SUMMARY
- DraftKings shares drop 10% after ESPN and Penn Entertainment strike a 10-year, $2 billion deal, launching ESPN Bet.
- The deal may signal the end of ESPN's non-exclusive marketing relationship with DraftKings, sparking speculation over Disney's equity stake.
- Analysts eye this partnership as possibly the first step in Disney's strategic repositioning of ESPN, hinting at future developments.
In the turbulent seas of sports gambling, Wednesday brought unexpected waves. Shares of DraftKings, a leader in sports gambling stocks, plummeted by 10% during midday trading. The reason? Media titan ESPN struck a significant deal with Penn Entertainment to venture into the competitive online betting arena, and DraftKings felt the ripple effect.
Penn Entertainment plans to launch a sportsbook under the ESPN Bet brand, replacing its current Barstool-named offering. ESPN, part of the Disney family, had previously danced around the edge of the online gambling industry. With ESPN losing cable subscribers, the time was ripe for action, and this partnership represents a bold step into uncharted waters.
At the heart of the deal lies a $2 billion transaction involving both cash and stock warrants, payable to ESPN by Penn over the next decade. The partnership's announcement gave Penn's shares an 8% boost, even as Disney's stocks remained relatively unchanged ahead of its earnings report.
With this new partnership, a lingering question emerges: what will become of ESPN's non-exclusive marketing relationship with DraftKings, in which Disney also holds a stake? Analysts speculate on whether Disney will keep or dissolve its less than 5% stake in DraftKings.
Beyond the immediate impacts, the deal prompts contemplation of Disney's long-term strategy for ESPN. As Robert Fishman of MoffettNathanson observes, this may be the first step in Disney's broader plan to reposition ESPN through fresh partnerships and strategic collaborations, ultimately reshaping the sports media landscape.
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