for ESPN as it tries to enter the sports betting market five years late, effectively having lost out on billions by not coming in earlier.
"Don't get me wrong — A $2 billion licensing deal is good, especially in the regard that Penn is in charge of managing the business," Pompliano said. "But in the grand scheme of things when there's people out there building multibillion dollar businesses, and you are the Worldwide Leader in Sports or so you call yourself and you make billions of dollars every single year in cable fees and you're literally printing cash and subsidizing streaming services for just the fact that they sat back and watched everyone else go out and acquire millions of customers and didn't do anything themselves. They have left billions of dollars in enterprise value on the table by not owning this themselves ... I think it was a huge mistake.
Related: What the ESPN Bet deal could mean to the sports media and betting industries
Pompliano thinks he still could be wrong as time could change things. But while the branding advantage that ESPN offers, he isn't bullish that Penn and ESPN will hit their target. He believes that it'll be difficult because much of the market is owned by the two big players, there are still other players like Fanatics with PointsBet that has the capital to also make big moves, and the unique offerings of some smaller players like Underdog Fantasy and PrizePicks.
"I don't think Penn is going to reach their goal of 20% of the US sports betting market by 2027," Pompliano said. "Penn Entertainment hasn't shown the ability to build a good enough product. A lot of the competitors are using similar technology in the back end and I think consumers have gotten smart enough to a point where you can't just throw a name brand in front of them and expect them to go sign up and enjoy it ... That's part of the reason why a FanDuel and DraftKings have built a huge head start. They've obviously been doing this for a number of years. They've spent billions and billions and billions of dollars on marketing to go out and acquire these customers.
Action Alerts PLUS offers expert portfolio guidance to help you make informed investing decisions. Sign up now.
