Barstool Sports & Penn National; a marriage made in heaven?

Investment management firm Roundhill Investments wrote a colorful post back in September on how Penn National Gaming’s investment in Barstool Sports has worked out (great for both parties to date). Its entitled “PENN’S ACQUISITION OF BARSTOOL SPORTS – ONE OF THE ALL-TIME GREATS?”

On January 29th 2020, Berks County-based Penn National Gaming (Nasdaq: Penn) announced that it was investing $163 million in Barstool Sports for a 36% equity stake, valuing Barstool at $450 million. The $163 million consisted of $135 million in cash and $28 million in stock, and included warrants that would entitle Penn to majority control if exercised (after year 3)

The US online betting market is less developed than other comparable world markets, so the assumption is that there is plenty of room for growth. Penn’s investment in Barstool is an investment in the future; 65% of Barstool’s audience, which as of January included 66 million unique visitors a month, is aged 21 to 44, people who would grow into becoming larger wagerers. Penn National’s customer base has a strong affinity towards the Barstool brand, more than for other sports media bands, Roundhill asserts.

The branding angle is key. Penn National is certainly well known in the gaming industry, but not to the pubilc. So the Barstool name gives Penn National a stronger image in the minds of consumers.

But Barstool f0under Dave Portnoy may have reason to complain. When the. investment was announced on January 29 of this year, Penn National stock was at $29.02. As the impact of Covid-19 became clearer, Penn National had liquidity concerns and its shares cratered at $4.52 on March 18 (post- St. Pats hangover?). But for the remainder of the year they caught fire before closing Friday (Dec. 18) at $91.94. More than triple the price when the deal took place, and 20x the price from when it hit is nadir.

So Portnoy would have done much better by taking all Barstool’s stake in Penn stock, if that was an option. Barstool would have been worth almost $300 million more today, although it would have been a wild ride in between.