May 20: Weekend Edition #47

Playtech TTB deadline, Aristocrat H122, MGM analyst update, Sportradar analyst reaction, sector watch - payments +More

May 20, 2022

So, where are we on the optimism/pessimism pendulum right now? The message from the first-quarter results, that the betting and gaming sector is recession resilient, seems to have gotten through loud and clear to investors going by the general sector performance this week. DraftKings is up 22% on the week, Flutter is 4.5% better and Penn National has posted a 3.5% gain. But other key stocks - MGM and Caesars notably - are down on the week. As we end the Q1 earnings season, it feels like we are at a crossroads. But with the market’s compass currently swinging wildly, the direction forward is not as discernible as it was.

Tumbling dice. Click below:

Playtech TTB deadline

Beat the clock: The Playtech board has issued a further update with regard to TTB Partners’ potential offer for the company and says it now has until market close on June 17 to make an offer.

While Playtech said discussions were ongoing, the independent board committee said today they are “conscious that TTB has been considering a possible offer for Playtech for 15 weeks”.
Recall, TTB is led by ex-CEO Tom Hall and includes current CEO Mor Weizer among its bid team.

Stay strong: Playtech further noted that the independent committee “continues to explore options for maximizing shareholder value, and reiterates the strong performance of the group, as announced to the market on 5 May 2022, which has continued through the month of April and into the month of May.”

Snail pace: Analysts at Peel Hunt said that after 15 weeks “it is hard to imagine the pace of that progress” but that perhaps “volatile markets are the cause”.

“If a bid does not emerge by the new PUSU (put up or shut up) deadline of 17 June, there are other corporate transactions that could rapidly crystallize value.
“In particular, we remain optimistic that there is a route for the Caliente business into the US even if a SPAC transaction has to remain on the back burner.”

Share price reaction: Playtech was up almost 10% in early trading.

**Sponsor's message: Spotlight Sports Group (owned by Exponent Private Equity) is a leading technology, content and media business specialising in sports betting. Join Spotlight Sports Group and The Parleh for a live webinar on Wednesday, May 25, as we take a deep dive into the launch of Ontario’s online sports betting market. Register for the event here.

Aristocrat H122

Revenues up 23.1% to A$2.75bn, pre-tax profit up 29.6% to A$598m.
Gaming was worth 52% of revenues and Pixel United casual games represented 48%.

Walls come tumbling down: Having been balked in its attempts to buy Playtech (see above), Aristocrat said it would be pursuing a buy-and-build policy in real-money gaming. Asked on the earnings call whether its needed the A$3.3bn of liquidity it had raised as part of the Playtech bid process, CEO Trevor Croker said the scale ambitions remained “transparent”.

“I won’t preclude us from anything, we have the capacity and with multiples coming off some of our competitors, we have that optionality,” said Croker.
Unsurprisingly, Croker made the point that North America would be the focus when it comes to real-money gaming where he said there were “expectations of significant growth” over time. But he noted that “doesn't preclude” the company making online moves in Europe.

Recession watch: Asked about the current climate, Croker said the “sentiment from the current quarter seems to be strong”. He noted the company has more long-term deals in place and a lot more visibility than previously.

MGM Resorts analyst update

Strong and stable: Deutsche Bank said MGM is likely to continue producing stable results and strong margins in both Las Vegas and regional markets through to the end of 2022, “assuming customer spend levels remain healthy”. However, the DB team also lowered its target multiple for the group’s BetMGM stake.

DB added that MGM investors were focused on “the next leg of the customer spend story, the potential impact of inflation on expenses and broader equity market gyrations”.
MGM offers margin acceleration potential in Las Vegas and stability in regional markets, icasino market leadership for BetMGM and near-term capital returns, DB said.
DB noted MGM has completed the acquisition of the Cosmopolitan ahead of schedule.

Diller news: The Nevada Gaming Commission has limited board director Barry Diller to a two-year license for his ownership stake in MGM Resorts International while he remains under investigation for insider trading by the Securities and Exchange Commission and the Justice Department.

Sportradar analyst update

So solid crew: Deutsche Bank said Sportradar produced solid Q1s this week despite lower than expected EBITDA due to the increased costs of sports rights. DB said there remained “potential negative impact from the Russia/Ukraine conflict” but management was positive about its managed trading services business and strong US growth.

“From here, we still believe Sportradar gives investors, who are interested in gaining exposure to the rapidly growing sports betting industry, a pure play way to get leverage to the theme through a profitable and majority subscription based, B2B operating model,” said DB.

Revenues and costs up: Sportradar’s US betting revenues were up 114% YoY, advertising was up 300% YoY and AV revenues were up 100%.

However, the cost of rights was also up 32% YoY and management expects them to continue rising in the near future, but “remain confident in their ability to achieve EBITDA growth and cash flow conversion over the same period,” said DB.
Sportradar reiterated FY22 revenue guidance YoY rise of 22% to €655-700m (vs. prior $680m) and adj.EBITDA up 26% to €123-133m (vs. prior $127.5m).

NeoGames analyst update

Positivity: The team at Macquarie said it was positive on the outlook for NeoGames despite the group reducing 2022 revenue guidance by $1m to $91-96m, midpoint unchanged at $93.5m (+11% YoY).

Macquarie said the guidance did not include future revenues from new turnkey accounts, while NeoGames itself has enthused about its B2B sports-betting prospects into its state lotteries once the $480m acquisition of Aspire Global completes in Q222.

Sector watch - payments

War is stupid: To add to online gaming’s worries around the Netherlands and Germany, Paysafe said in its Q1 earnings call that the war in Ukraine was adding further stress, particularly as regards to payments in Russia.

The company said it was assuming no revenue from either Russia, Belarus or Ukraine for the rest of this year. “These areas contribute approximately $20m in revenue and $12m in adjusted EBITDA on a full-year basis in 2021,” CFO Izzy Dawood told analysts on the call.

On the bar tab: Better news for Paysafe comes from the US where its Skrill subsidiary has recently signed a banner deal with Barstool. Skrill will soon be integrated into the Barstool Sportsbook app, making it Skrill’s first tier 1 in the North American market.

“We are actually talking to a couple of other operators that we just (haven’t announced) yet,” Dawood added. “Skrill has a lot of momentum.”
Dawood noted generally that Paysa=fe had seen 40% year-over-year volume growth in the North America iGaming segment. “Pretty happy with that,” she added. “And again, expecting a 30% plus volume revenue growth for all of 2022.

Crypto bros: There was less online gaming chat at FIS - home to WorldPay - which appeared to be more focused on its crypto partnerships. CFO Stephanie Ferris said the company now processes for four out of the top five crypto exchanges.

“They come to us because of the level of authorization and fraud rates that we can provide for them in terms of benefits, but also because we're a large-scale provider for them,” she said.
She added that FIS continued to “take share in the crypto vertical”. “We really like the crypto vertical,” she added. Whether that enthusiasm has survived the recent crypto volatility is yet to be seen.

Datalines

Mississippi Apr22: Gaming revenue was down 21.1% to $206.1m, sports betting handle was up 7.7% to $35.5m but revenues dropped 2.1% to $4.2m

Sweden Q1: Online betting and gaming turnover rose 2% YoY to €400m. State lottery and slot machine games revenues declined 12.5% to €1.6m and €114m. State-backed casino operator Casino Cosmopol’s revenues dropped 28% to €9.8m and commercial casinos’ revenues increased 87% to €3.7m. National lottery sales were down 3% to €83.7m.

Sweden’s Gambling Inspectorate said there were 6.4 million gamblers in the market and more than 3,000 players had self-excluded during the period, a 6% QoQ.

UK Q4: Online GGY was down 1% QoQ to £1.2bn and stakes were down 2% to £19bn. Online slots generated £17.9bn of that total. March saw the highest level of wagering, with 6.3 million accounts active thanks to the Cheltenham Festival happening during the period. Betting stakes were up 7% QoQ to £493m.

The UK Gambling Commission said annual comparisons were difficult because of COVID restrictions affecting the sector in different ways during 2020 and 2021.

Newslines

Conditional approval: Accel Entertainment’s $140m acquisition of Century Gaming has been approved by the Nevada Gaming Commission, but the regulator also set as a condition of the approval a two-year limit on all applications. The commission said it had concerns on due diligence, documentation, fines in other jurisdictions and inconsistencies in the company information Accel provided.

SBK Betting exchange Smarkets will launch its SBK sportsbook in Iowa and Indiana later this year. Smarkets has partnered with Affinity Interactive for its launch in Iowa.

EBET subsidiary Esports Marketing Technologies has agreed a deal with loyalty and engagement platform Captain Up to provide in-play challenges, achievements, and a rewards shop.

Bragg Gaming says it has received approval from the Pennsylvania Gaming Control Board for igaming.

DAZN Bet has appointed Simon Gatenby, previously performance marketing director at Entain, as chief marketing officer. It has also raided Entain for Shane McLaughlin who has been appointed managing director for UK and Ontario.