The 2024 football season was seen as a significant challenge for Penn Entertainment’s (NASDAQ: PENN) ESPN Bet, and as the NFL season approaches its fifth week, it seems the online sports betting platform is advancing. 

In a recent report to clients, Jefferies analyst David Katz noted that although ESPN Bet hasn’t made a notable dent in the market share of leaders FanDuel and DraftKings, the unit of Penn is attracting new bettors through ESPN’s wider platform. This is crucial since Penn is shelling out $1.5 billion to Walt Disney over a decade for the rights to the ESPN brand.

"ESPN Bet has made significant strides toward establishing itself as a top online sports betting platform in terms of initial volume, which supports continued momentum in PENN near-term,” noted Katz.

The analyst noted that while ESPN Bet's advancement is significant, it only has a minor effect on the overall Penn Entertainment narrative, and that his top two selections in the sports betting equity sector continue to be DraftKings (NASDAQ: DKNG) and FanDuel's parent company, Flutter Entertainment (NYSE: FLUT). 

A Few Positive Aspects for ESPN Bet 

Although ESPN Bet has faced investor criticism and scrutiny, and breaking the DraftKings/FanDuel duopoly remains a challenge for competitors, there are positive indicators for the Penn division. 

Jefferies surveyed 302 individuals who identify as “avid sports bettors,” and approximately one-third reported using ESPN Bet. Ninety-two percent reported that their initial wager was made through the app. Forty-one percent reported betting between $51 and $100 on ESPN Bet, an increase from 23% in November 2023. 

“ESPN Bet has not only grown the overall sports betting market, but the amount wagered by users has skewed higher with a majority of respondents betting between $51 and $200,” wrote Katz. “This trend is also apparent in the broader sports betting market with spend per customer generally increasing, which will ultimately be beneficial to the financials of the sports betting operators.”

ESPN Bet performed favorably regarding promotions and visual attractiveness. 

ESPN Bet Still Needs Improvement 

ESPN Bet is advancing, yet there remains more to accomplish. The Jefferies survey suggested that a significant number of app users might switch to rivals once their promotional funds run out. Moreover, gamblers expressed dissatisfaction with the Penn option for not having the same parlay variety available at DraftKings and FanDuel. 

Users expressed dissatisfaction with ESPN's on-air personalities promoting long odds bets or wagers that aren’t even offered on the app. Those gamblers informed Jefferies that such problems damage ESPN Bet’s credibility. Katz emphasized that Penn faces a significant challenge in attracting clients from DraftKings and FanDuel. 

“The ESPN deal with PENN has proven to expand the overall sports betting market by converting non-bettors, which is a modest positive for the digital segment. However, our data also suggest there is low likelihood that bettors will switch to ESPN Bet from other platforms,” concluded the analyst. “Furthermore, we continue to see that the top two players will be minimally impacted by ESPN Bet and, instead, could gain from a growing market as the apps for both DKNG and FanDuel offer superior experiences.”