6 Aug: Weekend Edition No. 8

Penn-Score acquisition + Q2, Lottomatica H1, Sinclair earnings commentary, Golden Entertainment, PlayAGS Q2, Accel earnings call, Sector watch - financial trading +More

Aug 06, 2021

Good morning and welcome to the latest Weekend Edition. News came in thick and fast yesterday and we kick off with Penn National’s acquisition of Score Media & Gaming for $2bn, a move which it is fair to say received a mixed reaction. We also have the latest earnings from Lottomatica, Golden Entertainment and AGS as well as some commentary from Sinclair Broadcast and the latest sector watch looking at the financial trading world, including the transformation of Robinhood into a meme stock. All this before DraftKings reports its Q2 numbers this afternoon, which we will report on with a special afternoon newsletter later today.

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Penn-Score acquisition + Q2

The top line

Penn National is buying Toronto-listed Score Media & Gaming for $2bn in cash and shares. The deal will complete in Q122. Penn said it expects the deal to add c$200m in EBITDA within two years and $500m-plus at maturity.

As per the pre-announced earnings last month, Q221 revenue rose by over $1.2bn YoY to $1.56bn (21% up MoM, 13% up on Q219) while adjusted EBITDA came in at $470.1m, up 38% on Q219. Adjusted EBITDAr margins came in at 37.9%, up 722 bps versus Q219.

Scores on the doors: On a busy earnings call - featuring Penn National’s CEO Jay Snowden, his counterpart at Score Media & Gaming John Levy and Dave Portnoy and Erica Nardini from Barstool - the word synergistic was very much to the fore. The mutual backslapping was perhaps understandable given the evident closeness between Levy and the Barstool team as Portnoy insisted theScore was an acquisition he would have liked to have pursued when Barstool was under previous ownership. Snowden said the deal was adding a “powerful new flywheel” to the Penn engine.

Thank you and goodnight: Gaining greater control of the online tech stack was a prime reason for the deal. In what sounded like ‘fond farewell’ remarks, Snowden said third-party partners White Hat Gaming and Kambi had done a sterling job but “at the end of the day, given how important this is to us, we just have to be in control of our tech stack.” Levy said that having recently launched its own PAM system and with risk and trading coming very soon, theScoreBet platform (based originally on a Bet.works framework) was already “90% under our control” with the final pieces of the puzzle coming within the next year.

Jumping the gun: Far from everyone was impressed with Snowden’s tech talk. Kristian Nylén, Kambi CEO, congratulated Penn on the deal but added that he “respectfully disagree(s)” with the view on vertical integration.

“The entity they have acquired has yet to develop a proprietary sportsbook, and certainly not one to a similar high standard as what we offer,” Nylén added.

Kambi’s shareholders took fright nonetheless. The shares tanked, down a third on the day.

Risky business: The analyst reaction to the deal wasn’t universally positive either. Penn perma-bears Deutsche Bank didn’t hold back. “We get that Penn needed a tech stack, but buying a media company for a tech stack, knowing the challenges peers have had buying tech companies with sports-betting tech stacks, seems a bit strange, and frankly, risky,” the team said. They also noted there was no discussion on the call over the actual earnings, despite regional gaming trends being so strong.

“That said, when you pay $2bn and an almost 90% premium to the equity for a bolt-on amenity to a sports and icasino business, to augment a strategy which was billed as requiring little in the way of incremental spend, it likely requires some rationalization,” Deutsche Bank added.

Defensive posture: Deutsche Bank noted Barstool is achieving only mid- to high single digit market shares in sports-betting and is a distant seventh or worse in igaming. Indeed, the only note of defensiveness from the call came with oblique mentions about market shares. “We’re not concerned with where market share has been; we’re just concerned about where it’s going to be,” said Snowden. Which is just as well; in June Barstool Sportsbook slipped to fourth in Pennsylvania with 8.6% while in Michigan, after a relatively decent launch, Barstool has also slipped to fourth with 7% share.

Gamenet/Lottomatica Q2

The top line

Revenues were up 0.4% at €178.2m, EBITDA was down 10.6% to €37.8m due to lockdown extensions and was partially compensated by 153% growth in online at €83.2m.

Post-reopening from 1 July VLT net gaming revenues were up 19% and averaged revenues of around €32m, AWP machines averaged 6% growth and around €9.4m in NGR.

Access all areas: Lottomatica’s retail network is back up and running at close to full capacity and from this weekend Italy will implement a ‘green pass’ system where people will be required to present a pass that shows they have had a first dose of COVID vaccine, a negative test in the previous 48 hours or recovered from COVID in the previous six months. CEO Guglielmo Angelozzi said the new rule would have more impact on gaming machine activity than retail betting, adding that the measures might lead to a “rush of people to vaccinate”, which would be positive for the group.

Where there’s a will: Angelozzi said Italian operators were still waiting on news of their licences/concessions and while there had been some informal statements and behind-the-scenes dialogue, nothing official had been published. However, the topic is set to be included in Italy’s budget-related legislation, which was an “important sign of the political will that is behind it to resolve the issue.”

Accel Entertainment Q2 earnings call

The top line

As reported yesterday, Accel revenues of $202m represented an all-time quarterly record; as was adjusted EBITDA at $43m.

Clearing the backlog: CEO Andy Rubenstein said the group was “gaining momentum” with its backlog of machine installs and replacements. “We’ve got a good 12 months of building back and increasing locations.” He added that replacements would be done quickly because the group was focused on installing new cabinets with better software and higher jackpots and machine replacements were part of a constant process.

Georgia on my mind: Rubenstein said activities in Georgia had made for an “interesting year”. “We feel very strongly that it can be a very successful market in the long term. We’re working with the state on a cash out/redemption card and the pilot has shown significant improvements of play in those establishments. Long term the market can be a meaningful and major part of our portfolio.”

Golden Entertainment Q2

The top line

Record revenue of $292m and adjusted EBITDA of $91m, both quarterly record. Casino operations generated $179.8m vs $39.4m in Q220 and distributed gaming revenues were $121.4m vs. $36.3m in Q220.

GE received $60m cash payment from Caesars Entertainment in July and may receive an additional $15m based on the potential sale value of William Hill’s UK business. Cash balances stood at $213m and total debt was c.$1.1bn.

Strat me up: GE’s flagship Strip venue The Stratosphere continued to perform strongly in Q2 and CEO Blake Santini said he was “very bullish.”

Strat occupancy continued to be low at 74% vs 90% in 2019 but Santini noted that the company was seeing 30% more spend. “So despite low occupancy we see more spend,” he added.

CFO Charles Protell said the group’s Q2 numbers showed “no weaknesses” and the EBITDA margins of c.50% (+1300 bsp YTD on 2019) across both Vegas and locals would be sustainable.

Distributed outlook: With regard to expanding its distributed gaming activities, GE said it was deeply involved in jurisdictions where new regulations are beginning to be discussed such as Pennsylvania. Protell said he believes distributed gaming will emerge there, even if it takes some time. “It’s an efficient form of tax revenues for states and we continue to be heavily involved where we think it will happen.” Illinois is another state where the company is involved in regulatory talks.

PlayAGS Q2

The top line

Revenue rose to $66.8m, up nearly 300% on Q220 but 10.3% down on Q219. Adjusted EBITDA hit $32.1m, up from a Q220 loss of $1.2m and up over 20% QoQ but down 10.2% on Q219. Net leverage reduced to 5x from 7.5x at 2020 year-end.

EGM operations accounted for $61.2m of revenue (a quarterly record) while table products and interactive both produced $2.8m respectively.

Premium products: Much of the focus on the earnings call was on the continued premium gaming push with AGS’ Starwall and Curve products where CEO David Lopez suggested there was huge room for growth. “If you just talk about premium, we are still in the bullpen and it represents a very small percentage of our game ops,” he said. “So we have a lot of runway ahead of us.” Macquarie noted that AGS expects the domestic installed base (flat in the quarter) to grow “modestly” in H2 given customer demand, scheduled openings and expansion. Note, PlayAGS sold 613 units in Q2 and expects H221 unit sales should exceed the 902 units sold in H1. Deutsche Bank noted an “upbeat tone” from management, saying there were “expectations of improving operator spend.”

Sinclair Broadcast Q2 commentary

Believe it or not: Sinclair Broadcast Group CEO Chris Ripley told investors on Wednesday the streaming rights his group was currently negotiating with US sports leagues for a planned direct-to-consumer (DTC) launch next year as part of the Bally Sports’ regional sports TV network would be “like in-game betting but on steroids.” During the earnings call Ripley said a significant amount of income could come

“from watch-and-play, which is the real-time gamification of a sporting event, where they can play it like a video game.” He also talked of an environment where viewers would “get subsidized or comped subscriptions from the sportsbooks.”

Ripley added that Sinclair and Bally were working “on that experience in tennis” and planned to roll out the model “through MLB, NBA, NHL too”, with streams priced at $20-$25 a month.

Sector watch - financial trading

Boyz ‘n the hood: There is at least a kind of symmetry about Robinhood apparently becoming something of a meme stock given the role the trading platform played in facilitating - in part - the frenzies that surrounded stocks such as Gamestop and AMC earlier this year. There is at least a business behind Robinhood, even if much of the commentary around the IPO late last week concentrated on the various legal actions and regulatory investigations that are currently swarming around the firm.

Portnoy’s complaint: Such is the visibility of Robinhood that Dave ‘day-trader’ Portnoy has climbed aboard this particular bandwagon, disparaging founder Vlad Tenev for his greed (with somewhat unsubstantiated claims) while at the same time on the Penn National call yesterday afternoon, taking credit for the firm’s success. Mentioning the name of Robinhood, His Daveness intimated that Barstool’s ‘free promotion’ had made Robinhood’s name. “We have the ability to king-make,” he added. Whether that explains how Robinhood came to be a company with a market cap of just shy of $60bn and revenues in 2020 of $959m is… well, we’ll leave it at that.

Opting out: The gamification of financial trading as practiced by Robinhood - including its confetti showers every time a ‘trader’ makes a trade - is the cause of some angst among the critics. One of the curiosities of Robinhood’s immediate post-IPO share price performance was that it sank badly on debut last Friday before rebounding this week. One explanation lies in the delayed availability of options contracts on the stock. As one critical blog from Scott Galloway made clear last week, Robinhood’s trade is majorly driven by options trading, which contributed 46% of 2020 revenues.

“Options trading is less liquid than stock trading, which translates to greater bid/ask spreads for the market makers,” said Galloway. “Robinhood relies on market makers, and market makers love options.”

Pump it up: Still, the nexus between betting and financial trading is clearly a growing area of interest. Also this week, BetMGM signed up with millennials news site Cheddar which will involve the launch of a sponsored program which will be the “first-of-its-kind exploration of the intersection of sports-betting and financial markets.” The weekly Cheddar bets program will, according to Liam Roecklein, SVP at Cheddar News, “dive deep into the world of sports betting and its effect on sports, technology, financial markets, regulation and more." The programme will air every Thursday from a custom-built BetMGM studio in New York.

Illinois June GGR

Handle was $476.5m from $507.3m May, online repesnreted 94.8% of the toal at $451.7m. Revenue came in at $48.2m, with operators enjoying 10% margins.

Contenders on the way: DraftKings ($157.1m) and FanDuel ($155.3m) accounted for c.69% of the online handle. With Caesars announcing major investment into online betting and BetMGM set to launch in the state, competition in Illinois is set to intensify in the coming months. In retail, Rivers Casino Des Plaines’ $12m was the largest retail handle .

Maryland July GGR

GGR was up 20.6% vs. 2019 and up 11.5% MoM at $180m, the July calendar was favorable to operators with 10 weekend days vs. eight weekend days in 2019.

Safe Harbor: MGM’s National Harbor casino leads the GGR table with $72.3m, a 19% rise vs. 2019 and up 13.5% MoM. Maryland Live was second with c.35% market share and GGR of $62.9m, a rise of 27.7% vs. 2019 and up 7.6% MoM. Caesars’ Horseshoe Baltimore was third with $19.3m in GGR down 0.2% vs. 2019 and up 13.7% MoM.

Newslines

Fake horses: The NFT technology-based Zed Run has announced a deal with Nascar to release NASCAR-branded digital horses. NASCAR chief digital officer Tim Clark said the company was “bullish on the idea that there is going to be this notion of the metaverse.” No, us neither. Anyway, the details are yet to be finalized but could include “venue and broadcast activations” for Zed Run, as well as the potential future appearances of team, driver and track IP in Zed Run’s digital universe. “We’re going to have to dip a toe into the water here,” Clark said. Recall, last month, Zed Run owner Virtually Human Studio announced a $20m funding round, led by The Chernin Group and Andreesen Horowitz.

Real horses: New Jersey has become the first state to legalise fixed-odds betting on horseracing after Gov. Phil Murray signed the Fixed Odds Bill into law. The news is good for Australia’s BetMakers Technology which is the company sitting on a 10-year exclusive licence form the New Jersey Thoroughbred Horsemen and the owner of Monmouth Park, Darby Development and means that any NJ operator wishing to offer fixed odds racing must go through them. Monmouth Park’s Dennis Drazin said he believed this model “delivers the best outcome for the racing industry.” The first fixed odds racing best will take place within weeks.

It’s official: DraftKings (reporting Q2 numbers later today) has signed a multi-year data deal with genius Sports that will include official NFL data. Recall, the deal was prefigured when DraftKings became one of the ‘tri-exclusive patterns with the NFL. As part of the deal, DraftKings will also become a customer of Genius Sports’ programmatic advertising solution.

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