Bet On It: North Carolina issues eight licenses ahead of OSB launch

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: Caesars (CZR) announced its sports wagering platform, Caesars Sportsbook, became the first sportsbook to launch legalized mobile sports betting in the state of North Carolina. “Made possible under the Indian Gaming Regulatory Act and through Caesars’ expanded relationship with the Eastern Band of Cherokee Indians, the Caesars Sportsbook app is now exclusively accepting mobile sports bets at Harrah’s Cherokee Casino Resort in Cherokee, NC, Harrah’s Cherokee Valley River Casino & Hotel in Murphy, NC and on surrounding Eastern Band of Cherokee Indians tribal lands,” the company stated. In addition to the exclusive launch on tribal lands and in advance of going live statewide on March 11, subject to regulatory approval, those 21 and older in North Carolina can download the Caesars Sportsbook app on iOS and Android, the company noted.

Macau’s gaming bureau reported February gross revenue from games of fortune in the region was up 79.1% year-over-year to 18.486B patacas.

Nevada reported January statewide gaming win was up 0.51% to $1.28B. The state reported January Las Vegas Strip gaming win was down 3.79% to $686.18M versus last year.

JANUARY: Digital gross gaming revenue, or GGR, for January is on pace to reach $1.86B, marking a significant 28% year-over-year increase, according to BofA. This growth, although slightly slower than the 38% seen in December and the 32% recorded for the entire fourth quarter, demonstrates a :”robust” performance. The online sports betting, or OSB, sector experienced a 32% year-over-year increase, a deceleration from the 47% observed in December due to the annualization of the Ohio sports betting launch, the firm noted.. In January, iGaming GGR showed a 19% year-over-year growth, a modest slowdown from 22% in December but aligning with BofA’s Q1 estimate of 18% year-over-year. The OSB handle grew by 28% year-over-year, indicating a deceleration from 46% in December and 46% in the entire fourth quarter. Notably, the January OSB hold of 10% reflects a year-over-year increase of 40 basis points and a month-over-month increase of 10 basis points. Looking ahead to the rest of Q1, February holds more manageable comparisons at 8.1%, while March poses a challenge with a hold of 9.8% last year. In terms of app downloads, the firm told investors that DraftKings (DKNG) and FanDuel (FLUT) continue to exhibit strength in February, capturing 29% and 26% share in OSB, respectively. Super Bowl weekend significantly influenced OSB downloads for the month, with DraftKings securing approximately 40% of the total downloads. Newer players like Hard Rock and ESPN Bet also made strides, garnering 8% and 6% online sports betting download share in February, respectively. Consistent with GGR market share trends, FanDuel is increasing its iGaming app download share, reaching 40% in February compared to 37% in January.

STATE UPDATE: Following a slight delay, Kentucky has now released online data up to December 2023, becoming the most recent state to legalize online activities since its launch on September 28. Since its inception, the state has achieved a handle of $850M and a GGR of $107M, according to Jefferies. In terms of market share, FanDuel and DraftKings are leading operators, closely tied with a 37% share each. Bet365 secures the third position with a 12% share, followed by ESPN Bet at 5% and BetMGM (MGM) at 4%. Free bet data for January has been disclosed by six states. Across these states, statewide promotional deductions increased by 40% year-over-year in absolute dollar terms, but decreased by two percentage points year-over-year as a share of GGR, the firm noted. ESPN Bet (PENN) scaled back its promotional deductions significantly, experiencing an 87% month-over-month reduction to just $3M.  Jefferies told investors that this marks a substantial decline from the $50M and $26M observed in its initial two months. In contrast, FanDuel appears to have intensified its promotional activity in January, with promotional deductions increasing by five percentage points year-over-year to reach 33% of GGR. This stands in stark contrast to peers DraftKings and BetMGM, which have reduced their promotional spend by 12 and 16 percentage points year-over-year, respectively. Despite spending the most in absolute dollar terms, FanDuel remains the most promotionally efficient among major operators. 

TAR HEEL STATE READIES FOR LAUNCH: Pre-registration for online sports betting accounts in North Carolina is now available, Pat Evans of Legal Sports Report reported. Starting at noon on Friday, users in North Carolina can sign up for eight online sports betting apps in preparation for the upcoming March 11 launch. Although legal wagering is set to begin in 10 days, individuals can already register and deposit funds into their accounts. The licensed operators include:

• Bet365
• BetMGM
• DraftKings
• ESPN Bet
• Fanatics
• FanDuel
• Tribal Casino Gaming Enterprise
• Underdog

In addition, regulators have granted a service provider license to Caesars, which will serve as the online sportsbook for the Eastern Band of Cherokee Indians. While the EBCI operates casinos, including in-person Caesars sportsbooks, North Carolina currently does not offer online casinos.

EARNINGS RECAP: Melco Resorts (MLCO) reported fourth quarter earnings on Thursday, beating last years comparable EPS and revenue by a wide margin. Lawrence Ho, chairman and chief executive officer, commented, “Macau continues to demonstrate its extraordinary growth potential and has shown resilience despite China’s uncertain macro-economic outlook. Visitations to Macau during this month’s Chinese New Year holiday period were close to 2019 levels and the number of visitors from China exceeded 2019. 2023 was a year of post-pandemic recovery and the debut of our new developments, including City of Dreams Mediterranean and Studio City Phase 2. 2024 is set to be another exciting year for us as we continue to develop new ideas and strategies to bring market leading leisure and entertainment offerings to our customers. As part of our initiatives to ensure Melco is leading the market in all areas of our business, we are making changes to management in Macau and bolstering the leadership team. We expect these changes will strengthen us as a team to secure a stronger and more competitive future. City of Dreams Manila in the Philippines has continued to show solid growth with significant market share gains in mass table games and slots. City of Dreams Mediterranean in Cyprus continues to be impacted by the conflicts in the region but is starting to show some signs of recovery so far this year.”

Additionally, Accel Entertainment (ACEL) beat consensus estimates with its results in Q4. Accel CEO Andy Rubenstein commented, “I am excited to report that Accel had another record-setting year in 2023. Our continued success demonstrates the long-term viability of focusing on the local gaming market. We continue to explore opportunities throughout the country to expand our reach as an industry leader and remain committed to providing value and positive returns to our investors.”

POST EARNINGS RESHUFFLING: Morgan Stanley revised its estimates on Penn Entertainment based on the fourth-quarter results and management’s comments during the earnings call. To account for softer trends in January and slight adjustments in operating expense assumptions, the firm lowered its 2024/25 estimated regional EBITDAR to $1,943M/$1,941M. Additionally, digital EBITDA for 2024/25 estimated is now projected at (466M)/(14M) to align with the updated guidance provided by management, forecasting EBITDA of (400M)/$0M over the next two years. Morgan Stanley lowered the firm’s price target on Penn to $21 from $23 and maintained an Equal Weight rating on the shares.

The firm made adjustments to Caesars projections based on the recent insights provided by management during the Q4 earnings call . Revised estimates for 2024/25e regional EBITDAR are now $1,944M/$1,925M. This adjustment accounts for subdued trends in January and slight increases in operating expense assumptions. Additionally, revised digital EBITDA for 2024/25 is $175M/$301M. This reflects both management’s guidance regarding 50%-60% EBITDA flow-through and updated forecast for the U.S. online market. For Vegas EBITDAR, Morgan Stanley have a slight upward adjustment to $1,949M/$1,953M to incorporate slightly improved operating trends, counterbalanced by management’s indication of “mid-single digit” operating cost inflation in 2024. The firm decreased its price target on Caesars to $44 from $45 and kept an Equal Weight rating on the shares.

Morgan Stanley tweaked estimates for specific operators MGM and Boyd Gaming (BYD) to align with revised online market forecasts, and also incorporated slight modifications for MGM’s trends in Vegas. Additionally, the firm marginally raised the regional multiple for BYD from 6x to 6.3x, considering “improved” trends. Overall, these adjustments have a minimal impact, resulting in a slight shift of less than 1% for the 2024/25 estimated consolidated EBITDAR for each operator. Consequently, Morgan Stanley’s target for BYD experienced a slight increase to $71 from $70, while MGM saw a modest uptick to $45 from $44.

Lastly, the firm raised the price target on DraftKings to $49 from $40 and reaffirmed an Overweight rating on the shares as the firm adjusted estimates to reflect the Jackpocket acquisition and its latest total addressable market forecasts. The firm’s view remains above consensus and 2024 guidance and it expects capital allocation to be “the key catalyst moving forward,” the analyst told investors.

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).