Here’s a story that would have been very, very hard to imagine a few years ago: ESPN, Disney’s sports behemoth, is doing a $2 billion deal with Penn Entertainment, a gambling company you’ve probably never heard of. It’s a striking about-face for Disney CEO Bob Iger, who spent years insisting that his company should avoid anything to do with gambling.
And there’s an additional wrinkle for people who pay attention to changes in sports and pop culture: ESPN’s sports betting deal with Penn replaces one the company previously had with Barstool Sports, the raunchy and provocative publisher that used to thrive on portraying ESPN as lumbering and out of touch.
The deal tells us a lot about the state of sports, media, and gambling. Here are some answers to a few of the questions it raises.
What does the deal mean for Disney? A lot — symbolically, at least. During Bob Iger’s first stint running Disney from 2005 to 2020, he expressed a real distaste for sports betting on the grounds that gambling couldn’t coexist with Disney’s pristine family image. And even when that stance softened, Iger still kept his distance. For instance: A potential deal in 2015 to invest in DraftKings, which at the time was a “daily fantasy” sports betting company, was softened to become a more standard marketing deal.
But after Iger stepped down as Disney CEO in 2020, his replacement Bob Chapek signaled he was much more interested in sports betting, which became legalized on a state-by-state basis in 2018. And since Iger returned to the top job last fall, he has been signaling he’s become more comfortable with sports betting because his research tells him that’s what young consumers want to do. “I’d prefer to wait as long as possible,” he said earlier this year, but added that it would be “inevitable.”
Financially, the deal doesn’t mean quite as much: While Penn is paying Disney $2 billion over 10 years, spread out between cash and stock warrants, Disney is an $83 billion company. Which is why, unlike Penn, it doesn’t even need to tell investors about the deal in an SEC filing.
What does it tell us about the state of ESPN? Some folks who work at ESPN think it’s a big win: They get an infusion of cash, and they think not just telling their viewers about sports betting but directly participating in sports betting is a good thing. ESPN already had deals with sports betting companies, but you should now expect to see a lot more of it when you tune in. In a presentation to investors, Penn says it will benefit from a “comprehensive suite of ESPN sponsorship and media assets across top tier live programming” and “access to top ESPN talent and personalities.”
On the other hand, ESPN, which used to own sports completely in the US, doesn’t anymore; Iger made that clear when he essentially put out an open call for investors earlier this summer. And this deal can be seen as another indicator of that reduced status. This afternoon, I asked gambling and media executives why ESPN hadn’t made a deal with more established gambling companies, either old-school brands like MGM or new digital leaders like DraftKings and FanDuel. Their answer: Those guys didn’t need ESPN to thrive in sports betting. And they certainly wouldn’t rebrand their existing sports betting operations with ESPN.
What does the deal tell us about the state of sports gambling in the US? It’s really big. It’s Disney-doing-an-about-face big. Sports betting is now legal in more than 30 states — though notably not yet in California — and Americans have spent more than $220 billion on it since 2018. Another sign of its clout: Apple, which tightly controls the way developers can use its apps — it still won’t allow porn apps, for instance — shows no signs of preventing people from betting using its devices.
What does it tell us about Barstool Sports? This is a glass part-empty, part-pretty-full scenario for the company and its owner and founder, Dave Portnoy. On the one hand, the fact that Penn is swapping out Barstool for ESPN is a clear admission that the Barstool deal didn’t work for Penn. In a video he posted on Twitter today, Portnoy uncharacteristically noted that the fit hadn’t worked — and then more characteristically blamed the press: “We underestimated just how tough it is for myself and Barstool to operate in a regulated world,” he said, noting critical investigative pieces about himself published by the Times and Insider.
On the other hand! Penn paid Portnoy and his investors more than $500 million over the last three years, including $388 million it paid out earlier this year. Now Portnoy has bought back the company — presumably at a very steep discount to the price Penn paid — and can do whatever he wants.