Buy for $551 million, sell for $1

Barstool Sports might be the best example of a bad acquisition ever.

Long story short: a casino operator called Penn Gaming bought Barstool, a bro-centric media business with a huge audience.

The logic was airtight on paper: point all those fans at Penn's sportsbook and the sign-ups write themselves. Cheapest customer acquisition strategy in the industry.

For a minute, it looked right. They launched and grabbed big double-digit market share in their first states.

Then it started sliding. And it didn't stop.

In Pennsylvania, its home base, share fell from around 13% to 4%. Nationally, it limped along under 2% while FanDuel and DraftKings ran away with the market. Even in Barstool’s backyard of Massachusetts, where it should have crushed, it opened around 6% and sank below 4% within months.

The fans loved the content and they were connected deeply to the characters in Barstool. But, when they asked them to become Penn customers, it didn’t work. They just didn't bet on Penn's app.

The hard truth was knowable the whole time: 

Barstool was a business built on fan love for individual characters, not the brand. You can’t buy an emotional connection. 

Penn never understood that. And then Penn made an even bigger mistake. 

At this point, Penn had only bought 36% of Barstool, for $163 million. It was a lot, but they could have walked away.

Instead, they doubled down and bought the rest.

Six months later, the whole thing was an $850 million writeoff and they sold the whole thing back to Portnoy for one dollar. 

The data had been obvious for two years. But Penn was in too deep to admit their bet was wrong.

So here’s another take-home for you: 

The more you’re committed, the more it costs your ego to act on it. 

So decide on your “walk away” conditions before you make your bet.

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One great resource: A great psychology book on exactly this: Quit by Annie Duke. Knowing when to fold is harder than knowing when to bet. Plus, she’s a professional poker player.

Here’s to never buying Barstool,

Michael

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