Last week, Penn Entertainment reported its Q4 2024 and full-year earnings…and the results weren’t great. Penn’s interactive division, which includes ESPN BET, lost nearly $110 million in Q4 alone. The company estimates that it controls only 2.35% of the sports betting market across its 20 active jurisdictions, and Penn is now projecting that ESPN BET will have a market share of 4.7% by the end of 2025, a far cry from Penn’s initial goal to own 20% of the U.S. sports betting market by 2027.

As a reminder, Penn Entertainment purchased 100% control of Barstool Sports for $551 million, eventually selling the company back to its founder Dave Portnoy for $1 so they could sign an even bigger licensing deal ($2 billion) with ESPN for ESPN BET.

The strategy was simple: Penn Entertainment was betting that it could lower the notoriously high customer acquisition costs in sports betting by partnering with a media company with built-in distribution and influence, such as Barstool or ESPN.

However, it isn’t working — at least not for customers or shareholders. Penn’s CEO Jay Snowden has made roughly $120 million in compensation over the last four and a half years, but the company’s stock is now down 84% from its 2021 high of $130/share, and Penn has seen its market cap fall from $20 billion in 2021 to just $3.3 billion today.

It’s no secret that I have been bearish on ESPN BET from day one. I described the $2 billion partnership as a “hail mary” on CNBC last year because Penn booked a $633 million loss on its Barstool Sports deal only to convince its board of directors that they should spend $2 billion more on a partnership with ESPN to create ESPN BET.

Penn was able to spin the narrative by saying that Barstool’s negative PR impacted its ability to get approved in specific states and they frequently talked about how ESPN had a much larger audience anyway, providing Penn with more long-term upside.

On the surface, this made sense. ESPN is obviously much larger than Barstool Sports and integrating Penn’s sportsbook into ESPN’s portfolio of live sports rights, daily talk shows, social feeds, and mobile app was something Barstool couldn’t even offer.

This initially looked like a bad call by me. I was flooded with messages after ESPN BET drew an industry record 1.1 million downloads in its first week. ESPN BET was also the #1 most-downloaded app in Apple’s App Store for 100 straight hours after launch, accounting for roughly 70% of all U.S. sportsbook downloads that week. And Bank of America’s equity research department released a report after four weeks saying ESPN BET was trending toward owning 9-10% of the market, instantly making the company one of the biggest U.S. sportsbooks behind FanDuel and DraftKings.

However, the thing about predictions is that you have to let them play out. While retail and professional investors alike were excited about ESPN BET’s early success, it was pretty clear these numbers were being significantly inflated by three things:…