Caesars & DraftKings lead sector bounce

The shares week, US sportsbooks hold analysis, startup focus – OSAI, the week ahead including FanDuel +More

Earnings+More

Nov 14, 2022

Good morning. Today’s agenda features:

Caesars and DraftKings led the sector market rebound last week.
Wells Fargo looks at the high hold hot streak for US sportsbooks.
Our startup focus is sports-data capture company OSAI.
The week ahead looks forward to FanDuel's investor presentation on Wednesday.

Bounce.

The shares week

Caesars and DraftKings were the sector’s headline beneficiaries from the wider market melt-up last week.

Show of faith: The rising tide on Thursday and Friday lifted two specific sector boats, as Caesars Entertainment rose over 23% on the week and DraftKings regained ground with a 29% advance.

The feel-good factor stemmed from improved inflation data, which fueled hopes that the Fed’s rising rates cycle might be nearing a peak.
The S&P 500 was up nearly 6% on the week while the Nasdaq was up over 8%.

🚀 Caesars ended the week up over 23%

Bouncebackability: DraftKings managed to retain most of the ground it lost in the immediate aftermath of its Q3 earnings when it shipped nearly 28% of its value.

However, DraftKings is still over 28% below its late summer high of $20.80 and remains down over 46% in the year-to-date.
See tomorrow’s Due Diligence #1 for more on DraftKings.

🚀Risk on: investors appeared to regain their faith in DraftKings

Supply lines: Analysts at Jefferies noted a curious divergence in share price reactions with the suppliers last week. With Light & Wonder, initial investor worries on the day of earnings saw the shares fall 3% before the wider market recovery came to the rescue.

With IGT and Everi the share price reactions “raised questions”. As Jefferies pointed out, IGT beat consensus by 4.7%, guided in line and saw its shares rise over 20%.
Everi beat consensus by 0.7%, tightened guidance, and its shares dropped over 14% at one point.
“The surprise disparity in performance is highly unusual, with the possibility of pair trade positioning into the quarter being unwound,” suggested the Jefferies team.

🪓LNW, IGT and Everi’s share price reaction last week to Q3 earnings

Elsewhere in the supply sector, AGS found itself under pressure on the day of its earnings, falling 22% on the day as investors digested the lack of any progress on M&A. Recall, AGS rejected a $370m approach from Inspired Entertainment in September.

Eastern front: There was also a relief rally for Macau-focused stocks on Friday, with Melco Resorts rising nearly 13%, Wynn Resorts up over 8% and Las Vegas Sands up over 5% on the potential for the Chinese authorities to relax its Covid restrictions.

😷Hopes of a relaxation of Zero Covid in China help Macau stocks

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Analyst takes

US sportsbooks: High hold of 11.5% in September and 10.3% across Q3 means the US books are on a hot streak, suggested the team at Wells Fargo. Still, they added that even with this high hold, promotional spend “ticked higher”.

The top seven brands increased promo spend as a proportion of overall marketing to 29% vs. 23% in Q2; apart from Caesars, which dropped to 16% vs. 23% in Q2.
Wells Fargo estimated the market leaders were FanDuel in sports betting with 30% (+1% MoM) and BetMGM with 30% in iCasino (-1% MoM).

🏁 Caesars was the only top brand to significantly cut back on marketing in Q3

Call rewind

AGS: When pushed for a forecast for unit sales in 2023, CEO David Lopez was somewhat coy about specifics, but noted the company had momentum from this year and that at G2E customers were “pretty hot” on AGS products.

Lopez also spoke about the opportunity in Texas following the Supreme Court Class II decision. “It's squarely in our wheelhouse,” he said, noting AGS has “tremendous relationships” with the tribes.

Raketech: A growing element of the affiliate provider’s business is its affiliation cloud business, though CEO Oscar Mühlbach admitted to capacity constraints. “We currently cannot onboard as many customers as we hoped,” he said. “We are doing everything we can to speed this up and accelerate this opportunity.

Meanwhile, he said the affiliate arm was concentrating on its flagship properties, including CasinoFeber and SlotJava. “We believe we have what it takes to increase the distance to the competition,” he said.

Acroud: Talking about the recent acquisition of Catena Media’s paid media arm, CEO Robert Andersson was keen to talk about what he saw as the benefits of paid over SEO. “If you look at SEO, there's a lot of hard work going into ranking a website, getting the visibility on Google in order to generate revenue from that,” he said.

But with paid media, he suggested, Acroud could choose to go into a market and “test out ads on that keyword, pretty much tomorrow”.
“It is an adaptability that is much quicker than SEO,” he added. “That’s one of the real strengths of paid media; how agile it is.”

The week ahead

GAN, Sportradar and an investor day from FanDuel are the highlights, while the largest affiliate groups take center stage at the end of the week.

Analysts will look to see if GAN has been able to address its B2C and B2B issues when it publishes its Q3s this evening.

In-play volumes will be a focus for Sportradar when the group reports on Wednesday. The topic is also likely to be high on the agenda when FanDuel holds its investor day later that afternoon.

Affiliate week: Better Collective will be closely watched on Thursday following the news that it has shed 10% of its workforce stateside. Recall, in Q221 the group set a revenue target of $100m from the US.

Also on Thursday, Catena Media is sure to be asked about its ongoing strategic review after the news that it had sold its paid media unit to Acroud. Gambling.com will be reporting later that day.

Due Diligence #1: On Tuesday, E+M launches our latest monthly edition, which is aimed at taking an in-depth look at a selected major topic within the global sector.

The debut edition takes a look at DraftKings and the issues it faces with its long-hoped-for and long-promised profitability.

Startup focus – OSAI

Who, what, where and when: OSAI was launched by CEO and founder Roman Garin in 2020 with a vision to automate sports-data capture and enhance the sports-viewing experience through machine learning, artificial intelligence and computer vision. The company is currently focused on table tennis, snooker and eSports.

Funding backgrounder: OSAI has been bootstrapped since launch.

The pitch: Garin says OSAI’s technology is highly versatile, but its biggest benefit is that “with one platform it addresses key challenges such as automating data capture, increasing viewership and engagement for broadcasters and opening new revenue opportunities for operators”.

“Data is the lifeblood of sports betting but today it is dominated by human scouts, who are limited in the quantity and quality of the data they can collect.”
Garin has put his faith in automation. “AI data scouting is more reliable and consistent,” he says. “It makes data capture 52% faster and is 70% cheaper than humans.”
OSAI’s latest features are Quick Bets, a widget with four micro-betting markets on low-level events in table tennis and mixed reality, which extends the reality of live sports by bringing to life contextual and immersive animations.

What will success look like? Garin says OSAI is “not seeking to exit” currently and will focus on its goals of “transforming live sports experiences and merging physical and online worlds”.

Datalines

New York: Sports-betting GGR rose 14.7% to $39m, while handle was up 2.3% to $353.3m for the week ending Nov 6.

Leaders by GGR: FanDuel led with 52%, followed by DraftKings (28%), Caesars Sportsbook (10.5%) and BetMGM (5.6%).

🍎 FanDuel leads with 52% of the New York market in October

Earnings in brief

Paysafe: Q3 revenues increased 4% to $366m (10% on constant currency), adj. EBITDA was down 10% to $95.5m (-5% cc). Volumes were up 5% to $32.5bn, thanks to strong OSB and iCasino growth (+45%) in the Americas, but there was continued softness in Europe.

Newslines

A senior manager at LeoVegas has been arrested for insider trading in relation to the group’s acquisition by MGM, the Swedish newspaper Aftonbladet is reporting. Sweden’s Economic Authority opened its insider trading investigation into the MGM-LeoVegas transaction in June last year.

The New York Jets has asked the Delaware Court of Chancery to appoint a receiver for Fubo Gaming in regard to the collection of a seven-figure sponsorship fee that is allegedly overdue by more than a month, according to SportsHandle.

Games developer Raw iGaming has acquired the casual games studio Spigo for an undisclosed sum. Spigo’s parent company is the Malta-licensed Lady Luck Games, which reported Q2 revenue and EBITDA losses of SEK9.4m and SEK8.2m respectively.