Penn National Score Media Acquisition ‘Credit Positive,’ Says Moody’s

By | August 12, 2021

Penn National Gaming’s (NASDAQ:PENN) $2 billion cash and stock purchase of Score Media and Gaming (NASDAQ:SCR) announced last week is a credit positive for the buyer, according to Moody’s Investors Service.

Penn Score Media
Penn National CEO Jay Snowden (center) and Score Media CEO John Levy (right) discuss their recent merger announcement. The deal will take awhile to help Penn’s credit rating. (Image: CNBC)

The research firm has a “B1” rating with a “stable” outlook on the region casino operator. That grade is four notches into junk territory due in large part to the gaming company having long-term debt of $12.12 billion at the end of the second quarter. However, Penn isn’t using debt to finance the Score Media purchase, which Moody’s also says is credit positive.

Through the acquisition, which is slated to close in the first quarter of 2022, Penn gains total control of its sports wagering technology stack as well as in-house risk management systems and trading platforms. That could boost efficiencies while containing costs.

We believe that the functionality, including integration with Barstool Sports, will further drive customer engagement, customer acquisition, retention, as well as customizable product offering for Penn,” said Moody’s. “We believe that the assets will also lead to cost savings over time because Penn will no longer be utilizing third- party platforms, for which it pays royalties or a revenue share.”

Penn owned nearly five percent of Toronto-based Score Media prior to the deal being announced.

Canada Call for Penn

In acquiring Score Media, purveyor of theScore mobile app – one of the most popular sports betting apps in North America – Penn is making an overt bet on Canada.

That country recently approved single-game sports betting and theScore is widely viewed as one of the biggest winners from Canada liberalizing sports wagering because it’s a homegrown company with premier brand recognition.

Data confirm there are significant opportunities for gaming companies north of the border. Ontario, the country’s largest province, is home to 14.5 million citizens, making it larger than some of the top US sports betting states, including Illinois, New Jersey, and Pennsylvania.

By some estimates, the Canadian iGaming and sports wagering markets could eventually be worth close to $5 billion, combined, likely explaining why almost immediately following its Nasdaq debut in late February, Score Media was frequently mentioned as a takeover target.

No Credit Upgrade for Penn Yet

While there are clear benefits for Penn in acquiring Score Media, it will take some time for the acquisition to bear fruit in terms of positioning the buyer for a potential credit upgrade.

“We view this transaction as credit positive, it does not have any effect on the Penn’s B1 Corporate Family Rating and stable rating
outlook at this time,” adds Moody’s. “Despite its medium- to longer-term potential and significance, sports betting and igaming revenue has not been a significant revenue and earnings catalyst at this time, although it is expanding across the US and will represent significant growth for the company in the coming years.”

Penn estimates the purchase will add to earnings before interest, taxes, depreciation and amortization (EBITDA) in the second year following completion and that it could drive $500 million long-term EBITDA accretion.

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