Will Mack Knife Profitable Third Quarter For PENN, Barstool Sportsbook?

PENN Entertainment is confident its iGaming and Barstool Sportsbook segment will hit profitability for all of 2023 after a positive October.

That is according to CEO Jay Snowden, who had plenty of positives to say about PENN’s interactive segment on Thursday‘s third-quarter conference call. PENN closed trading for the week Friday at $32.49, off its weekly high of $34.66.

The segment reported an adjusted EBITDA loss of $49.3 million for the quarter. That is up 54.1% over last year’s $32 million loss, though this year included $12.5 million in lobbying expenses for California sports betting and a $7.9 million payment processing fee adjustment.

Can Barstool Sportsbook stay profitable in Q4?

Snowden noted the segment’s profitable month came amid an average hold month for sports betting. He praised interactive’s strong revenue growth and PENN’s disciplined approach to marketing for turning the corner.

While Snowden anticipates being profitable for the quarter, there are a few outside factors that could change that. There will be some investments into new launch states Maryland and Ohio that will hurt EBITDA.

Barstool would also be on the hook for a $10 million payment to Mattress Mack if the Houston Astros beat the Philadelphia Phillies in the World Series, Snowden said. The interactive segment would be around breakeven for the quarter if the bet wins, he added.

Profitability for Caesars digital segment also hinges on a Mattress Mack bet.

Kansas launch hits PENN record

The Barstool Sportsbook launch in Kansas had PENN’s highest-ever level of first-time deposits on a per-capita basis, Snowden said.

The company also saw more than 45% of its online handle coming from players in PENN’s loyalty program, mychoice. The program now has a database of more than 25 million. 

“Beginning with the Hollywood 400 presented by Barstool Sportsbook and continuing with coordinated joint marketing efforts, our omni-channel approach there has delivered one of our most successful launches to date when you combine both retail and online sports betting results,” Snowden said.

Barstool Sportsbook integrated with theScore app

PENN is picking up where theScore Bet could not quite make an impact in the US.

The company integrated betting capabilities with the Barstool Sportsbook app into theScore’s media app in the US. It works similar to how theScore Bet did before that brand was shuttered in the US: bettors can create their bet slips in theScore app and then push them over to the Barstool Sportsbook app to actually place the bet.

TheScore Bet struggled to gain market share in any of its US jurisdictions before shutting down over the summer, but that is not stopping PENN from trying the integrated approach again. The results have been positive so far in the Ontario sports betting market, as a bettor that uses both theScore media app and theScore bet is worth 80% more gross revenue than a bettor that does not use the media app.

Still room for Barstool Sportsbook to grow in Ontario

Even though PENN is touting its success in Ontario, it still is “sort of fighting with one arm tied behind the back,” Snowden said.

The proprietary platform has only been live for football season, so it does not have as many offerings as other sportsbooks. Already, though, PENN is reporting “really, really strong parlay play,” he added.

More in-play markets and a better target for parlay bettors will help down the road, Snowden said. PENN continues to grow daily actives, monthly actives, handle and gross revenue with a gross revenue chart included in the earnings presentation.

“We’ve got great momentum in the business there, and you should assume that that’s all happening, that that market share is continuing to grow and that we’re doing that in a profitable way.”

Barstool platform switch still scheduled for mid-2023

Part of PENN’s confidence in the interactive segment turning positive for all of 2023 is the switch to its proprietary platform.

Barstool Sportsbook currently operates with third-party supplier Kambi, but the two recently outlined terms for the transition.

PENN will save cash and improve its marketing abilities once the sportsbook is on the proprietary tech, Snowden said. The in-house player account management system is already driving results in Ontario, he added.

“Through our experience in Ontario, we’ve identified some real opportunities to build market share once we migrate to our own tech stack in the US in Q3, and of course, we’ll do that profitably. And we will be prepared to invest in those markets where we see attractive returns while maintaining a disciplined approach.”

PENN finally prepared to market in the US?

PENN basically relied on its database of Barstool Sports users up to this point in the US, but that should change when the new tech is live next year.

The company supplemented its Ontario launch with additional marketing and will continue to do so as long as it pays off, Snowden said. As long as cost per acquisition is attractive in the US, PENN will take a similar approach.

“We’ll do all of this in a thoughtful way. We’ll be judicious in how much we spend and where we spend. We’re not looking to grow market share if we can’t do it profitably, but we’re seeing in Ontario that we believe we can once we’re on our own tech stack and have great promotional and bonus engine capabilities that we didn’t have previously that we can acquire customers, retain them and continue to grow our market share.”

Cost per acquisition is better in Ontario than it was in the early stages of US sports betting, Snowden said. Those costs are lower in the US than they were a year ago, though, he added.

Sports betting bringing in younger customers for PENN

PENN is getting close to 20% of its revenue coming from 21-to-44 year olds, Snowden said. It was a little more than 10% of revenue a few years back.

Snowden says there is two reasons for that. The first is because casinos were some of the first entertainment venues to re-open following Covid lockdowns in the spring of 2020.

The bigger factor is online sports betting, though. That 21-to-44 age segment accounts for 90% of online sports betting revenue and 80% of online casino.

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