But six months later, ESPN Bet’s early momentum is evaporating. Its market share in online-sports betting in March was 3.7%, which was actually up from a ghastly 2.5% in January, according to Bank of America. Wagers on the platform are a fraction of what industry titans like DraftKings and FanDuel bring in and even mid-tier players like BetMGM.

That’s terrifying for Penn after a high-profile swap in which it sold Barstool Sports for just $1 and reached a multi-billion-dollar deal with ESPN. The gamble may be riskier than analysts thought, and it will be an outright disaster if ESPN Bet doesn’t perform better than Barstool Sportsbook.

“Penn appears to have attracted a more casual bettor, and they are spending less than expected,” Bank of America gaming analyst Shaun Kelley wrote in a May 13 note. “Some of this is product-driven, but it’s concerning that monetization is so far below tier-two operators and even Barstool.”

Penn declined to comment for this story, though a spokesperson referred to comments made by the company in its first-quarter earnings presentation in early May.

Generous promotions are a bet that hasn’t paid off

ESPN Bet’s regression is a major red flag for Penn, according to BofA. The firm’s gaming analysts just downgraded the stock to neutral and slashed their price target by 37.5%.

In the first quarter, Penn’s interactive segment headlined by ESPN Bet lost nearly $200 million on an adjusted basis. For the online sportsbook to merely break even, its market share would need to more than double from its 3% to 4% range, Kelley wrote.

Aggressive promotions are one way to make inroads in the cutthroat online sports betting industry. But BofA believes Penn is already too generous, noting that ESPN Bet’s promotions make up roughly half of its gross gaming revenue — which is the revenue the company brings from bets in after paying out winnings — compared to around 30% for its peers.

ESPN Bet wouldn’t be the first sports-betting company to spend its way to the top with hefty marketing and promotions before having to pull back to the detriment of market share.

To succeed, ESPN Bet must grow revenue while cutting costs by building a loyal customer base that wagers frequently with limited promotions, according to BofA. That’s challenging on its own — let alone in a market dominated by rival sportsbooks that are larger and have more features.

Penn is working on bolstering ESPN Bet with improved parlay bets and account sharing, but that likely won’t be for months. And when those features are ready, luring past users back may not be easy.

Assuming the revamped ESPN Bet draws in new customers during football season, Penn is staring down a $300 million hit during the second and third quarters, according to BofA. If those changes are delayed, fourth-quarter market share may also be in jeopardy.

‘That’s not going to be acceptable’: A troubling omen for ESPN Bet

If ESPN Bet flops, it will be a crushing blow for Penn but merely a disappointment for Disney.

The Mouse House is getting $150 million per year over a decade to license the ESPN brand, plus $500 million of warrants to buy Penn shares. Plus, it can escape the deal if it wants to.

Still, Disney CEO Bob Iger — who had been reluctant to tie the company to gambling — can’t be pleased with ESPN Bet right now.

So, what’s next? Penn CEO Jay Snowden may have already shared the answer.

“We’re not doing this deal to be 4% or 5% market share players,” Snowden said on the company’s earnings call last August. “That’s not going to be acceptable for us. It’s not going to be acceptable for ESPN. And so you should assume if those are the ranges you’re in, that’s not going to work out long term.”