Exclusive: Bally’s looking to sell Monkey Knife Fight

Bally’s MKF sale deck, Bally’s new CEO and Q4 earnings, Betsson Q4 earnings, Macau better than expected +More

Feb 14, 2023

Good morning. In today’s edition:

BREAKING: Flutter considers US listing, starts shareholder consultation.
Bally’s is looking to offload the DFS operator it bought for $90m in 2021.
Bally’s Q4 pre-announcement includes $390.7m writedown of digital assets.
New Bally’s CEO says interactive division performance is “unacceptable”.
Betsson announces 40% rise in Q4 revenue.
Jefferies reports that Macau is “busier than expected”.

Flutter US listing

Acknowledging the growing importance of FanDuel to its business, the London-listed firm says it will consult shareholders on an additional US listing.

Go west: Flutter said this morning it sees “long-term strategic and capital markets benefits” in having an additional US listing, including an enhanced US profile, better recruitment and retention of US talent and better access to capital and new US domestic investors. It also noted a move could be the precursor to a primary US listing over time.

“The Board appreciates that this is an important topic for shareholders and intends to consult extensively before deciding whether to put forward a formal resolution for approval,” the statement added.
The company acknowledged such a move would kill the idea of a FanDuel listing.
“In the event that there is broad shareholder support for an additional US listing, this would take precedence over any plans to list a small shareholding in FanDuel.”

Exclusive: Bally’s looking to sell MKF

An investment deck for Monkey Knife Fight suggests Bally’s will struggle to recoup much of the $90m it paid for the business a little over two years ago.

Write-off: The deck seen by E+M makes it clear Bally’s is attempting to sell as a going-concern a business that has seen a slump in its financial performance since it was acquired in early 2021. MKF saw expected net gaming revenues in 2022 tumble 36% to just $4.7m, while gross profit fell to $2.7m.

MKF was mentioned as part of the $464m write-off announced by Bally’s yesterday in its Q4 earnings pre-announcement.
Of that non-cash impairment charge, $390.7m was related to the North American interactive division and specifically the MKF and Bet.Works businesses, with the remaining $73.3m related to a Gamesys trademark downgrade.
MKF was bought for $90m in shares in Jan21, while Bet.Works was bought in a 50/50 cash and shares deal in Nov20.

What’s it worth now? Sources suggested MKF will be on offer for a fraction of the original $90m deal. The deck made it clear it is selling the entire turnkey business, including the team, tech, licenses, payments and active user base.

It went on to claim any acquirer would be “immediately competitive” in the real-money gaming space, with a business that has a “proven cross-sell” capability.
It said it has a total user base of 277k and suggested the “estimated replacement value” of that user base is $12.3m.
In the notes, it said it withdrew customer acquisition spend in five states in 2022, this “negatively affecting” YoY comparisons.
The deck’s bull and bear case suggested MKF’s revenues in 2024 could be between ~$20m and $75m.

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All change please

The write-downs came as Bally’s announced the replacement of CEO Lee Fenton with previous interactive president Robeson Reeves. The company said revenues for Q4 would come in 5% up at $576.7m, while adj. EBITDA is up 22.8% to $145.8m. However, the impairments leave the company with a net loss of $476.8m.

The company said the land-based casino business had achieved record results.
It added that UK online revenue grew 12% organically, while iCasino operations in New Jersey and Ontario gained market share.
It issued 2023 guidance for revenues of $2.5bn-$2.6bn and adj. EBITDAR of $660m-$700m.

Reeves was previously COO at Gamesys. He said the recent job losses announced in January at the interactive business were to ensure the sports-betting business in the US had a “near-term path” to profitability.

Reeves added that as part of the restructure the company was assessing “multiple options”, including the leasing of tech structures to integrate more quickly with its own platforms.
TV interference: Commenting on the news that Diamond Sports Group could file for bankruptcy next week, the group said it had “no liability related to Diamond’s debt” and “will continue to promote its brand through multiple means”.

Analyst quick takes

The team at JMP had a front-row seat on the changes at the top having met with Reeves last week during ICE and suggested iCasino has been a “bright spot” for the company. They noted the company has hopes for its upcoming launch in Pennsylvania, with the potential to tap its AC database. Reeves told JMP last week Bally’s would “find what works” for online.

They added, though, that recent online acquisitions appear “not to be adding value”.
Backseat driver: The team at Truist noted the transition to Reeves was “quicker than expected”, but added that Bally’s chairman Soo Kim “continues to set the ultimate vision”.
Jefferies suggested Bally’s was still evolving its “strategies and leadership”, which “obfuscate” the longer-term earnings power. They suggested the online business is “in the process of being defined”.

Betsson bounce

Geographical diversification and an aggressive approach to new markets saw Betsson notch up a 40% increase in Q4 revenue to €220.6m.

Heading south: Latin America and Central and Eastern Europe – largely Turkey – helped account for Betsson’s growth over the period, with revenues up over 100% and 52% respectively. Betsson’s Nordic operation saw only 2% growth. Group EBITDA rose 58% to €51.1m.

Casino revenue rose 27% while sportsbook was up 76%, helped by increased margins.
Notably, revenues from regulated territories as a percentage of the total fell to just over 34% from 36.5% last year.

Note: E+M will report on Betsson’s call with analysts later this week.

Earnings in brief

Star Entertainment: The Australian land-based casino operator issued a trading update saying overall group revenue in H1 was 1% down, with the operating environment for the Star Sydney “particularly challenging”. When it reports later this month, it expects underlying EBITDA to come in at A$195m-A$205m.

Analyst takes – Macau

The team at Jefferies suggest the bounceback in Macau has exceeded even the most optimistic expectations.

Seeing is believing: Having taken a turn around the gaming enclave’s hotspots, the team at Jefferies said activity from the gaming floor to the luxury retail concessions and restaurants suggested the market was “busier than expectations”.

While gaming activity has dipped since the CNY, it remained “surprisingly high” with weekly GGR at ~45% of 2019 levels, suggesting EBITDA profitability has been hit.
They added that the shift away from VIP implied “considerable margin upside”.
Morgan Stanley estimated daily revenue in the first week of February was flat month-over-month but up 36% year-over-year.
Meanwhile, post-holiday visitor numbers also remained stronger than expected and they noted queues at the Chanel, Hermes and Louis Vuitton stores.

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Deal Talk

E+M will send out the latest edition of Deal Talk later today discussing:

The sector enjoyed a bounce in January as markets appeared to decide the rate tightening cycle had come to an end – but does that mean the capital markets will once again be accessible?
MGM has set out the path ahead – and that doesn’t involve bidding for BetMGM JV partner Entain. So where will it look?
DoubleDown Interactive’s acquisition of SuprNation is the headline deal of the month.

Compliance+More

The latest edition of Compliance+More will also be sent this morning, including:

Congress gets a sight of a bill that aims to ban all betting advertising.
Tax rises are on the agenda in Ohio – already.
GREF on the grift – European regulators are increasingly concerned about black market operators.
Enter Britcoin: A state-backed digital pound is likely within the next decade, suggest the UK authorities.
Sign up here.

Datalines

Montana’s sports-betting GGR increased 46% to $979k, with handle rising 39.5% to $7.1m in January. In Oregon sports-betting GGR rose 248.5% to $6.4m, with VLT GGR rising 2.5% to $97.3m. West Virginia casino GGR was up 18% to $8.2m while sports-betting GGR increased 60% to $10.9m, but handle decreased 34% to $44.7m.

Newslines

IGT has signed Betfred to a sports-betting backend provision deal and will be powering retail and mobile sports-betting at the Mohegan Sun Sportsbook inside Virgin Hotels Las Vegas. This is Betfred’s first entry into the Nevada betting market.

Playtech has increased its stake in Canadian operator NorthStar Gaming to 16% with a CA$12.2m investment in the group, with an option to increase it to more than 20%. The groups also agreed a 10-year extension to their iCasino partnership for the Canadian market.

Calendar

Feb 14: Deal Talk
Feb 15: GiG
Feb 16: DraftKings earnings
Feb 17: DraftKings analyst call

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