Bet On It: Churchill Downs suspends operations due to horse deaths

Ohio handle cools, New York gross gaming revenue heats up and other notable stories in sports betting and iGaming space

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:  Cathie Wood’s ARK Investment sold 18,000 shares of DraftKings (DKNG) on Thursday. This came after the global asset manager sold 170,000 shares of the stock on Tuesday. 

BetMGM (MGM) announced the launch of the BetMGM mobile sports betting app in Puerto Rico in partnership with Casino del Mar at La Concha Resort. Puerto Rico is the second market outside of the U.S. mainland for BetMGM’s mobile sports betting app.

Mangoceuticals (MGRX) announce that it has been engaged as a new sponsor for Barstool Sports’ (PENN) "Only Stans" podcast. The company plans on sponsoring at least eight episodes over the next two months, with more brand involvement potentially in the works.

Gambling.com (GAMB) beat Q1 revenue expectations in it first quarter earnings release. Charles Gillespie, the CEO and co-founder of Gambling.com Group, expressed satisfaction with the company’s performance, highlighting its organic revenue growth, profitability, and cash generation. Gillespie attributed the success to the company’s execution of North American growth initiatives and its ability to generate growth in more established markets. The company experienced a 31% increase in new depositing customers over the quarter compared to the same period in the previous year, contributing to the overall revenue growth. The company also provided full-year revenue guidance inline with analyst consensus. 

GOING DOWNS: Churchill Downs (CHDN) announced that the company will suspend racing operations at Churchill Downs Racetrack beginning June 7, through the remainder of the Spring Meet, scheduled to run to July 3. Live racing at Churchill Downs will be conducted as scheduled this weekend on Saturday, June 3 and Sunday, June 4. The remainder of the race meet will be relocated to Ellis Park Racing & Gaming in Henderson, Kentucky, beginning on Saturday, June 10. Churchill Downs Racetrack has seen an unusual number of horse injuries over the previous month resulting in 12 equine fatalities. Following a thorough internal review and concurrent investigations conducted by the Kentucky Horse Racing Commission, or KHRC, and Horseracing Integrity and Safety Authority, or HISA, no single factor has been identified as a potential cause and no discernable pattern has been detected to link the fatalities. Diagnostics testing of the racetrack by experts have not raised concerns and the experts have concluded that the surface is consistent with prior measurements from Churchill Downs in past years. Even though the investigations and expert reports have indicated no surface issues, in an abundance of caution, and in alignment with a recommendation from HISA, CDI has elected to relocate the meet in order to conduct a top-to-bottom review of all safety and surface protocols and integrity measures in collaboration and consultation with experts. "The team at Churchill Downs takes great pride in our commitment to safety and strives to set the highest standard in racing, consistently going above and beyond the regulations and policies that are required," said Bill Carstanjen, CEO of CDI. "What has happened at our track is deeply upsetting and absolutely unacceptable. Despite our best efforts to identify a cause for the recent horse injuries, and though no issues have been linked to our racing surfaces or environment at Churchill Downs, we need to take more time to conduct a top-to-bottom review of all of the details and circumstances so that we can further strengthen our surface, safety and integrity protocols." Ellis Park traditionally hosts a summer race meet in Kentucky that is scheduled from July 7 to August 27. The new safety initiatives announced by Churchill Downs earlier this week will remain in effect for the remainder of this meet at Ellis Park. Wells Fargo maintained an Overweight rating on Churchill Downs with a $155 price target after the news. Churchill is doing the right thing and the near-term financial impact likely limited, with the biggest concern being reputational damage to the company and the sport, the firm told investors in a research note. While the timing of the late Friday press release "was not ideal," think this was likely Churchill Downs "reacting to a fluid situation" where the relocation of races to Ellis Park had just been communicated to the horsemen and would have soon become public anyway, said the firm. While "bad PR," the firm thinks the near-term financial impact will be limited. Churchill did not file an 8-K along with the news, which typically coincides with some expectation for a material financial impact, the firm points out.

SOME SPREAD: May gross win margins were the strongest since 2021, according to Morgan Stanley. This reportedly sets up a "good Q2" and is potentially meaningful for Entain (GMVHF). U.S. data shows price convergence, with the narrowest overround spread the firm has observed between FanDuel (PDYPY), DraftKings and BetMGM, Morgan Stanley told investors. Regionally, gross win margins improved in all regions, with the UK the highest index since 2021. The firm concluded that a strong Q2 margin could be "meaningful" for the stock given "weak" recent share price performance and investor sentiment, "low" consensus expectations for FY23growth, "weak" June comps and reason to think the second half should improve mechanically as UK affordability measures are lapped.

STATE UPDATE: After $1.11B in January handle, the Ohio market has cooled and now looks to be more comparable to Pennsylvania than New York or New Jersey, said Benchmark. Estimates now project the Ohio sports betting market to take in $7B-$8B in handle per year, roughly behind Pennsylvania and just ahead of Michigan. Ohio took in about $1.9B in handle from February  through April of 2023, comparted to $4.8B in New York, $2.7B in New Jersey, and $2.1B in Nevada.

Benchmark also noted that New York online sports betting skins posted total handle of $261.7M in week 21, a 15% sequential decrease and down 4% from week 21 2022. Despite the fourth straight week of declines in handle, gross gaming revenue spiked to $35.7M, up 89% sequentially and up 158% year-over-year. The weekly gross gaming revenue, or GGR, equates to a hold of 14%, up from 6% last week. DraftKings, FanDuel, Caesars (CZR), and BetMGM have continued to stay atop the market, combining for 95% of handle and 97% of handle this week.

ADDITIONAL ANALYST COMMENTARY: Deutsche Bank reiterated a Buy rating on MGM Resorts with a $58 price target after hosting meetings with management. The firm said Las Vegas trends are steady and the stock’s valuation is "compelling" at current share levels.

Jefferies downgraded both Wynn Resorts (WYNN) and Las Vegas Sands (LVS) to Hold from Buy. The firm gave Wynn a price target of $114, down from $135 and Las Vegas Sands a price target of $65, down from $69. The companys’ "bull case arguments for growth" remain and the recovery in Macau remains early stage, but these dynamics are relatively well understood by the market and approximately priced in at present share levels, the firm told investors in a research note. Jefferies believes consensus estimates "have principally caught up to the shares" and that the stock’s valuation "is becoming more relevant."

Jefferies also noted it does not expect a "material economic impact" to Churchill Downs earnings following the horse deaths given the concentration of earnings from the Kentucky Derby, which has already completed. The events are "tragic and unfortunate," but unlikely to impact the firm’s thesis on the shares, pending any capital consumption that may be required as a conclusion of the review, added the firm, who has a Buy rating on Churchill Downs.

BTIG raised the firm’s price target on DraftKings to $31 from $27 and backed a Buy rating on the shares. The company’s Q1 results suggest that the "competitive gap" relative to FanDuel and peers is widening and the firm sees less risk of a near-term reversal toppling Q2, the firm said. BTIG added that the DraftKings management commentary points to a "more favorable player acquisition environment" as a byproduct of rising awareness, improving product, and moderating competition.

JMP Securities raised the firm’s price target on Genius Sports (GENI) to $8 from $7 and reaffirmed an Outperform rating on the shares. Recent company conversations, the firm’s proprietary data, and investor meeting takeaways leave JMP Securities feeling incrementally positive for 2Q23.

Jefferies raised the firm’s price target on DraftKings to $35 from $33 and maintained a Buy rating on the shares. The firm noted the company’s progression towards "meaningful profitability" is a catalyst for the shares. With 2023 estimates "well-managed, there should be greater confidence building for DraftKings’ 2024 profit levels, which drives increased estimates, the analyst tells investors in a research note. Given this setup "and the absence of macro relevance," the firm says DraftKings remains a top pick.

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).

Keywords: Ohio, skins, New York, gross gaming revenue, Puerto Rico, launch, earnings, suspension, horse, gross win margins, overround, handle