Aug 5: Weekend Edition #58

FuboTV's betting strategic review, RSI and Golden Entertainment Q2s, Penn and Bally analyst updates, sector watch - crypto +More

Aug 05, 2022

Thought bubble

Market watchers have gotten used to monthly - and in New York weekly - updates on how each market is performing. Frustratingly for those hooked on data, the gaming regulator in Ontario has been slow to release any information. Commentary has been scarce, including during the current earnings season with only vague market share suggestions on which to hang any hats. Still, the multiple oblique references to formerly gray market operators does suggest one early conclusion: the winners so far are Betway and bet365.

The revolution will not be brought to you.

Earnings extra: We will bring you the news and views from DraftKings Q2 call later this afternoon.

Fubo strategic review

FuboTV says it is initiating a strategic review of its betting operations and is looking for a new partner for the business.

When I need you: Citing a “fundamentally changed financial environment”, and having “evaluated how best to scale” the company’s integrated wagering platform it believes it cannot do it on its own.

“We are taking steps to de-risk our business and have made the decision to no longer go down the wagering path independently.”

Get your people to talk to my people: Accordingly, the company said the betting business is now under strategic review with discussions ongoing both internally and externally.

Only in June, Fubo started trialing allowing viewers to make cash wagers via scanning a QR code from their TV screen.
The sportsbook is currently live in Arizona and Iowa and an application is pending in New Jersey.

Recall, the Fubo Sportsbook launched late last year, first in Iowa, with CEO David Gandler trumpeting that “for the first time” entertainment and betting had come together in “one ecosystem”.

Escape to Vigtory: Fubo established a position in sports betting via the acquisitions of two startups: Balto Sports and Vigtory.

Widening gyre: The news came with FuboTV’s Q2 earnings which showed total revenues rising 65% to $216.1m while adj. EBITDA losses widened by 67% to $79.1m.

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Rush Street Interactive Q2

Revenue rose 17% to $143.7m.
Adj. EBITDA losses nearly trebled to $18.6m but represented a QoQ improvement of 57%.
Updated FY guidance suggested revenues of between $600m-$630m.

Tighten up: CFO Kyle Sauers noted that the guidance at mid-point was less than 2% lower than the previous figures for the full year and said the move represented a tightening up of assumptions.

“We do want to be mindful of potential headwinds from consumer weakness,” he added. “It’s on our radar.”
Still, Sauers and CEO Richard Schwartz emphasized that it had yet to see any telltale signs in any of its metrics.
“Online gaming is a very affordable way to enjoy an experience from home,” Sauers added.

Good money stops chasing bad: The pared-back losses from the $43.4m level in Q1 were helped by the pullback in marketing in the quarter, particularly in New York. Sauers recognized that similar comments have been issued by Rush Street’s competitors but said the company would be “watching for what actually happens”.

Monkey see monkey do: “We’re mindful we may see another phase of aggressive advertising around the football season,” he added.

South of the border: Post-close, RSI launched BetRivers in Mexico, expanding its ambitions in Latin America given its current footprint in Colombia. Analysts at JMP added they would be “encouraged” if the company made moves in the recently regulated Peru.

Balancing act: Management reiterated their expectation to hit profitability in H223. Analysts at Wells Fargo noted that Rush Street’s “reliance” on igaming (which they estimate accounts for ~70% of GGR) helps “distinguish” the company as a “disciplined company with a realistic path to profitability”.

Plug in and play: On the call, Schwartz said the push for further igaming is “accelerating”. For regulators, “there is nothing easier than adding icasino”, he added.

Earnings in brief

Golden Entertainment: Q2 revenue down 1.1% to $289.4m and adj. EBITDA was down 17.6% to $75m. Asked about potential M&A, CEO Blake Sartini said the company was in a good position to take advantage of anything “meaningful and strategic”. “We are open-minded should anything come along,” he added.

Wish you were here: Sartini said the only macro impact had been at the lower end. “In terms of the headwinds for the consumer, Las Vegas is a pretty strong place to be right now.”

Playtika: Revenues for Q2 were static at $659.6m while adj. EBITDA fell 9.6% to $238.8m. The company said the casual games portfolio grew 10% YoY and now comprises 53.3% of total revenues. Direct-to-consumer grew 14.2% and is now worth 23.3% of total revenue.

Penn analyst reaction

All eyes will be on how Penn’s in-house online platform performs ahead of the migration for the Barstool Sportsbook later next year.

Proof of the pudding: Having moved theScore in Ontario to its proprietary online platform in July, analysts at Macquarie suggested the coming quarter “will be crucial” for whether the tech holds up ahead of the planned Barstool migration penciled in for Q323.

Turn-key: The team at JMP noted the move would give Penn “allow more flexibility” while CBRE said it would unlock additional sports-betting revenue potential.

Evolving: CBRE was also keen on the “corporate evolution” of Penn from being a purely casino opco to becoming a “multi-national, omni-channel casino, gaming, entertainment and media company”.

The “trigger” of the option to buy the rest of the Barstool Sports media business should also bring ”meaningful” media revenues which they believe should be valued on the same multiple as the online business.

Swing and a miss: Credit Suisse noted that the “largest miss” but also the biggest opportunity for Penn lay in the omni-channel opportunity and leveraging the mychoice reward program. They note that the strategy has worked for MGM and Rush Street but “has not resonated” for Penn to the same degree.

Blame Dave: “In part, we think because the Barstool brand does not resonate with that customer base,” they added.
Come to me with solutions: The analysts say they are unsure on where the answer lies, speculating on the potential for a Hollywood igaming app.
“It feels more marketing/branding related, and also should be low-hanging fruit,” they added.

Bally analyst reaction

The translation of UK expertise into the North American online product is key for Bally’s future.

Toolkit: Bally missed consensus estimates but analysts remained upbeat suggesting North America online will be the focus from here. They suggest Bally “has the tools” to hit profitability at the EBITDA level in 2024.

“We commend management’s disciplined approach around putting the right product in front of consumers,” they added.
Import: Macquarie said they believe Bally has a “good chance to gain online market share in key markets once all the iGaming capabilities from the UK are live in North America”.

My kind of town: On the Chicago project, where Bally will open a temporary facility in early summer next year, JMP noted that although there were inherent risks to the project build given the supply chain and labor backdrop, a successful execution would result in “meaningful upside” for the company.

Totally tropical: Jefferies noted the slated Sept 30 close for the Tropicana in Las Vegas saying it will add ~$6m of EBITDAR per quarter.

They also highlighted that Bally will now more likely pursue the $635m Tiverton (RI)-Biloxi (MI) sale-and-leaseback as opposed to the $1bn Lincoln transaction with GLP.
The lenders’ terms on the Lincoln transaction makes that deal appear less favorable.

Sector watch - crypto

Base motives: The cloud of regulatory oversight is certainly now upon the crypto markets. The big news has been the move on the part of the SEC to charge a former Coinbase employee with insider trading.

The authorities say that Ishan Wahi, a former product manager at Coinbase, tipped off his brother and another friend about future listings.

“Today’s charges are a further reminder that Web 3 is not a law-free zone,” Damian Williams, US attorney for the southern district of New York was quoted as saying.

Turf war: The significance of laying insider trading charges is that it explicitly suggests the SEC see alt-tokens as securities. Moreover, the move is also p[art of a land-grab on the part of the Wall Street regulator as it vies with the Commodity Futures Trading Commission (CFTC_ for oversight of crypto.

Derivative: A push by many in crypto to be overseen by the CTTC has reached Congress a Senate bill introduced this week.
Under the plan introduced Wednesday by Democrat Debbie Stabenow and Republican John Boozman would get the ability to police trading in the largest digital assets.

Foundational: The Blockchain Association and the Crypto Council for Innovation have both issued statements in support of the senators’ efforts. The latter has said previously that oversight by the CFTC would be the “foundation for spot market regulation”.

Further reading: The head of the CFTC says the industry must act to regain consumer trust.

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Newslines

Flutter says it has completed the €1.9bn Sisal acquisition. It added that Sisal had “performed strongly” since the deal was announced with H! revenue rising 58% YoY to £402m and EBITDA up 51% to £120m.

FanDuel in Nevada: Meanwhile, reports in local media suggest Boyd Gaming is set to open a FanDuel-branded sportsbook at its Fremont Casino in downtown Las Vegas.

Melco Resorts & Entertainment is considering relocating its headquarters to Macau from Hong Kong to avoid being delisted in the US, according to the FT. The threat comes from the SEC’s demand that 200 Chinese and Hong Kong companies listed in New York comply with audit disclosure rules, something the Chinese authorities oppose. It is thought Beijing might permit Macau-based companies to be examined by foreign auditors.