PENN's Proxy Battle: A Crossroads for Governance and Growth

PENN Entertainment's proxy contest has become a high-stakes showdown between entrenched management and activist investors demanding governance reform. With Institutional Shareholder Services (ISS) backing three nominees from activist fund HG Vora Capital Management—including the contentious William Clifford—the June 17 shareholder vote could redefine PENN's strategic direction. The outcome will determine whether PENN pivots toward cost discipline and core casino strengths or continues down a riskier path of tech-driven expansion.

ISS's Endorsement: A Vote of No Confidence in PENN's Strategy

ISS's recommendation to back all three HG Vora nominees—William Clifford, Johnny Hartnett, and Carlos Ruisanchez—signals a stark rejection of PENN's current governance and strategy. The firm cited a “decade of underperformance,” with PENN's stock lagging peers by ~40% since 2020 (). ISS also criticized management's allocation of $4.3 billion to unprofitable interactive ventures, such as the Barstool Sports and Score Media acquisitions, which have yet to deliver returns.

The advisory firm argued that PENN's board lacks “direct gaming industry expertise,” a gap activists aim to fill. While Glass Lewis endorsed only Hartnett and Ruisanchez, ISS's support—followed by ~80% of institutional investors—could tip the vote in favor of governance overhaul. However, the battle hinges on a critical caveat: only two director seats are open, meaning Clifford's election depends on either a board decision to expand seats or a last-minute court ruling.

Strategic Clash: Core Competency vs. Tech Expansion

HG Vora's vision centers on retrenchment: refocusing on profitable casino operations, slashing debt, and divesting underperforming digital assets. PENN, meanwhile, defends its tech pivot as essential for long-term growth in digital gaming. Yet the numbers are stark: the Interactive segment posted a $202 million loss in 2024, and profitability by Q4 2025 remains uncertain.

ISS's critique underscores investor skepticism about this strategy. The firm urged management to prioritize cost discipline, arguing that “a board refresh with contrarian perspectives” could force tough decisions, such as halting bleeding ventures. PENN's rebuttal—that Clifford's “antiquated views” conflict with its digital ambitions—ignores the inconvenient truth that shareholders have already voted with their feet.

Regulatory Risks: HG Vora's Past Haunts Its Future

PENN's opposition to Clifford centers on regulatory concerns. The company highlighted HG Vora's $950,000 SEC penalty for reporting violations and warned that a board dominated by activists could face multi-jurisdictional gaming licensing hurdles. While HG Vora's nominees claim to have addressed compliance issues, the specter of past missteps lingers.

A worst-case scenario: even if Clifford wins a seat, state regulators might block him from holding a gaming license, rendering his influence toothless. This uncertainty raises the stakes: shareholders must weigh the benefits of governance reform against the risk of operational disruption if regulatory pushback derails board changes.

The Vote's Dual Impact: Governance and Growth

The proxy outcome will shape two critical outcomes:
1. Governance Accountability: A win for HG Vora would inject urgency into strategic reviews, potentially accelerating asset sales or cost cuts. PENN's claim that 75% of directors joined since 2019 rings hollow if shareholders demand deeper change.
2. Strategic Realignment: Even without Clifford's election, Hartnett and Ruisanchez's appointment could push management to rebalance its portfolio. Their backgrounds in capital allocation oversight (Hartnett) and digital strategy (Ruisanchez) offer a middle path between HG Vora's austerity and PENN's tech gambles.

Investment Implications: Vote with Purpose, but Prepare for Volatility

Shareholders should heed ISS's call to support HG Vora's full slate. While regulatory risks remain, the cost of inaction—continued underperformance and missed opportunities in core markets—is higher. PENN's valuation already reflects skepticism, trading at just 6x EV/EBITDA versus peers at 9x. A governance overhaul could unlock upside if management pivots decisively.

However, investors must temper optimism with realism. Even with board changes, execution risks loom large. The company must deliver on Interactive profitability, navigate debt reduction, and avoid regulatory missteps. Those who bet on PENN should monitor two key metrics: progress on Interactive EBITDA margins and the pace of non-core asset sales.

Final Take: Governance Reform is a Necessity, Not a Choice

PENN's proxy battle is a referendum on whether its leadership can adapt to a shifting industry. ISS's stance crystallizes a truth: shareholders will no longer tolerate underperformance masked by tech-forward rhetoric. The path forward is clear: refocus on profitability, embrace board diversity, and prioritize core strengths. The question is whether PENN's board—and its shareholders—will seize this moment before it slips away.

Act decisively: vote for all three nominees. The future of PENN hangs in the balance.