Bet On It: Bragg Gaming surges following investor push for sale

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: Unions representing hospitality staff in Las Vegas announced that workers employed at Wynn Resorts (WYNN) have voted in favor to ratify a new five-year contract, days after similar moves by its competitors Caesars Entertainment (CZR) and MGM Resorts International (MGM), Reuters reported. The unions, which represent about 5,000 employees at Wynn Resorts properties, said 99% of its members voted in favor of the new agreement.

Cathie Wood’s ARK Investment sold 85K shares of DraftKings (DKNG) on Wednesday.

Shares of Bragg Gaming (BRAG) were up 25% or $1.13 per share on Wednesday to approximately $5.72 after Jeremy Raper, head of Raper Capital, beneficially owning 375K shares of Bragg Gaming Group, sent a letter to the Bragg CEO and Chairman Matevz Mazij, asking the company to consider strategic alternatives, including a possible sale. The letter said in part: “In the almost five full years since the transformational Oryx acquisition, Bragg has grown revenues by almost 4x from 26mm EUR to 97mm EUR nd Adjusted EBITDA by 14x from 1.2mm EUR to 16.5mm EUR. And yet despite this impressive record of both top- and bottomline growth, the stock price is somehow 25% lower now than then! This chronic underperformance has occurred, mind you, in spite of Bragg achieving a NASDAQ uplisting in 2021 – an event heralded at the time as the solution to our Company’s persistent valuation discount. Suffice to say, the public markets have had plenty of opportunity to appraise our Company’s growth story, over time, and yet the record demonstrates that it will not, or cor cannot, accord even the lower bounds of what most shareholders would consider fair value. A sale of the company should deliver a gargantuan premium, and certainty of value. As such, it is evidently clear that a third-party sale of the business is the only way to crystallize a proper return for the underlying business value that you, and legacy management, have created.”

ACTIVIST PRESSURE: Entain (GMVHF) faces growing investor unrest after two more U.S. activist hedge funds voiced concern over the gambling group’s languishing share price and the ability of chief executive Jette Nygaard-Andersen to revive the company’s performance, Financial Times’ Oliver Barnes, Harriet Agnew, and Ortenca Aliaj wrote. Sachem Head Capital Management and Dendur Capital have built positions in the owner of Ladbrokes and Coral brands, according to five people familiar with the situation. They join Eminence Capital, a Wall Street activist that also owns a stake and went public with its grievances in June, the authors noted. The activists are concerned about flagging sales in Entain’s core markets, including the U.K., where regulators have cracked down on the online betting industry, as well as a series of management mishaps and costly deals, the people said.

ELYS EARNINGS RECAP: Elys Gaming (ELYS) fell short of analyst expectations for both earnings per share and revenue in the third quarter. “In Q3, we laid critical foundations for a large-scale expansion into the rapidly growing online sports betting market in the United States and Canada,” said Mike Ciavarella, executive chairman of Elys Game Technology Corp. “Over the past few years, we have executed our go-to-market strategy by making significant investments related to our product platform and infrastructure development for our future commercial operations in North America. Elys now stands at the inflection point where these investments begin to convert into revenues in 2024. “Our www.SportBet.com website, complemented by our advanced platform and recent market access partnership with Caesars Entertainment, equips us to attract players nationwide over the coming quarters. The impending launch in Colorado serves as our initial online sports betting market entry point, and we regard our partnership with Caesars as a gateway to future opportunities in other states. At the same time, we are maintaining our solid and stable operations in the Italian market, where we recently introduced a revamped platform and all-new product lineup. This platform not only enhances the overall player experience but also incorporates changes that significantly reduce expenses and puts our Multigioco subsidiary on track to meet the Company’s profit goals through 2024. “As we begin our strategic rollout into the vast addressable online sports betting market in the United States, we are confident in our ability to replicate our Italian success story. The U.S. sports betting opportunity contains decades of pent-up demand, and we expect to carve out significant market share with our ‘best odds’ approach and user-friendly platform as our experience in Italy demonstrates. Our measured and strategic approach to this vast market sets us apart. Through meticulous study of player behavior and regulatory dynamics, we aim to emerge as a responsible and formidable operator in the budding U.S. market, extracting long-term value for Elys shareholders.”

HIGHEST GROSSING Q3: U.S. commercial gaming revenue grew by 6.7% in the third quarter of 2023, the eleventh consecutive quarter of year-over-year growth, according to the American Gaming Association. Despite a slower pace of growth than in previous quarters, Q3 was the industry’s highest-grossing third quarter ever and second-best single quarter for commercial gaming revenue. State regulatory disclosures, compiled by the American Gaming Association, show that aggregate commercial gaming revenue generated by land-based casinos, sports betting and iGaming reached $16.26B in the third quarter. Total revenue for the first nine months of 2023 stands at $48.78B, 10.1 percent higher than the same period in 2022. Even with potential softer Q4 revenue this year, 2023 is poised to become the third consecutive record-breaking year for the commercial gaming industry. Quarterly gaming revenue grew year-over-year across all verticals, with single-quarter revenue records across both land-based and online casino gaming verticals. Revenue growth in total land-based gaming—encompassing casino slots, table games and retail sports betting—accelerated from 0.9 percent in the previous quarter to 1.6 percent in Q3, reaching a total of $12.64B. Simultaneously, the annual revenue gains for total online gaming—iGaming and online sports betting—slowed to 29.9 percent in Q3 from 44.4% in Q2. Combined revenue from online sports betting and iGaming totaled $3.52B, accounting for 22.2% of total commercial gaming revenue in Q3 – the lowest share since Q3 2022. Only one new market opened during the third quarter with Kentucky launching sports betting at a handful of retail locations and online, though no revenue data had been released by the Bluegrass State at the time. Beyond Kentucky, commercial gaming expanded in Q3 in Illinois and South Dakota with the opening of new casinos properties in those states. Compared to the same period a year earlier, Q3 also featured new sports betting markets in Maryland, Massachusetts, Nebraska and Ohio. Among the 33 commercial gaming jurisdictions operational one year ago, 18 experienced an increase in third quarter revenue from 2022. Five states set new single-quarter records including Nevada and New Jersey, the country’s two largest commercial gaming markets.

FOOTBALL: According to Macquarie’s model, estimated sports betting market hold was 11% for the week of October November 13-19. This estimation assumes a football hold of 14% and a hold of 9% for all other sports. In the previous week of November 6-12, New York reported a sports betting hold of 9.7%. The trailing four-week handle growth shows a positive trend, expected to reach 37% year-over-year, or YoY, primarily driven by FanDuel (PDYPY) and Rush Street Interactive (RSI). As of Nov 12, our estimates suggest that the 4Q market hold is currently trending at 8.4%. Macquarie anticipates that this Q4 hold will serve as a year-over-year tailwind for DraftKings, but a slight headwind for other operators, based on data from New York. Consequently, DraftKings and RSI are leading in trailing four-week Gross Gaming Revenue, or GGR, growth at 29% year-over-year and +110% YoY, respectively. Looking ahead, we foresee the structural hold acting as a year-over-year tailwind for DraftKings in Q4/Q1, before facing tougher comparisons. On the other hand, Caesars and RSI have more potential for improvement, according to Macquarie. Overall, the firm believes that the fourth quarter could be a significant catalyst for the sector due to expectations of record profits and a more favorable hold comparison.

NEW JERSEY CASINOS: As the official ten-year milestone approaches, Oddsseeker.com explored the numerical aspects of the significant developments in the US gaming sector. The decade-long story of New Jersey online casinos concluded in October, generating $7B in gross gaming revenue and contributing over $1B in taxes. This financial contribution proved crucial for Atlantic City casinos during the challenges of the Coronavirus pandemic and economic constraints. Reflecting on the inception of NJ online gambling, historical records highlight key events. Former Governor Chris Christie signed Senate Bill 1565 into law on February 26, 2013. Subsequently, the Division of Gaming Enforcement implemented regulations overseeing internet gambling operations on October 21 and October 28, which included the requirement that all patrons must be at least 21 years old. The DGE authorized a “soft launch” on November 21, 2013, followed by full play approval for six licensees on November 25. On November 26, 2013, legal online casino gambling in NJ began, resulting in the creation of more than 126,000 online user accounts that year, according to the Casino Control Commission. The State of New Jersey has been the primary beneficiary since the legalization of online gaming a decade ago, alongside the operators themselves. Taxing online casino revenue at a rate of 15%, the state has collected over $1.45B in taxes from November 2013 to October 2023. These funds have been utilized to assist senior and disabled citizens in the Garden State. The trajectory of online gambling revenue taxes has consistently increased since 2013, from approximately $1.26M in its inaugural year to over $250M in 2022. Regarding revenue, while conventional wisdom might suggest that casinos effortlessly generate profits, the reality for Atlantic City’s physical establishments is more complex. In contrast, legal online casinos have emerged as a nearly foolproof business strategy, offering profit potential similar to gambling parlors but without the burdensome overhead costs. In the initial 14 months of legalized internet gambling in NJ, operators reported a modest sum of slightly over $131.2M. However, by January 2021, monthly online gambling revenue surpassed $100M. In 2023, New Jersey online casinos consistently exceeded $140M each month, with record highs surpassing $160M, notably reaching $166.8M in October.

NFL WEEK 11: In week eleven, several close games resulted in a unique situation where three of fourteen underdogs won outright, while nine underdogs covered the spread. Unusually, there were six heavily favored teams, each favored by over a touchdown. Among these, Washington was the sole team to lose outright, and four failed to cover the spread. Additionally, low scoring persisted across the league in week eleven, with ten games going under the projected total, leading to unders hitting a 60% rate for the season. The recent Monday Night Football game between Philadelphia and Kansas City, a Super Bowl rematch, generated significant betting volumes for a single game. The Eagles, as 2.5 point underdogs, won outright, and the total score fell below expectations. Key observations from the industry during week ten of the 2023 NFL season in New York include a 34% year-over-year increase in total industry-wide handle, reaching $454M. Total gross gaming revenue, or GGR, also grew by 41% year-over-year to $44M. The industry-wide hold rate for the week stood at 9.7%, marking a 50 basis point increase compared to the same period last year. DraftKings’ handle share has returned closer to its season average of approximately 36% over the past two weeks, showing a 340 basis point increase year-over-year. This, combined with ongoing improvements in structural hold, contributed to the company’s GGR share expanding by 940 basis points year-over-year to about 35%. FanDuel maintained its lead in New York with a 42% handle share last week. Moreover, its GGR share once again outperformed its handle share due to a robust 11.1% hold rate for the week.

ADDITIONAL ANALYST COMMENTARY: BofA upgraded Penn Entertainment (PENN) to Buy from Neutral with a price target of $30, up from $27. The firm thinks ESPN Bet “creates an asymmetric risk-reward,” noting that initial download and app activity have been much stronger than anticipated and its initial offers are showing promotional discipline, while also citing stable Q3 earnings being better than expected for Penn’s core gaming business. The firm’s target attributes $20-$25 for the base business and $8 per share for ESPN Bet optionality, the analyst noted.

Barclays lowered the firm’s price target on Flutter Entertainment to 15,300 GBp from 16,000 GBp and kept an Equal Weight rating on the shares. The firm also lowered the firm’s price target on Entain to 1,120 GBp from 1,330 GBp and reiterated an Overweight rating on the shares.

JMP Securities lowered the firm’s price target on MGM Resorts (MGM) to $57 from $60 and backed an Outperform rating on the shares. The spillover from MGM’s cyber hack, its tough comp in Maryland, and the labor strike in Michigan were all negative factors impacting gaming revenue growth to start Q4, offset by several new/ramping properties across the U.S., the analyst told investors in a research note. The firm believes gaming revenue within its coverage declined in the mid-to-low single-digits on average for October, consistent with growth rates in Q3, though spend-per-adult is lapping easier comps to its best month since November 2022.

JPMorgan raised the firm’s price target on DraftKings to $45 from $39 and reaffirmed an Overweight rating on the shares. The analyst increased outer-year estimates to reflect DraftKings’ updated 2025-2026 EBITDA financial targets of $900M to $1B in 2025 and $1.4B in 2026 outlined at the investor day. The firm said these should reset consensus expectations higher at current legalization levels alone. It views DraftKings’ outlook as indicative of strong underlying momentum in existing states and a significantly improved product that is driving stronger customer acquisition, higher hold rates, and greater market share in newer states.

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 (PDYPY), 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).