Shots fired
Penn’s online strategy an ‘abject failure,’ says activist
Activist HG Vora puts forward three board nominations.
In +More: Star Entertainment gets some financial relief.
Earnings TL;DR from Evolution, Las Vegas Sands and Rank.
Careers: William Woodhams departs as CEO of UK sportsbook Fitzdares.
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The whiff of grapeshot
Conflict escalation: Activist investor HG Vora has put forward its three candidates for election to the board of Penn Entertainment and has renewed its attack on the management of the company, accusing it of “reckless spending” in pursuit of a “misguided” online strategy.
In a press release, HG Vora accused Penn’s board of “numerous deficiencies which have translated into abysmal returns for shareholders.”
The activist noted that, in the past four years, the Penn share price has declined by 81% vs. a positive return for fellow regional operator Boyd Gaming of 73% and an S&P return of 69%.
Penn acknowledged the nominations and reiterated it was “committed to creating long-term value for all shareholders.”
It added that the board’s nominating committee would “carefully review” HG Vora’s candidates.
Naming names: Those nominations are William Clifford, previously CFO at Gaming & Leisure Properties, which was spun out of the then Penn National Gaming; Johnny Hartnett, now a non-executive direct at Superbet and previously CEO; and Carlos Ruisanchez, co-founder of Sorelle Capital and previously CFO at Pinnacle Entertainment.
HG Vora stressed that all three were independent.
You don’t know what you’re doing: Parag Vora, founder at the eponymous firm, accused Penn of completing “overpriced, poorly negotiated M&A transactions and media partnerships that have resulted in large ongoing operating losses due to an inability to execute.”
Further, the interactive strategy had been an “abject failure due to a pattern of overpaying, overpromising and not delivering.”
He said the board had, to date, suffered “no repercussions” for its “persistent bad judgment and disappointing shareholder returns.”
Zinger: “We believe this is in part due to Penn’s weak corporate governance, which disenfranchises shareholders and entrenches board members while rewarding its CEO with excessive compensation.”
Sorry it has come to this: Vora added that “for the first time” in his firm’s history it has decided that nominating directors is “necessary.”
“We believe these three highly qualified, independent director nominees bring proven track records of enhancing shareholder value and the skills and industry expertise to help maximize value for all Penn shareholders.”
Recall, earlier this month activist hedge fund HG Vora issued an SEC filing saying it had lowered its voting right to less than 5% but retained a larger economic interest in Penn’s shares.
This was to ensure it could comply with state rules on shareholders over 5% needing a gaming license.
That cleared the way for HG Vora, which originally declared a stake in Penn at the tail end of 2023, to challenge the board over the placement of three board members during this year’s AGM.
Not a good look: One investment source with a working familiarity with activist campaigns said that “no matter which way this is spun, this reflects very badly on Penn’s board and management.”
“They have paid themselves handsomely, they have destroyed the share price and now they are clearly ignoring shareholders.”
They added that it “appears the board and management have forgotten their fiduciary duty, which is essentially that they work for the shareholders.”
War aims: Penn’s AGM usually takes place in June and, according to its own governance rules, three of its nine board placements are voted on every year. As for the end game of the proxy battle, it is to “unlock the value” that HG Vora believes is buried within the business.
But the investment source also suggested it was unlikely HG Vora would settle for “anything less” than a change at the top and CEO Jay Snowden’s head.
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Aristocrat said it has completed its existing $1.85bn share buyback program. It added it “remains committed” to further buybacks “whenever appropriate.”
Australia’s Star Entertainment has received some financial relief after it sold its Star Sydney event center and some additional space within the casino property to Foundation Theaters.
Foundation will pay a A$60m ($37.4m) exclusivity fee into escrow before the end for the month, which will be released once the transaction closes.
The news was viewed positively by investors who sent the shares up on the day of the news.
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Gentoo Media is to delist its shares from the Euronext Oslo Børs and retain a sole listing with Nasdaq Stockholm.
By the numbers
Nevada: The Las Vegas Strip was down 3% YoY to $881m after coming up against tough comps from the prior-year period. The damage was done by VIP play, which was down 4% in December and off by 5% over Q4.
“Despite a sixth consecutive month of GGR declines, we still think Vegas is fundamentally sound,” said the team at Truist.
The locals market, however, was up 14% YoY for December, leaving the market with a 5% uplift for Q4.
Total Nevada GGR increased 2% YoY to a record $1.46bn in December. FY24 Nevada GGR also reached a record $15.6bn.
No Bowl: The analysts at JMP said this was now an “important two months” for the Strip, with January and February the second and third most important months in the calendar.
“January laps an easy VIP drop comp,” they added. But February is missing the Super Bowl in the city, which is why the team is estimating a 3% decline in Strip GGR for Q1.
Earnings TL;DR
Evolution: Asian hacking continued to dog Evolution after it showed revenues from the region exactly flat QoQ. But, despite the headwinds, CEO Martin Carlesund suggested the company was still seeing strong demand for live casino.
Q4 revenues rose 31.5% YoY to €625m but ex-lower earnout payments, they were up only 12%. Adj. EBITDA rose 35% YoY to €455m.
The shares suffered a 6%+ fall on the day.
Issues in the UK, where Evolution is under a license review by the Gambling Commission, cast another cloud, but Carlesund said he was confident that would work out satisfactorily.
“From my point of view, humbly, I think it’s going well,” he added. “We’re working with all regulators in Europe constantly.”
A fuller summary of Evolution’s earnings was sent out as an Earnings Extra yesterday.
Las Vegas Sands: CEO Rob Goldstein said his belief in the prospects for China – and therefore Macau – were unshakeable. “One thing is that our actions speak loud and we keep investing, investing in buying into Macau, we believe in Macau, we believe in China,” he told the analysts.
Q4 revenue came in down 0.7% YoY at $2.9bn while FY24 rose 9% YoY to $11.3bn.
Adj. EBITDA for the quarter was down 7.3% to $1.11bn while FY24 came in at $4.38bn.
Investors warmed to the earnings, sending the shares up 11% yesterday.
In Singapore, Goldstein said the results of Marina Bay Sands reflected the “positive impact of LVS’s capital investment program and the growth of high-value tourism.”
“We’re just at the beginning of a huge growth surge in Singapore,” he added. “It’s not going to end. We’re the right place, right time with the right products.”
A fuller summary of LVS’s earnings was also sent out as an Earnings Extra yesterday.
Rank: Having suffered enormously from the pandemic period and a slower return than might have been expected at its London casinos, the Grosvenor Casinos and Mecca Bingo operator saw operating profit more than double in the company’s FYH1.
Underlying NGR came in 11% ahead at £402m while operating profit rose 148% to £40.2m.
Venues like-for-like NGR was up 12% to £282m while digital NGR rose 14% to $120m.
More to come: Rank said preparations were continuing “at pace” to take full advantage of the legislative reforms for the UK’s land-based casinos expected in the summer of this year.
A fuller summary of Rank’s earnings is available to paid subscribers.
Subscribe to Earnings Extra
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A subscription to Earnings Extra costs £99 a month (~$120) or £999 for the year.
Earnings in brief
Bragg Gaming: The games and backend supplier released preliminary Q4 numbers saying revenue was expected to reach €117.5m-€123m, which represents double-digit growth compared to previously anticipated 2024 revenue. Adj. EBITDA is forecasted to range between €19m and €21.5m.
Recall, Bragg recently received a share price boost after announcing a broad-based tech and content partnership with Caesars Entertainment.
BlueBet: The Australian sports-betting minnow said it has achieved EBITDA profitability in H1 after combining with the Australian Betr last year. CEO Andrew Menz said the momentum had continued into January.
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The big move: William Woodhams has announced he is to step down as CEO at UK and Ontario-facing ‘boutique’ sportsbook Fitzdares after seven years in the post.
Woodhams told the Racing Post he had “loved every second” of the job, saying that seven years in the role was “like dog years” and the equivalent of 70 years in a "normal job.”
Aiming a departing swipe at the UK racing establishment, he said it had been “a bit slow to engage and I think the fact we are short of leadership at BHA and the Jockey Club at the moment is a sign there is still lots more to be done.”
Las Vegas Sands has elected Mark Besca as a board member. Besca is a long-time executive at Ernst & Young.
Low6 has appointed Freddie Longe to its board. Longe was previously at IMG Arena.
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Analyst takes
US online: Although the OSB industry is facing the “incremental risk” of higher tax rates and additional regulatory scrutiny, same-state growth trends “continue to exceed” the expectations of the analysts at CBRE.
Vitally, the team suggested that iCasino expansion in the US is the “single greatest growth opportunity” in the gaming industry today.
They added that hopes are tempered right now but they insisted legislation “remains a matter of when, not if.”
The imitation game: In the interim the analysts pointed out that the same-state growth trajectory of both OSB and iCasino “should give investors enough to get excited about” until there is more regulatory movement.
CBRE saw 20% US online growth in the year ahead to $27.9bn, including 20.5% OSB growth to $16.5bn and nearly 20% growth in iCasino GGR to $11.5bn.
The forecast assumes Missouri launches OSB by Q425 and no other new state launches this year.
VICI Properties: Having broken bread with management this week, the analysts at Deutsche Bank said that, like the rest of the industry, VICI was “patiently awaiting” the outcome of the New York downstate casinos decision.
Specifically, VICI has a leaseback arrangement with MGM Resorts for its Yonkers property outside New York City.
DB said it would be “logical” for the REIT to participate in any funding for an expansion of the property.
Meanwhile, in Las Vegas, DB noted that trading at the partially VICI funded Fontainebleau, anecdotally, has been "challenged" but that the VICI team was still “confident in the quality of the credit.”
Connections
The big deal: FanDuel’s iCasino will offer Light & Wonder’s new Huff N’ More Puff slot game exclusively on its online casino starting February 4.
Ian O'Reilly, FanDuel Casino product senior director, said the company was bringing “one of the most popular” B&M casino slots to the online environment for the first time.
The game will be available in New Jersey, Pennsylvania, Michigan, West Virginia, Connecticut and Ontario.
Delasport has integrated its sports-betting solution into ProgressPlay’s platform in the UK. Altenar has announced it is integrating FeedConstruct’s scouting data and odds feeds package into its platform. Cherry Play has announced a content partnership to provide slot games to Hard Rock Casino in the Netherlands. Jelly Entertainment’s slot games are now available through Bally’s UK-facing brands.
Soft2Bet has received a license to provide iCasino products into the Spanish market. Meanwhile, 3 Oaks Gaming has received the official clearance from the UK Gambling Commission to offer its 50 slots games in the UK. Kambi has received approval from the Nevada Gaming Commission to provide sports-betting services within the state.
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Earnings calendar
Feb 4: BetMGM
Feb 6: Betsson, Boyd Gaming
Feb 11: Catena Media, Red Rock Resorts
Feb 12: MGM Resorts
Feb 13: DraftKings, Wynn Resorts
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