How Barstool Went from $551M to $1

The greatest trade in business history happened last week.

A founder sold his business for $551 million six months ago. Last week he bought it back for $1.

Why would someone do something so stupid? Well get to that. Let me catch you up to speed first.

Heres the gist:

The business were talking about is Barstool Sports. Barstool started as a newspaper in 2003.

Today its a media powerhouse. They do everything from podcasts about sports to blogs about Zuck vs Musk.

Their shtick is being completely unfiltered and unapologetic in their opinions.

They were the first people to talk like a sports fan, to sports fans.

Their followers love Dave Portnoy (the founder). So I wasnt too surprised when he announced last week For the first time in a decade, I own 100% of Barstool Sports.

Confused? Let me explain.

Business History

In the early days, Daves friends were convinced Barstool was going to go bankrupt. I would hear him talking to credit card companies trying to maneuver money around.

Less than 1% of businesses in the U.S. make over $10M in revenue.

If you saw Barstool in the early days they looked a lot like the other 99%. There were no systems. No structure.

The only thing going for them was their no f*cks given personality. Over the next few years their unapologetic humor built a literal cult following.

Barstool had a problem though. As they grew they needed money to keep the lights on. So they brought in a small-time investor named Chernin.

Chernin bought 60% of Barstool at a valuation of $10M-$15M in 2016.

Just two years later Barstool was valued at $100M.

Thats adding roughly $3M a month in value for two years straight.

Heres the highlights:

  • 2016 - Chernin buys 60% of Barstool

  • 2023 - A public company buys ALL of Barstool at a valuation of $551M.

  • 2023 - Six months later Portnoy buys back ALL of Barstool for $1.

So, lets talk about why a half-billion-dollar business just sold for $1.

Trust me, its not what you think. The real reasons a lot deeper than making a bad business call.

Real talk. Is Barstool Bankrupt?

So whats the deal? Did they just join the magic business by making $551M disappear?

Not necessarily. The company that bought Barstool ended up writing off between $800M-$850M for the loss.

Heres the back story:

The acquisition was strategic but didnt turn out as expected.

Originally Penn, the company that bought Barstool, wanted to roll out a sports gambling product under the Barstool brand.

On paper, Barstool was the perfect acquisition. Not just because of their cult sports following either.

In the last 3 years Barstool:

Despite the stats, Penn could not get the product off the ground. So far this year, Barstool is at a loss of $12.8M.

In the end, Penns best bet was to take the L and write it off.

Why The Hell Sell For $1?

So after the tax write-off, where does that leave Barstool?

Penn sold Barstool back to Portnoy for $1, but theres a little more to it than that

In the event of a sale, profits are split 50/50 between Portnoy and Penn.

In Q2 of 2023, Barstool made over $52M in sales. As far as Im concerned Portnoy made out like a bandit.

Here are the key takeaways:

1/ The deal makes sense. Penn had a deal in the pipeline with ESPN worth $2B to rebrand their gambling app. ESPN didnt want Barstool in the picture because theyre in constant controversy.

2/ Penn lost more due to hate towards Barstool. In May, Penns stock was down 10% due to a controversy from Barstool.

3/ A brand like Barstool will tank in a regulated environment. The same controversy that made them popular suffocates them in the public market.

In the end, Penn has faith in Dave. Whether you like him or not is irrelevant. You cant deny Dave built one of the most iconic brands on the internet from a newspaper.

Penn will get 50% of any future sale of Barstool. Which lets be honest, is probably their best bet at this point.

What Barstool taught me about building this newsletter.

In preparation for this, I did a deep dive into Barstools history. I learned a lot more than I thought I would.

1/ The opposite of love isnt hate, its indifference. Barstool always spoke their mind, unfiltered. I dont always agree with them, but I love this approach. Brands that arent genuine have no spirit in them.

2/ A basic rule at barstool is: If we find it funny generally everyone else will too. The lesson? Trust your gut. Building something new doesnt have a roadmap. Just make your best guess and keep moving.

3/ It took Barstool 20 years to sell for half a billion. Im guilty of setting empty goals for Synthetic Mind. It wasnt until I saw it took them TWENTY years that it clicked. The big goals I set 3 months out were making me short-sighted.

When I boil it down, the only thing that matters here is building a community of people that care about building businesses theyre proud of.

My promise to you is that in the coming years, Ill do everything in my power to make this little pirate ship a community for us to build cool sh*t together.

With that being said, go build something youre proud of.

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