Penn (PENN, Financial) declined 18.2% in the quarter and penalized performance by 54 basis points. This was due to investor concerns over continuing losses from its Barstool business. We believe the $50 million of losses this year from its digital business is modest in relation to Penn’s $1 billion of brick and mortar EBITDA. The losses from its digital business represent customer acquisition costs incurred as additional states legalize online gambling. Since it is far less expensive to retain existing customers than to acquire new ones, we expect marketing costs to decline as Penn builds its customer base. Penn’s core bricks and mortar casino business remains strong, and the company has a healthy regional casino business and a strong balance sheet to fund digital losses.
Penn’s state-granted licenses for its regional casinos provide important protection from competitors. Online sports betting and i-casino gaming offer large opportunities for future growth for the company.
From Ron Baron (Trades, Portfolio)'s Baron Focused Growth Fund first-quarter 2022 letter.