Jul 8: Weekend Edition #54

UK white paper reaction, E+M startup funding Q2, Bet-at-home UK license suspension, FanDuel analyst update +More

Jul 08, 2022

Good morning. The UK gambling sector can likely assume that the white paper review is now nestling comfortably in the long grass given how the current government is looking to redefine the word shambolic. More worrying commentary for the sector, perhaps, came from Entain which yesterday suggested consumer behavior is now being definitively affected by the cost-of-living crisis. Coupled with analyst warnings about US regional gaming this week, it seems that the twists and turns of the economic cycle will affect gambling as much as other sectors.

Meanwhile, E+M publishes its quarterly startup funding survey. The scene remains vibrant even if the stated amount raised of at least $31m is down on the stated Q1 tally of $46.1m. See below for more analysis. On Monday we will also publish our Q2 transaction tracker for major M&A and corporate activity within the sector.

If you gotta go, go now.

UK white paper reaction

GoJo mojo: Analysts from JMP Securities suggested the market will view the resignation of UK Premier Boris Johnson as a “slight negative” as it makes the timing of the publication of the white paper “more uncertain”.

Everything is politics: Prior to the dramatic events yesterday, which included the resignation of Chris Philp, Minister for Tech and the Digital Economy, the white paper publication was ‘imminent’.
Pre-emptive strikeouts: The JMP team noted that in Entain’s H1 trading statement yesterday the company said UK online was down 15% partly due to preemptive measures taken by the company ahead of possible regulatory changes.

Off the scale: JMP added that Flutter and Bally (home of Gamesys) had taken similar measures and suggested that the scale of Entain, Flutter and Bally “can help offset regulatory changes and could result in more concentration in share as smaller operators will no longer be able to compete”.

Share price reaction: Entain recovered some ground from being off by 10% at one point yesterday to end the day down by nearly 4%. Flutter and 888 also fell as the market digested the further dose of uncertainty.

Overreaction: Peel Hunt said the share price moves were an “overreaction” given that BetMGM “should break into profit sooner rather than later”. Still, Peel Hunt has lowered its target price to 2,000p from 2,400p.

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E+M startup funding Q2

E+M has been tracking the funding round announcements for companies in the betting and gaming space. Here are some of the trends from the second quarter.

Money raised: At least $31m from 13 deals tracked, with six involving undisclosed sums. This is down from at least $46.1m in Q1 though without all sums disclosed, comparisons could be misleading.
Biggest funding round: $7m for customer reactivation provider Enteractive.
Popular business areas: Gambling regtech (x2), sports-betting tech (x2)
Significant investors: Las Vegas Sands (x4), Acies Investments (x2)

Q2 startup funding

LVS makes its move: The gaming giant has made good on its promise to invest in the digital space, seeking its entry via a series of investments in B2B startups. In the second quarter, the E+M Startup Tracker has noted four deals in what can be viewed as an eclectic bunch, including regtech provider U.S. Integrity, esports data provider Bayes, video engagement provider Streamlayer and in-play tech provider Huddle.

If it quacks like a duck: While not officially an incubator, the investments taken on so far certainly give LVS exposure to potentially fast-growing businesses while the invested companies can potentially leverage the LVS name.
Significant: Patrick Dumont, LVS COO, told analysts on its Q2 earnings call that B2B presented a “very significant opportunity” for LVS.
“We’re looking forward to being able to deploy capital over many years and really look at this from the long-term and create a lot of long-term shareholder value.”

Significant others: Regtech remains an area of significant investor interest with the three investments from Q1 (OddsOn Compliance, XPoint and Synalogik) joined by two more this quarter, OneComply and U.S. Integrity.

Web 3.0, decentralized betting and NFTs all got mentions in the quarter via Stakes and UBET. Meanwhile, the sports-betting tech ecosystem was also of interest with LVS’s investment in Huddle Tech being one of the most significant deals in the quarter.

Funding round latest: Falling just outside the Q2 window, ‘German-accented’ slot developer Apparat has announced that Yolo Investments has taken a stake in the firm. The sum was not disclosed. Also, the betting marketplace Wagerwire has closed a $3m funding round led by Roger Ehrenberg, co-owner of the MLB’s Miami Marlins and the EPL’s Leeds United, as part of his venture funds IA Sports Ventures and Eberg Capital.

Bet-at-home UK license

Behavior is the mirror: The largely German-facing Bet-at-home has had its UK license suspended after the UK Gambling Commission said it suspected the company of social responsibility and anti-money laundering failings.

Said the Commission: “We have made it clear to the operator that during the course of the suspension, we expect it to focus on treating consumers fairly and keeping them fully informed of any developments which impact them.”

Recall: In a Q1 trading statement in late May, Bet-at-home said revenue in the first three months of the year stood at €14m and was “within expectations” for FY22.

Sturm und drang: While hoping for “vigorous action” against unlicensed sites in Germany, Bet-at-home added it was hoping to add the Netherlands to its national licenses.
Conundrum: It added that the national licensing would “provide us with further legal certainty” in licensed markets given that they “will continue to gain importance”. How that fits with losing a national license is a circle yet to be squared, even if Bet-at-home’s market share in the UK was likely minimal.

Losing hands: Bet-at-home has suffered a number of other regulatory setbacks in recent months including losing a case in Austria around customer losses that saw it take a hit of €24.6m. It also lost its legal appeal in Switzerland after being blocked from offering its services by the Swiss gaming authority.

FanDuel analyst update

Stranglehold: Wells Fargo analysts have suggested that FanDuel’s sports-betting market share has “meaningfully accelerated” in the past two months to ~45% reflecting, they suggest, growing handle market share in the key markets of NY, PA, MI and IN.

The hold steady: They note that as FanDuel’s GGR share has accelerated, its promo mix has held steady (at least in states that can be tracked) “thus resulting in a significant increase in NGR”.
Did somebody say profits? The Wells Fargo team say they “could see a scenario where FanDuel's 2Q22 EBITDA losses narrow significantly”. Note, for FY23 Wells Fargo forecast Flutter US generating ~$100m in EBITDA.

Combined shares: For Q2, the Wells Fargo team estimates FanDuel’s OSB/igaming share at 33% (up 700 bps QoQ) and sports-betting at ~45%, up 1,200 bps QoQ. BetMGM remained leader in igaming with 30% in May vs. 28% in April.

Promo pullback: The team also noted that promo spend declined for the third consecutive month across the markets of PA, CO, MI and VA. Total promotions in these states equaled $44m in May, the lowest level observed since Aug21’s $31m.

The calm: This is “consistent with operator commentary that post Super Bowl, there has been a material deceleration in promotional activity”, the team added.

Cashless analyst update

Acres wild: Analysts at Truist held a meeting with the principals behind Acres Technology, a provider of cashless gaming technology which plays a central role in Penn National’s cashless mywallet solution.

The Acres team cited evidence from Penn’s Q1 earnings where it said that of 53k+ total customers utilizing cashless, they visit the casino more frequently (+18% than non-cashless cohorts) and spend 22% more time on device.

Four to the floor: Acres management said there were four advantages of going cashless: they are automatically assigned to loyalty programs, there is less cash handling and reduced hardware usage (bill validation becoming obsolete), it appeals to younger demographics and responsible gaming messaging can be built in.

Murder on the slot floor: Truist noted that Acres likens the move to cashless to the advent of TITO 20 years ago and believe the gaming industry will see “rapid cashless adoption” to ~90% by 2025. The risk of non-adoption, they added, would be to lose out as legacy slot players “age out” and not see them backfilled by a “younger, more tech-savvy consumer”.

Datalines

Ohio: June GGR came in at $189.2m, down 3.9% YoY and 17.2% above Jun19. Market leader Penn’s four Ohio properties reported GGR of $64.8m, a 5.6% decrease YoY and 13.7% above Jun19.

Warning signs: Yesterday, E+M reported on recent analyst commentary that suggested there were “early cracks” in the overall regional gaming picture.

Newlines

Pest house: SJM is reported to have offered to make its Casino Lisboa a quarantine hotel after 500 staff and guests have effectively been sealed in due to the ongoing Covid outbreak.

Rush Street Interactive has launched its rushbet.mx online sportsbook and casino in Mexico in partnership with Grupo Multimedios. RSI will operate the site as part of a 25-year agreement.

Spotlight Sports Group will provide its Superfeed data to LiveScore Group as part of a multi-year agreement to supply horse racing content to the group’s Virgin Bet and LiveScore Bet brands.

888 has completed the sale of its B2C and B2B bingo businesses to Saphalata Holdings, part of the Broadway Gaming, for $45.2m.

Bonnie and Clyde: Nuvei Corporation and GAN have entered a strategic partnership enabling gaming operators to access Nuvei’s full suite of payments solutions through integration with GAN’s software-as-a-service gaming platform technology. The partnership commenced following the launch of the regulated gaming market in Ontario earlier this year.

Sazkabet is now live on the OpenBet platform in its home market the Czech Republic, having migrated from the SBTech backend.

FanDuel has opened a retail sportsbook at MLS DC United’s home stadium, Audi Field, the first retail sportsbook at an MLS stadium and the third at a professional sports venue in DC after the Caesars sportsbook at Capital One Arena and BetMGM at Nationals Park.

IMG Arena (part of Endeavor) is the new official data distribution partner of the MLS and will provide soccer data, analytics and streaming to the MLS’ betting and media partners. According to Sportico, the agreement is worth more than $270m.