eResearch | Earlier this month, Penn National Gaming (NASDAQ:PENN), a digital sports entertainment and gaming company, announced the acquisition of Score Media and Gaming (TSX:SCR, NASDAQ:SCR), a leading online gaming company.
Headquartered in Pennsylvania, Penn National currently operates in 20 states. It owns 43 gaming properties and provides retail and online gaming, sports betting, and live racing that feature 1,300 tables games, 8,800 hotel rooms, and 50,000 gaming machines.
The Company operates under prominent brands such as Ameristar (NASDAQ:ASCA), Hollywood, and L’Auberge. It also owns online social casino, bingo, and iCasino products.
Penn National also operates the “mychoice” loyalty program, which currently has over 24 million members and has a strategic partnership with Barstool Sports after acquiring 36% of Barstool for $163 million in 2020. Barstool promotes Penn National’s casinos and sports betting products.
Based in Toronto, Score Media and Gaming provides platforms to deliver sports scores, data, and sportsbooks.
Its main platforms are the sports betting app “theScore Bet”, available in New Jersey, Colorado, Indiana, and Iowa and, the “theScore” app which is one of the most popular sports apps in North America.
The “theScore” app allows fans to access personalized live scores, news, stats, and betting information from teams, leagues, and players.
Deal Overview
Penn National announced the acquisition of Score Media, for approximately $2.0 billion in cash and stock. It will pay $17 in cash to the Score Media shareholders, plus 0.2398 shares of its common stock for each Score Media share they own, which implies a purchase price of $34 based on the 5-day volume-weighted average trading price of Penn National as of July 30, 2021.
The transaction is expected to be closed in the first quarter of 2022 and both boards of directors have unanimously given their approval. Additionally, Penn National aims to fund the roughly S$1 billion cash portion of the deal using its own cash.
Jay Snowden, President and CEO of Penn National 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 iCasino 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.”
FIGURE 1: Larger Cross-Promotion Ecosystem
Other Highlights
- Penn National believes the deal will be adjusted EBITDA positive by year 2 and expects an adjusted EBITDA improvement of $200 million in the medium term.
- The acquisition will allow Penn National to achieve better management of its technology stack and to expand its margins by cutting expenses and fees paid to outsourced service providers.
- Penn National sees attractiveness in the Canadian gaming market and expects to operate theScore as a stand-alone unit, based in Toronto, Ontario, Canada. Moreover, Penn National plans to expand theScore’s engineering and workforce in Ontario.
- Integration of theScore and Penn National will lead to an increase in engagement and retention as well as an improved cross-promotions between theScore and Barstool are expected to drive higher revenue.
- The acquisition is in sync with Penn National’s investment strategy and positions it at the core of gaming, media, sports, and technology, strengthens the partnership with Barstool, and propels future growth.
- The acquisition should not change the leverage ratio level of Penn National, keeping it a 4x lease-adjusted net leverage of June 30, 2021.
FIGURE 2: 1-Year Stock Comparison Chart
Gaming Industry Overview
According to a research report published by Newzoo in July, the global gaming market should generate sales of $175.8 billion in 2021 from over 3 billion gamers and could reach almost $220 billion in sales by 2024, growing annually at 7.5%.
- The gaming industry could generate $175.8 billion in revenues in 2021, declining by 1.1% on a year-over-year comparison. This decline is expected to come from a decrease in the PC and console markets, counterbalanced by the mobile gaming market growth. Although there is a slight decline in 2021, the long-term trend is positive after a strong 2020 growth and COVID-19 impacts.
- The Gaming market is expected to grow at an 8.7% CAGR from 2019 to 2024 to reach $218.7 billion in 2024.
FIGURE 3: Video Game Players by Region
- The Asia-Pacific region represents 55% of the global players and 54% of the total online users. Online population growth, enhanced internet infrastructure and affordability will drive the market in Latin America, the Middle East, and Africa.
- Over 90% of the gamers in 2021 will play on a mobile device.
- New gamers in the market boosted growth rates to 5.4% in 2021 compared to 2020. The total players’ CAGR from 2015 to 20214 is estimated at 5.6% could reach over 3.3 billion players by the end of 2024.
- Virtual worlds gained more traction during COVID-19 as a way for people to get together and should continue to grow. Although people found themselves confined due to the pandemic, gaming users found a way to enjoy social gatherings and other events inhabited by avatars. The growth of online virtual worlds, often called the metaverse, should continue to grow and has been getting attention and attracting investments.
FIGURE 4: Video Game Players Growth (2015-2024)
Notes: All numbers in USD unless otherwise stated. The author of this report, and employees, consultants, and family of eResearch may own stock positions in companies mentioned in this article and may have been paid by a company mentioned in the article or research report. eResearch offers no representations or warranties that any of the information contained in this article is accurate or complete. Articles on eresearch.com are provided for general informational purposes only and do not constitute financial, investment, tax, legal, or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this information should consult with a financial advisor. The article may contain “forward-looking statements” within the meaning of applicable securities legislation. Forward-looking statements are based on the opinions and assumptions of the Company’s management as of the date made. They are inherently susceptible to uncertainty and other factors that could cause actual events/results to differ materially from these forward-looking statements. Additional risks and uncertainties, including those that the Company does not know about now or that it currently deems immaterial, may also adversely affect the Company’s business or any investment therein. Any projections given are principally intended for use as objectives and are not intended, and should not be taken, as assurances that the projected results will be obtained by the Company. The assumptions used may not prove to be accurate and a potential decline in the Company’s financial condition or results of operations may negatively impact the value of its securities. Please read eResearch’s full disclaimer.
