7 May: Penn’s Snowden: Bring the chaos +More
Penn National Gaming, AGS, Golden Entertainment Q1, Fox Corporation, Iowa March GGR
Welcome to today’s E+M newsletter. This morning we have Q1s for Penn National Gaming and its love of chaos, AGS and Golden Entertainment, the latter performing particularly strongly in the quarter.
During Fox Corp’s Q3 analyst call CEO Lachlan Murdoch said the group would “deepen its investment” in sports betting and confirmed its acquisition of Tray Clavis’s Outkick outlet. We also have Iowa April numbers. And keep an eye out for our coverage of DraftKings Q1 this afternoon.
Kicking this off, Penn National Gaming and CEO Jay ‘The Disruptor’ Snowden loving the chaos.
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Penn National Gaming
The top line
Revenue down 6% compared with Q119 at $1.27bn, adjusted EBITDAR up 7% on Q119 at $447m. Adjusted EBITDAR margins up by 434bps.
Northeast segment up 3.7% on Q119 to $570.9m, south segment was up 1.3% on Q119 to $295.9m, west segment was down 39% to $96.6m, midwest was $234.7m, down 13.5% and other - including interactive - rose more than eightfold on Q119 to $87.9m.
Although top-line revenues were still affected by Covid restrictions all the way through to the present, EBITDA was up despite the loss-making interactive segment.
Penn the disruptor: When asked about Penn’s boast of being a “disruptor” in the gaming space, CEO Jay Snowden said the use of the word was deliberate. “It is the way we look at the space.” “We were first mover in a lot of areas. The first REIT, first into social gaming, when we acquired Barstool that raised eyebrows. So what we are saying is we’ve been disruptive and we will continue to be disruptive. We like when it's chaotic.”
Scale up: Much of the focus on the call was on Barstool and what Penn clearly sees as its advantages when it comes to sports-betting. While extolling what Snowden said were market-leading CPAs of “well under $100 right now”, he went on to suggest the company would, after all, be spending more on marketing come the next football season. “We’re going to be a lot more aggressive in terms of spending to acquire customers, because we now have scale.”
From dusk till dawn: When quizzed, Snowden said Penn would continue with a “less traditional” and “unorthodox” marketing strategy. He said that might mean “new talent at Barstool” and further media partnerships including working with influencers and affiliates. An illustration of what that might involve came in the presentation where Penn spoke about the social media campaign it ran in the last few 36 hours before Illinois cut off in-person registration. That brought in 20k registrations, 13k FTDs, 10k users who opted for a $100 promotion and the number one ranking in the app store over that period.
Non-stop disco party: Snowden hoped to differentiate Barstool by avoiding linear TV and radio advertising being employed by others in the market.
Noting the “all day, every day” sportsbook ads when he was recently in Pennsylvania (see comments from Lachlan Murdoch from Fox Corporation below), he said the levels of advertising were “overwhelming.” “I’m a big believer that it creates zero loyalty,” Snowden added.
“LTV is something that is thrown around a lot. This is not like switching iPhones. I think what will happen over time is the winner with a loyal audience, whether a DFS database or casino database, those are the ones that will have bulletproof market share and this aggressive commercial spend will not be the business that sticks around.”
A bigger moat: Asked about using Penn’s balance sheet to finance M&A, Snowden said any acquisitions would have to “make that moat we have built a little deeper and a little wider.” That might include once again braving the Las Vegas Strip (after the failure at the Tropicana). Macquarie said Penn “management could be ‘eyeing’ more strategic acquisitions, which would make us more positive on the company’s ability to become a top 3 US player.”
Fox Corporation Q321
The top line
Fox Corporation has bought Outkick to complement its wagering ambitions.
Out-FOXed: Fox has deepened its sports-betting ambitions with the acquisition of Outkick, a sports website run by Clay Travis, who according to the New York Times is “a sports commentator who has been known for making controversial statements.” CEO Lachlan Murdoch said the buyout would deepen the group’s investment in the sports wagering ecosystem. “It's really a unique and special voice” and would be a “natural complement to several of our brands.”
Outkick currently has an exclusive marketing arrangement with FanDuel, commenting on the ongoing arbitration with Flutter Entertainment, Murdoch said: “Currently, we are both looking to clarify our ongoing arrangements through a pending arbitration. While the arbitration process is ongoing, we do not expect to make any further comment about it.”
Raking in the cash: Asked about the ripple effects of sports-betting in markets where it is legal, Murdoch said the ad spend from operators was a “terrific benefit to our station groups.” “We think this will continue. It's a very competitive market and this won't ameliorate anytime soon.”
Just super: FOX Bet was designated an authorised sportsbook by the NFL during the quarter and was aiming at being “one of the major players” in the media/wagering nexus. Murdoch said that the FOX Bet Super 6 grew “very aggressively” and had recorded more than 5m users. “There was no other free-to-play game like that and at that scale in the US”. It drives traffic to the widest part of that funnel into “sports wagering and also the poker and casino businesses where they're licensed.”
AGS
The top line
Revenues up 1.9% YoY and 18.7% QoQ to $55.4m, net losses improved to $7.8m down from $14.4m in the prior year period. EBITDA grew 7,4% to $26.3m. EBITDA margin rose to 49.6%.
Domestic EGM RPD increased 30% YoY to $27.10 and revenue in Q1 was level YoY at $50.5m. Table game revenue was $2.8m (up 11%) and adjusted EBITDA reached a quarterly record of $1.4m. Interactive gaming revenue came in at $1.4m, up 110% YoY. The company has $107.3m of available liquidity as the end of quarter, in compliance with all debt covenants.
Subsequent to quarter close, AGS signed a deal with a large multi-state operator for premium lease and for-sale EGM products and online real money gaming. Go-live later this year.
Riding the small wave: AGS benefited alongside its casino partners from what CEO David Lopez said was “pent-up demand” in March. The company only sold a modest number of terminals (289 units) in the quarter but conversations with operators have been encouraging, reinforcing the upbeat message from the recent Eilers-Fantini slot survey.
However, the install base fell to 23,441 (-10% YoY), partly due to Covid restrictions. Jefferies said the results were “directionally consistent with peers, albeit marginally less profound.”
Premium move: The company offered no further guidance on its hopes with its Starwall and Curve Premium products. “We’re just getting started,” said Lopez. “We are six months in and we are happy with how it is going. We’ve just launched Curve Premium, but we’ll be rolling that out in the back half of the year and we think we have a great line-up. But it’s too early in the game to talk about ship share.”
Forward thinking: Lopez said that pricing within the sector had not changed that much. “Take 2020 off the table, I don’t see average sale prices changing dramatically. I think what’s good is that, number one, with this performance we are hearing from the operators it is freeing up some capital.” The marketing spend also might shift, from trade shows (G2E was mentioned) and “reallocate those dollars in a number of directions. Covid has taught us a few things and this might be one of them.”
Golden Entertainment Q1
The top line
Revenues of $239.7m ($207m 2020), positive net income of $10.6m or $0.35c per share (-$32.6m, -$1.17 per share 2020) and adjusted EBITDA came in at record $59.5m ($30.5m 2020). Casino revenues $129.5m ($128m 2020), casino adjusted EBITDA was $51m ($31.9m 2020). Total adjusted EBITDA margin for casino activities was 39.5%, up approximately 900 basis points from Q1 2019.
All casino properties and distributed gaming operations exceeded Q1 2019 adjusted EBITDA levels except the Strat, which the group said was recovering strongly with occupancy rising significantly since January.
Golden has $145.4m in cash thanks to a $41.8m contribution during Q1, total debt $1.2bn and $200m revolving credit facility. The company will focus on driving growth and cash generation, deleveraging and no major capex.
Distributed gaming revenues rose to $109.9m ($79m YoY), adjusted EBITDA was $20.9m ($7.1m YoY). Distributed gaming operations in Nevada and Montana grew revenue and adjusted EBITDA significantly: 400 basis points to 19%, compared with Q1 2019. The group said excluding the Strat, all casino properties and distributed gaming operations exceeded Q1 2019 adjusted EBITDA levels.
Margin gains and sustain: CEO Blake Santini and CFO Charles Protell were bullish on the margins achieved in Q1 and said the run rate was sustainable when compared with 2019. “The margins won’t always increase 1000 basis points, but we’ve fundamentally changed how we operate and the margins will sustain over historical levels,” Santini said. “We ran on three quarters of a tank because the Strat was underperforming and (the Aquarius casino in) Laughlin (NV) wasn’t robust as we couldn’t have concerts or live events there, which attract many visitors to the resort.”
Look at me now Ma: Around 35 of the group’s 65+ bars and pubs were still not fully operational, Santini added, but non-gaming booking and casino volumes were on the rise. “Top of the World is the highest grossing restaurant in Las Vegas with 600-700 covers a night, it’s producing big results. Local traffic is 20% so the majority of patrons are either staying at the Strat or making a specific trip to eat at the venue.”
Urban evolution: Additional factors that led to a high degree of confidence included urban developments on the Strip that will simplify pedestrian movement, being close to the Arts District of the city and the new Circa sportsbook.
“We’re very bullish and think the trajectory will continue. Bookings are robust and our casino marketing programme is performing strongly. We’re catching those results at 60%-70% occupancy, changes will stick going forward and we don’t want to put a ceiling on it.”
Analysts at Deutsche Bank were positive on the group, noting positive monthly EBITDA in Q1, minimal future marketing and labour costs, expansion of legal distributed gaming in Pennsylvania, sports betting legislation in Maryland and further regulations favorable to destination resorts.
Iowa April GGR
Iowa Gaming Commission said GGR for April was up 30.1% on 2019 at $160.5m a 3.6% MoM decline.
Caesars' four properties brought in a combined $40.8m, led by the Horseshoe Council Bluffs at $18.4m. Penn’s Ameristar Casino in Council Bluffs led the way with $16.7m. Boyd Gaming’s Diamond Jo casinos at Worth and Dubuque came in at $10m and $6.6m respectively. Sports-betting wagering data for April is yet to be released.
Newslines
Diamonds are forever: Caesars has partnered with the Arizona Diamondbacks to launch a mobile-betting offering and sportsbook and bar at Chase Field. At the same time, Caesars also finalised an agreement to become an official sportsbook partner to the MLB.
Oh-io: Proposals to allow sports-betting in Ohio received a mixed reaction.
Second sight: Genius Sports announced the acquisition of Second Spectrum, an enhanced AI data tracking business for $200m in cash and shares. Spectrum is “expected to be EBITDA positive post-integration” and Genius promised more detail on its upcoming Q1 earnings call (date unannounced).
Earnings calendar
This afternoon: DraftKings, Century Casinos
10 May: Bally Corporation, Scientific Games, Inspired Entertainment, Full House Resorts, Wynn Resorts
11 May: Accel Entertainment, FuboTV
12 May: Better Collective, Raketech
13 May: Neogames, Rush Street Interactive
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