Weekend Edition #85

DraftKings’s profitability push, New Jersey’s January data, LeoVegas exits ‘smaller markets', the AGA state of the industry +More

Earnings+More

Feb 17, 2023

Good morning. In today’s edition:

DraftKings says it is making headway as it pushes towards profitability.
New Jersey data for January shows buoyancy.
LeoVegas says exits from unspecified “smaller markets” causes anemic growth.
The AGA reports on a record year for gaming in the US.
Earnings in brief includes FDJ and Acroud.

The race.

DraftKings reassures on cash

Sector bellwether says it is making progress with cost-cutting as it improves next year’s guidance on losses.

Pennywise: DraftKings issued new guidance on losses for 2023 of $400m at midpoint, down from $525m as it said it reflected a “meaningful slowdown” in fixed-costs growth. Revenues for 2023 were also nudged up to $2.95bn at midpoint. The company was keen to emphasize it would be exiting 2023 with >$700m in cash. Previous guidance had suggested it would exit this year with ~$500m.

Recall, DraftKings made 140 staff redundant in January, largely in its European offices. The company said it had also reduced its hiring plan by 500.
The guidance came with the Q4 earnings, which showed revenue of $855m, rising 81%, and operational losses being pared back to $233m, down 37%. Adj EBITDA losses fell to $49.9m from $128m.
The improvements in terms of expenses came within G&A, which fell to $173m from $241m in Q421.
Sales and marketing expenses increased, however, up 24% to $345m from $278m as did the cost of revenues, up 91% to $485m from $253m.
In the shareholder letter, CFO Jason Parks said an internal review of marketing expenses had identified a further $50m of cost savings for this year.
He also said stock-based compensation would be reduced in 2023 to ~$400m from $579m in 2022.

Analyst takes: Truist said the beat and raise was more sizable than had been expected as they said they were “impressed” with the underlying profitability trends. Wells Fargo said they were “encouraged by this newfound austerity”.

“The key question now,” the team added, is can DraftKings’ EBITDA guide further improve this year “or was this the (analyst emphasis) big improvement”.
They noted the $400m forecast 2023 loss “still lags peers” but the company does remain on track to be EBITDA positive in 2024.
Jefferies said of the cash burn that DraftKings’ “specific positioning in the burgeoning market is secure and liquidity should remain ample”.
JMP said the fears over a potential need for further cash were “gone”, helped by the likelihood of no new further “big” states coming online before 2024.

😎 The markets are likely to react well to the earnings, with trading AMC suggesting a 5% share price bump. DraftKings enjoyed a share price bounce in January as markets generally recovered ground on hopes that the Fed rate tightening cycle had turned.

NOTE: DraftKings’ call is at 1.30pm ET. E+M will release an Earnings Extra later.

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Datalines – New Jersey

January’s figures show GGR growth across all betting and gaming sectors, but sports-betting handle continues to decline.

Buoyancy aid: Land-based GGR was up 15.3% YoY to $211.7m, sports betting rose 20.2% to $72.3m and iCasino posted a 10.9% YoY increase to $152.9m as the market enjoyed a boosted start to the year.

The only blip came in sports betting where handle was down 19% YoY, its ninth straight month of declines. The analysts attribute the fall back to cannibalization from New York.

💥 New York’s impact on sports-betting handle in New Jersey

Digital leaders: Wells Fargo estimated FanDuel led sports-betting GGR with 63% of the market, followed by DraftKings (16%), MGM (9%) and Caesars (3%).

LeoVegas’ small exits

Revenue was up an anemic 1% in Q4 to €99.5m as the company closed “smaller markets” after being swallowed by MGM.

Clearing the decks: Without giving much detail, LeoVegas said in its Q4 earnings statement that it had closed markets in its rest-of-the-world segment, resulting in a 15% YoY revenue decrease. Adj. EBITDA tumbled by 68% to €3.7m.

Elsewhere, trading was buoyant with Nordics up 9% and the rest of Europe, including the UK and Spain, up 4%.

Above and beyond: The company also revealed that its venture capital unit had divested itself of its 25% stake in BeyondPlay for €1.9m. It did not disclose who the buyer was but said it represented a 73% ROI.

Further reading: This week’s Deal Talk took a look at what MGM might have in mind for LeoVegas.

AGA State of the Industry

The American Gaming Association says revenues topped the $60bn mark in 2022, up 13% on 2021’s $53bn.

Bet boost: Slots generated just over half the total GGR figure at $34bn, a rise of 5% YoY, while sports-betting GGR was up 72.7% to $7.5bn with handle coming in at a record $93.2bn in 2022, fueled by launches in Louisiana, Maryland, New York and Kansas. iCasino GGR rose 35.2% YoY to $5bn.

Across all forms in Q4, operators generated a record GGR of $15.9bn.
Without being specific, the AGA noted online penetration remains low compared to markets such as the UK (~65%), France or Germany (both ∼28%).
But the report added that in the four states that offer land-based, OSB and iCasino options, digital operations generated 40.7% share of GGR.

To not boldly go: Asked if the strong revenues and higher number of younger players visiting land-based casinos would continue in 2023, AGA president and CEO Bill Miller said he did not want to make bold predictions, but noted that Las Vegas revenues were up 17% in 2022 and +25% in December.

“So we can't project into the future but we can look at current levels of uncertainty that have existed for the last couple of quarters and at least the way it has presented itself within the industry has not been worrisome today,” Miller said.
With regard to iCasino regulation, Miller said the issue should not be seen “as a zero-sum (game)” that results in having winners and losers of any regulatory outcome.

Earnings in brief

FDJ said the revamp of its retail outlets led to an 8% rise in stakes to €18.1bn, while OSB and instant digital games helped online stakes rise 16% to €2.5bn. Full-year revenues were up 9% to €2.5bn, with EBITDA up 13% to €590m.

FDJ added that the growth in online turnover was normalizing after two years of “very strong growth accelerated” by the pandemic.

Phygital graffiti: FDJ has partnered with Scientific Games to launch a fourth ‘phygital’ instant game that gives POS scratch card players the option to continue playing online.
The €175m acquisition of horse-racing and sports-betting operator ZEturf/ZEbet is expected to complete in H223.

Acroud: The affiliate and affiliate-platform provider announced an €18m writedown on its Highlight Media assets bought in 2016. It led to a post-tax loss of €18.4m. Better news came from its new paid media division (bought from Catena Media), which the company said was behind a 40% increase in NDCs.

Revenue was up 53% to €10m, though this represented a 3.3% fall in organic growth, while adj. EBITDA was up 135% to 2.5m.
On the earnings call, CEO Robert Andersson said the additional sports-betting exposure gained through the acquisition was a “real strength” as it was less sensitive to regulation.

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ICYMI

Monkey business: Heading the mos-read editions this week was the E+M exclusive on Bally’s putting Monkey Knife Fight up for sale at a price that commentators believe is likely to be a fraction of the $90m it paid two years ago.

Earnings+More this week:

Dual purpose: Flutter considers a dual listing in the US.
GiG is considering its strategic options, including an affiliate separation.
In Deal Talk, is there a thaw in the capital markets?

Sharpr this week:

Does the esports industry need esports betting?

Compliance+More this week:

New York sees an iCasino bill introduced in the Senate.
A casino closure in England’s second city suggests a sector in a mini-crisis.
A new bill in Congress puts ad restrictions on the agenda.

Datalines

The Nevada Gaming Board has issued a Super Bowl betting correction, downgrading GGR on the game to $5.5m from $11.3m after incorrectly calculating hold. Elsewhere, Pennsylvania reported Super Bowl sports-betting GGR of $29.7m on handle that jumped 24% to $84.3m.

New Jersey betting exchange Prophet Exchange reported record one-day betting volume of over $1m for the day of the game.

Newslines

CORRECTION: Contrary to our previous item in Weekend Edition #83, Narrativa and Quarter4 are not working with AP on content. Apologies for any confusion caused.

BetMGM and Aristocrat have announced a strategic partnership for online casino content.

Meanwhile, MGM Resorts closed the $450m sale of operations of Gold Strike Casino in Tunica, Mississippi, to the Cherokee Nation.

Full House Resorts will – finally – be opening its Temporary at America Place casino in Waukegan today.

Caesars Entertainment and SL Green Realty announced a new Caesars Rewards partnership as part of their gaming license bid for Caesars Palace Times Square.

The troubled Lottery.com has got another CEO. Mark Gustavson replaces Sohail Quraeshi while Edward Moffly has also resigned as interim CFO.

Growth company newslines

Betr has launched a combat sports media brand Betr Combat and signed mixed martial arts personality Bo Nickal as a content creator.

Calendar

Feb 17: DraftKings analyst call
Feb 21: Due Diligence
Feb 22: Catena Media

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