30 Jul: Weekend Edition no. 7
Churchill Downs Q2 earnings call, VICI Properties Q2 earnings call, Gaming & Leisure Partners Q2, Bally Corporation debt rating, Nevada GGR June, Sector watch - esports +More
Welcome to the latest Weekend Edition. The focus this week has been on the demonstrable rebound in gaming activity as the market digested the second quarter numbers from Boyd Gaming, Red Rock Resorts and Monarch plus the latest data from Nevada. All this ahead of some important numbers next week from MGM, Caesars and Penn National. One word of caution; the impact of the re-introduction of the mask mandate in Nevada is yet to be quantified. But we start with yesterday’s earnings call from Churchill Downs.
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Churchill Downs Q2 earnings call
Capital projects: Capex plans will focus on the $76m expansion of the Derby City Gaming facility and three major racetrack projects to be completed in the next three years: the Homestretch Club, the Turn 1 Experience (costing $135m in total) and the Paddock Area redesign (uncosted). CEO Bill Carstanjen said the group will aim to generate EBITDA multiples of five to eight times on the investments and the projects fit into the company’s “sweet spot” with regard to building timeline, completion and EBITDA returns.
SPAC and spin: Asked why the company hadn’t considered a joint venture or SPAC listing to develop its interactive business, Carstanjen said it already has a highly successful and profitable digital asset in Twin Spires and “SPACs or spin offs” weren’t relevant right now for CDI.
“We want to build a great business with the right DNA and because we’ve built Twin Spires maybe we look at it more long term,” Carstanjen added. “We have to do what works for us, investors have confidence and we want to build over time to maximize value.”
Analysts at Macquarie were positive on CDI and pointed to the Kentucky Derby being run with just ~50% capacity and CDI’s strong handling of capital projects, which “will provide a runway of organic growth opportunities over the long term.”
Conversion power: The customer acquisition power of Twin Spires would be apparent once the horse racing and Bet America apps are rolled out across many states. “You’ll see the power of that,” Carstanjen said, adding that as the NFL season approached the group would remain “a little opaque” as to how it would execute its acquisition strategy. “Costs will consume some of our operational improvements, but we’re not acquiring customers unless we have a plan to be profitable over the long term.”
Derby day: Asked why the group hadn’t included historical racing machines (HRMs) at its racetrack, Carstanjen said it carefully considered the options when the pandemic hit and saw that “Derby City is even more of a juggernaut than we thought.” The company plans for new high end hotels and hospitality at the track were put on hold and the group focused on what works and “for the HRMs this was at Derby City.” Churchill Downs enjoyed strong margins (up 10% on AEBITDA) in Q2 and Carstanjen said there was no pressure to “restore amenities” and other measures that would put pressure on margins. Echoing other executives’ recent comments, he said they were sustainable.
VICI Properties Q2 earnings call
Catch that wave: The rising tide in Las Vegas hasn’t gone unnoticed by VICI management. CEO Ed Pitoniak spoke to analysts on yesterday’s call about recent trading at the LVS’ Venetian, where VICI will soon be the real estate owner.
“I just can't help looking for an excuse to mention the fact that when Sands announced, I guess it was last week, they reported 98% occupancy in the month of June. No international travel. Not much convention business yet, 98% occupancy,” Pitoniak said. “And as you all know, they've got over 7,000 rooms.”
He said it meant that operators in Vegas were now looking at opportunities to take advantage of what he said were “just outstanding levels of demand.” COO John Payne added that although VICI’s tenants are yet to report their Q2s, the numbers seen elsewhere in the sector from the likes of Boyd Gaming, Red Rock Resorts, Monarch and Churchill Downs were telling. “Kudos to them for reinventing their business during this very tough time and showing incredible operating margins,” Payne added.
Radiation leak: Pitoniak also spoke about how the REIT story was now radiating out from Las Vegas into other regional gaming markets. “As opportunities perhaps don't become as numerous in Las Vegas, capital will seek opportunities in other markets,” he said. “And in regional gaming, they will find assets that are outstanding in their income producing and income resilience characteristics.” This included tribal:
“It's actually American tribal gaming operators who are really the first in gaming to realize that they have the opportunity to create experiential power centers around so many of the amazing assets that they've developed and are operating,” said Pitoniak.
Gaming & Leisure Partners
The top line
Revenue rose 21.3% YoY to $317.8m while adjusted EBITDA was up 11.9% to $276.2m. AFFO rose 12.8% to $203.8m.
GLP’s call with the analysts takes place today.
Ahead of the regional game: In light of VICI management’s comet on regional gaming, it is notable GLP said the results demonstrated the “resilience” of the regional gaming markets As of the end of July, all of GLP’s 50 properties were now opened. Despite its offer to fund Bally’s Gamesys transaction being turned down (see below), it still has right of first refusal to fund any acquisitions or project development costs in Michigan, Maryland, Virginia and New York. In April, GLP acquired the real estate assets of the Bally properties in Rock Island, Illinois and Black Hawk, Colorado.
Bally Corporation debt rating
Rating call: Bally Corporation has earned itself a first-time issuer rating of B from ratings agency Fitch. The rating reflects the six times leverage, improved diversification post-Gamesys across both land-based and online gaming and the healthy underlying operating trends. The accompanying positive outlook on the debt reflects the optimism over the company’s de-leveraging pathway and the likelihood that a successful merger integration will drive ratings higher. Recall, Bally said in its Q2 pre-announcement that it no longer needed financing from GLP to fund the Gamesys transaction but would fund the deal through existing credit facilities.
Nevada GGR June
The top line
Revenue came in slightly down on May21 at $1.19bn, down from $1.23bn. Strip revenue was down 7% MoM (negative 1% on Jun19), locals was up 4% MoM and plus 43% on Jun19, downtown rose 5% MoM and plus 52% on Jun19. Reno/Sparks fell 3% MoM and was up 26% on Jun19.
Slots hit another record at $868.1m making up for tumbling table revenues (Strip baccarat down 73.1% to $42.5m).
Billion dollar baby: Nevada Control Board senior research analyst Michael Lawton noted this was the first time since 2008 that Nevada had recorded four successive billion-dollar months. “The recent surge in statewide gaming win is the result of several contributing factors which include strong demand, the return of leisure travel, customers with savings that can be attributed to stimulus and the return of core customers including customers 55 and over,” Lawton added. Analysts at Truist noted that leisure continued to lead the market in the absence of midweek group and international business.
Sector Watch - eSports
All about the BoY: Esports odds and markets developer Sportsflare says its Bet-on-Yourself (BoY) feature will help operators capture a slice of the 2.9 billion gamers worldwide who have never placed a bet on esports. BoY enables players to bet on their winning the event they’re taking part in, but rather than providing a P2P format, BoY offers a player vs. everyone format with fixed odds, says Sportsflare. This allows players to bet whenever they want, rather than having “to queue, match, and add other betting players.”
Regulated esports for MA and ON: Massachusetts and the province of Ontario will allow esports bets as part of their sports betting bills. Operators are hoping to launch by the end of the year in Ontario, but the timing for Massachusetts is less certain. The state’s betting bill was approved by the House before the Summer recess but Senate leaders haven’t set time for it or whether they would take up the House bill or Senator Eric Lesser’s proposal, which does not include college sports betting and imposes different fees.
Strength in Unite: As mentioned in E+M on 16 July, betting, iGaming and eSports technology provider FansUnite raised $24.8m from a new public offering that will go towards potential acquisitions and development of its B2B casino products. The group also operates the eSports site Vamos.gg, which is focused on Brazil, which the company says is the fastest growing esports market in the world.
From A to BtoBet: Real Luck Group, the parent company of esports betting operator Luckbox, and Aspire Global have agreed to integrate AG’s BtoBet online betting and casino platform solution. RLG holds an Isle of Man license, has offices in the province of Alberta and will be applying for a sports-betting license in Ontario.
Friendly Rivalry: The esports and sports betting platform Rivalry Limited will be going public on the Toronto Stock Exchange in October. Rivalry is based in Toronto and recently raised $22m, bringing its fundraising to $44m in the past 12 months. The listing values the company at c.$150m, according to CEO Steven Salz. The latest round of funding was led by Eight Capital and Cormark Securities, the company will use the funds to increase staff numbers, product development and media expansion. Rivalry is licensed in the Isle of Man and is making plans to apply for a US license and in its home province of Ontario. Around 85% of its revenues come from betting on eSports, the remaining 15% come from sports betting, which launched last year.
Element all in on WPT: Allied Esports Entertainment completed the sale of its poker assets – including the World Poker Tour – to Element Partners earlier this month for $105m. The deal, which turned into a bidding war between Element and Bally’s Corporation, includes all outstanding capital connected to Allied’s poker units and sees Element enter the poker tournament vertical. Shortly after congratulating Element on the acquisition, Allied CEO Frank Ng announced his departure from the group. He is replaced by Allied independent board director Claire Wu.
Newslines
First lead: Three new sportsbooks are set to launch in Tennessee by the end of August and state regulators still need to get through some 40 outstanding license applications, but BetMGM will not worry about that as it enjoys its first market share lead. It overtook FanDuel on handle by around $9m, although revenue was down $800k compared with FanDuel and hold was 9% compared with 12% for Flutter’s flagship brand.
Betting social: DraftKings is set to open a sports bar in Nashville in partnership with Sports & Social, a division of the Cordish Companies, which operates Live!-branded casinos in Maryland and Pennsylvania. The project will be a branding and marketing exercise as retail and online wagering are not permitted in Tennessee. DraftKings also plans to open a bar in Detroit and other states to cement its in-person sports viewing and betting experience offer.
Weekly digest
All about the margins: Strong margins were the theme of the week and are likely to continue dominating the headlines as results season progresses. The main drivers have been efficiency, consistent customers and business and consumer confidence. Bally Corp didn’t mention margins in its Q2 pre-announcement published the same day, but with revenues and EBITDA set for strong beats, it didn’t need to. Boyd Gaming CFO Josh Hirsberg cautioned against being too aggressive and said “Q2 was probably a little peaky,” but margins are pointing upwards across the industry.
Reinvention kudos: Red Rock Resorts echoed those comments after it reported 52% margins, a rise of 450 bsp vs. 2019, and as reported in today’s newsletter, VICI Properties COO John Payne said the numbers seen so far were a good sign.
Tweet of the day
Watch where you throw that stone, Dav… oh.
Calendar
2 Aug: Bet-at-home
3 Aug: IGT, Caesars, Skillz
4 Aug: MGM Resorts International
5 Aug: Golden Entertainment, Penn National
6 Aug: DraftKings, Century Casinos, MGM Growth Partners
Contact us
Scott Longley scott@clearconcisemedia.com
Jake Pollard jake@openmediaservices.com