The inside story of how Barstool Sports landed a deal with casino company Penn National and an eye-popping $450 million valuation

Wednesday 29th January 2020

Barstool wanted to make sure its brand would stay around long term.

The seeds of Penn National's $163 million deal to acquire a minority stake in Barstool Sports -- which valued the media company at an eye-popping $450 million -- were planted in July during a meeting with the companies' top execs at Barstool's headquarters in New York, insiders at both companies confirmed to Business Insider.

Penn National, a regional-casino company that operates 41 gambling properties and 14 retail sportsbooks across the US, had been angling to buy a media company to anchor its first online sportsbook.

Established brands like FanDuel and DraftKings were entering the space, and Penn National wanted a big name to enter the mobile-betting arena.

"We knew that in order to compete against FanDuel and DraftKings and do it in a way that we're not losing hundreds of millions of dollars a year, we needed to do a deal like we did with Barstool," Jon Kaplowitz, head of Penn National's online-gambling division, told Business Insider.

Meanwhile, Barstool, a millennial-focused sports-media brand that's backed by The Chernin Group, was getting calls from major media companies, daily-fantasy-sports sites, and casino companies, all of whom were potentially interested in a deal, Barstool's CEO Erika Nardini said.

Barstool was founded in 2003 as print newsletter for gamblers, and had grown into a broader sports-media brand popular with millennials and Gen Xers. But the rise of legal sports betting in the US that started in 2018 brought new attention to the outlet, and had Barstool execs salivating over the potential new advertising dollars and revenue streams it could bring by getting back to its roots.

"This is kind of what I always wanted to do with my life," Barstool founder Dave Portnoy said on an investor call. "I wanted to be involved in shaping ... the gambling industry."

But some of Barstool's inquirers worried the brand carried too much baggage.

The company has been criticized for creating a culture of cyberbullying, The Daily Beast reported. Its personalities, including founder Portnoy, have also gotten in trouble for making insensitive or inappropriate comments. Barstool recently settled with the National Labor Relations Board over series of anti-union tweets Portnoy posted.

Some other companies Barstool met with "cited every failing, every headline, every trip and fall" in Barstool's past, Nardini wrote in a blog post on Wednesday. "The ones who said because of where we've been, there were places we could never go."

When Penn National reached out to Barstool in July, the big question on Nardini's mind was what Penn's longterm plans would be for the broader Barstool brand.

The companies first met at Barstool's New York offices in late July. The meeting was attended by Nardini, Portnoy, and Dave VanEgmond, senior vice president of strategy and corporate development, who Barstool had hired away from FanDuel the same month and had a previous relationship with Penn National, according to Kaplowitz.

On the Penn National side, Kaplowitz, the head of Penn's interactive business, was there, along with Penn National CEO Jay Snowden, its chief strategy officer Chris Rogers, and Scot McClintic, who runs Penn National's sportsbook.

It was the first time the execs had met, though Portnoy and Barstool personality Dan "Big Cat" Katz had visited some of Penn National's casinos ahead of the meeting.

Penn National was looking to buy a media company that could push its audience to an upcoming sports-betting platform, and Barstool was looking for partner that would invest in and build its brand.

The execs talked for about an hour, and immediately hit it off, execs on both sides said.

"It was a hit from that very first meeting," Nardini said. She said she was impressed with Penn's management team and sports-betting plans that spanned the digital and physical.

Penn was pleased that Barstool was on the same page with its omnichannel strategy. It was also drawn to Barstool's personalities like Portnoy and Daniel "Big Cat" Katz, and its legion of 66 million monthly unique visitors.

"Sometimes it not only makes sense from a strategic and a financial perspective, but in your gut," Kaplowitz said. "It really blossomed from there."

The talks between Barstool and Penn National got serious about five months ago, at which point Barstool stopped fielding other inquiries, Nardini said. Financial-advisory firm Moelis & Company advised Barstool on the deal.

Penn National ultimately agreed to buy 36% in Barstool Sports for $163 million in cash and stock, and invest another $62 million after three years that would increase its stake to 50%. The deal values Barstool at $450 million, the Wall Street Journal reported. That's more than four times the nearly $100 million in revenue Barstool said it generated last year.

The agreement, which was announced on Wednesday, makes Barstool the face of Penn National's sportsbook. Penn National plans to launch a Barstool Sportsbook at its retail locations in the coming months and a Barstool-branded betting app in August, the company said on an investor call. It can also use the Barstool brand at sports bars and restaurants if it chooses to.

"What we felt that Penn had that we didn't have was a physical footprint," Nardini said on an investor call Wednesday. "It gives us a place to bring our audiences."

When Barstool's current advertising deals expire later this year, it will no longer accept advertising deals with other gaming competitors, so it can push its audience exclusively to Penn National's properties.

Barstool's key talent, including Nardini, Portnoy, and Katz, signed new employment agreements as part of the deal.

The companies had planned to announce the acquisition on Monday, but postponed until Wednesday in light of the death of basketball legend Kobe Bryant.

For Penn National, the acquisition of Barstool is the culmination of more than a year of moves and dealmaking.

In February, it brought on Kaplowitz, a former Comcast exec with deep ties in media to lead its online-gambling division. He's helped land deals with sports-betting suppliers including Kambi and White Hat Gaming to help power the upcoming sports-betting platform.

Penn National also inked deals with DraftKings, PointsBet, TheScore, and The Stars Group, which are using Penn National's licenses in certain states in exchange for a share of the revenue they generate.

The casino company plans to use revenue from those partnerships to help fund its strategy with Barstool. Some states, like New Jersey, allow licensed operators to operate multiple flavors of sportsbooks, called "skins." That means the Barstool-branded sportsbook could coexist with one by a partner company.

And the Barstool media brand will be key to competing with those other sports betting platforms, as well as cutting down on the high cost of acquiring new customers.

"Our content strategy is Barstool," Kaplowitz said. "We are very excited about Barstool using that expertise to create compelling, organic content that drives people to our online and retail properties."

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