The Blogger who Impressed Goldman Sachs

Finance news outlets caught fire on August 13th when Goldman Sachs published a research note with a strong buy recommendation on Penn National Gaming. The target price was set at a $60 price, which meant a 20% potential rise of the stock from the close price of the previous day. The effect was felt immediately with a surge of 9% to $54.18 on the day the news broke out

Penn National Gaming is indeed experiencing a golden season and offering Hollywood casino online promo codes to all interested gamers. The company suffered consistent losses until the end of June, caused by the lockdown and several facilities being closed. Since reopening, earnings have started bouncing back strongly.

Goldman Sachs motivates its favorable recommendation with the massive social media following of internet celebrity David Portnoy and his Barstool Sports, the sports and pop culture blog he founded in 2003 in Milton, Massachusettes. Penn National Gaming acquired a 36% stake in Barstool Sports on January 29th for $163 million.

New investments in infrastructure

Penn Gaming had a series of projects in its pipeline, even before that acquisition. Some have been put on standby because of the epidemics but are slated to resume soon. Among them, are two new building projects in the region. The Hollywood Casino York is worth $120m Hollywood Casino York, and the Hollywood Casino Morgantown is a $111-million investment. They are scheduled to finish construction later this year ahead of opening in the second half of 2021.

The company has a strategy of geographic diversification across 19 states. Any single state contributes to the overall result with no more than 15% of the group’s revenues. This proved to be a great asset in a situation where states have reopened casinos on a staggered basis. “Although visitation has yet to return to previous levels, in large part due to state-mandated capacity restrictions and limited amenities, spending per visit has been notably strong, resulting in better than expected revenues,” Jay Snowden, president, and CEO of Penn Gaming declared.

Going strong with digital products

The group already has its branded real-money gaming product in Pennsylvania. Dozen of games from the brick-and-mortar facilities are also available in their online version. The digital leg of the table has helped offset the effects of lockdown, enabling gamers to continue to enjoy their favorite entertainment from home.

The third quarter of 2020 should see the launch of a new bonus, the mychoice® rewards program. The platform will be free to join. Rewards can be earned at over 35 Penn National Gaming locations nationwide. They can be used, again, in all locations belonging to the group, from St. Louis, Missouri, to Lake Charles, Louisiana, and west to Las Vegas, Nevada.

Enters David Portnoy

When he started his future business, Massachusettes-born Portnoy was a kid of 26. Originally a printed newsletter, distributed for free in the Boston metropolitan area, Barstool Sports launched on the Internet in 2007. From an initial content based on wagering and fantasy sports, the outlet grew into a diverse hub of “guys culture”, spanning all sorts of themes.

Barstool Sports also happened to be very controversial on several issues, including its way of portraying women, but this only contributed to a huge growth in its popularity. Portney turned out to be a natural talent for ranting and raving on all sorts of themes in a way that the large public liked. This is how Barstool Sports quickly outgrew its fantasy-gaming origins. “I was lucky people liked my writing. They liked the off-the-wall stuff,” Portnoy told NBC News in an interview.

“There are two things I think I’ve done well: I know what funny is. I recognize it, whether it’s on TV or whatever. And we react quickly–we make a decision and we go. We follow what people are reacting to. And that’s how Barstool changed from its original concept to what it is today.”

The first corporate partner

Peter Chernin, founder, and CEO of  The Chernin Group (TCG) was the first to recognize the financial value of Portney’s creature. In 2016 he acquired a majority stake (51%) in Barstool Sports and moved its headquarters to New York City.

TCG is a multiform group. They are active in both direct management and investments in the media, entertainment, and technology sectors. The three main focus areas are investments in technology and media companies in the United States, the development of premium content for film and television, and capitalization on strategic business opportunities in emerging markets.

The Chernin Group invested 25 million dollars in Barstool Sports, which was valued at as much as 100 million dollars in 2018.

The partnership with Penn National Gaming

The Pennsylvania group has a very ambitious plan for the future of Barstool. After buying the 36% stake for $163 million, they plan to increase their stake by another $62 million in the next three years. That should bring their share of the business to around 50%. After their first investment, the value of Barstool Sports is assessed at roughly $450 million. The Chernin Group has maintained a 36% stake in the company.

Not a bad result for something that began as a free advertisement newsletter on the streets of Boston. But this is not the end of the story. Penn National and Barstool have some options that could raise the casino company’s stake to control or full ownership. The exact numbers will depend on the fair market value at the time.

The stock exchange loves it

Penn National Gaming has shown a stellar performance on the NASDAQ, with a gain of over 80% so far in 2020. Rivals like MGM and DraftKings have suffered heavy blows as a consequence of the pandemic.

Goldman Sachs’ note has now added fuel to this fire. They expect the regional casino operator will gain a strong increase in its market share in the online sports betting market thanks to its new acquisition –  the stake in Barstool Sports. The site has 56.7 million followers, between Instagram and Twitter, compared to less than one million for DraftKings and FanDuel, Goldman highlighted.

A Barstool Sports Betting app is scheduled for launch in Pennsylvania by September.

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