May 9: Better Collective eyes £500m Spotlight deal

Better Collective closing in on Spotlight, DraftKings analyst reaction, Penn National analyst reaction, startup focus - Network Gaming +More

Wagers.com Earnings+More

May 9

Good morning. On today’s agenda:

Better Collective is reported to be closing in on the Racing Post owner.
There is more analyst reaction to DraftKings’ and Penn National Gaming’s Q1 results.
Startup Focus - Network Gaming.

We could be so good for you. Click below:

Better Collective closes in on Spotlight Sports

At the post: Better Collective is the favorite to acquire Spotlight Sports Group, the publisher of the Racing Post, for £500m. According to the Sunday Times, Spotlight’s private equity owner Exponent is close to selling its 75% stake which it has held since 2016. Spotlight also owns sports-betting affiliate sites My Racing, Free Super Tips and the US-focused Pickswise.

Spotlight’s FY2020 accounts showed sales down 17% to £65m caused by the pandemic while adj. EBITDA was down 36% to £16m.

Digital transformation: More than two-thirds of Spotlight’s turnover is now from digital rather than print. It changed its name from the Racing Post Group to Spotlight Sports Group in 2020 to reflect the shift.

Speculation: A spokesperson for Better Collective said the report was “highly speculative”, but added: “Given our defined M&A-strategy and track record we are not surprised to be mentioned when there are rumors of sales processes in the industry”. Spotlight didn’t respond to enquiries.

Further comment: Better Collective said today its next earnings release will be on May 18. Its shares were down 2.5% in early trading.

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Churchill Downs analyst reaction

Strike it lucky: 80-1 outsider Rich Strike won the 148th Kentucky Derby this weekend and Wells Fargo suggested Churchill Down was on to a winner with adj. EBITDA for Derby week as a whole likely to be between $7m-$9m better than 2019 at ~$120m.

For the day of the Derby, total attendance was 147,294, down 2% vs. 2019 and down 14% from the record in 2015 (170,513).
All sources wagering for the day was $273.8m, up 17% YoY and setting a new record, with $179m wagered on the Derby race, a rise of 15% YoY and also a new record.
For TwinSpires, Derby day handle was up 8% YoY to $67.4m and for the Derby race it was $44m, also up 8% YoY.

Further reading: Churchill Downs exits online gaming.

DraftKings analyst reaction

Nit-picking: Wells Fargo said DraftKings’ Q1 statement contained more pluses than minuses, but noted that in the current environment, and with the Nasdaq suffering a 1.4% fall on the day, the fact that investors could “find notes” meant the shares got punished. DraftKings ended the day down nearly 9%.

Those nits: Wells Fargo noted that the negative included issues around gross margin and cash flow, that the EBITDA beat though “nice” was against guidance that came more than halfway through the quarter and that half the beat was from shifting expenses to Q2.

That said, Wells Fargo added that the EBITDA loss, though sizeable, was “moving in the right direction” and that the commentary on the call centred on EBITDA, costs and execution rather than market share.

Aversion therapy: Still, the team remain concerned that with investors showing minimal appetite for consumer discretionary stocks right now, catalysts for improved sentiment are somewhat lacking.

“We believe DKNG's volatility is currently more macro than micro driven, but remain cautious on DraftKings’ path to profitability.”
Deutsche Bank was slightly more downbeat but did note that DraftKings was “positioned to deliver” on its targets for 2022 and that “may be enough to stop the bleeding in the near term”.

Mining for gold: Looking at management’s comments on the possibility of success with the OSB ballot measure in California, the Macquarie team make an attempt at pricing up what a California market opening might mean for DraftKings suggesting.

“Given our current spend/adult, DraftKings assumed market share and margin, California could be worth $70m+ of LT EBITDA or $3 to the stock.”
Credit Suisse said the momentum behind the initiative “seems encouraging”.

Turning a profit: Truist noted that DraftKings was now “highly profitable” in New Jersey and that 10 more states would turn profitable in 2022.

Penn National analyst reaction

Working in a coal mine: Noting the questioning around any deterioration in player spending habits due to macro concerns, the team at CBRE pointed out that while the market is “searching for the canary in a coal mine”, the “moderate impact” seen by Penn at the lower end of its customer base is encouraging.

Edging Ontario: Truist pointed out that Penn is saying that theScore in Ontario is “ramping faster than other market launches”. CBRE added that the metrics being reported by theScore in Ontario are encouraging, as is the success of the rollout of the operation’s new PAM and bonusing engine.

“The importance of owning and controlling all parts of the tech is becoming increasingly obvious, and Penn should materially benefit in 2023 with the transition.”

Deutsche Bank gaming update

April showers: The DB team say the early data for April is a mixed bag and that of the six markets they track, four are likely to show YoY increases but that the Las Vegas Locals market and Ohio are likely to show declines.

“Given the strengthening of the reopening in the 2Q21, comparisons will become considerably tougher over the next several months, with comp challenges peaking in July across regional markets, in aggregate,” they write.

Century Casinos analyst update

Eastern retreat: The Macquarie team suggest that Century is being penalized by investors for its interest in Polish casinos, adding that the proposed sale of the business will help close the valuation gap, thus closing the gap with its pure-play regional peers.

That’s execution: The Macquarie team also noted in relation to the Nugget acquisition that the multiple of 5.6x 2021 EBITDA that the company has a strong track record of driving down purchase multiples post-acquisition. They point to three acquisitions completed in 2019 at 4.1x EBITDA that finished 2021 at 2.1x.

The shares week

Bear trap: As noted, it was a bad week for equities with interest decisions and general economic commentary weighing heavily. As noted, DraftKings was down nearly 9% on Friday while RSI was down 8.5% and Penn fell by 6%.

Bear hug: The worst performer on Friday, however, was Genius Sports which was down over 10% to $3.54. It is now down over 80% against its debut price of $18.69. Genius reports its Q1 earnings on Thursday.

The week ahead

Main event: With major rivals DraftKings, Flutter (FanDuel) and Caesars all having reported last week, BetMGM gets its chance to shine on Wednesday with a business update.

MGM Resorts CEO Bill Hornbuckle said last week we should expect to hear more about how BetMGM is now more clearly tied into the omni-channel journey. The discussion will be led by BetMGM CEO Adam Greenblatt.

The deep end: Earnings from the gaming supply sector are in the mix this week with Tuesday seeing IGT, Light & Wonder, SciPlay and Everi all reporting. Analysts at Jefferies said that recent market weakness means these stocks are attracting attention for their low valuations.

Jefferies said these levels should be viewed as either deep value and a disbelief in current estimates: “We believe that while there could be modest impact from weakening economic trends, the general exposure to volumes from regional gaming coupled with strengthening balance sheets should position this subgroup favorably.”

The line up: Wednesday also sees Wynn Resorts report, while Full House reports after close on Monday. Gaming Innovation Group report on Tuesday and Raketech on Wednesday. Endeavor (Thursday) and Codere Online round off the week.

Newsletter schedule: Tuesday, Wednesday, earnings extra with BetMGM on Wednesday, the WE+M podcast on Thursday and the Weekend Edition on Friday, which will include coverage of the first day of iGaming Next New York where WE+M’s Scott Longley will be moderating two sessions.

Startup focus - Network Gaming

Who, what, where and when: Network Gaming is a provider of sports prediction games and was founded in 2019 by Harry Collins, former CMO at the bookmaker Fitzdares.

Funding backgrounder: Its most recent funding round raised £1.25m at the end of March. The round was spearheaded by Betfair co-founder Andrew Black, who was joined by Colossus Bets CEO David O’Reilly, Einar Knobel, CEO at TXOdds, Best Odds CEO Will Armitage, Sandford Loudon, a partner at Oakside Capital and Garry Otto, a Los Angeles-based angel investor and owner of Sutton United FC.

So what's new? Network Gaming clients include talkSPORT, Fitzdares and The Sun newspaper and the business is in discussions with potential US partners.

CEO Harry Collins: “The big opportunity for Network Gaming is a step-change in value for money for betting customers; thinking about betting as a combination of cost and enjoyment just like other entertainment products.”

The North American market is interesting, Collins says, because his company's games “work really well” for US sports, whether in fixed-odds formats as well as DFS-style-license games.

The longer pitch: Collins says his company builds game experiences that offer the best possible combination of low cost and high enjoyment. “That in a nutshell is our innovation - a highly scientific approach to the cost/enjoyment equation”. He adds that Network Gaming’s products have enjoyed significant interest and enthusiasm for three key reasons.

“First, partners see our games as structurally safe and responsible “in a way that some betting offerings aren't”.
“Second, the leaderboard/in-play experience is absolutely key and very different from betting, so partners see the offering as innovative.”
“Third, the cost-of-living crisis in the UK is likely to have an impact on gamblers' wallets” and so the ability to optimize low-cost-high-enjoyment possibilities becomes more attractive.”

Datalines

New York: Sports betting handle reached $295.2m for the week ending May 1, its lowest handle total since New York regulated OSB in January as the sports betting calendar slows down. FanDuel continues to lead the market, taking $135.6m for the week, DraftKings was second with $64.6m. Since launching on January 8, New York has generated $6.27bn in handle.

Daniel Stone @DanielStoneGC

FanDuel has extended its share of the New York online sports betting market to 63.5% on a rolling 4 week basis and is well on course to clear $500m in GGR from the state this year.

Iowa Apr22: Casino GGR was up 1.7% YoY to $163.2m. Sports betting handle was up 49.9% to $177.4m, betting revenues were up 75% to $13.5m, with overall hold at 7.6% vs. average hold of ~7%. Online margins were 7.9% and retail hold 5.2%. Online betting represented 91% of handle, and retail 9%.

Illinois Apr22: Gaming GGR was up 13.7% YoY to $122.5m, although Illinois casinos operated at 50% capacity throughout Apr21. On a same-store basis, GGR was up 8.9% to $117.4m.

Maryland Apr22: GGR rose 5.3% YoY to $170.7m. MGM’s National Harbor and Caesars’ Horseshoe Baltimore were subject to 50% capacity restrictions last April. The period had 10 weekend days vs. nine in 2021.

Newslines

Vegas GP’23: Liberty Media, the parent company of the Formula 1 championship, has acquired a 39-acre site for $240m in Las Vegas that it will use as a pit-and-paddock area and other hospitality activities during the Las Vegas Grand Prix it will be running in the city in 2023. F1 announced in March that The Strip would be the location for its third race in the US. The city of Miami hosted its grand prix yesterday and the Austin grand prix will take place in October.

White Sox-Caesars partnership: Caesars Entertainment will be the new sports betting and casino partner of Chicago White Sox MLB franchise. The new partnership will enable Caesars to advertise its land-based casinos in Illinois and Indiana, but not its online casino in the latter jurisdiction as the vertical is not regulated in the Hoosier State.