July 24, 2024

Disney’s Getting Into Gambling

The Walt Disney Company announced an agreement with Penn Entertainment to launch ESPN BET, a branded sportsbook for fans in the United States. This post covers details of the partnership and our commentary about the family-friendly company’s first foray into sports gambling.

According to Disney’s announcement, Penn Entertainment will rebrand its current sports betting book and relaunch as ESPN BET (not to be confused with Black Entertainment Television, which is what I first thought when seeing the news bulletin). To avoid acronym confusion, we’ll call it ESPN Bet, which will launch in Fall 2023 in the 16 legalized betting states where Penn Entertainment is licensed. The ESPN Bet rebrand includes the mobile app, website, and mobile website.

ESPN Bet furthers the company’s commitment to serve fans by leveraging ESPN’s industry-leading multi-platform reach with the rising product operations and expertise of Penn Entertainment. ESPN Bet will become ESPN’s exclusive sports betting platform, and Penn Entertainment will receive odds attribution, promotional services inclusive of digital product integrations, traditional media and content integrations, ESPN talent access, and more to generate maximum fan awareness of ESPN Bet.

“Our primary focus is always to serve sports fans and we know they want both betting content and the ability to place bets with less friction from within our products,” said Jimmy Pitaro, Chairman, ESPN. “The strategy here is simple: to give fans what they’ve been requesting and expecting from ESPN. Penn Entertainment is the perfect partner to build an unmatched user experience for sports betting with ESPN Bet.”

Jay Snowden, Chief Executive Officer and President, Penn Entertainment said: “This agreement with ESPN and collaboration on ESPN Bet allows us to take another step forward as an industry leader. Together, we can utilize each other’s strengths to create the type of experience that existing and new bettors will expect from both companies, and we can’t wait to get started.”

ESPN has greatly increased multi-platform sports betting content in recent years, adding digital programming, radio segments, and editorial coverage from talent. ESPN BET is now the latest offering from ESPN to meet fan demand for a trusted brand in the sports betting space. The ESPN BET brand will be home to ESPN’s overall sports betting content across platforms.

As part of the agreement, ESPN will use its platforms to educate sports fans on responsible gaming, including:

  • Continuing ESPN’s high standard of journalistic integrity when covering the sports betting space.
  • Developing an ESPN committee of responsible gaming, representative of a diverse cross-section of the business, to regularly review compliance, programming, and policies.
  • Implementing responsible marketing policies and guidelines to safeguard fans.
  • Working with industry experts on best practices and continual review of Responsible Gaming programming.

Under the terms of the partnership, Penn Entertainment will pay ESPN $1.5 billion in cash over the 10-year period. The agreement also grants ESPN about $500 million of warrants to buy approximately 31.8 million Penn common shares that will vest over the same period.

Penn Entertainment has the exclusive right to the ESPN Bet trademark in the U.S. for 10 years, which may be extended another 10 years if the two come to a mutual agreement. ESPN will also have the option to designate one non-voting board observer to Penn’s board, or after three years, designate a board member subject to certain regulatory approvals and a minimum ownership threshold.

Additionally, Penn Entertainment will be divesting its ownership of Barstool Sports to founder David Portnoy. Penn became sole owner of Barstool earlier this year when the company completed its acquisition of Barstool for $388 million. (This is probably a bit in the weeds for a theme parks blog, but it’s a good thing that Disney and Portnoy aren’t partnering. No matter what you think of the dude, that already happened back in 2017, was short-lived, and ended badly.)

In terms of commentary, this was an inevitability. That’s despite the fact that Bob Iger, towards the end of his first run as CEO, said this during an earnings call: “I don’t see The Walt Disney Company, certainly in the near term, getting involved in the business of gambling, in effect, by facilitating gambling in any way.”

A little context is helpful there, as that comment came less than a year after the Supreme Court struck down the federal ban on sports gambling. It was before the proliferation of betting books and platforms like DraftKings and FanDuel going fully mainstream. Those platforms have not just been tolerated by the leagues–they’ve been embraced by them, but formed partnerships with the NFL, NBA, MLB, NHL, etc. The trajectory of sports betting is now clear, as is its public acceptance. That was not the case back in early 2019 when Iger was asked whether sports gambling could “coexist within the family-friendly Disney brand?”

Perhaps more notably, this partnership with Penn and ESPN comes about 11 months after dearly-departed Disney CEO Bob Chapek said that the company’s sports network ESPN is looking for a partner to help it step into sports gambling. “We at ESPN have the ability to do that. Now we’re going to need a partner to do that, because we’re never going to be a book, that’s never in the cards for the Walt Disney Company,” Chapek told CNBC’s in an interview. At the same time, Chapek said that ESPN needs “to partner with a well-respected third party that can do that for us.”

It would now seem that Disney is doing pretty much exactly that, with current CEO Bob Iger following in his direct predecessor’s footsteps, rather than those of the prior CEO (and himself).

We’ve covered sports gambling a few times here in the last couple of years, because it’s been obvious for a while that this was pivotal to ESPN’s future with Disney, or as an independent entity. My position in the past is that I do not think Disney should (further) involve itself in betting or gambling.

That’s mostly because I view it as a brand liability for the Walt Disney Company as a whole. Honestly, the extent to which that’s true isn’t even clear, though. People reading blogs like this probably know that ESPN is one of the many brands in Disney’s portfolio, but does the average consumer? (Probably an increasing number thanks to the Disney Bundle, but still a low one.) Even if so, do they really care?

To that point, I’m cognizant of the reality that most sports fans and consumers of ESPN content feel differently. Platforms like FanDuel and DraftKings have absolutely exploded in popularity in the last several years. Leagues that used to view gambling as the games’ greatest sin now are actively invested in these companies. You can’t turn on sports coverage without hearing about odds, fantasy stats, or seeing ads for Caesars, MGM, and so forth. For those who don’t watch the network, this includes ESPN. The only difference going forward is that they’ll be promoting gambling with a vested interest in it, too.

ESPN is almost certainly be more valuable if it goes down the gambling road, and gives the people what they want. ESPN has been leaving money on the table by “only” offering gambling-slanted coverage, without taking a taste of the action for itself. By not having a financial affiliation with a betting company, Disney has been leaving money on the table with ESPN, and vulnerable to competitors eclipsing it. These countervailing forces are precisely why we previously said that Disney is at a crossroads with ESPN in the 5 Businesses Disney Should Sell & Buy.

However, just last month, current CEO Bob Iger made clear that he has no plans to divest Disney from ESPN, distinguishing the sports network from the other cable channels. He said Disney’s position in that ESPN is very unique and a great brand. “We’ve had a great business, and we want to stay in that business. That said we’re going to be open minded there too. Not necessarily about spinning ESPN off, but about looking for strategic partners that could either help us with distribution or content, but we want to stay in the sports business,” Iger explained. This isn’t the first time Iger has made remarks along these lines, and the ongoing Hollywood strikes are vindicating this sentiment as we speak.

Based on both his comments during the interview and how Disney has restructured to silo off ESPN from the other divisions, it’s clear that Iger has something up his sleeve with ESPN. There has been a ton of speculation about Apple acquiring Disney, but I think that’s off-base. My bet is that there’s a Disney-Apple deal for ESPN on the horizon. Not necessarily a sale, but a big deal that makes ESPN, for all intents and purposes, part of Apple TV Plus.

Apple TV+ has already started to test the waters with live sports, and has an appetite for more. They lost out on NFL Sunday Ticket to Google (YouTube), which was a big blow. Sports would be hugely beneficial to Apple and they have the money to burn on a major acquisition or strategic partnership.

One of Apple’s many problems–beyond just a lack of sports content–is brand recognition and coverage quality (Friday Night Baseball on Apple is awful). ESPN would instantly address that. Plus, Iger is likely more inclined to make a deal with Apple than other streamers–the marriage between Disney and Apple makes sense.

Following that interview, Iger and ESPN head Jimmy Pitaro have held early talks about bringing professional sports leagues on as minority investors, including the National Football League, National Basketball Association and Major League Baseball, according to CNBC.

ESPN has held preliminary discussions with the NFL, NBA and MLB about a variety of new partnerships and investment structures, the people said. In a statement, an NBA spokesperson said, “We have a longstanding relationship with Disney and look forward to continuing the discussions around the future of our partnership.”

Personally, I’m more skeptical of this actually happening. While it’d make a ton of sense for Disney and ESPN, I doubt it’d be well-received by Comcast/NBCUniversal, Fox, Amazon, Paramount, Google/YouTube, Netflix…and whatever other players in the media and tech spaces are planning on entering the next bidding wars for sports rights. There’s a clear conflict of interest there, and one that may not withstand regulatory scrutiny, even if the leagues did deem it to be a good idea.

Regardless, it probably does make sense for the Walt Disney Company to maximize the value of ESPN now, prior to making any strategic partnerships. It would be the smart move regardless of what’s planned or possible.

Gambling and Disney have also come up in recent months when it comes to Disney Cruise Line. Obviously, Disney has resisted the temptation to add gambling to the current DCL fleet; casinos are incredibly lucrative for cruise ships. By not having them, Disney Cruise Line has taken the financial hit to avoid taking the reputational one.

However, that could soon change. Remember that partially-built cruise ship that Disney acquired late last year? That’ll set sail out of Singapore starting in 2025 and, at least originally, has a massive space set-aside for a casino. Maybe that ship will be the Walt Disney Company’s first foray into gambling on a large scale.

Given that the space is already there, the Asian market has different expectations and brand-knowledge of Disney, and that this ship will fly under the radar of most American audiences, it’s possible. As we wrote previously, it really comes down to how strongly Bob Iger feels about Disney’s association with gambling, the financial upside to including casinos, and whether it’ll hurt the brand. Personally, I’d bet on it happening…and I don’t even gamble!

Ultimately, I don’t care that much whether ESPN gets into sports betting. My personal view on gambling is not a moral aversion, more recognition that the house always wins. We’ve visited Las Vegas, Macau, and Monaco–I love the energy around casinos, just not the “losing money” part. So Disney getting into gambling doesn’t bother me from that perspective. Not only that, but ESPN already promotes sports betting for all practical purposes via its on-air content, so the only material difference here is that Disney will have direct involvement with gambling and financially benefit from it.

Frankly, that’s mostly where our interest in ESPN Bet lies. While it’ll be interesting to see how CEO Bob Iger justifies this and reconciles it with the family-friendly brand of the Walt Disney Company, I’m even more curious about how this impacts the financials. As we’ve made clear repeatedly over the last several months, Disney has a huge debt load; reducing that is a necessary prerequisite to pivoting to the promised blockbuster theme park expansion projects faster.

As Disney Parks fans first and foremost, the financial side of ESPN Bet is thus interesting to me because it potentially paves the way for $17 billion investment plans at Walt Disney World and expansion as part of DisneylandForward in California. We’re standing on the precipice of another “Disney Decade” for the theme parks…as soon as the company is in a position to devote the CapEx necessary to it. Although I like ESPN, that’s my much bigger concern right now and why we’re reporting on it here. With that in mind, stay tuned for further updates–potentially as soon as the earnings call later today!

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YOUR THOUGHTS

What do you think about ESPN Bet? Are you okay with Disney getting into gambling, or should it be off-limits for the family friendly company? Think this is “worth it” from the perspective of significantly reducing Disney’s debt load? Are you bullish or bearish about the future of the Walt Disney Company? Do you agree or disagree with our assessment? Any questions we can help you answer? Hearing your feedback–even when you disagree with us–is both interesting to us and helpful to other readers, so please share your thoughts below in the comments!