25 Jun: Weekend Edition No.2
Penn National Q2 pre-announcement, Jefferies Digital Summit wrap, MGM Resorts International analyst re-rating, Kambi capital markets day, King moves to Fanatics +More
Welcome to the second E+M Weekend Edition. The sound you hear in the background is the rumble of the upcoming Q2 numbers and this week Everi and Penn National both broke cover with results pre-announcements signalling current trading at elevated levels. The double-digit revenue and EBITDA leaps confirms the positivity of the monthly state GGR data and the tone of recent digital fireside chats by leading names such as MGM and LVS. Meanwhile, the news has been driven this week by significant progress in Canada with the legislation for single-event sports-betting now expected to commence by the fall.
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Penn National Q2 pre-announcement
The top line
Revenues for the three months to June will range between $1.45bn-$1.55bn while adjusted EBITDAR will be between $540m-$580m. At the midpoint for each they represent growth of 18% and 25% respectively and an adjusted EBITDAR margin improvement of 220bps.
Compared to Q219 the company expects revenue, Adjusted EBITDAR and Adjusted EBITDAR margin to increase by 10%, 32%, and 625bps.
Penn is mightier: Penn National took the opportunity of the news of a $400m senior secured notes cash raise to pre-announce its second-quarter figures which it said demonstrated continued strong demand trends, but also underscores its ability to drive sustainable margin improvement. The numbers were impressive enough to have the analysts salivating.
“While we feel it is prudent to assume the stimulus and pent-up demand will normalize eventually, there are substantial structural cost savings and long-term revenue opportunities that provide a compelling case for continued growth,” said Union Gaming.
Summer loving: The numbers were no surprise in light of the various improvements seen in the monthly figures from the gaming states for April and May. Macquarie said they believe GGR has grown by 14% and 10% in each month respectively. Pointing to the similar Q2 pre-announce from Everi earlier this week, they suggest the rest of the gaming sector will generate similar types of sequential growth. “With vaccination rates improving and younger customers still enjoying the gaming experience, we continue to expect trends to remain strong throughout the summer,” they added. The Deutsche Bank team, meanwhile, returned from a Vegas road trip enthused about what they saw. “The tone of our meetings with operators was upbeat, with few if any caveats of potential caution over the near term,” they suggested.
Jefferies Digital Gaming Summit wrap
Paying the price: The “most profound” commentary from the last day of the summit, according to the Jefferies team, was that US customer acquisition costs were turning out to be lower than expected. The analysts suggested the investors were increasingly focused on the tech strategies being employed.
“Ownership is deemed desirable to drive accelerated and bespoke product development, but bears time and resources,” the Jefferies team suggested. “Many operators still seek external content and tech expertise for the time being. Ultimately, some can take a hybrid approach.”
Of course, one company to have taken the ownership route is SBTech and its buyout has been the subject of much speculation following the Hindenburg blast. Jefferies also tackled the subject of the “heightened focus on unregulated market exposure,” with US investors “now more focused on the distinction between ‘pre-regulated’ vs. ‘dark grey’ markets.” (See Malta/FATF news below). “We expect regulatory scrutiny to increase during licensure, with several public operators indicating cleanliness outside the US.”
MGM Resorts International analyst re-rating
Labor daze: The buoyant backdrop for US gaming has persuaded the Deutsche Bank team to take another look at MGM Resorts International. Suggesting that much of the recent share price appreciation has been due to the positive noises on sports-betting. The analysts suggest the equally positive land-based gaming story needs some reassessment, particularly on the expanded margins being enjoyed on the Las Vegas Strip. Part of this is down to the labor situation. DB noted that at the end of 2020, MGM had cut its workforce by 40% relative to 2019 levels; not all of those will return, they suggest, with MGM being “very discerning” and that Strip labor expenses could be c30% lower in the short to medium-term.
Kambi capital markets day
Call the experts: The benefits of outsourcing was the key message CEO Kristian Nylen emphasized during Kambi’s capital markets day earlier this week. “The high fixed costs and expertise required to run in-house books meant new and existing operators, including major Tier 1 brands, should leverage the technology and know-how that Kambi offers.”
Competition is intense however and factors like price and in the US historic relations groups like IGT and Scientific Games have with many casinos mean Kambi doesn't always win all the tenders it enters.
Mistaken logic: Referring to the US market leaders’ stated strategies of running their own platforms, Nylen said “the logic is that it’s essential to do that in-house.
“I think it’s a misunderstanding, people don't realise how expensive it is to operate a sportsbook that way. And the benefits of Kambi outweigh the costs, plus you’re starting with a product that is inferior to Kambi and playing catch up for a very long time.”
Share up: Kambi said it currently has 7% of global market share and has set itself a target of 15% come 2026. In the US the DraftKings contract ends at the end of September and the group will take a “20%-30% hit to revenues”. This will hurt in the short term, Nylen said, “but even without DraftKings we will still have 20% share of the US market”, providing it with a “much better proxy for regulated markets in Latin America, the US, Canada and Asia”.
Revenue focus: In terms of M&A Kambi will look at complementary products such as virtual sports or PAM systems to enhance its sportsbook offering. It will also consider a potential stateside listing because of strong US valuations, but first “the focus is on growing revenues and profits and then we will look at strategic options like US listings.”
King moves to Fanatics
King for a day: A lot of interest is generated when a high-profile executive from a betting and gaming entity moves to a new gig outside the industry, immediately exciting speculation about whether that might signal a move into the sector on the part of the hiring company. The latest move to do that is the appointment of Matt King, ex-CEO at FanDuel, who is set to join sports-based e-commerce giant Fanatics. Flutter announced his departure from FanDuel last month. Commentary suggests it is another sign of the convergence of sports, betting and media. Similar what-does-this-mean questions arose when Shay Segev, the ex-CEO at Entain, moved to DAZN, with many believing the answer would be a move by the sports-streaming company into betting. The danger of reading more into such moves than is merited is obvious: not every company in adjacent sectors is looking at entering the sports-betting space (though many are - see SI news) and executives who have done well at sports-betting and gaming entities do have transferable skills (and not coincidentally are hot properties). It won’t stop the speculation though, especially since the $12bn valued Fanatics is likely to be heading towards its own liquidity event in the not-too-distant future.
Canada sports-betting
Out of the blocks: Score Media and Gaming was understandably quick out of the blocks with electronic billboard messaging to gamblers in Ontario that they will soon be able to bet online. Analysts this week pointed out that Ontario alone is effectively the fifth largest state in North America, ahead in population of both Pennsylvania and Illinois. Analysts at Jefferies weighed in yesterday with estimates that at maturity Canada could be worth circa 15% of the US market. But competition will be fierce as they noted that both the DFS giants will also be well-placed to leverage existing fantasy sports audiences.
888 and Sports Illustrated
SI games: 888 announced it will launch and manage the online sportsbook and iGaming products for the sports media brand Sports Illustrated. The SI sportsbook will launch in Colorado H221; launches in New Jersey, Indiana and Iowa are set to follow. 888 will gain access to SI’s media and digital assets (30 million monthly users) and will pay SI of guaranteed licence fees and performance-based revenue. SI also has options to acquire an extra 10% of the joint venture for up to $40m. Analysts at Peel Hunt noted that 888 will commit to a minimum level of marketing spend and pay brand license and affiliate fees to SI’s owners which will, in addition, take a minority (5%) interest in the 888 subsidiary operating part of its US business. They were also enthused by the “powerful brand”. However, media commentayr noted that SI’s subscriber number have tumbled in recent years, down to 1.8m in 2020 from 3m three years previous.
Newslines
Never mind the ballots: Sports Handle has reported that a ballot initiative - apparently being pushed by FanDuel and DraftKings - that would open the market for online operators working in at least 10 other states alongside the Seminoles.
Hoosier on first: Caesars Entertainment received good news from the Indiana Gaming Commission after the regulators said it would be allowed to retain the Horseshoe Hammond, one of its properties in the state that was previously chalked up for a sale as part of the Eldorado reconciliation.
Going grey: The award for the most unsettling news of the week likely goes to Malta and the decision by the Financial Action Taskforce (FATF) to place the country on its grey list. It puts it in the rather unlovely company of jurisdictions deemed untrustworthy in terms of money-laundering and financing of international terrorism.
Fast and furious: AGS has partnered with casino payments specialist NexGen Technology to provide players with NexGen’s Fast Cash solution. The product will debut at the Morongo Casino Resort & Spa in California, which is integrating 40 Fast Cash mobile chip devices that will enable players to buy chips while staying at the tables and without having to handle cash or visit an ATM.
Floating points: Catena Media will start trading the €55m senior unsecured floating rate bonds it issued on 9 June on Nasdaq Stockholm from the start of next week.
What we’re saying
Gaming in Holland Seminar: Scott Longley will be chatting alongside Gavin Kelleher from Goodbody and Gaming in Holland’s Willem Van Ort next Tuesday 29 June, discussing what has been said by operators about trading in Germany and the Netherlands ahead of their upcoming significant regulatory dates. You can sign in here.
What we’re reading
Hodling out for a hero: On why the crypto-experts are also crypto-holders.
These things happen: French football supporters go to the wrong eastern European capital for crunch Portugal game.
Calendar
29 Jun: Gaming in Holland webinar
Contact us
Scott Longley scott@clearconcisemedia.com
Jake Pollard jake@openmediaservices.com