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: Blackstone Real Estate Income Trust, BREIT, a subsidiary of Blackstone (BX), and VICI Properties (VICI) announced jointly that they have entered into a definitive agreement in which VICI, currently owner of a 50.1% interest in the joint venture that owns MGM Grand Las Vegas and Mandalay Bay Resort, will acquire BREIT’s 49.9% interest in the joint venture for cash consideration of approximately $1.27B and VICI’s assumption of BREIT’s pro-rata share of the existing property-level debt. The property-level debt has a principal balance of $3.0B, matures in 2032, and bears interest at a fixed rate of 3.558% per annum through March 2030. The properties, situated at the south end of the Las Vegas Strip in Las Vegas, Nevada, are subject to an existing triple-net lease agreement between the joint venture and MGM Resorts International (MGM). The lease will generate annual rent of approximately $310 million upon the commencement of the next rental escalation on March 1, 2023. Edward Pitoniak, CEO of VICI Properties, said, "We have been honored to be BREIT’s partner in the MGM Grand Las Vegas / Mandalay Bay joint venture and this transaction further demonstrates the ability of Blackstone and VICI to work together productively, now and in the future. We’re excited to further our investment in MGM Grand Las Vegas and Mandalay Bay." The MGM Grand Las Vegas / Mandalay Bay triple-net lease has a remaining initial lease term of approximately 27 years, expiring in 2050, with two ten-year tenant renewal options. VICI Properties intends to fund the transaction through a combination of cash on hand, proceeds from the settlement of existing outstanding forward equity sale agreements and assumption of the remaining 49.9% of the existing property-level debt. The transaction is subject to customary closing conditions and is expected to be completed early in the first quarter of 2023.
Macau’s gaming bureau reported November gross revenue from games of fortune in the region was down 55.6% year-over-year to 2.999B patacas.
Nevada reported October statewide gaming win was up 4.83% to $1.28B. Las Vegas Strip gaming win was up 0.52% versus last year to $705.82M.
Churchill Downs (CHDN) and DraftKings (DKNG) announced a multi-year agreement that will bring pari-mutuel wagering on horse racing to DraftKings. CDI’s subsidiary, TwinSpires, will provide advance deposit wagering technology to DraftKings. TwinSpires is the premier, market leading online horse racing wagering platform in the U.S. DraftKings will launch DK HORSE in the coming months, which will allow DraftKings’ eligible customers to bet on horse racing using a standalone branded app. DK Horse is expected to be available initially in 21 states, pending all necessary licensing and regulatory approvals, and is scheduled to launch ahead of the 149th running of the Kentucky Derby in May 2023. Under the agreement, CDI will provide DraftKings pari-mutuel wagering rights to horse racing content owned or controlled by CDI, including the Kentucky Oaks and Kentucky Derby. "We believe the depth and quality of our online offering through TwinSpires is unmatched in horse racing," said Bill Carstanjen, CEO of CDI. "We are excited to establish this relationship with DraftKings and to deliver a full end-to-end white label ADW solution that will introduce their significant base of sports betting customers to horse racing wagering." JMP Securities analyst Jordan Bender maintained an Outperform rating and $23 price target on shares of DraftKings following the partnership. Bender sees this as an attractive opportunity for DraftKings to cross-sell from sports betting/iGaming into horse racing, and vice versa, the analyst tells investors in a research note, adding that DraftKings will gain another tool to compete with FanDuel (PDYPY) in the U.S.
MACAU GAMING CONCESSIONS: Melco Resorts & Entertainment (MLCO) announced that the Macau government has provisionally awarded a ten-year concession to operate games of fortune and chance in casinos in Macau to Melco Resorts Limited, a subsidiary of the company. The final award of such concession, and the terms and conditions of the concession contract, remain subject to the determination of the Macau government. Lawrence Ho, Chairman and Chief Executive Officer of Melco commented, "We are honored to have been selected and granted a provisional award for the concession to operate gaming in Macau and would like to thank the Macau government for running a smooth and transparent process. We are committed to Macau and its development as Asia’s premier tourist destination."
MGM Grand Paradise announced it "would like to express our sincere gratitude to the Government of Macao Special Administrative Region for granting us the provisional award of new gaming concession, allowing us to contribute to the future development of Macau’s integrated tourism and leisure industries." The company added: "We fully devote to the Macao SAR. We will continue to develop the city with our strengths and contribute to the non-gaming industry, meanwhile making vigorous efforts in expanding the tourist markets from foreign countries. With confidence in the future of the Macao SAR, we firmly believe in Macau’s full recovery and continue to grow, becoming even stronger as a holistic tourism destination. MGM Grand Paradise will continue to work with all sectors of the society to a new chapter in the development of tourism, leisure, and entertainment and create a milestone of ‘Integrated Tourism in Asia’." MGM China Holdings Limited, the holding company of MGM Grand Paradise, is majority owned by MGM Resorts International.
The Sands China (SCHYY) group has been awarded a new 10-year gaming concession in Macao, as announced by the Macao government Saturday, the company stated. The concession is awarded on a provisional basis, subject to finalizing and entering into a new gaming concession contract with the Macao SAR. Robert Goldstein, the chairman and chief executive officer of Sands China Ltd. and its parent company Las Vegas Sands, said: "Our commitment to Macao has never wavered and we are honoured to continue the partnership we began with the government and people of Macao 20 years ago. In the coming decade and beyond, we will remain steadfast in our strategy of continuous investment in Macao – in its economy, its people and its community. Macao’s future as an international tourism destination remains bright and we look forward to furthering our leadership role in helping it reach its full potential."
Wynn Resorts (WYNN) announced that Wynn Resorts Macau received a provisional award of a gaming concession from the Macau government. "The ultimate award of the gaming concession contract remains subject to the final documentation of its exact terms and conditions with the Macau government," the company stated.
Jefferies analysts led by David Katz and Andrew Lee noted that the Macau government has provided provisional concessions to the six incumbent operators, which they say removes an overhang and should have a positive impact on the group. The concession development is "a modest positive" for Las Vegas Sands (LVS) and Sands China, Wynn Resorts and Wynn Macau (WYNMF), MGM and MGM China (MCHVF), Melco Resorts (MLCO), Galaxy (GXYEF) and SJM (SJMHY), but "more important" in their view is the recovery from COVID being pushed out by the recurrence of cases and the zero-tolerance policy in Macau, the analysts said.
BofA analyst Shaun Kelley noted that operators now have to finalize the concessions with the government, which is expected by January 2023. Kelly said that capital expenditure investment is expected to correlate with the size of the operator. He told investors in a research note that while we await details of required capex, the news is good for sentiment and could allow longer-term investors to return to the space.
WIN SOME, LOSE SOME: Week 12 contained another set of mixed results for sportsbook operators, according to Canaccord analyst Michael Graham. None of the five largest underdogs won outright, although several teams that garnered public support failed to win or cover the spread. Eight of the sixteen games last week went under the projected total, with the year-to-date winning percentage for unders holding steady at 57%. Sportsbooks reportedly benefited from another favorable NCAA football outcome, as the heavily favored Ohio State Buckeyes lost outright at home to the Michigan Wolverines.. New York had $41M of gross gaming revenue, or GGR, generated from $344M of wagers placed during NFL Week 11. The industry-wide hold rate of 12% was higher than the historical average of roughly 7% and was the third highest win rate of the season, with favorable outcomes backed by steadily increasing engagement with parlays. FanDuel (PDYPY) led with 42% of handle, and its share of GGR was 53%. DraftKings’ share of handle dipped slightly to 32% last week, although its approximate 11% hold rate helped its share of GGR rebound to 29%.
WORLDWIDE LEADER: Mike Mazzeo of Legal Sports Report wrote that an ESPN sports betting partnership deal is not close to coming to fruition at this time, according to ESPN president Jimmy Pitaro on Wednesday. “I do not anticipate any deal is imminent,” Pitaro said at the Sports Business Journal Media Innovators conference in New York. “No, I do not.” Pitaro said he will need to meet with returning Disney (DIS) CEO Bob Iger, who has come back to his post following the departure of Bob Chapek, to discuss future sports betting plans for the company. “Bob’s ultimately going to have to dig in with me,” Pitaro said, later adding, “We believe that there is upside for the ESPN business. We believe that there’s upside for the ESPN brand. Again, and Bob and I will do this, we have to consider things from a Disney perspective as well.”
ANALYST COMMENTARY: JPMorgan analyst Daniel Kerven raised the firm’s price target on Flutter Entertainment to 16,100 GBp from 14,800 GBp and keeps an Overweight rating on the shares.
Piper Sandler analyst Matt Farrell kept an Overweight rating on DraftKings with a $21 price target after the company announced a multi-year agreement with Churchill Downs. TwinSpires, a Churchill Downs subsidiary, is expected to provide the deposit wagering technology for DraftKings, Farrell tells investors in a research note. The analyst views the agreement as a positive "for several reasons." It further expands the total addressable market for DraftKings in the United States and creates even further cross-selling opportunities for existing users, says Farrell. In addition, the "immediately profitable nature of the agreement should only help on the company’s path to EBITDA profitability," the analyst writes.
JPMorgan analyst Joseph Greff raised the firm’s price target on Las Vegas Sands to $51 from $44 and maintained an Overweight rating on the shares. The analyst likes the stock’s risk/reward given his anticipation of a continued positive inflection in visitation, revenues, and EBITDA at Marina Bay Sands, Singapore. On Macau, he believes buyside expectations are "washed out."
Greff upgraded Melco Resorts & Entertainment to Overweight from Neutral with a price target of $10, up from $7. As Macau recovers and "still awful/skeptical sentiment" improves, the stock’s underperformance will reverse and lead to sizable outperformance, Greff tells investors in a research note. He sees Macau stocks "as excellent plays on China reopening." Melco Resorts shares are not well-owned, adds Greff, who thinks Macau has the most upside within his coverage universe.
Greff upgraded Wynn Resorts to Overweight from Neutral with a price target of $91, up from $71. The analyst thinks Wynn should benefit from a Macau recovery as COVID restrictions are eased, which he says should reverse the stock’s underperformance since the onset of the pandemic. Wynn shares are not very well owned, said Greff, who thinks Macau should benefit from China’s recent plans to ease travel. The stock’s valuation on 2024 is attractive, with the shares trading below historical averages, and buy-side expectations for sustained strong performance is Las Vegas and Boston "are subdued, creating a low bar," Greff told investors in a research note.
Greff downgraded Penn Entertainment (PENN) to Neutral from Overweight with a price target of $39, up from $38. The shares are trading near fair value with less upside potential than Las Vegas Strip centric or Las Vegas Locals centric operators, Greff noted.
Greff downgraded DraftKings (DKNG) to Underweight from Neutral with an unchanged price target of $12. The analyst sees downside in the shares following the post-earnings rally. DraftKings’ path to online sports betting and internet gaming profitability is longer than peers as "highlighted by a divergence in 2023 expectations" with the company guiding to sizable EBTIDA losses, while peers MGM Resorts and Caesars (CZR) are at or near breakeven, if not generating positive EBITDA, Greff tells investors in a research note.
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), Gan Limited (GAN), Genius Sports (GENI), Las Vegas Sands (LVS), MGM Resorts (MGM), Penn Entertainment (PENN), Rush Street Interactive (RSI) and Wynn Resorts (WYNN).
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