Welcome to Earnings+More

BetMGM investor presentation, LVS and CDI Q1s, Rank update

Apr 22, 2021

1Welcome!

Earnings+More is a new email dedicated to the financial workings of the global betting and gaming sector.

With the rise of regulated sports-betting and online gaming in the US, there is now a growing interest in the sector. More companies are coming to market and the sector has never been as inter-connected as it is now.

Given this, we thought it was time for a newsletter that followed the action and reaction to trading statements and earnings updates across the global gaming sector as well as listening in to the calls with the analysts.

That’s the earnings bit. The +More takes into account what else is affecting operators, suppliers and sentiment in the sector. Whether that is data releases from regulated jurisdictions, the latest M&A news, marketing trends or what’s being said from the stages of the conference circuit - as and when that comes back, of course.

All this is brought to you by experienced sector journalists Scott Longley and Jake Pollard. With more years between them covering the sector than they would care to count, they bring a wealth of experience of looking for what’s new and what’s being said by companies across the sector and around the world.

The newsletters will follow the results calendar with at least one email per week in fallow periods and more as and when the flow of trading updates demands it.

We promise we won’t overload our readers but will bring a snapshot of the numbers than matter.

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BetMGM investor presentation

So on to some analysis. We start with BetMGM yesterday.

The top line

The joint owners of BetMGM held a bullish (and monster three-hour) investor presentation during which they outlined in detail why they believe its reach, in-house tech and omni-channel presence will enable it to cement its top three, or better, position in U.S. iGaming. BetMGM CEO Adam Greenblatt said the group was competing in states with strong casino links such as New Jersey and where it could leverage its omni-channel marketing assets. But he noted it had also achieved top two positions in sports-only states such as Colorado and Tennessee. He said the company was prepared “for full acceleration on product and business development.”

Making inroads: To illustrate how BetMGM had progressed, Greenblatt said the group had launched relatively late (September 2020) in New Jersey. Its online betting and gaming offering was supplemented by the MGM sportsbook at the Borgata “which we use for ourselves for all online activity bar a minimal skin agreement with Pala Interactive.” From there BetMGM is now third in online sports-betting (OSB) in NJ with close to 10% share, but by March this year it had overtaken Golden Nugget to become leader in iGaming. “As a reminder, Golden Nugget’s New Jersey license includes the skins operated by FanDuel, SugarHouse and Bet America, which in aggregate has been iGaming leader since 2016, ” Greenblatt said.

Michigan high: BetMGM’s successful launch from day one of Michigan regulation would be replicated going forward. It is the iGaming leader in the state with nearly 35% share of the market and is number two in OSB with 25% share. Omni-channel assets such as the MLife loyalty program, MGM land-based casinos and online and media assets were driving average CPAs $250 nationwide. Michigan caused a pleasant surprise by generating CPA costs below that level, the group said. At national level, it expects to increase on the 18% of customers recruited through its MLife loyalty program as Covid restrictions are lifted in the coming months and more players visit MGM properties. It also pointed out the remaining 82% of acquired customers were new and represented a promising pipeline for revenues. Analysts at Truist Securities noterd that management belief in its physical presence acting as a funnel for player acquisition was proven by 8,500+ in-person sign-ups during March Madness.

In-play growth: The group said live betting was on an upward curve at 43% of overall handle. Even though there is still a lag in the adoption rate, it said it would “pick up as players develop a better understanding of the market” and as betting habits develop. Noting that European operators record two thirds, sometimes more, of their handle via live betting, Greenblatt said: “There is no reason we can’t converge towards that given the fit of in-play betting with US sports like NFL, baseball or the NBA.”

In-house doubts: The only defensive comments from the executives were around the nature of the JV and how much control it had over its tech stack, risk management and trading capabilities.

“We have trading and risk management teams in Jersey City and Las Vegas. Entain is viewed as being in-house, we have exclusive use of that stack, are the only ones to use it and don’t have to buy in or plug in any other technology or components to operate it,” Greenblatt said.

Incremental improvements: BetMGM said improving a broad range of features such as customer journey, personalisation, cohort analysis-CRM and launching payment products such as a unified wallet had enabled it to achieve strong growth over the past three years.

Across-the-pond analyst consensus: Deutsche Bank in the US pointed out “the currently implied value of BetMGM is by no means inexpensive, (but) we believe it to be more justified than several peers, given the BetMGM iCasino strength and momentum in the BetMGM sports-betting business to date.” Similarly in the UK, looking at Entain analysts at Peel Hunt suggested “management may be wrong” about both the long-term TAM and its likely market share. “However, we believe what matters for the share price is quality of execution in the short term, and the presentation highlighted the strengths which are driving the business.”

Las Vegas Sands Q121

The top line

Revenues down 15.6% to $1.2bn; net losses hit $280m and operating loss $96m. Net revenue in Macau and Singapore up 18% QoQ. Company expects mass premium to outperform.

Less Vegas: With the Strip properties now a discontinued item in the figures, LVS saw revenues fall to $1.2bn representing a 15.6% like-for-like drop due to the ongoing pandemic effects. Net losses for the three months hit $280m while operating losses came in at $96m compared to an operating profit of $6m in the prior-year period. The company says the $6.25bn sale of the Vegas operations is expected to complete in the fourth quarter.

Golden week: On the conference call, the management said it was seeing gradual growth in Macau and it said it expected that to accelerate. Grant Chum Kwan Lock, chief operating officer at Sands China, said there had been a reasonable rebound in March with similar momentum in April (hitting post-pandemic highs). In particular, the company said the mass-market return was pronounced and there was even a MICE return. “What you can see is a broad-based recovery in the different segments since March.” he added. Talking about Vegas, Robert Goldstein, LVS chairman and CEO, said that the weekends were back to pre-pandemic levels.

Concession renewals: Asked about renewals, Goldstein said “when the (Chinese) government tells us, they will tell us” but he repeated the company view that it remained confident. He said the company would give “positive” response should the Chinese insist on investing in non-gaming in the bay region if that became part of the concession process.

Goodbye Vegas - hello online? “We don’t have the proceeds yet but we will be very focused on returns,” Goldstein noted of the Vegas operations sale cash. “There is a lot of opportunity and we are being patient.” The company didn’t rules out buying more of a share of Sands China (where it already owns nearly 70%) and made mention of Hong Kong stock exchange rules regarding 25% free float. Goldstein was more effusive, though, about online. “The optionality is endless but we will be careful and do it the right way,” he said. “Whether it is organic or M&A, we’ll get there. We have a tremendous appetite to get into that world.”

"I’m not concerned about being late to the party or not having a sports offering. It’s not simply in our thought process that it has to be the US; it could be Europe, but it won't be Asia. We wouldn’t want to upset the Chinese authorities.”

“It could be B2C or B2B. But we won’t do something just to do something; you can see the opportunities there. I don't think the sale of Las Vegas takes us off the table."

Deutsche Bank analysts said although LVS “continues to flirt with the notion of a foray into iGaming, we don’t believe investors heard much that was incremental or thesis altering.”

Digital currency in Macau: Asked about money-laundering fears around the digital currency being planned by the Chinese authorities, Goldstein said “some people are concerned but we’re not.” “We think it is an additional source of liquidity. I don’t think it would hurt Macau at all.” Chum Kwan Lock said: “It’s about the digital currency strategy in China generally. China has been looking at this since 2014 and Macau will adapt.”

Rank Q321 trading update

The top line

LFL revenues down 76%; digital delivered sequential growth of 4% helped by Stride.

Liquid refresher: The amount of cash Rank has at its disposal took top spot in its quarterly trading update with the casino-to-bingo operator noting it had total cash and facilities on hand of £89.8m, thus comfortably exceeding its covenant limit of £50m. It has been helped by a £13.4m UK duty refund and the £25m proceeds from the sale of the Blankenberge casino in Belgium to Kindred. A possible “step change” in liquidity profile, suggested analysts at Peel Hunt, would be the pending £80m VAT recovery claim.

Open all hours: The focus on liquidity is understandable given that its casino and bingo estates remain shuttered until at least late May. Like-for-like revenues were down 76% in the quarter with venues revenue down 98% and digital down 3%. The 2% of venues revenue came from Spain where nine Enracha venues were operating by the end of the quarter. Company hopes all UK estate will open on May17. “We expect consumers to be enthusiastic about returning to leisure activities and a surge in domestic demand may help offset some of the weakness from inbound tourism,” say Peel Hunt.

Digital sequential breakdown: Grosvenor down 2% on Q2 (suggesting its slight reliance on omni-channel) while Mecca was up 4% and Stride up 7%. Yo Bingo also up 10%. Peel Hunt suggested digital "continued to turn a corner"

Calendar: Full-year results due August 19.

Churchill Downs Q121

The top line

Gaming was the standout with the segment producing record EBITDA of $82.4m, up 72% on the prior year period. Total net revenue was up 28% to $324.3m.

It’s Twins: The renamed and relaunched TwinSpires online business is now up and running in Michigan (launched in January) and Tennessee (March). The offering is now on the Kambi platform. The company didn’t break out any figures. The TwinSpires horseracing segment saw revenues rise to $93.1 million, up 39% on the prior year period.

Call today: A conference call will be held later today and Earnings+More will report on what the company says in our next E+M newsletter.

Newslines

Bunged up - Richmond nixes Bally’s Casino application: Despite the promise of Richmond, Virginia citizens getting partial ownership of the proposed casino in the city, Bally announced it has been removed from the selection process. Bally is clearly peeved; the press release noted it had been willing to invest a total value of $650m, including an upfront, unrestricted $100m payment to the city, along with $28-$30m in annual tax payments. But George Papanier, CEO of Bally’s Corporation, said the decision would not affect the company’s online prospects in the state. “Though we stand by the fact that our bid was objectively the strongest, we respect the City’s decision, and look forward to providing our best-in-class online sports betting platform to sports fans across the State of Virginia under our recently awarded temporary sports wagering permit.”

Caesars gives AC a push: Hot on the heels of getting UK court approval for the William Hill takeover, Caesars said it would be investing $400m in its three Atlantic City properties. The first phase of the project will see $170m ploughed into room renovations at Caesars and Harrah’s.

Speaking of William Hill…