Feb 3: Penn reports ‘in shadow of sideshow’

Penn National Gaming Q4, Red Rock Resorts Q4, Playtech takeover saga, boom in sports betting TMX webinar, Macau update +More

Feb 03, 2022

Good afternoon. Penn National leads today with its Q4 numbers although the good news is obscured by further Portnoy allegations. Elsewhere:

Red Rock Resorts confirmed a successful Q4 with record revenues.
Playtech said it is subject to another approach from previous bidder Gopher Investments.
We have the best bits from a Canadian-focused webinar on sports-betting.

If your name’s not already on the list, then click below.

Penn National Gaming Q4

Revenues up 53% to $1.57bn with adj. Consolidated EBITDA rising 31.5% to $480.5m
Interactive revenues up to $157.6m and adj. EBITDA of negative $5.9m. Interactive EBITDA losses for the year totaled $35.4m.

Headline detraction

Deutsche Bank analysts continue to be unimpressed: “In the shadow of the sideshow, yet again, Penn reported earnings this morning.”

Best of luck with that: Jay Snowden, CEO, said from the off that he wanted to concentrate on the earnings statement rather than answer further questions around the latest allegations against Barstool’s Dave Portnoy. He noted the timing of the news once again coincided with Penn’s earnings release.

Interactive forecasts: Snowden was far keener to talk about what he said was the strategic difference between Penn Interactive and the competition. The company is forecasting an EBITDA loss of $50m for 2022 compared to a forecast just one quarter ago of $100m.

Jay Snowden, CEO: “We’ve got a model that is built to make money.”

Irrational exuberance: He also noted that compared to the “ as irrational as you could imagine” spending on marketing seen elsewhere in the sector, he had been “blown away” by Barstool’s “resilience and retention” against the onslaught.

Wrapping up: The company said today it would acquire the remaining 64% portion of Barstool it doesn’t already own later this year. Analysts at Credit Suisse suggested the max amount would be ~$390m. The initial tranche of 36% was bought for $163m against a total valuation of $453m.

Score update: Snowden said the Score had been preparing for the upcoming Ontario launch for some time. He added that the brand is in a strong position with ~23% of all Canadians having theScore sports app on their mobiles.

Hurdle ahead: Penn said it would migrate Barstool Sportsbook to theScore platform in Q3.

Chart: The presentation shows Barstool Sportsbook handle and GGR booming to over $1bn in Q4, more than doubling sequentially. Answering questions about the implied hold percentage of 6.5%, Snowden noted that partly it was due to decent in-game percentages.

Land-based look ahead: The company also reinstated forecasts for 2022 for the land-based business, targeting revenues of $6.2bn and adj. EBITDA of $1.9bn. EBITDA margins across the casino estate hit 37% in Q4, a percentage which the company believes is sustainable.

Pandemic update: JP Morgan noted that the omicron impact in December had been more modest than expected.

Shares impact: JPM also said the Portnoy news would add an extra level of volatility to the Penn share price. At pixel time, the shares were up 3.9%.

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Red Rock Resorts Q4

Net revenues were up 23% YoY to $422.4m while adj. EBITDA hit $189.7m, up 26%.
CY21 net revenues came in at $1.6bn, up 37% YoY.

Shovel ready: The company confirmed it had broken ground on the Durango development in January. It said the project had been costed at $750m all in and will take 18-24 months to complete.

The alternative view: Analysts at Macquarie noted the cautionary tale of RRR’s ownership of the Palms. Acquired for $313m, hundreds of millions spent on Capex, negative returns, sold to the San Manuel tribe for $650m last year.

High net worth: Management stressed Red Rock was benefitting from the influx of high earners to the Las Vegas valley. Between 2019-21, the numbers of people moving to Las Vegas earning $100k+ have grown by ~19% and are forecast to grow 6% CAGR to 2026.

Lorenzo Fertitta, director: “It’s not just overall growth in the Las Vegas valley, but when you dig down into the details (of the income levels) those are really going to benefit our business. You’re playing the long ball with us because of our locations in Summerlin, Green Valley, all the growing areas of Las Vegas.”

Goodness, gracious: The demographics are in line with how the business is trending from a mass-market audience towards the higher-end. “We like all customers, but our focus has been on the higher-end customer player development,” said CEO Frank Fertitta. “And that's really where we see all of our goodness come from.”

Coming up: Truist said Red Rock’s numbers were a positive for Boyd which reports AMC today.

Playtech takeover saga

Developing story: As predicted yesterday, shareholders rejected the terms of the Aristocrat deal with only 56% in favor - and this was swiftly followed by another cash offer.

Deep breath: This morning Playtech confirmed a new bid has been received from a “yet to be formed” investor group being marshalled by a company called TTB which itself is an affiliate of Gopher Investments which previously made an approach in November and has recently completed the buyout of the Finalto financial trading business. Got that?

Snai goodbye: It has been widely reported that the Snaitech business will be sold off as part of a breakup of Playtech.

Macau update

Driving the news: Macau police have arrested Chan Weng Lin, CEO of Macau Legend and chairman of Macau’s second-biggest junket operator Tak Chun Group. After the arrest of Alvin Chau, CEO of the SunCity junket operation, this is a further sign of the unwillingness of the authorities to continue to turn a blind eye to their behavior.

Numbers update: The data picture on Macau remains clouded by Covid. January GGR of $794m was down 20.3% MoM and -74.6% vs. Jan19. Trade was severely affected by tightened travel restrictions in the neighboring cities of Zhuhai and Zhongshan, the seasonal downturn leading up to Chinese New Year and the shrinking of VIP business.

Forward looking: Deutsche Bank forecasts 2022 estimated revenues of $18.1bn (+67% YoY, -50% vs. 2019) and $27.6bn for 2023 (+52% YoY, -25% vs. 2019).

TMX webinar: Ontario and the boom in sports betting

The line-up: A discussion hosted by the Toronto stock exchange yesterday included contributions from Joe Levy, CEO and founder of Simplebet, Jordan Gnat, CEO of affiliate marketer Playmaker, Ken Hershman, CEO at Champion Gaming and esports-betting brand Rivalry’s CEO Steven Salz.

What they said:

Steven Salz, CEO Rivalry: “People can debate Barstool’s performance, but there is something to be said about owning your customers vs. renting them, which is what you do when you give them bonuses and free bets. You have no ownership over that customer and you’re just trying to grab a last bit of LTV before somebody else owns them.”

Joe Levy, CEO and founder of Simplebet: "The technical infrastructure for micro-betting didn't really exist (prior to 2018), because globally soccer was the main sport for betting, it’s a very fluid game.”

Analysts in brief

Bally’s Corporation: Wells Fargo analysts have tweaked their model and have removed the Tropicana Las Vegas from their estimates pending clarity on the long-term plan for the property, Soo Kim, bally chair, told the LVRJ last weekend Bally would “consider anything from renovating the 1,470 room resort to knocking it down and starting over”.

Gaming and Leisure Properties: Deutsche Bank has updated its model for GLP to include the recent Cordish Companies Live! real estate assets and related financing transactions. The DB team say GLP remains “inexpensive amongst its REIT peer group”.

Regulatory update

Hawaii is unlikely to see a sports-betting bill approved this year, Rep. John Mizuno, recently told a Twitter Spaces audience. Mizuno introduced the bills for sports-betting and and casino regulation at the end of January. Rhode Island's new proposal would prohibit sportsbooks from using bettor-specific data gleaned from their apps to target customers with algorithm and AI-powered individual promos. Georgia state Rep. Matt Dollar, a leading advocate for sports-betting, resigned his seat on Tuesday. The Georgia Senate has already passed an online sports-betting bill, but efforts have stalled in the House. Legal sports betting is unlikely until at least 2025 if Georgia fails to get a sports betting measure on the 2022 ballot. Iowa lawmakers have put forward a bill that proposes to regulate online casino in the state.

Datalines

Virginia Dec21: Betting handle was up 6% MoM to $426.5m, GGR was $31.5m and NGR was $10m with margins at 7.4%. Promotional spend represented 55% of the GGR vs. 42% average since launch. The state allows operators to deduct bonusing spend from their taxable revenue, which resulted in significantly diminished tax revenue generation for the state. As a result, Virginia lawmakers are currently considering legislation that would overturn the state's current policy on bonusing spend deductions.

Denmark: FY21 GGR, excluding lottery revenues, rose 3.5% YoY to DKK6.2bn/$940m. The rise was driven mainly by online casino growth, which saw GGR rise 16.7% to DKK2.8bn/$424.7m. Sports betting GGR rose 5.2% to DKK2.4bn/$364m thanks to the return of a full sports calendar. Offline casino revenues dropped 6.9% to DKK236m.

Newslines

Top dog: Eilers & Krejcik Gaming's survey of U.S. sports-betting apps from Q1 to Q421 found that FanDuel was the top-performing app in all but one quarter. FanDuel's dominance on the mobile app landscape has transferred into a commanding U.S. market share, the EKG team said. In the 12 months to Nov21, FanDuel has 36% of GGR, nearly 1200bps ahead of nearest rival DraftKings.

Ski Sunday: PointsBet Canada is now the official sports-betting partner of the country's ski-racing governing body Alpine Canada.

Retail therapy: FanDuel and BetMGM have announced plans to open retail sportsbooks in Chicago’s United Center, the home ground of the Chicago Bulls and of NHL franchise the Chicago Blackhawks and at Nationals Park, the home venue for the Washington Nationals, making BetMGM the first sportsbook connected to an MLB stadium.

Loyalty points: BetMGM also announced that it will be launching its own-brand rewards program, which offers players VIP benefits across the MGM Resorts casino portfolio. BetMGM’s program is an expansion based on the company's much larger MGM Rewards scheme.

You’re in: The Nevada Gaming Control Board has recommended approval for private equity house Apollo to take over the Venetian, Palazzo and the Venetian Conference center from Las Vegas Sands. They said they had learned their lesson from their doomed ownership of Caesars Entertainment and were buying in at the bottom of the market rather than the top.