18 Jun: Weekend Edition No. 1

Churchill Downs analyst initiation, 888 analyst reaction, DraftKings blowback, 888 analyst reaction, Denmark, Portugal, New Jersey, Pennsylvania +More

Jun 18, 2021

Welcome to the first of our Weekend Editions. The aim is to provide a wrap-up of what has been said and done in the sector in the past seven days, reviewing some of the bigger earnings and related news from the week and providing some further colour on recent events affecting companies in the sector. This week we also launch a new feature, Sector Watch, which is designed to look at what is being said in adjacent sectors to betting and gaming. This week, we focus on the latest earnings and news from the world of payments. Look out over coming weeks for similar features looking at social gaming and esports.

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Churchill Downs analyst initiation

My Old Kentucky Home: Macquarie have initiated coverage of Churchill Downs with an outperform rating, citing the iconic status of the Kentucky Derby (c25% of company EBITDA generated in a single day), the “underappreciated” historical racing machines story (33% mix; Macquarie believes the Kentucky market could be worth $750m at maturity) and the growth opportunity represented by the re-launched TwinSpires online arm (currently 16% mix). Macquaries believes Churchill Down can build on its online horseracing betting position. Note, in Kentucky TwinSpires has over 50% wagering market share. Gaming (51% revenue mix) remains a “core driver of earnings.”

The Kentucky Derby is Decadent and Depraved: The Macquarie team adds some colour around the Derby. The Derby was first run in 1875 and it the longest-running sporting event in the US. The event draws in c160,000 people and is a “one-of-a-kind experience it is near impossible to replicate.” For more on that experience, read the famous article from long-time Louisville resident and Gonzo journalist, the late Hunter S. Thompson, written 51 years ago, but still relevant for the mint julep drinking classes.

888 analyst price push

Running up that Hill: In bumping up their share price target, the analysts at Jefferies suggest 888 has something of an embarrassment of riches when it comes to further drivers. Foremost among, as ever with this perennial bridesmaid, is M&A. Specifically, a potential bid for the international business of William Hill soon to be offloaded by Caesars Entertainment where the company has already made its intentions clear to take a look. However, Jefferies suggest a bid is “not a “must-do deal.”

“If 888 does not acquire the William Hill assets, the business remains highly attractive given its proprietary technology across all the gaming verticals (casino, sports, poker, bingo),” Jefferies suggested.

Denmark

Playing down the channels: The Danish authorities will no doubt feel vindicated after the annual report from the regulator showed that estimated channelisation rates were up 2% on 2019 to 90%. The report showed GGR across all verticals down 6.5% in 2020 to DKK9.17bn. Notably, in late May the Danish courts upheld the efforts by the Danish Gambling Authority to block 55 illegal gambling websites against claims from the ISPs that suggested the regulator should have to prove the sites in question were taking Danish players. It means the DGA can continue to block sites based on screenshots of any unlicensed site seen to be targeting Danish players. Recall, at the end of April the Q121 data showed GGR ex-lottery down 15.3% to DKK1.3bn though online casino GGR rose 28.7% to DKK717m, the highest quarterly figure ever for that vertical.

Portugal

Taxing times: Despite high tax rates, around 8% on betting turnover and up to 40% when combined with gaming taxes, online gaming and betting revenues rose 13.3% to €128.3m in Q121. The state collected a cool €48.6m in ‘special online gaming taxes’ during the period. The rise is down to playing habits moving online during the pandemic and increased marketing driving up new sign ups by 12% to 329,400 and the number of active players by 14.1% to 770,500. The country’s regulator SRIJ said it had sent 30 closing notices and blocked 86 illegal sites with the country’s ISPs.

DraftKings and Hindenburg

The past is never dead: There was a lot to digest in the Hindenburg report into DraftKings (just the Tweet storm was long enough to take up a lunchtime of browsing) but the feeling persists that any damage to DraftKings is somewhat fleeting. While the share price - as of close on Thursday - was down on the week, it was by no means sinking with most of the 10% decline on Wednesday clawed back in the subsequent two days. Attention now turns to whether any of what was said about SBTech’s alleged links with illegal markets will have any affect on how the regulators view the evidence - and whether the tech part of SBTech stands up during the imminent switch of DraftKings to the new platform. The other effect of the Hindenburg report is to remind the global sector there isn’t a statute of limitation on previous activities when grey markets were more numerous and US licensing was far from being a priority. Compliance directors and in-house legal teams will no doubt be paying close attention to what Hindenburg claims to have uncovered - and how.

Sector watch - payments

Catch the wave: The enthusiasm for sports-betting and igaming in the US is - appropriately enough in the midst of a pandemic - catching. If a gold rush is always attended by picks-and-shovels providers then in this instance it is payments providers which are shining in the reflected glory. Take Paysafe. Long an established part of the European online gaming landscape, the company has been reborn and re-listed (of course via a de-SPAC led by Bill Foley who is also behind the Austerlitz SPAC that is merging into Wynn Interactive) and proudly talked in its Q121 presentation about being a “global leader in igaming.” Revenue-wise, the company saw 66% YoY growth in its gaming vertical. Total revenues came in at $377m and adjusted EBITDA at $113m. Guidance for FY21 remains at between $1.53bn-$1.55bn or 10% YoY growth.

Bulging wallet: Rival FIS, which owns the similarly online gaming enmeshed WorldPay, released its Global Payments Report for 2021 towards the end of `may and that pointed to where the excitement around payments lay. While globally the take-up of digital and mobile wallets is set to rise to 51.7% from 44.5% globally, in North America that leap will be from 29.3% to 40.5%.

OK Zooma: A newer entrant in the payments stakes is Toronto-listed Nuvei which in April snapped up US-facing gaming and sports-betting focused payments technology provider Mazooma for $56m. Mazooma is a registered vendor in nine states, licensed in 12 and in 2021 is expected to process $2bn of ACH (Automated Clearing House) total volume. But Nuvei also has its eyes on another opportunity. A month after the Mazooma deal it also moved to buy crypto payment gateway Simplex for $250m, suggesting it sees the possibility of servicing more than one gold rush.

Line of sight: Payments isn’t only an online gaming thing. Nevada-based Sightline Payments recently announced a deal with Resorts World Las Vegas that will see the new Strip casino launch with cashless gaming. Notably among Sightline’s investors is Bill Foley’s Cannae Holdings; it was via another Foley vehicle that gave Paysafe the de-SPAC opportunity. In this regard, we would point you in the direction of the “active M&A pipeline” comments during Paysafe’s Q1s.

New Jersey May GGR

This sporting life: A mixed months in NJ with GGR down 3.5% to $52.9m but handle up 8.9% to $814m, B&M casino down 4.4% to $213.1m but icasino up 25.9% to $108.2m. FanDuel continues to lead the market to a remarkable extent; the Meadowlands license it shares with PointsBet enjoyed mobile GGR market share of 61.9%. DraftKings-FOX Bet via the Resorts license was second with 19.8% share and Bet MGM via the Borgata license was third with 9.7% share of the mobile betting market.

iCasino vs IRL casinos: As physical casinos reopen and the high summer brings tourists to the Garden State, brick-and-mortar casinos are expected to reclaim some GGR share from online. Slot machines brought in $157.8m GGR, down 4.5% on May19 and up 14.3% MoM. Table games revenues (excluding poker) were down 3.9% to $53.5m on May19 and up 6.9% MoM. iCasino market share was led by Borgata with 30.3%, with Golden Nugget just behind at 28.7% and Resorts in third at 19.9%.

Pennsylvania May GGR

Promo FOMO: GGR was up 3.8% MoM to $37.4m, icasino up 9.3% MoM, handle down 6.7% MoM. DraftKings and FanDuel maintained their market share lead in mobile handle and accounted for a combined 64%, up from 62.2% in April. Barstool Sportsbook was third with 10.7% share of mobile handle, but that was down 230 bps from the 13% in April. Deutsche Bank analysts suggested April has been “promo-enhanced”. The DB team noted Barstool curbed promotions in May but still accounted for 12% of total market promos, fourth highest in the state. In total, promotions made up 30.1% of mobile GGR, just down from the 31.2% of GGR in April. Since January Barstool and BetMGM promotional activity has represented 4.7% and 5.1% of their respective handles, while for FanDuel the figure came to 2.3% and for DraftKings to 1.4% over the period.

Cooling-off period: Daily growth rate was +5.7%, but on the “current run rate GGR is likely to result in growth rates slowing from current levels (>80% y/y) as we move into the 4Q21 period,” the analysts at DB said. iCasino market shares are difficult to calculate accurately as they are now lumped by property license. DB estimated “that Rivers led the market with 26.7% share in May, followed by DraftKings at 23.9% (and) FanDuel at 16.1%.”

Louisiana May GGR

Casino GGR: $228.2m (ex-video gaming revenue), up 4.7% on May 2019, down 3.2% MoM and down 6.3% MoM on a daily GGR basis. State legislators are hoping to have sports betting regulated for the start of the NFL season, but for the time being casino gaming Penn National’s properties led the way in Louisiana with GGR of $82m, a 20.6% rise on May 2019 and 6.7% drop MoM. Caesars was second with GGR down 13% on May 2019 to $46m, but up 6.4% MoM. Boyd Gaming was third with GGR $43.4m, down 1% on May 2019 and MoM.