All eyes on Flutter
The week ahead, DraftKings’ call reaction, analyst takes on Bally’s, Red Rock and AGS, startup focus – Rithmm +More
Good morning. On today’s agenda:
After profits elsewhere, what will Flutter have to say on the US?
Entain, Penn and Wynn Resorts also feature in the week ahead.
DraftKings says it is locked and loaded for the upcoming football season.
Analyst takes on Bally’s, Red Rock and AGS.
Startup focus is OSB predictive analytics program Rithmm.
Give up yourself unto the moment, the time is now.
Managing expectations
Following news on profitability from its rivals, the spotlight turns to the US OSB market leader, Flutter.
Quantum mechanics: Despite CEO Peter Jackson saying at the time of its FY22 results that Flutter had “never targeted” profitability at FanDuel – suggesting it was merely a “resultant outcome” – the market will be looking for a profit number for the US in H1. The only question is, how much?
The May trading update said US revenues for the first three months of the year rose 112% to £908m.
On Friday, major rival DraftKings produced a debut adj. EBITDA of $73m, while earlier in the week Caesars said its digital arm had delivered adj. EBITDA of $11m.
BetMGM said in late July it also hit unquantified profitability in Q2.
Jam tomorrow: In an earnings preview note, the team at Jefferies said the “scope for US upgrades remains on the agenda” but said they would be weighted to 2024 and beyond. “We anticipate that FanDuel could take advantage to drive greater market share gains, increasing profitability in FY24/FY25, rather than driving numbers higher for FY23,” the team added.
The long-term profitability picture will be helped by the FOX Bet resolution. The company previously attributed $912m of EBITDA losses to that business in FY22.
Ex-US, the team at Peel Hunt forecasted H1 EBITDA of £765m.
Flutter said in its Q1 trading statement that revenue growth was 8% ex-US, with UK and Ireland up 17%, international up 6% and Australia down 4%.
The team added that the “challenges” of the international division had “much diminished” since the acquisition of Sisal in Italy.
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The week ahead
Entain will be hoping to prove to investors it isn’t wasting money on bolt-ons.
On Thursday it’s Entain’s turn at the earnings wheel. Analysts at Peel Hunt noted the company has suffered some “corporate indigestion” given the £2.4bn of M&A outlay since 2021.
The last-but-one deal for STS even “outraged” one activist investor, but the more recent £202m move for sports-betting odds supplier Angstrom was better received.
Analysts at Jefferies remained of the opinion that MGM Resorts might well be tempted back into making a return bid for Entain to resolve the less-than-ideal BetMGM JV.
Also reporting this week, Penn Entertainment will update on the progress of the transfer of the Barstool Sportsbook to its own platform and Wynn Resorts will give more insight into the progress at the high end in both Las Vegas and Macau.
Plus, the suppliers picture will be filled out by Light & Wonder, Sportradar, NeoGames (soon to be enveloped by Aristocrat) and Endeavor.
Calendar
Aug 7: Genius Sports
Aug 8: Full House, Light & Wonder, Endeavor
Aug 9: Flutter, Everi, Sportradar, Penn, Wynn, NeoGames
Aug 10: Entain, Acroud
‘Dialed in and ready’
DraftKings prepares for football season.
Greasing the wheels: “We feel in H2 we’re going to have the best product in the market,” CEO Jason Robins boasted as he looked forward to the start of the NFL and College football season, “the most important time of the year”.
“This is when we acquire the most customers, when we have the biggest opportunity to gain more market share, to where we generate the most revenue, we’ll generate the most EBITDA,” he said.
Robins suggested the company had benefited from the “halo effect”, retaining NFL bettors into the NBA season then on into the MLB season as well and that this then “spills over” into iCasino.
“The product is so much better year-over-year from where it was last year,” he claimed.
Looking at recent market share gains, he said an improved SGP product had played a “huge part” and suggested there was “still room to increase” the share of revenues from the product.
He added the company was “working on” closing the gap between OSB handle share of 35% and OSB GGR share of 32%.
Lubrication: Noting the necessary hurdles imposed by regulators, he said DraftKings was working on removing elements of the customer journey that would “make you feel like I'm just going to go try somewhere else”.
Asked about the tax hike in Ohio, Robins said he was “optimistic that states are going to keep taxes at a reasonable level”.
Dates for the diary: CFO Jason Park added that despite lowering marketing spend in mature states, DraftKings hadn’t “really found a ceiling” and acquisition levels had held. Robins noted that DraftKings would disclose further detail on which states were contribution positive in the Q3 and Q4 calls as well as the investor day on November 14.
Looking further ahead, Robins spoke about DraftKings’ efforts at deploying AI across the business, particularly in terms of “honing and optimizing” the marketing.
“This is not straightforward analysis,” he added. “At any given point in time during our peak season, we’re spending in so many different places with so many different partners, so many different creatives in the market.”
Analyst reaction: Deutsche Bank suggested DraftKings had done “more than enough to satiate investors”. The team said the results were “very strong and indicative of DraftKings delivering on many of the promises they have made”.
Bally’s omission
The lack of a breakdown of international online revenues by geography raises eyebrows.
Off the map: Deutsche Bank noted that in the quarterly presentation, Bally’s failed to provide, as it has previously, a geographic breakdown of its international online business. Aside from some analysis on UK growth, commentary was distinctly lacking.
“We can’t help but question the decision to remove nearly all the disclosure around the geographical performance within the segment,” the team said.
“Over time, when it comes to gaming, the removal of KPIs from reporting tends to prove foreboding,” they sternly warned.
The last time a geographical breakdown was provided was in Q1 when the UK was worth 58% of the segment total of $202m, Asia accounted for 36%, with Spain largely accounting for the remainder.
Other analyst takes
Red Rock Resorts: It’s about time for the snagging list as the company prepares for the bang-on-schedule opening of the Durnago in late November. The team at CBRE noted that “true to the playbook”, Red Rock is already planning a phase 2 for the project; CBRE’s analysts are modeling $75m of EBITDA from the $780m project in 2024.
JMP noted Red Rock’s land bank of five parcels spread across the Las Vegas Valley gives the company “optionality of its next move”.
AGS: What made the gaming machine and content provider’s Q2 “special”, suggested the team at B Riley, was the positive free cash flow inflection and what that means for the reduction of debt.
This should accelerate the company’s progress towards the “magic number” of net leverage at between 3x and 3.5x.
Q2 leverage stood at 3.6x compared to 3.8x at the start of the year, they noted.
The team anticipated a H124 refinancing of the company’s $568m of long-term debt.
On product, Roth MKM suggested the Spectra cabinet has “plenty of runway” for further market share gains, given it has been on the market for less than a year.
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Startup focus – Rithmm
Power to the people: Founded last year by CEO Megan Lanham, CTO Brian Beachkofski, and COO Kelsey Allan, the Massachusetts-based Rithmm hopes to bring sports data analytics to the masses with the complicated math hidden behind a simplified user-friendly front end.
Funding backgrounder: The latest news came in May when the company announced a $2m seed round led by Boston Seed, Counterview Capital, Accomplice, Oyster Ventures and Correlation Ventures with the participation of individual investors.
Notably, three of the seed investors previously backed DraftKings.
“In just one year, we have successfully completed two rounds of funding, namely the pre-seed and seed rounds, despite challenging economic conditions,” Lanham says.
The short cut: Lanham says Rithmm has cut down the data analytics work to a matter of seconds, enabling users to get an analysis of the game via a personalized app with recommended picks, predicted score, win probability and expected value bets.
“By simplifying complex modeling, the betting skillset barrier has been removed, making it fast, easy and available to any level of bettor,” she says.
Unsurprisingly, AI is involved.
“Our team firmly believes that we are poised to disrupt the status quo by harnessing the power of AI to provide users with advanced analytics and insights that were previously reserved for those who possessed data and modeling skillsets or could hire those that did,” Lanham suggests.
The closer: “We want to build tremendous value on Rithmm for our shareholders by becoming the leading consumer source for predictive sports data,” she says.
“If we accomplish that, we will not have to worry about an exit, whether that is going public or selling to a strategic buyer.”
Growth company news
Pro League Network closed a round of seed funding led by Eberg Capital founder Roger Ehrenberg via IA Ventures and Eberg Capital. Eberg Capital previously led an investment in betr.
Pro League plans to use the funding to add more content and infrastructure.
The company produces sports exclusively for OSB operators.
Its offerings include the World Putting League, Pro Footgolf, the National Carrom League, T3 Touch Tennis and the CarJitsu Championship.
Its content is carried by DraftKings, bet365, and Betfred.
Pro League also named Chris Grove of Acies Capital and Jeff Ma of Microsoft and ESPN as advisors.
Tying the knot: The Unit has entered into a strategic alliance with Red Knot Communications, allowing both companies to align their strategies and expertise across several areas of operations.
The Unit will expand its full-service marketing by adding Red Knot’s deep PR and media expertise, particularly in territories such as the US, Canada and LatAm.
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M&A newslines
Playtika has bought the Youda Games portfolio from Azerion for an initial €81m, which including the earnout could be worth up to €150m. The deal involves the social card-themed title Governor of Poker 3.
Career paths
NeoGames has appointed Robert Wesley as VP of North American customer development. Wesley joins the group after 25 years with the Virginia Lottery.
Kindred’s Relax Gaming has promoted Shelley Hannah to the role of chief product officer.
Newslines
Wynn Resorts has relaunched its WynnBET online casino and sports betting with a multistate app in six of the states it operates, replacing state-specific apps.
Amelco has been approved for a sports-betting license by the Alcohol and Gaming Commission of Ontario. The supplier expects to confirm its first major Ontario partner within the coming weeks.
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