In investing there is always the hype of future great things or the next great thing to bring in easy dollars. As today is Valentine’s Day, there is also much hype in romance, but it is hoped you find and keep the long-term lasting relationship variety. One of the reasons there is hype is society changes and as society changes some of the things that were not allowed, or honest decent people did not do in public are now okay to do. It does make society better or worse, just changed and with change becomes a potential opportunity to cash in. In the last few years, we have seen changes in marijuana or cannabis laws and the startup of new companies. The same thing happened with betting on the internet. Previously, you needed to go to Las Vegas or have a bookie at a bar or something of that nature, now governments are encouraging gaming for potential tax revenues.

In an article by David Parkinson writing an opinion in the Globe and Mail, Pennsylvania based Penn Entertainment Inc has long run casinos and horseracing tracks, but during COVID when people had extra time and money to gamble, pushed into online sports betting as governments legalized the activity. Penn Entertainment bought Score Media and Gaming and Barstool Sports.

The shares have fallen 82% from their highs which means a hedge fund is on the prowl to increase share prices. In this case, in a securities filing HG Vora Capital which owns 9.6% of the shares wants management to do something to increase the share price. One suggestion is to change some of the Board of Directors of Penn with people affiliated with HG Vora Capital.

Initially Penn Entertainment bought minority stakes in Score Media and Barstool Sports to test the waters, then they bought the rest of the companies, but they do not show good results.

Penn paid $163 million for 38% of Barstool, later it paid $550 for the remaining part. In August 2022, Penn decided to partner with ESPN and sold the company back to the original owner for $1 plus 50% of any proceeds from a future sale of Barstool. The agreement with ESPN is $1.5 billion for marketing and media rights.

For theScore, Penn paid $2 billion for the app, half in cash and half in shares. The intention was to expand theScore across the US, but it was decided to shut down the US business to go with Barstool Sportsbook which no longer exists.

For theScore, the app had 3.6 million users when Penn Entertainment bought it. Penn had thought that as an owner of casinos some of the people would use their products but that did not happen and 73% of users were already in the ecosystem – checking scores and reading sports news.

Across the US, Barstool had a 1.9% share as of last spring. Essentially the company has spent $4 billion on sports betting with little to show for it. David Katz, an analyst at Jefferies wonders How are you going to show a return on that?

The competition is not doing much better, Wynn Resorts has pulled out of 8 states because of the money to acquire and retain customers or outsized marketing spend. (some of the money is seen if you go to or watch professional sports on TV, you will notice the advertising). Two other rivals FanDuel and DraftKings have lost a lot of money, DraftKings has lost $4.8 billion since 2020. The good news for them is their names has brand recognition and they are losing less money.

Linking to dividend paying companies, there is money to be lost on hype and a little to be gained. For the most part if something is hyped, watch it from a distance because what goes up will come down and then when companies actually make money, they may go up again. If you spend on the hype, ensure you have a very good idea when you to sell or it will be a long-term holding to try to get you money back. The good news with dividend paying stocks is you are expecting it to be a long-term holding so having patience is a wonderful thing.

There are more questions than answers, till the next time – to raising questions.

S