Bet On It: Bragg Gaming CFO to resign

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: Caesars Entertainment (CZR) announced that the Caesars Sportsbook Mississippi app is accepting mobile sports bets at Harrah’s Gulf Coast in Biloxi, Mississippi. Sports fans 21 and older who are interested in wagering on sports via mobile devices can download the Caesars Sportsbook Mississippi app to register and deposit statewide but must be physically present on-property at Harrah’s Gulf Coast to wager. The launch of the Caesars Sportsbook Mississippi mobile app complements the on-premise Caesars Sportsbook location, which accepted its first bets at Harrah’s Gulf Coast in 2018.

Melco Resorts Finance proposed to conduct an international offering of senior notes, the net proceeds from which will be used to make a partial repayment of the principal amount outstanding under the revolving credit facility, together with accrued interest and associated costs, pursuant to a senior facilities agreement entered into by MCO Nominee One, a subsidiary of Melco Resorts Finance, on April 29, 2020, and for general corporate purposes. Melco Resorts Finance is a wholly-owned subsidiary of Melco Resorts & Entertainment (MLCO). 

Bragg Gaming (BRAG) announced that CFO Ronen Kannor has notified Bragg’s board of directors that he will resign from his position to pursue other career opportunities, effective June 3, 2024. The company confirms that the search for a replacement CFO has commenced. Matev Mazij, CEO and chair of the board, commented, “We thank Ronen for his dedication and commitment to Bragg over the past four years and for his unwavering service as a pivotal member of the leadership team. During his tenure as CFO, the Company has undergone huge positive transformation including being uplisted to the Toronto Stock Exchange, dual listed on the NASDAQ and successfully completing two acquisitions, all while reporting consecutive years of revenue, gross profit and adjusted EBITDA growth. We wish Ronen all the very best in his future endeavors.”

JOCKEYING FOR POSITION: In March, FanDuel (FLUT) and DraftKings (DKNG) maintained their positions, while mid-tier platforms experienced momentum shifts due to changes in Google (GOOG) search interest and webpage visit duration scores, according to Jefferies Digital Gaming Brand Matrix. The firm’s data supports Buy ratings for Flutter, DraftKings, and Rush Street Interactive (RSI). FanDuel and DraftKings continued to lead, with BetMGM (MGM) consistently in third place. FanDuel dominated in Google search interest, web traffic visits, and webpage visit duration. DraftKings remains second overall but slipped to third in web traffic visits after being overtaken by Bet365 in January. Notably, there was minimal movement across categories in March. Fanatics and Caesars both improved their rankings. FanDuel topped the momentum score, while Bally’s (BALY) dropped from first to second. DraftKings and BetMGM also shifted positions. FanDuel operates in 19 states, while DraftKings is live in 24. Jefferies emphasizes the positive correlation between market share performance of DraftKings and FanDuel, both leading operators. Additionally, the firm remains optimistic about iGaming-focused operator RSI, expecting strong returns due to superior economics and margins. Despite varying legalization timelines, sports betting and iGaming are poised for continued growth, according to the firm. For 2024, Jefferies continues to monitor the possibilities of legalization in Missouri and Georgia. Lastly, Jefferies is also keenly focused on the recent entries of ESPN Bet (PENN) and Fanatics, which are relevant for market shares broadly.

EXPECTATIONS FOR Q1: Comparing the gaming sector, excluding DraftKings and Sportradar (SRAD), current valuations are trading at approximately a 1.5x discount compared to historical levels based on consensus next twelve months EV/EBITDAR multiples, Morgan Stanley told investors. The average multiple now stands around 9x, down from approximately 10.5x in 2019. Despite positive year-to-date movements in stock prices, consensus revisions have been modest, with some even trending downward, the firm noted. The most significant discounts are observed in MGM and Wynn Resorts (WYNN), with Boyd Gaming (BYD) also showing a lesser extent of discount. These valuation disparities reflect a combination of factors, including geopolitical concerns in China, rising interest rates in the U.S. and mounting pressures related to a potential broader consumer slowdown. This divergence contrasts with broader consumer discretionary sectors. Sub-sectors like airlines, hotels, home improvement, and apparel retail have begun pricing in a “new” cycle, according to Morgan Stanley. However, in the gaming industry, weaker trends are emerging, particularly in regions like Las Vegas. Despite its strength over the past two years, driven by spending per visitor, overall visitation to Las Vegas was still down 5% in 2023 compared to 2019. Yet, gross gaming revenue, or GGR, and revenue per available room, or RevPAR, have rebounded significantly, reaching 35% and 44% of 2019 levels, respectively. The firm said this growth in spending coincides with an increase in higher-income visitors and Southern California tourists. Specifically, higher-income visitors to Vegas surged from approximately 30% pre-COVID to 50% in 2023, implying a 60% increase in high-end visitation compared to 2019. Meanwhile, other visitor strata declined by 30%. Similarly, Southern California visitation rose from 18% to approximately 32%, representing a 70% increase in overall visitation. In summary, while concerns persist, particularly around “peak” Vegas and limited flow-through, areas with favorable tailwinds, such as online sports betting, remain attractive. Additionally, a preference for higher-end exposed names over lower-end exposed ones aligns with our relative upside assessment. Over the past 18 months, sentiment in the brick-and-mortar regional gaming industry has faced challenges. Domestic gaming experienced a decline from its peak spending during 2021/22, with 2023 regional GGR showing a slight year-on-year decrease when excluding the new Virginia casinos constructed in 2023. Despite these trends standing out against a relatively positive consumer backdrop, regional casino GGR as a percentage of U.S. personal consumption expenditure has been on a downward trajectory for decades, according to the firm. In the fourth quarter, it remains just below that long-term trend. While seasonality may temporarily boost gaming GGR above the trend, our economists’ forecasts indicate that acceleration won’t occur until later this year. Nominal PCE growth is expected to remain muted in the 2%-3% range throughout 2024, with projections of 3.5%, 3.8%, 3.4%, and 3.3% for each quarter. Investor discussions in the digital segment have shifted focus from the threat of “new” competition to concerns about existing competition. This pivot coincides with Flutter’s 2024 guidance, which embeds lower flow-through compared to DraftKings’ 2024 guidance. Morgan Stanley’s analysis suggests that this difference is less about incremental competition and more influenced by Flutter’s conservatism and variations in financial starting points. Looking ahead, the firm anticipates another solid quarter for DraftKings in the first quarter. Its model predicts approximately $35M in positive adjusted EBITDA. Quarter-to-date, the industry has outperformed its seasonal expectations in sports betting handle, while hold percentages have remained consistent, supporting a structural hold rate of around 10%. 

In a research note to investors, Morgan Stanley made the following price target changes:

• Raised the firm’s price target on Penn Entertainment to $22 from $21 and maintained an Equal Weight rating on the shares
• Increased its price target on Wynn Resorts to $114 from $107 and kept an Equal Weight rating
• Boosted the firm’s price target on Las Vegas Sands (LVS) to $62 from $61 and reiterated an Overweight rating
• Bumped its price target on Sportradar to $11.50 from $11 and held an Equal Weight rating on the shares
• Raised the firm’s price target on MGM Resorts to $46 from $45 and kept an Equal Weight rating
• Increased its price target on Boyd Gaming to $72 from $71 and maintained an Equal Weight rating
• Raised the firm’s price target on Caesars to $45 from $44 and reaffirmed an Equal Weight rating on the shares

ADDITIONAL ANALYST COMMENTARY: Deutsche Bank lowered the firm’s price target on Caesars to $59 from $62 and keeps a Buy rating on the shares. The analyst revised forecasts ahead of the company’s’ earnings report.

Barclays elevated its price target on Wynn Resorts to $123 from $117 and kept an Overweight rating on the shares. The analyst expects a solid Q1 for the Macau operators, saying March gaming trends and a recent boost to Mainland flight capacity bode well. Additionally, the firm advanced its price target on Las Vegas Sands to $60 from $57 and repeated an Overweight rating on the shares. The analyst expects a solid Q1 for the Macau operators, saying March gaming trends and a recent boost to Mainland flight capacity bode well.

Wells Fargo said the Virginia governor last night sent amendments regarding skill-based, or “gray,” games regulation back to legislators. The amendments were highly favorable to Churchill Downs (CHDN) and large gaming operators like Caesars, delaying the legalization and restricting supply, the analyst told investors. The firm believes the amendments remove an overhang on shares of Churchill. Potential legalization of gray games in Virginia has been an overhang on the stock, “but this news is a positive development,” contended Wells. The firm has an Equal Weight on Churchill Downs with a $137 price target but believes the stock’s tactical setup is now more positive heading into next month’s Kentucky Derby.

Finally, BofA promoted the firm’s price target on Red Rock Resorts (RRR) to $57 from $52 and replicated a Buy rating on the shares. The firm is raising its Las Vegas locals estimates for both Boyd and Red Rock to reflect less cannibalization as it continues to believe that Red Rock’s Durango opening has had a smaller cannibalization impact to Boyd’s Orleans Casino and Red’s own Red Rock Casino than originally anticipated.

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).