Bet On It: Vermont Senate green lights online sports betting bill

Recapping first quarter earnings, MGM Resorts purchases Push Gaming, and other notable stories in the sports betting and iGaming space.

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: Boyd Gaming (BYD) announced that its board of directors has authorized an additional $500M under the company’s share repurchase program. Considering the additional authorization, the company had approximately $633M remaining in repurchase authority as of March 31. Additionally, the board of directors has declared a quarterly cash dividend of 16c per share, payable July 15 to shareholders of record as of June 15.

Bally’s (BALY) announced that, after conducting a thorough evaluation, it has entered into exclusive, multi-year agreements with Kambi Group and White Hat Gaming to serve as Bally’s B2B online sports betting, or OSB, and platform providers. Bally’s expects the integration to occur across seven states and at four retail gaming locations by the end of 2023. Through these partnerships, Bally’s will leverage Kambi’s and White Hat’s technology integration, licensing across regulated jurisdictions, end-to-end solutions, and quick launches to support the expansion of its online and retail sportsbooks. In addition, the fixed cost structure previously associated with powering Bally’s B2C sports betting platforms will shift to a variable cost structure that will generate cost savings. Under the terms of the Kambi partnership, Bally’s will integrate Kambi’s mature suite of omnichannel products, trading capabilities, content solutions, and model driven approach to liability management to deliver online and retail sports betting entertainment, and iGaming offerings, to Bally’s global customer base. Additionally, Bally’s maintains the option, pending the satisfaction of certain material performance metrics, to acquire a license to a limited part of Kambi’s online and retail technology source code. Should Bally’s exercise the option and pay an agreed sum, the two parties would enter into a separate long-term outsourcing agreement in relation to Kambi’s range of modularized services.

MGM Resorts (MGM) announced its wholly owned subsidiary, LeoVegas, has entered into an agreement to acquire the majority of game developer Push Gaming Holding and its subsidiaries, and the future operating commitment of the founding management team. Push Gaming is a creator of digital games for betting and gaming companies. The company is a proprietary content provider that offers more than 30 games, such as Razor Shark, Wild Swarm, Big Bamboo, and Jammin’ Jars to over 200 operators globally. As part of LeoVegas, Push Gaming will remain under the same management team and its 100+ employees will continue to develop games, distributed via their own platform and remote gaming server. The transaction is subject to regulatory and customary approvals and is expected to be completed in the third quarter of 2023.

Macau’s gaming bureau reported April gross revenue from games of fortune in the region was up 449.9% year-over-year to 14.72B patacas.

SEEING GREEN IN THE GREEN MOUNTAIN STATE: The Vermont Senate granted preliminary approval Wednesday to a bill that would legalize online sports betting in the state. Shaun Robinson of VT Digger reported. The legislation would enable up to six sportsbook operators in Vermont. Bill H.127 would promote a dedicated fund to hold the revenue and fees the state would garner in its role overseeing the market with some of that money going toward problem gambling programs. “It’s got lots of guardrails,” said Senator Alison Clarkson, presenting H.127 on the Senate floor. “A lot of attention has been paid to ensure responsible gaming.”

EARNINGS RECAP: Share of DraftKings (DKNG) were up nearly 10% yesterday after reporting first quarter earnings. The company EPS and revenue expectations and also raises its FY23 revenue outlook. . In Q1, monthly unique payers increased to 2.8M and average revenue per monthly unique player was $92. "DraftKings’ first quarter performance – 84% year-over-year revenue growth and share gains underpinned by a relentless focus on operational efficiency – demonstrates that this is a company positioned for sustained success," said Jason Robins, DraftKings’ CEO and co-founder. "We delivered highly successful online sportsbook launches in Ohio and our home state of Massachusetts and continued to create meaningful product differentiation driven by in-house innovations. We acquired customers faster and more efficiently and, importantly, saw healthy retention across cohorts. Looking at the remainder of 2023, I am confident DraftKings is well-positioned to achieve profitability on an Adjusted EBITDA basis in the near-term and deliver long-term value for our shareholders." The company also noted, "DraftKings is raising its fiscal year 2023 revenue guidance to a range of $3.135 billion to $3.235 billion from the range of $2.85 billion to $3.05 billion, which the company previously announced on February 16, 2023. The company’s updated 2023 revenue guidance range equates to year-over-year growth of 40% to 44%. DraftKings is also improving its fiscal year 2023 Adjusted EBITDA guidance. The company now expects fiscal year 2023 Adjusted EBITDA of between ($290) million and ($340) million compared to its prior fiscal year 2023 Adjusted EBITDA guidance of between ($350) million and ($450) million, which the company previously announced on February 16, 2023." BTIG raised the firm’s price target on DraftKings to $27 from $25 and maintained a Buy rating on the shares after its Q1 earnings beat. The company’s share and incremental margin trends are encouraging for the medium-term trajectory of the business and continue to create room for upside relative to the firm’s revised forecasts, the analyst told investors in a research note. The online sports betting market appears to be trending more toward a duopoly, and DraftKings’ incremental gross margins paint an encouraging picture relative to mid 40s high-end target for the year, BTIG added.

Penn Entertainment (PENN) also beat analyst consensus for EPS and revenue in its quarterly report, but its shares responded negatively. The stock dropped 5% after reporting reporting Q1 adjusted EBITDAR of $478.2M, down 3.3%. CEO Jay Snowden earmarked a dynamic environment in his comments on Penn’s first quarter results. He, announced: "We are pleased to report that PENN delivered another solid quarter in what remains an uncertain macroeconomic environment. PENN generated first quarter revenues of $1.67 billion and Adjusted EBITDAR of $478.2 million as strong performance in the Northeast mostly offset softer year-over-year results in the South. In addition, our proprietary sports betting and iCasino technology platform, which is live in Ontario, continues to drive compelling results and market share. As previously announced, on February 17th we completed our acquisition of the remainder of Barstool Sports Inc. ("Barstool Sports" or "Barstool"). Accordingly, we are raising our prior 2023 revenue guidance range to $6.37 billion – $6.81 billion to reflect the Barstool acquisition, which is neutral to Adjusted EBITDAR. As such, our prior 2023 Adjusted EBITDAR guidance range of $1.875 billion – $2.0 billion remains unchanged." Roth MKM upgraded Penn to Buy from Neutral with a price target of $40, up from $35 ahead results yesterday. The analyst saw a potential beat and raise quarter when the company reports Q1 on May 4. The firm also sees a case for strategic alternatives involving Penn’s digital segments and sees this narrative building in 2023. With Penn trading near three-year lows and below levels from the January 2020 Barstool acquisition announcement, very little value is priced in for Barstool/Score’s media and internet gaming assets, the firm told investors in a research note. Eventually, Roth believes management will take more aggressive action towards unlocking value, where the proceeds could support deleveraging, particularly in a recession.

Caesars’ (CZR) results came in on Tuesday with the company noting a significant increase in Q1 adjusted EBITDA in Q1 compared to last year. On the company’s earnings conference call it mention that it would achieve positive EBITDA this year and that a standalone iCasino app is coming in the third quarter. Tom Reeg, CEO, commented, "We delivered another strong quarter led by a new Q1 Adjusted EBITDA record in Las Vegas. Results in our regional segment remained consistent with prior quarters especially when excluding the impact of bad weather in northern Nevada during the quarter. Our digital segment was nearly break even in the quarter despite launching operations in Ohio and Massachusetts." Shares ticked 1% higher.. TD Cowen raised the firm’s price target on Caesars to $88 from $80 and reaffirmed an Outperform rating on the shares. The firm said on the back of strength across its casino portfolio, Caesars generated a strong 1Q by all measures. We increase our estimates to account for an improved outlook, particularly in Las Vegas and in the Digital segments.

First quarter results for MGM Resorts (MGM) came in above the expectations of analysts in terms of revenue and earnings per share. The company noted it was performing well across all its locations and highlighted Las Vegas where net revenues of $2.2b were up 31% year-over-year. "MGM Resorts is executing across all of its geographies and channels with record first quarter Las Vegas Strip Adjusted Property EBITDAR, consistently strong Regional Operations profit, MGM China’s swift return to profitability, and BetMGM’s anticipated positive earnings later this year," said Bill Hornbuckle, CEO and President of MGM Resorts. "Beyond our continued exceptional results, our future growth and expansion plans are promising. In April, we achieved the landmark approval of MGM’s development plan in Osaka, Japan. The application process in New York is progressing and our global digital expansion plans remain a major focus as we continue to grow LeoVegas and the MGM digital brand worldwide." "MGM Resorts achieved net cash flow provided by operating activities of $704 million and Free Cash Flow of $564 million during the first quarter," said Jonathan Halkyard, Chief Financial Officer and Treasurer of MGM Resorts. "Our balance sheet continues to improve as we received $450 million in gross cash proceeds from the sale of Gold Strike Tunica and repaid $1.25 billion in unsecured notes upon maturity during the quarter. With $4.5 billion of cash on the balance sheet, we expect to continue to return capital to our shareholders through ongoing stock repurchases and pursue long-term growth opportunities through international digital acquisitions and the development opportunities we have with Japan and New York."

Susquehanna raised the firm’s price target on MGM Resorts to $51 from $38 and maintained a Neutral rating on the shares. The firm said we think MGM has yielded significant hotel rate compression from the positioning of its assets around Allegiant Stadium and T-Mobile Arena, which we think has been a difference make over the US sports season.

ADDITIONAL ANALYST COMMENTARY: Redburn downgraded Flutter Entertainment (PDYPY) to Neutral from Buy. The shares are up 56% since Redburn launched coverage, the analyst told investors. The firm remains attracted to Flutter’s U.S. growth opportunity, though its overall estimates broadly in line with consensus and it believes much of the upside is now priced into the shares.

Additionally, Wells Fargo downgraded Flutter to Equal Weight from Overweight with a price target of 16,600 GBp, up from 15,300 GBp. The firm cited valuation for the downgrade, saying the company’s strong execution and "attractive" EBITDA growth is reflect in the shares.

Credit Suisse raised the firm’s price target on MGM Resorts to $75 from $68 and backed an Outperform rating on the shares following quarterly results. The firm noted MGM reported Vegas EBITDA of $836M better than Street’s $783M, with both topline and margins better-than-expected. Macau results were also better-than-expected, with MGM taking share relative to 2019, which should drive street estimates higher, Credit Suisse adds.

Wells Fargo lowered the firm’s price target on Penn Entertainment to $27 from $31 and kept an Equal Weight rating on the shares following a "softer-than-expected" Q1 earnings report, which missed on both land-based EBITDAR/margins and Interactive EBITDA. Citing concerning Barstool headlines and a challenging tape, the analyst sees the current valuation as fair.

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), Super Group (SGHC) and Wynn Resorts (WYNN).

Keywords: Vermont, legislation, bill, online sports betting, earnings, earnings per share, Kambi, White Hat Gaming, Push Gaming, Macau, downgrade, upgrade, price target