May 5: Bally board nixes Standard General bid

Earnings extra: Bally Corp, Penn National Gaming Q1, DraftKings completes GNOG acquisition

Earnings+More

May 05, 2022

Welcome to today’s earnings extra. On the agenda:

Bally board says no to Standard General, but wins Chicago casino bid.
Penn National beats forecasts, expresses online optimism.
DraftKings finally completes acquisition of Golden Nugget Online Gaming.

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Bally Corporation Q1

Revenue was up 35% to $548.3m, adj. EBITDA was up 45% to $115m.
FY22 revenue guidance at lower end of the range of $2.4bn-$2.5bn due to foreign exchange fluctuations. EBITDA guidance $560m-$580m.
North America Interactive losses of $19m, international digital revenues down 1% to $253m, adj. EBITDA $73.3m.

No deal: The Bally board’s special committee set up to assess Standard General’s $2bn offer for the group has rejected the bid and announced that it would initiate a share buyback scheme of $300m-$500m subject to obtaining necessary financing and final approval by Bally's board.

On the call CFO Bobby Lavan said the group was limited in what it could say about the takeover and at “conclusion the parties could not reach agreement but reached agreement to return capital”.

Cost-of-living crisis: CEO Lee Fenton said the drop in the group’s international digital activities was due to the inflationary and cost-of-living pressures being experienced by UK consumers.

Lee Fenton: “It’s common across the UK industry that there are spending and inflation pressures, as a result we’re expecting low single-digit growth in the UK and are aligning our cost-base to maintain profitability.”

What’s in your wallet? Fenton said the group’s online gaming sites had seen steady engagement levels and number of actives. But since January there had been a “weakening ARPU, off by 7-9%, but we still got the activity levels, which is why we think it’s contraction of wallet space due to rising energy costs”.

The potential impact of new regulations that might come in as part of the UK Gambling Act review was impossible to forecast, he added
“We don’t want to be requesting (authentication) documents from players at relatively modest levels of spend and we think the message is getting through.
“It’s also part of Tory MPs pushing back against the ‘nanny state’, which is a key issue for them.”

Arizona raising: The Bally Bet mobile app went live in Arizona yesterday and is set to launch in New York in Q2. Fenton said the launch was a major “milestone” as the group will be able to sync its acquisition campaigns with the Sinclair RSN in the state and its partnership with the Arizona Diamondbacks MLB franchise.

He reiterated the group would not spend huge amounts on marketing.
“We’ve said many times how we approach the market will not be similar to the hyper-aggressive marketing spend seen from others. We will lean into launches that leverage opportunities with regulated igaming or (states) where we think it will happen.”

Breaking news

Bally’s proposed $1.75bn casino at the Tribune Publishing Center in downtown Chicago.

Sweet home Chicago: Bally has just announced that it has won the bid to build a casino in downtown Chicago, Mayor Lori Lightfoot yesterday denied the group had already been awarded the tender. On the Q1 call, Fenton said the group has “a substantial landbank that we can tap for strategic opportunities”.

Fenton confirmed the landbank could be used to fund the Chicago build: “We can do that for Chicago where we can win that bid. The same goes for the Tropicana (Las Vegas renovations), but we will do that with an investment partner.”

The group has set a three-year timeline for completion and 15% return on the $1.75bn project.

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Penn National Gaming Q1

Revenues up 22.7% to $1.56bn, adj. EBITDA up 29.1% to $434.6m.
Interactive revenues at $141.5m, EBITDA loss of $10m.

No discount: On digital, CEO Jay Snowden was keen to impress about the differentiated approach when it came to margin and made a plea for more states to split out NGR (i.e. after promotional spend) from GGR.

“NGR is where you start to pay the bills,” he said.
“That’s all we care about and when the market becomes more rational… those spend levels from the competition have to come down, otherwise no one will make any money.”

Shoot! The launch of theScore in Ontario exceeded expectations, he said, suggesting that theScore’s success as demonstrated in the publicly available app download data was being reflected in the initial player sign-ups and first-time depositors.

“You should assume that the handle result looks very favorable to other states where we have launched,” said Snowden.
“One of the things that is a bit different is we had a few weeks to work on pre-registration. That was something that worked really well for us.”

Happy/sad: In the wider online sphere, Snowden said Penn was still not satisfied with its achievement in icasino.

“The focus was making sure we have online sports-betting that was competitive,” he said. “You should expect to see our online casino product continue to improve. I think you will see that happen in all the states where are live.”

The beat goes on: Above expectations land-based gaming revenue and particularly strong margins meant Penn National started off the year with record numbers. Todd George, vice-president of operations, said Penn continued to benefit from an influx of younger demographics. “The growth in those younger segments is super-robust,” he said

Macro pick your poison: Asked about commentary from Red Rock Resorts earlier this week around lower end customers being affected by macroeconomic factors, COO Todd Geroge suggested they had yet to see any impact from higher gas prices.

“But we’ve been down this road before,” he added. “We feel good based on what we see. We feel good about what we see today.”

DraftKings completes GNOG buyout

Gestation period: Nine months after first announcing the deal, DraftKings has finally completed its acquisition of Golden Nugget Online Gaming. DraftKings pointedly said it would be adding “unique capabilities” of its offering including live dealer.

The all-shares deal was originally set at $1.5bn but GNOG chairman Tilman Fertitta admitted on CNBC last week that the transaction was worth much less due to the slide in the value of the DraftKings share price.

Rebel alliance: Fertitta said today the merger of the two companies would be an “alliance unlike any other in the digital sports, entertainment and online gaming industry”.