Bet On It: NASCAR pacts facilitate sports betting operations in Tar Heel State

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: Earlier in the week, Macau’s gaming bureau reported December gross revenue from games of fortune in the region was up 433.3% year-over-year to 18.567B patacas.

NASCAR PARTNERSHPS IN NORTH CAROLINA: BetMGM, a joint venture between MGM Resorts (MGM) and Entain (GMVHF), and Charlotte Motor Speedway announced a new market access agreement enabling BetMGM to bring its online sports betting platform to North Carolina once legalized sports betting launches. “We have been eagerly awaiting legal, safe, regulated online sports betting in North Carolina, a state with more than 10 million people and one of the most vibrant sports environments in the country. BetMGM’s partnership with Charlotte Motor Speedway meets a great demand for entertainment from North Carolinians. Together we will deliver a premier and responsible gaming product that benefits many state agencies,” said BetMGM CEO Adam Greenblatt. Subject to regulatory approval, BetMGM expects to offer online sports betting as soon as North Carolina’s regulated market commences, expected to be in the first quarter of 2024.

Separately, DraftKings (DKNG) and National Association for Stock Car Auto Racing, or NASCAR, announced that they have agreed to terms on a written designation agreement, paving the way for the digital sports entertainment and gaming company to operate in the state of North Carolina, pending licensure and regulatory approvals. “DraftKings and NASCAR have collaborated closely with each other over the years, sharing a likeminded commitment to enhancing the fan experience,” said Matt Kalish, President, DraftKings North America. “We look forward to the next chapter in our journey together and offering our leading mobile sportsbook to fans in the state of North Carolina.” DraftKings also has been named the exclusive daily fantasy sports partner of NASCAR in the United States and Canada, becomes an Authorized Gaming Operator of NASCAR, and will receive additional sponsorship benefits within the NASCAR ecosystem nationally.

NOVEMBER TO REMEMBER: Benchmark expects unfavorable sports results in November may present challenges to DraftKings’ (DKNG) expected growth in Q4, potentially leading to results that fall short of the consensus. The firm estimates November’s hold rates for online sports betting experienced a pressure of approximately 150 basis points. This could translate into a reduction of around $50M in revenue and $35M in adjusted EBITDA, relative to the midpoint of the company’s provided guidance range, the analyst told investors in a research note. Benchmark is awaiting the final data for December, but says preliminary indications suggest the hold rate has returned to a normal level of about 9%. It believes pressure on the hold rate in November to be a temporary occurrence and keeps a Buy rating on the shares with a $41 price target. We maintain our view that DraftKings’ structural growth in hold rates remains robust, considering the November pressure as a temporary setback. DraftKings had earlier outlined their guidance for fiscal year 2024, which the firm was anticipating.

OPERATING LEVERAGE: Macquarie’s analytical model predicts an 8% sports betting market hold for the week of December 25-31, with a projected football hold of 7% and 9% for all other sports. In comparison, New York reported a 10% sports betting hold during December 18-24, with a three-month handle growth of 32% YoY, a reliable indicator for the fourth quarter. As of December 24, the estimated market hold for the fourth quarter in New York is trending at 8.3%. This has resulted in headwinds of 218bps, 90bps, 103bps, and 18bps for FanDuel (PDYPY), Caesars (CZR), BetMGM, and Rush Street Interactive (RSI), respectively, but a 25bps tailwind for DraftKings, based on New York data. This lower year-over-year market hold is primarily attributed to unfavorable game outcomes. DraftKings and RSI lead in three-month gross gaming revenue, or GGR, growth at 44% YoY and 71% YoY, while Caesars and BetMGM have experienced negative GGR growth mainly due to hold headwinds. The firm initiated coverage of Genius Sports (GENI) with an Outperform rating and a $11 price target. The company operates in a quasi-duopoly market with a substantial total addressable market and is well-positioned to surpass sports betting market growth, leading to significant operating leverage, Macquarie told investors.. The firm  anticipates free cash flow of at least $70M in 2025 and $120M in 2026, with potential additional gains from accelerated adoption of new products like BetVision, contributing to increased advertising revenues. While it’s early, initial state GGR reports for ESPN Bet (PENN) seem promising, according to the firm. Average GGR share has been at 12%, with a handle around 6%. However, these results only cover half of November and are from more established and competitive states. Furthermore, hold rates typically increase during heavy promotional periods, suggesting it might take three to six months to gauge a more accurate normalized hold going forward. From the perspective of market Macquarie believes ESPN Bet has the potential to expand the overall market due to its brand appeal to a wider customer base.

SUPREME COURT TO RULE: The Florida Supreme Court is expected to issue a ruling regarding sports betting imminently, although there’s a possibility that the legal proceedings could extend over several years, Shira Moolten of Sun Sentinel reported. West Flagler Associates, a consortium of betting companies that initiated the lawsuit, submitted its final brief on Tuesday, responding to arguments presented by Governor Ron DeSantis’ office and making a final appeal for the court to consider the case. According to West Flagler, the case holds significant implications for the rights of Florida’s voters, a majority of whom, over 70%, endorsed a constitutional amendment in 2018, referred to as Amendment 3. This amendment grants exclusive authority to the voters to ‘authorize casino gambling’ in the state through another constitutional amendment. Critics frequently allege that Governor DeSantis and the state are bypassing constitutional amendments, often citing the agreement between the Seminole tribe and the state as an instance of such actions.

ADDITIONAL ANALYST COMMENTARY: Wells Fargo downgraded Churchill Downs (CHDN) to Equal Weight from Overweight with a price target of $137, up from $135. The firm sees risk/reward as fair here, though an upside scenario could push Churchill Downs to $170, the analyst tells investors in a research note. Even if Churchill Downs has “superior” growth prospects, this is mostly reflect in the stock’s premium, the firm adds.

Wells Fargo also downgraded Bally’s (BALY) to Underweight from Equal Weight with an unchanged price target of $10. The firm’s more cautious view reflects no line of sight to leverage dropping below six times for the foreseeable future, which could limit Bally’s appeal, the analyst told investors in a research note. Wells estimates Bally’s could sell/leaseback its remaining real estate.

Stifel downgraded Boyd Gaming (BYD) to Hold from Buy with a price target of $69, down from $78. Regional gaming sales trends “remain muted,” said the analyst, who sees further risk to spending and visitation patterns heading into 2024 given “deplenished” excess savings and lagged tightening effects. Based on trends to-date, softness in spending will remain most impactful for lower income players in certain markets within the South and Midwest – both regions where Boyd has meaningful exposure, the analyst tells investors in a research note.

Melco Resorts (MLCO) was downgraded to Equal Weight from Overweight at Morgan Stanley with a price target of $9.60, down from $14. The analyst reduced estimates through 2025 to reflect the company’s higher reinvestment costs and operating expenditures. While the shares are cheap relative to peers, City of Dreams and Studio City “need more recovery,” the analyst noted. The firm, however, remains constructive on the Macau gaming industry.

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).