Walt Disney's ESPN and casino-owner Penn Entertainment have agreed to jointly launch a sports betting business under the brand ESPN Bet, the two companies said on Tuesday.

Under the terms, Penn will pay ESPN $1.5 billion in cash and offer about $500 million worth of warrants to purchase its shares over an initial 10-year term in exchange for the brand, promotional services and other rights.

"We know they (audience) want both betting content and the ability to place bets with less friction from within our products," ESPN Chairman Jimmy Pitaro said.

Penn will rebrand its sportsbook service and relaunch it as ESPN Bet in the fall across the 16 legalized betting states where it has licenses.

ESPN will have the option to designate a non-voting board observer or, upon completion of three years of the agreement, a board member, they added.

(Reporting by Yuvraj Malik in Bengaluru; Editing by Anil D'Silva)