29 Jul: Red Rock paints an even brighter picture
Red Rock Resorts Q2, Churchill Downs Q2, VICI Properties Q2, Monarch Casino & Resort Q2, PointsBet Q4/FY, Truist Q2 earnings preview, Colorado and Tennessee June GGR +More
Good morning. Red Rock Resorts took its turn in the spotlight after market-close yesterday with forecast-busting same-store numbers and bullish commentary on what is turning out to be a theme of the quarter, the sustainability of historically high margins. Then there are the results from Churchill Downs (earnings call later today), PointsBet and the first REIT to report this quarter VICI properties, as well as the latest figures from Monarch Casino & Resort.
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Red Rock Resorts Q2
The top line
Revenues up 295% to $482.2m YoY but down 11% on Q219. Adjusted EBITDA rose to $227.4m from a negative $17.3m in Q220 and up 82% on Q219. Property level margins were at 52.2%, 450bps above Q219.
Las Vegas operations up 322% to $426.4m but down 7% on Q219; adjusted EBITDA for Las Vegas operations of $234.7m from negative $12.1m in Q220 and up 110% on Q219.
Debt at quarter end stood at $2.7bn. Red Rock is yet to reopen four properties including the Palms which was sold at Q1 end to the San Manuel tribe for $650m.
Mr Brightside: Management were extremely bullish on the long-term prospects for the company after record same-store revenues and EBITDA and forecast-beating margins. As with Boyd Gaming on Monday, the company believes the margin improvement is a long-term shift.
“We believe the margins can be sustained within the zip code we are in,” said CEO Frank Fertitta. “We think the costs coming out of the business have been a permanent shift. And every incremental dollar we get through pretty much; the flow through is incredibly high.”
Fertitta went on to say the free cashflow would go towards reducing debt as well as paying for new developments (see below on the Durango plans). Deutsche Bank noted the “meaningfully above consensus” figures and the management comments on the strong visitation trends from younger demographics.
Digging in: There was also the promise of more to come. Although there was no news on the three closed properties where Red Rock remains the owner, management was keen to stress the potential in the Durango development, which Fertitta said was the company’s “primary focus.” CFO Stephen Cootey noted the new property - which will take between 18-24 months to complete once the first spade goes in the ground - was in the “fastest growing part of the Las Vegas valley” without a competitor within five miles. The property will feature up to 2,000 machines, 40 table games and 200+ hotel rooms.
Not REIT now thank you: One trend that Red Rock looks likely to cold shoulder is to go down the road of completing a sale and leaseback of properties to a REIT. Executive chairman Lorenzo Fertitta said that though the company liked what it saw in terms of valuations being achieved, “nothing has changed” with regard to Red Rock’s desire to own its own properties. “We kind of like owning the real estate; that is where the value is.”
Churchill Downs Q2
The top line
Record net revenue of $515.1m vs. $185.1m in Q220, net income of $108.3m vs. loss of $118.8m in Q220, AEBITDA of $233.3m vs. $30.1m YoY, adjusted net income of $121.1m vs. adjusted net loss of $21.1m. Note, the earnings call will take place later today.
Mighty Oaks: Operational highlights included a successful 147th Kentucky Oaks and Derby that saw strong ticket sales, viewership, sponsorship revenue and margins despite capacity restrictions. CDI’s four casino properties delivered record net revenue and AEBITDA with margins up 10.3% on 2019.
Construction Derby: CDI’s Derby City Gaming facility delivered record revenues and the group announced a $76m project to develop the site and build a new 123-room hotel that will add 135,000 square feet of new space and 200 new gaming positions. Construction is set to start in early 2022 pending approval, with gaming opening scheduled for late 2022 and the new hotel set for Spring 2023. CDI will also invest $45m to redevelop its racetrack Homestretch Club, paddock area and turf course.
VICI Properties Q2
The top line
Revenues up 45.9% to $376.4m, adjusted funds from operations increased 43.3% to $256.1m. AFFO for FY21 was reaffirmed at between $1.01-1.035bn.
Note, the earnings call will take place later today.
If the cap fits: Outside of gaming, last week VICI entered into an agreement to provide $300m of mezzanine financing for a new Great Wolf Resorts water park. Its big gaming transaction is the deal that will see it take over the real estate of Las Vegas Sands’ Strip assets. The company said institutional capital “continues to validate” the gaming sector as demonstrated by MGM’s recent offloading of CityCenter at a 5.5% cap rate. VICI said the comparison with the 6.25% cap rate for the Venetian real estate displayed the company’s ability to be “opportunistic and prudent” as the market develops. Jefferies suggested it expects management to elucidate on its M&A strategy on the call later today.
Monarch Casino & Resort Q2
The top line
Revenue up over 500% to $97.7m (also up 56% on Q219), adjusted EBITDA soaring from less than $1m to $35.3m (up 112% on Q219).
Fundamentally better: Rapid population growth, market share growth, the release of pent-up demand and government stimulus checks are driving profits in both the Black Hawk and Reno operations, according to management. The company said on the earnings call that table play in particularly has benefited from the recent regulatory rule change.
Despite the evident labor market constraints, the company remains confident on the enhanced margins being sustained. Analysts at Macquarie noted Monarch is well positioned in terms of cash flow because there is “no cash outflow for online gaming spend, like we are seeing across the space.”
PointsBet Q2
The top line
Turnover was up 182% to $986.1m, net win rose 81% to $60.8m. Australian customer numbers were up 117% and US active player numbers were up 661% to nearly 160k from 128K in Q1.
Right here, right now: Pointsbet announced a share and rights issue to raise $400m. Placement shares were valued at $10, an 11.3% discount on close price and will raise $215 million. The rights offer was priced at $8 on a one-for-nine basis to raise $185m. According to Australian media, the split price was designed to look after the company’s original shareholders.
Analyst earnings Q2 preview
Positive caution: Results season is fully underway and analysts at Truist have stated their belief that the fundamentals of US gaming stocks are strong and will stay the course, but it will also not be a simple case of Q2 “beat and raise” for the sector. Stocks have sold off “around peak earnings concerns, soft sports betting/iGaming sentiment and more recently around COVID Delta variant concerns” say Truist. In Vegas, the reintroduction of the mask mandate may yet have an impact (though that was dismissed by Red Rock yesterday) and the Truist team admitted they had yet to see any data on any sequential deterioration.
Big up the Bally: Online operators’ stocks “have been soft amidst a wider turn in sentiment around sports betting/iGaming” to which can be added some macro concerns. Operators will focus on the return of the NFL in a month’s time. This should lead to more volumes and media coverage and new regulated states coming onstream will focus “expectations on a football season-timed recovery”, although “we still wonder about increasing focus on topline market share and profitability driving performance.”
Bally’s gets a special mention “as the market is giving them minimal credit for what we believe could be a very credible sports betting/iGaming business.”
Colorado June GGR
The top line
Sports betting handle dropped 7.7% MoM to $229.8m, while gross revenue rose 30.4% to $19.7m.
Operators spent just over $8m on promotions vs. $9.2m in May.
Cold cash out: Basketball continues to lead in terms of the sport Coloradans bet the most on, although handle fell 13.8% to $74.9m for $4m in revenue. Baseball is second (handle $54.5m and revenue of $1.8m), then soccer ($12.7m in handle for $1.3m revenue). Ice hockey handle dropped 30% to $10.7m but revenue rose 100% MoM to $2.5m in revenue, due to punters not cashing out their Stanley Cup bets while the Avalanche were leading the series. Table tennis continues to see sustained volumes, generating $8.6m in wagers and $703k in revenue, more than golf and MMA put together. Parlay handle dropped 22.3% to $33.9m (GGR $5.4m), with hold rising to 15.9%.
Tennessee June GGR
The top line
Sportsbook handle rose 8.4% to $174m and gross revenue was up 17.5% to $16m, generating $3m in taxes.
Basketball led the share of bets with 38%, parlays were second with 20%, football and other sports took around 18% each.
Magic numbers: Tennessee Education Lottery CEO Rebecca Hargrove said three new online betting brands would receive an operator license this week, although she didn’t reveal their names. They should be ready in time for the start of the NFL season. Hargrove added that there are close to 40 outstanding license applications for operators, supplier and vendors.
Regulatory takeover: The state’s Sports Wagering Advisory Council will be taking over regulatory duties from the TEL from January and will be looking to appoint an executive director in the coming months.
Newslines
X marks the spot: GAN has entered into a binding agreement with Treasure Island Hotel & Casino to develop a customized simulated gaming solution to be integrated with Treasure Island’s retail casino rewards program. Treasure Island represents GAN’s 18th B2B client of simulated gaming, and fifth new B2B client win year-to-date.
Every cloud: WynnBet has signed a multi-year, multi-platform advertising and marketing partnership with media owner Cumulus Media. Cumulus controls 413 owned and operated radio stations across the country and a network of over 7,300 affiliated stations through Westwood One. It delivers content for the NFL, NCAA, CNN and others.
Data rush: Rush Street Interactive has announced a partnership with GTG Network, the data insights, gamification and technology company for a multi-year partnership to offer the iSport Genius data facts and insights product. Under the “co-exclusive” terms of the deal, BetRivers will be one of only four operators to feature the product.
What we’re reading
Tyger, tyger, burning bright: On the rise of Tiger Global.
What we’re trying (and failing) to read... and listen to: Pointsbet’s Q2 press release and earnings call.
Calendar
30: VICI Properties, Churchill Downs earnings calls, GLP
2 Aug: Bet-at-home
3 Aug: IGT, Caesars, Skillz
5 Aug: Golden Entertainment
6 Aug: DraftKings, Century Casinos, MGM Growth Partners
Contact us
Scott Longley scott@clearconcisemedia.com
Jake Pollard jake@openmediaservices.com