My first recession
Online gaming properly faces up to macro concerns for the first time
Facing up to the challenge of a macro downturn, online style.
More Q1 handle worries for DraftKings and FanDuel; predictions calculations.
In +More: Sega Sammy’s Stakelogic troubles; Aspers in administration.
Las Vegas Sands downgraded on macro China fears.
Venture playground: Midnite fundraise; AK Bets in focus.
Easter schedule: E+M won’t be publishing on Friday but will send out an edition on Monday.
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Rite of passage
A black cloud: Fears of the effect of an economic downturn – or even a recession – have put pressure on gaming stocks, particularly in the US given the exposure of the Las Vegas Strip to any consumer weakness, both domestic and international.
Plague times: The team at CBRE noted the US gaming sector, with its preponderance of names exposed to weakening Las Vegas trends, has left it “uniquely out of favor among investors,” who are fearful of an increased possibility of a recession.
In a note this week, the team at Bank of America lowered their forecasts for Las Vegas to “reflect a more uncertain environment.”
Adolescence: But for online gaming, investors appear to be more ambivalent given the lack of distinct pointers to previous performance during a period of macro weakness. Speaking to E+M, Paul Leyland from Regulus pointed out online gaming was only 15 years old at the time of the 2009 recession.
“iPhones were only just becoming mainstream, and the number of customers was increasing ~20% a year due to an early-stage adoption curve,” he said.
This was occurring even in relatively mature markets, such as the UK, and in that scenario a 5ppts decline in underlying growth would still deliver 10-15% revenue growth.
Under pressure: There is agreement that a macro downturn could, as the analysts at Jefferies suggested this week, act as a “catalyst” for governments, either national or state, to consider regulating online as a means to generate more tax revenue.
The Jefferies team argued this incentive was “far stronger today” relative to the time of the GFC and would be “especially strong” in the US given the recent emergence of both prediction markets and sweepstakes gaming.
Curvalicious: Leyland tended to agree. “The online experience in the US would be significantly different if recession triggered more online adoption – sports betting in California and/or Texas and online gaming almost anywhere,” he said.
“Adding new states effectively creates an adoption curve,” he added.
The Jefferies team estimated that just by adding two new states the effects of a downturn could be offset.
Even without this, the differing growth trajectories and “maturation profile” across OSB markets would have an effect and OSB GGR might still grow by double digits as slowing mature states are compensated by faster-growing younger markets.
Mighty real: But Leyland cautioned that he sees the existing market as “rapidly matured” – and that the “alternatives” of predictions and sweeps “won’t make any difference to the performance of traditional real money products online.”
“They add up to relatively big numbers across all 50 states, but per capita consumption where real money is available just does not compare,” he added.
Meanwhile, as with other sectors, a recession “finds out the weak, unprepared and over-leveraged,” adding that while this doesn’t apply to Flutter or DraftKings in those terms, “plenty of other competitors are all three.”
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Spring falls
Worrisome: Bank of America has added its voice to the concerns over DraftKings’ Q1 numbers, suggesting that, based on the evidence from March Madness, adj. EBITDA is “likely” tracking below current Street estimates of $155m.
The BofA team estimated that unfavorable outcomes from the tournament could see them lower their forecasts for the quarter to $1.46bn for revenue and $120m for adj. EBITDA.
The latest blow comes after Jefferies and Deutsche Bank lowered their adj. EBITDA forecasts to $154m and $113m respectively.
As with their counterparts at DB, the BofA team also suggested the focus is now shifting to volume issues rather than simply hold. Even with “encouraging” handle acceleration in February, the team said investors are concerned the implied mid-teens handle growth will be a stretch.
Picking up the theme, the team at Jefferies said their tracking suggested decelerating handle growth of 13% for Q1.
Missing in action: The team noted it is FanDuel that appears to be “most impacted” with handle growth, according to their tracking, of 7% vs. 12% in Q4.
“That FanDuel appears the most impacted is consistent with the view that product mix evolution (customers moving to lower stake, higher margin products) could be a key driver of handle weakness,” the team added.
The implication, according to Jefferies, is that FanDuel will miss forecasts, with NGR growth at 13% vs. the consensus forecast of 35% growth.
The prediction misunderstanding
Over-estimation: The BofA team also waded into the debate over Kalshi's reported volume of bets during March Madness totalling more than $500m.
Suggesting that volume and handle are not comparable metrics, the team argued the volume on a prediction market accounts for initial bets and cash outs differently than a traditional sports book.
Inflation: These differences can inflate volume by ~4-10x relative to handle, so the BofA team estimated Kalshi’s ‘handle’ was actually ~$50m-$125m or between 2% and 4% of the regulated March Madness handle of ~$3bn.
“This is a much lower cannibalization than investors have been estimating, and includes states like CA and TX that don’t offer traditional OSB,” the team added.
+More
Stake break: Sega Sammy’s attempt to pull out of its €130m buyout of games provider Stakelogic has been kiboshed by a Dutch court, which has ruled it cannot use claims over unlicensed activity in Japan and Turkey as an excuse for walking away from the deal. See tomorrow’s Compliance+More.
UK casino operator Aspers has gone into administration. The company ran four outlets, in London’s Westfield Stratford City, Northampton, Milton Keynes and Newcastle. The Daily Mail reported that Investec has taken control of founder Damian Aspinall’s 35% stake after he failed to repay a £6m mortgage. Aspers is not to be confused with the London casino Aspinall’s, which was sold to Wynn Resorts by owner Crown Resorts in January.
Playtech has appointed John Gleasure to be its chair-elect. Gleasure is a former executive at DAZN and has served as the executive chair for The Sporting News since December 2022. He was also the co-founder of digital sports media group Perform and will succeed outgoing chair Brian Mattingley.
Rivalry has announced it will be late with its FY24 annual filings and has requested a “management cease trade order” from the Ontario Securities Commission. Recall, last week the next-gen betting minnow said it had “initiated a review of strategic alternatives.”
Grupo Codere’s Italian subsidiary Operbingo Italia has acquired a 70% stake in rival gaming hall operator Codgames, which operates more than 600 machines in the Calabria region. The remaining 30% of the share capital remains in the hands of the founding Manna family. The financial terms were not disclosed.
Hard Rock Bet has launched a sports-betting insights tool called Stats Hub in an agreement with Australia-based provider GTG Network, allowing users to see player prop trends, game data, team insights, parlay analysis and line movements as part of an enhanced in-app user experience.
Star Entertainment has finally got around to releasing its H125 earnings, which showed revenue down 25% to A$650m ($413m) and EBITDA tumbling to a loss of A$25m from a profit of A$114m the year previous. The company has recently agreed a A$300m cash-for-equity injection with Bally’s and billionaire investor Bruce Mathieson. Current trading was “soft” with Q3 revenues down 9% sequentially on Q2. The shares have resumed trading in Australia.
In brief: The Australia-based B2B wagering tech provider BetMakers’ revenue rose 4% sequentially in its FYQ3 to A$83.2m ($52.8m). The company returned to an EBITDA profit, A$5m vs. a loss in Q2 of A$3m, while the business posted A$3m of operating cash flow.
Read across
Master of war: Kalshi CEO Tarek Mansour carefully framed Kalshi as a new way to experience live sport, avoiding the word ‘gambling’ altogether in a LinkedIn post, but suggesting many users only tuned into the Masters because they held positions. “Prediction markets are the future of news, including sports news,” he added. In Compliance+More.
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Long take – Las Vegas Sands
China crisis: Uncomfortable is likely the word that best describes Las Vegas Sands’ positioning right now, hence Deutsche Bank has revised its Q1, full year 2025 and 2026 Macau forecasts “well below” consensus numbers.
The shares are currently “inexpensive” – i.e. they have been heavily sold down over 36% YTD – but the DB team suggested now is not the time to panic.
X factor: However, they did lay out what appears to be an unlikely combination of factors needed “in order for LVS shares to work,” including the following:
An acceleration in Macau market GGR performance and a stabilization and acceleration in LVS Macau market share in Q225 and beyond.
This would need to be backed up by a cooling geopolitical environment and a change in sentiment around the macroeconomic picture in China.
If these stars aligned – and that looks like a big if right now – then it would set LVS up as an “inexpensive beat and raise story” as 2025 progresses.
But, as the DB team suggested, they find the “current setup to be challenging, given the spectre of negative revisions.”
Quick take – Evoke
A strange case: Investec analysts professed to be perplexed by the share price reaction to Evoke’s FY24 earnings, saying the slower-than-initially-targeted deleveraging to 3.5x net debt to EBITDA – now a 2027 thing rather than 2026 – was already baked into consensus forecasts. This would suggest investors are not reading the analysts notes. Still, the team said investors should note the operational targets are “well within reach.”
Venture playground
Midnite raise
After dark: UK-focused sportsbook and iCasino operator Midnite has raised $10m in a Series B round led by Discerning Capital, Raine and Play Ventures, alongside further participation from Venrex and Big Bets. The new cash brings the total raised by Midnite to $35m for an undisclosed valuation.
David Williams, a partner at Discerning Cap, is also set to join the board of Midnite.
Founder Nick Wright posted that the new cash would enable Midnite to “keep our foot on the gas as we build a product-obsessed, next-generation Tier 1 operator.”
Davis Catlin from Discerning Capital said on LinkedIn that his firm sees “plenty of challenger brands around the world, but the team at Midnite has built something exceptional.”
Midnite was launched in 2018 by Wright and co-founder Daniel Qu, who previously created daily fantasy sports platform Dribble in partnership with Sky Bet.
The company added horseracing and iCasino to the product mix in 2023, and the team has grown from 60 to 110 over the past 12 months.
In focus – AK Bets
Who are you? Named after founder and CEO Anthony Kaminskas, AK Bets began life in the betting ring in Ireland in 2021, buying up pitches to stand at the track. “We received plenty of funny looks and snarky comments starting a bookmaking business when there was no sport on (because of Covid), but such is life,” says Kaminskas.
Based in Dublin, the “sportsbook with a casino add-on” business has been operational online since March 2023.
What’s the big idea? It came from “frustration” with the evolution of the industry and also “big corporations who were losing sight of the basics like customer service and trading,” says Kaminskas, who spent three years at Betfred, then 10 years at Paddy Power, before spending three years gambling full-time up until the start of Covid.
“I thought I could carve out a little niche optimising those things as best I could with my skillset (trading) and actually being human and speaking to customers – and that’s what we’ve done,” he says.
KPIs: AK Bets is “profitable” and has plans “to expand our offering and optimise every function.” The company focuses on retention rather than acquisition, meaning the “lifecycle of our players is much longer and the costs to acquire them much cheaper,” Kaminskas claims.
Funding backgrounder: “It’s fairly unique (maybe rare) in this day and age in that it’s fully funded by myself,” says Kaminskas.
The grab-bag
Founders’ story: Frank Op de Woerd on the chance call with Jan de Mol that led to the founding of CasinoNieuws. Minty fresh: Adar Ziv has something to promote. Touting for business: Cody Luongo has a “flashy new portfolio website” and is up for comms and content strategy work. Chalking up a win: BetPass celebrates its success in winning the pitch competition at SIGMA Americas. Light speed: Dmitry Belianin’s Already Media has snapped up Live Casino Comparer for an undisclosed sum.
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