PENN Entertainment Investor Says It’s Time To Sell The Company

Erik Gibbs

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In a bold move, activist investor Donerail Group penned a letter Friday that urged the board of PENN Entertainment to consider selling the retail and online gaming company. This call to action comes amidst concerns over the leadership of CEO Jay Snowden, whose compensation package totaled $99.3 million from 2020 to 2023, according to Donerail.

Donerail Managing Partner Will Wyatt has voiced his belief that PENN Entertainment’s value could soar as high as $6.9 billion to the right buyer. However, he argues that a series of missteps under Snowden’s tenure, most notably the ill-fated acquisition and subsequent sale of Barstool Sports, has significantly hindered the company’s financial performance and market standing.

After four years of effort, attention, and billions of dollars of shareholder capital invested, the Company has been unable to disintermediate the online sports betting landscape, as it had forecast. Moreover, the growing pattern of guidance misses, alongside a demonstrated unyielding appetite to continue to invest in the Company’s fledgling Interactive projects, irrespective of past results and without a clear return framework, has significantly damaged the credibility of this management team and Board of Directors.

Donerail Group Managing Partner Will Wyatt

PENN’s acquisition of Barstool Sports was initially seen as a strategic expansion when it first bought into the sports media company in 2020. A little more than a year ago, it purchased the rest of the company for around $550 million.

The subsequent decision to sell it back to founder Dave Portnoy for a mere $1 six months later immediately raised eyebrows and questions about the company’s direction and decision-making processes. PENN later reported a write-off of $850 million in relation to the failed deal; Wyatt believes it cost the company at least $1 billion.

Wyatt also highlights that Institutional Shareholder Services (ISS), a shareholder advisory firm, gives Snowden’s pay in relation to company performance a score of -100 based on its internal criteria. This is “the worst possible score” ISS gives.

PENN out of focus?

Wyatt also expressed concerns that Snowden’s vision of the company reflects a deviation from PENN’s core focus on land-based gaming operations. PENN is shifting some of its investments toward the online gambling sphere, through PENN Interactive, looking to ESPN Bet as a catalyst for growth.

However, this will take time to develop. PENN’s revenue for the last quarter of 2023 was $31.5 million — an 84.9% drop from the $208 million it reported a year earlier.

This decline continued into the new year. Revenue was down 4% year-on-year in Q1, settling at $1.6 billion. PENN also reported a GAAP loss of $0.76 per share, which was a huge fall-off from its reported profit of $3.05 per share a year earlier.

To be fair, ESPN Bet was just getting started when PENN reported its 2023 Q4 results, having launched in November 2023. Still, after having agreed to pay Disney $1.5 billion (payable over 10 years) for the rights to the ESPN name, PENN has a long way to go to see a return.

The scrutiny over Snowden’s leadership is intensified by the juxtaposition of his substantial compensation against the backdrop of the company’s questionable strategic decisions. Wyatt’s stance suggests that under different leadership, PENN Entertainment could not only rectify its course but also unlock greater value for its shareholders.

Shareholders respond to Donerail letter

PENN shareholders appear to have paid attention to Donerail’s letter. While PENN’s stock has been sliding recently — going from $16.90 on May 13 to $14.63 on May 30 — the last few days have seen a turnaround.

At the end of trading on May 31, the day of the letter, PENN’s stock had jumped to $17.50, a 19.62% increase from the May 30 figure. Leading into trading on June 3, the rally continued, with the stock reaching $18.11.

Overall, PENN’s stock has lost 34% since the beginning of the year. But it’s now on track to see its largest increase, in terms of percentage, since July 2020.