May 12: BetMGM: California ‘could be worth up to $3bn’

BetMGM investor day, Genius Sports Q1, Betclic SPAC news, NeoGames Q1 +More

Earnings+More

May 12, 2022

Hello. On today’s agenda:

BetMGM raises its TAM estimates to reflect legislative progress.
Genius Sports says media was the standout, but losses mount.
Betclic is set to float in €7.2bn SPAC listing.

Heavy weather. Click below:

BetMGM investor day

BetMGM increases its TAM estimates to $37bn to include California.
Q1 growth up 58% but losses rise to $178m from $116m.
BetMGM has pulled back from an “irrational” New York market.

The tempest: CEO Adam Greenblatt said that despite the recent market “turbulence” around equities, the prospects for online sports-betting and igaming “remained healthy”.

The new TAM includes improved metrics for player value in both icasino and sports betting and less leakage into black markets.
Adam Greenblatt: “The expectation is we will achieve EBITDA profitability as we exit 2023. We’re not guiding to full-year profitability at this point.”
Greenblatt also noted that by BetMGM’s own calculations, player participation levels across the regulated states were “way lower” than the 15% in the UK.
“We’re growing our actives base faster than all of our leading competitors,” he said.

All the devils are here: Asked about the estimated TAM in California, Greenblatt said it would be between $2.5bn-$3bn. Noting the proximity of California to MGM's “heartland” in Las Vegas, he noted that BetMGM would benefit from structural advantages in establishing itself in the state.

What’s past is prologue: Super Bowl handle up was 39% YoY while first-time depositors rose 93%. March Madness up saw revenue up 59% YoY with FTDs up 137%.

The isle is full of noises: Gary Deutsche, CFO, said BetMGM has taken the decision to pull back from an “irrational” New York market with marketing spend diverted to markets with better ROI. “The specific problem in NY is the high rate of tax applied to real revenue and phantom revenue,” he said, noting that the effective tax rate is well over 100%.

Rack ‘em: Deutsche highlighted that New Jersey has been EBITDA positive for the past five quarters. Meanwhile, Michigan has been “outstanding” and was a positive contributor in only six months.
He also noted that Tennessee, Virginia, Colorado and Arizona were all on track to be positive contributors in 2022.

Candy girl: Greenblatt also offered some “data candy” about Ontario. “Yesterday, between our sports-betting and our gaming business we did almost 2 million transactions. I think that is a good number from a standing start.”

Mad men: Talking about the expansion over the last year from 12 to 23 states, Greenblatt said BetMGM was now seeing the scale benefits of being a national advertiser.

Adam Greenblatt: “Given our current footprint, the ROI in national advertising can now be effective. Plus the leakage in non-OSB or igaming states can also be valuable when we do launch down the road.”

Gaming leader: Greenblatt was keen to stress BetMGM remains the number one by market share in igaming in the US but said he does not expect any further igaming launches this year. Chief product officer Jarrod Schwarz said the company differentiate in five ways:

Depth of games, exclusive games and in-house content, live-dealer (growing 134% YoY), largest igaming jackpots in US, personalization.

Bank of mum and dad: Pointing to the benefits that come from the parent shareholders MGM and Entain, Deutsch said BetMGM has structural cost advantages that helped towards a benefit of around 6-7 percentage points of EBITDA margin. Greenblatt said there were further benefits in terms of tech worth another 7%-12% of margin that “we do not pay”.

One last thing: Greenblatt said at the very end in answer to a question about MGM’s offer for LeoVegas: “I can’t believe it’s been 40 minutes and we only get the LeoVegas question now. It doesn’t really affect us.”

**Sponsor's message: Spotlight Sports Group (owned by Exponent Private Equity) is a leading technology, content and media business specialising in sports betting. Its industry-leading Superfeed is used by the biggest betting brands in the world including bet365, Flutter and Entain. The content engine powers on-site engagement by delivering impartial expert betting insight for 20 sports in 70 languages.

For more information visit: spotlightsportsgroup.com

iGaming NEXT day 1

When the going gets weird: In the opening presentation at the iGaming Next investor day in New York, Chris Grove from Accies and American Affiliate (WE+M’s parent company) gave an overview of where he believed the sector stood at a moment and suggested three key factors would impact future M&A.

The need to grow and improve margin via M&A - “it is something almost everyone is looking at”.
Depressed stock prices and cash access uncertainty.
The intense need for profitability.

It means the M&A market “might get very weird”.

Chris Grove: “Public might look to go private,” he suggested. “We are in a situation right now that the compression of valuation on the public side is only now seeping into the private realm.”

Awks: “Ultimately we will see awkward transactions,” he added. While M&A has been a “constant theme” in the sector, the upcoming deals will see a “number of strange bedfellows”

Share Wagers.com Earnings+More

Genius Sports Q1

Revenues up 60% to $85.9m, adj. EBITDA losses of -$2.9m
Operating losses $65m, net losses $40.2m. General and admin expenses nearly quadruple to $32.8m from $8.8m.
Genius Sports has $174m in cash.

Media play: Genius Sports’ media unit was the standout performer in Q1 with revenues up 150% to $24.1m, driven by organic acquisition of new customers from its programmatic advertising services.

On the analyst call the group said its CPAs stood at ~$225, approximately 25% less than the industry average.
Asked if the figures were sustainable, Josh Lindforth, managing director of media, said if marketing cuts occur, it is likely to come in promotions and above-the-line advertising.
Although costs for operators rose for new state launches, Lindforth said Genius could launch in new jurisdictions at minimal incremental costs.
“All we can do is give them the tools to acquire players in different ways, but we’re still performing strongly and as new states come online there is more media spend.”

Guiding matters: Genius reaffirmed FY22 guidance of $340m and said gross margins will benefit from the reduction in the NFL warrant payments, which were $22m in Q1 and would drop to $6m in Q2.

CFO Nick Taylor said sports seasonality would affect the group in Q2, but it was too early to forecast FY media revenues because it had just renewed its contracts with the sportsbooks.

Contract inflation: Its betting tech division saw revenues increase 27.6% to $49.7m thanks to price increases on contract renewals, while revenue for its sports tech unit revenue more than doubled to $12.1m, driven by Second Spectrum and other acquisitions.

Betclic in €7.2bn listing

Betclic parent company Banijay is set to list on Euronext in Amsterdam via FL Entertainment merger with Pegasus Entrepreneurs SPAC valuing the group at €7.2bn (€4.1bn equity value).
Betclic revenues were up 64% to €741m in 2021, EBITDA doubled to €177m, FY22 revenue guidance €850m and EBITDA of €200m.

Flying: Pegasus Entrepreneurs is backed by the European asset management company Tikehau Capital and investment firm Financière Agache and existing shareholders include the French media conglomerate Vivendi. FL Entertainment is backed by Bernard Arnault, chairman of luxury conglomerate LVMH and Vincent Bolloré, who has stakes in video games producer Ubisoft and the Havas advertising group.

FL Entertainment says it has secured €620m in cash commitments, including ~€220m in PIPE money.
A further €250m comes from controlling shareholder Financière Lov (headed up by Banijay CEO Stephane Courbit), €50m from Financière Agache and Tikehau Capital and more than €100m from Pegasus Entrepreneurs.

Further down the PIPE: “The parties will continue to market the PIPE participation to a broader scope of investors with a target size of €250m.”

Backgrounder: Banijay says it is the largest TV production company in the world with control of more than 120 content producers worldwide. Some of its most well-known shows include Peaky Blinders and Big Brother. It is led by Stéphane Courbit, who created the group in 2008 and merged with Zodiak Media in 2016 before acquiring Endemol Shine Group in 2020.

Betting on online: In 2007 it acquired a 50% stake in Betclic for around €35m with Monaco’s Société des Bains de Mer holding the remaining 50%.

It then acquired Everest Poker and a ~30% stake in the German and east European-focused bookmaker Bet-at-home but has now sold both those businesses as well as the Expekt betting brand to LeoVegas.

Analyst quick take: Paul Leyland at Regulus Partners said Betclic “has chosen a good time to SPAC”, because “French and Portuguese markets have shown very strong adoption growth during Covid”.

The highly restrictive German and Polish market(s) provide “an underpin of share as well as segment growth” as they are less competitive than the UK or Sweden, markets in which Betclic has not made a mark, added Regulus.

Regulus: “The overwhelming majority of its revenue comes from France (c65%) and Portugal, markets with high betting taxes, restricted product and payout limitations, which has limited competition. Domestically regulated markets make up 97% of revenue.”

Earnings in brief

NeoGames said Q1 revenues rose 3.8% to $22.4m including its share of revenues from NoPollard Interactive while adj. EBITDA fell 12% to $8.5m. Royalties from turnkey contracts declined 17.6% YoY as the Michigan iLottery faced competition from iGaming, which went live in Jan21, The decline was offset by 12.6% growth in royalties from games contracts and a 78.2% growth in use of IP rights as Caesars Digital rolled out in new states.

Bragg Gaming said revenue was up 36.4% to €19.4m while adj.EBITDA rose 26.2% to €3m. Wagering revenue in Q1 2022 reflects changes in product mix towards PAM, managed services and proprietary content, which drove improved gross profit and adj. EBITDA. The company reiterated its 2022 revenue and Adjusted EBITDA guidance of €68-72m and adj. EBITDA of €9.5-10.5m.

Caesars Entertainment analyst note

Occupy Vegas: Further to meeting Caesars Entertainment CEO Tom Reeg and SVP for investor relations Brian Agnew, the team at Wells Fargo said there has been no sign of consumer slowdown in Las Vegas.

Strip occupancy rates in April were 97% and should continue into the rest of Q2, Wells Fargo said. That activity should lead the group to surpass its quarterly EBITDAR record of $500m.
Regional trends have also been strong and Caesars said it did not view the Street’s EBITDAR estimates of $440-450m as aggressive, the analysts added.

Suspicious minds: On digital Wells Fargo said opinions were split and investors have become increasingly divided.

“Supporters view digital as a significant long term opportunity and strategic imperative, with Caesars well-positioned to succeed over time as the market grows, consolidates, and becomes more rational.
“Naysayers view digital as structurally challenged, with no sign that the currently irrational promotional/marketing environment will improve any time soon.”

Ebb and flow: Caesars’ balance sheet and cash flow were key areas of focus, the analysts said. Group management said it could see “a path to reduce interest expense by up to $300m in 2023” and bring it down to ~$500m”.

At the end of Q1 the group had $14.3bn of debt outstanding. Proceeds from the sale of William Hill’s non-US business will generate $785m in Q2, a Las Vegas asset sale will bring in $2.25-2.5bn and FCF should bring ~$1.6– 2bn in 2023.

Datalines

Indiana Apr22: Gaming revenue was up 9.4% to $244m. April had 10 weekend days, compared to nine in 2021 and eight in 2019. Sports betting handle rose 52% to $360m, revenue was up 42.7% to $28.6m, sports betting margins were 8%.

AGA Q1 revenues: The AGA's latest revenue tracker for Q122 showed that sports wagering handle was up 102.3% to $26.34bn and revenues grew 64.6% to reach a record $1.58bn. Online casino revenues were up 53.9% to a record $1.21bn beginning total sports betting and icasino revenues to $2.79bn. This made up 19.5% of all US gambling revenues and was up from 18.4% in Q4 and +15.7% YoY.

New York was the leading sports betting state with Q1 revenues of $320.9m, handle was $4.87bn – more than states like Michigan and Virginia generated in all of 2021. Nationwide revenue from traditional casino games, sports betting and online gambling was $14.3bn.

Newslines

Inside The Pocket, the free-to-play (F2P) aggregation platform, has appointed Ruairi Boyle to the new role of chief commercial officer.

What we’re reading

Crypto craters.

On social

‘The Scousetrap’

Tom Peck @tompeck

Day Three of Wagatha Christie aka The Scousetrap (h/t @rowancope). More questions for Rebekah Vardy, this time on how it came to pass that she dragged a load of wags out of a restaurant where they encountered a pap who was meant to be hiding in the bushes.