Bet On It: Flutter’s move to U.S. listing prompts immediate CFO succession

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: Shares of Caesars (CZR) are off their highs after Carl Icahn told CNBC he would never do activism against the company. The stock remains up 12% to $35.66 near the close on Friday after Bloomberg reported that Icahn has built a sizeable stake in Caesars. Earlier in the week, in a regulatory filing, Caesars disclosed that its director Michael Pegram bought 10K shares of common stock on May 29 in a total transaction size of $319.6K.

The Donerail Group, a shareholder of Penn Entertainment (PENN), disclosed that it sent an open letter to the company’s board of directors, in which the investment adviser said it believes the company’s “misguided interactive strategy and poor capital allocation have destroyed shareholder value, resulting in PENN trading at a steep discount to its intrinsic value.” Donerail contends “PENN could fetch up to double its current trading price in the event of a sale,” the firm added.

Nevada reported April statewide gaming win up 6.95% to $1.24B. The state reported April Las Vegas Strip gaming win up 6.62% to $666.06M versus last year.

NEW CFO AND NEW LISTING: Flutter Entertainment (FLUT) announced that Group CFO, Paul Edgecliffe-Johnson, will leave the Group and be succeeded by Rob Coldrake with immediate effect. “In anticipation of the Company’s US Primary Listing on 31st May 2024 and the consequent need for extensive executive management time to be spent in the United States, the Board has recently engaged in a discussion with Paul Edgecliffe-Johnson concerning his ability to meet that requirement in light of his family commitments in the U.K. Following this discussion, the Board has concluded that it is in the Company’s best interests for Paul Edgecliffe-Johnson to step down from his role as Group CFO and Executive Director. Rob Coldrake is currently Chief Financial Officer of Flutter International, a role he has held since joining the Group in 2020. He previously spent 14 years in TUI Travel plc in a variety of financial roles, having started his career with PricewaterhouseCoopers,” the company stated in a notice to the London Stock Exchange. Commenting on the appointment, CEO Peter Jackson said: “I am delighted that Rob will become our next Group CFO. During his four years at Flutter, he has shown himself to be a CFO of exceptional calibre and his skills and experience will help us to take advantage of the significant opportunities before us. I would like to thank Paul for his contribution to the Group, particularly in relation to achieving our US primary listing, and I wish him and his family well.” Separately. Flutter announced that its primary listing is now on the New York Stock Exchange. This follows the transfer of the company’s listing category on the Official List of the Financial Conduct Authority from “Premium Listing” to “Standard Listing” as of 08.00 a.m. BST / 03.00 a.m. ET today. The company’s shares remain eligible for and continue to trade on the Main Market of the London Stock Exchange on the Standard Listing segment. Today’s announcement follows the passing of the relevant resolution by shareholders at the Company’s Annual General Meeting held on May 1, 2024. Peter Jackson, CEO of Flutter Entertainment, said: “Today marks an important milestone in the evolution of Flutter with the commencement of our primary listing on the New York Stock Exchange. This closely follows the recent move of our operational headquarters to New York, with both reflecting the increasing importance of the US sports betting and iGaming market to our business. We have a fantastic position in the US, with FanDuel the clear number one operator, and we look forward to this next step on our journey.” This caused some market jitters due to the mention of “with immediate effect,” according to Jefferies. The firm said lack of specific financial updates or reiterated guidance contributed to a temporary drop in Flutter’s shares, reaching a decline of 18% at one point. However, stepping back, it’s essential to consider that if there were any significant changes in the financials or guidance, Flutter would likely have provided commentary. The absence of such commentary can be interpreted as reassurance that the numbers are at least in line with expectations, Jefferies told investors. The timing of the announcement coincides with Flutter’s first full day of primary listing on the NYSE in the U.S. Simultaneously, it aligns with the completion of the transition to US GAAP accounting and the primary listing process. The continuity of CFO responsibilities is ensured through an appropriate internal appointment. 

COST OF DOING BUSINESS: Illinois senators have approved the 2025 budget, which includes an increase in the state’s sports betting tax and the introduction of a progressive tax rate for operators based on their revenue, Tom Nightingale of SBC Americas noted. The Illinois Senate passed a budget version incorporating a progressive wagering tax increase, imposing a 40% rate on operators with the highest adjusted gross revenue. House Bill 4951 would nearly triple the tax rate for the most successful sportsbooks in the state, making Illinois’ maximum tax rate the second-highest in the country, trailing only New York’s 51%. Deutsche Bank said the Illinois bill to increase taxes on the online sports betting industry, on its own, its not “overly draconian for the operators, and of little consequence to the majority of the operators in the state.” However, the industry is positioned to endure state tax pressure for years to come, according to the analyst. The firm believes several states are likely to follow the lead of Illinois with higher tax rate structures, when budget needs arise, including New Jersey, Michigan, Iowa, Indiana, Massachusetts, Arizona, and Kansas. New Jersey and Michigan would be the most punitive, given the well below peer tax rates on the online sports betting side, as well as the relatively low internet casino segment tax rate, contends Deutsche Bank. Shares of DraftKings (DKNG) and Flutter Entertainment are down this morning following the Illinois development. Citi stated DraftKings and Flutter’s FanDuel are likely to be the only OSBs subject to the 40% tax rate based on 2023 performance. The firm estimates that DraftKings could see a 2024 adjusted EBITDA headwind up to about $67M “under a worst-case scenario.” The firm also added that shares of DraftKings were down about 12% on Tuesday following this news, which is “akin to ~$2.3 billion of value destruction” as investors appear to be pricing in a roughly $122M annualized adjusted EBITDA headwind “worst-case scenario.” The firm, which remains buyers on today’s weakness, has a Buy rating and $57 price target on DraftKings shares. Additionally. Craig-Hallum raised the firm’s price target on Rush Street Interactive (RSI) to $11 from $10 and maintained a Buy rating on the shares. The Illinois Senate approved an increased and progressive tax on online sports betting from a flat 15% to 20% – 40% tiered rates, which is an industry negative, the analyst tells investors in a research note. However, Rush Street is “insulted and a beneficiary,” said the firm. Hallum believes the progressive nature of the tax creates the biggest incremental burden on the leaders. The progressive tax system impacts the smaller operators less and should create more favorable competitive dynamics relative to FanDuel and DraftKings, contends the firm.

STATE UPDATE: North Carolina, a newly launched state, has made an “exceptionally strong” debut. In its first full month, the state achieved a handle of $649M and gross gaming revenue, or GGR, of $105M, resulting in an “impressive” 16.2% margin, according to Jefferies. Only New York surpassed North Carolina in terms of GGR during that month. Adjusting for population differences, North Carolina’s April handle exceeded New York’s by 7%. Jefferies believes North Carolina’s promotional approach appears sensible. Free bets constituted only 12% of the total handle, marking the lowest level for a first full month among recently launched states that disclose promotional activity. Furthermore, when accounting for days and population, the underlying expenditure on free bets was less than a third of what Ohio experienced in its initial month, Jefferies concluded. As a result, North Carolina achieved positive net gaming revenue (NGR) in its inaugural full month and recorded the highest underlying NGR among recent state launches.

ADDITIONAL ANALYST COMMENTARY: Seaport Research last night upgraded Wynn Resorts (WYNN) to Buy from Neutral with a $116 price target. The stock’s 9% decline since mid-April is unwarranted, with Wynn having delivered strong Q1 results in Macau and showed continued resilience in Las Vegas, the analyst told investors. The firm says that at its current valuation level, Wynn is a “compelling buy” over the next few quarters as Macau continues to ramp up, even in the face of a stagnating Las Vegas that is well anticipated already. 

Susquehanna lowered the firm’s price target on Penn Entertainment to $26 from $27 and maintained a Positive rating on the shares. The firm thinks the risk/reward is attractive at current levels, especially if the company can inflect its digital business in 2H24. Based on its analysis, Susquehanna thinks its digital strategy can be successful, and now they need to see it inflect in 2H24. The firm also decreased its price target on Flutter to $235 from $249 and kept a Positive rating on the shares. The firm said the target reduction was made largely to reflect lower multiples in the US segment largely in light of a “profitability curve” that is likely pushed out given higher taxes and their view that 2H24 is likely to be more competitive than previously expected.

Stifel shifted its price target on DraftKings to $50 from $51 and backed a Buy rating on the shares after the Illinois senate passed a FY25 budget that includes a revised online sports betting graduated tax rate system that is expected to pass with implementation scheduled for July 1. While such a tax hike was largely expected by investors, the progressive structure is incremental and disproportionately impacts DraftKings and FanDuel, noted the analyst, who added that the news has sparked fears of similar proposals in additional states. The firm, however, believes the initial pullback overstates risk of “contagion” and views the weakness as a buying opportunity, while adjusting its model to factor the proposed tax revision.

BofA upgraded Melco Resorts (MLCO) to Buy from Neutral with a price target of $10.40, up from $7.50. The company’s investment in customer services since the start of 2024 is paying off, the analyst opined. The firm also believes less intensive promotion competition should allow Melco to see a sustained recovery in March gaming revenue market share.

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).