Investor rails at low-ball Bally’s bid
Activist takes aim at Standard General, MGM Resorts downward revision, Endeavor take-private move +More
Activist investor K&F Growth Capital offers an alternative plan for Bally’s.
In +More: DraftKings and Flutter share prices remain under pressure.
OpenBet and IMG Arena owner Endeavor agrees take-private approach.
MGM Resorts Strip estimates revised lower off back of Bowl reset.
And I hope to God I'm not as numb as you make out.
Standard General under attack
There must be a better world somewhere: An investor in Bally’s has suggested the company’s independent board committee should reject what it called an attempt by major shareholder Standard General to take the business private “on the cheap”. In a letter to the directors, investment firm K&F Growth Capital proposed a “ready-made, executable” six-point plan to return Bally’s to growth.
Standard General has offered to buy the 74% of Bally’s it doesn’t own at a price of $15 a share.
The offer, which values the business at ~$684m, is less than half the price at which it bid for the company two years previously.
No confidence: K&F, formed by investment veterans Edward King and Dan Fetters who are both also partners at gaming-endemic VC Acies Investments, said the market has “lost confidence” in the company’s current strategy and its financial stability.
The activist pointed out the share price has declined 45% over the past year while the bonds are trading at a 28% discount to par.
The plan “exploits” the current weakness and is an attempt to “acquire Bally’s at a fraction of its fair value,” the letter said.
Peak to trough: Bally’s down 80% from its March 2021 high
Six steps to heaven: Among the half-dozen proposals put forward was a sale of the international interactive unit – the old Gamesys business – which as Earnings+More reported yesterday is already the subject of speculation post a successful Standard General buyout.
K&F noted there is “minimal overlap” between the international segment and the core Ballys’ casino business.
A recent note from Deutsche Bank indicated the division should be valued at 7.5x-8.5x the forecast adj. EBITDA for 2024 of ~$330m or $2.48bn-$2.81bn.
Zinger: Moreover, K&F suggested a US public company “should not be in the business of supplying gaming equipment and operations to the Japanese market under the country’s current regulatory framework.” The Japanese link also has “negative implications” for Bally’s access to capital.
Bally’s should “pursue a sale or structured separation of the international interactive business as the universe of potential acquirers is expansive,” it added.
K&F pointed to recent deals such as FDJ’s $2.8bn bid for Kindred as representing the type of multiple a sale could bring.
A sale at a “highly conservative” premium of that 10x EBITDA multiple would enable Bally’s to “materially delever” or use the funds to support continued growth.
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Clipped wings
We just lost the moon: Alongside the sale of the old Gamesys business, K&F also recommended that a refocused management team should pull back from “moon shot bets on huge, unfunded development projects.”
These include the planned permanent casino in Chicago, the plan to replace the Tropicana as part of the Oakland A’s baseball stadium project and any hopes of earning one of the three New York downstate casino licenses.
The activist noted Bally’s is the only regional casino operator to have failed to increase margins post-pandemic.
Notably, debt analysts at Fitch Ratings yesterday followed its peers Moody’s and S&P in downgrading Bally’s $3.73bn of debt over “execution risk” with the Chicago development.
Horror show: As for the US online strategy, K&F were scathing. “The strategy employed over the last three years has been an unmitigated disaster,” it argued.
A litany: The investor called out the three acquisitions of Bet.Works, SportCaller and Monkey Knife Fight, bought for a combined $300m+ and since written off, the soon-to-be-abandoned partnership with Sinclair and the cumulative losses to date of $125m.
“Management is forecasting continued material losses in 2024,” K&F said. “We cannot continue to throw good money after bad.”
It recommended Bally’s curtail all further OSB activity and resile to being a skins provider.
Back to the future: Rounding up its proposals, K&F suggested that if the company followed its plan it would then be in a position “not too dissimilar” to the situation prior to 2020 when the company was able to acquire “compelling and synergistic” casino resort assets.
K&F suggested its “straightforward plan” would reduce debt, increase profitability and create significant shareholder value.
The investor went on to “offer their assistance” to the special committee and that Bally’s could benefit from an “owner’s perspective and sound advice on strategy and capital allocation.”
+More
Done deal: Gambling.com has announced the completion of the $37.5m acquisition of Freebets.com and associated assets from XLMedia. Charles Gillespie, CEO, said of the deal for the UK-facing sites that “while expansion of gambling in the US grabs all the headlines these days, many of the industry’s most attractive markets remain in Europe.”
Weathering the storm: Analysts at Macquarie noted that DraftKings and Flutter have seen their respective share prices hit by the spate of negative headlines affecting the sports-betting sector in recent days.
The team suggested the NCAA’s call for a nationwide ban on prop betting could cost the industry $300m in GGR, while the proposed doubling of the New Jersey tax rate would create a $450m headwind.
DraftKings is off by nearly 7.5% in the past five days while Flutter is down over 11%.
⛈️ DraftKings and Flutter shares take a hit
By the numbers
Ohio: Total gaming GGR declined 5% in Feb to $264m with B&M flat at $197m but sports-betting GGR down 18% to $66.3m. Handle was up 5% to $671m.
Virginia: Sports-betting GGR rose 57% in Feb to $44.5m on handle that rose 26% to $545m.
Careers+More
GAN has appointed interim CFO Brian Chang as permanent CFO.
Endeavor’s take-private move
Lights out: OpenBet and IMG Arena’s brief life within the public spotlight is coming to a premature end after parent company Endeavor announced its majority shareholder Silver Lake would be acquiring the shares it doesn’t already own, valuing the sports and entertainment business at $13bn.
A special committee of Endeavor’s independent directors has unanimously approved the offer.
It is the largest private equity-sponsored take-private move for 10 years and the biggest ever in the media and entertainment sector.
Recall, Endeavor completed the acquisition of OpenBet for $800m in late 2022 and added it to its existing IMG Arena sports data provision business unit. In Q4, the company said the sports data and technology division generated revenues of $114m, up 5% YoY. The segment’s adj. EBITDA stood at $20.5m, down 5% YoY.
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MGM Resorts analyst take
Post-game analysis: The team at Jefferies have lowered their estimates for how MGM’s Las Vegas Strip properties performed in Q1, suggesting the “lift” from the Super Bowl in February was “strong [but] lower” than initial forecasts. The team now sees MGM’s Las Vegas properties as bringing in $2.24bn of revenue and $825m of adj. EBITDA.
The analysts maintained their Buy rating, however, suggesting the Q1 earnings due on May 1 would show the first benefits from the Marriott Bonvoy hook-up.
The Jefferies analysts said they are also bullish on the prospects for MGM China with its mid-teens market share in Macau and argued the enhancements in Macau, including an updated gaming floor, would promote further growth.
+More takes
Flutter: JMP said one of the takeaways from Flutter’s recent earnings was the strength in iCasino, with the implication of market growth accelerating through March even while FanDuel’s share remained flat. Overall, the team suggested they expect iCasino to “provide upside” for revenue and EBITDA in Q124 for online gaming divisions.
Calendar
Apr 17: Entain
Apr 18: Rank
Apr 24: Evolution, Kambi
Apr 26: Betsson
May 1: MGM Resorts
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