PENN Entertainment's Governance Crossroads: Can Activist Investors Save Shareholder Value?

The battle for control of PENN Entertainment's board has reached a critical juncture, with the stakes for shareholders now impossible to ignore. Institutional Shareholder Services (ISS) has thrown its weight behind dissident investor HG Vora Capital Management, urging shareholders to vote for three independent director candidates—William Clifford, Johnny Hartnett, and Carlos Ruisanchez—to replace a board widely perceived as ineffective. This clash highlights systemic failures in strategy, governance, and accountability at PENN, and raises a pressing question: Can the company's trajectory be salvaged through governance reforms?

The answer, according to ISS, is a resounding yes—but only if shareholders heed its recommendation.

The Strategic Missteps That Undermine Value

ISS's scathing critique of PENN's performance is rooted in years of underwhelming results. Since 2020, the company has spent over $4.5 billion on acquisitions such as Barstool Sports, theScore, and an online sports betting partnership with ESPN—all of which have failed to deliver anticipated returns. These moves, coupled with a botched pivot to interactive gaming, have left shareholders with a lackluster total shareholder return (TSR) that trails peers.

The data tells a stark story: PENN's stock has underperformed industry peers by a significant margin during this period, reflecting both strategic missteps and poor execution. ISS attributes this to a lack of board oversight and accountability, arguing that management has been allowed to pursue risky bets without rigorous scrutiny.

Governance Gaps and the Case for Change

At the heart of ISS's critique is PENN's governance structure. The board's staggered composition and reliance on plurality voting mechanisms have insulated it from meaningful shareholder influence, while its lack of direct gaming industry expertise has left critical gaps in strategic decision-making. Current directors, ISS notes, “lack adequate direct gaming industry experience,” undermining their ability to challenge management's flawed strategies.

HG Vora's nominees aim to address these shortcomings. Clifford, Hartnett, and Ruisanchez collectively bring decades of experience in gaming, real estate, and digital media—sectors central to PENN's operations. ISS emphasizes Clifford's unique value as a “contrarian viewpoint” capable of holding management accountable, given his prior role at Gaming and Leisure Properties, a PENN spin-off.

Yet PENN has rejected Clifford, arguing that its existing governance model is sufficient. This stance, however, risks further alienating shareholders. The company's defense—centered on its regulatory compliance and license portfolio—overlooks the fact that governance failures have already eroded investor confidence.

Activist Investors as Catalysts for Change

HG Vora's campaign is emblematic of a broader trend: activist investors increasingly driving governance reforms in underperforming firms. By leveraging proxy advisory firms like ISS and Egan-Jones, which have both endorsed the dissident slate, HG Vora has built a compelling case for change. The stakes are high:

• Clifford's Exclusion Risks Backfiring: PENN's refusal to include Clifford signals a reluctance to embrace necessary oversight. Shareholders, however, may view this as a red flag, given his expertise and ISS's explicit endorsement.
• Timing Is Critical: With the annual meeting less than two weeks away, every vote matters. ISS's recommendation alone could sway the outcome, as institutional investors often follow such guidance.
• Long-Term Value at Risk: Without a more accountable board, PENN's strategic missteps will likely persist, further depressing shareholder returns.

Investment Implications: Vote for Accountability

For investors, the path forward is clear. Voting “FOR” all three HG Vora nominees via the GOLD proxy card aligns with shareholder interests in two key ways:

1. Expertise and Oversight: The nominees' industry experience and contrarian perspectives could inject much-needed rigor into decision-making, particularly around M&A and operational pivots.
2. Structural Reforms: A board refreshment could lead to governance changes—such as eliminating staggered terms or adopting majority voting—that empower shareholders and reduce management complacency.

Conclusion: Governance as the Gateway to Value

PENN's boardroom battle is more than a proxy fight—it's a referendum on whether governance reforms can salvage a struggling firm. ISS's recommendations and the urgency of the timeline underscore the high stakes. Shareholders who vote for HG Vora's nominees are not just supporting a change in leadership; they are endorsing a path toward accountability, better strategy, and, ultimately, restored value.

The message to PENN's investors is straightforward: Engage, vote, and demand the governance overhaul this company so desperately needs. The window for change is closing—act now, or risk being left behind.