Penn National Lands Market Access Agreements With Major Sportsbooks

Penn National Gaming, Inc. announced Wednesday evening that it has entered into multi-year agreements with several prominent sports betting operators, orchestrating a power play that could shape the U.S. legalized gambling market over the next decade.

Under the deal, Penn National has inked sports betting and iGaming market-access agreements with DraftKings, PointsBet, theScore and The Stars Group across the company’s portfolio. The portfolio will be managed by Penn Interactive Ventures, LLC (PIV), a wholly owned subsidiary of Penn National Gaming.

“We’re pleased to be providing the top names in sports betting, iGaming and poker access to our Company’s non-primary licenses to conduct these operations in exchange for a combination of upfront cash and equity, one-time market access fees and ongoing revenue sharing,” Jon Kaplowitz, Penn National’s senior vice president of interactive gaming said in a press release.

Breakdown of skin agreements

The multi-year partnerships were reached through so-called “skin agreements,” which Kaplowitz believes will help the company finance the initial costs associated with the launch and maintenance of its primary sports betting and iGaming initiatives. A skin agreement provides an online sportsbook operator with market access in a certain jurisdiction under a land-based casino’s existing license.

Each of the aforementioned skin partners will have the option to own, operate, and brand real-money online sports betting, poker, and casino offerings, Penn National said in a statement.

Of course, the skin deals are subject to license availability, state law, and regulatory approvals; in some states such as New Jersey and Indiana, each casino operator may use up to three skins, while in Pennsylvania it’s one only.

DraftKings, one of the leaders of the New Jersey online market, will enter seven additional states under the agreement. The partnership builds upon a December 2018 agreement between Penn National and DraftKings that gave DraftKings market access to West Virginia. Under Wednesday’s agreement, DraftKings will gain market access in Florida, Indiana, Missouri, Ohio, Pennsylvania and Texas.

The sides agreed on a 10-year deal, subject to a 10-year extension. Penn National’s portion of the revenue-sharing agreement between the companies is based on DraftKings’ net gaming revenue in the seven states.

“With dozens of states having already legalized sports betting or poised to do so in the near future, this expanded partnership ensures DraftKings is positioned to quickly enter new markets,” said DraftKings Chief Business Officer Ezra Kucharz in a press release. “Penn National Gaming brings tremendous resources, people and experience to the partnership and, as we finalized the terms of the deal, it was abundantly clear there is a real synergy between our two companies that bodes very well for the future.”

PointsBet USA Inc., a subsidiary of Australian-based PointsBet Holdings Limited, secured market access to five states – Indiana, Louisiana, Missouri, Ohio and West Virginia. The agreement will last 20 years starting with the date that PointsBet’s branded service is first offered to its customers in each applicable state, PointsBet said in a press release.

“Partnering with Penn provides PointsBet access to five important states and the potential for further state deals,” PointsBet CEO Sam Swanell said in a statement. “We are delighted to partner with such a forward-thinking and innovative organization.”

A press release issued by Penn National on Wednesday night provides a colorful picture for how the competing operators may gain access to various states — including states like Texas where sports betting may not become legal in the next five years or more — and what Penn National gains from it all. Here’s what each party obtains in the deal:

DraftKings:
- States covered: Florida (1^st skin), Indiana (3^rd skin), Missouri (1^st skin), Ohio (1^st skin), Pennsylvania (1^stskin), Texas (1^st skin) and West Virginia (2^nd skin)
- Term of agreement: 10 years, subject to a 10-year extension
- Key economic terms: Revenue share to Penn National based on net gaming revenue

PointsBet:
- States covered: Indiana (2^nd skin), Louisiana (1^st skin), Missouri (1^st skin), Ohio (1^st skin) and West Virginia (3^rd skin)
- Term of agreement: 20 years
- Key economic terms: Revenue share to Penn National based on net gaming revenue
- Equity position: PIV will take a strategic equity stake of 5.28 percent in PointsBet, with an additional $2.5 mm access fee for Ohio, based on certain conditions, payable in cash or equity at Penn National’s option. In addition, PIV will receive 10,372,549 options, exercisable for two years, to acquire additional shares of PointsBet

theScore:
- States Covered: Indiana (2^nd skin), Iowa (2^nd skin), Kansas (3^rd skin), Louisiana (1^st skin), Maine (3^rdskin), Massachusetts (3^rd skin), Michigan (3^rd skin), Mississippi (1^st skin), Missouri (2^nd skin), Ohio (2^ndskin) and Texas (2^nd skin)
- Term of agreement: 20 years
- Key economic terms: Revenue share to Penn National based on net gaming revenue
- Equity Position: PIV will take a strategic equity stake of 4.7% in theScore, with the potential for this stake to increase as additional market access fees become payable.

The Stars Group:
- States covered: Illinois (1^st skin), Indiana (1^st skin), Kansas (2^nd skin), New Mexico (2^nd skin), Maine (2^nd skin), Massachusetts (2^nd skin), Michigan (2^nd skin), Ohio (1^st skin) and Texas (1^st skin)
- Term of agreement: 20 years
- Key economic terms: Upfront payment of $12.5 mm payable cash, with an additional access fee of $5 mm in cash for Texas based on certain conditions; revenue share to Penn National based on net gaming revenue, with a one-time bonus based on net gaming revenue in 2023

Kambi: Penn National ‘ideal partner’

Penn Interactive Ventures will run the majority of the company’s sports betting and iGaming operations through a partnership with Kambi Group plc, a leading B2B service provider.

“Kambi’s strategy has always been to partner with tier one operators, particularly those that share our vision and passion for sports and sports wagering. In Penn National, we have found an ideal partner, one that is not only passionate about providing high -quality sports wagering experiences to its customers, but a company that adheres to the highest level of ethical business standards,” said Kambi CEO Kristian Nylén in a press release.

One immediate takeaway from the comprehensive agreement is the glaring absence of William Hill U.S. Last August, the Penn National and William Hill held preliminary discussions on a market access and technology deal, according to London media outlet City A.M.

The deal comes weeks after Eldorado Resorts announced a definitive merger agreement with Caesars Entertainment that could result in the largest casino company in the world. Earlier this spring, Eldorado completed a 25-year deal with William Hill U.S., under a partnership that gave the company a 20 percent equity stake in the U.S. subsidiary. Separately, William Hill powers the sportsbook operations at the Hollywood Casino at Charles Town Races in West Virginia and Penn National Race Course in Pennsylvania, two Penn National properties.

The Penn Gaming bombshell pretty much ensures that Joe Asher is going to get very litigious with the WH rights to Eldorado and Caesars properties post CZR/ERI merger.
WH has rights to ERI properties
DK has rights to CZR properties
Asher v. Robbins round two.
— Captain Jack Andrews (@capjack2000) August 1, 2019

Kaplowitz is hopeful that Penn National will be able to utilize Kambi’s managed-trading services and omni-channel software to execute a sports betting strategy that will maximize value to shareholders. He cited Kambi’s multi-channel solution, as well as its trading and risk-management capabilities as drivers for the partnership.

Penn National will make use of Kambi’s flexible technology and open APIs to develop a bespoke front-end for its retail and online sportsbook, Kambi Chief Commercial Officer Max Meltzer said. In addition, Penn National will be able to utilize Kambi’s differentiated pricing and risk management tools to create a unique offering from state to state.

Penn National already in PA, MS and WV

Penn National operates more than three dozen gaming facilities across nearly 20 U.S. states, including Pennsylvania, Mississippi and West Virginia, all of which have legal sports betting, as well as Illinois, which legalized early this summer. Penn National is the nation’s largest regional gaming operator. Several states, most notably Iowa, are expected to launch legalized sports betting in the coming weeks.