Bet On It: Investment manager comes out against Play AGS take-private deal

Welcome to the latest edition of “Bet On It,” where The Fly looks at news and activity in the sports betting and iGaming space.

SECTOR NEWS: Gaming and Leisure Properties (GLPI) acquired the real estate assets of the Silverado Franklin Hotel & Gaming Complex, the Deadwood Mountain Grand casino, and Baldini’s Casino, for $105.0M in aggregate. The transactions are expected to be immediately accretive. Simultaneous with the acquisition, GLPI and affiliates of Strategic Gaming will enter into two cross-defaulted triple-net lease agreements, each for an initial 25-year term with two ten-year renewal periods. GLPI also provided $5M in capital improvement proceeds at the closing of the transactions for a total investment of $110M. The initial aggregate annual cash rent for the new leases is $9.2M, inclusive of capital improvement funding, and represents an 8.4% capitalization rate. Located in Deadwood, SD, Silverado was one of the first gaming properties in the state when it opened in 1990. Silverado is expected to begin construction on a hotel renovation in 2024, using a portion of the $5M in capital improvement proceeds funded by GLPI at the closing of the transactions. Located in Sparks, Nevada, Baldini’s is an approximate 9-acre gaming property that offers approximately 492 slot machines across a 43,000 square foot gaming floor that opened in 1988. Located in Deadwood, South Dakota, DMG is an 11 acre gaming property that offers 141 slots and 8 table games.

OPTX has signed an extensive, multi-year collaboration with Bally’s (BALY). This system integration will span across all Bally’s properties in the United States, underscoring a dedication to leveraging artificial intelligence in decision-making processes to enhance the overall guest experience.

Churchill Downs (CHDN) announced the opening of its new 122-room hotel and event center at Terre Haute Casino Resort. CDI opened the 400,000-square-foot regional entertainment venue’s casino floor on April 5, 2024 with 1,000 slot machines, 36 tables games, and a sportsbook. “Terre Haute Casino Resort has already attracted thousands of visitors from the region to enjoy an unparalleled gaming experience,” said Bill Carstanjen, CEO of CDI. “The opening of the new luxury hotel component furthers our commitment to bringing new vibrancy to Terre Haute with this premier entertainment destination and marks a significant milestone for Churchill Downs Incorporated.”

Emmett Investment Management LP, an investment manager focused on small and mid-cap equities across developed markets and owner of approximately 1.5% of the outstanding stock of PlayAGS (AGS), released an open letter to AGS stockholders outlining its intention to vote against the company’s inadequate proposed take-private transaction with Brightstar Capital Partners, which it believes significantly undervalues the company.

Boyd Gaming (BYD) announced that its board of directors has authorized an additional $500M under the company’s share repurchase program. Considering the additional authorization, the Company had approximately $721M remaining in repurchase authority as of March 31.. Additionally, the board of directors has declared a quarterly cash dividend of 17c per share, payable July 15 to shareholders of record as of June 15.

EARNINGS RECAP: Gambling.com (GAMB) reported first quarter results on Thursday, surpassing EPS and revenue expectations. On the other hand, the company cut its full-year revenue and adjusted EBITDA guidance. Shares were down over 10% following the report. Charles Gillespie commented, “Even with these shifts in the digital landscape, the strength and resilience of our business will enable us to deliver strong year over year Adjusted EBITDA and Free Cash Flow growth. With less competition in the search engine results pages, our owned and operated assets are better positioned for the long term than ever before.” Stifel lowered the firm’s price target on Gambling.com to $13 from $16 and reiterated a Buy rating on the shares. The company lowered its FY24 revenue and adjusted EBITDA guidance reflecting the impact from the May Google (GOOGL) update on Gambling’s media partnership strategy, but Stifel believes management is likely erring conservative on potential derivative tailwinds to higher-margin owned sites.

In contrast, Sportradar (SRAD) ended up increasing its FY24 revenue and EBITDA guidance after its Q1 report. While the company’s Q1 EPS came in just shy of last year’s mark, revenue beat last year’s figure. Carsten Koerl, CEO of Sportradar, said: “Fiscal 2024 is off to a great start, building on the strong momentum and progress we made last year. This quarter, we saw broad-based strength across our product portfolio including strong client adoption of our ATP and NBA product offerings. In light of our strong business fundamentals, we are raising our full year outlook and are commencing purchases under our share repurchase program. I would also like to welcome to the leadership team Craig Felenstein as our Chief Financial Officer and Behshad Behzadi as our Chief Technology Officer and Chief AI Officer.” Benchmark elevated its price target on Sportradar to $12 from $10 and backed a Buy rating on the shares after Sportradar delivered “a strong performance” with record revenue in Q1 and subsequently raised its full-year 2024 outlook. In addition, Sportradar has commenced share repurchases under the previously authorized $200M repurchase program, which the firm sees “signaling confidence in its financial health and future prospects.”

In the same vein, Flutter Entertainment (FLUT) also beat last year’s EPS and missed last year’s revenue in its first quarter release. The company cited the Fox Option charge for decreased adjusted earnings per share, offsetting improved financial performance. Flutter maintained its FY24 outlook, despite calling out the end of March as unfavorable for U.S. sports betting operations. “We remain confident in our financial year 2024 guidance provided at the financial year 2023 results announcement on March 26, despite unfavorable US sports results in last two weeks of March and there is therefore no change to previously communicated ranges for US revenue and adjusted EBITDA mid-points of $6.0B and $710M, representing year on year growth of 36.3% and 206.1% respectively, and Group Ex-US revenue and adjusted EBITDA mid-points of $7.85B and $1.73B, representing year on year growth of 6.3% and 5.4% respectively… On May 1, shareholders voted to move our primary listing to the US. With a greater proportion of the Group’s future profits expected to be generated in the US, we believe a US primary listing is the natural home for the Group. The transition is expected to become effective on May 31, 2024. We have also moved the Group’s operational headquarters to New York reflecting the importance of the US sports betting and iGaming market to our business.” BTIG raised the firm’s price target on Flutter Entertainment to $245 from $242 and kept a Buy rating on the shares. The company’s Q1 revenue missed expectations but the management’s commentary was constructive with April qualitatively off to a good start, full year guidance intact, and its FY25 numbers likely to see some carryover benefit from heavier customer acquisition spend this year, the analyst told investors in a research note. BTIG added that there were no ex-U.S. surprises for Flutter this quarter, and the company’s catalyst path is robust.

RELAXED REGULATION: The Ohio Casino Control Commission (OCCC) has revised its regulatory rules for unused sports betting licenses, Devin O’Connor of Casinos.org reported. Previously, licensees were required to start accepting bets within 12 months of receiving their licenses. However, the OCCC has now extended this timeframe, allowing sportsbook operators more time to launch their betting businesses. Starting on January 1, 2023, Ohio officially launched legal sports betting. The state’s sports gambling law permits both in-person operations at racinos, casinos, and other retail venues, as well as online platforms. Recently, the Ohio Casino Control Commission (OCCC) extended the launch deadline by granting six-month extensions to operators who needed more time before accepting bets. This change ensures that the OCCC won’t be obligated to take action after one year from the license distribution or consider extension requests. “It’s no longer a have-to-take-action requirement,” OCCC Communications Director Jessica Franks told Crain’s Cleveland Business. “We are aware of some of the difficulties that different entities are encountering.” The recent development is encouraging for several sports betting licensees that have yet to launch their online and/or retail books. Notably, the NBA’s Cleveland Cavaliers, Jack Thistledown Racino, and the NFL Hall of Fame Village in Canton fall into this category. During a recent commission meeting, Schuler emphasized that Ohio’s sports betting market remains partially untapped, with three unused Type A retail sportsbook licenses and 17 Type B mobile sportsbook concessions still available

ADDITIONAL ANALYST COMMENTARY: BofA downgraded Penn Entertainment (PENN) to Neutral from Buy with a price target of $17.50, down from $28. The analyst cut estimates following Penn’s “disappointing” Q1 report saying ESPN Bet market share is below expectations and high fixed costs are driving elevated earnings risk for Q4 and 2025. In addition, Penn’s core business trends are lackluster and its rising balance sheet leverage increases execution risk, the analyst told investors in a research note.

BofA upgraded Red Rock Resorts (RRR) to Neutral from Underperform with a price target of $55, down from $57. Shares have sold off 15% since April 25 after Boyd Gaming called out softness in the Las Vegas Locals market and Red Rock reported Q1 results in line with consensus, but softer than expectations, the analyst noted. The firm sees risk-reward as more balanced in Red Rock shares with the recent pullback, and while Boyd’s commentary on core Locals softness is alarming, says it doesn’t sound like Red Rock is experiencing softness in their sub-markets and thinks Durango can offset core softness.

Craig-Hallum cut the firm’s price target on Gambling.com to $12 from $15 and affirmed a Buy rating on the shares. The firm sees Google’s ‘Inappropriate Content Policy’ changes as a near-term negative, but a potential positive over the medium term as Gambling.com’s owned domains are now ranking even higher, which the firm thinks could be “a tailwind for the next several years as the company quickly pivots its strategy towards owned assets.”

Stifel raised the firm’s price target on Gaming and Leisure Properties to $51 from $50.75 and keeps a Buy rating on the shares. Gaming and Leisure Properties has acquired the Silverado Franklin Hotel & Gaming Complex, the Deadwood Mountain Grand casino, and Baldini’s Casino for $105M, the analyst tells investors in a research note.

Jefferies upped the firm’s price target on Sportradar to $12 from $11 and reiterated a Hold rating on the shares. The analyst cited the company’s Q1 earnings beat and raised guidance, saying the results continue to demonstrate that Sportradar remains a productive participant in the global online sports betting value chain. The firm adds however that increasing the depth of clarity on the business drivers and managing expectations could be pivotal for the shares going forward amidst uncertainty, in part due to the forthcoming CFO change.

Susquehanna lowered the firm’s price target on International Game (IGT) to $33 from $40 and held a Positive rating on the shares. The firm lowered its estimates and target which reflects a worst-case scenario where its merger with Everi Holdings (EVRI) is off and the company pursues an independent gaming spin-off, the company’s lottery division wins Italian Lotto renewal, and lower valuation multiples.

UBS raised the firm’s price target on DraftKings (DKNG) to $60 from $56 and maintained a Buy rating on the shares. The company’s better than expected Q1 earnings showed continued improving structural hold and unit economics across its existing business, the analyst tells investors in a research note. Given DraftKings’ improvement in customer engagement and retention, the firm increased estimates post the earnings report.

PUBLICLY TRADED COMPANIES IN THE SPACE INCLUDE: Accel Entertainment (ACEL), Bally’s (BALY), Boyd Gaming (BYD), Caesars (CZR), Churchill Downs (CHDN), DraftKings (DKNG), Flutter Entertainment (FLUT), Gambling.com (GAMB), Gan Limited (GAN), Genius Sports (GENI), Las Vegas Sands (LVS), MGM Resorts (MGM), Penn Entertainment (PENN), Rush Street Interactive (RSI), Super Group (SGHC) and Wynn Resorts (WYNN).