5 May: Caesars preps a sports reload +More
Caesars, Red Rock Resorts, Aspire Global, Gaming Innovation Group, SJM Q1s, Better Collective Action Network presentation
Welcome to another packed newsletter of first-quarter earnings news. We have the news overnight from the Caesars and Red Rock Resorts earnings calls plus the latest this morning from GiG and Aspire as well as an overview of Better Collective’s Action Network biuyout presentation. But we start with Caesars and what it said last night about the recovery in Las Vegas and its plans for sports-betting now the William Hill deal has completed.
Caesars Entertainment
The top line
Net revenues at $1.7bn, 256% up YoY, 16% on same-store basis but net losses widened to $423m from $176m. Same-store adjusted EBITDA at $548m up 33.7%.
Las Vegas same-store revenues were down 39.5% to $497m; regional gaming was flat on a same-store basis at $1.1bn. Managed, international and interactive was down 21.3% at $90m.
Caesars expects to pay down $2bn of debt during this calendar year helped by William Hill sale, detail likely to be confirmed in Q3/Q4. Contrary to reports, discussions are not in progress on the disposal of a Strip asset.
April showers cash: Talking of the recovery from Covid, CEO Tom Reeg said on the earnings call the business that Caesars had seen in April was “so different from the narrative I have seen out there” and much more positive. He said Caesars had produced over $300m of consolidated EBITDA in April alone which was more than 5% ahead of the 2019 comparative and with margins of over 37% which was over 1,000bps ahead of the same month 2019. Vegas EBITDA margin was almost 47%. Reeg added that “weekends in Las Vegas are sold out for the foreseeable future.” “We’re very optimistic about the remaining three quarters and the returning group and convention business,” he added. Analysts at Deutsche Bank suggested the tone of the conference call was “decidedly more bullish” than previously.
Running down that Hill: After thanking the departing Joe Asher, CEO of William Hill US, for the “foundation he and his team built”, Reeg went on to suggest that in the last football season the business has been playing with “one arm tied behind its back.” Asked whether Caesars had ever considered keeping hold of the non-US elements of William Hill, Reeg said “we’ve not had a moment’s pause in selling.” “One of my pet peeves when I was an investor was companies that didn’t know what they were good at,” he said. “I can't tell you we are good at running a non-US online business.” Indeed, he also somewhat undersold what they were leaving on the table for the next owner, whether that is a trade buyer or rumoured PE buyer Apollo.
“Frankly, William Hill had a number of lame-duck brands in a number of markets where it didn't make sense to invest. We will be more aggressive on leverage,” Reeg added. “What we needed was to move forward and take control of our destiny.”
Taking up the online cudgels: Reeg was keen to emphasise how important the company viewed the potential to leverage the player database at its disposal in the online realm. “If you look at what our friends at MGM did in Michigan, achieving leadership where they had a large database, that gave us great confidence moving forward,” he said. “We like the hand that guys like us and MGM have to play,” he added. “We have the largest player database in the business bar none. We should be effectively the low cost producer. And we are throwing off over $100m-a-month in free cash flow (from the whole business) to invest in this business as aggressively as we need to. We aren’t throwing money away to buy market share, but there will be a significant increase in investment.”
Players only love you when they’re playing: The newly rebranded Caesars sports app would be a “competitive business and brand by this coming football season.” “We expect to be a player this fall,” he added. “We’re going to put our heads down and do the work. We feel very, very good where we’re headed.”
Red Rock Resorts
The top line
Net revenues down 6.6% YoY to $352.6m, 21.1% down on Q119. Net losses contract to $106.6m from a loss of $177.8m in Q120. Adjusted EBITDA was up 110.8% to $156.6m, also up 8% on Q119.
Las Vegas revenues down 3.8% to $342.8m, off by 18,.8% on Q119. Adjusted EBITDA up 19.2% YoY to $160.7m. Net cash at end of period $117.9 and debt load at $2.9bn. Native American management down 56.8% to $7.6m following termination of the management contract of Graton Resort and Casino on February 5, 2021.
A shark’s tale: Ahead of the Red Rock Resorts Q1 report, the company announced the hotly-tipped sale of the Palms Casinos Resort in Las Vegas to the San Manuel Band of Mission Indians for $650m in cash. The team at Truist Securities noted that the sale price comes in below Red Rock’s investment (including renovation) of $1bn in the Palms and said they believe the property (currently still shuttered since last March) had been EBITDA negative for a number of years. Over at Macquarie, the analysts said they “applaud the divestiture”, believing RRR can reallocate resources more productively elsewhere, including its planned Durango project. Attention will now turn to whether the San Manuel will receive the approvals needed to make their debut on the Strip. Tribal interest in Vegas is gathering steam. Mohegan Sun runs the Virgin Las Vegas and the Seminoles are hotly tipped to buy the Bally’s.
When asked what mistakes they thought they had made during Red Rock’s opwnership of the Palms, Frank Fertitta, CEO, said they “invested too much in the nightlife.”
One question not asked was whether the tribe gets to keep Damien Hirst’s formaldehyde-preserved shark (pictured above) on display in the main bar area at the Palms.
Crisis management: The management said on the earnings call that it had prioritised free cash flow over the period of Covid. Unlike many of its peers, it didn’t take out further debt during the crisis and indeed reduced net debt by $334m. On the supranormal margins being achieved across the business, Fertitta suggested the Red Rock business model was exceling because of its focus on pure gaming. “80% of revenues from gaming and while we still haven’t got back to normal on the hotel and F&B that shouldn’t take away from the margins we have gotten to under Covid.”
Durango: One potential use of the Palms proceeds will be to move ahead with the project to build a new property in Las Vegas. “We think Durango is the prime location,” said Fertitta. “It’s one of the fastest growing areas of the city and we think it is very, very under-served. We are focused on the scope of the project. The Durango is an absolute no-brainer.” He said the project would be “in the ground” in early 2022.
A favorite with the locals: Analysts at Macquarie see RRR as their favoured Las Vegas locals play: “Given strong population growth, stable housing prices and supply restrictions, we continue to favor investing in the LV Locals market, principally with RRR.”
Gaming Innovation Group
The top line
Revenues were up 64% YoY to €18.3m, all organic, with EBITDA leaping from €0.6m to €4.6m driven by all-time high for media services (affiliate) revenues of €10m, up 23% Platform revenues were up 19% to €5.2m. Sports-betting service division reduced EBITDA losses by 75% to €0.4m on €0.2m of revenues.
The company said it had completed the development of five new brands on the platform and added that it had also signed up for the launch of a new online casino brand with a current client. GiG media delivered an all-time high monthly revenue performance in April. Group April revenues up 35% on prior year month.
Fast times at affiliate high: Alongside the all-time high on revenues and EBITDA, GiG’s media arm also piled on the first-time depositors - 43,712 for Q1, 56% up YoY with vast majority on revenue share or hybrid deals. The strongest growth came from paid media while performance “continued to see positive developments” after a December Google algorithm update. M&A is hot once again in affiliateland but CEO Richard Brown suggested GiG was clearly not going to get over-excited. “We keep our eyes open (for) the ones that would make strategic and financial sense. I would like to remain disciplined.”
Platform boots on the ground: GiG said the new regulations in Germany impacted clients GGR during the period with a negative effect of €0.6m. But it said the downside was “limited” and “slow growth is expected going forward. The number of live brands on the platform now stands at 24 from 21 at year-end 2020. Post quarter close GiG has signed Playstar for its debut in New Jersey. However, the company also said it had already nixed a deal signed in December 2020 with a European media house as changes in clients strategy meant the partnership was “no longer viable.”
Licensing delays: The integration pipeline at the start of 2021 stood at 14 and GiG said “increasingly complex” licensing processes and delays meant go-live dates were necessarily being extended. It cited issues in Malta where the MGA licensing process now takes 4-6 months compared to 2-3 month previously. It said it expected to see further delays and it was “in dialogue with certain clients regarding the structure of the agreements.”
GiG’s platform revenue ramp: On the earnings call Brown said: “We see a continued a strong dynamic in demand for platform services with opportunities in a multitude of new markets.”
Aspire Global Q1 2021
The top line
Aspire Global’s Q1 revenues were up a record 42.6% to €48.1m (€33.7m Q1 2020) and EBITDA increased 64.2% to €8.6m (€5.2m Q1 2020). EBITDA margin increased to 17.8% (15.5%) YoY, post-tax earnings were up 140% to €6.1m (€2.5m Q1 2020) and earnings per share increased 160% to €0.13 (€0.05).
All verticals performed well during the period, analysts at Red Eye noted that AG’s gaming division led by Pariplay was showing good traction. “Our estimate was €5.9m, and actuals came in on €10 m with a growth Y/Y of 220%.”
Growth across the board: AG made strong commercial gains in the UK, Ireland and the US as well gaining certification and licenses in those justridctions. The company signed deals with Rush Street Interactive in New Jersey and with US iGaming platform specialist GAN to distribute its Pariplay casino games. Pariplay was granted an Interim iGaming Supplier License for the state of West Virginia and also signed with bookmaker Betfred in the UK. BtoBet acquired a sports-betting license in the UK.
BtoBet boost: The group added that the acquisition of the sports-betting platform BtoBet in September 2020 had given it a major boost. Betting made up just 7.6% of its revenues in Q1 2020, this has now risen to 15.2% in Q1 2021. The group will migrate all its sports-betting partners to its BtoBet proprietary platform in Q3 and Q4, which currently offer sports bets via SBTech/DraftKings. This “will positively impact our revenues and margins throughout 2021.”
B2C review: B2B revenues were up 46.2% from Q1 2020 with organic growth of 36.6%. Aspire Global said it would review its B2C activities with a focus on growing its B2B ambitions.
Better Collective presentation
The top line
Better Collective senior management confirmed its €180m revenue guidance for 2021, up from €160m, based on the contribution expected of Action Network and said the key synergies would focus on expertise and growth.
TAN would be “earnings positive” from H2 2021 and expects to achieve revenues “approaching” $40m in 2021 (100% up on prior year).
The $240m price tag for TAN comes at a multiple of 2020 revenues of 16x. TAN revenues in 2021 are expected to come in at between $30m-$40m.
North America focus: The deal means BC revenue contribution from the US will lift to circa $100m this year, with the focus remaining firmly set in the US market as a result. Better Collective CEO Jesper Søgaard said rolling out the Action Network app ex-US wasn’t planned, although the technology could potentially be used in other markets and vice versa; “Action is also highly relevant in Canada,” he said.
No cost synergies: Søgaard added that the deal confirmed the group’s position as the leading US iGaming affiliate and more M&A was to be expected. The key synergies will focus on merging affiliate expertise, traffic monetisation and growth potential between the two groups.
“We add three new, very well positioned US sports media brands to our portfolio and welcome around 100 new colleagues. The deal provides even more SEO expertise and strong leverage with our sportsbook partners as we have the most attractive platform to advertise on US media.”
Media and SEO metrics: Affiliate metrics compared well with traditional media advertising. Canadian betting and media operator theScore’s Q2 record revenues $8m, a 17% increase YoY, showed what a tough environment media was. BC said it would focus on its SEO strategy to acquire players, but didn’t provide further context on competing with the major sports broadcasters on search or turning to more paid media as a way of opening up new audiences.
What we’re reading
Pot meet kettle: ‘Why a Danish affiliate paid $240m for The Action Network’ from Swedish-owned LegalSportsReport.com.
SJM Q1
The top line
GGR decreased by 32.7% to HK2.65bn and NGR fell 29.2% to HK$2.4bn YoY. Adjusted EBITDA fell to a loss of HK$319m, down 60% of Q120 losses of HK$200m. VIP GGR was down 59.4% to HK485m vs mass GGR down 21.3% to HK$2.05bn while slots GGR fell 17.3% to HK$116m.
Losing ground: SJM’s share of Macau GGR fell to 11.6% in Q1 compared to 13.3% YoY. However, the construction of the F+Grand Lisboa Palace is completed and the property is undergoing final inspections ahead of a 1H21 opening.
Newslines
Going Dutch Playtech has signed up the stated-owned, land-based casino operator Holland Casino for the soon-to- be-regulated iGaming Dutch market. Playtech will be Holland Casino's “strategic technology supplier delivering full turnkey multi channel technology”. Analysts at Peel Hunt were positive on the deal, noting it “demonstrates the advantage of its relatively new, modular, approach to providing its services.”
My name is bond, secured bond: Catena Media will look at refinancing its existing bonds in the coming months. Its current debt financing consists of a senior secured bond loan of €88.5m set to mature in March 2022. The group, which announced the acquisition of US betting affiliate Lineups.com yesterday for $39.6m ($25m up front), said it will explore different refinancing alternatives to replace the existing bond loan in order “to maintain a prudent maturity profile.”
Evo going live with Entain: Evolution today announced that it has gone live in the UK with online casino services for Entain’s Ladbrokes and Coral brands, with Gala Casino and Gala Bingo to follow.
Earnings calendar
6 May: LeoVegas, Penn National, AGS, Golden Entertainment
7 May: DraftKings, Century Casinos
10 May: Bally Corporation, Scientific Games, Inspired, Full House
11 May: Accel, fuboTV
Contact us
Scott Longley scott@clearconcisemedia.com
Jake Pollard jake@openmediaservices.com