PENN Entertainment Investors Demand Change

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PENN Entertainment is facing criticism from one of its investors, HG Vora. The investment firm, which holds a significant 18.5% stake in PENN, has expressed concerns over the company’s underperformance and its failure to provide long-term shareholder value. In a recent filing with the Securities and Exchange Commission (SEC), HG Vora outlined its grievances and requested the addition of a representative to PENN’s board of directors to help steer the company in the right direction.

In its SEC filing, HG Vora highlighted several areas of concern regarding PENN’s performance and overall value for shareholders. The investment firm expressed dissatisfaction with the company’s underperformance in the market and its perceived misallocation of capital. HG Vora also emphasized the undervaluation of PENN’s share price, indicating that the current market value does not reflect the company’s true potential.

To address these issues, HG Vora has engaged in discussions with PENN’s management and board of directors. The investment firm has requested the right to appoint highly qualified directors who can work collaboratively with the company’s leadership to unlock its full potential. By having a representative on the board, HG Vora aims to influence decision-making processes and ensure that shareholder interests are prioritized.

The filing stated, “Given the persistent underperformance of the Common Stock and the Issuer’s capital allocation track record, amongst other areas of concern, the Reporting Persons have requested that the Issuer afford them the right to designate highly qualified directors who would be committed to working with the Issuer’s management and fellow Board members to help the Issuer realize its full potential.”

PENN Entertainment has been actively pursuing strategies to enhance its performance and market position, particularly in the US sports betting industry. One notable move was the launch of ESPN BET in November, a venture that holds the potential to be valued at around $2 billion. As part of this initiative, PENN discontinued its Barstool Sportsbook brand and divested the Barstool Sports business, which it had acquired in February 2023 for approximately $500 million. Surprisingly, PENN sold Barstool back to its founder, Dave Portnoy, for a mere $1.

The ESPN BET project has required substantial investments, with PENN committing millions of dollars in promotional credit. In Maryland alone, the company spent $13.5 million within two weeks to attract customers and gain a competitive edge over other operators. PENN’s CEO, Jay Snowden, has set an ambitious goal of capturing around 20% of the US sports betting market in the long term. He believes that by achieving significant market share and establishing a strong presence in multiple states, PENN can achieve impressive profit margins.

Snowden stated, “I think if we’re at scale, and we’re on the podium in every state, or most every state, which we plan to be, then we think we can probably get close to the margins.”

While PENN Entertainment is striving to improve its performance, HG Vora’s filing suggests that some shareholders are dissatisfied with the company’s direction and performance. The investment firm has indicated that it will continue to review its investment and explore potential actions to address its concerns. This review may include proposing changes to the management team, selling assets, and even making recommendations related to the company’s charter, governance structure, and dividend policy.

HG Vora’s filing emphasized its intention to play a significant role in shaping PENN’s future, stating, “These actions may include, without limitation, proposing changes in the Issuer’s operations, proposing changes to the Board and the Issuer’s management team, proposing changes to the Issuer’s charter, bylaws or governance structure, capitalization or dividend policy, proposing extraordinary corporate transactions, asset sales, soliciting proxies from other stockholders of the Issuer in connection with meetings of stockholders, acquiring additional Common Stock and/or other equity, debt, notes, instruments or other securities of the Issuer.”

HG Vora’s concerns and actions reflect a growing trend of investor activism within the sports betting industry. Investors are becoming increasingly assertive in their demands for improved performance and value creation. This trend is not unique to PENN Entertainment, as other companies in the industry have also faced pressure from shareholders.

An example of this is seen in the recent resignation of Jette Nygaard-Andersen, CEO of Entain, Nygaard-Andersen stepped down following criticism from shareholders regarding the company’s European mergers and acquisitions strategy in 2023.