Many people thought that the 2024 football season would be a big test for Penn Entertainment's (NASDAQ: PENN) ESPN Bet, and now that the NFL season is in its fifth week, it looks like the online sports betting company is doing well.
While ESPN Bet isn't yet stealing a sizable portion of market share from industry giants FanDuel and DraftKings, the Penn division is attracting new bettors from ESPN's wider platform, according to a recent research sent to clients by Jefferies analyst David Katz. The fact that Penn is paying Walt Disney $1.5 billion over ten years for the use of the ESPN brand makes that crucial.
"ESPN Bet has made significant strides toward establishing itself as a top online sports betting platform in terms of initial volume, which supports continued momentum in PENN near-term,” noted Katz.
The analyst went on to say that while ESPN Bet's advancement is significant, it only slightly affects the larger Penn Entertainment thesis. DraftKings (NASDAQ: DKNG) and FanDuel parent company Flutter Entertainment (NYSE: FLUT) continue to be his top two recommendations in the sports betting equity market.
A Few Positive Aspects of ESPN Bet
There are some positive indicators for the Penn operation, even if ESPN Bet has been the target of investor criticism and scrutiny and no rival has demonstrated the ability to break the DraftKings/FanDuel duopoly.
About one-third of the 302 self-described "avid sports bettors" surveyed by Jefferies said they use ESPN Bet. Ninety-two percent reported using the app to place their initial wager.The percentage of respondents who indicated they bet between $51 and $100 on ESPN Bet increased from 23% in November 2023 to 41%.
“ESPN Bet has not only grown the overall sports betting market, but the amount wagered by users has skewed higher with a majority of respondents betting between $51 and $200,” wrote Katz. “This trend is also apparent in the broader sports betting market with spend per customer generally increasing, which will ultimately be beneficial to the financials of the sports betting operators.”
Additionally, ESPN Bet received high marks for aesthetic appeal and incentives.
ESPN Bet Still Needs to Improve
Although ESPN Bet is making strides, more has to be done. According to the Jefferies survey, a large number of app users were likely to switch to competitors after using up all of their promotional dollars. The Penn offering was also criticized by bettors for not having the same parlay depth as DraftKings and FanDuel.
The promotion of long odds bets or wagers that aren't even accessible on the app by ESPN on-air personalities was another issue that users voiced. The bettors informed Jefferies that these problems damaged ESPN Bet's reputation. As Katz said, Penn faces a difficult task in trying to lure customers away from DraftKings and FanDuel.
“The ESPN deal with PENN has proven to expand the overall sports betting market by converting non-bettors, which is a modest positive for the digital segment. However, our data also suggest there is low likelihood that bettors will switch to ESPN Bet from other platforms,” concluded the analyst. “Furthermore, we continue to see that the top two players will be minimally impacted by ESPN Bet and, instead, could gain from a growing market as the apps for both DKNG and FanDuel offer superior experiences.”
