MGM: it’s a ‘no’ on Entain

MGM says it’s time to end the Entain M&A speculation, Wynn Resorts says it is seeing a non-junket VIP return +More

Earnings+More

Feb 09, 2023

Good morning. On today’s agenda:

MGM Resorts says it will not pursue a merger deal with its BetMGM JV partner.
Analysts see a “short-term negative” for Entain.
Wynn Resorts says it is seeing a different shape in the VIP market in Macau.

I was so upset that I cried all the way to the chip shop.

MGM kills Entain speculation

CEO Bill Hornbuckle says it is “time to be definitive” as he ruled out any deal to buy Entain.

Calling it: Putting to bed any lingering speculation around a renewed bid for BetMGM JV partner Entain, Hornbuckle said MGM would be directing its M&A activities in the digital sphere towards building on the platform established via its LeoVegas buyout from last year. “The simple answer on Entain is ‘no’, we’ve moved on,” he said.

“We value our relationship (with Entain) and we value BetMGM, but in the rest of the world we’re going to go down our own direction,” he told analysts.
He added that any additions to the LeoVegas business would be “bolt-on and relatively small”, and namechecked in particular gaming studios and live casino plays.
Recall, MGM scrapped an $11bn bid for Entain in January 2021 after it was rejected by the Entain board.
Then in May last year, it snapped up LeoVegas for $607m.
The team at Jefferies noted that previously Hornbuckle had said, despite MGM wanting to own BetMGM outright, “you can’t buy what’s not for sale”.

😱 Entain shares down nearly 12% in early trading in London

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OK boomer

Hornbuckle was speaking after MGM revealed Q4 numbers that were driven by a 27% leap in Las Vegas revenues to $2.3bn, which helped push total revenue up 17.5% to $3.59bn. Adj. EBITDAR was up 16.5% to $957.3m. Ex-the addition of the Cosmopolitan, same-store Las Vegas revenues rose 11% with particular growth at its luxury properties.

Once again, Hornbuckle highlighted the Las Vegas calendar as a key driver along with continuing domestic business and returning international travel.
Regionals were up 10.2% to $991.5m and Macau was down 44.5% to $174.7m.
CFO Jonathan Halkyard said MGM has $5.3bn of cash in hand and $4.5bn of long-term debt, with $350m to come from the upcoming completion of the sale of the Gold Strike property.
On Wednesday, the company announced a new $2bn share buyback program for 2023, having completed $353m of share buybacks in Q4.

Macau is back: “We are experiencing a rebound as our guests are returning in force just as they did in Las Vegas,” Hornbuckle said of MGM’s properties in Macau. Hubert Wang, MGM China COO, said January had been a “very healthy, above-average recovery”.

He noted that mass market daily average GGR was back to 2019 levels.
“It is also very encouraging that the January run rate extended into the first week of February so far,” he added. “So, a solid and sustainable recovery.”

The lab rate: Asked directly about the potential for cannibalization of land-based by iCasino in Michigan, which he noted was the test case, Hornbuckle said revenue in the online gaming business of BetMGM in the state was now ~25% better than the bricks and mortar side.

“Michigan gives us confidence going forward,” he said.
He added that, more generally, BetMGM was achieving the aim of bringing in the younger demographic of MGM’s properties via its own-channel cross-sell.
“We need, over time, to connect it even more,” he said.

Further growth opportunities would come from Japan, where MGM and its partner Oryx are yet to hear back from the government, and New York, where Hornbuckle said MGM was ready to “almost immediately” add table games to its Yonkers property as and when it gets the go-ahead.

Quick takes – MGM and Entain

Can’t buy me love: The team at Jefferies in London said the news that MGM was calling a halt to any further speculation would likely hurt the share price in the short term, given the “prolonged period” of speculation regarding a potential tie-up. JMP said the news was the “only negative takeaway”.

Plenty more fish: The team at Macquarie noted that Vegas was “firing on all cylinders” and there were finally signs of pent-up demand in Macau returning.
Wells Fargo said it was a “momentum story that continued to impress”.
Deutsche Bank said Wynn had “easily surpassed the elevated bar” of expectations going into the earnings call.

Wynn’s junket substitutes

The shape of the returning market in Macau is the subject of conjecture.

Junk to junket: Wynn said it was seeing an influx of previous junket business into the direct VIP and mass premium segments in Macau, as the business weaned itself off a diminished junket contribution. This came after the company also enjoyed a Chinese New Year bounce in January that has continued into the first week of this month.

CEO Craig Billings said recent events in Macau gave the company “great confidence that the difficulties are behind us”.
He said that, despite the “changes in the demand environment”, Wynn Macau was defying “incorrect” expectations that it was “solely a VIP organization”.
Noting “some” junket activity around the CNY, he said it was a “little bit too early” to call what future role the gaming promoters and the junkets will play in the market.

Across the company, revenues for the quarter came dead on $1bn, while adj. EBITDAR was up 31% to $195.1m. Wynn Las Vegas revenues rose 18.5% to $585.5m and Billings noted that over 2022 it had generated $812m of property EBITDAR, adding that the strength had continued into Q1.

Asked about recession fears, he said: “We’re doing really good on what we can control; we don’t control the macro economy.”

Going live: Noting the recent launch of sports betting in Massachusetts, with the company taking its first bet at the Encore Boston Harbor, Billings said the interactive division would have had flat EBITDA cash burn if it weren’t for Mattress Mack. As it was, the business saw $28m of further losses in Q4 vs. $18m in Q3.

“Our team continues to stay disciplined on cost while driving improved marketing efficiency,” he added.
“We are driving the business as hard as we can while being prudent.”

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Wynn quick takes

Market capture: Wells Fargo said the numbers from Wynn were “as good as investors could have hoped”, adding that it had done a “nice job of allaying fears” over the impact of the decimation of the junket market. “Wynn can compete on its own merits to capture its fair share of Macau's $14bn 2019 VIP GGR,” the team added.

Credit Suisse said the market share gains seen in January, if sustainable, would “drive significant upside to numbers”.

AGA Super Bowl survey

A record 50.4 million American adults are expected to bet on Super Bowl LVII on Sunday, a 61% increase from the record set in 2022, with bettors planning to wager an estimated $16bn on this year’s event, according to the latest research from the American Gaming Association.

Should that figure be reached it would be more than double last year’s wagering total of $7.6bn.
The AGA added that the spread of regulated sports betting would enable “traditional Super Bowl wagers to pass casual wagers for the first time ever”.

30-million Americans are expected to bet online or in a retail setting, a 66% YoY rise.

Newslines

Flutter’s Sisal group has won the tender to operate the sports-betting concession of Morocco’s national lottery and sports-betting operator La Marocaine des Jeux et des Sports (MDJS). The launch is planned for January 2024.

Gambling.com Group has entered into a strategic, multi-year partnership with Gannett, publisher of USA Today.

Acroud announced that Tricia Vella has been appointed as interim CFO effective immediately. Meanwhile, Catena Media CFO Peter Messner will step down within six months.

The Illinois Gaming Board is set to vote on a temporary casino license for Bally’s on Wednesday next week.

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