Yahoo Finance DraftKings (DKNG) Slides More Than 10% on PENN's ESPN Deal
The stock performance of DraftKings Inc. DKNG has been well so far in 2023, primarily on the tech resurgence and the Fed going slow on its interest rate hikes. A prudent decision to walkout from a cash-heavy deal to buy Pointsbet has also raised the company’s share price.
However, in recent days the multi-channel sports betting and gaming company has found itself in a market share war with PENN Entertainment, Inc. PENN. DraftKings, which roughly has about a fifth of the market share of online betting in the 33 states that allow sports gambling, will now be facing stiff competition from Penn, which has recently secured exclusive rights to use the "ESPN Bet" trademark for the next 10 years.
Penn announced on Aug 8 that it will be partnering with ESPN to rebrand and relaunch its betting sportsbook. It is also going to be the first time that ESPN’s brand will be on a sports-betting platform. The deal has the provision of extension by another decade if both parties agree.
Following up on the news, Penn divested back its stock in Barstool Sports to the original owner David Portnoy, for a token amount of $1. The company had initially taken a 36% stake in Barstool for $163 million in 2019, and spent another $388 million to buy the rest of the company in early 2023. Penn had planned to use Barstool's content wing to promote its sportsbooks to a younger audience but faced regulatory roadblocks. Now, with this blockbuster $2 billion ESPN deal, its stake in Barstool is rendered redundant.
DraftKings will have to fight against the ESPN brand name in 16 of the 33 states it operates in. In fact, the deal could very well signal an end to a non-exclusive marketing deal that ESPN has with DraftKings. The Walt Disney Company DIS, which owns the ESPN brand, also has an equity stake in DraftKings. On Aug 9, DKNG’s share prices slumped 10.9% on the news of Penn going forward with these disruptive moves. Shares of Penn gained 9.1%.
Draftkings, which is part of the Zacks Gaming industry, is riding on the positivity surrounding its revenue growth rate. Since the beginning of the year, this gaming stock has surged 148.1% compared with the industry’s 30.3% growth. For the current year, its estimated earnings growth is 44.3%. For 2024, the same is projected at 62.5%. The Zacks Consensus Estimate for its current-year earnings has improved 6.4% over the past 60 days. Draftkings currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Penn, which is also part of the same industry but with a Zacks #3 (Hold), has not done as well. Year to date, its price has fallen 8.8% compared to the industry’s growth rate of 30.3%. For the current year, its estimated earnings growth is 227.9%. For 2024, the company has expected negative earnings growth of 60.5%. The Zacks Consensus Estimate for its current-year earnings has not changed over the past 60 days. However, with these recent developments, it remains to be seen whether its rivalry with DraftKings intensifies and it ends up winning in the long run.
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