Shareholder Lawsuit Accuses Penn Entertainment of Violating Securities Laws
Penn Entertainment is facing legal action from HG Vora Capital Management, an investment firm that has accused the gaming company of breaching federal securities laws and failing in its fiduciary responsibilities. The lawsuit, filed in the U.S. District Court for the Eastern District of Pennsylvania, challenges a recent decision by Penn to cut the number of board seats up for election from three to two at its upcoming 2025 annual shareholder meeting.
LISTEN TO THIS ARTICLE:HG Vora has asked the court to issue declaratory and injunctive relief, aiming to reverse the board's decision and reinstate the original number of seats. The firm contends that the reduction was a deliberate strategy to reduce shareholder influence during a competitive election period, particularly in light of rising dissatisfaction with Penn's corporate direction and recent business performance.
Related: Penn Entertainment See ESPN Bet as Natural ProgressionThe conflict follows a series of developments related to board composition. According to HG Vora, Penn had initially confirmed that three directors would be elected at the meeting scheduled for June 17.
However, the company later revised its stance, reducing the number of contested seats to two. HG Vora argues that this change was implemented after internal discussions indicated that all three of its nominees might gain significant shareholder backing.
HG Vora, which holds an estimated 4.8% of Penn's outstanding common shares, has accused the company of providing misleading information in proxy filings submitted to the Securities and Exchange Commission. The investment firm claims that these filings misrepresent the company's intentions and fail to comply with updated federal rules concerning universal proxy ballots.
It's seeking a court mandate to correct these filings and allow a third nominee to appear on the ballot.
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HG Vora Demands Changes in Penn Governance
The lawsuit also stems from a broader dispute regarding Penn's digital gaming strategy, particularly the rollout and performance of ESPN Bet, a sportsbook platform launched in late 2023. The platform has struggled to capture meaningful market share, and HG Vora has consistently criticized the board for poor strategic decisions and a lack of return on investment in the interactive segment.
In previous engagements, HG Vora met with Penn's CEO, Jay Snowden, in December 2023, proposing the addition of independent directors to address what it viewed as failures in business execution. The firm has emphasized that its intentions are not to take control of the company, but to advocate for greater accountability and more effective oversight at the board level.
This marks the first time in HG Vora's operational history that it has formally nominated directors to a company in its portfolio. Earlier this year, founder Parag Vora criticized the company's approach to sports betting, accusing the board of excessive spending, inflated promises, and subpar delivery of results.
Although Penn has not publicly addressed the specific legal claims made by HG Vora, the company has acknowledged in official proxy statements that its sportsbook division has underperformed against internal expectations. The agreement with ESPN includes a clause allowing either party to exit the partnership in August 2026, providing a window for strategic reassessment if current performance trends persist.
HG Vora has made it clear that its campaign seeks structural reform rather than control. The firm has framed the legal challenge as a necessary measure to correct governance issues, citing the need for change in light of weak shareholder returns and what it considers to be repeated misjudgments by the current board.
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