Hornbuckle: ‘We can grab share back’
MGM’s defense, Rush Street pushes on, 888Africa M&A, Caesars analyst takes +More
Good morning. On today’s agenda:
MGM Resorts gets defensive on digital.
Rush Street Interactive talks up LatAm opportunities.
Lion Kings: 888Africa acquires BetLion.
Analysts digest what digital profitability means for Caesars.
Come out fighting
MGM CEO Bill Hornbuckle insists JV is on the right path.
How big is too big? CEO Bill Hornbuckle appeared to set MGM Resorts on the M&A path after telling analysts on the Q2 call that the company’s “fortified balance sheet” enabled it to make “optimistic investment and acquisitions” as well as return cash to shareholders.
Asked immediately whether there was a size constraint on any deal – presumably accompanied with a side look to camera and a mouthing of the word ‘Entain’ – Hornbuckle was poker-faced.
“We're focused on working alongside our partners with a collective goal to maximize the growth and profitability of MGM and LeoVegas,” he said.
“I think we're making good progress on both of those fronts and that's really all we're going to say.”
Ang your hat: When it was put to him that margins at BetMGM were lower than with its peers, Hornbuckle said the completion of the move to a single wallet and the addition of the product differential brought by Entain’s recent acquisition of Angstrom would aid the situation.
“I think the opportunity with Angstrom will drive more product, more parlay, more frequency, and recency around bets in game and otherwise,” he said.
“And those are big margin businesses.”
“Candidly, our product is not where we want it to be,” he added later in the call.
“I think the moves that we're making with Entain and that we're going to make with Angstrom as a proper onboarding partner will get us back in that game in a meaningful way.”
Knives out: On the recent drop in OSB and iCasino market share, Hornbuckle said the group hoped “to gain share back” by increasing OSB-to-iCasino migration levels that currently stand at ~30%.
But he added that the company was “not naive” and was fully aware that the competition was “coming after us in that forum”.
China in my hand: A fourfold leap in revenues at MGM China to $741m helped push total revenues to $3.94bn, a 21% increase. However, Las Vegas was flat at $2.15bn, regionals were down 3.5% to $926m and the share of digital losses came to $22m.
The revenue reverse meant regionals adj. EBITDA dipped 14% to $294m while Las Vegas was down 6% on an adj. EBITDA basis to $776.5m.
But the bounceback to profitability in Macau meant total adj. EBITDA rose 24% to $1.14bn.
CFO Jonathan Halkyard balked at the idea that iCasino cannibalization was a factor in the declines at the Borgata in New Jersey and MGM Grand Detroit in Michigan, suggesting that “once we get more omni-channel in play, we can drive people back”.
Code share: The recently announced loyalty program partnership with Marriott Bonvoy is expected to bring benefits to the Las Vegas operation. Halkyard said the deal would enable MGM to replace ~5%-7% of its lowest-yielding rooms with Marriott direct bookings driving $60m-$75m of incremental profit.
On the prospects for Vegas, Hornbuckle was typically ebullient, pointing out that with F1 MGM already has twice the occupancy on the books at 4x the average rate vs. last year.
Talking up the potential of the A’s in Las Vegas, he noted the example of the Raiders and the Golden Knights, which “have shown that Las Vegas is the go-to destination for away fans”.
“And we think the A's will be no different.”
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Push Street
Rush Street Interactive hits profitability and talks up LatAm opportunities.
Surprise, surprise: “The second quarter profitability came in quite a bit better than the street expected and certainly better than we expected as well,” said CEO Richard Schwartz, after the company said it is on track for a profitable year.
Q2 EBITDA came in at $1.2m vs. an $18.6m loss in Q222 off revenues that were up 15% to $165m.
US revenues rose 11% to $145m, while those from international (including Ontario) were up 31% to $17m.
Everything but the Big Apple: CFO Kyle Sauers noted that, excluding New York, Rush Street was overall profitable in OSB-only states. But he noted a scaling back of player acquisition spend, down nearly 10% YoY to $40m and down 18% from Q1.
Latin lessons: Colombia and Mexico contributed to the international growth, and Schawrtz suggested the company would be looking to take advantage of the “head start” it had got in the region when it comes to the potential in Brazil.
“We have a tremendous amount of talent and sophistication in how we operate down there,” he added.
He also noted progress in Peru, Chile and Argentina.
“We have ample opportunities and are evaluating each of them and identifying the ones that make the most sense for us to enter,” he said.
Don’t be a playa hater: RSI has done the simple things well, analysts said, concentrating on product tweaks that make it easier for players to withdraw and deposit quickly, along with exclusive retention tools.
“The higher reinvestment and more time on device should also create synergies between its sports and iGaming businesses,” said Jordan Bender of JMP Securities.
Lion Kings
888Africa acquires BetLion for an undisclosed sum.
Talent incorporated: The acquisition of the Kenya and Zambia-licensed operator, which was itself only founded in 2019, augments 888Africa’s business and provides the company with a second hub in Nairobi, Kenya, alongside its existing center of Dar es Salaam in Tanzania.
BetLion has over 3m customers and also holds a license in the DR Congo among others.
888Africa is currently live in Kenya, Tanzania, Mozambique and Zambia via the 888bet brand name.
“This acquisition is a critical step as we aim to create truly unique betting and gaming experiences to players across Africa,” said Christopher Coyne, CEO of 888Africa.
Slot survey
EKG finds slot replacement sales grew 50-60% YoY and 10-15% QoQ.
Ship shape: Reacting to the slots survey – which covers almost half of the North American install base – the team at Roth MKM said the evidence showed that almost every listed operator is “involved in some sort of reinvestment plan, ranging from renovations, expansions or new developments”.
“We believe this willingness to spend on growth initiatives implies a healthy backdrop for slot demand,” the team added.
They also noted that new casino openings and faster replacement cycles have pushed YTD slot sales well above 2019 levels.
Losers and boozers: Losing share in the Q2 survey was IGT, which Macquarie reported was down 400 bps to 23%, while Light & Wonder was flat at ~20%. Aristocrat was at ~30%, its highest post-pandemic level, while AGS was up 200 bps sequentially to 6%. Everi was up 100 bps at 7%.
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Caesars analyst takes
Digital hits profit inflection point, says CBRE.
Turning the corner: The importance of the switch to profitability in digital is that Caesars is no longer hemorrhaging cash in order to fund its ambition. In the words of the analysts at CBRE, it is “on the cusp of significantly accelerating free cash flow” as it generates an ROI on its land-based business as well as hitting the profit inflection in digital.
These tailwinds are “amplified” by the ongoing debt reduction, which translates to lower interest rate expense and creates a “virtuous circle” of compounding debt reduction, leading to even more cash generation.
It leaves Caesars in a position to once again go on the front foot with M&A.
“Caesars will have ample firepower to fund growth and return significant capital to shareholders, all while maintaining a healthy leverage profile,” the team suggested.
Clear as crystal: B Riley analysts said the digital performance was “quite the turn”, adding the the new Caesars Palace iCasino app “should instigate market share gains” in the “most profitable segment “ of B2C.
More analyst takes
Downloads: The team at JMP said the data from July shows that Fanatics and bet365 are continuing to take market share. While FanDuel maintained its number one position at 27% share, with DraftKings at 26%, the team suggested they are seeing a “notable increase” in share from new operators, with Fanatics and bet365 both garnering 5% in July.
“We expect these companies as well as Caesars and Penn to be aggressive heading into football season with new product or technology stacks,” the team added.
Century Casinos: Also expected to show a move towards FCF generation is Century, which recently completed the acquisition of the Rocky Gap property in Maryland from Golden Entertainment and which is set to report next Tuesday. The team at Roth MKM suggested Century will be able to “meaningfully deleverage” in the next 12-18 months.
IGT: The lack of clarity regarding the outcome of the strategic review shouldn’t obscure the extent to which the strength of the Q2 earnings for gaming and digital might “lubricate optionality”, suggested the team at B Riley.
Noting IGT is the first supplier to report, the team argued the YoY gaming EBITDA growth in gaming will end up being “better than all the peers”. “IGT is taking market share.” they said, perhaps contrary to the EKG survey evidence above.
In iCasino, meanwhile, B Riley noted a “recent upward movement” in slot title rankings.
Flutter: The team at Peel Hunt believed the benefit of the US listing move is now priced in and warned that, though the company will likely achieve US profitability in 2023, the low short-term number will mean attention will move to its high multiples
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Newslines
Huddle has signed a deal with BVGroup to power the group’s pricing on an array of US sports. The partnership will see Huddle power BetVictor with pricing on an array of market types ranging from core to micros across NFL, NCAAF, NBA, NCAAB and MLB.
Crowd control: Affiliate Acroud has announced it will be taking a €20m writedown against the assets of Highlight Media, which it bought when it was called Net Gaming in 2016. The non-cash impairment will come in the upcoming Q2 earnings report.
Lottery.com has regained compliance with Nasdaq listing requirements after securing a credit facility and the appointment of Tamer Hassan and Paul Jordan as directors.
The US Bankruptcy Court for the District of Nevada has approved Play Synergy’s purchase of the slot business and online assets of Aruze Gaming America.
Calendar
Aug 3: Bally’s, Red Rock, DraftKings (e), Accel, AGS
Aug 4: DraftKings (call)
Aug 7: Genius Sports
Aug 8: Full House, Light & Wonder, Endeavor, Century
Aug 9: Flutter, Everi, Sportradar, Penn, NeoGames (e)
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