Why Penn National Gaming (PENN) Is Buying Score Media And Gaming (SCR) For $2 Billion

By Amit Chowdhry ● Aug 5, 2021
  • Penn National Gaming (Nasdaq: PENN) is buying Score Media and Gaming, Inc. (TSX: SCR; Nasdaq: SCR) in a US$2.0 billion cash and stock deal. These are the details.

Penn National Gaming, Inc. (Nasdaq: PENN) and Score Media and Gaming, Inc. (TSX: SCR; Nasdaq: SCR) announced today they entered a deal where Penn National will buy theScore — a leading digital media and sports betting and technology company — for about US$2.0 billion in cash and stock.

Under the terms of the deal, theScore shareholders will receive US$17 in cash and 0.2398 shares of Penn National common stock for each theScore share, which implies a total purchase consideration of US$34 per theScore share based on Penn National’s 5-day volume-weighted average trading price as of July 30, 2021. And the deal has been unanimously approved by the boards of directors of both companies and is currently expected to close in the first quarter of 2022. 

Upon the completion of the deal, current Penn National and theScore shareholders will hold approximately 93% and 7% respectively, of the company’s outstanding shares. And Penn National expects to fund the approximately US$1 billion cash portion of the consideration using existing cash on its balance sheet.

Benefits:

Penn National believes that the acquisition of theScore will provide adjusted EBITDA accretion by year 2, an incremental $200 million+ medium-term adjusted EBITDA, and $500 million+ of an incremental long-term adjusted EBITDA upside.

The deal of theScore will allow Penn National to better manage all critical aspects of its technology stack, leading to greater control over its product development roadmap, reduced costs, and an enhanced customer experience. And it will also allow Penn National to drive margin expansion by eliminating fees and expenses currently being paid to third-party technology and service providers.

Penn National believes that the Canadian gaming market represents a compelling opportunity for growth. And Penn National intends to operate theScore as a stand-alone business, headquartered in an expanded Toronto office, that will continue to be led by the Levy family with the same operating philosophy that has driven the company’s success to date. The business is also going to continue to utilize ‘theScore’ app and brand that consumers have come to trust.

Penn National was attracted to theScore for its ready access to a deep pool of Canadian engineering and technology expertise. And Penn National expects to leverage Canada’s technology talent pool to expand theScore’s engineering and production workforce based in Ontario as the business scales.

The deal will create a further scaled North American sports, online gaming and media business. And this broader reach will provide volumetric savings for content fees, payment expenses, and other services, including the elimination of public company costs.

theScore is the third-largest sports app in North America and number one in Canada with highly engaged users spending 113 minutes per month in-app. And the early results show the power of theScore’s integrated media and betting ecosystem to better engage and retain users. theScore Bet users with theScore media app compared to theScore Bet users who do not have theScore media app produce 88% higher handle/user, place 3x the number of bets/user, and generate a 91% increase in day 30 retention. This increased cross-promotion ecosystem between theScore and Barstool is expected to lead to higher revenue.

This acquisition underscores Penn National’s focused and disciplined investment strategy which positions the company at the epicenter of sports, media, gaming and technology and provides us with multiple channels for future growth. And this transaction accelerates Penn National’s strategy to enter into other adjacencies that leverage the Barstool and theScore brands and consumer appeal, such as the highly coveted esports media vertical.

KEY QUOTES:

“We are thrilled to be acquiring theScore, which is the number one sports app in Canada and the third most popular sports app in all of North America. theScore’s unique media platform and modern, state-of-the art technology is a powerful complement to the reach of Barstool Sports and its popular personalities and content.”

“We are now uniquely positioned to seamlessly serve our customers with the most powerful ecosystem of sports, gaming and media in North America, ultimately creating a community that doesn’t currently exist. Users will enjoy a unique mobile sports betting and iCasino platform with highly customized bets and enhanced in-gaming wagering opportunities, along with highly engaging, personalized sports and entertainment content, and real time scores and stats. We believe this powerful new flywheel will result in best-in-class engagement and retention.”

“Importantly, the transaction provides us with a path to full control of our own tech stack. theScore has developed a state-of-the-art player account management system and is finalizing the development of an in-house managed risk and trading service platform. This should lead to significant savings in third party platform costs and allow us to broaden our product offerings – providing the missing piece for operating at what we expect to be industry leading margins. In addition to the synergies, we’ll be gaining access to theScore’s deep pool of product and engineering talent and data-driven user analytics which will help drive our customer acquisition, engagement, retention strategies and cash flows.” 

“Operators that have achieved early online market share have done so primarily through first mover advantage, leveraging existing customer databases and significant marketing spend. We believe the long-term winners will be defined by best-in-class products, bespoke content, efficient customer acquisition, multi-platform reach and broad market access.”

  • Jay Snowden, President and Chief Executive Officer of Penn National

“This deal brings together two companies that share a vision for how media and gaming intersect, and we could not be more excited to join the Penn National family. I’m proud of theScore team and all of our accomplishments, and believe the time is right to take the next step and align with a company in Penn National with the resources and scale to accelerate our business. We are excited to join forces with Penn to form the most powerful media and gaming company in North America.”

“We’ve built an innovative, technology-led integrated media and gaming business that has us poised for success across North America, including the highly anticipated upcoming rollout of commercial sports betting in Canada. With Penn’s support, we will continue to invest in building our Canadian operations, growing our footprint and expanding our workforce. On a personal note, Benjie and I are very much looking forward to continuing to head up theScore as part of the new combined company.”

“We have been strategic partners with Penn National since 2019 and have come to realize that they have the same strong culture and appreciation for how to grow a business. Jay and his team have done a tremendous job building an exceptional retail business and online gaming platform in partnership with Barstool Sports and we are confident that by combining our leading sports media brand and proprietary technology, we will solidify Penn National as a market leader.” 

  • John Levy, Chairman and Chief Executive Officer of theScore

“This is a significant milestone for Penn Interactive and Penn National. With the acquisition of theScore, we will have greater ability to innovate and offer a best-in-class product to our customers. Personally, I am excited to join forces with John, Benjie, and the rest of theScore team who have proven to be great partners and amazing thought leaders in our industry.”

  • Jon Kaplowitz, Head of Penn Interactive

“The combination of theScore and Penn National creates a first-of-its-kind vertically integrated media and omni-channel gaming business, which brings together world-class technology, highly engaging sports content and unparalleled reach. With our accomplished team in place, this deal bolsters our ability to grow our already strong North American presence from our base in Canada and primes us even further to capitalize on the huge upcoming betting opportunity in our home country. Over time, we’ve built our loyal user base and relationship with fans by authentically delivering deeply personalized products. That is an approach that seamlessly fits with Penn’s current strategy and digital offerings and will provide for material long-term benefits as we collaborate to even more deeply integrate across our platforms.”

“The transaction will provide theScore with immediate scale and resources, the benefits of which will enable employees to better execute on the combined companies’ business plan and deliver enhanced integrated product offerings to our customers. The transaction also provides theScore shareholders immediate liquidity at a substantial premium and an opportunity to participate in any future upside of the combined company.”

  • Benjie Levy, President and Chief Operating Officer of theScore