Why Penn’s Acquisition of Barstool Sports is Driven by Sports Betting
Penn Entertainment’s recent acquisition of Barstool Sports for $551 million was motivated by online betting. The deal was in the works for several years, and since Penn’s first investment in 2020, a lot has changed.
Barstool’s transition from a Boston-based newspaper to an online media company generating $100 million in annual revenue is objectively impressive. Image Source: Barstoolsports
The Evolution of Barstool Sports
Barstool now generates approximately $200 million in annual revenue, and Penn believes the platform’s audience gives them the necessary firepower to compete with the major players in the sports betting industry.
Barstool began in 2003 when Dave Portnoy left his consulting job to start a newspaper that provided news and advice on fantasy sports and gambling. Portnoy wrote the newspaper himself and often signed off under pseudonyms to make it look like a bigger company than it was.
He also inserted fake ads of big companies to try and get their competitors to advertise in the paper. However, in 2007, Barstool shifted to online content, and the platform began to grow significantly.
How a Majority Stake Transformed Barstool
The big change came in 2016 when The Chernin Group (TCG) purchased a 51% stake in Barstool Sports. This was invaluable for Dave Portnoy and Barstool, as the Chernin Group made several changes that helped Barstool become a $550 million company.
They formalized Barstool’s processes to run like a legitimate business, established Barstool’s headquarters in New York City, and hired Erika Ayers as CEO six months after the deal. In 2018, the Chernin Group invested another $15 million in Barstool, allowing the company to double its staff, invest in more pay-per-view events, grow its podcast network, and continue to market alcohol brands.
This combination of excess capital and increased operational efficiencies helped Barstool grow exponentially. For example, Barstool was doing just a few million dollars in revenue when TCG acquired a majority stake in 2016, and the vast majority of the company’s income came from advertising.
Fast forward to 2019, just three years after TCG’s initial investment, and Barstool was doing around $100 million in revenue. They were also now profitable, and their revenue mix was significantly more diversified than before.
When combined with the potential opportunity created through the legalization of sports betting, it’s no surprise that Penn Entertainment came calling in 2020.
Penn Entertainment’s Calculated Move
With more than 50 million Americans betting a record $16 billion on this year’s Super Bowl alone, Penn believes Barstool’s audience gives them the necessary firepower to compete with PointsBet, Bally Bet, and BetRivers in the sports betting industry.
The Barstool platform has grown significantly since its early days as a local newspaper in Boston, thanks in large part to the support of The Chernin Group. Now, with the backing of Penn Entertainment, Barstool can continue to expand and compete in the increasingly crowded sports betting market.