- Nick Burgess
The Earth is Burning, Crypto's Wild Week and Penn National Is On The Offensive
Welcome to "This Week In The Market" for August 13, 2021. This week, we'll be breaking down why the world is burning down around us, what happened to Ethereum this week, and why Penn National Gaming has become the center of the sports betting universe. Let's go!
This Is Not A Drill
The Headline: The United Nations' governing force on all things climate, The Intergovernmental Panel on Climate Change (IPCC), dropped their latest report. It's bad. Like, really bad.
In Plain Speak: Essentially, it's a 4,000 page comprehensive report filled with data that all points back to humanity as the root cause. The report concludes that, since the Industrial Revolution, humans have directly attributed to a 2 degree Fahrenheit rise in temperatures globally. This has led to more frequent, and intense, storms, wildfires and general natural disasters. The glimmer of hope we have is that nations and companies have cut their greenhouse gas emissions pretty substantially since the last report in 2013, but it'll have to receive even more dramatic cuts in order to slow down future temperature increases.
How Can This Make Me Rich?: Despite this being the complete wrong question to ask in this situation, you can still make money from this. The meeting of the minds in Scotland in November is a world-leader task force essentially aimed at taking this report and turning it into policies and laws. From those, you can probably make some safe assumptions about the future of business and where our economy is headed. President Biden has already made electric cars a keystone part of his administration, but you can be sure the emphasis will stay on those after the IPCC report keyed in on fossil fuels as the lead contributor to climate change. The rise of ESG funds would also be something to look into here.
Crypto's Wild Ride
The two biggest cryptocurrencies, Bitcoin and Ethereum, had a wild week. First, in AMC Entertainment's quarterly earnings call, CEO Adam Aron created a marriage in meme heaven when he announced that his movie theaters will now accept Bitcoin by the end of the year. This, coupled with the news that leaders in Congress have a compromise around crypto taxes and the definition of a "broker" in the new infrastructure legislation, saw Bitcoin up close to 10% this week.
Next, Ethereum hard-forked with the new "London" update, essentially the biggest update to the currency in its history. I just said a lot of things that sound more like sex acts than technology upgrades, so let's break it down.
A "fork" is essentially crypto-speak for a network upgrade, and the "London" upgrade is the 11th such update to happen to the Ethereum blockchain, and the largest to date. Consisting of five different components, referred to as Ethereum Improvement Proposals (EIP's), this update effectively changed how transaction fees work in regards to Ethereum use.
Ethereum is commonly viewed as the most viable cryptocurrency to function as an actual currency, due to the speed at which it can process transactions on its network. However, there's a downside: the transaction fees, otherwise known as "gas." Gas on the ETH chain in INSANE. Like, incredibly expensive. That's because these fees worked on a bidding system between users of the currency, and the miners that mine the currency in order for it to be used. The gas was the miner bidding to provide the currency, and is essentially their mining rate. While great for the miners, this bent users over a barrel, so the "London" update goes a long way to fixing that by removing the bidding system and creating a fixed cost usage model, similar to the way credit cards work today with businesses in their transaction fees. Essentially, this removes incentive to mine ETH, but creates more inherent value in the currency. The news of this update drove the price of ETH over $3,000 for the first time since June.
This is a high-level look at the update. For a much more in-depth look, check out Andrei Jikh's excellent breakdown below.
Stock of the Week
After making headlines last month for losing its most prized podcasting asset, "Call Her Daddy," to Spotify in a deal that sees host Alex Cooper get $60 million over three years, Penn National came roaring back with a strong week.
Now 50% off of its 52 week high, Penn went on the offensive using its often-offensive Barstool Sports brand to lead the way. First, Barstool announced the opening of two more of their physical sports books in Colorado and Virginia, as well as digital access to their mobile app, continuing the creep of their sports betting empire under the Penn/Barstool flag.
Then, Penn announced a $2 billion acquisition of "theScore," a digital media and gaming company with a strong foothold in Canada. Barstool President Dave Portnoy disclosed after the deal was announced that he tried previously to purchase theScore several years ago but couldn't get the deal across the line until Barstool was acquired by Penn in 2020.
Finally, Andrew Marchand of the New York Post reported this week that Barstool Sports and Major League Baseball have entered into negotiations to broadcast midweek games on their platforms, which would be a major coup for the company. Portnoy teased last week that Barstool had talks with "major leagues" on Twitter shortly after announcing Barstool had acquired streaming rights for college football's "Arizona Bowl." While neither Barstool/Penn nor the MLB commented on these rumors, the MLB's existing new contract with ESPN dropped Monday and Tuesday games, leaving room for a new partner to slide in. This could be a massive step towards Penn and Barstool becoming the dominant non-Vegas betting operator in the United States. Not to mention the impending arms race now with Draftkings and Fanduel. Watch this space.
Don't forget to sign up for my email list so you can get these in your inbox as soon as they post. Also, don't forget to check out my latest company deep dive tomorrow where I'll be digging into Tattooed Chef. Thanks for reading, and have a great weekend!