What happened
In most instances, only one winner can emerge from an athletic contest. That was the dynamic on Wednesday with online sports-wagering specialist DraftKings (DKNG 4.96%). Following the announcement that a rival had signed a potentially lucrative deal with a top name in the sports world, DraftKings' shares closed the day down by almost 11%.
So what
In the next-generation gambling space, investor excitement was directed at Penn Entertainment. The company, a casino operator that has moved into digital wagering like numerous peers, said it is teaming up with Walt Disney unit ESPN. Together, Penn and ESPN will launch ESPN Bet, a rebranded version of the existing Barstool Sportsbook.
ESPN is one of the most valuable pieces of intellectual property in the sports media world. Given this, Penn also stands to benefit from the 10-year, exclusive right to the ESPN Bet trademark it's been granted as part of the deal.
Scoring ESPN as a partner is a clear win despite the expense ($1.5 billion over that 10-year period for Penn). It immediately and dramatically elevates Penn's presence in the sports-gambling segment and makes rivals like DraftKings appear to be laggards. The sell-off in the latter stock is entirely understandable.
Now what
DraftKings still has a lively business with its own, rather sprawling, digital-gambling operations. This surely hurts, however, as the effect of a star brand name on a product can be very pronounced when it's managed effectively. With the emergence of ESPN Bet, DraftKings will surely have its work cut out for it in the bruising contest for market share.
