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Good Thursday Morning. We’re back from vacay and ready to rock. Let’s nerd out on some sports business.

Here’s the rundown of this week’s Sports Business Playbook:

• 📰 This Week’s Topic: One of the biggest sports business stories of the year involving sports betting, a pirate ship, and the worldwide leader in sports.

• 🍸️ Impress Your Friends at Cocktail Party: Want to show off your sports knowledge in a public setting but don’t have time to read the deep dive? Hit the “Impress Your Friends at Cocktail Party” section at the bottom for a CliffsNotes of this week’s topic

• 🤯 “Whoa of the Week”:

• 💪 Weekly Reminders that Sports are Awesome:

Hey team,

Major news out of the sports betting world broke on Tuesday.

Sportsbook operator PENN Entertainment sold its 100% stake in Barstool Sports, the polarizing media brand that PENN had just paid $388m earlier this year to acquire the remaining stake it didn’t already own and gain 100% ownership, back to founder Dave Portnoy and is now paying $2 billion to partner with ESPN on a rebranded app, ESPN Bet, launching this Fall.

The agreement is telling of each party’s current environment and how they plan to evolve, survive, and ultimately try to succeed in the shifting sports betting and media landscape.

I want to give you an overview of the deal and then the vantage points of the three companies’ CEOs.

Let’s dive in.

I Guess It’s Now ESPENN?

First, the deal points.

PENN Entertainment is selling 100% of Barstool Sports back to original founder Dave Portnoy for the following:

• $1 (not a typo)

• Non-competes with other sportsbooks/gambling opportunities

• PENN has the right to 50% of the proceeds of any future sale or liquidity event of Barstool

The Barstool Sportsbook, owned and operated by PENN in 16 states, will be rebranded as ESPN Bet and launch in the Fall in time for football season under a new licensing deal with ESPN. The agreement, which PENN and ESPN hailed as the “future of sports media and betting” in PENN’s SEC filing about the deal, breaks down like this:

• PENN pays ESPN $1.5 billion over the next 10 years, and ESPN will have the option to purchase an additional $500 million of PENN stock via warrants that will vest over that same 10-year period

• ESPN Bet becomes the worldwide leader in sports’ exclusive sportsbook for all of its content, ending existing relationships with Caesars and DraftKings, and the betting app will be fully ESPN-branded and have strong marketing/promotional tie-ins with the network.

• Building on this last point, ESPN can earn up to an additional 6.4 million PENN shares (currently worth $159 million) if the app hits certain performance metrics. The goal is to reach “podium position” (read: third) in the US sports betting market and take a 20% market share.

This is a pretty wild turn of events that came together rapidly and brings another well-capitalized player onto the board in an already crowded sports betting space.

Why did it happen, and what are the perspectives of each of the CEOs involved?

PENNing Your Hopes on Content

You’re PENN Entertainment CEO Jay Snowden.

You initially acquired Barstool in 2020 as a bet that using content as a customer acquisition vehicle could serve as a healthy, sustainable alternative to the market leaders’ plan of burning an inordinate amount of cash to gain market share.

You, like the millions of other well-informed Sports Business Playbook readers, know from reading prior editions that this concept is based upon the idea that users who are engaging with their favorite content will naturally gravitate and stay with the sportsbook that the content creator is integrating into their content, thus moving away from the ephemeral promo code and into longer-term stickiness and loyalty.

You take this idea to the max, rebranding the sports betting operation as Barstool Sportsbook and integrating both betting into content and the major Barstool content personalities into the betting app.

Unfortunately, the results are mixed (Barstool Sportsbook’s market share is only ~2-3%), and Barstool’s off-color culture, led by Portnoy, never really meshes with the buttoned up, highly regulated waters that PENN is playing in.

You see that in his “emergency press conference” after the deal was announced, Portnoy talks nicely about you and your company (definitely under contractual obligation) but goes as far to say that both PENN and Barstool underestimated how hard it would be to navigate this landscape and that his/Barstool’s behavior may have cost PENN licenses in certain states. He’s not wrong.

So, Barstool Sportsbook is stagnating and the media company you hitched your wagon to is causing more harm than good. What do you do?

Well, you double down on the customer acquisition via content idea and exit your partnership with a strong but polarizing content company (Barstool) at a sizable loss but now strike a deal with a much more reputable content company that will appeal to larger audiences and not run afoul of regulators (ESPN).

Is ESPN the indomitable goliath it once was? No. But it is known as the worldwide leader in sports for a reason.

You plan to leverage ESPN’s massive digital footprint of 370 million social media followers, 100 million+ monthly digital unique users, 25 million subscribers of ESPN+, and 11 million fantasy app users as a conversion funnel that brings users into your sports betting app and keeps them there.

Plus, ESPN is incentivized to flex its promotional muscles and help grow the business, so you can expect ESPN content, including newly signed golden boy Pat McAfee, to pump the hell out of ESPN Bet. And, it could also lead to interesting innovations with in-gaming betting both within the app but also within ESPN’s content as the technology continues to evolve.

Is it odd that you handed the company you just paid $550 million for over 3 years back to the founder for $1 and a deal to be named later?

Yes, but this deal came together fast (RIP the PENN Entertainment corp. dev team), and you had to move fast to announce it so ESPN Bet could be ready for the Fall. Running a formal bidding process would draw out the sale and dash your hopes of tasting a bit of the sweet nectar that is football season wagering. Not worth it in your mind.

Plus, given your lofty projections that ESPN Bet will achieve 20% market share by 2027, you will have made up the revenue from a sale of Barstool and then some.

This deal is the biggest bet of your career, but it’s an evolved version of the same strategy that you already strongly believe in: content wins, and it will help you to fend off Fanatics’ market entry and ascend to “podium position” in the US sports betting market.

Go Get ‘Em, Iger

You are Disney CEO Bob Iger.

You have said for years, even post-PASPA, that the Mouse is not going to be heavily involved with sports betting because it does not align with the family-friendly image the company has cultivated for nearly 100 years.

Yes, ESPN has had lucrative marketing deals with Caesars and DraftKings and the network more actively covers and promotes sports betting, but you’ve never fully crossed the Rubicon and gotten involved in the actual gaming operation.

But, the times, they are a changin’.

You came out of retirement (and professionally whacked your hand-picked successor) to fix the mess at Disney. One key area of this is figuring out what to do with ESPN.

Like Jay Snowden, you’re an avid reader of Sports Business Playbook and know that the sports media landscape is rapidly shifting, and it’s not necessarily in your favor.

Cord cutting is accelerating, media rights keep going up/you are now having to compete with tech giants like Apple and Amazon for said rights, and the youths are just not flocking to your content like they used to.

Plus, you just went through a bruising series of layoffs that have shaken the company culture to its core.

What do you do?

You potentially consider bringing on one of the professional leagues as a strategic partner to help secure your future, you accelerate your timeline for a true streaming-only app, and it may be time to take another look at this sports betting thing.

The established market leaders like FanDuel and DraftKings don’t need ESPN to be successful, so they won’t give you much of a deal. You also can’t go too small because you’re ESPN; not a startup incubator. So, finding a mid-tier player who is hungry for growth makes the most sense. Enter PENN Entertainment.

With the PENN agreement, you get a recurring cash infusion that helps to offset some of your increasing costs, and you have the opportunity to reap the benefits of the upside should it really take off.

More importantly, if the ESPN Bet app truly reaches product market fit, you’ve now cocooned your user base in the ESPN universe. This hopefully bolsters the previously lagging viewership numbers, increases the footprint across other digital products, and strengthens your leverage in generating ad revenue.

Is this where you wanted to end up? Probably not. But you’ve built your legend at Disney on making transformative deals, and this ESPN Bet “bet” is one key prong in the strategy to stabilize the worldwide leader in sports.

Barstool vs. Everybody

You are Barstool Sports founder Dave Portnoy.

In 20 years, you’ve built Barstool from a Boston subway rag into a $550 million media conglomerate.

Throughout the years, you have cultivated an irreverent, polarizing, and often defiant culture that you claim bows to no one. It’s gotten you in serious trouble countless times and drawn the ire of many, but it’s also helped you to a nine-figure exit.

This “pirate ship,” as you call it, is your baby, and the last few years have been a mixed bag.

On the one hand, the company has flourished, and you earned what is likely a 9-figure payout in the sale to PENN.

On the other, your antics have had true repercussions for the first time, and because you relinquished control during the sale to PENN, you’re now beholden to a higher power who dictates what goes. This is antithetical to the principles, no matter how flawed they are, you built Barstool on, and it’s evident that there is friction in the relationship with PENN on both sides.

But, an opportunity appears.

PENN wants to get out of their deal with you ASAP in order to join up with ESPN. And they’re so eager to do it that they will give you back the company for free as long as you promise not to go into business against them for a set period of time and to give them half of what you make on a future sale.

So, to recap, you made so much money on the initial sale to PENN that you never have to work another day in your life and now spend 6+ months in Florida for tax purposes, and just a few months later, you get the pirate ship back for free with no corporate overlords or anyone telling you what to do.

Running a profitable, standalone media business is hard, and you’re inevitably going to put your foot in it again and draw criticism.

But, this is who you are, and it’s hard to see a situation where you will ever let go of the pirate ship’s helm again. VIVA.

Impress Your Friends at a Cocktail Party

Want to show off your sports knowledge in a public setting but don’t have time to read the deep dive? This section is the CliffsNotes of this week’s topic

• Opener: PENN Entertainment is exiting its ownership stake in Barstool (of which they bought 100% earlier this year for $338 million), selling Barstool back to Dave Portnoy for $1 and future considerations, and rebranding Barstool Sportsbook as ESPN Bet in the Fall as part of a 10-year, $2 billion deal with the worldwide leader in sports.

• Shot: ESPN Bet’s goal is to reach “podium position” (third) in the US sports betting market and take a 20% market share by 2027.

• Chaser: For PENN, the deal represents an ever bigger bet on the customer acquisition via content idea. The goal is to upgrade from a strong but polarizing content company (Barstool) to a much more reputable content company that will appeal to larger audiences and not run afoul of regulators (ESPN).

• Chaser: For ESPN, the deal is a welcomed cash infusion and the opportunity to secure its future in an uncertain media landscape by wrapping users in ESPN products and ensuring the digital footprint continues to grow.

• Chaser: For Barstool, the pirate ship returns. Dave Portnoy made hundreds of millions of dollars off of Barstool’s sale to PENN and the organization grew significantly. But, the polarizing media outlet never fully gelled with the cultural norms of a public, highly regulated company, and it was evident that both sides felt the friction and knew the partnership was not delivering results for either party. Now, he gets Barstool back to run as he wishes for $1, a non-compete with other sports betting companies, and a 50/50 split with PENN on any future sale of Barstool.

“Whoa” of the Week

Insane, mind-blowing things constantly happen in the sports business world. Here was my favorite of the past week.

1. The Dallas Cowboys are the most valuable sports franchise in North America (and presumably the world)

2. Big dollars for ManU’s renewal with Adidas

Weekly Reminder that Sports are Awesome

This newsletter is, of course, mostly centered on the business side of sports and the things that happen off the field. That being said, it’s important to remember why we fell in love with sports in the first place, though.

This section is meant to highlight the amazing things that happened in sports this week that serve as that reminder.

1. Wes Wilson homers in his first career MLB at-bat after 7 years in the minors, and Michael Lorenzen throws a no-hitter in the same game. Their families were both in attendance and their reactions were priceless.

Thanks for reading! Let me know what feedback you have.

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Until next time, sports fans!

-Alex