International expansion a ‘very high bar’ for DraftKings
DraftKings’ Robins fireside chat, US online tax picture, ESPN Bet’s North Carolina launch debate +More
DraftKings CEO casts doubt on chances of any foreign adventures for now.
In +More: Red Rock, VICI debt raises.
ESPN Bet’s upcoming launch in North Carolina will be “telling,” say analysts.
Entain shareholders suffer a grueling week.
Analyst says US online tax picture is improving.
When traveling abroad in the continental style, it's my belief one must attempt to be discreet.
Robins’ homeland pitch
God bless America: Expansion outside of North America is not on the agenda right now for DraftKings and a “very high bar” would need to be reached for the company to consider entering any international market, barring Canada, said CEO Jason Robins.
Home is where the heart is: Speaking at the Morgan Stanley Technology, Media & Telecom Conference yesterday, Robins said the company saw a “big benefit” in being “very focused right now on what will be the largest market in the world,” namely the US.
Robins added that DraftKings also saw an advantage in being solely North America-focused vs. the broader outlook for competitors with international businesses.
They have “other major lines of business that are taking a lot of their focus whereas for us, this is it,” he said. “This is what we’re doing.”
Recall, during DraftKings’s Q4 call with the analysts in mid-February, Robins said the US was “priority A” for the company,
Born in the USA: Just yesterday, Entain interim CEO Stella David said the company had made a mistake in focusing too much on the BetMGM JV at the expense of its own international footprint. But while acknowledging it was a “big world” out there, Robins all but ruled out any move for the time being.
“I wouldn't be surprised if you don't see us do anything in the international space outside of Canada,” he said.
Baby Jane's in Acapulco, we are flyin' down to Rio: “But in the longer term, it's definitely something that we think is important for us,” he did add. “And also we think we have a right to play.”
Accountancy 101: As the questions regarding what DraftKings will do with its soon to be expanding rapidly cash flow have multiplied in the past six to 12 months, Robins said he has become “much more educated” on finance and capital allocation.
While M&A has been the focus of late with the recent $750m bid for courier lottery provider Jackpocket, Robins said the company was also looking at share buybacks.
“We’re looking at all those different options as well as how we can optimize our capital structure given the changing profitability profile of the company,” he added.
Asked about emerging technologies and trends, Robins was keen to stress that DraftKings didn't look too far ahead down the road but was more keen on “staying on top of those things” as part of the company’s work culture.
While the company “needs to innovate” itself, a lot of innovation comes from “just seeing things before other people do” and “just having better pattern recognition than others.”
”That’s really a lot of how we’re looking at AI.”
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+More
Red Rock Resorts has announced it is raising $750m in new senior notes via a private placement and a further $200m via an expanded revolver facility. It said it will use the proceeds to pay down existing debt.
Meanwhile, gaming REIT VICI has announced the pricing of $1.05bn of senior unsecured notes. VICI will use the proceeds to pay down existing debt due in 2024.
Read across
In Compliance+More this week, the UK Gambling Commission CEO Andrew Rhodes is under pressure over its official stats on problem gambling, while there is also a look at the moves to ban NCAA prop betting in Ohio and Maryland.
In LosIngresos+Mas, meanwhile, there is a look at Codere Online’s Q4 earnings. In Spanish and English.
What we’re reading
Balls in the air: “The Oakland Athletics’ pending move to Las Vegas is akin to a Cirque du Soleil acrobat juggling atop a ladder high above the stage. Can the A’s stick a dismount without dropping any balls?” Howard Stutz in the Nevada Independent.
Had enough of conferences in New York? No? Good. Buy your discounted tickets to the E+M Capital Markets Forum here. $100 off with code EARNINGS100.
Penn’s North Carolina test
The acid test: Deutsche Bank analysts said the imminent launch in North Carolina will be “far more telling” as to the strength of the brand partnership than the metrics to date from the 17 state launches. “This will be the first time ESPN Bet enters a state on level ground,” the team added.
Should ESPN Bet grab 10% market share, they argued, it would “shift the mindset” around the business.
“The logical conclusion would likely be that other states will eventually migrate towards this level.”
Needle points: The note came after the DB team met with Penn management and it went on to argue the next needle movers for market share will be the slew of upcoming product enhancements, including a more competitive parlay product and more robust ESPN integrations.
The Truist team, meanwhile, deemed it too early to tell if ESPN Bet would be a long-term success but was encouraged by promo spend dropping from 28% of handle in November to just 3% of handle in January.
ESPN had been largely responsible for a 49% leap in promo spend in Q4 2023.
Markets+More
Entain
Downward dog: Entain shareholders suffered another grueling week as the shares fell nearly 14% by close in London on Thursday after a near 4% decline on the day of the company’s FY23 earnings announcement.
Tacking: The team at CBRE noted the latest share price weakness was likely caused by the admittance of a further £40m in EBITDA headwinds for this year caused by further UK regulatory disruption and more stringent measures in the Netherlands.
The CBRE analysts pointed to “pieces of solid fundamentals” behind the weeds, including BetMGM, Entain CEE and Brazil, all “compelling long-term growth opportunities.”
Aye aye captain: But the 2024 headwinds mean the “inflection point” for whoever the new CEO may be to “right the ship” is now a 2025 tale.
Poker face: Questioned during the earnings call over potential disposals, interim CEO Stella David played it with a straight bat, saying the new capital allocation committee – which includes Ricky Sandler from activist investor Eminence Capital – “has only just really got going.”
As E+M reported this week, there are strong rumors – not denied by the company – that PartyPoker has been put up for sale.
😱 Entain’s shareholders still waiting for the good news
Rush Street Interactive
Upside down: Everybody’s favorite takeover target, Rush Street Interactive, enjoyed a decent day on Thursday with its shares rising 16%+ on the day. But over the week, the picture was a less compelling <6% increase.
The team at JMP said while Q4 was a “great quarter” they did not “see enough upside.”
JMP is forecasting revenue growth in 2025 slowing to 10%, “nearly the slowest across the online industry,” with the analysts blaming an anemic iCasino legislative calendar.
Moreover, competition in iCasino, which remains RSI’s sweet spot, is intensifying. “Commentary across management teams suggest online divisions will be hyper-focused on US iGaming growth in 2024,” they added.
🤷 No rush: Rush Street Interactive up <6% over the week
Taxing times in US online
Scaling the peak: Compared to perhaps typically optimistic post-PASPA hopes that OSB and iCasino tax rates would be held at low levels, the industry has instead seen downward pressures on its margins as states have legalized at higher rate rates, suggested the analysts at JMP.
Notably, New York has been the “largest headwind” with OSB rates at 51% of GGR.
Meanwhile, Ohio has “adjusted” its tax rate to 20% from the previous 10% and Illinois is reportedly looking at increasing its tax rate to 35% from 15%.
Nickel on a dime: However, the team argued the bills pending or being discussed in the current legislative session have between them a blended rate that “should help” the overall tax mix.
North Carolina, for instance, which launches on Monday, features a tax rate of 18% while Vermont, which also recently launched, has a tax rate of 20%.
In Georgia, meanwhile, where there remains an outside shot of a measure being put to the voters in November, the proposed rate is also 20%.
In Alabama the tax rate for the bill under consideration is 17%.
Mission creep: JMP noted the average OSB tax rate has increased from 15-20% prior to New York to ~20% but they estimated that when proposed tax rates are included the projected blended tax rate will once again decline to 18.2% from 19.5%.
This is based on their assumptions around likely tax levels if Georgia, Minnesota, Oklahoma, Missouri, Texas and Mississippi all pass sports betting in the next year.
On this basis, the team believed that alongside declining promo intensity, new legalization would “act as the largest driver of gross margin expansion in the coming years.”
Deep in the heart: The JMP team said it included Texas in its calculations because of the work being done “behind the scenes” to get sports betting done in 2025. They noted the failed 2023 bill included a near industry low 10% tax rate.
“The tax on gaming revenue for a potential upcoming bill is unknown, but we assume the traditionally low-tax state will see an attractive sports-betting tax if passed,” they added.
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Analyst takes
UK online: After a lengthy period of weakness driven by the imposition of tighter regulation and, in particular, the introduction of tougher affordability checks, the UK online gaming market is showing signs of a recovery, according to Deutsche Bank’s monthly proprietary survey of UK consumers.
Growth has been driven by a strong recovery in both slots and roulette. Sports betting has grown more slowly, with some adverse pressures from gross win margins in January after some weaker trends in Q4.
SJM: The team at CBRE noted the Macau operators FY23 revenues of HK$21.9bn ($2.8bn) and adj. EBITDA of HK$1.7bn missed consensus estimates. Noting the declining market share of 12% vs. closer to 15% in Q419, CBRE’s analysts said the new concession environment has “further shifted the center of gravity” away from SJM’s legacy properties.
The trends include the elimination of most junkets, the concentrated investment at larger resorts on Cotai, and an increasing focus on non-gaming and international mass-market customers.
“While the operating environment shifted sharply, SJM has been unable to adjust in tandem,” they added.
Calendar
Mar 12: IGT
Mar 14: MGM Resorts, Penn at the JP Morgan Conference
Mar 20: Sportradar
Mar 26: Flutter, Bragg Gaming
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