4 Aug: Caesars' $1bn battle plan

Caesars Entertainment Q2, IGT Q2, Gaming & Leisure Partners Q2 earnings call, PointsBet Q4/FY earnings and cash raise, Bet-at-home H1, Score Media & Gaming analyst update

Aug 04, 2021

Good morning. First up this morning we have the action and reaction to the Q2 figures from Caesars where, as well as talking about the historic rebound in Las Vegas, the company also gave some insights on its hopes for the Caesars Sportsbook and digital unit launch. Also talking about record-breaking revenues is IGT, where outperformance has been driven by booming lottery sales in the US and particularly Italy. We round off with recaps on what was said by Gaming & Leisure Properties and PointsBet late last week and the results from German-focused Bet-at-home which spell bad news for anyone with a foothold in that territory.

If you have been forwarded this newsletter and would like to subscribe, click here:

Caesars Entertainment

The top line

Net revenues up to $2.5bn vs. $127m in 2020, net income of $71m compared to -$100m, adjusted EBITDA of $1bn vs. $131m loss YoY and c.25% up on expectations.

This was an all-time record for quarterly adjusted EBITDA and adjusted EBITDA margin.

In Las Vegas, Caesars recorded same-store revenues of $855m and same-store adjusted EBITDA of $425m. Regional casinos recorded same-store revenues of $1.5bn and adjusted EBITDA of $621m.

Lean and mean: CEO Tom Reeg was careful not to make predictions about online market share but the group’s intent is clear. The launch of the Caesars Sportsbook app the previous day and of the Caesars Digital division will see it commit $1bn to developing its interactive activities over the next two and a half years. Reeg said the group was “activating the whole enterprise into the vertical”, including the 60 million people in its rewards program database.

The “entire workforce has been incentivized to sign up people to digital and there is a real lean-in to digital.” Prior to launching the app and Caesars Digital, “the digital business we were doing was incidental and not truly focused and now we’re looking to generate cash at maturity well in excess of 50% of what we invested.”

Go with the flow: Reeg acknowledged it wouldn’t be plain sailing and when asked how confident he was that in the current highly competitive environment $1bn could be turned into $2bn.

“If it turns out to be $2bn, we’ll be having a good experience,” Reeg said. “My view is that we’re in a unique situation, everything opened up and everyone is looking for customers. We have 60 million customers in our database and the ability to serve them at all levels as their value to us increases.”

Frontloader: Online EBITDA losses “will be front-end” in the next two and a half years as the group launches national marketing, branding and acquisition campaigns. And while some brands have been quicker to launch, “others like (Caesars) took longer to get their ducks in a row, but we have everything we need to succeed in the space.” Deutsche Bank reacted positively to one of the “most eye-popping beats” this earnings season. They added that Caesars’ “strong operating performances support management optimism and credibility” on the long-term $500m-$1bn EBITDA potential for Caesars Digital.

Life on the margins: With Q3 occupancy rates expected to be 'significantly ahead' of Q2 and margin gains to be sustained, Reeg said the labor shortages experienced across the industry had helped focus on attention to detail and operational excellence. But he added there was room for improvement. “It's an extraordinary amount of EBITDA that's left on the table,” he said. “(We) had very little group business to speak of and we're still able to post the best quarter that Caesars had ever posted from an EBITDA perspective.”

Masking the issue: Noting a leaked internal letter about cancellation rates (see social below), Reeg insisted that the hit to occupancy rates would be minimal. “We fully expect to remain in the low to mid-90s of occupancy in Vegas through this current situation with the Delta variant,” he added. Truist said growing COVID rates had created “some industry-wide uncertainty” but with mask restrictions in place during much of Q2, renewed mask mandates were unlikely to have a meaningful impact.

IGT

The top line

Revenue rose 74% to $1.04bn driven by lottery ($725m of total) which enjoyed 35% growth in same-store sales. Adjusted EBITDA was up 170% at $442m (lottery $414m). Global gaming recorded revenues of $316m and EBITDA of $49m.

North America sales enjoyed 21% growth while Italy soared 115% growth due largely to lack of competition (gaming halls and retail betting outlets closed).

Free cash flow stood at a record $380m by end of H1 and net debt was reduced by $1bn and leverage fell to 4.3x..

Soft machines: Debt reduction was IGT’s stated aim in Q2 and net debt was duly reduced to $6bn thanks largely to the $750m from the sale of its B2C assets. CEO Marco Sala said Q2 unit sales of gaming machines were 11% lower than 2019, giving “an idea of how far there is to go” to return to pre-pandemic levels. Operators are willing “to come to the table” for talks, though, and negotiation dynamics are “beginning to take hold” with sentiment improving thanks to revenue and margin rises. But sales were still unlikely to normalise before the end of 2022. “It’s one thing to be willing to discuss deals, it’s another thing to cut deals,” Sala added.

Stick around: Returning land-based gaming options have not had a negative effect on digital which Sala suggested was displaying stickiness with average consumption “higher than pre-pandemic levels.” Asked about Scientific Games putting its sports-betting division up for sale, Sala said a digital spin-off was a possibility if current momentum and further regulatory efforts on iLottery continued, but he discounted a division sale for the time being.

“Overall, we have a consistent portfolio of products and a focus on content and solutions to regulated markets,” said Sala. “This is what binds them together, each business is profitable and has good growth perspectives.”

Street spirit (fade out): Based on the strong H1 figures, IGT raised its guidance for FY21 despite the company expecting lottery to normalise in the second half, particularly as other gaming options open in Italy. “As we extend into ’22 we see upside to street Lottery estimates, even under the scenario where some of the COVID-related momentum decelerates,” the analysts at Credit Suisse commented. Truist, meanwhile, cited the launch of cloud-based iLottery as a source of potential growth. They noted that IGT iLottery customers Georgia and Kentucky will be increasing the iLottery return-to-player, which they believe could grow sales and IGT revenues.

Gaming & Leisure Partners Q2 earnings call

Vest in class: CEO Peter Carlino said the speed and extent of the gaming industry rebound had surprised everyone. “I don't think anybody, and not even us, who know this industry well expected the kind of turnaround that we've had,” said CEO Peter Carlino. He added that the fact the sector has come through a global pandemic and its associated closures proved how GLP’s revenues were “bulletproof”.

“If you look at Maslow's hierarchy of needs, it’s food, it's shelter and it's gambling,” Carlino added. “It's very high. People don't give up their entertainments. They just don't.”

He added later on that the consumer has been “cooped up for a long period of time.” “They want to get out of masks. They want to get back to having fun.”

Strip tease: Management confirmed they were hopeful of being able to expand the relationship with Bally despite the latter not taking up an offer $500m to fund the Gamesys acquisition. “They no longer needed that capital earmarked today, but I would not suggest that that means that there's no further dialogue with them,” said Steve Ladany, chief development officer. “We're always talking with them and always interested in transacting with them.” Carlino also suggested that GLP’s previous focus on regional gaming over Las Vegas might also change. “We do look at Vegas assets,” he added. “It's not like they have leprosy or that we're frightened we may or may not be able to get to the kind of number that is competitive.”

PointsBet Q4/FY earnings call

The top line

Net revenue was up 159% to A$194.7m ($143m) but EBITDA soared from negative A$39.7m to negative $163.7m.

Australian net win rose 121% to A$166.1m while US net win was up 502% to A$208.5m.

Active clients at 159k up from 127k QoQ.

Raise and raise again: The good news for PointsBet - revenue rises in Australia and the US aside - is that there remains investor appetite to continue funding the company’s ambitions. Announcing its year-end numbers the company said it will be raising a total of A$400m from both institutional retail shareholders with a 29% discounted share offer. The company says the funds will go towards marketing and customer acquisition in the US as well as other corporate expenses such as entry costs for new states. This is the second cash call within the last 12 months after the company raised A$200m in September last year.

Distant prospects: The less good news for PointsBet is that profitability remains elusive. Sports-betting gross win in Q4 hit A$32.3m but net win stood at only A$16.2m on a margin of 3.3% while there was a debut igaming contribution of A$1.5m. But group marketing expenses outpaced the net win increases in both the US and Australia, contributing to widening EBITDA losses. The stated aim of PointsBet is to hit 10% market share in each state it enters but as it stands it is falling short. The best it has managed to date in Illinois and New Jersey, which both stood at 7.8%.

Bet-at-home H1

The top line

GGR down 8.8% YoY to €56.8m, EBITDA dropped to €5.4m vs. €15.8m in H120.

Marketing expenses increased by €3.1m due to Euro2020, the group had to put aside cash reserves of €3.2m in relation to customer lawsuits in Austria.

As mentioned in July, management confirmed that FY EBITDA would range from €8-10m vs. forecasts of €18-22m and FY GGR would be €100m-110m vs. forecasts of €106m-118m. The company had cash assets of €41.8m as of 30 June.

Shaken to the core: Regulatory changes in Germany, BAH’s “core market” with circa 36% share of revenues in 2020, are “likely to lead to further revenue losses in the coming months”. Measures introduced in February to ensure compliance with new regulations (a ban on online roulette and blackjack, time-consuming registration process and a limited betting offer) have provided long-term legal certainty, but all “had a negative impact on customer activity” in both online betting and casino verticals. Euro2020 “in particular fell short of expectations,” BAH added. The group’s exit from Poland in June also had an impact on H1 numbers.

Score Media & Gaming analyst update

All smiles: After meeting with management, the analysts at Macquarie suggest Score Media & Gaming is backing itself to succeed on its home turf. The team suggests that unlike in the US, there is unlikely to be a plethora of media deals and there will also be less omni-channel opportunities given the lack of integrated resorts. “Bottom line, we have become more constructive on Score Media & Gaming’s ability to earn 7.5%-plus share,” they conclude.

Newslines

Box fresh: Scientific Games has announced the acquisition of Australian-based slots developer Lightning Box for an undisclosed sum. Lightning Box games are currently live with more than 50 of the leading U.S., Canadian and European operators, including BetMGM, Rush Street, Golden Nugget and FanDuel.

Grate leap forward: BetMGM has partnered with online publisher Cheddar News to launch Cheddar Bets, a weekly program that will look into “the intersection of sports betting and financial markets”. As part of the agreement BetMGM also becomes the exclusive betting partner of Cheddar News.

Under the wire: Churchill Downs’ TwinSpires has announced a market access deal in Arizona with the Apache Tonto tribe which runs the Mazatzal Hotel & Casino allowing for a retail and online operation. The news comes ahead of a go-live date in barely a month’s time.

Starting pistol: Michigan’s Gun Lake Casino, run by the Gun Lake Tribe of Pottawatomi Indians, will partner with Parx Interactive, the Rush Street Interactive subsidiary, after receiving regulatory approval for an online sports-betting and igaming launch.

Choppy waters: Trouble is brewing around the NHL and its embrace of betting after allegations against the San Jose Sharks’ Evander Kane made by his wife regarding betting against his own team and throwing matches. Kane denies the claims that were aired on social media.

Dan the man: Gambling.com has appointed Dan D’Arrigo to its board of directors. D’Arrigo was EVP and CFO of MGM Resorts International from 2007 to 2019 and worked on setting up the MGM-Entain joint venture BetMGM. He will head up Gambling.com’s Nominating and Governance Committee and serve as a member of the Audit Committee.

Price escalator: Stats Perform has secured the data and streaming rights to Italy’s top league in a three-season deal that reportedly represents a marked increase on the previous deal. The deal includes the matches in Serie A, the Coppa Italia and the Supercoppa Italiana. Meanwhile, Genius Sports has announced a multi-year official data partnership with the British Columbia Lottery Corporation (BCLC).

Bear with me: Esports data provider PandaScore has signed a partnership with esports bookmaker Loot.be which will see it benefit from in-game statistical data for major esports titles.