Rush Street ‘under review, approaches DraftKings’

RSI strategic review, MGM Resorts casino sell-off report, Sportradar earnings reaction, Gambling.com M&A, sector watch – esports +More

Mar 22, 2024

RSI initiates a strategic review, approaches potential buyers.
In +More: Penta eyes possible Fortuna sale.
MGM reported to be mulling Ohio and Massachusetts casino sales.
Sportradar boosted by ramped-up product moves.
Gambling.com buys XLMedia’s European assets.

RSI strategic review

There’s a lot of it about: Rush Street is the latest company to initiate a strategic review and has approached DraftKings among others to sound out a potential sale of the company, according to Bloomberg.

DraftKings told Bloomberg it “speaks to a variety of companies regarding various matters in the normal course of business, and it is our general policy not to comment on the specifics of any of those discussions.”
Rush Street declined to comment.

A rush and a push: Rush Street’s shares spiked over 12% on Thursday when the news broke before settling on a 4%+ increase on the day. DraftKings was up over 3%. Rush Street ended the day valued at $1.42bn.

😯 Rush Street spikes on review and DraftKings report

Activists on board: Among the notable shareholders at RSI is the hedge fund HG Vora, which owns over 9% of the business, while Canyon Capital Advisors owns a further 7.5% of the company’s shares.

By the numbers: In FY23 Rush Street saw revenues climb 17% to $691m for an adj. EBITDA of $8.2m and a net loss of $60.1m. Net losses in Q4 were squeezed to just $5.5m with adj. EBITDA of $11.5m.

The company also initiated FY24 guidance for revenue of $770m-$830m and adj. EBITDA of $35m-$45m.

Foreign fields: RSI operates in 15 states including five iCasino states plus Ontario. It also has a sizable presence in Colombia and Mexico, which it said in its presentation was a “beachhead” for further expansion in LatAm.

Recall, DraftKings CEO Jason Robins recently told an investor conference that any ex-North America acquisitions would need to clear a “very high bar” for the company to be interested.
JMP analysts pointed out RSI was “similar” to previous DraftKings acquisition Golden Nugget.

Target on its back: The JMP team also noted RSI has been viewed as a takeout target for several years with a “solid” iCasino market share of 8%, a proprietary technology stack and a “sticky, high-spending customer base.”

The team added it would be a “strategic fit” for several companies “at the right price.”
Rather than DraftKings, they suggested Caesars and Hard Rock would be more likely buyers.

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Penta Investments is weighing up a potential sale of the central European-focused betting and gaming group Fortuna Entertainment and has hired Morgan Stanley to advise. According to Reuters, a sale could fetch €2bn via an auction process, which will run until the early summer.

Fortuna, which operates in the Czech Republic, Slovakia, Poland, Croatia and Romania, reportedly will generate EBITDA this year of ~€200m.
Penta gained majority control of Fortuna in 2017 via a subsidiary called Fortbet and raised its ownership to over 95% in 2018. It subsequently delisted from the Prague stock exchange.

Clean bill of health: 888 has announced that the UK Gambling Commission has concluded its license review instigated last summer when FS Gaming investments made an approach about buying the company and installing ex-Entain boss Kenny Alexander as CEO.

Hidden danger: Entain overpaid by €68m-€158m for BetCity, according to a UK high court filing, which alleges the founders concealed information about regulatory violations ahead of the sale. Entain bought the operator behind BetCity, BetEnt, for €850m in 2022.

Bally’s bidder and major shareholder Standard General has increased its shareholding to 26% from just over 23% previously.

Golden Matrix shareholders have approved the proposed acquisition of Meridianbet for $300m.

Codere Online has hired Houlihan Lokey and Allen & Overy as its financial and legal advisors to help advise on the LatAm-facing company’s long-term growth plans, according to EGR.

Re-up: Social sportsbook startup Rebet has launched a sweepstakes product in 47 states offering what it says is a “revolutionary” sports-betting experience with an app that is “reminiscent” of social media sites.

Further reading: Dustin Gouker in the The Closing Line says while such sweepstakes offerings have “thus far” avoided the kind of crackdown that has befallen fantasy sports vs. the house, it’s “not clear how much longer the status quo can persist, especially if a new entrant is doing major PR efforts.”

By the numbers

Michigan: Total OSB and iCasino revenue rose 28% in February to just shy of $200m, with OSB up 35% to $30.5m from handle that rose 17% to $403m, while iCasino was up 27% to $129m. FanDuel total share stood at 29%, with BetMGM second on 24% and DraftKings third on 22%.

Pennsylvania: B&M casino revenue was up <1% to $279m while iCasino rose 41% to $184.9m in February. OSB revenues were down 16% to $48.3m on handle that rose 13% to $628m.

Read across

In Compliance+More next week, reaction to the Florida Supreme Court ruling that denies the West Flagler sports-betting challenge.

What we’re reading

“On Thursday night, an ocean away from Dodger Stadium, Shohei Ohtani did something he had never done in his storied, relentlessly pristine MLB career.” The Ohtani scandal gathers a head of steam.

MGM mulls B&M sales

Losing my religion: The news that MGM Resorts is thought to be ready to sell its casino interests in Massachusetts and Ohio suggests the company sees little chance of iCasino legislation being imminent in either state, according to sources.

Bloomberg broke the news on Wednesday that MGM was exploring the sale of its casino operations at Ohio’s Northfield Park and in Springfield, Massachusetts.
The real estate to both properties is owned by gaming REIT VICI, which bought them as part of its deal to buy MGM Growth Properties.

No future: According to Bloomberg, the discussions regarding a potential sale are preliminary, but one industry consultant pointed out that MGM being willing to contemplate selling its B&M presence in each state is indicative of the company seeing “no hope” for iCasino in either.

“It doesn’t say a lot for omnichannel,” said another consultancy source.

Downsizing: Sales in Ohio and Massachusetts would leave MGM with a diminished regional footprint, including properties in Mississippi, Maryland, Michigan and a slots facility in New York where it is hoping to win one of the downstate licenses.

Li-quids in: Analysts at CBRE suggested the sale of the two properties – which they estimate might bring in ~$533m – could be a capital raise ahead of “larger M&A plans,” an opportunistic trade to unlock value or perhaps part of a larger strategic initiative to improve valuation.

Recent comments from CEO Bill Hornbuckle during a JP Morgan summit fireside chat suggested the company is looking to buy an unidentified sportsbook technology entity.

CBRE said this “wouldn’t be as headline-grabbing” as buying BetMGM JV partner Entain but it “could be larger and more impactful than one might think.”

“Historically, the acquisition of sub-scale sports-betting tech providers has not proven to be a successful strategy,” the team added.
This would suggest MGM “should be setting its sights on a larger tech provider if it intends to scale its international platform.”

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Sportradar earnings review

Ping! Sportradar’s shares shot up almost 25% in early trading on Wednesday before settling down to an 11% increase on the day as the market warmed to the better-than-expected Q4 earnings.

By the numbers: Revenue rose 22% in the last quarter of the year to $253m and adj. EBITDA increased 13% to $39.5m.
FY24 revenue was up 20% to $878m and adj. EBITDA rose 33% at $167m.
The company also announced the board has approved the initiation of a $250m share buyback scheme.

On court: Among the highlights spoken about on the earnings call by CEO Carsten Koerl was the successful bid for global ATP rights and the expanded commercial deals for NBA content. He said such deals bring with them “incredible reach and value.”

He noted tennis was the second-most bet on sport and basketball the third. Sportradar focuses on the rights that deliver the best value for our clients and partners, he added.
“We believe we have the right mix and scale of content, while we have an ability to acquire more rights if the ROI makes sense,” he said.

I feel good: Koerl also noted new product enhancements including 4Sight in tennis streaming, the new emBET watch-and-bet product attached to the NBA Pass OTT offering announced this week and the Alpha Odds solution offered to Sportradar’s managed trading services sportsbook clients.

Reddit sports data?

Reddit and weep: Reddit could look to monetize sports data as one potential revenue stream. According to Sportico, the IPO prospectus makes mention of the company being in the “early stages of allowing third parties to license access to search, analyze and display historical and real-time data from our platform.”

These data APIs are able to provide “real-time access to evolving and dynamic topics, such as sports.” it continued.

Gambling.com buys XL assets

Rearranging the furniture: The reconstitution of the gaming affiliate sector continued this week as Gambling.com confirmed it was buying a selection of European and Canadian-facing brands, including Freebets.com and WhichBingo.co.uk for $42.5m from fellow affiliate XLMedia.

The deal is expected to close at the beginning of April with $20m paid on completion and the rest in six-monthly installments, including $5m of performance-related earnout.
The multiple is 6.4x the expected adj. EBITDA generated by the assets of $6.6m.
Gambling.com said it expected the assets to produce $10m of revenue and ~$5m of incremental adj. EBITDA in the nine months from Apr-Dec24.
The company will pay for the deal with cash on hand and using a portion of the new $50m credit facility arranged earlier this week.

Peter, meet Paul: The newly North American-focused XLMedia said it would use the proceeds from the deal to pay a final dividend on a previous US acquisition, settle outstanding tax provisions and for working capital purposes for the North American business.

It said it would also return an unspecified portion of cash to shareholders.
The sale of the European assets resolves XL’s strategic review. The shares soared 98% yesterday on the news.

The news came with Gambling.com’s Q4 earnings, which showed net revenue up 52% to $32.5m while adj. EBITDA was up 54% YoY to $10.6m. FY23 revenue rose 42% to $109m with adj. EBITDA coming in up 53% to $36.7m.

CEO Charles Gillespie said North American revenue topped $20m in the quarter for the first time. He added that North Carolina, which launched this month, was “off to a strong start.”

Earnings in brief

Zeal Network: The owner of lottery reseller brand Lotto24 said revenue rose 11% to €116m in 2023 helped by double-digit growth in billings. Adj. EBITDA nudged up to €32.9m despite what the company said was a weak jackpot environment.

Over the period the company launched online games in Germany, and on the call CEO Helmut Becker said the launch had gone well and was already profitable..
Guidance for FY24 revenue is predicted at €140m-€150 million. EBITDA is expected to be €38m-€42m.

Sector watch – Esports

Why sponsor an event when you can run one? An emerging trend at the intersection of esports and betting is operators running their own esports tournaments, rather than simply sponsoring. Tournaments include: Thunderpick World Championship ($1m prize) Pinnacle Cup V ($50k prize); Rivalry LAN (CA$10k, offline event)

The online tournaments are run in collaboration with esports data company Grid, which assists with tournament tools, data visualization and reliable infrastructure.

Cheap as chips? Sponsorship for CS:GO’s biggest major is reportedly in the multi-millions and taken by 1xBet, so competing for such sponsorship is unfeasible for most.

The advantages of running a tournament for an operator, however, are abundant including brand control, owning the data, commercialization opportunities and cutting out the middle man.

HODL: Thunderpick’s 2023 edition attracted peak viewership of 144,317, and had a total prize of $600k, which was all paid in Bitcoin. Ironically, with the recent boom in the price of Bitcoin, the $1m prize on offer in 2024 will be paid in cash to participating teams.

Never in sport: Esports is unique in that it offers a chance to create new IP rather than just acquire naming rights or a traditional sports sponsorship. Creation of IP in sports has never been easy – just ask Florentino Pérez and the Super League rabble.

Tier 1 operators have botched almost all esports activations – and creating a tournament without understanding of the space would add to an ever-growing list of failures.

Roster: Meanwhile, Kambi has announced it will offer eSoccer odds on its sportsbook platform through its eSports subsidiary Abios. Kambi also plans to add odds for eBasketball, Counter-Strike and League of Legends from Abios this year.

Calendar

Mar 26: Flutter, 888, Bragg Gaming
Mar 27: Playtech, Allwyn

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