Park and ride: CFO shift at DraftKings
DraftKings’ team moves, Caesars iCasino revisited, cannibalization debate +More
CFO Jason Park moves to a new transformation role at DraftKings.
In +More takes: 888, Entain, IGT/Everi and Flutter/DraftKings.
Caesars’ success with iCasino is underappreciated, suggests Deutsche Bank.
Regulus adds its two-cents worth to the cannibalization debate.
Changes at the top at DraftKings
Transformer: Analysts were quick to welcome the announcement from DraftKings that CFO Jason Park would be shifting roles to fill the newly created position of chief transformation officer, with the company’s senior VP for finance, Alan Ellingson, taking over as finance chief as of May 1.
DraftKings said that, in his new role, Park would oversee the integration of the proposed $750m Jackpocket acquisition.
Bain and pleasure: CEO Jason Robins said Park’s experience at Bain would be put to good use as he helped the company “address and capture large efficiency opportunities” in his new role. Park joined DraftKings from the private equity business in June 2019.
Robins added that he was confident Park would “unlock the benefits of our proposed acquisition of Jackpocket following its closing.”
“There are also potentially transformational AI applications on the horizon that could change the way businesses operate and serve their customers to create potential long-term advantages,” Robins added.
The team at Jefferies said their impression was Park has “experience with operational roles” and that, given the timing of the pending Jackpocket acquisition, “the transition seems appropriate.”
The team added they believed Ellingson has been “heavily involved in building the company’s guidance and long-term forecasts.”
This implied there should be “no shift in philosophy or outlook, despite limited Street-facing engagement.”
May you live in interesting times: JMP said the move came at an “interesting time” as DraftKings had reached an inflection point and now had the “ability to shift its focus to shareholder returns.” The team suggested Park would “leverage his private equity background” to drive “deeper into a more efficient operating structure to enhance profitability in the coming years.”
Park’s track record as CFO, investing for growth and overseeing the original DraftKings/SBTech merger, the acquisition of Golden Nugget and now the Jackpocket deal, “sets the private equity-minded executive with a deep understanding of the online gaming market on solid footing with his ventures ahead,” JMP added.
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+More takes
Don’t look back in anger: Criticisms aired since the announcement of 888’s decision to partner switch Sports Illustrated for an SI-branded sportsbook and iCasino operation were working with “20/20 hindsight,” said Yaniv Sherman, one of the key architects of the strategy.
Picking up the pieces: CBRE managed to see the positives in Entain’s recent earnings, suggesting “pieces of solid fundamentals” behind the weeds, including BetMGM, Entain CEE and Brazil, all being “compelling long-term growth opportunities.”
Execution risk is the main worry with the merger deal agreed between IGT and Everi, according to the team at Truist. The team has downgraded both companies to Hold due to the uncertainties around integration and synergies.
Share and share unlike: A substantial difference in the amounts of share-based payments that Flutter US and DraftKings issue to their employees helps explain why the former will be generating substantially more EBITDA in the next two years, according to analysis from Jefferies.
Caesars’ online underappreciation
Gimme some lovin’: The success Caesars is having with its online operations, particularly since it moved to focus more on iCasino, is underappreciated and has been overshadowed by the success being enjoyed elsewhere, suggested the team at Deutsche Bank.
The team admitted there was a discrepancy between the $500m of online profit by 2025 being spoken about by the company and their new estimate of $322m.
But they still suggested investors should “begin to believe in the digital story or at least an approximation of the goal laid out by management.”
Key to this is what DB said was the “encouraging trajectory” being shown by the iCasino operation, which has been helped by the launch in Q3 last year of the standalone Caesars Palace app that has “catalyzed” iCasino growth.
The team noted that, in the last quarter, Caesars has eclipsed the $100m quarterly run rate with promotions “remaining tempered.” Adding Caesars is one of the few operators to provide color on promotional spend within online, they suggested recent spending levels were below that of their peers.
🎁 Promo intensity on the decline at Caesars
Caesars has been working hard to improve the iCasino experience for its core customers, suggested Deutsche Bank, with “more games, branded content and the ability to customize their lobby.”
Moreover, the team said there is more to come, including more branded content for the Caesars platform and another second proprietary brand soon to launch in each of Caesars’ live states.
The team noted the recent news of the purchase of the extra skin in Michigan that came with the Wynn Bet database purchase in the Wolverine State.
Hit the ground running: The new brand will be “highly visible” while launch costs are likely to be minimal and it will “scale relatively quickly,” DB added. They noted that in Michigan it has effectively acquired a business with an existing run rate of $3m-$3.5m.
🎰 Caesars iCasino share in NJ, PA, MI and WV
Dieting regime: While this is going on in iCasino, in OSB, meanwhile, Caesars is managing the feat of “doing more with less,” said Deutsche Bank. They suggested handle share across Pennsylvania, Michigan, Maryland and Arizona – four states where there is clarity around promotional spend – handle share had remained “relatively sturdy” given the lowest promotional spend percentage among its peers.
Deutsche Bank suggested it was spending <2% of handle on promo spend vs. levels of ~3.5% and above among its peers.
If Caesars is able to “migrate” hold percentages higher in 2024, then the leverage created by the lower-than-average promo spend should translate into a “healthy improvement” in net revenue.
They pointed out management was targeting 7.5% in structural hold in 2024, with a long-term aim of getting to 8.5%.
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Cannibalization debate rumbles on
Something to chew on: The team at Regulus have dived into the debate over cannibalization of B&M by the advent of online gambling, and kicked off with a simple premise: either online comes at the expense of existing gambling expenditure, including the black market, or it comes via more spending on gambling generally and therefore less on other non-gambling pastimes and products.
“To state the obvious, the former is much easier to achieve and less dangerous from a policy perspective than the latter,” the team suggested.
Switching channels: Regulus added the “big channel shift problem” in the US compared to other global markets is that 77% of total existing consumer gambling expenditure is from land-based gambling and, of this, 88% is B&M casinos.
“If material iGaming displacement has to come from somewhere, this is where it is going to come from,” the team added.
“Whereas other jurisdictions have a number of sectors that can all suffer a little for online gaming growth, the US is very casino driven. If channel shift becomes cannibalization in the US, it is casinos that will inevitably suffer.”
Boiling a frog: Regulus pointed out that in European gambling policy debates, the term “channel shift” is the euphemism employed vs. the more challenging word “cannibalization.” “From an economic perspective, channel shift has soporific frog-boiling characteristics which are easy to explain,” the team wrote.
They added the history of channel shift – or cannibalization – in Europe showed that it only becomes clear about halfway through a generational shift, “exacerbated by periods of economic disruption, high inflation and regulatory change.”
Recall, the debate over cannibalization in the US was recently reignited by a report from the team at EKG, who said that far from eating land-based gaming’s lunch, iCasino actually helps boost B&M gaming.
But after running through a host of macro level analysis, the team at Regulus suggested they “do not believe that any level of analysis can pick its way through [the] extreme levels of macro and market noise to get to any robust position on the current state of channel shift in the US.”
Also recently adding their two-cents worth to the debate was Craig Billings from Wynn Resorts, who said recent arguments put forward had been “reductive” and that assuming a uniform impact across all US casinos was “pretty naïve.”
Live with it: Regulus said channel shift and a degree of cannibalization were “inevitable” and would “become a fact of life at least to some degree” in the US wherever iCasino gains traction.
iCasino is “already too strong in the markets where it has been allowed not to be disruptive.”
However, this “only needs to be a cannibalization disaster” for the casinos that are “already taking their customers for granted, or who fail to adapt their management style to optimizing omnichannel opportunities.”
Calendar
Mar 20: Sportradar, Zeal
Mar 21 Gambling.com
Mar 26: Flutter, Bragg Gaming
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https://www.soft2bet.com/news/understanding-the-role-of-compliance-in-igaming
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