Feb18: Weekend Edition no.34

DraftKings Q4, Golden Entertainment Q4, earnings in brief, Earnings in brief, Sector Watch - esports, Datalines: UK, TN, LA, Miss.

Feb 18, 2022

The emphasis for DraftKings today was on profitability and when it's going to happen. However, the messaging that if there hadn’t been any launches after Dec21 it would have been profitable by the end of this year didn’t impress the markets. The shares were down 17% post-announcement. Analysts have pointed to DraftKings’ dilemma: new states add revenue but also mean higher EBITDA losses. Squaring that circle is what this year will be all about.

DraftKings Q4 or Big Jet TV? Equally bumpy…

DraftKings Q4

Revenue up 46.9% YoY to $473m, beating guidance by 8%.
Adj. EBITDA loss of $128m, 20% better than Street forecasts.
Raising FY22 guidance to between $1.85bn-$2bn, a 7% increase at midpoint.
FY adj. EBITDA forecast introduced at between $825m-$925m.
Company expects to be EBITDA positive by Q123.
DraftKings had 1.7m actives on Super Bowl Sunday.

Ifs and buts: Assuming it hadn’t launched in any new states since Dec21, DraftKings said it would have been EBITDA positive in Q422. Its actual expectations for profitability by Q123 depend on legalization trends remaining steady. CFO Jason Park said DraftKings has a “clear line of sight” to profitability.

He noted that states launched in 2018, 2019 and 2020 were expected to be contribution positive this year, including New Jersey.

Analyst quick take

Credit Suisse: “Considering profitability is one of the major headwinds around sentiment this seems like an important indicator that the model is working.”

Empire building: On the call, CEO Jason Robins said it had taken DraftKings less than 24 hours to reach 100,000 users in New York, with the total hitting over 300,000 after 20 days. “There is no question players are joining faster,” said Robins.

Datapoint: DraftKings had 1.7m actives on Super Bowl Sunday.

Investing in product: Analysts at Regulus Partners noted the $254m spend on product and technology, saying this was a “potential positive”.

Regulus Partners: “If this is productive expenditure which drives scalability and innovation, rather than simply holding stuff together or localizing for the sake of regulations, then it could generate significant value; that is a big if, however.”

Playing catch up: On the development spend, Robins noted that DraftKings had been a few years behind its top two competitors in terms of the number of people working on engineering and product development. But he suggested that having invested heavily in its own team, it had closed the gap.

Robins: “We feel like now we are in a position where we can outcompete on product and technology.”

SBTech who? B2B revenues were down 52.9% to $14.8m ”due primarily”, said Park, to the termination of the Asian reseller agreement.

What Robins said:

On DraftKings Marketplace: “We sit at the interaction of web3 and sports culture.”

On taking a national advertising route: “We have already started shifting some of our spend to national advertising with the start of the NFL season. We crossed the one-third threshold with New York. And with each new state, it’s not like we have to put more national advertising out there.”

On cash calls: “We have said all along that we expect to have enough capital on the balance sheet to get to free cash profitability and nothing has changed there.”

On DraftKings’ Super Bowl betting: “It was up extraordinarily higher versus last year’s Super Bowl.”

Share price reaction: The initial share price reaction wasn’t great, with the pre-market trading suggesting a near 15% fall at open, post-announcement it was down just over 17%.

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Golden Entertainment Q4

Revenues up 37% YoY to $282m, adj. EBITDA rising 72% to $67.8m.
Full-year revenues up 58% to a record $1.1bn.

Top of the shop: Charles Protell, CFO at the ‘Nevada-centric’ owner of the Strat in Las Vegas, confirmed comments from the other operators that there was “no doubting” about the impact of Omicron at the beginning of January. But business had picked up with a “pretty packed” Super Bowl and President’s Day weekends.

Jefferies analysts: “The key risk that remains, in our view, is over-analysis.”

Margin call: The adj. EBITDA margin for 2021 rose to 27% compared to 16% in the prior year and Blake Sartini, CEO, said he was “very confident” that the “outsized margins” were more than just a temporary boost.

Blake Sartini, CEO: “I'll steal a line from someone I forgot who said it, but we're not on a diet here. We made a lifestyle change.”

Earnings in brief

Genting Singapore: Full-year revenues rose 15% to S$1.06bn while net profit was up 4.9% to S$183.3m. However, the picture was less rosy in the second half as Covid-related lower visitation almost halved profits. Gaming revenue fell 16% on H2 to S$359.7m while net profit fell 49% to S$95.1m. Still, the business is moving ahead with the expansion of Resorts World Sentosa, or RWS 2.0 as the company dubbed it.

FDJ: Stakes were up 11% to €19bn, revenue was up 10% to €2.3bn vs. FY19. FDJ’s digital channels recorded a 42% rise in turnover and online stakes represented 11% of all FDJ stakes vs. 6% FY19. EBITDA was up 22.3% to €522m, margins were 23.1% vs. 22.2% FY20, net profit was up 37.6% to €294m. As per its post-IPO 2019 statement, FDJ said revenue growth target was 4-5% and EBITDA margins above 23-25% per annum from 2021-2025. In B2B, FDJ rolled out its PoS and OSB platform Proline+ in Canada with the Ontario and Alberta state operators during 2021.

Acroud: Q4 revenue was up 162% to €6.5m, but organic growth was down 11.1%, EBITDA was down to €817K vs. €1.2m YoY. Adj. EBITDA flat at €1m. The company blamed slower than expected growth in the newly-regulated Dutch market and said it took the strategic decision to focus on richer content and increase its presence in the Netherlands as a SaaS provider.

Sector Watch - eSports

Revenge of the nerds: FTX continues to invest in sponsorships by partnering with the esports infrastructure company Nerd Street Gamers across its schedule of community events and the Nerd Street Championships taking place this Summer. FTX will also power Nerd Street’s crypto payments.

FTX has already partnered with the esports team TSM in a sponsorship deal worth $210m, one of the biggest of its kind, and is the official crypto exchange of the LCS, North America’s League of Legends series.

Unicorn traction: The Commonwealth Games is also dipping its toes into the space by adding esports as an event to the 2022 Games taking place in Birmingham, UK, this August. As Regulus Partners commented recently, it’s not the worst idea to drum up interest from younger demographics:

Regulus Partners: “As much as a betting operator can claim to be an innovator by adding esports as a new market in a sportsbook, without additional TLC and strategic impetus, it will add very little value and merely be a buzzword to throw at stakeholders while it picks up very little traction.”

US no-go: Esports betting is now live in New Jersey, but a broader rollout in other US jurisdictions is far from certain in the near future, not least because of the potential pushback from the AGA. Bill Miller, CEO, was asked about esports during the AGA’s State of the Industry address this week and warned “players are underage and betting on it creates lots of regulatory issues”.

Midnite hour: UK-based esports-betting startup Midnite has raised $16m in a Series A funding led by the investment firm Raine Group and existing backers Makers Fund and Venrex. Midnite was founded by Nicholas Wright and Daniel Qu, who previously founded the fantasy-sports platform Dribble. The esports-focused book launched in 2020.

Green Skillz: Esports and mobile gaming company Skillz has hired Nicholas Green as its new head of public policy. Green was previously a partner with Orrick, Herrington & Sutcliffe, and as a sports and betting law expert he worked to legalize sports betting in the US. Skillz went public in 2020 and has received backing from the NFL’s venture capital arm 32 Equity and the owners of sports teams such as the Milwaukee Bucks and New England Patriots.

Regulatory roundup

Arkansas could have mobile sports betting by March 4 after the Arkansas Racing Commission’s new rules were approved by a ley legislative subcommittee. Arkansas Attorney General Brian Bowen says the controversial rule requiring 51% of revenue to remain with casinos - opposed by the sports-betting operators - is defensible in court should it be challenged. In California, the California Nations Indian Gaming Association (CNIGA) has decided to support the proposed tribal referendum that would legalize online sports-betting.

Datalines

UK: In the three months to Dec21, total GGY fell by 6% to £1.2bn with a 16% QoQ fall in sports-betting to £460.6m the cause of the decline. The Gambling Commission ascribed the fall to the disruption caused to the sporting calendar by Covid-related cancellations and postponements. OTC betting revenue also fell 9% to £146m in the quarter but self-service betting machine GGY rose 7% to £82.8m and machines GGY was up 3% to £284.1m.

Tennessee Jan22: Betting handle hit a record $386m, helped by the Tennessee Titans taking part in the AFC divisional round of the Super Bowl playoffs. The NFL showpiece generated $23.1m of the monthly handle, the state’s online operators recorded $29.1m in gross revenues and paid $5.8m in taxes to the state.

Louisiana Jan22: Gaming revenue rose 9.8% to $259m, excluding sports betting, revenue was up 7.6% to $253.7m. Sports betting revenue was up 21.7% to $5.3m MoM, handle was also up, 24.7% to $49.2m.

Mississippi Jan22: Overall gambling revenue was up 2.4% to £202.4m, excluding sports betting the total was $195.9m (+5.8%). Betting revenue dropped 28.4% to $6.5m, handle was down 1.7% to $66.5m.

Newslines

Czech stake: Czech lottery and sports-betting group Allwyn (formerly Sazka) has increased its stake in Greek sports-betting market leader OPAP from 41.2% to 48.1% at a cost of €327.4m, a premium of more than 10% on OPAP’s current share price.

Go for launch: Apollo received approval from the Nevada Gaming Commission for its takeover of the Venetian properties bought for $2.25bn from Las Vegas Sands last year. Recall, as part of the same deal, VICI bought the real estate for $4bn.

On the grid: BetMGM has signed a content partnership with the SportsGrid wagering streaming network. The agreement will also include social media programming and TV advertising spots.

Stuck on the re-launchpad: Meanwhile, Las Vegas Sands itself was on the wrong end of a downgrade from S&P analysts who blamed the sluggish recovery seen so far in Macau.

House of fun: Full House said it will install the ‘Sprung’ tent structure at its soon-to-open property American Place in Waukegan, Illinois. Full House hopes to open snappily-named The Temporary by American Place in the summer, pending regulatory approvals.

Secret sites: According to reports, Hard Rock International has three undisclosed potential sites in mind to build a $2bn New York casino, although the soon-to-open Hard Rock Hotel in Manhattan will not be one of them. Wynn, Las Vegas Sands and Bally have also indicated interest in building properties in the New York City-area.

Roundabout: Carousel Group’s MaximBet will launch in Indiana and Iowa as a part of its ongoing US expansion plans.