Bet On It: Operators gear up for first quarter earnings reports

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: Elys BMG Group (ELYS) announces that The Ugly Mug in Washington D.C. has been granted provisional approval from the District of Columbia Office of Lottery and Gaming Regulation and Oversight Division to open its sportsbook at 723 8th St. SE. As the fourth privately owned sportsbook venue in the District powered by Elys’ innovative Gameboard betting technology, The Ugly Mug stands as a testament to Elys’ commitment to bringing solutions to local businesses and sports enthusiasts. The grand opening for The Ugly Mug sportsbook is anticipated to occur during the week of April 27th. Elys will unveil the grand opening festivities, promotions and events as the date draws closer.

MGM Resorts (MGM) is suing the FTC to stop an investigation into a 2023 cyberattack and is asking for FTC Chair Lina Khan’s recusal, Bloomberg’s Sabrina Willmer reported. Khan was visiting MGM Grand on the Las Vegas strip in September when the company was hit by a cyberattack that temporarily shut down its computer systems, according to the report. The FTC is likely to challenge the MGM lawsuit, according to a person briefed on the situation.

Bally’s (BALY) filed to sell 7.91M shares of common stock for holders.

STATE UPDATE: Online sports betting data for March has been reported by six states. Across these states, the total handle increased by 14% year over year, while the gross gaming revenue, or GGR, decreased by 3%, according to Jefferies. The margins were 1.5 percentage points lower at 8.5%. The firm noted that the decline in margins was likely influenced by unfavorable results from the March Madness college basketball tournament, especially in the earlier rounds. In New York, weekly data revealed a weak 5.8% margin during the first week of the tournament, gradually recovering to 9.2% in the second week and 9.0% in the third week. Maryland’s data highlighted a 3.2% GGR margin on college basketball throughout the entire month. Among operators, DraftKings (DKNG) saw a 2% increase in GGR for March, while FanDuel (FLUT) experienced a 1% decrease, and BetMGM faced a significant decline of 28%. FanDuel retained its position as the market leader with a GGR share of 47%, followed by DraftKings at 33% and BetMGM at 7%. ESPN Bet (PENN) held a 1% GGR share in March. Across the six states reporting data for the entire Q1 period, online sports beting handle increased by 17% YoY, with GGR up by 20%. Margins also improved by 0.2 percentage points. Maryland’s data suggested a 22% increase in net gaming revenue during Q1. The quarter was characterized by double-digit handle growth throughout. Margin strength in January drove the highest monthly GGR growth, followed by flatter margins in February resulting in slower growth. March had particularly weak margins, leading to a small GGR decline. Among operators, DraftKings saw a substantial 42% increase in GGR for Q1, while FanDuel grew by 16%, and BetMGM declined by 17%. FanDuel maintained its market share leadership with 48%, followed by DraftKings at 35% and BetMGM at 7%. ESPN Bet held a 1% GGR share in Q1. Maryland is the only state providing additional information on promotional deductions. In March, free bet spend increased by 13% YoY to $10.8M, accounting for 25% of GGR. However, for the entire quarter, market free bet spend remained relatively flat in absolute dollars, but decreased as a share of GGR to 28%., Jefferies said in a research note. FanDuel maintained consistent promotional deductions in March after reducing them in February. DraftKings, on the other hand, decreased its promotional deductions. FanDuel’s bonus efficiency allowed it to retain a dominant market position, with Q1 shares of 46% of handle, 57% gross gaming revenue, and 58% net gaming revenue, compared to DraftKings’ 30% shares. Early April data from New York indicates that strong trends from late March continued. Market handle increased by 2% week over week or 36% YoY during the first week of April. This growth was likely supported by ongoing March Madness activity. Major operator market share trends appear consistent with March outcomes. FanDuel’s handle share remained flat at 42%, while DraftKings’ share increased by 2 percentage points to 35%.

Q1 PREVIEW: In BofA’s preview for Q1, the firm made adjustments to its Q1 estimates. BofA fine-tuned estimates for market share in Macau, incorporated the latest trends in regional markets and reviewed performance and valuation metrics. Since Q4, gaming stocks have lagged behind the broader market due to negative estimate revisions in regional markets, concerns about peak performance in Las Vegas, and the impact of higher interest rates, the firm told investors in a research note. BofA anticipates a positive outcome for Wynn Resorts (WYNN) but remains 5% below the Street’s expectations for Caesars (CZR). In Macau, the firm expects significant outperformance from MGM Resorts and Wynn, driven by share gains. Regionally, estimates align with or slightly trail consensus. Despite initial optimism following the February update, March sport outcomes have led to lower online sports betting hold, potentially limiting upside in Q1. Mix considerations, especially for NCAA-heavy operators, may also play a role. For DraftKings, BofA projected a net gaming revenue beat of around $70M based on a 10% hold in March. However, recent data suggests a hold closer to 7.5%, slightly below last quarter’s reported 9.2% on a weighted average basis. The firm revised performance expectations to in line with Q1 net gaming revenue estimate of $1.10B, with approximately breakeven EBITDA. Structural hold commentary and promotional strategies will be crucial. For ESPN Bet, it is anticipated that a Q1 EBITDA loss of approximately $200M, compared to guidance of around $170M. Limited March online sports betting data indicates that ESPN Bet’s hold has been below market levels, potentially impacting its $65M net gaming revenue estimate.

EARNINGS RECAP: Las Vegas Sands reported first quarter earnings on Wednesday. The company surpassed analyst consensus in both earnings per share and revenue. Las Vegas Sands noted Q1 consolidated adjusted property EBITDA of $1.21B and Q1 Macao adjusted property EBITDA of $610M. “We were pleased with our financial and operating results for the quarter, which reflect strong growth in both Macao and Singapore. We remain deeply enthusiastic about our opportunities to deliver industry-leading growth in both markets in the years ahead, as we execute our substantial capital investment programs in both Macao and Singapore,” said Robert Goldstein, chairman and CEO. “In Macao, the ongoing recovery continued during the quarter. Our decades-long commitment to making investments that enhance the business and leisure tourism appeal of Macao and support its development as a world center of business and leisure tourism positions us well as the recovery in travel and tourism spending progresses. In Singapore, Marina Bay Sands once again delivered record levels of financial and operating performance. Our new suite product and elevated service offerings position us for additional growth as airlift capacity continues to improve and travel and tourism spending in Asia continues to advance. Our financial strength and industry-leading cash flow support our ongoing investment and capital expenditure programs in both Macao and Singapore, our pursuit of growth opportunities in new markets, and our program to return excess capital to stockholders. We repurchased $450 million LVS shares under our share repurchase program during the quarter. We look forward to utilizing our share repurchase program to continue to return excess capital to stockholders in the future.” Shares dipped nearly 3% in after-hours trading on Wednesday following the report.

Stifel lowered the firm’s price target on Las Vegas Sands to $65 from $70 and reaffirmed a Buy rating on the stock. While investor expectations around Macau remain low, the firm believes Las Vegas Sands has now “essentially de-risked the remainder of 2024/early-2025” and the firm says that “hopefully 1Q24 results will end up being a clearing event.” While near-term results will continue to get scrutinized, the firm continues to believe investors are underestimating the full magnitude of the Macau market and would be using any near-term weakness to buy shares for investors with a longer-term time horizon, the analyst added.

ADDITIONAL ANALYST COMMENTARY: JMP Securities lowered the firm’s price target on Caesars to $62 from $65 and confirmed an Outperform rating on the shares. March casino revenue was up 3% year over year, capping a mixed Q1 for brick-and-mortar gaming, and while weather hurt headline results for the quarter, March spend/visitor was up year over year for the first time since late 2022, acting as an encouraging key performance indicator for companies heading into a period of easier comps, the analyst noted. The earnings contribution stemming from online divisions will start to meaningfully benefit Caesars through valuation and cash flow, JMP said.

Barclays raised the firm’s price target on Wynn Resorts to $124 from $123 and reiterated an Overweight rating on the shares as part of the Q1 preview for the gaming space. The firm prefers the Las Vegas high end over the low end, saying regionals and online sports betting have been mixed with internet gaming strong across the board. Additionally the firm:

• Decreased its price target on Penn Entertainment to $26 from $27 and kept an Overweight rating
• Raised its price target on DraftKings to $52 from $50 and backed an Overweight rating
• Lowered the firm’s price target on Caesars to $63 from $65 and maintained an Overweight rating

Mizuho lowered the firm’s price target on Las Vegas Sands to $65 from $70 and held a Buy rating on the shares post the Q1 report. The analyst believes the net result should be lower Street estimates in 2025 and potentially 2025 as well. However, “exceptional” results in Singapore, declining capex, and a supportive valuation warrant a constructive stance, the analyst tells investors in a research note.

Benchmark initiated coverage of Penn with a Hold rating and no price target. While the firm has concerns about the ability of ESPN Bet to significantly influence the U.S. online sports betting market, it also thinks these issues are already reflected to “some degree” in the company’s current valuation and contends that given the “diminished valuation” that shares could see a potential valuation reset if ESPN Bet can gradually capture a material market share.

Goldman Sachs initiated coverage of DraftKings with a Buy rating and $60 price target, implying 36% upside. The analyst expects DraftKings to compound revenue at 20%-plus as it continues to benefit from “healthy growth” in existing states, as well as future state legalizations across online sports betting and internet gaming. While the stock is up 65% over the past nine months, DraftKingsis trading at a growth adjusted revenue multiple of 0.15 times, which is down 20% over the same time period, the analyst told investors in a research note. Additionally, Goldman Sachs started coverage of Genius Sports (GENI) with a Buy rating and $7.50 price target, implying 40% upside. The company builds and distributes business-to-business data and technology solutions for the sports betting, media, and sports industries, the analyst tells investors in a research note. The firm sees an attractive buying opportunity at current levels over the next 12 months as it expects Genius to continue to compound revenue well into the double-digits as it directly benefits from the “rapid growth” of online sports betting.

Jefferies analyst David Katz lowered the firm’s price target on Sportradar (SRAD) to $11 from $13 and kept a Hold rating on the shares ahead of the Q1 report. The analyst reduced EBITDA margin assumptions to account for management’s latest guidance. While the U.S. online sports betting market improving and the focus on technology and data providers could increase, Sportradar is in the midst of a CFO change, which adds inherent uncertainty, the analyst said.

Seaport Research initiated coverage of Wynn Resorts with a Neutral rating and no price target. Also, Melco Resorts (MLCO), Las Vegas Sands and MGM were all initiated with a Buy by the firm. Seaport initiated coverage on the global casinos and gaming industry with its initial work focused on the three global U.S. casino operators and the six operators in Macau. The group has generally underperformed the broader market even while fundamentals in Macau continue ramp up strongly following three years of COVID shutdowns and 2024 is set to deliver positive growth in revenue and profitability, the analyst tells investors in a research note. The firm says there are headwinds for the U.S. casino industry due to uncertainty around the economic slowdown. It expects Macau to deliver strong results in 2024 and into 2025, while the U.S. industry will potentially see some headwinds that could limit growth relative to last year. However, the longer term secular prospects for both Asia and the U.S. look strong, says Seaport. Its top pick on valuation is Melco Resorts & Entertainment (MLCO). Its top pick overall based on risk/reward and fundamental outlook is Las Vegas Sands.

Lastly, Wells Fargo upgraded Churchill Downs (CHDN) to Overweight from Equal Weight with a price target of $141, up from $137. Following a period of year-to-date underperformance, the firm sees an attractive entry point here. Virginia overhang is removed, there’s a number of near-term catalysts, and multi-year capex cycle is winding down, Wells contended.

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).