Apr 8: Weekend Edition #41

888 completes cash raise, Entain analyst reaction, MGM Resorts analyst update, WE+M quarterly awards +More

Apr 08, 2022

Good morning. As one well-known Gambling Twitter commentator said this week (in a tweet that we cannot, unfortunately, link to), 888 pulled the equivalent of suggesting the property it had already made an offer on was more of a fixer-upper than was previously believed. The company cited macroeconomic uncertainty in the UK as a key reason, an issue which on the same day the CEO of Entain somewhat dismissed.

Gambling spend was “not the first thing that impacts households,” said Jette Nygaard-Andersen when asked about the cost-of-living crisis. We’ll see whether that turns out to be true in the coming months.

Do you remember the good old days before the ghost town? Click below:

888 cash raise

888 raises £162.9m at 230p a share.
The price was a 19.8% premium to the closing share price of 192p on Apr 6.

Bargain hunt: Investors clearly liked the news yesterday that 888 had negotiated a £250m discount, sending the shares up 24% in early trading yesterday before giving back some of their gains to close at 224p.

Money down: The cash will go towards the new buyout price for William Hill’s international business of between £1.95bn-£2.05bn. The rest of the cash will come from existing financing facilities.

Hard times: Analysts at Regulus said the UK market has become ”much tougher” since the deal was originally announced. They noted that William Hill had enjoyed 56% growth in H121 but that H2 revenues of £277m were down 21% half-on-half.

Downsizing: CBRE analysts noted that the news yesterday squashed speculation that the deal might fall apart due to the collapsing 888 share price. Before yesterday’s rise had fallen more than 50% since the deal was originally announced seven months ago.

CBRE: “Considering current market conditions, an equity ticket of this magnitude would be difficult and without equity the pro forma leverage could have scared some shareholders away from the transaction.”

A win for Caesars: Jefferies said the price adjustment should “alleviate concerns” among investors. CBRE noted that a revision of the deal to get it over the line was the “right call”.

CBRE: “While more proceeds are always better, the probability of closing and timeliness is paramount, particularly given the turbulent market conditions, complexity of UK takeover laws, and the importance of deleveraging.”

Refocus: The team added that focus will now shift to the prospect of a sale of a Las Vegas Strip property.

They note that similar concerns regarding the macro backdrop shouldn’t be as much of an issue as “transaction conditions here are more favorable” for the US right now.
“Although peak valuation may be off the table in Vegas, we would still expect a CZR Strip asset to fetch north of $2bn.”
“Investor sentiment is low but domestic casino fundamentals remain resilient.”

A wider worry: Jefferies noted the revised terms of the deal have implications across the sector.

Jefferies: “The compression in multiples for sports and digital wagering assets, given current market conditions, may have greater implications for the broader gaming coverage, especially with multiple pending transactions in the sector.”

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Entain analyst reaction

Commendable: Analysts at Regulus suggested the 8% decline in online GGR (6% in constant currency terms) was commendable given the outperformance this time last year and the disruption caused by the ongoing German and Netherlands disruption.

(PO QUOTE) “Entain continues to demonstrate the value of a diversified and increasingly localized geographic and product portfolio, with strong momentum in emerging markets offsetting more challenging trading and regulatory conditions in more mature jurisdictions.”

The one in ten: Noting the commentary on the macro front, CBRE pointed to Nygaard-Andersen’s comment on the average bet size of £10, “highlighting the potential resilience of its consumer in inflationary and/or recessionary environments”.

“The lower range of that average is relatively inelastic, and the upper range is likely skewed from higher-end VIP players, who we believe are more insulated from economic impacts.”
CBRE said that for investors to get excited again about Entain, they would need to see a beat and raise on earnings, something that might come with the H1 results in the summer.

WE+M quarterly awards

🥊🍿The Will Smith prizefight of the quarter - Jason Robins vs Jim Chanos: Robins got righteously mad at Chanos after he took the opportunity of a further CNBC appearance to admit he made a mistake in his calculations over DraftKings - but said he was still short.

Jason Robins: “He supposedly runs a sophisticated shop, and this was a very simple error that anyone who invests (or shorts) for a living should never have made.”

The worst stock performance of the quarter: Robins’ defense of his ailing stock has done little to help - the shares are down over 39% in the quarter. However, that is only enough for even a podium position in this competition.

🥉In bronze position with a 45%+ drop is Genius Sports while 🥈silver goes to GAN which notched up a 53%+ YTD drop.
But the clear winner is 🥇Rush Street Interactive whose shares suffered a punishing first quarter and are down nearly 57% YTD.

Related data point of the quarter: DraftKings and Genius Sports led the way in the stock-based compensation totals for the year at $683.3m and $489.9m respectively.

Fair criticism of the quarter: The ever-entertaining Daniel Lee at Full House Resorts gave his opinion on Churchill Downs;’ decision to quit sports-betting.

Daniel Lee: “They kind of dropped the ball. They didn't step up the way some of these other guys did. They ended up with a minuscule market share and they were losing money.”

🧇Look out Gordon Ramsey: Sticking with Lee, he gave the best reason for why a diner won out over fine-dining at the upcoming Temporary American Place.

Daniel Lee: “It's hard to have a high-end restaurant in a tent with a 47-foot ceiling. So we decided to buy a diner.”

The ‘Little Lord Fuckleroy’ Has Joined The Call’ statuette to:

Lachlan Murdoch, CEO, Fox Corp. “Our only frustration is that we've only been launched in four betting markets or four states, and obviously, we'd like to see that increase significantly as we roll out FOX Bet.”

Humble pie of the quarter: 888’s Itai Pazner for his apology for its recent fine £7.8m

Itai Pazner: “It’s not something we’re proud of, because we do see ourselves as a responsible operator.”

Oh boy: According to the revised takeout terms of 888’s purchase of William Hill, next up in the dock at the UKGC is… William Hill.

Prediction for the upcoming Q1s:

Tom Reeg at Caesars Entertainment: “This quarter will look ugly”

Skeptics of the quarter: The analysts at Deutsche Bank (again) for their verdict, among others, on DraftKings news TAM estimate.

Deutsche Bank: “We simply believe the out-year TAM forecasts are too high, for several reasons, and the margin targets that underlie these forecasts are also too high.”

Feeling it: “Drop was strong, handle was strong, RevPAR was strong. I could go on and on.” Craig Billings at Wynn Resorts. He didn’t by the way. Go on and on, that is.

MGM resorts analyst update

Just rewards: The team at Deutsche Bank have reiterated their buy on MGM suggesting their bullish stance with “the unheralded transition to a stronger rewards system” among the potential profit drivers.

The team also noted the “healthy” pro forma balance sheet as well as better-than-expected synergies from recent Strip transactions and the return of group and large-scale event-related traffic in Las Vegas.
They also note continued market share gains for BetMGM.

M&A lines

Raw iGaming has acquired games producer and aggregator Leander Games for an undisclosed sum. Tom Wood, Raw CEO, said Leander was “one of the best distribution platforms in the industry”, adding that after meeting the management team “we felt the immediate cultural connection”.

Earnings in brief

Intralot: FY21 revenue was up 20% to €414m while EBITDA came in 66.9% up at €110.4m. Chairman and CEO Sokratis Kokkalis said the company’s capital restructure had deleveraged the company to the tune of €163m and was a “key milestone”. The company also enjoyed a “strong rebound’ from pandemic conditions.
Betfan: The Polish gaming operator said revenue rose 90% in FY21 to €77m while customer numbers rose 85% (number not disclosed) The company said it is targeting double-digit revenue growth this year with a focus on the mobile segment.

Partnerships

Penn National's theScore Bet is now the exclusive official gaming partner of the MLB Toronto Blue Jays under a 10-year contract. Rush Street interactive’s BetRivers has entered an exclusive brand and content contract with Canadian sports broadcaster Dan O’Toole.

Datalines

Illinois: GGR rose 12.8% YoY to $119.1m but 6% below Mar19. Wells Fargo pointed out that Illinois casinos were operating at 50% capacity throughout Mar21. Excluding the Hard Rock Casino Rockford, which opened in Oct21, GGR totaled $114.4m, implying an 8.3% increase YoY and 9.7% below Mar19.
Ohio: GGR was up 0.21 percent to $216.3m and up 17.4% on Mar19. The Q122 tally was also up 7.3% YoY 18% QoQ versus Q119. The worst performing properties in March were Penn National’s with a combined decrease of 6.6% YoY; the best performer was Boyd’s Belterra property, up 5.8% YoY.

Newlines

Safer parking: Paysafe has expanded its partnership with betPARX in Pennsylvania and New Jersey. It already provides payment support for the Play Gun Lake brand in Michigan, which is powered by betPARX.

Casino with no name: Fifth Street Gaming and Latino sports bar operator Ojos Locos will renovate and rebrand the Lucky Club in North Las Vegas to the Latino casino which is yet to be named.

No Ain, no gain: Ainsworth has agreed to supply online spots to Cordish casinos in Pennsylvania though GAN’s SuperRGS iGaming platform.

Clic and collect: Bragg Gaming has agreed a deal with Betclic for the supply of online games though its Oryx platform.

Hölle lotta love: German igaming provider Hölle Games has concluded a deal for online casino games and Bonus Spin function with Kindred’s Relax Gaming in Germany.