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: Penn Entertainment (PENN) confirmed previous reports that it was hiring a former Disney (DIS) technology chief to perform the same role for the company. “To accelerate our technology and product improvements, we recently announced the hiring of Aaron LaBerge as the Company’s Chief Technology Officer,” said Penn CEO Jay Snowden. “Mr. LaBerge brings more than 20 years of experience at The Walt Disney Company, most recently serving as the CTO for both Disney Entertainment and ESPN. In his new role, he will be responsible for driving technology strategy and execution for PENN, while leading a multinational team of technologists and serving as the key business leader for the Company’s Interactive division. We are incredibly excited about the arrival of Mr. LaBerge, who is uniquely qualified to help us create a best-in-class digital experience for our customers, while further deepening our connections and integrations with ESPN.
Sportradar (SRAD) announced that Behshad Behzadi has been named chief technology officer and chief artificial intelligence officer, or CTO and CAIO, effective May 1. As Sportradar’s CTO and CAIO, Behzadi will be based in the organization’s headquarters in Switzerland and report directly to CEO, Carsten Koerl.
BETTING ABROAD: MGM Resorts (MGM) announced it is launching BetMGM – its wholly owned iGaming and online sports betting brand – in the Netherlands. BetMGM is set to provide Dutch customers with exciting new product features, including large-scale jackpots, loyalty rewards, exclusive slots, as well as unique and compelling sports promotions. Utilizing LeoVegas Group’s proprietary technology and platform, this expansion represents the second European launch, succeeding a well-received rollout in the United Kingdom.
Melco Resorts & Entertainment (MLCO) announces its partnership with John Keells, the largest listed conglomerate on the Colombo Stock Exchange, in their $1B plus integrated resort development in central Colombo. As part of the partnership, the integrated resort, which had previously been branded “Cinnamon Life Integrated Resort”, will be rebranded as “City of Dreams Sri Lanka”. City of Dreams Sri Lanka will be the first integrated resort in Sri Lanka and South Asia and is expected to revolutionize luxury hospitality, entertainment, and leisure in Sri Lanka, presenting an extraordinary architecture and design and a collection of iconic and unparalleled offerings including 800 hotel rooms, retail, food & beverage outlets, MICE facilities, and much more. Additionally, a wholly-owned local subsidiary of Melco has been awarded a 20-year casino license by the Government of Sri Lanka. Melco will fit-out and operate the gaming area at City of Dreams Sri Lanka, and Melco will manage the top 5 floors of the hotel under its Nuwa brand of ultra high-end luxury rooms, which represents 113 of the 800 total hotel rooms at City of Dreams Sri Lanka. Melco and John Keells have agreed all key commercial arrangements and expect fit-out of the casino area to begin shortly. The estimated initial investment in the casino is expected to be approximately $125 million. The non-gaming facilities of the integrated resort, including the 687 key Cinnamon Life hotel managed by John Keells, is in the final stages of completion and is expected to commence operations in the third quarter of 2024, while we expect to commence casino operations in mid-2025. There is potential for further expansion of the gaming facilities, subject to performance and market conditions.
EARNINGS RECAP: Shares of DraftKings (DKNG) were up marginally after the company’s first quarter report yesterday. Monthly unique payers increased to 3.4M. Average revenue per MUP was $114. The company outperformed EPS and revenue expectations while simultaneously raising its full-year guidance. “DraftKings’ performance in the first quarter of 2024 was outstanding, reflecting healthy revenue growth and a scaled fixed cost structure that positions us to drive rapidly improving Adjusted EBITDA,” said Jason Robins, DraftKings’ Chief Executive Officer and Co-founder. “We successfully launched our online sportsbook in Vermont and North Carolina with highly efficient customer acquisition. Looking ahead, we remain committed to maximizing shareholder value through continued innovation, operational excellence and disciplined capital allocation.” Craig-Hallum analyst Ryan Sigdahl lowered the firm’s price target on DraftKings to $55 from $57 and keeps a Buy rating on the shares. DraftKings reported another strong beat and raise quarter despite unfavorable sporting results in the quarter, and with the robust free cash flow and business momentum, the company has ample room to return shareholder value through buybacks or potentially international acquisitions, the analyst tells investors in a research note.
On the other hand, Penn fell short of analyst estimates in Q1. On ESPN Bet, the company noted while it is pleased with the early adoption and engagement results, its focus heading into this football season will be on enhancing product offerings, including a refreshed home screen and expanded parlay offerings. Simultaneously, with its partners at ESPN, the companies will reveal additional media integrations within their digital media app and fantasy product. Snowden said: “Our property level performance showed resilience this quarter, with stable trends continuing into April following portfolio-wide severe weather through mid-February. Meanwhile, ESPN BET continues to drive strong top of funnel demand due to the reach and affinity for the ESPN brand, which led to record online sports betting handle and iCasino gross gaming revenue in the quarter. However, Interactive segment results were negatively impacted primarily by unfavorable hold from major sporting events. We look forward to unveiling additional product enhancements and unique media integrations with ESPN ahead of the 2024 football season. Our improved online product offering will help engage, reactivate, and retain our expanding database, while also advancing our strategy to create a highly differentiated experience for sports fans and sports bettors.” Barclays lowered the firm’s price target on Penn Entertainment to $22 from $26 and maintained an Overweight rating on the shares. The digital guidance reset was “painful, but needed,” in light of recent market share trends, the analyst tells investors in a research note. The firm says that while its near-term conviction is low, as catalysts are sparse and visibility appears limited, the stage is being set for improvement later this year.
Similarly, Bally’s (BALY) results fell short of the mark. Robeson Reeves, Bally’s CEO, commented, “Bally’s is off to a solid start in 2024, driven by revenue growth in our Casinos & Resorts and North America Interactive segments. While International Interactive revenues fell 4.4% year-over-year in the aggregate, our core UK interactive operations grew revenues 12% (7% on a constant currency basis) as our strategies play out reflecting the initiatives we adopted in contemplation of the White Paper implementation in the UK. On a consolidated basis, revenues in the first quarter grew 3.3% year-over-year to $618.5 million. Casinos & Resorts revenues rose 4.1% year-over-year inclusive of the contribution from the Chicago Temporary Casino and the winding down of the Tropicana Las Vegas. Adjusted EBITDAR for the segment declined, due to the impact of weather in January and adverse hold in several markets. Furthermore, construction to the Providence Bridge in Rhode Island impacted access to our largest Casinos & Resorts profit center at Twin River, and we also saw an impact from the continued deleveraging of operations after announcing the pending shut-down of the Tropicana. International Interactive revenues declined by 4.4% year-over-year to $234.7 million, primarily driven by operations outside the UK. This reflects our strategic shift initiated last year, where we focused on maximizing profit yield instead of pursuing uneconomic growth, resulting in challenging year-over-year revenue comparisons. Importantly, Adjusted EBITDAR grew 4.0% year-over-year, despite the lower prior period revenue comps, as work to optimize our marketing investments and cost structure reductions continue to boost segment profitability. In the UK, we took advantage of the uncertainties created by the White Paper and continued our online iGaming market share gains, resulting in strong revenue growth. As the year progresses, we look forward to the launch of online sports betting (“OSB”) in the UK to complement our iGaming offering and add another customer acquisition funnel. Outside the UK, we believe our operations in Spain are well positioned to benefit from the recent removal of advertising restrictions, which will enable us to increase our investment in faster growth. We also anticipate the further stabilization of our operations in Asia with an enhanced OSB offering to complement our existing portfolio. North America Interactive generated first quarter revenues of $41.5 million, up 70.2% year-over-year, and an Adjusted EBITDAR loss of $10.2 million. Results for this segment were in-line with our expectations and reflect our guidance for 2024 segment performance targets. Importantly, our iGaming operations in New Jersey and Pennsylvania continue to gain market share. We also successfully launched iGaming in Rhode Island in early March. iGaming revenues in Rhode Island have ramped nicely through April in accordance with expectations, and we believe this momentum will continue to build through the balance of 2024.” The company affirmed its FY24 outlook in the release. The full year guidance includes the impact of the Tropicana Las Vegas closure and contemplates the continued ramp of the Chicago Temporary Casino, coupled with growth in the Company’s International Interactive business, and the revenue ramp from the introduction of iGaming operations in Rhode Island.
Susquehanna upgraded MGM to Positive from Neutral with a price target of $54, up from $46. MGM’s Q1 print was “a modest beat,” but what stood out for the firm and lead to its upgrade was its management call, where “there seemed to be a much better focus on the outlook,” the analyst told investors. Management conveyed both an expectation to invest more capital in its highest-returning asset in Las Vegas and additional tools it has to both optimize yields through a softer Q2 environment before accelerating growth from investments and the firm is now confident this will lead to more significant upward estimate revisions in 2024 and into 2025. The company’s Q1 adjusted EPS and revenue cleared analyst consensus as the company highlighted the January launch of its licensing pact with Marriott (MAR) as one that exceeded expectations. “Our strategic growth plan to drive sustainable free cash flow from our resort operations, develop free cash flow by investing in international digital and luxury integrated resorts, and return capital to shareholders through share repurchases continued to develop in the first quarter of 2024,” said Bill Hornbuckle, Chief Executive Officer & President of MGM Resorts International. “We achieved record consolidated revenues in the first quarter. The January launch of our license agreement with Marriott has surpassed our initial expectations with over 130,000 room nights booked and we expect the strategic relationship will be a growth driver this year.”
In the same camp, Caesars (CZR) shares dipped 3% as the company said on its Q1 conference call that everything that could go wrong in quarter did. Tom Reeg, CEO of the company, commented, “Operating results during the first quarter in Las Vegas are a combination of record occupancy, driven by the Super Bowl and international visitation for Chinese New Year, offset by lower-than-expected hold. In our Regional segment, results reflect weather related weakness in January and early February partially offset by our new property openings. Caesars Digital delivered strong revenue growth despite lower-than-expected hold in online sports due to unfavorable outcomes for the Super Bowl and March Madness. Moving past the first quarter headwinds, we remain optimistic toward improved operating results throughout the balance of the year. Wells Fargo cut its price target on Caesars to $54 from $67 and keeps an Overweight rating on the shares. For the second straight quarter, EBITDAR missed estimates on a number of one-offs; LV the major culprit with low hold and low volumes, said the firm. Wells recognizes investors’ growing frustration, but with Caesars at 18-month lows and forthcoming balance sheet optionality, it stays Overweight.
NEW JERSEY MOVES THE NEEDLE: “In the online sports betting, or OSB, landscape, data from 14 states reveals interesting trends for March, according to Jefferies. FanDuel (FLUT) increased its handle share by 1 percentage point year-over-year and month-over-month, or MoM, reaching 38%. Meanwhile, DraftKings remained flat at 36%, BetMGM held at 8%, and ESPN Bet captured 4% of the market. Expanding the firm’s analysis to 16 states reporting gross gaming revenue, or GGR, by operator, FanDuel maintained its GGR share at 43%, while DraftKings experienced a 7 percentage points decline to 30%. BetMGM’s share decreased by 3 percentage points now at 7% and ESPN Bet secured 3%. Shifting focus to iGaming, FanDuel surged ahead with a 7 percentage points, while DraftKings dipped by 2 percentage points and BetMGM declined by 5 percentage points. ESPN Bet held a 2% share. Combining OSB and iGaming, FanDuel retained its lead with a 3 ppt increase (now at 34%), while DraftKings slipped by 1 ppt, BetMGM remained flat and ESPN Bet held steady at 3%. New Jersey witnessed significant swings in GGR market share. DraftKings experienced a 7 percentage point MoM drop to 30%, largely influenced by a swing in New Jersey. In the same period, DraftKings’ share fell by 17 ppts percentage point, while Fanatics’ share surged by 13 .percentage points. This shift was likely driven by a small group of VIP players, contributing to the monthly volatility observed. Regarding promotional activity, six states disclosed deductions related to free bets in March. Overall, free bet spending decreased by 12% in absolute dollars. This represents the lowest relative promotional level since July 2023. For Q1, free bet spending remained relatively stable, increasing to 3.4% of handle. FanDuel maintained consistent promotional deductions in March, having scaled back from elevated levels in February. In contrast, DraftKings allocated $24M, $24M, and $15M to free bets across January, February, and March, respectively. Encouragingly, ESPN Bet also reduced promotional spending, Jefferies told investors in a research note. While it accounted for 30% of total market promotional spend in its debut month, that figure dropped to just 2.8% in March. ESPN Bet represents approximately 7% of the total promotional spend in the market, added Jefferies.
MINNESOTA MISHAP: A bill aimed at legalizing sports betting in Minnesota faces significant challenges due to the partisan discord surrounding the recent arrest of a state senator on a felony burglary charge, of Steve Karnowski of AP reported. Democratic Senator Matt Klein from Mendota Heights remains cautious but hasn’t declared sports betting completely dead. In an interview last week, he expressed diminished optimism following the charges against Democratic Senator Nicole Mitchell of Woodbury, who was accused of breaking into her estranged stepmother’s home. Meanwhile, in the House, Republican Rep. Pat Garofalo of Farmington, a crucial figure in any potential bipartisan agreement, believes the bill is effectively shelved for the year. Despite coming closer than ever before, it appears unlikely to move forward. Garofalo likened the situation to a classic Minnesota sports scenario: “We were up by a touchdown with two minutes left, had possession of the ball, and then we fumbled. The opponents scored, and the game went into overtime. Unfortunately, we missed a crucial field goal, and now it’s game over.”.
ADDITIONAL ANALYST COMMENTARY: Argus downgraded Boyd Gaming to Hold from Buy after its Q1 earnings miss. 2024 earnings should “rise modestly” due to solid revenue growth and the company’s share buyback program, but the company’s Las Vegas Locals segment will likely be pressured by the opening of a competitor’s location, the analyst noted. Boyd’s operating margin should increase as a result of favorable operating leverage at the Las Vegas properties and some of the regional casinos over the long term, but the firm is cutting its 2024 EPS view to $6.20 from $6.50 and also reducing its 2025 estimate to $6.50 from $6.70, Argus added.
CBRE analyst John DeCree downgraded Penn Entertainment to Hold from Buy with a $17 price target.
Benchmark increased its price target on DraftKings to $52 from $50 and reiterated a Buy rating on the shares after the company outperformed expectations, surpassing consensus estimates for both revenue and AEBITDA in Q1 driven by successful sportsbook launches in new states, enhanced customer acquisition and retention, an improved structural sportsbook hold percentage, and increased promotional and operational efficiency. The company also was able to raise guidance above consensus, noted the firm, which estimates FY24-FY25 average revenue of $5.162B.
Stifel elevated its price target on Bally’s to $14 from $11 and maintained a Hold rating on the shares. Bally’s reported a 4% Q1 adjusted EBITDAR miss, while reiterating FY24 guidance, notes the analyst, who sees “little in results or commentary impacting out-year estimates or our thesis.” The firm, which adds that it “would rather risk being too late than too early, given a levered balance sheet, uncertain outlook for regional gaming, & regulatory risks,” reiterates a Hold rating and notes that its 2024/25 adjusted EBITDAR estimates “remain intact.”
TD Cowen axed the firm’s price target on Caesars to $50 from $53 and kept a Buy rating on the shares. The firm said revenue and profitability were below expectations as inclement weather and weak table hold took a toll on the quarter.
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).
