Boyd Gaming reportedly approaches Penn Entertainment for acquisition

Penn Entertainment has been approached by Boyd Gaming for a potential acquisition, according to Reuters. 

The deal would be the largest US gambling merger since Eldorado Resorts’ deal with Caesars Entertainment in 2019-20, which was valued at $17.3bn.  

The approach resulted in Penn’s share value increasing by 8% to $19.89, though subsequently resulted in Boyd Gaming’s stocks falling 3%.

According to Reuters, Penn’s market value exceeds $9bn, while Boyd’s sits at $7.8bn. However, in terms of pure market capitalization, Boyd is the bigger company with $5bn, while Penn’s market cap is worth $3bn. It is its ties with Disney and ESPN Bet that will likely boost its value.

Penn also runs more casino operations in the states compared to Boyd, with 43 casinos and racetracks in 20 states to 28 properties in 10 states for Boyd. Both run online casino operations and have their hands in the sports betting market, with Boyd holding a 5% stake in FanDuel and Penn being the rights holder for the ESPN Bet brand – something we’ll touch on again in a moment.  

There is also overlap in the states the two operate in, which could cause a divestment in some operations in the future, were the acquisition to go through.  

After a potential merger, the combined $8.06bn value would still see the companies ranked behind the likes of Wynn Resorts, MGM and Caesars; but it would significantly bump the new organization up the so-called league table, putting it above the likes of GLPI, Red Rock Resorts and more.

But what about ESPN Bet?

The next factor to consider is the large mouse-shaped figure in the room. Last August, Penn entered into a 10-year agreement with Disney-owned ESPN to host its online sports betting app, ESPN Bet, forgoing its relationship with Barstool and returning the rights to its original owner, Dave Portnoy. The $1.5bn licensing deal resulted in Penn purchasing 31.8 million Penn common shares, with Penn expecting a long-term adjusted EBITDA potential of $500m-$1bn. 

Needless to say, in acquiring Penn, Boyd will have to consider the House of Mouse too. 

In a similar vein, acquiring Penn would also mean acquiring Penn’s assortment of subsidiary brands, including Score Media and Gaming, which was purchased in October 2021 for $2bn. It would also mean navigating Penn’s ranging partnerships across the market, with brands including Golf Canada, PGA of America and many others.  

So, what have others been saying? 

Donerail Group, a set of active Penn investors, has encouraged the acquisition. It has characterized Penn Digital’s ventures as a high expense with limited prospects for strong returns, making the acquisition a fruitful opportunity to dig itself out of its current ESPN/Barstool-shaped hole.  

Similarly, Truist analysts wrote, “We don’t think any sort of formal strategic review at Penn is likely in the near-term with a clear ESPN Bet product roadmap; football season on the horizon; and higher/volatile interest rates still impacting overall M&A for now,” highlighting similar concerns for ESPN Bet and the chance for positive change. 

Overall, it is clear that while the acquisition may require Boyd to jump through some hoops and punch somewhat above its weight, for Penn, it might just be what the business needs. 

The bigger question may be: is it worth it for Boyd?

Beth Turner

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