Dave Portnoy Accusations Prompt Scrutiny of Barstool as Penn National Pursues Acquisition

In an interview, Penn Chief Executive

Jay Snowden

said Penn, which took a 36% stake in Barstool two years ago, stands by Mr. Portnoy and still believes in Barstool’s media appeal as key to the company’s future in sports betting and digital media.

Mr. Portnoy has filed a defamation lawsuit in response to sexual-misconduct accusations, which he denies, levied against him in news articles published by Insider Inc.

Penn, historically a casino operator, has said it is betting that the brash Barstool brand—and its millions of social-media-hungry followers—will help it acquire gamblers and compete against other online betting brands. Penn’s support for Mr. Portnoy highlights a risk it takes by making a big bet tied to an outspoken, and sometimes controversial, media personality. Penn said it is on track to take full ownership of Barstool next year.

Penn executives said having the Barstool brand also will allow it to refrain from spending huge sums of money on advertising to build its user base, a strategy other online sports-betting brands have leaned on more heavily at the expense of profits.

“You can’t run a business that way long term,” Mr. Snowden said.

Penn has reported that in Pennsylvania and Michigan, Barstool Sportsbook had market share of 15% and 18%, respectively, in net gaming revenue in December. Penn’s marketing costs are about 30% of net gaming revenue, compared with an average of more than 100% among a group of its competitors, according to a Penn presentation to investors.

Mr. Portnoy started Barstool in 2003 as a gambling newspaper in Boston. Now, it produces online content, podcasts and videos. Its popularity has grown in recent years, drawing a cultlike following among its fans, many of whom it says are young adults. The Barstool betting app now operates in 12 states.

Mr. Snowden said Barstool has grown its revenue by 150% since that initial investment two years ago and increased its social media base to 100 million followers.

“They’re profitable, which is rare for a lot of digital media businesses,” Mr. Snowden said, adding: “They’ve delivered on what they said they would do.”

The Nevada Gaming Control Board said it is investigating Penn, which is licensed in the state, and Mr. Portnoy. In a statement, the board chairman,

Brin Gibson,

said the board’s obligation “is to protect the reputation of the state and the reputation of the state’s gaming industry.” In a public board meeting in December, Mr. Gibson said he had requested information from Penn because he was concerned about Barstool.

The Barstool sports-betting app doesn’t operate in Nevada. Gambling regulators in Indiana, where Barstool’s app does operate, said they are conducting a review of Penn and Barstool related to the recent news articles about Mr. Portnoy. “Penn is aware of the [Indiana Gaming Commission’s] ongoing concerns and we will continue to evaluate any new information that emerges,” the commission said in a statement.

Mr. Snowden said the company has answered regulators’ questions and has committed to keeping the boards up-to-date with new information.

Last month, Mr. Portnoy filed a lawsuit against Insider, the digital media company that published two articles in which several women accused him of sexual misconduct. Some of the women in the Insider articles accused Mr. Portnoy of filming their sexual encounters with him without their consent, and said that their consensual sexual experiences with Mr. Portnoy became violent or painful beyond what they were comfortable with, in one case leading to a rib injury.

In the lawsuit, filed in the U.S. District Court in Massachusetts, Mr. Portnoy accused Insider of “willful and unlawful defamation and privacy rights violations,” and claimed Barstool lost $12 million in ad revenue since the first article was published. Mr. Portnoy sued Insider, its chief executive, an editor and two reporters. Insider is owned by Axel Springer, the German media conglomerate. Penn’s shares have fallen around 40% since the first Insider article was published in early November.

“We stand behind our reporting and will defend the case vigorously,” Insider said in a statement to The Wall Street Journal. In a letter to readers, Insider Global Editor in Chief

Nicholas Carlson,

who is named in the lawsuit, said the outlet published the articles “because we consider them to be in the public interest.”

Mr. Portnoy defended himself against the accusations. “I’m suing to prove they’re not true,” he said in an interview.

Penn contacted gambling regulators in states where the company is licensed after the first Insider article was published, Mr. Snowden said. He said Penn told regulators that the company didn’t have prior knowledge of the accusations.

Mr. Snowden said the accusations were about Mr. Portnoy’s personal life, and Mr. Portnoy isn’t an employee of Penn. Mr. Snowden said he has known Mr. Portnoy for nearly three years and that he finds him “to be very honest.”

Becky Harris, a former chairwoman of the Nevada Gaming Control Board, said Barstool might have problems getting licensed in more jurisdictions as gambling regulators adopt and implement policies to prevent harassment and discrimination, “particularly with regard to women.”

Penn and Barstool have workplace policies against any harassment or discrimination, said a spokesman for Penn.

This week, Barstool said it is launching “Barstool Difference,” an initiative to raise money for female-run companies affected by the pandemic.

Mr. Snowden said Mr. Portnoy will remain involved in what Penn does in sports betting, and the company is considering what the organizational structure will be. He expects to announce details in the third quarter.

Mr. Portnoy said Penn’s best interests are his own, considering he is a Penn shareholder.

“Whatever [Mr. Snowden] thinks is the best use for Barstool and me personally, I’m going to guess I’ll probably go along with it,” Mr. Portnoy said.

Write to Katherine Sayre at [email protected] and Omar Abdel-Baqui at [email protected]