Thought bubble

If all publicity is good publicity, then Entain can be happy with this week’s work. The record £17m regulatory settlement with the UK Gambling Commission was certainly a headline-grabber. The share price reaction, though, suggests investors are willing to shrug it off; it ended Thursday down less than 2%. As with the ongoing HMRC investigation into the sale of its Turkish business, when it comes to Entain’s shareholders the brush appears to never stray far from the edge of the carpet. But this ambivalence appears misjudged. The threat of a license suspension in the company’s largest market is surely worthy of more of a response.

One other thought: what if lax compliance procedures now act like a bacillus that Entain is now transmitting around the globe? 

Baby I don’t care.

Prohibitionist agenda

• The UK public health lobby’s objectives for gambling are explicitly spelled out in a recently published paper.

Deep freeze: In a policy paper published this month in the Lancet detailing ‘policies and interventions to reduce harmful gambling’, the Delphi study undertaken by a group of public health professionals lays out a number of measures that would severely limit consumer choice when it comes to betting and gaming.

Among the measures which they suggest the UK government should impose are:

• A ban on all gambling advertising.

• The banning of all sponsorship of sports by gambling operators.

• ‘Plain packaging’ for all gambling products online or land-based.

• An outright ban on in-play betting and spread betting.

• Gambling website curfews.

• Spending and deposit caps and intrusive SoF checks on all new customers.

• Increase gambling taxation ahead of the rate of inflation.

Harm claims: Justifying what would amount to a clear move towards prohibition, the paper asserts that “in the last five years, it has been widely recognized that health, social, and economic harms are experienced by a relatively large population of gamblers, their families, those in their social network, and those in their community.”

• Axis of evil: It adds that opposition to such movies resembles efforts by other “unhealthy commodity actors” such as tobacco and the fast food industry that use arguments about free choice.

The Delphi study was commissioned by Public Health England and asked a range of public health experts whether they approved of a list of potential measures to reduce gambling activity.

• Floored: The new paper follows on from the PHE study released last September which suggested the cost of gambling harm was £1.27bn.

• Flawed: However, the Department of Health and Social Care has recently admitted the evidence for this figure was flawed.

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Melco Resorts Q2

• Revenue was down 48% YoY to $296.1m.

• Operating losses worsened to $209.2m from $128.1m in the prior year period.

• Adj. EBITDA fell into negative territory at $13.8m vs. a positive $79.1m in Q221.

Impact zone: The extent of the challenges in Macau came through on the call with analysts when CFO Geoff Davis went through the opex numbers showing that Melco has cut back from $3m a day pre-pandemic to $1.7m a day currently.

• Nightmare: City of Dreams revenues declined 72% to $97.3m while Studio City dropped 66% to $35.9m.

• Cash in hand: The company said it had available liquidity of $2.8bn and added that in mid-August it had received covenant waivers from the majority of its lenders.

• Stress test: “This summer has been just stressful in Macau given the outbreak,” said CEO Lawrence Ho, adding that the Macau market had taken “baby steps” since the closures. 

• Better news came from City of Dream Manilla where revenues more than doubled to $111.7m. There was also a doubling of revenue at the Cyprus operation to $21.7m.

Moving parts: On the same day as the results, Melco announced it had shifted auditors from E&Y Hong Kong to E&Y Singapore. Analysts asked whether the move was related to the delisting threat on the part of the SEC but CFO Geoff Davis said the company “felt it was appropriate”. “We have not heard from the SEC,” he added.

• Recall: Melco is rumored to be considering shifting its listing in order to comply with SEC rules over foreign listing audit rules. Ho said a relisting in Hong Kong was “certainly one of the potential solutions”.

Macau earnings in brief

Galaxy Entertainment: Revenue for the Macau operator was down 56% to HK$2.4bn while adj. EBITDA fell to a HK$384m loss from a HK$1.13bn profit in the prior-year period. The company pointed out the balance sheet remained “liquid and healthy” with net cash of HK$20.3bn meaning the company has “flexibility” in managing its operations.

Scout Gaming Q2

• Revenue fell 47% to SEK4.2m while EBITDA losses worsened to SEK23.3m from a loss of SEK13.3m in Q221. 

Cut your cloth: New CEO Niklas Jönsson said the company’s expenses and workforce numbers had been “way too high” compared to revenue, forcing the board to take “existential” decisions.

• The hope: Post-quarter end the company launched a fantasy product with bet365.

• Bridge over troubled waters: The company is working on a SEK101m rights issue with SEK40m bridging loans having been secured until the issue completes.

GIG analyst update 

Platform boost: The team at Redeye says Gaming Innovation Group’s media division once again led its Q2 performance, but the beat, “1-2% above expectations”, was also led by the group’s platform segment at +43% YoY and will benefit from the upcoming football World Cup in November.    

Hybrid: GIG current trading is up 37% YoY and its media division is performing strongly with FTDs up 85%. 

• The strong intake of FTDs is largely on revenue-share or hybrid contracts and supports continued growth over the coming quarters, said Redeye.

Sector watch - eSports betting

Casino focus: The news that EBET was restructuring and is set to shed more than half its employees means the company is now set to focus all its energies on the online casino properties it acquired from Aspire Global for $75m in Oct21. 

Getting it wrong: Ollie Ring, analyst at Regulus Partners, says EBET was mainly guilty of miscalculation and a niche sector like esports-betting was “never large enough for the company to pursue its aggressive M&A-driven plan”.

• When EBET floated as Esports Technologies in April 2021 its main revenue driver was gowagi.com with a focus on Latin America and Asia.

• By FY21 it had recorded US$165K in revenue and losses of US$13.5m, “so the primary esports focus was clearly not driving palpable returns”, Ring noted. 

The pivot: Ring added that esports has sometimes been used as the new “millennial-attracting vertical, so it may have helped with initial raises”. But esports-betting is a “tiny slither” of the global market when compared to icasino and is “more successful when utilized in a strategy with traditional sportsbook and casino.” 

Shrewd operator: TSX-listed Rivalry is set to announce its Q2 earnings next week and as a native esports wagering operator, it has gone about things in a “shrewd manner”, according to Ring. “It acquires customers organically through high quality social media content, solid sponsorships and speaking the ‘native esports language’”, he added.

Monetize fail: Esports Entertainment Group is also yet to publish Q2s and all eyes will be on the actions it has taken since it issued a profit warning in May due to “a failure to monetize” the esports assets Helix, ggCircuit and EGL it had acquired barely a year before.

• Hit and hope: Ring says the problem with EEG’s “spray and pray” M&A strategy was that it acquired various esports B2B/B2C properties that are “not interlinked” but underpinned by revenue derived from dotcom gambling operations.  

Datalines

Michigan: Sports-betting GGR of $22.9m was up 10.2% YoY while NGR of $14m was up 13% YoY. Promo spend accounted for ~35% of mobile GGR.

• Leaders by GGR: FanDule led the market with 35% followed by BetMGM (28%), DraftKings (21%), Barstool (6%) Caesars (5%) and PointsBet (2%).

• iCasino of $126.6m was up 37.2% and up 4% sequentially. 

• iCasino leaders: BetMGM controlled 37.9% of the market followed by DraftKings (20%), FanDuel (15%), BetRivers (7%) and Caesars (5%).

In land-based, GGR hit $105.9m, down 8.4% YoY. Deutsche Bank noted the decline compared with declines of between 0.2% and 3.8% in Indiana, Ohio, Iowa and a 2.1% rise in Missouri in July.

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Newslines

Sportsbooks will be able to launch their mobile and retail offerings in Kansas from the start of September. Governor Laura Kelly confirmed the timetable this week, operators will be able to take bets from Sept 1 with the official launch set for Sept 8.  

Uruguay has approved an online gambling policy project that will be discussed by the country's  Chamber of Deputies before being sent to the Senate for a final vote, while Peru has signed a bill to regulate online gambling in the country. Taxes will be set at 12% of net income. 

Colombia’s gambling regulator Coljuegos revealed that it had collected COP359.7m in taxes and fees in H122, a 22% rise YoY. The regulator added that it had carried out 188 instances of enforcement action against illegal gambling establishments.

What we’re reading

The Big $1bn: The Big Ten conference has agreed a seven-year $1bn+ a year deal with NBC, Fox and CBS. The previous deal was worth ~$430m a year.

What we’re listening to

Joey Levy: Micro betting is the tik-tokification of sports-betting.

On social

Reuters @Reuters

Elon Musk tweeted that he planned to buy struggling English soccer club Manchester United. The tweet briefly sent the club’s U.S. shares soaring by as much as 17%. Now lawyers say the SEC will want to know if Musk deliberately manipulated the stock reut.rs/3QIFwts

August 18th 2022

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Calendar

• Aug 23: Better Collective

• Aug 24: Sky City

• Aug 25: Rivalry

Contact us

• Scott Longley scott@clearconcisemedia.com

• Jake Pollard jake@openmediaservices.com