28 Oct: PointsBet feels the squeeze

PointsBet Q1, Churchill Downs Q3, Evolution Q3, VICI Q3, Scientific Games lottery sale, Nevada September +More

Oct 28, 2021

Good morning. PointsBet faces questions around its strategy after its Q122 results showed it losing ground in states in which it operates. Churchill Downs provides revenue beats across gaming and betting. Evolution nearly doubles its revenues in the third quarter. Scientific Games gets $6.05bn for its lottery business. VICI sees revenues in line with expectations.

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PointsBet

The top line

Net win rose 82% YoY to A$69.5m ($52.2m) with sports-betting up 76% to $67.3m and igaming contributing A$2.2m.
Australian net win rose 56% YoY to A$54.8m while the US more than trebled to A$14.7m.
PointsBet is live in seven US states with launch plans in 11 more in the next 14 months

Taking a dive: Shareholders reacted badly to the evident struggles PointsBet is having in the US retaining market share with its shares tumbling over 18% at close. Of the six states operational in the fourth quarter, all saw market share declines in Q1 with the share of GGR in New Jersey halving to 3.9%. Asked whether PointsBet should temper 10% market share ambitions and settle on aiming for 5%, CEO Sam Swanell was sanguine:

“If you are talking about a $50bn market in time, obviously it is very clear you could have a thriving very strong business at 5% of that market,” Swanell said on the call.

Learning lessons: Swanell suggested the marketing battle that took place around the start of the NFL season and into the NBA opening had been “informative”. However, he admitted to a large percentage of wastage in the referrals it gains from its tie-up with NBC and its predictor games. That has currently generated 516,000 referrals but they are across the entire country. Hoping to avoid a marketing “arms race”, Swanell insisted the company would “focus on our product,” including same-game parlays, in-play and igaming.

Arms control: Deutsche Bank analysts pointed out that net sports-betting revenues of $9.2m (up 307% YoY) were augmented by higher hold and lower promotions as a percentage of GGR (down to an implied 57% in Q121 from 68% in Q320). But promo spend was still up 150% YoY to 4.8% of handle vs. 4.1% in Q320 and Pointsbet also spent $27.9m on external marketing.

Evolution Q3

The top line

Revenues rose 97% to €276m YoY while EBITDA was up 113% to €192.9m.
Live casino up 53% YoY while RNG was up 7.9% pro-forma YoY. First-time contribution from Big Time Gaming worth €10.6m.
During the period Evolution launched a live casino studio in Michigan and RNG games in Connecticut with a live studio to follow.

Man management: With growth stalling in its historic UK and Nordic markets, Evolution said it was expanding into newer markets such as Ontario and the Netherlands and targeting new regions with new live casino facilities in Spain and Armenia. “We are in a rush to expand, build and launch more studios,” Carlesund said. “There are no limitations on investment,” he said. “But with 12,000 people in the company it’s a lot of work to organize,” he added.

Happy shopper: Big Time Gaming was the standout in RNG with 30% growth, but NetEnt and Red Tiger were less impressive at 3%.

Asked whether Net Ent and Red Tiger had failed to live up to expectations, Carlesund said it was “a fairly accurate description”.

He spoke about the group’s “One Stop Shop” project to bring all its slots content under one roof, saying it would give operators a “seamless, flawless” and efficient solution.

Asia minor: Just 38% of Evolution’s revenues came from regulated markets, with Asia accounting for €76.7m of the group’s total. “We’re still a small player in Asia and we’re hoping to grow more there,” Carlesund said. With regard to potential changes resulting from the UK Gambling Act review, both Carlesund and CFO Jacob Kaplan said it was “too soon to say if there would a material impact”, while the withdrawals of its operators from both Ontario and the Netherlands as they apply for licenses would have minimal impacts (c1%) on group revenues.

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Churchill Downs Q3

The top line

Net revenue rose 16.3% to $337.8m and adj. EBITDA rose 28% $156.1m.
Live racing and historical racing (HRM) was up 14.6% to $81.5m; TwinSpires was down 19.6% to $102.2m and gaming was up 38.8% to $185.6m.
Churchill Downs agreed the sale of the Arlington racetrack to the Chicago Bears during the quarter

Twins surprise: Analysts at Jefferies noted the “better-than-expected” profitability at TwinSpires, where the AEBITDA figure of $20.7m (up 31.7% YoY) was above consensus expectations despite top-line revenues for the segment being hit by Covid restrictions around the running of the derby earlier this year. The company also gave some detail on the plans for a new $80m HRM facility in downtown Louisville which will run 500 machines. Macquarie suggested revenues from the HRM segment could double “over time”.

Note: Churchill Downs will host its earnings call before market opening in New York today.

Scientific Games lottery sale

The top line

The lottery business has been bought for $6.05bn by private equity group Brookfield.
The deal consists of $5.82bn in cash and a $225m earnout depending on EBITDA performance in 2022 and 2023.

Bonanza ball: The sale of the lottery unit came as something of a surprise after the rumors of a float of the business in Australia, but the price of $6.05bn is still above expectations. While a float might have fetched a higher multiple, the cash element of the deal will help Scientific games immediately pay down a large part of its debt. Taken together with the $1.2bn sale of Openbet to Endeavor, the Jefferies team suggested it gives SciGames $5.6bn in after-tax proceeds.

Transformers: As Macquarie suggested, SciGames has “completed its transformation” into a land-based and digital gaming entity. Next steps are completing the acquisition of the rest of the SciPlay business it doesn’t already own and then further M&A. The company will have “plenty of dry powder to grow its social/digital business,” said Macquarie, though they expect management to remain “disciplined on valuation”.

Earnings in brief

VICI Properties: Revenue of $375.7m was in line with street consensus while adj. EBITDA hit $324.5m. VICI’s acquisition of MGM Growth Properties for $17.2bn in August, including ~$5.7bn of debt, will add ~$1B in annualized rent and 33,000 hotel rooms. Analysts at Jefferies said pro forma the company expected to generate nearly $500m of FCF per quarter, which would allow VICI to pursue more M&A without altering the balance sheet.

Note: VICI will host its earnings call before market opening in New York today.

Nevada data - September

The top line

Nevada GGR topped the billion mark at $1.15bn for the seventh straight month and was a 41% YoY increase and 9% up vs. 2019. Sportsbooks also enjoyed record numbers during the month (see below for more).
GGR on the Strip was up 9.7% to $640.6m YoY and a 25.1% Q3 increase vs. Sept19. Slot revenue was up 15.7% vs. 2019 to $355.3m, but hold was down ~4 bps to 8.6%.
Table revenue excluding baccarat was up 20.2% vs. 2019 to $204.0m. Strip table revenue was up 2.2% to $277.5 mm (excluding poker) vs. Sept19, handle was up 6.8% vs. 2019.

Locals GGR was up 12.9% vs. 2019 to $240.7m, a 21.4% increase in Q3 GGR vs. 2019, with slot revenue increasing 14.7% to $200.2m vs. 2019. Hold was up ~20 bps and handle increased 10.5% vs. 2019. Table revenue was up 5% to $40.5m vs. 2019, with handle up 12.2%, but hold dropping ~90 bps.

Record parlays: The return of the NFL helped Nevada sportsbooks enjoy a record month with sports betting handle reaching $786.5m and online operators recording 63%, $495.3m, of the total. Football bets accounted for $477.7m or 61% of the total. Sportsbooks recorded revenues of $54.2m and 6.9% margins, their third highest revenues. On a monthly basis, betting revenues were up 279% from the $14.3m recorded in August and up 64.7% YoY. Product breakout showed sportsbooks enjoyed margins of 56.3% on parlays which translated into $4m in revenues. Nevada collected c$3.7m in taxes from the sportsbooks.

Newslines

Ballyhoo: Bally’s Corporation has acquired UK-based creative agency and mobile gaming solutions developer Degree 53 for an undisclosed sum. The agency will develop Bally’s omni-channel offering, including sportsbook and casino mobile app and website development, systems integration and API development.

Inspired: Loto-Québec will be the first lottery to launch with Inspired Entertainment’s gaming content. It also announced a new multi-year exclusive partnership with the Major League Baseball Players Alumni Association (MLBPAA) for their Virtual Sports offering.