As far as casinos and betting brands go, Penn Entertainment (PENN -1.92%) isn't exactly top of mind. That honor typically goes to more familiar tickers like Ceasars Entertainment or Wynn Resorts, both of which are also bigger companies.
Being smaller doesn't make Penn any less investment-worthy though. In fact, risk-tolerant investors may want to take a shot on Penn Entertainment while the stock's still (much) closer to the multiyear low hit just last month than it is to the multiyear high reached in early 2021. The market's underestimating what lies ahead for this company.
Penn Entertainment is leveraging a powerful brand name
As was noted, Penn is a casino operator, although its more prominent claim to fame is arguably its online betting presence. In addition to its roughy 40 casinos peppered across the U.S., Penn Entertainment owns a handful of gaming apps, as well as a sports media operation called theScore. Perhaps most notably, in August Penn secured the rights to use Walt Disney's ESPN brand name to promote a new sports-betting platform. ESPN Bet launched in the middle of this month, bolstered by select ESPN programming content.
Surprisingly, the ESPN deal didn't exactly light a fire under Penn shares. Although the stock has rallied from its late-October low, it's still below July's high, seemingly unfazed by the partnership with Disney. Penn shares' action during this period merely mirrors the broad market's action for the same time frame.
That's the crux of your opportunity though -- the market isn't seeing the potential of connecting the popular ESPN brand name to a sportsbook at this particular point in time.
ESPN is arguably the premier name in sports broadcasting. It's the second-most-watched cable (non-network) channel, according to IndieWire, and easily the most expensive one for cable companies to feed to their customers. That's a testament to the channel's draw and importance.
The ESPN app is also the United States' most-used sports news app, underscoring sports fans' affinity for the brand. Leveraging it to promote a sports betting platform should be relatively easy work.
But it's the timing of the partnership that's the game changer putting Penn Entertainment on so many investors' radars.
The sports betting market is primed
Simply put, the sports wagering market is still in its infancy, with plenty of growth runway ahead.
Although the U.S. Supreme Court lifted the federal ban on legal sports betting in 2018, that didn't immediately legalize the industry. It merely put that decision back in each state's hands. A total of 37 states now allow sports betting to various degrees -- although it's still very limited in some of these locales. Meanwhile, the industry must still educate consumers on their new wagering options.
And sports fans are certainly ready to take their enthusiasm to the next level. Consumer research outfit Nielsen says around half of the country's professional sports fans are interested in placing a bet, while Deloitte reports one-fifth of sports fans actually have placed at least one sports-based bet within the past year. More than half of them did so with an app or at a sportsbook website.
This market is set to grow. Fantasy sportsbook FanDuel's parent Flutter Entertainment believes the annual U.S. sports wagering market will swell from less than $10 billion now to $40 billion per year by 2030. Most of that growth will materialize online, according to Vixio, where ESPN already enjoys a strong presence with its betting and non-betting platforms.
Penn Entertainment is a good bet ... for certain investors
The backdrop is encouraging enough. Still, Penn Entertainment isn't exactly the right kind of pick for everyone's portfolio. The sports gambling industry itself is a work in progress, and it could take Penn some time to fully integrate and figure out how to best promote an ESPN-branded product.
Then there's its brick-and-mortar casinos. The American Gaming Association's current conditions index stands at 100.6 versus a baseline of 100, while its future conditions index stands at 99.6. The numbers suggest the casino business is just so-so at this time, and for the foreseeable future.
If you can stomach above-average volatility and look further down the road, however, Penn's got some upside potential. Based on a small-scale experiment limited to Ontario, it's already proven it can drive fans of sports-based content into a sportsbook app, and then on to a full-blown casino-wagering app. Namely, nearly three-fourths of theScore media app's users ended up making a sport-based bet, and over half of them became users of the company's casino-gaming app, iCasino.
Image source: Penn Entertainment.
And any tailwind from here could become particularly brisk now that Disney is at least teasing the idea of launching a stand-alone streaming app-based version of cable's ESPN. Pushing those paying streaming customers all the way toward a betting app would be a relatively small leap in light of their existing interest in sports wagering, as was seen in Ontario.
Disney's willingness to promote the ESPN Bet app doesn't hurt either.
