Jul 11: Could MGM buy Entain on the cheap?

Entain analyst reaction, Macau closure, Q2 transaction tracker, US online analyst update, startup focus - Mojo +More

Earnings+More

Jul 11, 2022

Good morning. On today’s agenda:

Analysts suggest a weakened sterling might entice MGM to snap up Entain.
The E+M transaction tracker details the major corporate deals in the sector in Q2
Our startup focus for this week is sports stock market Mojo.

RIP Paulie Walnuts.

Entain analyst reaction

Grab a bargain: A combination of Entain’s falling share price and sterling weakness might entice MGM Resorts to renew its efforts to buy its BetMGM JV partners, according to analysts at Citi.

Who will buy? Entain’s share price has fallen over 42% in the last year and currently has a market cap of £6.32bn.
Money, money, money: The Citi team suggest a bid for Entain would likely need to be pitched at a 50% premium to the prevailing share price which would suggest a sub £10bn offer would win support.
Currency crisis: Notably, sterling hit a two-year low against the dollar this week as the political crisis affecting the Conservative governing party rumbled on.

Auction house: MGM made an $11bn bid for Entain in Jan21 which at the time was valued in sterling at £8.1bn. But a similar offer now would be worth closer to $9.74bn.

Bullet dodged: A subsequent offer from DraftKings in Sep21 valued Entain at $22.4bn or £16.2bn at the time. The same dollar amount would now be worth $19.5bn.

Cheap trick: Analysts at CBRE added that they believe Entain is “uniquely undervalued” at levels of around 8.4x their own FY23 EBITDA estimates.

Don’t fight it, feel it: “It is hard to fight the tape in a bear market, coupled with the uncertainty surrounding the UK regulatory review, but we do see significant underappreciated value here.”
Optionality: The CBRE team adds that the strategic rationale for buying Entain is also compelling with scale in the US now “clearly important”, leaving new competitors seeking to enter the market with “few options beyond large-scale M&A”.
Up the bracket: Valuations for US digital gaming businesses may have contracted but CBRE say they anticipate “a divergence in assigned value between scaled and sub-scale operators as profitability remains the key focus”.

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Macau update

Shuttered: The authorities in Macau have once again closed all commercial properties including casinos for one week from today as part of the Chinese government’s zero Covid policy. As of Saturday, the SAR has seen total infections of 1,374 in the latest outbreak.

Analysts at Jefferies noted that though the closure was just one week, whether it might be extended “remains an open question” and it “challenges the base earnings arguments for LVS and Wynn”. (See the shares week below.)
S&P lowered forecasts for this year suggesting 2022 GGR will likely only come in at between 20%-30% of 2019 levels or up to $1.08bn.

The shares week: In Hong Kong trading, the news of the week-long shutdown in Macau hit the gaming–related stocks. At pixel time, Sands China was the worst hit, down 7.4% while Melco’s Hong-Kong-listed vehicle was down just over 7%, Wynn Macau was down 6.7%, SJM by 6.4% and MGM China off by 6.3%.

E+M transaction tracker Q2

Over $13.5bn of deals were completed in the quarter.
More than half the total comes from the recently completed merger of Betclic with media giant Banijay to form FL Entertainment.
888 also completed its William Hill acquisition via the raising of £1.76bn of debt and £162.9m of equity raised. See breaking news below.
MGM Resorts and Entain both extended their footprints ex-BetMGM with LeoVegas and BetCity deals.

Tighten up: Even while the macroeconomic backdrop is raising concerns about the impact of inflationary conditions on consumer spending patterns, the global betting and gaming sector saw no signs of slowdown in corporate activity in Q2. Yet, the rumored problems encountered by the banks around the take-up of 888’s £1bn bond offer suggest money is tighter than it was last year.

Q2 top 10 transactions

SPAC spotted: Heading the list of transactions by size was Betclic’s surprise €7.2bn merger with Banijay and the Pegasus Entrepreneurial Acquisition Company Europe SPAC announced in mid-May. Betclic is very much the junior partner in the business with revenues of €741m in 2021 vs. €2.8bn for Banijay. Still, given the current conditions, completing a SPAC deal is very much an achievement.

Starman: Also announced over the period was a planned listing for NorthStar Gaming, the entity formed by the media company Torstar, which completed a reverse takeover of shell company Baden Resources and is set to join the Toronto Stock Exchange.

Rapid turnaround: MGM Resorts and Entain both made acquisitions to extend their online footprints with their respective deals for LeoVegas and BetCity.

Flying off the shelf: The latter deal, which saw the Netherlands-only operator snapped up less than a year into its corporate life, was dubbed by Regulus as “one of the most rapid returns on effort seen in the sector”.

SIGnificant other: PointsBet received a boost over the quarter when it announced that US investment house SIG had taken a A$92.4m stake in the business.

The SIG deal came after the company was reportedly approached by a consortium led by Australian betting guru Matthew Tripp regarding a $220m offer for the Australian arm of the business.

Raw nerve: While Evolution (with its €340m Nolimit City takeout) and IGT (via its £160m deal for iSoftBet) took the B2B igaming headlines, lower down the scale Raw iGaming made two acquisitions over the period.

The Malta-based games studio and provider launched in March 2021. In April this year it sealed the deal to buy independent games provider and aggregation platform Leander Games for an undisclosed sum and then followed this up with the acquisition of Sapphire Gaming in June.

BREAKING NEWS: 888 has announced the details of its new debt arrangements saying that the £1.17bn of new debt facilities “significant portion” will be held by its mandated lead arrangers. The company said its weighted average cost of debt is currently expected to be approximately 7.3%.

The news that a large portion of the debt will be held by the arranging banks appears to confirm fears from last week that 888 was struggling to find buyers for its debt.

US online analyst updates

Beats, rhymes and life: The team at Macquarie suggest they are expecting to see OSB and igaming revenue and EBITDA beats “almost across the board” in Q2. Stronger May GGR and better hold (~9%) “as well as containment around marketing” will be a positive catalyst for operators, they suggest.

Keep the customer satisfied: The team note that they don’t expect inflationary pressure to impact revenues with new products, further state openings, and higher profile for betting on events “likely to keep sports bettor interest piqued through the downturn”.
Q2 earnings bingo card: Look out for comment on Ontario, share repurchases, expected losses and path to profitability, potential new market entrants, UK white paper and market share.

👀 Over at JMP the team note that in the YTD gaming-related stocks are down 28% in line with consumer discretionary sectors but gaming-related stocks with online exposure are off by 43%.

DraftKings casino call

DraftKings CEO Jason Robins has called on states to regulate online casino “not in the future but now”.

Cannibal claim: Giving the keynote to the National Council of Legislators from Gaming States (NCLGS) summer meeting, Robins said states that had legalized sports-betting and icasino had not cannibalized retail operators.
Stigmata: “The stigma associated with online gaming seems to rely on inaccurate and out-of-date ideas of how the technology works,” he added.

Startup focus - Mojo

Who, what, where and when: Mojo is a newly created sports stock market that lets fans invest in athletes’ on-field performances, just like a stock. Led by founders Marc Lore, Alex Rodriguez, Vinit Bharara and Bart Stein, Mojo hopes to “supercharge sports fandom” by enabling fans to use their passion and sports knowledge like never before.

Funding backgrounder: Mojo announced a $75m Series A led by Thrive Capital in March, with significant participation from Tiger Global, Lore and Rodriguez.

So what’s new? Versions of sports stock markets have been tried before, but according to Mojo’s co-founder and CEO Vinit Bharara none have done what Mojo sets out to do. “Most notably, allow fans to make real-money bets on an athlete’s career prospects, with real-time price changes and instant liquidity, meaning users can enter or exit their position at any time,” he adds.

“Mojo doesn’t just end when the game ends,” says Bharara. “Prices move with every touchdown, trade or headline, so the action never stops. There’s really nothing else out there that predicts the outcome of players’ careers like this.”

The longer pitch: What Mojo is building requires an enormous amount of data analytics and engineering expertise, he says, effectively predicting the career projections of every professional athlete.

Got my mojo working: “We’ve assembled a team full of innovators, leaders, and rising stars from Google, Amazon, Walmart, MLB, NBA, NHL, Goldman Sachs, Topps and more,” says Bharara.
You have chosen…wisely: “We believe the idea of a true sports stock market is the holy grail for fans. Mojo has the ability to transform sports, and sports fandom, as a whole.”

Datalines

New York: June GGR came in at $72.4m from a handle of $1.05bn. The brutal economics of the state meant that operators received $35.5m net while the state gathered in $36.9m of tax revenue to go towards its education fund. In the week to July 3, GGR hit $20.2m on handle of $212.8m.

Leaders: FanDuel maintained leadership in June at 54.7% followed by DraftKings on 22.7% and then Caesars (8.7%). In terms of giving to the state, FanDuel can claim top corporate citizenship having contributed $20.2m or 54.7% of the total take. Note: Resorts World contributed $16k in June so does not show on the table below.

All give: top % contributors to NY state coffers

Illinois: GGR hit $110.7m, up 5.1% YoY and 0.1% below Jun19. Note, Illinois casinos were operating at 60% capacity for the month of Jun21. On a same-store basis (excluding the Hard Rock Rockford opened Nov21), GGR was up 1.3% YoY and 3.7% below Jun19.

Iowa: GGR for June was down 48% MoM to $12.6m due to margins dropping ~320 bps to 5.4%. Handle for was down 17.2% MoM and -22% YoY to $122.4m. Casino GGR was down 2.4% YoY and -1.9% QoQ to $138.2m.

Arizona: Sports-betting GGR in April was down 21.5% to $29.2m while handle was down 25% to $512.9m from the March record. Retail handle was $3.3m. Operators’ free bets and promotional credits came to $12.7m. The state collected $1.6m in taxes from $16.5m in taxable revenue.

Leaders: FanDuel led the GGR charts with 55.8% followed by BetMGM (26.4%) and DraftKings (5%). By handle, DraftKings led with 30.4% share ahead of FanDuel (29.8%) and BetMGM (19.6%).
Datapoint: FanDuel generated over 10x DraftKings GGR from slightly less handle.

Virginia May22: Sports-betting GGR was $42.5m while adj. GGR (after state taxes) came in at $27.5m. Handle for May was down 12% MoM.

Portugal: Land-based casino GGR for Q2 was down 7.2% YoY to €53.9m while online casino stakes increased 37.3% YoY to €2.21bn. Online sports-betting wagers were down 12.8% to €369.4m. GGR across both verticals was up 23.6% YoY to €158.6m, with online casino GGR up 37.6% to €80.9m and sports-betting GGR up 11.8% to €77.7m. The GGR rises came despite the number of new account openings dropping 34.6% YoY to 215K.

Newslines

FanDuel is now the official betting partner of the NFL in Canada and will be able to use the league's name and branding for marketing and product-related operations.

GAN has repurchased $1m of its shares as part of its shareholder authorization of up to $5m.

Betfred has signed a market access deal in Maryland with Long Shot’s Frederick restaurant and bar where it will operate in-person betting windows and self-serve betting kiosks.

What we’re reading

Matt Levine at Bloomberg on getting pranked by Elon Musk: “The next time Elon Musk announces that he is going to buy a public company — and he will do it again! — I will know not to believe him. I will definitely know not to write about it.”

Battle lines: Meanwhile the New York Times says Twitter is ready for the potential legal battle that could ensue.