Jul 22: Weekend Edition #56

Kindred Q2, Las Vegas Sands analyst reaction, sector watch - cashless payments +More.

Jul 22, 2022

Good morning. On a podcast this week, famed angel investor Jason Calacanis noted that when it comes to the environment for tech investment right now, investors are now asking ‘where are the profits’ versus the previous concern for growth. This is, of course, the same equation for the online operators in the US. But as Calacanis noted, the “pendulum will swing back” and growth will once again be the top concern. The only question that remains is when that day comes.

Sultans of swing.

Kindred Q2

GGR was down 36% to £233.5m; excluding the Netherlands GGR was down 13%.
EBITDA dropped 78% to £25.3m, net profit was down 94% to £5.8m.
Q3 trading update (19 days): B2C GWR down 24%.

Lowlands high: Along with the absence of the Netherlands, Kindred variously blamed UK affordability measures, the timing of last year’s Euros and the World Cup being shifted to the end of the year for its poor Q2 performance. But it has high expectations for its Netherlands relaunch achieved in early July.

CEO Henrik Tjarnstrom said the company had seen a “strong start” with daily average revenues of £150K and 30,000 active customers.
Recall, the Netherlands represented c50% of Kindred’s EBITDA prior to its withdrawal in Q3 2021.

Immature: Dutch marketing spend will account for c20% of forecast sales and Tjarnstrom pointed to the relative immaturity of the media environment there.

“The Netherlands is a (still) young media market, we have a strong brand there and are confident we don’t have to invest as much as we did in Sweden (in 2019).”

Projected Netherlands industry gross win 2020-2026 (€bn)

Playing the multiples: In North America - where revenues stood at £7.2m - Tjarnstrom said it will be launching its in-house platform in New Jersey in Q3. But he noted the company wasn’t aiming to enter every state.

“We will increase our presence in Ontario and Pennsylvania and focus on those,” he said. “And if we see igaming regulation in other states we’ll increase our presence in those.
He noted the competition was “fierce, but that’s nothing unusual”. Still, Kindred is starting from a low base with just 1% market share in Pennsylvania for instance.

On the beach: OSB suffered across all EU markets because of a lack of major sporting events this summer; Nordics was down 2%, central and eastern Europe down 11%. Meanwhile, other major markets such as France have been hit by searing heat that is “more conducive to the beach than betting”.

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LVS analyst reaction

A better-than-expected quarter had analysts assessing what the outlook might be when Macau returns.

Compare/contrast: For all that MBS provided the positives in its Q2 earnings, Macau suffered $110m of adj. EBITDA losses, a worse-than-forecast outcome caused by a shortfall at the Venetian. With casinos in Macau only reopening this weekend, the position in Q3 will also be lower than previously forecast.

The good news for LVS is that as it stands Singapore remains a key beneficiary of the virtual shutdown of Macau. CBRE suggest Singapore GGR will likely exceed 2019 levels next year, showing a similar trend to the US.
The cash flow and value of MBS is a “key bedrock” for LVS, they added.

Reversing course: Noting the momentum in Singapore “more than offsets Macau bouncing along the bottom”, the team at Wells Fargo said while full Macau reopening timing was “a complete guess”, they could imagine a scenario where post the Chinese Communist Party meeting in Q4, there might be a “tacit” easing of its zero-Covid policy.

Taking the positive: Macquarie made the point that the evidence of pent-up demand in Singapore “bodes well” for Macau.

Further reading: “In 2019 gambling revenue was six times that of Las Vegas. This year Vegas is ahead.”

Sector watch - cashless

Out of date: A point of controversy contained within the UK White Paper leak came in the proposed provisions for land-based gaming with the government apparently “not convinced” about the consumer protection element of direct card payments on machines.

Jonathan Michaels, SVP of strategic development and government affairs at Sightline, suggests this is “rooted in a dated notion” of gaming customer interaction.
In particular, he suggests this misunderstands how digital payments provide “limit and deposit setting tools that do not exist in the current cash-centric ecosystem”.

John Acres, founder and CEO of cashless payments provider Acres Technology, says that after a year of cashless operations across thousands of gaming machines his company has seen no increase in reported problem gambling.

If accompanied with voluntary pre-commitment tools - that are impossible to administer on cash-based gameplay - problem gambling could actually be reduced.
As for protections, direct card payments “not only provide sufficient protections but actually provide far more protections than cash gambling”.
“Denying casinos the ability to implement responsible cashless gambling will do nothing to reduce problem gambling,” he adds.

First principles: Michaels points out that the “first question” the legislatures or gaming commissions in the US ask with regard to cashless is responsible gaming and once the safeguards are explained, “concerns quickly fade away”. “The notion that using cash to gamble is more responsible than digital payments is completely nonsensical,” he says.

Acres adds that regulators are pleased to see the pre-commitment tools players are provided with through cashless wagering. Some regulators, out of an abundance of caution, even set maximum daily limits for all cashless players.

The end of cash? Both Acres and Michaels note the decline of cash in other retail environments while, as Michaels adds, “without a doubt” the rollout of online sports betting and online gaming has encouraged regulators to get more comfortable with the responsible gaming protections offered by digital payments.

John Acres: “Cashless isn’t the wave of the future, because cashless is already here.”

Big takeaway: Acres says the biggest driver of cashless gaming is consumer demand. “People are accustomed to the convenience of cashless in everyday life and want it everywhere, especially in the younger demographics.”

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Datalines

Louisiana: Land-based GGR fell 9.7% YoY and -7.8% QoQ to $200.1m. On a same-store basis, the total was 3.5% above 2019. For Q2, GGR was down 8.7%. Sports-betting net revenue came in at $10.9m from $132.4m of handle. Mobile handle was down 20.2% to $113.7m while retail handle fell 34.3% to $18.7m.

Newslines

Nuvei has partnered with the mobile payment platform Fonix to provide payment services for Eyas Gaming’s Merkur Slots and Merkur Casino brands in the UK. Eyas Gaming is a new igaming venture backed by the Gauselmann Group and launched by Bede Gaming co-founders Joe Saumarez Smith and Michael Brady.

888Africa has announced it will operate its online gambling products on the Sportingtech platform. 888 has a minority stake in the 888Africa venture.

Belgium will introduce weekly deposit limits of €200 from October. Players will be able to request higher and lower deposit limits. Higher limits will be allowed if players meet credit reference checks with authorization given three days after the request is made.

What we’re listening to

Long-time angel investor Jason Calacanis on Bloomberg Odd Lots. “I believe the overwhelming majority of tokens are securities, but they’re being dumped onto retail investors. And this is being done explicitly by venture firms.”