Barstool Sports Drama: Lessons To Consider
The latest Barstool Sports drama reignites familiar cancel culture narratives. But I think there is a much bigger lesson here beneath the surface.
On February 17th, Penn Entertainment PENN 0.00%↑ closed its acquisition of Barstool Sports. I’ve written about Barstool Sports on this blog in the past. The company’s founder is Dave Portnoy. A man who is loved by some and loathed by others. He recently came to my stomping grounds to review some slices and he pretty much liked all of them even though there was a clear standout.
Toledo’s pizza scene is decent, I can’t complain.
As a media brand, Barstool’s personalities have historically lived near, on, and often over all sorts of “socially accepted” lines. That unapologetic authenticity is why the brand, and by extension Portnoy himself, have been so polarizing. You can like him or not like him, but I don’t think anyone would argue he hasn’t historically fought for what he legitimately believes in when he isn’t doing his performative art.
Yesterday, a fresh controversy emerged after Barstool fired one of its personalities for using the n-word when reading the lyrics of a rap song. The purpose of this post isn’t to debate the appropriateness of the word. It was a mistake and he apologized for it. It happened. It’s over. The decision was made. What I think is worth exploring is the reasoning for the termination as cited by Portnoy in a video last night.
Damage Control
As fate would have it, Penn Entertainment actually had a conference call this morning to go over the company’s Q1 earnings performance. As expected, this Barstool Sports controversy was a topic that came up during the question and answer segment with analysts. Bank of America’s BAC 0.00%↑ Shaun Kelley asked if the company foresees any revenue-related or culture-related fallout from the decision. PENN CEO Jay Snowden said the following:
We're obviously not commenting on personnel issues on the call or publicly. We felt like we dealt with it appropriately, and I would also say that you've been following us and the relationship and I think the public markets and financial community has gotten to know Barstool pretty well over the last three plus years and there's going to be some drama sometimes.
Barstool CEO Erika Ayers added some commentary as well, but I think the meat and potatoes was this part:
Now there's certain lines you don't cross, there's guardrails that exist. Those have obviously increased now that we're in a highly regulated category and we knew that going into the PENN acquisition.
An increase in the lines you don’t cross. Very interesting. The old adage is time heals all wounds, but I do now wonder if this fiasco changes things for some of Barstool’s supporters. Judging from his 6 minute post-mortem, Portnoy seems to see it the same way and he provided quite a bit more color than what Snowden gave in the more buttoned up corporate environment of a quarterly earnings call:
PENN operates in a world that we don’t operate in. They are highly regulated by the government. They’re issued licenses for gambling that just as easily as they’re issued, they could be pulled back. For anyone who has followed the states and PENN trying to get legalized, one thing is clear, a lot of people hate my guts … They (PENN leadership) believe there is a legitimate chance lots of the states would pull their licenses because of this. PENN is a multi-billion dollar company. Without their licenses, they’re a zero dollar company. Investors, families, employees, thousands of people. They feel it’s their job to protect all of this and the only answer is to fire Ben Mintz. I still disagree with it.
The entire video is really worth a watch in my opinion but the takeaway that I get from this is very simple. If you believe Portnoy, Penn Entertainment is worried about the weaponization of the company’s gambling licenses. They’re not worried because of something done in a casino, to a customer, or to an employee. It has nothing to do with the actual operations that the license was issued for. They’re worried about losing their licenses because of politics and cultural war adversaries. The country’s founders are spinning.
Clown World
The overwhelming majority of you were not subscribers when I wrote Luther, Lemonade, and the Concept of Liberty. To give some context, it was published in May of 2020 - when people were justifiably getting very upset with stay at home orders.
My larger point at that time was about licensing and the fact that the government has so much control over what kinds of businesses people are allowed to do based on the arbitrary laws of man:
We’re in this mess because we’ve allowed government to become a player in the economy rather than just a referee. We’ve allowed lobbying, cronyism, regulations and licensing to run completely rampant. Simply put, the government is far too involved in transactions between consenting adults.
What is the difference between government licensing and La Cosa Nostra? Trick question. There isn’t one. Nice casino ya got there… it’d be shame if something happened to it.
Long Term Ramifications?
I’ve watched Dave Portnoy go from small New England-based blogger to national influencer. I remember many early controversies and how even in the face of the outrage mob he always dug in and grew stronger as a result. The Brady dick pic saga. The Jenna Marbles fiasco. Numerous others. The brand he built through raw grit and balls is not an accident.
Because of that, it’s a bit painful watching his evolution from master of his domain, an entrepreneur who defiantly answered to nobody, to a guy who takes orders from a suit. Would his path have been the same without The Chernin Group or Penn Entertainment? We’ll never really know for sure.
He’s fabulously wealthy at this point. I suppose a worthwhile tradeoff. Brands are a funny thing. They’re hard to build and really easy to ruin. Penn Entertainment is a stock that benefited from a large amount of retail money following Davey Day Trader a couple of years back. It looks like they might be speaking with their Robinhood HOOD 0.00%↑ accounts. PENN stock closed down 14% today:
Volatility on days of earnings releases isn’t unusual but PENN actually beat on both earnings and revenue expectations. To be fair, the broad market was down today - as was the entire casino sector. But PENN was by far the worst performer and now lags peers like Caesars Entertainment CZR 0.00%↑ and MGM Resorts MGM 0.00%↑ year to date by an even wider margin:
Honestly, I think Penn Entertainment will be fine. And Barstool’s base will probably get over it. But it does feel like a small part of Barstool’s soul just died. It’s absolutely impossible to please everyone. As the great Thomas Sowell has famously said, there are no solutions, only trade offs.
From an investment standpoint, I actually lean PENN is a lot more interesting at $26 than it was yesterday. I do have a gambling name as a core holding in the Heretic Speculator Equity Portfolio. PENN was a name I considered. I’m glad I went with a different choice - that name is up 15% year to date by the way.
Speaking of Earnings Calls
Anheuser-Busch InBev BUD 0.00%↑ is almost right back where it was pre-Mulvaney:
The company beat on both earnings and revenue today. Speaking on the fallout from that culture war controversy, BUD CEO Michel Doukeris said this:
With respect to the current situation and the impact of Bud Light sales, it is too early to have a full view. The Bud Light volume decline in the U.S. over the first 3 weeks of April, as publicly reported, would represent around 1% of our overall global volumes for that period. With this perspective and in the context of our global business, we believe we have the experience, the resources and the partners to manage this.
Disclaimer: I’m not an investment advisor. I have no position in PENN, MGM, CZR, BUD or BAC. I’m still the Yuengling King.