ESPN’s betting pattern on Penn’s is looking increasingly bleak

During the Aug. 8 earnings conference call, Penn Entertain CEO Jay Snowden laid the groundwork. “We will continue our disciplined approach to engaging customers as we launch ESPN BET in New York in late August,” he said, noting that key improvements would be made and regulatory green lights would be given “before college football and our launch in New York.” A month, two Florida State losses, and a week of NFL games later, New Yorkers are still thankfully unable to use the app, and Penn’s mismanagement of ESPN Bet is looking worse and worse.

New York is just one state, but it’s one of the largest in the U.S. market. The state’s tax revenue from gambling, as of Sept. 7, was $653.7 million, more than the next eight largest states combined. An optimistic Penn would read the data as an opportunity, one that presents ESPN Bet’s nationwide struggles as an insignificant prequel to the real game that begins when it launches in New York. On the other hand, someone who understands how the numbers work would point to ESPN Bet’s 2.8 percent market share, according to Bloomberg, and the difficulty Penn has had in growing that number anywhere in the country.

Like the rest of the United States, the New York sports betting market is dominated by DraftKings and FanDuel. The two giants control about 75 percent of the market, and new sportsbook Fanatics has seen modest gains in the first half of 2024. The power of the DraftKings/FanDuel duopoly is significant, as a number of potential competitors tried and failed to compete with it before the shutdown, including FOX Bet; SI Sportsbook; Wynn, which sold its New York license to Penn in March after being completely unable to break into the market; and, of course, Barstool Sportsbook, which failed so badly that Penn sold the entire company to its loathsome owner for $1.

The two-part lesson should be pretty clear: While regulated gambling is an incredibly lucrative business in its infancy, it’s not an open market, and an established sports media brand isn’t a strong enough gravitational force to displace consumers who started using the apps that were there in the first place. Shortly after ESPN Bet launched, Snowden set a goal of 20 percent market share, which now seems ridiculously high. Industry analysts have pegged the 2024 football season as a make-or-break year for ESPN Bet; the company has already surrendered first-mover advantage to its former partners DraftKings and its archrival FanDuel. Failure to make it to Week 1 of the NFL season puts ESPN even further behind, as any new gamblers who didn’t bet last season but are betting this season will inevitably be doing so with ESPN Bet’s competitors. The NFL is the most widely bet on sport in the country. Given how obvious the benefit of being there first is, having the ESPN Bet app launch on hold due to the regulatory process poses a significant risk to Penn’s entire plan.

ESPN Bet’s logic is that it can leverage ESPN and its prominence in the world of sports broadcasting to lure people to the app and away from their money. This line of thinking makes some grim sense, even if the practical application is pretty terrifying — but I don’t think it’s flawless. A sports bettor and a sports fan aren’t necessarily the same person. Since money is involved, it seems optimistic of Penn to assume that people will simply choose to bet where it’s most convenient, rather than where it’s most efficient. I asked a few sports bettors on the Defector staff why they bet where they do, and they cited better promotions and earlier availability.

If ESPN Bet is to succeed, in New York or anywhere else, it will either have to lure people away from where they already bet on sports — a proposition whose dubiousness is well-established by the graveyard of sportsbooks — or do something far more sinister and difficult: create a new class of gambler from the uninitiated mass of ESPN consumers. Expect ESPN’s already sluggish experience to get even bleaker, but don’t necessarily expect it to work.

CORRECTION (2:45 p.m. EST): An earlier version of this blog stated that New York State is the largest gambling market in the U.S., but that the difference in tax revenues between it and the other states is primarily due to New York’s higher tax rate rather than the scale of gambling activity statewide.