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Barstool Sports investment boosts regional operator Penn National

Updated February 4, 2021 - 8:41 am

While 2020 will always be remembered as a wipe-out year, Penn National Gaming Inc. began recovery in 2020’s fourth quarter, the company reported Thursday.

Wyomissing, Pennsylvania-based Penn, operators of the Tropicana and M Resorts in Southern Nevada, reported net income of $12.7 million, 7 cents a share, on revenue of $1.027 billion for the quarter that ended Dec. 31. That compared with a net loss of $92.9 million, 80 cents a share, on revenue of $1.341 billion in the same quarter a year earlier.

But the company missed analysts’ revenue and earnings estimates. A survey of 15 analysts expected Penn to collect $1.08 billion while 16 believed the company would earn 24 cents a share.

The company reported revenue from its West segment was $79.5 million for the quarter compared with $158.1 million for the same quarter a year earlier. For all of 2020, West segment revenue was $302.5 million compared with $642.5 million in 2019.

The West segment includes the Tropicana and M Resort in Southern Nevada, Cactus Pete’s and Horseshu in Jackpot on the Nevada-Idaho border, Ameristar Black Hawk in Colorado and the Zia Park Casino in New Mexico.

Penn got a boost with the launch of the Barstool Sportsbook mobile app in Pennsylvania in September, registering more than 72,000 customers and generating a total handle of around $300 million in sports bets.

Penn announced its partnership with Boston-based Barstool Sports in January 2020 with a $163 million, 36 percent interest in the sports media content provider.

The deal enables Penn to invest an additional $62 million to up its stake to 50 percent within three years and a total $450 million for the entire company.

In a conference call with investors Thursday morning, Penn indicated the first quarter of 2021 is off to a good start with the Barstool app going live in Michigan on Jan. 22 with plans to introduce the app in Illinois prior to March Madness basketball tournaments. Other states are on deck prior to the 2021 football season.

Penn President and CEO Jay Snowden said the strength of the company’s balance sheet enabled it to exercise its option to acquire Hollywood Casino Perryville in Maryland.

“We remain on track to close the acquisition following regulatory approval,” Snowden said. “This transaction provides us the opportunity to expand our unique omnichannel platform into an industry-leading 20th state, and we hope to introduce a Barstool-branded retail sportsbook and mobile app to the valuable Maryland gaming market later this year.”

Penn also plans to launch a new technology initiative in Pennsylvania in the first half of the year. Its 3C plan — for cashless, cardless and contactless technology in casinos — is geared to engage a younger demographic.

“In addition, we have recently launched our mychoice mobile app,” Snowden said. “As of Dec. 31, the app generated over 140,000 downloads with 91,000 monthly active users. The app will provide us with an environmentally friendly and more efficient way to communicate, interact, and engage with our guests. The 35-to-54 age group is currently the most engaged audience with the app, which is very encouraging as this group represents a growing segment of our different business channels.”

A representative of the company said after the conference call that Penn plans to initiate the 3C program at Tropicana and M Resort and that it looks to have the Barstool Sportsbook licensed by state gaming regulators, although the timetable for both is unclear.

Gaming industry analyst Carlo Santarelli of the New York office of Deutsche Bank, said the company has focused more on Barstool than share performance, but he acknowledged that Barstool, which has a massive social media following, has seen its value climb.

“This morning (Thursday), Penn missed relevant consensus forecasts and focused primarily on the value of the Barstool brand on the call,” Santarelli said in a note to investors. “Simplistically, Penn paid about $450 million for Barstool, and, coupled with the gaming licenses Penn held well before Barstool was contemplated, this pairing is now valued, on a stand-alone basis excluding the core, in a range of $12.5 billion to $14.2 billion.

“In our view, the story is one of media network appearances, social media hype, stock momentum and some carefully crafted narratives around the business,” Santarelli said. “Clearly, the value of all of this is far greater than what we ever imagined it could or would be.”

Penn National shares, traded on the Nasdaq exchange, closed up $9.29 a share, 8.5 percent, on above-average volume Thursday. After hours, shares dipped slightly by 44 cents a share, 0.4 percent, to end at $117.90 a share.

Contact Richard N. Velotta at rvelotta@reviewjournal.com or 702-477-3893. Follow @RickVelotta on Twitter.

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