Good morning. On today’s agenda:

• Caesars claims it is keeping hold of digital market share despite a marketing pullback. 

• The stuttering supply chain is the only blot for IGT’s gaming machine supply arm.

• The analysts quantify the Massachusetts opportunity.

Promises.

Caesars Q2

• Revenues rose 10.6% to $2.82bn, H1 revenues up 15% to $5.11bn.

• Adj. EBITDA down 3.3% to $978m, H1 down 16.8% to $1.27bn.

• Las Vegas up 33.6% to $1.14bn; regional down 4.1% to $1.46bn.

• Digital revenue up 29.9% to $152m; adj. EBITDA $69m.

Hotter than the sun: Regardless of the heat - and floods - CEO Tom Reeg said “there are not strong enough words to convey how well it's going in Vegas for us”. He noted that was despite Caesars Palace being “torn up” for most of the year with construction work.

• Group dynamic: Analysts noted there was no sign of a slowdown as Caesars reported a significant return in group bookings and international visitation.

• Get your G2E room booked: Reeg also noted that forward bookings for September and beyond were in the high-90s.

• The doubters: Deutsche Bank noted that while cracks were “yet to appear” in Vegas, “there are several oars moving the wrong direction” including rising airfares, gas prices and tougher comps.

Sale of the century: Reeg balked at the notion that the sale of a Strip property was “critical” for Caesars. “This is a discretionary trade for us,” he said, noting that previously analysts had questioned why a sale was necessary and now they were asking whether a deal can even be completed.

• It’s you, not me: “This is a change in you, not in us,” he said. “Regardless of what level of fear is coursing through the investment community, we put our heads down and we do the work.”

Head above water: Reeg said the digital operation “nearly” broke even in July. While he expected the business to go back to being loss-making for the upcoming football season, he noted that he didn't think total losses for the year on digital would “get near” the previously forecast $1.5bn. 

• “We’ve proved we could carve out a significant piece of the business,” he added. “Now we want to prove we can make a profit.”

• He reiterated previous guidance of hitting digital profitability in Q423.

Stick/twist: Reeg claimed that having hit ~15% nationwide digital handle market share, Caesars had reached a point where it was “comfortable pulling back” on ad spend. 

Tom Reeg: “We don't think our competitors have followed us, they're still spending. And our share has been stable”

Note: Wells Fargo pointed out there is evidence of promotional spend having moderated across the industry.

Gone fishin’: Asked about ad spend going forward, Reeg said that compared to the Fall last year “it's going to seem like we've left the air entirely”. 

• Reeg also noted a move towards customer retention over acquisition. “This is a dramatic pivot for us,” he said. 

• “When we started Digital, we didn't have the ability to segment customers,” he said. “That’s no longer the case.” 

• Reeg confirmed Caesars’ interest in California but added that it was neutral on the ballot measures due to the sensitivities surrounding its existing tribal relationships.

The water carrier: Reeg said regionals had “carried” Las Vegas last year when Covid restrictions meant people couldn’t travel. “What you’re seeing is regionals aren’t quite as strong but Vegas is picking up the slack.”

• Deutsche Bank noted there were signs of slowing revenues in regional gaming and a pick-up in promotional activity and opex. “Cracks are becoming more evident.”

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BREAKING: LeoVegas has been issued a £1.2m fine by the UK Gambling Commission for failures in its social responsibility and anti-money-laundering procedures. The company also received an official warning and will be forced to undergo an audit.

• Awks: MGM Resorts, which has bid $607m to buy the company, reports later today.

IGT Q2

• Revenue down 2% to $1.02bn but up 3% in constant currency; adj. EBITDA down 7% (-1% cc).

• Lottery down 11% (-4% cc) to $648m, gaming up 21% to $330m and digital up 1% to $43m.

The mighty dollar: A “nimble” IGT managed, as Deutsche Bank noted, to overcome adverse currency fluctuations, supply chain issues and tough YoY comparatives and deliver earnings above expectations.

• Game gains: Gaming revenues rose despite disappointing unit sales, with Jefferies noting the installed base fell QoQ. CEO Vince Sandusky said IGT could have shipped even more units if it wasn't constrained by supply-chain challenges.

• Soft play: On digital, Sandusky said earnings were affected by a combination of a slower game release schedule (caused by the focus on the iSoftBet integration), worries over the UK White Paper and tough comparatives.

Check in the Poste: The $785m sale of the Italian payment business Poste Pay is likely to complete in September and IGT said it will use the cash proceeds to pay down debt which currently stands at $5.72bn.

The verdict: The Deutsche Bank team said given the historical resilience of lottery, it should help the company weather the potential economic downturn. Investors warmed to the figures, sending the share price up nearly 10% on the day.

IGT share price moves 2 Aug

Full House Q2

• Revenues down 6.3% to $44.4m while adj. EBITDA fell 18.8% to $12.1m.

• The Temporary casino structure in Waukegan has been raised but the opening has been delayed and it is now slated for Q4.

• The company announced a $5m market access deal for online and retail sports-betting in Illinois struck with Circa.

If I spring a leak: Management pinned the blame for the pullback in revenues on the tough comparative period and the disruption being caused by the continued construction work on the Chamonix property in Cripple Creek, Colorado causing disruption to the existing neighboring property. 

• CEO Dan Lee was quick to dispel rumors that Full House would need to raise cash for the Chamonix completion. “We don’t need money,” he said.

• Analysts at Macquarie noted that “slight delays notwithstanding”, Full House was on track and budget with both its two major projects.

The last picture show: Lee said the Temporary casino - a sprung tent - was ”just about done” - and had the pictures to prove it (see above). “Trying to build anything these days with the supply chain issues is quite a challenge,” he noted.

• “It is possible we won’t immediately get 1k machines,” he said. “But that’s probably just fine. We’ll open with what we get.”

Massachusetts analyst reaction

• Massachusetts becomes the 27th state to legalize sports betting.

Commonwealth games: The last gasp sports-betting victory in the Massachusetts legislature means, according to CBFE, that retail betting “could” launch before year-end but mobile will have to wait until “at least” early 2023.

• Sizing Massachusetts: CBRE noted that state officials have estimated annualized tax revenues of $60m which at 20% for online suggests a market worth $300m. 

• Proven gamblers: But they suspect that given one of the highest personal income levels in the country, a proven propensity to gamble - the highest lottery spend per capita - and the historic sports culture, the actual number will be higher.

• Take you pick: Here’s our chart of market estimates at maturity.

Out of the blocks: CBRE suggest that while retail could be launched before year-end, online will likely have to wait until “at least early 2023”. JMP pointed out the state’s casino operators MGM Resorts, Penn National and Wynn Resorts will be in prime position while DraftKings will no doubt hope to take advantage of its home state status. 

• Roth said they expected Penn/Barstool to over-index in market share, likely exceeding the 5-10% share achieved elsewhere.

Booster shot: Roth said the pace of legalization efforts had somewhat slowed this year but the previously-unlikely passage in Massachusetts might give legislators in other states such as North Carolina and Missouri a nudge in the right direction. 

• CBRE, meanwhile, suggested that investors have “lost interest” in sports betting recently but that the opening of Massachusetts was a “big deal”. 

• CBRE said investors have “lost interest” in sports betting recently but that the opening of Massachusetts was a “big deal”. 

• Got my attention: If California voters can follow suit and get a “commercially viable sports-betting amendment” approved in November, the industry could get “very interesting for investors in 2023”.

Takeaway: CBRE said that with a favorable tax rate, and the potential size of the market, they believe the Massachusetts news is a “major positive for the entire sports-betting industry that has gotten brushed aside amidst a hectic earnings season.”

Tax report

• US states could generate a tax take of up to $6.35bn from the adoption of igaming, says a new report.

The report from analysts at VIXIO Gambling Compliance commissioned by Light & Wonder suggests that if every one of the 42 existing land-based gaming and sports-betting states were to adopt igaming then the GGR cloud total over $30bn.

• The report notes that the current slate of six igaming states generated $970m in gaming tax revenue in 2021.

Better Collective analyst preview

Up the hill: Looking ahead to the Q2 earnings, the analysts at Redeye suggest the company is likely to report the usual seasonal slowdown but they still expect a 41% QoQ revenue uplift to €56.4m.

• Down the slope: However, having upped their cost estimates they have lowered their EBITDA expectations by 9% to €15.5m.

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Earnings in brief

Star Entertainment said it expects to report revenues of A$1.53bn for the year when it reports its full-year earnings on August 22. Domestic revenues for Q422 were up 11% on pre-Covid levels at A$512m helped by a 28% increase in slots revenues on Q419. Table revenues were down 5% on Q419 levels.

Datalines

Colorado: Sports-betting GGR dropped 65.6% to $6.54m with online down 66.5%. Handle was up, though, by 36.3% to $313.2m. Baseball was worth 34% of total handle.

Newslines

Open all hours: Macau’s casinos have been granted permission to resume full operations by the authorities after previously only being able to operate with no more than 50% of staff.

Rescue badge: The financially-challenged Scout Gaming said it has now launched its fantasy sports product with bet365. This came a day after the board confirmed it would hold an EGM to agree on a SEK55m emergency rights issue to keep the business afloat.

Catena Media has announced its first large media agreement in North America with a multi-year partnership with NJ.com to provide betting and online casino content. Catena Media confirmed it means it replaces Better Collective which previously had a deal with NJ.com’s owner Advance Local.

OpenBet has acquired proprietary sports technology and quantitative trading models provider Multi Builder Limited.

What we’re reading

What a waste of money: Predicting the hits and misses of the transfer market.

Steal from the rich, give to the SEC: Robinhood fined for AML and cybersecurity violations.

Calendar

• Aug 3: MGM Resorts

• Aug 4: Bally Corp, Penn National, Golden Entertainment, Rush Street

• Aug 5: DraftKings

Contact us

• Scott Longley scott@clearconcisemedia.com

• Jake Pollard jake@openmediaservices.com