16 Jul: Weekend edition No.5

SG-SciPlay buyout, MGM-Entain, Bragg Gaming Q2 pre-announcement, Accel analyst update, FansUnite Entertainment offering, CasinoBeats summary +More

Jul 16, 2021

Good morning and welcome to the latest Weekend Edition of the Earnings+More newsletter. This week we lead with the manoeuvrings of Scientific Games as it looks to once again bring SciPlay under its corporate wing, reversing the spin-off from just over two years ago. There is also more on what MGM might be able to afford should it put in another bid for Entain, the latest Q2 pre-announcement this time from Bragg Gaming and we have a brief summary from the CasinoBeats Summit which took place in-person, in Malta this week (though E+M took the digital option). Next week we will have some news of our own which we are very excited about but we will keep that under wraps for now.

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Scientific Games SciPlay buyout

Play it again: To no great surprise, Scientific Games has announced it is to buy the outstanding 19% of the free float of SciPlay that it doesn’t already own as it seeks to refocus on gaming following the news of the sports-betting and lottery division planned sales or IPOs. The all-stock deal involves circa $430m in new Scientific Games shares being issued and values SciPlay at an implied enterprise value of $1.9bn or 9.4x consensus EBITDA for 2022. The tidying up exercise comes at a fortuitous time, according to Truist, giving Scientific Games all the potential upside from leveraging the company’s new games-centric strategy. Jefferies said the logic of the deal was “sound from a complexity and cost perspective.”

“Overall, SGMS remains among the most active transformational catalyst stories in our coverage at present, based on new leadership, a refined and appropriate balance sheet and simplified structure,” the Jefferies team added. “These all imply considerable upside.”

Meet the new boss: The strategic reverse is, as Jefferies said, a “rearrangement of the furniture” that also involves the sale of the lottery and sports-betting units which, as the company previously noted, will raise cash to pay down the substantial debt burden. Note in this regard this deal is all-stock rather than cash. SciPlay has enjoyed a brief period of limited independence having been originally spun out from Scientific Games only in 2019. Scientific Games received circa $340m at the time, though according to Truist $30m went on fees. Which only goes to prove that the true winners from constantly evolving and revolving corporate activity are the advisors.

MGM/Entain analyst update

Premium rate: Pushing the narrative around a likely bid for the rest of BetMGM it doesn’t own, Macquarie said late this week MGM can afford a 30% premium to JV partner Entain’s current share price. As of Friday morning, the shares were trading at £18.43 which suggests a bid in the region of £24 a share or circa £14.2bn or $19.6bn. Note the previous bid in January valued Entain at £13.83 a share. “As the takeover quiet period comes to an end, we believe MGM is still interested in owning the BetMGM business outright given its long-term aspirations in the space,” say the Macquarie team.

“Though ENT shares have since risen to c1,800 pence, we estimate MGM has over $8bn cash on hand following its recent CityCenter sale-leaseback, which could make an acquisition more palatable,” wrote the Macquarie team. “Also, given the current multiples, we believe an offer including equity could help the math accretion.”

Bragg Gaming Q2 pre-announcement

The top line

Q2 revenues expected to reach €15m/$17.7m, up 23.5% YoY and 5.7% QoQ. First half revenues expected to hit circa €29.2m/$34.5m.

The company kept its guidance for 2021 at €47m/$55.5m and adjusted EBITDA of €4m/$4.7m. The group will publish full H1-Q2 results on August 11.

Wild Spin: The group acquired Wild Streak Games in early June and said it had launched two new games during the quarter and now had seven online casino games live in New Jersey, the UK and other regulated European jurisdictions. Bragg continues to seek regulatory approval in other states and in Canada and its acquisition of Nevada-based Spin Games is expected to complete in Q4 pending gaming commission approval. The group generates a majority of its revenues from Germany and following the introduction of the new regulatory regime at the start of this month it said it was monitoring how the market “adjusts to the new regulatory framework” and is “closely working with its German customers to help navigate the changing regulatory landscape”. See below for more on Germany.

Massachusetts and Louisiana June GGR

In line: Massachusetts GGR rose 67.2% on Jun19 and was down 3% MoM to $84.1m and -5.9% on a same-store basis. Wynn Encore generated GGR of $52.6 mm (-0.7% vs. May 2021) or $5.1m above Deutsche Bank’s estimate of $47.5m. Louisiana GGR was up 8.5% vs. Jun19 but was down 2.9% MoM to $221.6m excluding video gaming revenue. Again, Deutsche Bank suggested the result was essentially in-line with its +7.9% estimate versus Jun19, from spend per a tracked visitor analysis.

Accel analyst update

Peak stimulus: Looking at the data from the Illinois Gaming Board, analysts at Macquarie estimate Accel generated record income from slot play on their bar and restaurant terminals in the second quarter. Despite the benefit from stimulus checks petering out - Illinois gaming terminal revenue peaked in March - Macquarie still thinks Accel would have seen revenues from terminals of circa $192m, up 91% on Q219. They also see more room for organic growth with terminal approvals below average due to gaming board inspectors struggling to get around to each venue in order to give it the official stamp of approval.

Gaming REIT analysis

Now is the REIT time: In a sector note looking at REITs, Jefferies analysts suggest the gaming properties owners will see the benefit from the evident boom in the second quarter. While the business model is designed to be more stable than the operators, the REITs will still see the benefit from variable rent exposure and rent escalation as well as a more general level of support for valuations and cap rates. Looking at both GLP and VICI, the team are expecting more commentary from both of further “opportunistic” M&A both within and outside of gaming.

CasinoBeats Summit, days 1 and 2

Back to life: The conference circuit made a partial return to IRL activities this week in Malta with the CasinoBeats conference. The European focus of the event meant that in terms of markets up for discussion, the tone was decidedly downbeat as panelists discussed an agenda filled with market restrictions and regulatory threats. From Sweden to Italy, Spain to the UK, the chat was about how operators and suppliers can navigate increasingly treacherous waters. But perhaps the most downbeat message came from those looking at the German market. According to Matej Novota, data and complaints department lead at affiliate Casino Guru, the German regulatory framework “fails much more badly than the Swedish market.” “It can change but any change in Germany will take many years and it won’t be easy,” he gloomily predicted.

Newslines

That is not my dog: The IBIA reported 38 cases of suspicious betting to the authorities in the second quarter down from 65 alerts in the first quarter. A total of 16 of the Q2 alerts came in football while table tennis was subject to nine alerts, six were in tennis, another six in eSports and one in beach volleyball (something for Bally Corporation to ponder perhaps). Geographically, Europe accounted for nearly half of all alerts reported, followed by Asia and South America.

Come together: FansUnite Entertainment has raised $24.8m from a new public offering which it says will go towards potential acquisitions, the further development of the Askott Games brand offering and expanding its footprint in the US. Scott Burton, CEO of FansUnite, said the company now had the cash to “accelerate our expansion plans.”

Going live: Fubo Gaming has sealed market access for its Fubo Sportsbook offering in Pennsylvania via a deal with the Cordish Companies, the operator of the Live! Casino & Hotel Philadelphia and Live! Casino Pittsburgh properties. Fubo has previously secured market access in New Jersey and Indiana (via a market access deal with Caesars) and Iowa (through Casino Queen). FuboTV has carriage agreements with NBC Sports Philadelphia and AT&T SportsNet Pittsburgh as well as local and national network coverage. The company hopes to launch in Q4, dependent on regulatory approvals.

Onboarding protocol: Staying with Pennsylvania, the Pittsburgh Pirates are the latest sports team to mount the official sponsorship bandwagon. The MLB team has signed with BetMGM and will provide the sportsbook with the now usual range of digital signage, promotions, social media presence and fan engagement content.

The mane event: WynnBet has announced its first NFL official sponsorship with the Detroit Lions in a multi-year deal that will involve the establishment of a sports bar at Ford Field which will give fans access to betting lines during the game.

A Prophet in his own land: The number of betting exchanges in New Jersey has risen to two this week after Prophet followed the lead of Sporttrade and gained access to New Jersey via a skin arrangement with Caesars Entertainment. The company was formerly licensed in the UK. It also gains access to Indiana as part of the deal. It hopes to launch by the beginning (would you have guessed it) the start of the NFL season.

Kind of blue: Also celebrating a market access deal is Australian online BlueBet which will mark its US debut in Iowa via a market access deal with the Dubuque Racing Association, the operator of the city’s Q Casino. BlueBet is targeting four further states in the near term and is awaiting a licensing decision in Virginia.

In-app Bet & Watch: Major League Baseball and DraftKings have extended their DFS-betting relationship to include a ‘Bet & Watch’ streaming feature that will enable viewers to watch a game on the DraftKings app and bet on it. Both parties will collaborate on “future sports betting-themed game broadcast experiences that will live within the MLB.TV product.” DraftKings also joined BetMGM as a co-exclusive, official betting partner of MLB. Seperately, DraftKings has also anniounced it has received a DFS license to operate in Louisiana. Officials in Louisiana have reiterated this week that they remain hopeful of sports-betting being up and running in the state in the fall.

The weekly digest

Trust the process: theScore’s “slow and steady” progress to move all its online betting and gaming operations in-house in the next 12 months might be trying the patience of some analysts wanting to know about profitability timings, but the group has confidence in its process.

Convergence resurgence: The sale of the UK-focused Oddschecker to Bruin Capital presages a US-redirect for the super-affiliate. And mirroring recent deals like Better Collective-The Action Network and DraftKings-VSiN, there is likely to be further convergence between sports, sports media and sports-betting.