Penn Entertainment (NASDAQ: PENN) is grappling with a weakening credit profile, pressured by increasing rent-adjusted leverage—a trend expected to persist throughout 2025. Meanwhile, the company’s ESPN Bet division continues to be a drag on corporate debt valuations.
That’s the assessment of Gimme Credit analyst Kim Noland, who highlights declining performance at Penn’s regional casinos and struggles with ESPN Bet as key concerns.
“Last year’s results were disappointing, largely due to new competitive market entries,” Noland explains. “Additionally, significant capital expenditures for renovations and expansion hurt free cash flow. The full-year financials reflected a deteriorating credit profile, with rent-adjusted leverage surpassing the mid-7x range at year-end—a level likely to persist through much of this year.”
Gaming industry corporate bonds are typically rated as junk, and Penn’s debt is no exception. Noland maintains an “underperform” rating on the company’s 2029 corporate bonds.
ESPN Bet’s Future Uncertain
Noland’s report comes shortly after Penn’s release of fourth-quarter and full-year earnings. During the company’s earnings call, CEO Jay Snowden reminded investors of an opt-out clause in the ESPN Bet agreement with Walt Disney (NYSE: DIS), allowing either party to exit after three years—set to arrive in 2026.
Snowden acknowledged that ESPN Bet has underperformed expectations. Despite Penn’s investment, the sportsbook has failed to challenge market leaders DraftKings and FanDuel, holding only an estimated 2.35% share of the U.S. online sports betting market—far below what’s needed to justify the company’s substantial spending.
The investment, now seen as a strategic misstep by some, has drawn the attention of activist investors. HG Vora, a major Penn shareholder, is pushing for three board seats in what could become a proxy battle. Last year, another investor, The Donerail Group, encouraged Penn to explore a sale, citing concerns over the company’s sports betting strategy.
Challenges in Regional Casino Operations
While Penn’s fourth-quarter EBITDAR saw some improvement, much of that was driven by iGaming rather than its traditional casino properties. Noland points out that EBITDAR remained flat at Penn’s Midwest and Northeast locations and declined at properties in the South and West.
Despite these challenges, Penn ended 2024 with $1.7 billion in available liquidity, expects to generate $350 million in free cash flow this year, and has no debt maturities until 2026—a silver lining in an otherwise uncertain outlook.
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