ESPN’s Penn Deal Included $500M of Equity
ESPN's $500 million worth of Penn stock warrants significantly declined in value over the two years before the ESPN Bet partnership ended. When ESPN announced its 10-year agreement with Penn Entertainment in August 2023, it highlighted two financial returns: $1.5 billion in cash paid annually and Penn stock options valued at $500 million at that time.
Changes After Deal Termination
With the partnership now terminated, the terms look quite different. Penn agreed to a final severance payment to ESPN of $38.1 million, likely bringing total cash payouts to about $380 million. The stock option warrants were also adjusted.
Original Warrants Structure
ESPN originally received warrants to buy 31.8 million Penn shares divided into three sets with strike prices of $26.08, $29.99, and $32.60. These options were to vest evenly over 10 years and would cost $921.3 million to fully exercise.
Post-Separation Equity Warrants
After the recent separation agreement, ESPN retains only the options vesting by next February, which amounts to 7.96 million shares. Exercising these would cost $230.3 million.
“Equity warrants are valued in various ways—the Black-Scholes model being one of the most common—so it’s unclear exactly what math ESPN used to price the original options at $500 million.”
Overall, ESPN's potential equity value was significantly reduced with the termination of the partnership and renegotiation of stock options.
Author’s summary: The termination of ESPN’s deal with Penn Entertainment drastically lowered the value of its $500 million stock warrants, reflecting a shift in cash payouts and equity rights.