Bet On It: Disney and ESPN CTO switches over to Penn

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: Nevada reported March statewide gaming win was down 1.65% to $1.29B. Additionally, March Las Vegas Strip gaming win was down 1.2% to $715.87M versus last year.

Sportradar Group (SRAD) announced that Craig Felenstein has been named chief financial officer of the company, effective June 1. Felenstein joins the company from Lindblad Expeditions (LIND) where he most recently served as chief financial officer. He will report directly to Sportradar chief executive officer Carsten Koerl. Carsten Koerl, CEO, Sportradar said: “With Craig’s deep international experience and successful track record building finance organizations as a CFO at US listed public companies, I am confident that he will be a strong addition to our team. His track record of helping drive financial strategy and building shareholder value will be instrumental to our continued success. We want to express our deep gratitude to Ger Griffin for his meaningful contributions to Sportradar during a transformational growth period for our Company.”

BUYING STOCK: David Einhorn’s Greenlight Capital bought a “medium-sized” position in Penn Entertainment (PENN) during Q1, according to its quarterly letter to shareholders.

TRADING PLACES: Aaron LaBerge, the chief technology officer for Disney Entertainment (DIS) and ESPN, is leaving the company, according to an internal memo, CNBC’s Alex Sherman reported. LaBerge is taking a job as CTO of Penn, which operates ESPN Bet, the sports media company’s licensed online sportsbook. LaBerge is reportedly leaving for personal reasons related to his family and will stay on at Disney until June, the memo said.

RESPONSIBLE GAMING CHIEF: DraftKings (DKNG) announced the appointment of Lori Kalani as chief responsible gaming officer reporting into DraftKings’ CEO, Jason Robins. Kalani becomes DraftKings’ first chief responsible gaming officer committed to the continued elevation and integration of the company’s player safety and protection activities and initiatives across all facets of its platforms and player communities. Kalani previously was a partner at the Cozen O’Connor law firm and co-chaired the State Attorneys General practice.

CONTENT DISTRIBUTION PACT: Bragg Gaming (BRAG) announced it has signed an international online casino content distribution agreement with Light & Wonder (LNW). The agreement will see games from Bragg’s proprietary studios, Atomic Slot Lab, Indigo Magic, Wild Streak Gaming and Spin Games added to Light & Wonder’s online ecosystem. Exclusive content from the supplier’s Powered by Bragg partners will also be integrated, providing Light & Wonder with a wide selection of localized titles. The deal will encompass numerous European regulated markets as well as USA and Canada.

FIRST QUARTER: Gaming stocks have lagged behind S&P year-to-date, with operators down 8%, tech down 5%, and real estate investment trusts down 14%, compared to the S&P’s positive 6% performance, Truist told investors in a Q1 preview note. Despite this underperformance, consumer discretionary spending, particularly in casino environments, remains robust even amidst ongoing macroeconomic uncertainty, according to the firm. The gaming industry has faced regional weather impacts and delayed interest rate cuts. However, Truist believes these factors are largely priced into the stocks at this juncture. For MGM Resorts (MGM), the firm sees upside potential on the Las Vegas Strip and for Churchill Downs (CHDN) continuation of the Virginia skill-based gaming ban bodes well for the company. In the interactive gaming space, most operators are on track toward profitability, despite occasional hold-related hiccups. DraftKings maintains its “strong” position in Truist’s coverage. Regarding gaming technology, the firm favors PlayAGS (AGS) and Light and Wonder, as catalysts could significantly impact both companies, especially in light of recent mergers and acquisitions. Truist upgraded Penn due to compelling risk/reward dynamics. Price targets were adjusted as follows:

• Red Rocks Resort (RRR): raised to $60 from $58
• Bally’s (BALY): increased to $16 from $14
• Caesars (CZR): lowered to $58 from $62
• Golden Entertainment (GDEN): reduced to $44 from $45
• International Game (IGT): revised to $26 from $28
• Everi holdings (EVRI): adjusted to $11 from $13.

On May 2, DraftKings is set to announce its Q1 results, followed by a call on May 3. Notably, North Carolina’s sports betting launch during March Madness achieved a state handle of $659.3M, demonstrating disciplined promotional spending and an impressive hold rate of over 10%, Benchmark told investors. However, the broader industry experienced a downturn, with a lower-than-expected hold rate of approximately 8.2% in March, which may slightly impact this quarter’s growth. DraftKings’ recent acquisition of Jackpocket, coupled with Jason Park’s oversight of the integration, underscores the company’s substantial potential, reminiscent of its early Daily Fantasy Sports impact, contended the firm.

FLORIDA LANDSCAPE: Hard Rock CEO Jim Allen recently discussed the potential for other commercial operators to enter the Florida sports betting market, Mike Mazzeo of Legal Sports Report wrote. an interview at the East Coast Gaming Congress. Currently, the Seminole Tribe of Florida holds a virtual monopoly on sports betting in Florida due to a 2021 gaming compact negotiated with Governor Ron DeSantis. Florida sports betting resumed on November 7, exclusively for existing customers through the Hard Rock Bet app. However, West Flagler Associates is challenging the Seminole compact’s legality by appealing to the US Supreme Court. Allen expressed openness to market expansion but emphasized that any revenue-sharing framework would be premature at this stage. He stated that Hard Rock has always been receptive to conversations with other companies, including Caesars, BetMGM, DraftKings, and FanDuel (FLUT). While the legal process unfolds, discussions about skins or other arrangements remain on the table. Allen acknowledged the improved communication between parties compared to earlier days when significant efforts were made to block potential moves in Florida.The ongoing legal case is significant. If the Seminole Tribe were to lose, it could have broader implications for the industry. The tribe’s model allows legal online sports betting via cellphones and computers, with servers located on tribal land. Allen emphasized that the language used in Florida’s case closely mirrors that of New Jersey, and the outcome could impact the entire industry. Despite the legal complexities, Allen recognizes the interest of various companies in entering the Florida market “I don’t think we’ve ever stated that we wouldn’t work with some of the other companies, whether it be Caesars, BetMGM, DraftKings or FanDuel. We’ve always stated that we’d be receptive to that conversation,” Allen told Legal Sports Report.

EARNINGS RECAP: Shares of Boyd Gaming (BYD) dropped nearly 7% after the company reported first quarter results. The company’s chief executive noted tough comparisons to 2023 leading to a challenging environment. Keith Smith, President and Chief Executive Officer of Boyd Gaming, said: “After a record 2023, the first quarter of 2024 was a challenging start to the year. Severe winter weather had a significant impact on our Midwest & South segment early in the quarter while we also experienced increased competitive pressures in the Las Vegas Locals market. However, throughout our business, many of the positive trends from the fourth quarter continued into the new year. By focusing on our disciplined operating and marketing strategies, we have been able to maintain strong operating margins. Additionally, our significant cash flows and strong balance sheet allow us to continue returning capital to our shareholders through our ongoing share repurchases and quarterly dividend programs. Looking ahead, we remain confident in our ability to successfully navigate the current environment and deliver value to our shareholders.” Deutsche Bank downgraded Boyd to Hold from Buy with a price target of $71, down from $78. The analyst cited the company’s second “challenged” quarterly report over the last three results and the stock’s multi-year run of outperformance for the downgrade. The firm still views Boyd as a strong relative value play within the gaming sector, but struggles to identify near term catalysts, a change in the cadence of property level results, or an event that triggers a re-rating in shares. However, a sale, or partial sale, of its FanDuel stake “would certainly be multiple enhancing,” added Deutsche Bank. JPMorgan also dropped Boyd Gaming to Neutral from Overweight with a price target of $67, down from $80. The analyst said there is no way to sugarcoat Boyd’s Q1 earnings miss as it was “broad based and very surprising.” The firm is concerned about the state of the low-end gaming consumer, “across the board.” It is “nervous about this dynamic,” especially in the Las Vegas Locals market as well as increased competition and promotions in that market, outside of the new higher-end Durango property.

Churchill Downs first quarter results surpassed analyst expectations in earnings per share and revenue. In Its live and historical racing segment, revenue for the first quarter surged $33.1M due to an $18.3M increase attributable to growth at its Kentucky HRM properties, a $13.5M increase attributable to growth at its Virginia properties and the opening of its Rosie’s Emporia property in September 2023, and a $1.3M increase at its other live and historical racing properties. In gaming, Q1 revenue decreased $8.4M due to a $6.3M drop in Pennsylvania primarily due to its decision not to renew the management agreement at Lady Luck Casino Nemacolin in June 2023 and a $2.1M net decrease at other gaming properties primarily due to inclement weather in January. Truist bumped its target on Churchill Downs to $145 from $140 and kept a Buy rating on the shares. The firm cited the company’s “strong” Q1 earnings beat while noting that it continues to see the existing portfolio generating about $1.4B EBITDA once fully open and ramped by 2025/26. Churchill Downs’ potential upside from Historical Racing Machines is further enhanced by its Exacta optimizations, the analyst told investors in a research note.

ADDITIONAL ANALYST COMMENTARY: Truist analyst Barry Jonas upgraded Penn Entertainment to Buy from Hold with an unchanged price target of $23. The analyst sees zero to negative value ascribed for ESPN Bet at current trading levels. Penn expectations are too low, and the market is not only “too bearish” on ESPN Bet but is also assuming no value for the company’s other profitable interactive businesses, the analyst tells investors in a research note. The firm cites the stock’s risk/reward for the upgrade.

B. Riley resumed coverage of Gambling.com with a Buy rating and $14.50 price target. The analyst expects the company’s growth to outpace the online gambling sector. The reasons for the stock’s underperformance are overstated and performance should improve, beginning with Gambling.com’s Q1 earnings report, the analyst tells investors in a research note. The firm believes the Freebets.com acquisition offers upside potential relative to guidance. B. Riley sldo resumed coverage of Golden Entertainment with a Buy rating and $46 price target. The analyst believes believe Golden’s Nevada-centric pro forma portfolio should outperform regional peer growth over the intermediate to long term. In addition, the company’s owned real estate is underappreciated in the stock’s valuation.

Jefferies elevated the firm’s price target on Bally’s to $13 from $11 and keeps a Hold rating on the shares ahead of quarterly results. Weather had a negative impact in January on the Casino & Resorts portfolio, and February and March, while improved, were not enough to compensate, the firm says. Jefferies continues to focus on Bally’s elevated leverage, forthcoming capital needs, and uncertainties surrounding capital-intensive projects which are pressure points for the shares.

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).