Aug 15: Inspired makes $370m AGS bid

Inspired bid for AGS, Flutter analyst update, Disney OSB comments, the shares week, startup focus - WagerWire +More

Earnings+More

Aug 15

Good morning. On today’s agenda:

Inspired Entertainment is reported to have made a bid to buy AGS.
The sector’s leaders enjoy a significant share price bounceback.
Our startup focus for this week is Wagerwire.

Inspiration information.

Inspired bid for AGS

Inspired has acknowledged reports late on Friday that it has bid $370m for AGS.

Seeking inspiration: On Friday Reuters reported that Inspired Entertainment had made a $370m offer for AGS, representing a 67% premium ($10/share) on the AGS share price. The shares rose 25% on the news.

The team at Truist said that including net debt, the bid values AGS at ~$875m.
It represents a sales multiple of 6.4x estimated 2022 EBITDA and 5.6x 2023 EBITDA.

Age of anxiety: When Inspired reported its Q2 earnings last Wednesday, CFO Stewart Baker said Inspired wasn’t ”anxious to use capital for M&A”, but was “certainly willing to use capital” if it was “something that strategically fits with what we’re trying to do”.

Inspired CFO Stewart Baker during the company’s Q2 earnings call: “And there seem to be a lot of things around right now presenting themselves as possibilities.”

Top-line spin: Should it go ahead, the “acquisition could create strong top-line synergies”, added Truist, specifically across the EGM and interactive content segments.

Been around the world: They added that the combined entity would also benefit from good geographical diversification with Inspired being Europe-focused and AGS slanted towards North America.

The stick: Financing could be an issue with capital markets currently hard to access currently and while it is an open question as to the position of Apollo which retains a 23% stake in AGS.

The carrot: They note that 2023 pro format EBITDA for the combination would be an estimated $250m.

Recall, last week AGS said revenues rose 15.2% to $70.4m while adj. EBITDA was up 6.3% to $34.1m with analysts saying they expected the company to benefit materially from the recent Supreme Court ruling on the regulation of bingo machines in Texas.

Inspired, meanwhile, showed revenues rising 72% to $71.3m while adj. EBITDA more than trebled to $26.1m. Performance was driven by a 71% surge in virtual sports revenue to $14m but interactive revenues were flat.

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Disney OSB comments

Disney CEO reiterates Disney’s interest in injecting ESPN with sports betting.

The long haul: Talking on the company's earnings call last week, CEO Bob Chapek said the company has been in conversations for “quite a long time now” with a number of different platforms about adding sports-betting to the mix and “take some friction away” for ESPN viewers.

World War Gen Z: “We have found that basically our sports fans that are under 30 absolutely require this type of utility in the overall portfolio of what ESPN offers,” Chapek added. “ So we think it's important.”
Imminence: He said he hoped Disney would have “something to announce” in terms of a potential partnership.

Flutter analyst reaction

Analysts suggest Flutter’s US results prove its scale advantages.

Morning glory: Noting the time difference between the UK and the east coast, the team at Wells Fargo suggested it was worth the early wake-up call at 4am, saying that while the news on Q2 profitability was not a surprise, it had been more of a “blue sky” hope than a base-case scenario.

Kind of blue: They added that Flutter’s positive message was “proof that OSB can be profitable with scale and proper execution”.
Wobbly ceasefire: But for the wider sector, the path to profitability isn’t so clear with a renewed marketing war in the cards for the new NFL season.
“We are skeptical that Q2's rational marketing/promotional environment will carry forward to the Q322,” they conclude.

Barrage: Still, JMP believes FanDuel’s superior product, tech stack and product offering will help it retain market share gains in the face of “heavy investment from competitors ahead of football season”.

Pack leader: “At 51% online sports betting share, FanDuel has separated from competitors heading into NFL season,” they add.

The shares week

Flutter’s upbeat prognosis for its US prospects gave the sector a boost.

Stay positive: Flutter enjoyed a 21% bounce on Friday after its first-half results showed that its US business was on track to hit full-year profitability in 2023 and had achieved an adj. EBITDA positive result of $22m in Q2.

🚀 Flutter share price, Aug 8-12

Lost ground: Analysts at Wells Fargo notes the share price rise “primarily” reflected the strong US results but also better UK & Ireland where they noted that June Gaming was up YoY, adding that they believe FLTR is taking share).
Tempering: However, Flutter is still down 9.75% YTD and is still down some 49% from its peak in March 2021 suggesting investor enthusiasm is still tempered by worries over the economic and regulatory backdrop in the UK.

Boys of summer: Major rival DraftKings is enjoying an even better late summer than its rival with a share price that rose over 15% last week and is up 76%+ in the last month.

👀 DraftKings share price, month to Aug 12

Assurance: Analysts at Jefferies said given the strength of the sector over the past week, and the newsflow on the promotional environment and the upcoming football season, investors have “begun taking an updated look at the stocks in the group”.
Questions remain, however, about whether promos resume high levels during football season or whether the more advanced product offerings will drive revenue growth and/or any market share shifts.

Eye of the storm: An altogether bleaker picture surrounds the backdrop in the UK and the now more heavily UK-dependent 888 suffered a near 11% decline on Friday after its H1 earnings showed the extent to which its UK business has been hit by the worsening economic picture.

😱 888 share price, Aug 12

The week ahead

GAN reports its Q2s later today and the focus will be on the group’s B2B efforts. Recall, in Q1 the company said its FY23 revenue target was “more aspirational” and “contingent” on B2B market openings, including California in the US and the launch of its B2C brand Coolbet in Mexico.

Sports data is center stage later in the week with first Genius Sports reporting on Tuesday with Sportradar reporting the following day.
On Thursday Catena Media’s announcement that it is reviewing all its European-facing activities will receive further scrutiny.

NeoGames update

NeoGames is well-positioned across multiple gaming verticals for US growth, said the Jefferies team, but the group's Q2 earnings provided “little surprise” with the synergies from the Aspire Global deal still not well-defined.

Busy times: Jefferies’ comments follow those of NeoGames CFO Ravi Adler, who during the earnings call said the group has so far not provided guidance on AG-related synergies “because we’re busy in the integration process”.

Taking account of Aspire Global, Jefferies’ updated its FY22 guidance for NeoGames to $194m-$208m, including its share in NeoPollard Interactive. Excluding Aspire Global, FY22E guidance was $91-96m.

Tudo bem: During Q2 NeoGames won the contract to provide digital lottery, games and sports betting to the state lottery operator of Brazil’s second-largest state Minas Gerais.

Wynn analyst update

Swings and roundabouts: Wells Fargo said Wynn’s Q2 update “contained few surprises” as the strong revenues at its Las Vegas and Boston resorts were offset by the ongoing Macau weakness.

Digital uptick: Interactive EBITDA losses of $21m were an $11m improvement QoQ and “could tick modestly higher” with seasonality or new state launches including Massachusetts.

Recovery in Macau remains the key driver of the stock, Wells Fargo said, where the eventual easing of travel restrictions could help Wynn recapture VIP and premium-mass consumers, but the timings remain “highly uncertain” given China’s zero-COVID strategy.

Startup focus - Wagerwire

Who, what, where and when: Based in Los Angeles, WagerWire is a betting marketplace founded in 2021 by three UCLA grads, Zach Doctor, CEO, Guy Dotan, COO and Travis Geiger, CMO. The consumer-facing app allows bettors to buy and sell previously placed sports bets and profit from real-time market movements.

Funding backgrounder: The company announced its $3 million seed funding round in early July was led by Roger Ehrenberg, co-owner of the Miami Marlins and the principal behind IA Sports Ventures and, and Eberg Capital, alongside Joey Levy’s 305 Ventures, Full Moon Sports Solutions, Sports Meta and others.

So what's new? WagerWire has entered into strategic partnerships with premier data analytics providers and has several “marquee sportsbook partnerships” to be announced soon.

The longer pitch: The central concept behind WagerWire is that secondary markets exist in every asset class but that it is a principle yet to be properly applied in betting. “Betting no longer has to be a zero-sum, win-or-lose game,” says Doctor. “What was once your risk, now becomes an asset that can be bought or sold at any time.

Compare it to: Doctor namechecks secondary marketplaces in other sectors including StockX, Stubhub and Robinhood.

What the doctor ordered: Sports-betting needs “more engaging, social experiences,” says Doctor, as well as more cost-effective acquisition strategies. “We have been very encouraged that the premier sportsbooks in the world see WagerWire as an inevitable evolution of the game that unlocks value for both them and their players,” he adds.

A bet trading marketplace has broad appeal to both savvy bettors looking for new optionality as well as casual bettors who are interested in betting and already enjoy secondary market experiences in most other industries.

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Datalines

Illinois: GGR in July was down 14% to $40.8m but handle increased 31.8% to $628.4.

Leaders: FanDuel once again was market leader with 41.2% of GGR followed by DraftKings 22.6% and 13.2%.

Indiana: Casino GGR was down 3.8% YoY to $221.1m. Sports-betting GGR was up 19.7% YoY and +32.5% MoM to $20.9m on handle of $206.6m, +6.2% YoY and -19.4% MoM.

Leaders: FanDuel led the market with 31.8% share of handle and AGR of $7.4m, DraftKings was second with 31.1% and AGR of $4.5m, BetMGM was third with 13.3% share of handle and AGR of $3m (+35% YoY).

AGA Q2 tracker

Record makers: US gaming and betting operators posted record revenues for Q2 despite macroeconomic headwinds and increasingly challenging year-over-year comparisons, the AGA said on Friday.

Consumers were “continuing to allocate entertainment spending to gaming” with the industry on pace for a second consecutive record-breaking year.
The total Q2 GGR generated from slots, table games, sports betting and icasino was $14.8bn, a rise of 9.1% YoY and + 3.3% QoQ.
Land-based slots and table games generated $12.1bn or 82.2% to total commercial GGR. Sports-betting GGR was $1.4bn, 9.6% of and icasino $1.2bn, 8.2% of overall GGR.

On expenses: The AGA said the industry benefited from consumer demand for travel and entertainment and the gradual return of business travel and conventions.
The YoY comps were “challenging”, the AGA added, and the growth rates softened as the quarter progressed from +13.1% in April to +10.7% in May and +2.5% in June.

Newslines

Orange order: Gaming Innovation Group will provide its online gaming platform services to Kings Media on a dotcom basis and in the regulated province of Ontario, Canada. Kings Media operates the King Billy casino brand and the deal marks its entry into North America.

German regulators have issued two new online slots licenses to the Mill Adventure group, which operates the SlotMagie icasino brand, and to Merkur group for its Xtip, Merkur Sports and Merkur Spiel brands. The other German icasino licensees are Mernov, Tipwin and Mybet.