Penn National Gaming strikes $2bn deal to acquire theScore

Penn National Gaming (PNG) has entered into a definitive agreement to acquire North American media, sports betting and technology company theScore for approximately $2bn in cash and stock.

The 50:50 deal will see theScore shareholders receive $17 in cash and 0.2398 in shares of PNG stock for each theScore share, which implies a total purchase price of $34.00 per theScore share based on PNG’s five-day volume weighted average trading price as of July 30.

The transaction has been unanimously approved by the boards of directors of both companies and is currently expected to close in Q1 2022.

Upon completion of the transaction, current PNG and theScore shareholders will hold approximately 93% and 7% respectively of the company’s outstanding shares.

PNG expects to fund the estimated $1bn cash portion of the offer by using existing cash on its balance sheet.

By securing this deal for theScore, which is the number one sports app in Canada, PNG is clearly betting big on a lucrative future in the regulating Canadian online sports betting market, particularly in theScore’s home province of Ontario.

Another major rationale for the transaction is that PNG will eventually be able to control its own in-house tech stack. This will reduce its current reliance on third-party providers.

In its latest financial results for a Q3 reporting period, theScore reported an EBITDA loss of $21.1m and gross gaming revenue (GGR) of -$40,000.

While the asset will not be expected to hit the ground running in terms of revenue generation (Penn expects theScore to be EBITDA accretive in year two), the silver lining for PNG is that theScore has built a proprietary player account management platform (PAM) which is scheduled to go live this month.

The business is also in the process of building a proprietary sportsbook offering, with risk and trading to be consolidated in-house over the next year, led by newly hired industry veteran Patrick Jay.

However, theScore has struggled to make any meaningful impact in New Jersey in the two years since its arrival; according to Eilers & Krejcik Gaming, it only holds a 0.03% share of the market.

The $2bn acquisition spells bad news for both White Hat Gaming and Kambi, who are currently locked in to respective multi-state PAM and sportsbook supplier agreements with PNG.

Indeed, the share price of Kambi, which powers PNG’s retail and online Barstool Sportsbook, plunged more than 33% immediately following the deal’s announcement.

PNG is the second major US market client of the Swedish sportsbook supplier to bring its betting tech in-house following DraftKings’ three-way merger with a SPAC and SBTech.

PNG CEO Jay Snowden said he was excited to combine theScore’s media platform and modern technology with the reach, popularity and content of the Barstool Sports brand.

Snowden said: “We are now uniquely positioned to seamlessly serve our customers with the most powerful ecosystem of sports, gaming and media in North America, ultimately creating a community that doesn’t currently exist.

“Users will enjoy a unique mobile sports betting and igaming platform with highly customized bets and enhanced in-gaming wagering opportunities, along with highly engaging, personalized sports and entertainment content, and real time scores and stats.

“We believe this powerful new flywheel will result in best-in-class engagement and retention,” he added.

TheScore has been a strategic partner of PNG since 2019 via a market-access agreement encompassing 11 US states, including ‘first skin’ access rights in Louisiana and Mississippi.

TheScore CEO John Levy will continue to head up theScore business alongside his son and COO Benjie Levy.

“We are excited to join forces with Penn to form the most powerful media and gaming company in North America,” said Levy senior.

“With Penn’s support, we will continue to invest in building our Canadian operations, growing our footprint and expanding our workforce,” he added.

Regulus Partners analyst Paul Leyland said of the transaction: “PNG has flipped its RNG digital strategy from risk-free but limited ticket-clipping for access deals, to buying two very large and very green fields (Barstool and theScore) with the hope development potential.

“The danger, given the unproven nature of both assets, is the extent to which solid execution into an easily expanding market has already been paid to the part-vendors.

“Given how few operators have successfully converted content or delivered omni-channel space, PNG must now reinvent the wheel,” he added.