LEVELCHIMNEYSTOVES

• Analyst includes some positive remarks on ESPN Bet
• Says Penn’s interactive sales could double by 2029
• Among the most bullish comments to date on Penn’s digital unit

Penn Entertainment’s (NASDAQ: PENN) interactive segment, which includes the flailing ESPN Bet online sportsbook, has long been a source of consternation for some investors, but at least one analyst believes the operator’s internet unit will be a significant top-line driver in the years ahead.

In a new report, Morningstar analyst Dan Wasiolek noted that while Penn currently generates all of its earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) from its land-based casinos, the operator’s online business accounted for 14%-15% of revenue last year — a figure that could roughly double to 29% by 2029.

Penn is positioned to benefit from the multi-billion-dollar sports betting and iGaming market, aided by further integration with the ESPN franchise, as well as the addition of parlay products and a dedicated iGaming app launched in early 2025,” observes Wasiolek.

It’s one of the most bullish assessments of Penn’s interactive business to date. While the company has made strides in iGaming with its standalone Hollywood Casino app, ESPN Bet has failed to gain adequate market share in the US online sports betting space – something acknowledged by the company.

Sports Betting Drove Penn Debt Ratios Higher

One of the biggest reasons Penn has drawn the ire of investors, including those pushing for change at the company, is the amount of money the operator spent in recent years to gain traction in online sports betting only to fail to do so.

There’s talk in the analyst community that Penn could throw in the towel on ESPN Bet next year and potentially sell theScore — likely at a price far less than what it paid — to refocus on its land-based casinos and iGaming app. Conversely, Wasiolek sees the operator driving down debt and continuing to invest in both sides of the online gaming universe.

“During the next three years, we see the company’s debt/adjusted EBITDA averaging 3.2 times, driven by improving profitability,” notes the Morningstar analyst. “We see the $3.4 billion in free cash flow to the firm that we expect in 2025-29, along with the $1.7 billion in liquid cash and available credit as of Dec. 31, 2024, to be focused on reducing debt levels and investing in the digital sports and iGaming markets, along with share repurchases.”

iGaming Expansion Could Benefit Penn

Penn’s share of the US brick-and-mortar casino market compares favorably with rivals Caesars Entertainment (NASDAQ: CZR) and MGM Resorts International (NYSE: MGM) and like those operators, Penn’s omnichannel model has perks, including the potential for serving as a conversion mechanism that lures more bettors to online offerings.

Penn’s digital business benefits from its strong physical locations, as many states require operators to have a retail location to receive a sports betting or iGaming license,” adds Wasiolek. “We still expect Penn’s interactive EBITDAR margins to ramp to the low 20s around the end of our 10-year forecast, compared with the negative 52% margin seen in 2024, as Penn’s omnichannel presence, in-house technology, and exclusive ESPN partnership allow for strong customer acquisition and retention in a large and growing market.”

Given the strength of the Hollywood Casino app, it can be argued that Penn would benefit from iGaming expansion, but the outlook on that front is murky as some industry observers believe just one state — Florida — will add internet casinos over the next two years.

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