I’m full: DraftKings cautions on doubling up on deals
DraftKings earnings reaction, Churchill Downs’ Derby win, Penn’s investor worries, startup focus – Bettormetrics +More
DraftKings to keep powder dry after Jackpocket acquisition.
In +More: Super Group in the week ahead, Games Global IPO.
Derby thriller leaves Churchill Downs celebrating a win.
Analysts worry investors in Penn still aren’t convinced on ESPN Bet.
Startup focus is next-generation data analytics platform Bettormetrics.
Let's think of each other and hesitate.
DraftKings opts for M&A pause
Mergers and indigestion: DraftKings CEO Jason Robins poured cold water on the prospect of the company buying Rush Street Interactive, saying that one Jackpocket-sized acquisition is enough to digest at the moment. He said an “M&A spree” is not a sensible way of deploying capital.
“It is a question of size. To do two materially sized transactions simultaneously would be very challenging,” said Robins after being asked about the Rush Street rumors.
He added that he didn’t feel “particularly compelled” to do M&A as a source of growth, suggesting it could be a “distraction.”
Not buying it: Rush Street investors appeared to remain undeterred, sending the shares up over 4% on Friday and leaving them with a near-30% gain for the week. However, in after-hours trading the shares were down over 7%.
🔥 Rush hour: RSI shares on a tear
Cash machine: New CFO Alan Ellingson said DraftKings was on track to deliver approximately $400m in free cash flow in 2024 as the company’s operating profits accelerated towards the half-a-billion mark. He said the company was “poised for a rapid increase” in adj. EBITDA after Q1 saw the company issue raised guidance once more.
Ahead of spending ~$413m of cash on the acquisition of Jackpocket, Ellingson said DraftKings would have ~$1.6bn of liquidity at year-end.
Spending limits: Operationally, Robins noted customer acquisition costs declined by 40% in April as the company continued to enjoy operational efficiencies and “really healthy and efficient marketing.” Asked about a 700 ppt improvement in promo expense, Robins suggested it was driven by the lack of big new state launches.
“Last year we launched in Massachusetts and Ohio; this year it was North Carolina and Vermont,” he said.
He added the company was still early-stage so there were large areas of the business that could be “optimized and improved upon.”
Robins noted the timelines on the payback from newly launched states was also improving over time, with North Carolina expected to be EBITDA positive in the second half of this year. “We continue to get better and better at optimizing our state launch playbook,” he said.
“We’re able to capture a tremendous amount of value in a much shorter period of time with a much more efficient level of investment than we did three or four years ago.”
Analyst reaction: Analysts almost universally greeted the Q1 earnings, which saw revenue rise 53% YoY to $1.18bn and adj. EBITDA up to $22m compared with a loss in Q1 2023.
"We believe the earnings power of DraftKings is underappreciated, with multiple levers to drive EBITDA above and beyond any incremental state launches," said the team at Mizuho.
Hitting the Jackpocket: Robins said he was excited about Jackpocket’s “really efficient funnel for acquiring on lottery and cross-selling into OSB and iGaming.”
Bank of America’s analysts agreed: “Given DraftKings proven track record with cross-sell from daily fantasy to online sports betting and OSB to iGaming, we expect a similar playbook for Jackpocket into both iGaming and OSB."
Robins believed Jackpocket could open in more states without legislative action.
Gap analysis: Asked about whether competitors would be able to close the gap on the market leaders in terms of tech abilities, Robins said scale in terms of database was key to maintaining leadership. “We have more data and more data points to model and to improve personalization,” he added.
He noted DraftKings was also ‘leaning in’ to investing in product and engineering, and that much of this work wasn’t obvious to outside eyes.
“Those things are harder to copy because it’s not an obvious consumer-facing feature that somebody can say, ‘Oh, yes, I'm just going to figure out how to do that.’ Oftentimes, it’s invisible to the front end.”
Great question count: Six. Payout on the over 4.5.
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Games Global is targeting a $2.13bn valuation for its IPO on the New York Stock Exchange, according to Reuters. The offering will consist of 8.5m shares from the existing shareholder with a further 6m being sold by the company, meaning it should raise between $232m and $275.5m.
Reports suggest Sportrade has gained a license to operate in Iowa, its third state after New Jersey and Colorado.
Gaming Laboratories International said it has finalized its acquisition of Trisigma, a global gaming tester. GLI said Trisigma would continue to operate as an independent entity.
The week ahead
Super Group reports on Wednesday, with the market looking to see whether the company has come to a resolution with regard to the strategic review over the future of its presence in the US.
Before that, on Tuesday Red Rock Resorts will report the first full quarter of operations of the new Durango Casino in the Las Vegas Locals market. Recall, following the latest data from Nevada, the team at CBRE noted the ramp at Durango “continued to fuel market wide growth.”
This afternoon, Monday, the Earnings+More Capital Markets Forum takes place at the NYSE. We’ll see you there. Tomorrow, Tuesday, GeoComply’s Challenger Event takes place at Citi’s offices in Manhattan.
Career paths
White Hat Gaming has named Justin Psaila as CFO. He joins from GiG, where he served as CFO for nine years. Prior to that he worked at Betsson for eight years.
Churchill Downs’ Derby winner
Down to the wire: Saturday’s thrilling photo finish to the 150th Kentucky Derby won by Mystik Dan will add $26m-$28m in EBITDA over the 2023 version of the race, while wagering from all sources set a new record of $321m, up 11% YoY.
All sources wagering for the whole week rose 8% to $447m. TwinSpires handled a total of $92.1m in wagering on all the Kentucky Derby day program, up 22%.
Churchill Downs also announced an extension of its media partnership with NBC Sports to provide coverage of the race on NBC and Peacock through to 2032.
The whip hand: The team at JMP noted that historically the Derby was worth 25%-30% of full-year EBITDA, but since the company has diversified into HRM operations that is now closer to 10-15%. But they added that it “remains a critical driver of equity value.”
“The race acts as a focal point to grow the total enterprise, like its TwinSpires platform, database and brand,” the team said.
The record result also saw JMP up its Q224 adj. EBITDA by $3m to $170m.
Analyst takes – Penn
Piling up the misery: In downgrading Penn to a Hold, the team at CBRE noted cumulative losses for ESPN Bet were now approaching $1bn, with investors having “no greater conviction” in the company’s chances of success than when the partnership was announced last August.
The team said customer acquisition and user-engagement trends have been positive. But spending levels were lagging and the “product is still not yet up to snuff.”
The analysts still saw the long-term potential of the venture, “but we underestimated the magnitude of capital and time required to ramp the business to some level of stabilization.”
The path to glory: CBRE said Penn needed to follow through on its promise to achieve a deeper integration with ESPN itself, which it said was the “greatest opportunity.” The team noted ESPN Bet recorded 300k unique visitors who came directly through ESPN links and that the planned integration with ESPN’s No. 1 ranked fantasy sports app offered the prospect of hooking into 12m users later this year.
“Where ESPN Bet may lag the industry on average spend per user, it could make up with a much larger user base and lower CPAs,” they added.
“If Penn and ESPN get the integration right, there should be a competitive advantage in customer acquisition, engagement and retention.”
More takes
Earnings QTD: The “primary focus” from a busy earnings week last week were Las Vegas results and “what lies ahead,” suggested the team at Jefferies, who pointed out Boyd Gaming and Caesars Entertainment both reported “surprisingly disappointing results.”
In the case of the first it was issues in both the locals and regional markets, while with the latter it was Las Vegas and regionals.
“The first question is whether the performance is company specific or market driven,” they added.
But, citing MGM Resorts’ inline earnings in comparable segments last week and the mood music from Red Rock, the team suggested it was their view the problems were more company specific.
“The ultimate question is whether we are beginning a broader downward revision cycle for the industry or become more focused on Caesars and Boyd.”
This is consistent with their expectation of a “widening chasm” between those with growth potential, including Churchill Downs and Red Rock and those without it.
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Startup focus – Bettormetrics
Who, what, where and when: The London-based next-generation big data analytics platform was launched by Robert Urwin, a former sports trader at Ladbrokes, and Roger Creyke, ex Betway, in December 2021. They are supported by gaming industry veteran and now commercial director Sabin Brooks.
Funding backgrounder: The company secured a funding round from Velo Partners in December 2021 and completed a Series A funding round from Bettor Capital and Velo Partners in December 2023. The amounts raised were undisclosed.
A better idea: Urwin says the Bettormetrics platform quickly identifies unprofitable trends and patterns in a sportsbook’s performance, reducing those inefficient price positions, which often result in margin leakage, and thereby maximizing GGR.
“We strongly believe in the concept of data-driven sportsbook optimisation, facilitated by big data analytics,” he says.
“The platform is designed to discover and ameliorate deficiencies that directly impact sportsbook revenues and profitability.”
He suggests most sportsbooks are “completely unaware” of how much money they are leaving on the table due to the impact of their market suspension and other deficient pricing strategies.
In the clouds: Urwin says the sportsbooks Bettormetrics is speaking to are starting to see the benefits of cloud-based analytics technology and are viewing it as a “vital part of their trading operations.”
“The US is our prime focus as our platform is particularly well suited to US sports,” he says.
Bettormetrics has tier 1 clients in the US and Western Europe and is looking to expand its presence in emerging markets such as Brazil, LatAm and Eastern Europe.
Shine a light: The challenge from this point, Urwin says, is to “shine a wider spotlight” on the deficiencies trading desks encounter. “We need to put a number on just how much these issues are costing sportsbooks.”
“We are in active conversations with several tier 1 operators and plan to continue reporting on the deficiencies that somehow get swept under the rug.”
What will success look like? “It’s still early days in our quest to augment quant operations across the industry with world-class analytical services,” Urwin says. “Ultimately, it’s our goal that all reputable sportsbooks recognise the problem and adopt a service like ours.”
“After all, the cost of being a customer pales into insignificance with the material revenue upside that our platform can deliver,” he adds.
“Sportsbooks can’t afford to look away from this problem any longer.”
Growth company news
EQL Games has a new director of marketing in Taylor Bengtson, who joins from the New Hampshire Lottery where she was an account manager.
Gamification provider Lucra Sports has announced a partnership with entertainment center operator Dave & Buster’s to enable P2B betting via an arcade game app.
Calendar
May 6: Earnings+More Capital Markets Forum, NYSE
May 7: GeoComply Challenger event, NYC, Red Rock
May 7-9: SBC North America Summit
May 8: Genius, Super Group, Full House, LNW, Golden, Accel
May 9: Bragg Gaming, AGS
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