Mar 4: Weekend Edition no.36

DraftKings investor day, bet365 analyst reaction, Penn National analyst update, #StandWithUkraine, sector watch - crypto exchanges +More

Mar 04, 2022

Good morning. What does it mean to be ‘at maturity’? Kids? Mortgage? Gym membership? How about giving an insight into how much revenue a company generates from its separate product offerings? Despite going into new TAM estimates and unit economics at some length on yesterday’s investor day call, DraftKings remains shy of letting the outside world know how much it makes respectively from sports-betting and gaming. Even the famously taciturn bet365 breaks these figures out.

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DraftKings investor day

Estimates for TAM raised from $67bn to $80bn.
Sees interactive revenues at maturity of between $6.7bn-$9.5bn.
Maintained its own market share predictions for sports betting at 20-30%.
Raised igaming market share estimate (off the back of Golden Nugget deal) to 20-25%.

The Crown series 2: There was a mixed reaction among the analysts to the operator’s attempts to, as Wells Fargo put it, “provide clarity” around its state-level profitability and customer acquisition costs.

Wells Fargo: “We remain cautious on DraftKings’ path to profitability… to us, the scaling of revenue and plateauing of SG&A (sales, general and admin) seems aggressive.”

Flawed: Deutsche Bank noted the new TAM estimates were driven by trends evident in New Jersey which, they added, were “fundamentally lacking”. They pointed out DraftKings is:

Taking the state with the highest per adult sports-betting spend.
Spend that could have peaked in 2021.
Assuming every other state gets to that level.

Floored: The DB team also weighed into the debate over the pace of legalization of icasino and DraftKings’ assumptions in that area.

Deutsche Bank: “The reality is, getting from 13% of the country with legalized iCasino today to 30% in the future will be a heavy lift and one that we view as being considerably more onerous than the legalization of sports betting, for a slew of reasons.”

Emperor's new clothes: Deutsche Bank was clearly in the skeptics’ corner. “In short, one either believes in the story, or views it as a long-term pipe dream with too many unknowns to put much credence in forecasts anyway.”

What they said:

Jason Park on cannibalization in New Jersey: “We have measured it… the punchline is that the cannibalization has been quite minimal.”

Jason Robins on faster customer adoption in newly regulating states: “Ironically I think the influx of spend has encouraged overall awareness of the market, the halo of the increased advertising has helped ramp markets faster.”

Jason Robins on if MLB cancels the season: “MLB is an important sport for us, given there are so many games. But what we have seen in the past, looking at the schedule shifting during covid, people who want to bet will find something to bet on.”

Jason Robins on whether there will ever be tax rate harmonization: “Every state is a snowflake.”

Stock reaction: The share price fell 10% as investors appeared to continue to focus on near-term losses rather than the company’s longer-term view.

In other news: DraftKings is fined $150,000 by New Jersey regulators for allowing a VIP to proxy bet while at the Super Bowl.

On social:

Alfonso Straffon 🇨🇷🇺🇸🇲🇽 @astraffon

On one hand illegal bookmakers get pinched... on the other regulated operators get to settle with slaps on wrist and fines.

Meanwhile, a New York rebuff: Senator Joe Addabbo dismissed recent claims that the 51% tax rate that applies to online sportsbooks in the Empire State was being reassessed. The news follows comments made by Robins during the recent Q4 earnings call that there has been "chatter" about reducing the tax rate. Addabbo recently put forward a plan to regulate icasino - taxed at 25% - but with the state budget due on April 1 and the midterms looming, the chances of the bill passing this year are not high.

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#StandWithUkraine

No go: DraftKings issued a statement yesterday to say it would no longer be offering bets on Russian leagues and teams. LeoVegas likewise said it would no longer be making markets on Russian or Belarusian leagues, saying it didn’t want to “lend legitimacy” to leagues in either country.

No show: On the B2B front, the UK’s Parliamentary All-Party Betting & Gaming Group has called on industry conference organizers to boycott Russian speakers and exhibitors. Clarion Gaming, the organizers of ICE, announced earlier in the week that it has suspended Russian or Belarusian “state entities, companies and their representatives” from participating at ICE or iGB Affiliate.

Bet365 analyst reaction

Flat is the new upside: The analyst at Regulus said the 1% rise in revenues in the year to Mar21 was a decent outcome given the period included the worst of the sporting calendar disruption at the start of the pandemic.

Regulus: “Bet365 was always going to underperform during the first lockdown phase given its in-play sport focus and so underlying results are if anything encouraging.”

Weak become heroes: Regulus estimated gaming - which grew 8% in the year - brings in revenues of ~£500m which, as they note, is “hardly weak” unless you compare it with the ~£2.3bn of bet365’s sports-betting haul.

Wrong type of balls: A potential headwind for bet365 is its focus on “doing one thing extremely well” i.e. soccer betting, leaving it less well-positioned when it comes to growth opportunities elsewhere, notably the US.

Losing my edge: Moreover, Regulus added that bet365 is a disruptor no more. “It is a sign of generational development in online gambling that bet365 has moved from being a disruptive generator of global market adoption to a relatively mature business model,” they add.

Regulus: “That said, choosing to find new ways to disrupt for growth or deciding to enjoy the cash flow is a nice problem to have.”

Penn analyst update

Loyalty bonus: After meeting with CFO Felicia Hendrix, analysts at Truist came away “incrementally positive” on the company’s prospects both in land-based and online. In the casino business, only the older demographic was lacking from the returning customer mix while with Barstool, Hendrix emphasized the importance of Barstool’s strategy of leaning on customer loyalty in the face of higher spending elsewhere.

Truist: “Penn reiterated its strategy has never been about driving higher share (beyond its ~12% targets), but instead emphasizing profitability and customer stickiness with retention greater than expectations/typical digital companies.”

Light & Wonder analyst update

Wonder years: Analysts at Truist gave Light & Wonder the nod following the group’s results this week. Highlighting the new focus gaming, igaming and social, Truist said LNW was “now less distracted (by its) debt burden”. The group’s acquisition of live-dealer specialist Authentic Gaming was also welcomed, staying investors have given the move a “warm welcome”.

Sector watch - exchanges

Nyet dice: In stark contrast to the (relatively cost-free it should be said) moves made in the online betting and gaming space to cut ties with the Russian market, the crypto exchanges were notably less enthusiastic to join in.

Changpeng Zhao, CEO of Binance: "It's not our decision to freeze user accounts. Many Russians do not support this war. So I think we should separate the politicians (from) the normal people.”

Name’s not on the list: Zhao went on to say that Binance would block all transactions by those that appeared on international sanction lists, but no further. He said to ban all Russians would be “unethical”.

Comfort blanket: Following a similar path were Coinbase and Kraken which also came out against outright bans on all Russian customers. "At this time, we will not institute a blanket ban on all Coinbase transactions involving Russian addresses," said a Coinbase spokesperson.

Sky-high: It’s not hard to see why the crypto exchanges might be reluctant to pull the plug on all dealings with Russia. According to digital assets market data provider Kaiko, trading between the ruble and Bitcoin increased to a nine-month high earlier this week.

Funding round - Ultimate Odds

Bridge the gap: The next-generation fantasy sports and sports-betting hybrid has completed a seed funding round for an undisclosed sum. The business was founded by Philadelphia-based entrepreneurs Jonathan Bierig and Justin Batushansky.

On the ticket are Seth Young, head of Fifth Street Gaming, Benjie Cherniak at Avenue H Capital, Quintin Singleton as well as Miami-based VC 305 Ventures which is run by Simplebet co-founder Joey Levy.

How it works: The platform replaces traditional fantasy starting positions such as QB and RB with drafted bets such as a team’s moneyline or the over/under. The winner of each contest is determined by which player has the longest calculated parlay odds based on their successful drafting and management of their roster of bets on a daily or weekly basis.

Cherniak: “The offering is perfectly suited to an emerging generation of sports enthusiasts.”

Newslines

Here comes the judge: Flutter Entertainment has said it will “vigorously defend its position” after Fox Corp filed a suit against the company related to its option to buy an 18.6% stake FanDuel.

Eighth wonder: Resorts World New York launched its mobile sports betting app Resorts WorldBET. It is the eighth online sportsbook in the state.

Spend, spend, spend: Las Vegas saw visitors spending more last year than in each of the past six years excluding according to data from the Las Vegas Convention and Visitors Authority. 2020 was excluded from the profile due to the pandemic.

Approval rating: Barry Diller’s IAC received a recommendation for final approval from the Nevada Gaming Control Board for an application for suitability as a beneficial owner of MGM Resorts. In mid-February, MGM and IAC announced they bought 4.5 million shares each from activist investor Corvex Management for a combined $405m.

Tenderizing: The Macanese authorities have announced a six-month extension to the six operators' concession contracts to allow more time for the tendering process.

Ultimate high: Sports gamification provider Low6 says its fantasy app platform UltimateFan has broken through the 150,000 install mark, less than one year since launch.

Telecaster: NBC Sports’ Chicago and Philadelphia affiliates will debut the first dual-market PointsBet BetCast on Monday (March 7). The program will be an alternate live game stream with a sports betting focus, it will cover the Chicago Bulls vs. Philadelphia 76ers NBA game that will be broadcast on NBC Sports Plus in both cities. NBC will broadcast a ‘traditional’ version of the game nationally on NBC Sports.

Ont. approved: 888 has been awarded an online sports betting and casino license that will enable it to operate in the Canadian province of Ontario when it opens to regulation on April 4.

LEWO license:Kindred Group’s Unibet betting brand will expand on its OSB operations in Arizona to operate retail sportsbooks at nine small business locations in the state after it acquired nine Limited Event Wagering Operator licenses from the Arizona Division of Gaming.