As rumors swirl about Penn Entertainment being an acquisition target for other gambling companies, recent internal events at Penn are doing little to curtail that conversation. Those events might have dumped fuel on the fire.
Just ahead of Penn’s anticipated second quarter 2024 earnings report, the company has laid off staff. Internal communications provide an unrelated rationale for the workforce reduction, but the timing is unmistakable.
The effect on shareholder sentiment could be just as clear.
Penn lays off staff ahead of earnings report
On July 17, Matthew Waters of Legal Sports Report reported1 on a new round of layoffs at Penn, stating that the reduction affected a “limited number” of workers in the company’s online gambling division, Penn Interactive.
An internal communication that Waters obtained insinuated the layoffs were part of a company streamline effort that was pending the completion of Penn’s “build-out of our proprietary tech stack and the migration of our sportsbook to theScore’s best-in-class platform.”
The layoffs also come just ahead of an Aug. 8 conference call2 with investors to share earnings results from the second quarter of 2024. The timing of the move suggests that those numbers might not be sufficient to impress shareholders on their own.
Layoffs might be part of investor pitch in earnings
While there are many potential causes for reductions in workforce, including the rationale that Penn provided to its remaining employees, at least part of that motivation might be to help minimize the impact of a disappointing earnings report.
The picture has not been rosy as of late. Preceding a May 31 investor letter3 calling for Penn to divest from its online gambling operations, Penn shared its first-quarter earnings.
For the online casino products, Hollywood Casino in the United States and theScore Bet in Ontario, Penn said it achieved record revenue for any quarter. However, the numbers also revealed a sharp decline in monthly average users for those products since the fourth quarter of 2023.
There could be significant sentiment that the company’s stock is significantly undervalued and the online gambling products are responsible for weighing it down. A less-than-stunningly positive Q2 earnings report might only foment those feelings.
That could simultaneously spur interest in taking the company in a different direction.
Boyd, Flutter buyout might be more tempting
Rumors of discussions between Boyd Gaming and Penn Entertainment about the former acquiring the latter have been circulating since early July. Those rumors have grown to involve Flutter Entertainment potentially taking on Penn Interactive while Boyd assumes management over Penn’s brick-and-mortar gaming operations.
At this point, a potential domino sequence is easy to forecast. If recent layoffs were at least partially motivated by a forthcoming poor earnings report, then investor discontent is set to only increase.
Should that prove the case, calls for drastic changes will only louden.
Alternative plans might surface but an easy and quick payout from Boyd/Flutter might look quite tempting for Penn shareholders. There are many potential outcomes for Hollywood online casino in a Flutter takeover.
Flutter could simply add the brand to its portfolio and operate it as a complement to its US other online casino products like FanDuel Casino and PokerStars. Alternatively, it could use the licenses to bring another of its brands to the markets.
For certain, Penn continues to adjust its operations in an attempt to satisfy investors. The Q2 numbers will shed more light on the company’s state.