Bet On It: Penn shareholder seeks board representation

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: In a regulatory filing, HG Vora Capital Management disclosed that they hold the economic equivalent of an 18.5% position in Penn Entertainment’s (PENN) common stock, consisting of beneficial ownership of 14.5M shares of the company’s outstanding common stock and a cash-settled swap agreement representing economic exposure to an additional 13.5M shares of common stock, plus other cash-settled options. “The Reporting Persons have deep experience investing in the casino and online gaming sectors, are long-term shareholders of the Issuer, and believe the Issuer’s Common Stock is significantly undervalued. The Reporting Persons have discussed with the Issuer’s management and its board of directors a range of topics focused on enhancing shareholder value. Given the persistent underperformance of the Common Stock and the Issuer’s capital allocation track record, amongst other areas of concern, the Reporting Persons have requested that the Issuer afford them the right to designate highly qualified directors who would be committed to working with the Issuer’s management and fellow Board members to help the Issuer realize its full potential,” the firm stated in its filing. In pre-market trading, Penn shares were up 52c, or 2%, to $25.53.

Gan Limited (GAN) announced that Red Rock Resorts (RRR) has commenced field trials of Gan Sports under the STN Sports brand at all properties of Station Casinos. The field trial commenced with the certification of Gan’s GameSTACK 2.0 Platform. The company said the platform’s utilization of a single wallet for race and sports allows players the ease and convenience of an accessible central location for their playing experience. The all-new STN Sports mobile app includes Nevada’s largest wagering menu, same game parlay wagering options, higher parlay payouts, a single wallet for race and sports, and a variety of game-changing features set to roll out in early 2024.”

VIVA LAS VEGAS: Nevada reported November statewide gaming win up 12.56% to $1.37B. The state also reported November Las Vegas Strip gaming win up 22.63% versus last year to $820.99M. Macquarie told investors in a research note that the firm anticipates that the segments in Las Vegas will outperform expectations in the fourth quarter, likely by a mid-single-digit margin. This projection assumes consistent market shares for MGM Resorts (MGM), Caesars (CZR) and Wynn Resorts (WYNN), with minimal disruptions due to cyber-attacks. Based on the robust results seen on the Strip in November, Macquarie is revising its forecast for fourth-quarter gross gaming revenue, or GGR, to show an increase of 8% year over year, up from the previously anticipated 1% year-over-year. This adjustment implies a 6% GGR growth for 2023. The firm told investors that November’s outcomes as a positive development for Strip operators compared to the existing forecasts. The surprise stemmed from the amplified GGR on tables and baccarat, likely influenced by increased patronage from high-end customers such as F1 enthusiasts. Macquarie maintains optimistic outlook for the future of Las Vegas, emphasizing the ongoing addition of recurring events like the Sphere. Furthermore, the firm contends that the future introduction of MLB events not only promises additional revenue from hotels but also stands as potential drivers for GGR growth in 2024 and beyond.

WHEN THE HOUSE DOESN’T WIN: November saw a number of sports events that were particularly customer friendly, and will therefore likely pressure DraftKings’ (DKNG) hold rate in Q4, according to Northland. However, the firm believes it remains fundamentally on track to achieve its targets While we believe DKNG remains fundamentally on track to achieve its targets, it’s worth pointing out that While we await data for December, and believe October’s hold was relatively in-line with expectations, state-based data in November suggests a ~200bps negative impact on hold, and this can negatively impact Q4’s performance relative to expectations. As we await December’s data and while October’s hold seemed to align with our expectations, the state-based data from November indicates an approximate ~200 basis points decrease in hold. This could have an adverse effect on Q4’s performance compared to our anticipated outcomes. After examining the most recent monthly sports betting statistics from New York State, Northland computed a hold rate of approximately 7.4% for DraftKings in November. This reflects a monthly hold that stands roughly 200 basis points below the expected structural hold and is in contrast to October’s figure of approximately 9.1%. The firm’s estimation indicates that the reduced hold observed in New York, compared to the company’s anticipated structural hold, translates to an approximate impact of around $15M on GGR, consequently affecting net gaming revenue relative to initial expectations.

LOSING MOMENTUM: Since 2018, states have collected more than $4B in taxes from a sports betting volume exceeding $280B, AP News reported. Vermont is poised to join the roster of states accepting sports wagers, commencing on January 11. However, prospects for additional state expansions in 2024 seem uncertain due to political resistance and conflicting financial interests among existing gambling entities. Becca Giden, policy director at Eilers & Krejcik Gaming, a consulting firm based in California, noted, “The handful of states yet to legalize are last for a reason: They all have multiple obstacles.” Chris Cylke, senior vice president of government relations at the American Gaming Association, representing the industry, highlighted that post a rapid expansion, the scope for further sports betting has narrowed to a specific group of states where various stakeholders aim to maximize benefits from the legalization framework, thus creating potential conflicts. As of now, the states where sports betting remains prohibited include Alabama, Alaska, California, Georgia, Hawaii, Idaho, Minnesota, Missouri, Oklahoma, South Carolina, Texas, and Utah. California and Texas, the nation’s two most populous states, would be the biggest prizes for sports bettors. But neither appear particularly likely to adopt it in 2024.

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).