PENN Entertainment is facing sharp criticism from one of its major investors, HG Vora. The investment firm has publicly labelled the company’s decision-making, particularly its digital transformation strategy, as “value-destructive.” This criticism has been voiced in a public letter accompanying the firm’s proxy filing as it seeks to influence the composition of PENN’s board of directors and escalates its challenge to the company with a lawsuit.

In a letter published by HG Vora and signed by the firm’s Founder, Parag Vora (as reported by iGaming Times), the firm, which owns 4.8% of PENN’s shares, strongly criticised PENN’s attempt at a digital transformation from a regional casino operator. HG Vora claimed, as reported by iGaming Times from the letter, that this transformation has been plagued by “value-destructive deal-making, reckless capital allocation and poor execution.” The firm also disputed claims made by PENN that it has generated increased value for shareholders, stressing that PENN’s stock price has declined over the last ten years. HG Vora stated its belief, as reported by iGaming Times from the letter, that “By nearly all relevant measures, the company is less profitable and less valuable than it was before the company embarked on its digital transformation.” The firm added its belief, as reported by iGaming Times, that “PENN trades at a discount to its intrinsic value because its management team and Board of Directors have lost credibility and investors fear further value-destructive decisions,” expressing surprise that “it seems that the Board thinks PENN’s performance has been laudable.”

Criticisms of Key Deals and Performance

HG Vora detailed specific criticisms of past deals and performance highlighted in its letter. The letter reportedly name-checked PENN’s President and CEO, Jay Snowden, as well as its Board Chair, David Handler, accusing the pair of overseeing what HG Vora believes to be “a string of transactions that stand among the worst in the industry’s history.” Criticised deals included the ESPN Bet venture and the acquisitions of theScore in Canada and Barstool Sports. The letter highlighted the Barstool acquisition, which was purchased for $500 million before its shares were subsequently sold back to Barstool’s Founder, Dave Portnoy, for just $1. HG Vora stated its belief, as reported by iGaming Times from the letter, that “Despite this prolific spending, PENN’s online sports betting strategy has failed.” The firm pointed out that nearly two years after CEO Snowden announced a target of double-digit market share and a “podium position,” ESPN Bet is reportedly the 8th-ranked online sports betting platform in the U.S., with its market share hovering around 2%. The letter reiterated, as reported by iGaming Times, the claim that “by nearly all relevant measures, the Company is less profitable and less valuable than it was before the Company embarked on its digital transformation.” Furthermore, HG Vora reportedly took issue with CEO Snowden’s compensation, claiming that he has been paid more than $120 million since 2021, during which time PENN’s market value has reportedly declined by approximately $11 billion.

Proxy Fight and Lawsuit Filed

In an effort to influence the composition of PENN’s board, HG Vora filed its definitive proxy statement with the Securities Exchange Commission (SEC) alongside the public letter. As reported by iGaming Times from the letter, HG Vora urged PENN’s shareholders to vote using HG Vora’s GOLD proxy card and implored those who have already voted to change their vote using the GOLD proxy card in a bid to get shareholders to vote for all three of its proposed board candidates. This move follows PENN putting forward only two of HG Vora’s three proposed board candidates for election; PENN approved two independent candidates but rejected former PENN National Gaming Chief Financial Officer, William Clifford.

In response to PENN’s decision regarding the board candidates, HG Vora has sued PENN in the Eastern Pennsylvania District Court. The claim in the lawsuit is that PENN is violating the law by removing one of the three elective board seats without notifying shareholders. Parag Vora referred to the decision to reduce the number of directors up for election (as reported by iGaming Times from the letter) as “perhaps the most brazen act of entrenchment” and “a desperate manoeuvre.”

Call for Change and Board Scrutiny

Concluding its letter, HG Vora presented a strong call for change and increased board scrutiny. Parag Vora argued, as reported by iGaming Times from the letter, that “Shareholders should not tolerate such a manipulation of the electoral process, nor should they continue to accept PENN’s dismal performance.” Vora also stated his belief, as reported by iGaming Times, that “PENN’s directors do not want Mr. Clifford in the boardroom to scrutinise their dealmaking or question their strategy or leadership - even though that is exactly what is needed.” The letter indicates a strong push from HG Vora for increased accountability and oversight of PENN’s strategic decisions, highlighting significant investor dissatisfaction with the company’s strategic direction and financial performance in recent years.

In conclusion, major shareholder HG Vora is escalating its challenge against PENN Entertainment’s management and board, publicly criticising their digital strategy execution as “value-destructive” and advocating for board changes through a proxy fight and lawsuit. The situation highlights significant investor dissatisfaction with PENN’s strategic direction and financial performance in recent years.