Penn’s ESPN Bet faces critical year amid market struggles and investor pressure

Penn Entertainment is under mounting pressure to turn around its ESPN Bet sportsbook business, as 2025 emerges as a make-or-break year for the $2 billion, 10-year deal it signed with Walt Disney in 2023.

Credit analysts and activist investors are raising concerns over ESPN Bet’s sluggish performance and the looming threat that Disney may invoke a termination clause if Penn fails to meet undisclosed market access targets by the end of the third year.

“This is such a make-or-break year,” said Kyle Owusu, a credit analyst at bond market research firm Octus, in a Sportico report. “Contractually, ESPN has the right to terminate the sportsbook agreement if, at the end of year three, the market access is not at least a specified percentage of the total market access… The other reason is the activist pressure in the background.” 

ESPN Bet currently holds a 3.2% share of the U.S. online sports betting market, according to industry tracker Casino Reports, lagging far behind market leaders DraftKings (37%) and FanDuel (35%). The platform briefly surged to 7% following its November 2023 launch, but its share has since declined.

Penn CEO Jay Snowden previously indicated that a 10% market share would represent a meaningful milestone. “That is going to be a level that we’re starting to get excited about, both ESPN and Penn. And below, there is not really exciting,” Snowden said in 2023.

Penn projects a modest rebound, targeting a 4.7% share by year-end and a return to positive cash flow. But investors remain skeptical, particularly after the company missed consensus revenue and net income forecasts in five of its last six quarters.

Activist investor HG Vora Capital Management, which holds a 5% stake in Penn, is pressuring the company to shift focus away from the underperforming digital unit and back toward its physical casino operations. “Penn has executed a string of transactions that, in our view, stand among the worst in the industry’s history,” the firm said, citing the ESPN Bet deal, the acquisition of TheScore, and the costly misadventure with Barstool Sports.

While Disney has yet to signal any plans to exit the agreement, the company has other options should Penn fall short. “It was better than any of the competitive offers by far,” Disney CEO Bob Iger said of the Penn deal in a 2023 earnings call. But analysts say a cooling investment environment and rising interest rates could make finding a new partner more difficult.

Some bondholders see potential upside in a breakup. Owusu noted that shedding the money-losing sportsbook could improve Penn’s debt profile, which includes nearly $4 billion in liabilities, and refocus the company on its 43 brick-and-mortar casinos and racetracks across 20 U.S. states.

Still, the ESPN brand retains allure. “Forget about the numbers—just the reputational hit you’re taking if you stick your neck out after so many people have done so and failed—that alone makes it difficult… assuming Penn and ESPN have failed,” Owusu said. “The counterargument is that ESPN is still ESPN. They still have the largest fantasy database, they still have the brand.”

With 18 months until Disney can legally exit the deal, Penn’s ability to course-correct may ultimately determine whether ESPN Bet becomes a core player—or the industry’s next cautionary tale.