Bet On It: Caesars acquires WynnBet’s Michigan iGaming business

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: Bragg Gaming (BRAG) announced that it has gone live with its newest games and Remote Game Server, or RGS, technology at Golden Nugget in Michigan. This milestone marks a step in Bragg’s content to players across North America. Games now available to Golden Nugget’s players in Michigan include popular titles such as “Cai Fu Emperor Ways” and “Egyptian Magic” from Bragg’s Atomic Slot Lab, along with the thrilling “Devil’s Lock” from Bluberi. All online casino games delivered on Bragg’s new RGS technology come with the company’s Fuze promotional tools as standard which offer player engagement features on games such as free rounds, tournaments and quests.

Churchill Downs (CHDN), or CDI, announced that the company plans to open Owensboro Racing & Gaming in the first quarter of 2025 with 600 historical racing machines, a retail sportsbook, simulcast wagering, and multiple food and beverage offerings. The new property in eastern Daviess County will be CDI’s seventh historical horse racing entertainment venue in the state of Kentucky. Owensboro Racing & Gaming will be located on an approximately 20-acre site at the corner of US Highway 60 and Wrights Landing Road east of the City of Owensboro, Kentucky. The projected spend for the development of Owensboro Racing & Gaming is $100M. The property will operate as an annex of Ellis Park Racing & Gaming and will support purse funding for Ellis Park’s traditional summer racing meet. Earlier this week, CDI, announced that the company received approval from the Town of Dumfries to open Phase One of The Rose Gaming Resort with 1,650 historical racing machines, or HRMs. This number represents an increase of 500 HRMs from what CDI had previously announced. The Rose, located in Northern Virginia, is now scheduled to open by the end of September. The facility will also open with a 102-room hotel, eight food and beverage options and over 2,540 parking spaces. The total capital investment in the project to now expected to be $460M, with approximately $160M remaining to be spent as of December 31, 2023. The company will provide updated development plans for Phase Two at a later date. As part of CDI’s commitment to the Town of Dumfries, the company will make a one-time, $3.6M contribution to the town. CDI will also make a one-time $2M contribution to support the design and development of a new community center, in addition to the public park currently being built on site. The facility will also open with a 102-room hotel, eight food and beverage options and over 2,540 parking spaces. The total capital investment in the project to now expected to be $460M, with approximately $160M remaining to be spent as of December 31, 2023. The company will provide updated development plans for Phase Two at a later date. As part of CDI’s commitment to the Town of Dumfries, the company will make a one-time, $3.6M contribution to the town. CDI will also make a one-time $2M contribution to support the design and development of a new community center, in addition to the public park currently being built on site.

Caesars (CZR) announced an agreement to acquire the operations of WynnBet’s (WYNN) Michigan iGaming business and a long-term extension of iGaming market access rights with the Sault Ste. Marie Tribe of Chippewa Indians, subject to regulatory approvals. As part of the transaction, Caesars gains access to the Sault Tribe’s iGaming skins, enabling Caesars to operate additional digital brands in Michigan, and existing WynnBET customers will be transitioned to Caesars’ Michigan iGaming platform, pending regulatory approvals. Wynn and Caesars will receive non-cash consideration, including extinguishment, reductions, and assignment of certain contractual obligations related to both parties’ businesses. Caesars intends to transition the WynnBET iCasino operations in Michigan later this year to one of the gaming brands within the Caesars portfolio. Caesars is committed to a seamless transition and premium customer experience for current WynnBET iGaming customers. The Sault Tribe currently owns and operates Kewadin Casinos, which consist of five land-based casinos located throughout the Upper Peninsula of Michigan.

EARNINGS RECAP: Bally’s (BALY) fell short of last years figures in its fourth quarter earnings release. The company also guided fyll year 2024 revenue right in line with analyst expectations. Robeson Reeves, CEO, commented, “Bally’s completed a successful 2023 with healthy results across all our business segments. Revenues in the fourth quarter grew 6.1% year-over-year to $611.7 million reflecting continued growth in our Casinos & Resorts, International Interactive and North America Interactive segments. For the full year, revenues grew 8.6% versus 2022.” Stifel lowered the firm’s price target on Bally’s to $11 from $13 and reiterated a Hold rating on the shares. Bally’s reported a “solid Q4,” but FY24 adjusted EBITDAR guidance was established 6% below consensus at the midpoint, the analyst told investors. Despite the FY24 guidance miss, shares were up in after-market trading, which the firm attributes to management’s comments suggesting they are “close to” securing construction financing for the Chicago permanent, adding that this is “the most salient investor concern at present.” The valuation remains attractive and the catalyst path in 2024 “does appear potentially compelling,” but relatively high net leverage, “uninspiring” regional gaming fundamentals, and potential regulatory risks in International Interactive keep the firm “cautious for now,” the analyst added.

Churchill Downs beat consensus estimates on earnings per share and revenue in Q4. The company noted, “Revenue for the fourth quarter of 2023 increased $54.4 million from the prior year quarter primarily due to $32.8 million in revenue attributable to the Virginia properties acquired in the P2E Transaction, a $9.5 million increase from Derby City Gaming and the opening of Derby City Gaming Downtown in December 2023 in Louisville, Kentucky, a $6.3 million increase driven by continued growth at Turfway and Newport in Northern Kentucky, a $2.5 million increase driven by continued growth from Oak Grove in Southwestern Kentucky, a $2.2 million increase attributable to the Ellis Park and Chasers Transactions, and a $1.1 million increase at Churchill Downs Racetrack. Adjusted EBITDA for the fourth quarter of 2023 increased $27.7 million from the prior year quarter primarily due to a $16.2 million increase attributable to the Virginia properties acquired in the P2E Transaction which includes $5.1 million of savings from the Exacta Transaction, a $4.4 million increase from our Northern Kentucky properties, a $3.2 million increase from our Louisville properties, a $2.8 million increase driven by our Southwestern Kentucky property, and a $1.1 million increase attributable to the Ellis Park and Chasers Transactions.” JMP Securities increased its price target on CDI to $150 from $148 and maintained an Outperform rating on the shares. Churchill Downs’ EBITDA of $219M exceeded consensus estimates for the quarter, and JMP found comments from the CEO encouraging around ticket pricing, volume, and offering for the upcoming Kentucky Derby, the analyst told investors.

Caesars results in Q4 also lagged last year’s numbers and shares responded dropping 2.3% in after hours trading on Tuesday. Tom Reeg, CEO, of Caesars Entertainment commented, “Our fourth quarter operating results demonstrated consolidated net revenue growth, reduced net loss and stable consolidated Adjusted EBITDA year over year. Results were driven by a 28% year-over-year increase in Caesars Digital net revenue that generated a 10% Adjusted EBITDA margin in the quarter. Full year results benefited from a 78% increase in Caesars Digital net revenues to approximately $1.0 billion, and an over $700 million improvement in this segment’s Adjusted EBITDA.” On its quarterly conference call, the company said it experienced headwinds in Las Vegas in the quarter, but had a strong year there overall. Additionally, Caesars mentioned how Caesars Palace Online now has the same level of revenue as the business that proceeded it. Susquehanna decreased the firm’s price target on Caesars to $44 from $49 and backed a Neutral rating on the shares. The firm said they reported Q4 results in-line with its negative pre-release and thinks the company needs to establish a digital channel otherwise it risks long-term cannibalization.

AS GOES JANUARY: Indications from the Super Bowl suggest a record-breaking event for bookmakers, according to Jefferies. Across Nevada, New Jersey and New York, handle increased 27% year-over-year. By operator, FanDuel (FLUT) saw handle increase 43% to a record $307M, with 14M bets placed across 2.5m active users. BetMGM (MGM) also reported a strong +30% YoY increase in handle. Gross gaming revenue, or GGR, margins were weak at 5.7% across the three major states. Indeed, operator-specific data from New York reveals that several operators, including BetMGM and Caesars, recorded negative GGR margins for Super Bowl week. DraftKings (DKNG) revealed that while the match outcome was unfavorable, a higher penetration of higher-margin parlay bets was able to offset the drag, with GGR margins ultimately in line with its expectations. New York data also suggests a steady market share performance for FanDuel during Super Bowl week, with its leading handle share flat vs the previous week at 43%. Meanwhile, DraftKings saw weekly share increase  to 35%, while BetMGM’s share fell to 6%, Jefferies noted. On the customer acquisition and engagement front, GeoComply saw 1.8M new user registrations ahead of the Super Bowl and recorded 14.75k betting transactions per second at peak, almost double the level seen during the previous Super Bowl. Seven states have now reported online data for January. Across these states, handle increased 13% while GGR increased 43%, driven by an improvement in sports margins to 11.6%. By operator, GGR increased 79 for DraftKings, 31% for FanDuel and 24% for BetMGM. FanDuel continues to lead on market share, with GGR share +3ppts month-over-month to 48%. DraftKings’ share fell -1ppt MoM to 34%, while BetMGM’s share was flat month-over-month at 7%. In the five states where ESPN Bet (PENN) operates, GGR share was down month-over-month to just 2%. Across these states, ESPN Bet has therefore seen a 10%, 6% and 2% GGR market share across its first three months live. Among the states that also report handle by operator, GGR margins were strongest for FanDuel at 13.8%, followed by DraftKings with 11.4% and BetMGM with 9.8%, according to Jefferies. 

ADDITIONAL ANALYST COMMENTARY: Barclays upgraded DraftKings to Overweight from Equal Weight with a price target of $50, up from $41. The U.S. digital gaming market still has significant growth ahead, the firm noted. Barclays  is less concerned over recent wave of competition and expects incremental momentum for DraftKings from new partnerships and acquisitions. Meanwhile, the company’s internet gaming position is underappreciated, contends Barclays. 

TD Cowen dropped the firm’s price target on Bally’s to $15 from $18 and reaffirmed an Outperform rating on the shares. The firm said its beat on Q4 adjusted EBITDA despite modest revenue results after costs in International Interactive came in less than expected. Casinos and Resorts have had a challenging start to the year given inclement weather in January.

Wells Fargo lowered its price target on Caesars to $68 from $72 and kept an Overweight rating on the shares. The firm noted Caesars already pre-announced Q4 results in January, so what was learned mostly stemmed from earnings call commentary. That included Las Vegas, regionals, and Digital all seen growing EBITDA year-over-year, with Digital performing well and Caesars expanding with a 2nd iGaming brand.

Truist raised the firm’s price target on DraftKings to $55 from $45 and maintained a Buy rating on the shares after its Q4 earnings beat. The Street will likely take time to digest the potential for Jackpocket acquisition, with minimal impact expected in 2024 before a more sizable contribution in 2026 and beyond, the analyst told investors in a research note. Truist further cited the company’s continued execution while noting that the management’s earnings call commentary was positive amid continuing momentum.

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).