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While the biggest potential merger of US gambling companies in several years remains hypothetical, the possibility is nonetheless provocative. If Boyd Gaming does take over at least part of Penn Entertainment’s business, there could be multiple consequences for Penn’s online casino product, Hollywood.
Those consequences deviate in form and significance wildly, creating a multiverse of potential futures for Hollywood. In the meantime, life goes on for Hollywood players much as it has in the known universe, though.
Boyd putting out feelers on a Penn acquisition
The narrative began on June 20, 2024, when Anirban Sen and Milana Vinn of Reuters broke the news1 that Boyd’s people got in touch with Penn’s people. The interactions were all about Boyd possibly absorbing Penn like how eukaryotic cells once absorbed ancient bacteria and those bacteria evolved to become the mitochondria of the cells that compose your body.
While silence has been the word from both companies as far as official channels of communication go, the news from Sen and Vinn has given many leave to speculate wildly and get unofficial comments from unnamed sources. For example, Earnings+More claimed2 that Penn shareholders might be open to a $25 per share valuation paid out in a mixture of cash and Boyd stock on June 28.
There is a metric ton of details to consider for all parties involved. Questions like would commerce regulators allow a merger of this size and how a Boyd takeover might affect Penn’s relationship with Disney loom large.
Also part of the conversation is how a sale of Penn might alter the future for Hollywood. In the realm of the hypothetical, scenarios abound.
Boyd might not be interested in Hollywood
One scenario could be that Boyd spins off the online gambling division into a separate company and really only acquires Penn’s land-based assets. That seems feasible for several reasons.
Boyd has been lackadaisical when it comes to the online gambling space. Boyd did buy Pala Interactive earlier this year but so far, Boyd hasn’t made full use of the licenses or technology that Pala brought.
Meanwhile, physical casinos have been pulling all the weight for Penn as it tries to find a footing for its online gambling products. Acquiring Penn’s 43 properties would make Boyd the undisputed largest brick-and-mortar casino operator in the US.
Boyd seems to be adept at managing such businesses. For the first quarter of 2024, the company showed operating income of $219.3 million3 with $634.1 million in revenue from gaming at its facilities.
At the same time, that operating income total was down about 23% while the physical casino gaming revenue dropped marginally compared to Q1 2023. Thus, Boyd might be looking for a jumpstart in that category while continuing to treat online gaming as a side gig.
There’s also the consideration of Boyd’s small stake in FanDuel, a direct competitor for Hollywood in the US. Furthermore, spinning off the online gambling products could help Boyd avoid antitrust obstacles in a potential Penn takeover.
Because of the indifference to online gambling that Boyd has demonstrated relative to other gambling companies like Caesars and MGM, a separation might be the best thing for Hollywood, too. Penn’s track record with the product is part of the company’s internal issues.
Penn’s struggles to make Hollywood famous
Penn’s challenges with replicating its success with physical casinos in the online gambling sphere has been a source of angst for stock owners. At the end of May 2024, the Donerail Group called for Penn to sell those assets4 and focus on the brick-and-mortar biz, as one example.
While that might have been the blood in the water that got Boyd swimming Penn’s way, there has been diverging thought about Penn’s struggles to gain significant market share. Part of that debate has been about the definition of significant in that context.
Penn’s leadership seems to be under no delusion that it can unseat the powerhouse brands in the US online casino space. Rather, ambitions have focused on becoming a consistent third- or fourth-place finisher in monthly win totals in the various relevant states.
There is some merit to that idea, as in states like Michigan, New Jersey, and Pennsylvania, nabbing a 5%-10% share of the market regularly could bring in enough money to make Hollywood a profitable venture. Penn has made moves toward that end beyond simply relying on cross-sell from its other gaming products.
During the Q1 2024 earnings call, Penn officials stressed that there are plans to separate Hollywood from ESPN Bet in a standalone app for players in Michigan, New Jersey, Pennsylvania, and West Virginia. At the same time, questions about what level of profitability for Hollywood will satiate investors linger.
Thus, a break between Penn and the online casino product might dispatch a pair of theropods with one crag. It would satisfy Penn stockholders who want the company to focus exclusively on land-based gaming and also represent a fresh start for Hollywood.
When the sequel is superior to the original
Another option for Boyd, if it proceeds at all, is to sell the online gambling assets to another company. While that might bring antitrust considerations back into the conversation depending on who a prospective buyer is, it has all the above benefits and would help to offset the cost of acquiring the rest of Penn’s assets.
A buyer could take Hollywood in a number of directions. It could scrap the brand altogether and apply its product to the licenses that Hollywood currently utilizes. A buyer could also simply add Hollywood to its portfolio and try to do the thing better than Penn has, conversely.
There is also the huge issue of what to do with ESPN Bet in this scenario for a buyer, and that premise feels as thorny as a Rosa rubiginosa. Disney might have some leverage in such a situation if not an option to completely pull out of the current deal with Penn.
Focusing solely on Hollywood, though, new ownership could mean renewed investment, better promotions, a superior customer experience, etc. It’s just as likely that all of the same could take a dive, too.
The same circumstances apply to a spin-off situation. Independent management might present a brighter future or doom the brand eternally.
For the moment, the only imminent change seems to be that Hollywood is eventually going to get its own app. There have been no confirmed reports that Boyd and Penn are negotiating, much less a scheduled shareholder vote on an offer.
Potential takeovers are often explored and abandoned in the gambling business. If this one happens, though, it could have far-reaching implications for Hollywood online casino.
