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: Bally’s Corporation (BALY) announced earlier this week a restructuring plan of the Interactive business intended to reduce operating costs and "continue the company’s commitment to achieving profitable operations in its North American Interactive segment." The plan includes a reduction of the company’s current Interactive workforce by up to 15%. "Decisions regarding the elimination of positions are subject to local law and consultation requirements in certain countries, as well as the company’s business needs. The company estimates that it will incur between approximately $10M to $15M in cash severance costs in connection with the Plan, which the company expects to incur in the first quarter of 2023. The estimates of the charges and expenditures that the company expects to incur in connection with the plan, and the timing thereof, are subject to a number of assumptions, including local law requirements in various jurisdictions, and actual amounts may differ materially from estimates," the company said in a regulatory filing.
Meanwhile, Boston Herald sports columnist Bill Speros reported that Bally Sports, FanDuel (PDYPY), Betr (SGHC), and DraftKings (DKNG) have been approved for Massachusetts sports betting licenses.
Additionally, Gan Limited (GAN) announced this week its launch in the regulated Mexican market, making it Coolbet’s tenth country of operations. Starting January 16, Coolbet has partnered with a locally licensed partner allowing the use of its brand to offer eligible customers in Mexico the opportunity to place bets on its cutting edge platform and will also provide support to the operations. Mexican sports fans will be able to bet on the most popular events in Mexico and LATAM, including the 2023 Mexico Open, MLB Mexico, Copa Libertadores, Copa Sudamericana, Recopa Sudamericana, and Formula 1, among many others. Endre Nesset, President of B2C for GAN, commented: "We are thrilled to be live and operating in the regulated Mexican market and bringing the award-winning Coolbet brand to local players. We expect our share of the market to grow over time, but initially we expect both investment spend and revenue to be modest, as we gain familiarity with the market. Thus far, our planned launch in Mexico has been asset-light, with limited marketing spend focused on targeted social media and digital campaigns, and plans to sponsor Mexican athletes and streamers to drive awareness. We look forward to supporting our local partners as we grow our presence in this exciting market."
KENTUCKY: Kentucky State Senate Majority Leader Damon Thayer told Legal Sports Report that he expects momentum towards legalizing sports betting in the state to carry over from last year’s failed attempt, though a shortened odd-year session and strong religious opposition will be difficult to overcome. “Anything can happen, I’m not willing to lay odds on it at this point, but I think the chances are better than last year,” Thayer said. “My hope is we can make some progress this year and then if we aren’t successful, then it sets up next year when we have a longer session and lower threshold."
KANSAS: Meanwhile, Kansas sportsbooks generated over $1.03M in taxes in December, bringing the state’s haul since launching sports betting in September to $2.09M, Legal Sports Report’s Sam McQuillan reported, citing the Kansas lottery. The figure marks the third straight month of momentum for the state’s sports betting taxes, which Governor Laura Kelly recently suggested increasing or at least revising, the author noted.
LOUISIANA: Looking to the South, Louisiana Gaming Control Board Chairman Ronnie Johns told Legal Sports Report that he is more than happy with the first year of sports betting in the state, as revenue beat projections. “We could not be more pleased with the first year, we’ve had virtually no problems,” Johns said. “Obviously you want your numbers to be good for it to be successful, and it has. But as a regulator, first and foremost, you want things to go smooth and compliant and we’ve had no problems.”
NEW YORK: Additionally, New York State Senator Joe Addabbo has introduced legislation that would boost the number of online sports betting operators in the Empire state, resulting in a tax reduction, Legal Sports Report’s Mike Mazzeo said. Under the proposed measure, New York would have no fewer than 14 online New York sports betting operators by January 31, 2024, and no fewer than 16 operators by January 31, 2025.
ANALYST COMMENTARY: Earlier this week, Macquarie analyst Chad Beymon issued a note on the Gaming industry heading in 2023, saying that while he conservatively forecasts mid-teens 2023 industry gross gaming revenue, he believes higher hold and lower promos will lead to roughly 20%-30% SS company net gaming revenue growth. Beymon noted that this is without new legislation, which would be a "major catalyst" for the sector. In terms of competition, the analyst subscribes to the early mover or golden cohort view and doesn’t anticipate new entrants to significantly alter market share. As for profits, Beymon believes improved technology, better cost containment, and reduced media commitments could result in bottom-line upside surprises. The analyst, who said he is most constructive on this subsector, named MGM (MGM), DraftKings, Churchill Downs (CHDN), VICI Properties (VICI), and Caesars (CZR) as his top picks in the Gaming sector.
Meanwhile, Roth Capital analyst Edward Engel initiated coverage of Boyd Gaming (BYD) with a Buy rating and $70 price target. The analyst views Boyd as a stable free cash flow compounder, where 80%-plus of free cash flow is directed to dividends/buy-backs. In the face of an uncertain macro, Boyd has a clean balance sheet, 1% dividend yield and is repurchasing 7%-plus of stock annually, Engel adds. Given its clean/simple story, consistent capital returns and 10%-plus free cash flow yield, the analyst sees Boyd capturing the attention of a broader investor base than typical gaming stocks.
Additionally, Susquehanna analyst Joseph Stauff raised the firm’s price target on Churchill Downs to $280 from $250 and keeps a Positive rating on the shares. The analyst views the shares as having a very favorable risk-reward trade off considering the visibility into its higher earnings power and our conviction level it can execute toward it.
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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