10 Aug: Flutter keeps its eyes on the prize

Flutter, Gamesys H1s, DraftKings-GNOG, Bally Corporation, Scientific Games analyst reaction, Deutsche Bank on Florida +More

Aug 10, 2021

Good morning. This morning we start with the breaking news from New York where the details of the six consortia bidding for the two platform spots throws up what might be called some unlikely bedfellows. Then we turn to the H1 figures released from Flutter Entertainment where the US operations are on a charge, plus we have more analyst reaction to yesterday’s news from DraftKings and the results from Bally Corporation and Scientific Games.

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Breaking news: New York consortium line-ups

Ducks line up: New York state has published the details of the six consortia vying for the two platform slots that will be made available. The top draw bids appear to be the joint bid from FanDuel and DraftKings alongside BetMGM and BallyBet and one of the bids from Kambi that includes Caesars, Resorts World, PointsBet, Rush Street and WynnBet. Those who have sold down Kambi in recent days will be intrigued to see it is central to two potential bids via a bid with Penn Interactive and Fanatics Sportsbook. According to The Athletic the FanDuel-led consortium also comes with the support of the Yankees and the Buffalo Bills.

Flutter H1

The top line

Revenue up 99% to £3.05bn ($4.22bn), pro forma up 30% while adjusted group EBITDA was up 75% to £597m. Excluding US losses that figure would have been up 101%. Pre-tax profit up 2221% to £77m.

US revenue rose 159% to £652m ($906m) and the company expects US to be EBITDA positive in 2023.

Outlook for group ex-US for H2 to be between £1.27-1.37bn and US to be between £1.285-1.425bn ($1.8-2bn)

Look at me now ma: Flutter is understandably proud of its no.1 status in the US where the company said it hit 45% of sports-betting market share in Q2. Peter Jackson CEO said they were happy with the scaling of the US business and noted the gap between FanDuel and the competition had widened during the period. He added that the US division was now the second largest division of the group.

“Look at the benefits from same-game parlay, that’s a really good example,” Jackson said. “It’s one thing to buy these things externally and quite another to develop it in-house and have it as an integral part of the customer offer.”

Jackson was keen to stress that the business was benefiting from a focus on the product and that it “wasn’t complacent” about the competitive nature of the market. He was also keen to point out that while the company believes there are opportunities in online gaming, of the nine states likely to open by the end of 2022, only one would feature igaming. He also noted that it was “worth remembering we run the world’s largest online casino business.”

“The plan we have for the US is to make sure we bring a lot of that expertise into the US market,” he added. “We’re also getting much better at improving the cross-sell journey in the US. Having the largest user base of sports bettors gives us tremendous cross-sell ability.”

Between friends: Asked specifically about recent M&A and whether yesterday’s $1.56bn deal between DraftKings and GNOG had any impact on Flutter’s market access deal with Golden Nugget, Jackson said not:

“It’s an expensive way for them to see our market share data.”

As for being involved in more M&A itself with regards the US, Jackson said “at this moment we think we have everything we need.” “The size and scale of the Fanduel organization is at a completely different level to our competitors.” As for the rumored FanDuel IPO, Jackson emphasized it would only ever be a small slice that was floated in the US and that FanDuel would remain very much a subsidiary of Flutter.

Profit share: Looking at the prospect of the US being EBITDA positive by 2023, Jackson said this figure was only an output and “reflects simple mathematics.” “Our sheer scale and positive contribution will more than offset the cost of acquiring more customers,” he added before noting that if any of California, Texas or Florida legislated favorably it would change this situation once again. “But that would be a noise problem to have,” Jackson noted.

Share and share about: Back on home territory, the company said its three UK-facing brands - Paddy Power, Sky Bet and Betfair - were benefiting from “shared learnings.” Jackson suggested the company was :”well-placed’ for whatever comes out of the UK Gambling Act review regarding affordability limits. Noting that in the UK and Ireland online earnings grew by 50%, Jackson said here has been an “obvious shift from retail to online.” However, “it’s hard to say how much of a permanent shift,” has taken place. He added that the company had “definitely” taken market share.

Kissed a girl: The Sportsbet business in Australia has continued with what Jackson called its “phenomenal” performance with the events in the last 18 months leading to a “permanent step change” in the size of the business. “A lot of people trialed and sampled our product and really liked it,” Jackson added. “That’s what is leading to the permanent step change.”

Gamesys H1

The top line

Revenue was up 17% to £398.8 ($552m) while adjusted EBITDA rose 16% to £110.3m.

UK up 20% to £237.3m, Asia up 30% to £128m but Europe down 29% to £24.3m due to worsening regulatory environments in Germany, Scandinavia and Spain. RoW down 1% to £9.2m.

Gamesys will be conducting a call with analysts at 1pm UK time today and E+M will report on that in tomorrow’s newsletter.

Friends with benefits: These results, the last as an independent entity, will be viewed through the lens of what Bally Corporation is getting alongside the much vaunted tech stack. Going by these H1s, it is a mixed bag but with the UK making up the bulk of total revenues - and with the hope that the outcome of the Gambling Act review might be more benign than was feared - it means the new owners will be able to leverage its profits. Asia might be slightly more problematic due to Japan being a huge contributor here. Recall, the regulatory situation in that country is on the darker side of pale.

Radio free Europe: Europe would be more problematic if it accounted for more of the revenue percentage. At just over 6% in total, the problems being encountered in Germany and Scandinavia, in particular, will likely not furrow too many brows in Bally HQ. But the figures are concerning for the rest of the European sector and are a sign of what can go wrong when the regulatory pendulum turns against the industry.

DraftKings analyst reaction

Hedge trimming: DraftKings grabbed the plaudits for its deal yesterday in a way that Penn National notably failed to achieve last week with its Score Media & Gaming transaction. The strengthening of its igaming portfolio - the deal will see it immediately take market share in key markets such as New Jersey - will help it achieve a greater share of casino-first players, an area which the team at Eilers & Krejcik said that DraftKings CEO Jason Robins had said last week the company was “under-penetrating.”

“While a DraftKings-Golden Nugget online casino pairing will be immediately game-changing (e.g., the combined entity’s share of the New Jersey online casino market would rise to 24%), we see this pairing as a longer term defensive hedge against the ascendancy of BetMGM, Caesars, and even Penn National, which has barely begun to scratch the surface of its online casino capabilities,” said the Eilers & Krejcik team.

Why the rush? Market access is a long-running theme in the US and buying GNOG gives it cheap access to Nevada, Louisiana, New Jersey, Mississippi and, soon enough, Illinois. This offers the type of omni-channel optionality being explored by rivals MGM, Caesars and Penn National. Analysts at Truist noted DraftKings will now deploy a multi-brand strategy that “looks to generate higher revenues due to cross-selling opportunities, loyalty integration and tech-driven product expansion/optimization.” The deal will also alter the market access cost element for DraftKings with preferential pricing now lined up. Macqurie’s analysts said the deal was a major positive read-across for Rush Street Interactive on the basis it has many of the same qualities as GNOG.

Bally Corporation analyst reaction

This land is our land: While the focus remains with online and the imminent Gamesys completion (see above), the analysts also lauded Bally’s land-based performance in Q2. But the Truist team noted that while management sees elevated margins lasting through the year, there could be some seasonal weakness during the winter months. “Afterwards there could be a historical inflationary hit to margins; though management did note offsets in sustainable cost cuts, including lower staffing levels and promos/marketing,” they added. Truist noted that all land-based casinos will be rebranded Bally’s in the next year.

Scientific Games analyst reaction

Who’ll buy my violets? The current heightened state of betting and gaming M&A should by rights spell good news for Scientific Games’ plan to sell off its sports-betting backend business. However, the trend of late has seen operators moving away from third-party reliance and the current travails of Kambi (having seen its share price more than halve in four months) means finding a buyer for the tech “in its current form” might be tricky, suggest Credit Suisse, unless a buyer is found who wants to take the vertical integration route. “This is entirely possible,” the CS team suggests.

“However, it’s not obvious to us how many buyers there would be as Caesars, MGM, Bally, DraftKings, Penn all have in-house tech options. With that said, FanDuel is already using SGMS’ tech, and LVS has indicated interest in the B2B aspect of sports-betting.”

It won’t help the situation that SciGames’ online gaming unit looks likely to lose its GNOG custom as it moves to the DraftKings tech stack. As the analysts at Eilers & Krejcik pointed out, GNOG is currently worth c. 55% of the U.S. online gaming market.

Numbers up: A different issue arises with the lottery arm which helped drive SciGames’ record quarter. Deutsche Bank suggested this wasn’t surprising given reports from its peers and the backdrop of strong instant ticket retail sales. The latter appears to be correlated to the pandemic and CS therefore that it might be difficult for the business to grow against these comps.

GAN analyst initiation

Pillar talk: Jefferies have initiated a buy rating for B2B provider GAN and singled out its player account management (PAM) system as the key feature that will enable it to grow. Valuing the opportunity size for GAN at $190m-$380m, Jefferies analysts said the company’s PAM technology “is central to customer transactions and the data they generate” and is one of the four pillars of the OSB-igaming value chain along with market access, audience and content. Jefferies estimate the B2B TAM to range from $665m-$1.1bn.

Florida analysis

Miami Vice: The prospects for “a robust multi-operator OSB market in Florida appear dim” following the approval of the Florida-Seminole gaming compact by the US Department of the Interior at the end of last week, according to analysts at Deutsche Bank. The compact “is likely to be legally challenged by numerous parties,” which will lead to lengthy lawsuits that “drag on for years – an almost certainty in our view,” say DB. A Seminole launch later this year could take Florida “off the map from an addressable TAM perspective.” The analysts added that the investment community should “recognize some of the challenges in tribal dominated states, as we don't believe California is likely to be much different.”

Newslines

Shaq of all trades: WynnBet has signed up Shaquille O'Neal as a brand ambassador and strategic consultant. Under the terms of the partnership, O'Neal will be featured prominently in WynnBet's advertising campaigns across TV, digital and print. A free-to-play game called 'ShaqPot,' will also be launched via the WynnBet app.

Bring on the major leagues: According to the NY Post, Barstool is in the running to become a broadcast partner of the MLB. The paper suggests the discussions revolve around midweek games being broadcast with a focus on in-game betting. The paper says the likelihood of the deal is 50/50.