U.S. gambling giant Penn National Gaming Inc. is acquiring Toronto-based Score Media and Gaming Inc. for approximately US$2-billion in a cash-and-stock deal aimed at building more market share in the crowded North American sports betting market.
Score Media, commonly known as theScore, operates one of North America’s most-read sports news apps, which has about four million active users per month. Since 2019, it has been focused on building its sports betting product, ScoreBet, which is available in four U.S. states.
Penn National is one of the largest casino operators in the United States and it bought a 4.5-per-cent equity stake in theScore in 2019. That gave theScore access to bettors in states where Penn operates casinos and racetracks.
The Levy family – founder and chief executive John Levy and chief operating officer Benjie Levy – will continue to oversee theScore after the deal closes.
“John and I first had this conversation over two years ago about how powerful it would be to be together because we have access and operational know-how, we have scale and we have a balance sheet to really accelerate their growth,” Penn CEO Jay Snowden told The Globe and Mail on Thursday.
Score Media shareholders will receive US$17 in cash and 0.24 shares of Penn common stock for each share of theScore they own. Penn will fund approximately US$1-billion of the acquisition with cash already on its balance sheet.
The transaction is expected to close in the first quarter of 2022. Shares of theScore soared 80 per cent on Thursday, closing at US$32.64 on the Nasdaq stock exchange. Penn shares were up 9 per cent, closing at US$72.26 on the Nasdaq.
Penn expects the acquisition to add to its profits by year two, forecasting more than US$200-million in medium-term adjusted EBITDA (earnings before interest taxes depreciation and amortization).
The company’s US$2-billion offer price for theScore, which has yet to achieve profitability, shows it is bullish on the growth potential of the North American sports betting market.
Morgan Stanley expects the sports betting sector to grow to US$15-billion by 2025 as more U.S. states legalize the practice. Placing wagers on sports is already lawful in more than two dozen of them, but high-population states such as California and Texas have yet to allow sports gambling. Even so, operators want to establish themselves as the market expands.
Buying theScore – which sold its television assets to Rogers Communications Ltd. in 2012 for $167-million – could also help Penn dominate the Canadian landscape for single-game sports betting, which is expected to open at the end of 2021, or early in 2022.
In June, Ottawa passed legislation that legalized single-game sports betting. Previously, sports bets in Canada had to include at least two events in a single wager, commonly known as parlay betting. The Canadian Gaming Association estimates Canadians wager about $10-billion through offshore and illegal bookmakers annually – much of it for single games.
“The strategic rationale of this deal makes sense to us,” Joseph Greff, analyst at JP Morgan, wrote on Thursday. “The transaction gives Penn a path to fully own and control its own tech stack, which should lead to greater efficiencies … It also gives Penn a strong position for the rollout of commercial sports betting in Canada.”
If the combined company can capture 20 per cent of a Canadian online sports betting market that is predicted to grow to US$7-billion by 2026, Mr. Greff wrote, “this could generate net present equity value of US$3-billion or US$1.1-billion net of theScore transaction value, or US$6 per share.”
The acquisition comes at a moment when major sports leagues in North America have embraced sports betting, and online sportsbooks – sites where people wager on sports – are hungry to partner with them. Segments during games about the latest odds and enticing betting opportunities are now ubiquitous on sports broadcasts, with Boston-based DraftKings and New York-based FanDuel dominating the field.
TheScore prides itself on its top-notch engineering and product design, and already has its own partnerships with the NBA, MLB and the PGA. But it does not have the marketing heft of the U.S. betting behemoths. Under Penn’s umbrella, theScore hopes to grow and attain a foothold in the U.S. market.
The Toronto company has also set its sights on entering the Canadian sports-betting market in the coming months, and expects to make a splash.
“Canada’s just about to unfold. With these guys, with their scale, with their resources, we’re just going to bust it up here,” John Levy said.
But theScore’s biggest challenge – and its biggest opportunity – is in the U.S. market. Penn launched its own sportsbook, Barstool Sportsbook, last September. The name comes from Penn’s partnership with Barstool Sports, the irreverent and highly popular sports media brand that explores sports and pop culture through its personalities, including founder Dave Portnoy. Penn bought a 36 per cent equity stake in Barstool in 2020 for US$163-million.
Mr. Snowden said the Penn Sportsbook will be available in “eight or nine” states by September. He sees potential for theScore and Barstool to amplify each other’s audiences. Both sportsbooks have a modest market share in the states they operate in.
“Cross promotion, amplification, cross marketing. We’ll be able to run some of the same promotions and betting options across the different platforms, but we’re not trying to turn theScore into Barstool, or Barstool into theScore. They’re both great powerful brands on their own.”
Barstool, which attracts a substantial audience of young men through its podcasts and digital presence, provides an alternative model to the FanDuel approach. Instead of partnering with other companies that have a large audience, Barstool built its own devoted following, and it leverages their enthusiasm to drive revenue – through merchandise sales and nudging them to its sportsbook.
“Why pay for eyeballs when you can have them organically?” Mr. Snowden asked.
John Levy agrees: “It goes to being more creative. Don’t slap your logo – I mean, you go to a hockey rink and you see four different logos, it becomes noise.”
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