Photo Credits Gamblinginsider

Hey, guess what? Disney is pushing into the US sports betting world! They're announcing to linking their ESPN network with Penn Entertainment, a casino and online gambling company, in a whopping $2bn deal in 09th August 2023. which resulted in Penn Entertainment ending its partnership with Barstool Sports. In the first quarter  of 2024, deal is to be completed.

So, when Disney and Penn National Gaming decided to team up, they using Adjusted  Adjusted EBITDA as a performance metric in PENN's Interactive segment. This is super important cause it helps both Disney and Penn National to assess the profitability and success together. Disney  and Penn National Gaming can work towards increasing profitability from ongoing operations, which is a key aspect of creating value during a merger.

So, here's the deal: Penn National Gaming is gonna drop $1.5 billion in cash and another $500 million in shares over the first 10 years to rebrand and relaunch its sportsbook as ESPN Bet. On top of that, ESPN could receive bonus warrants to buy up to an additional approximately 6.4 million PENN common shares if ESPN Bet achieves certain U.S. OSB market share performance benchmarks. Further Penn National Gaming will own a 30% stake in ESPN Bet. What an interesting deal!

Even though it's technically a joint venture and strategic partnership, and not a complete merger, I still look at the ESPN and Penn Entertainment deal as a horizontal merger. 
Now, let’s talk about the advantages of this horizontal merger. One of the biggest perks is the economies of scale and scope that both companies can use by building on one another's advantages are among the largest benefits. ESPN well-known brand with a massive audience, while Penn Entertainment possesses the expertise and licenses required for sports betting. This joint venture allows both parties to pool their resources.

plus, by sharing the financial costs linked to setting up and promoting a sportsbook, both parties can effectively spread their risks. ESPN, which is part of an Disney, can diversify its income and strengthen its standing in the sports betting game, moving beyond its traditional entertainment gig. On the other side, Penn can access into ESPN's huge audience while also teaming up with a strong global brand.
Another bonus? Both companies may be able to share some central services like marketing or customer service, leading to significant cost savings – super important in a competitive market where getting and keeping customers is key to success.

While it doesn’t seem like government regulation was a significant factor driving this deal, it’s worth noting that the legal landscape for sports betting is a maze that varies by state. Having a strong  partner can aide in navigating these challenges and may potentially sway future regulations in their favour.
Regarding synergies, ESPN brings to the table its strong brand, large audience, and vast sports content, while Penn Entertainment has the technical know-how, the infrastructure, and the legal permissions required to run sports betting services. By combining EPSN and pen resources and best practices, they can develop a superior sports betting platform that leverages the strengths of both entities.

ESPN, a subsidiary of Disney, has been facing challenges because of the decline in cable subscribers as Increasingly consumers switch to online streaming. Despite this, pen entertainment also had and issues, because of the pandemic's restrictions on physical gaming and shifting consumer preferences. In a surprising turn of events, Disney's ESPN and Penn Entertainment have come together to launch a sports betting business under the brand ESPN Bet. This collaboration signifies a monumental change in Disney's approach to sports betting world, Disney has historically avoided gambling in order to preserve its reputation as a family-friendly company. with the widespread legalization and acceptance of sports betting in the United States, Disney is finding it hard to ignore the profitable revenue opportunities linked to the gaming industry. As part of the agreement, Penn Entertainment also made decision to sell its existing Barstool Sports brand back to its founder, Dave Portnoy. This decision was essential to align with Disney's image as it enters the gambling sector since Barstool and its founder have been linked to controversial content.

The partnership between Disney’s ESPN and Penn Entertainment, it shows Disney’s acceptance of the changing environment and the demand for gambling as  a part of the sports experience, especially among younger customers. For pen entertainment, this will be an opportunity to leverage the ESPN brand an reach wider audience. Although this partnership has for both advantages and disadvantages, it brings reputational risks for Disney and ESPN and challenges related with competitive sport betting industry. It super interesting to see how EPSN and pen partnership evolves and what impact it will have on the industry as a whole. Stay tuned!"