Sep 16: Weekend Edition #64

Earnings+More

Sep 16

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Kindred, US betting survey, US market entrants, Allwyn Q2 call, sector watch – crypto +More

Thought bubble

A history lesson: In its response to the news this week that Australian financial crime watchdog Austrac was investigating Entain over potential anti-money-laundering breaches, the company said the incidents occurred in the “historical period” from July 2016 to June 2020. Less than a month ago, when the company was slapped with a record £17m licensing settlement by the UK Gambling Commission, it said the action was related to “alleged historical licensing breaches” dating back to, er, December 2019 and October 2020.

We sense a pattern, so may we politely point Entain in the direction of William Faulkner. “The past is never dead. It's not even past."

It’s all just a little bit of history repeating.

Kindred

Regulatory woes overshadow Kindred’s Capital Markets Day presentation.

Marathon man: During its CMD presentation, Kindred noted it was subject to a licensing review by the UK Gambling Commission related to ongoing investigations over suspected compliance failures.

A Kindred spokesperson said it would not speculate on the outcome of the license review. ”We fully accept the Commission findings, raised during the 2021 targeted assessments, and have made immediate investments and changes to address them.”
“The assessments gave a better understanding of Commission expectations, in particular around affordability limits.”

Separately, talk on the sidelines of yesterday’s IMGL conference in London suggested Kindred’s €120,000-a-day fine for its continued activities in Norway will come into effect in three weeks.

No comment: The UKGC would neither confirm nor deny the licensing review, while in Norway it should be recalled Kindred lost its legal case against the Norwegian state in June.

Fine by me: During the CMD yesterday, Ewout Keuleers, chief legal officer at Kindred, said the company was still appealing the court ruling and that there had been no Norwegian penalties leveled “at present”.
Call an ambulance: Sources also suggested Kindred had “every lawyer in Oslo” bidding to represent it in the case and that the case could run for years.

Just capital: During its nearly five-hours-long presentation, Kindred said its target for revenues in 2025 was £1.6bn while Q322 revenues would come in at between £270m-£280m. However, after a tough Q1 and Q2, it said Q3 underlying EBITDA would be down substantially at between £37m-42m vs. £84.8m in the prior-year period.

Staunch the wound: Much of the issue related to the unceremonious Netherlands exit last October, but the company was keen to stress the positives from its recent market reentry.
Flying Dutchman: CCO for Europe Anne-Jaap Sniders said the group’s dot.nl website had enjoyed a “flying start” and was already the market leader in sports betting and number two for casino.

Somewhere over the rainbow: North America is the company’s “main focus” despite the business only generating £7.2m of revenue in Q2. CCO for North America Nils Andén said the aim was to hit 10% market share by 2026.

War babies: He noted the past two years in the US had been “tough” with “advertising and incentive wars” hindering profitability across the sector.
Sanity clause: He added later that the decision to invest in each state would depend on the marketing situation being “sane”.
Stirring the porridge: CEO Henrik Tjärnström said the company’s aim in the US was “investing enough to not undermine the long-term opportunity but not over-investing to waste too much money now”.

Acid test: The UK was the company’s biggest market in H122 and “the acid test” for any operator, according to Neil Banbury, UK general manager. Kindred has a 3% market share and Banbury claimed the company has shown it can “build a challenger brand in a very competitive market.”

Reform ready: Affordability and RG measures impacted UK revenues to the tune of £12m, but Banbury said the group was ready for more potential reforms.

Unequal growth: “With regard to profitability, not every pound of growth is equal. We’re happy to let other operators chase gross win that we don’t want.”

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US betting survey

Economic worries are the primary reason for bettors to spend less.

Good news/bad news: In line with the early evidence from GeoComply of a rise in betting activity at the start of the NFL season, a survey undertaken on behalf of Jefferies suggests 42% of bettors intend to spend more on gambling this NFL season compared to last. But 29% of the 2,183 respondents said they would spend less, and more than half of this cohort suggested budgetary concerns were the main cause.

Counterpoint: The Jefferies team suggest the finding is “surprising” as operators “generally indicated no signs of demand slowing” during the recent earnings season.

💵53% of bettors who will spend less this season cite budget concerns

Loyalty points: looking at the data for the average number of accounts, the survey found that 73% of respondents intended to keep only one or two accounts this season, with 11% saying they would keep three or more.

Winners keep winning: The survey also found that DraftKings and FanDuel users have “demonstrated slightly higher loyalty with intention to keep fewer accounts and less tendency to compare odds”.

Other data points:

🔍88% of bettors sometimes, often or always compare prices on sportsbooks.

💰31% say promotions are very important when choosing a sportsbook.

📦21% place over half their wagers via parlays.

🏈18% place over half their wagers in-play

App downloads

Up on the download: Looking at download data from the first week of the NFL, the team at JMP said there was “impressive” 63% YoY growth in sports-betting app downloads in week 1. The data was particularly good for DraftKings, which grabbed 48% download market share vs. 36% this time last year. See DraftKings’ New York handle advance below.

Datalines

Illinois: GGR for July came in at $46.1m, up 12.8% MoM and 22.5% YoY, while handle of $516.4m was down 17.8% MoM but up 39.3% YoY.

Leaders by GGR: FanDuel had 39.9%, followed by DraftKings (23.4%), BetRivers (10.2%), PointsBet (9.2%), BetMGM (5%) and Caesars (4.4%).

New York wk to Sep 11: GGR for the first weekend of the NFL rose 18.5% WoW to $32.6m on a handle that rose 35.8% to $330m, the fourth highest weekly handle since opening.

Leaders by GGR: FanDuel led with 52.7%, followed by DraftKings (24.8%), Caesars (13.23%) and BetMGM (4.8%).
👀By Handle, DraftKings notably saw a rise of 66% to $117m. This followed a 31% rise in handle the week previous. However, its GGR of $8.1m was below the $8.3m GGR the week before and less than half FanDuel’s $17.2m.

US market entrants

Two potential US sport-betting contenders make headlines.

Fanatics: It’s not often a marketing appointment is worthy of a Wall Street Journal article but such was the case with the announcement that Jason White is to join Fanatics to head up its sports-betting marketing effort. White joins from Paramount, where he was head of marketing for MTV, while previously he was at Beats and ad agency Wieden+Kennedy.

Envelope: On his LinkedIn feed, White said “my edge just pushed out a little further”.

Disney/ESPN: Disney CEO Bob Chapek told Bloomberg earlier this week the company was “working” on a sports-betting app. “Sports betting is a part of what our younger, say, under-35 sports audience is telling us they want as part of their sports lifestyle,” he added.

Enigma wrapped in a mystery: In a LinkedIn posting, Chris Grove noted the comments were somewhat enigmatic but that the idea that ESPN is “developing a sports-betting app” is the most unlikely of the likely options.
“Running their own sportsbook would leave them exposed to regulators and potential political pressure in every state where they operate,” Grove wrote.
Chapek confirmed Grove’s theory yesterday when he told CNBC that ESPN was looking for a sports betting partner “because we’re never going to be a book, that’s never in the cards for the Walt Disney Company”.

Sporttrade

Ring the bell: The first sports-betting trading marketplace in the US has launched in New Jersey. The subject of a E+M startup focus back in January has raised $36m in funding to date. The company is working on upcoming launches in CO, IN and LA.

DraftKings/Amazon

Primetime: DraftKings has been named as the exclusive sponsor for Amazon Prime’s Thursday Night Football. The multi-year partnership will see DraftKings odds and sports-betting insight integrated into the pre-game programming, while the pair will also collaborate on TNF-themed offerings including same-game parlays.

Further reading: PointsBet and WynnBet have opted not to extend their official betting partner deals with the NFL.

Allwyn Q2 call

With a US listing looming, the lottery and gaming giant talks up lottery hopes.

A whole new ball game: On the call to accompany its Q2 results released in late August, the company trumpeted its success in boosting online revenues for both lottery and online gaming. Across its main markets of the Czech Republic, Austria and Greece/Cyprus, the number of online customers has more than doubled over the past three years to nearly 1m.

CEO Robert Chvatal suggested that post-listing, Allwyn saw “potential to grow the lottery in the US market, to look at some US state lotteries”.

Who are you: Chvatal also said Allwyn had enjoyed particular success in de-anonymizing retail lottery customers via its loyalty schemes.

Czech mates: In the Czech Republic the loyalty scheme now accounts for 26% of turnover.

Appealing: Talking about Camelot’s decision to end its appeal over the awarding of the UK National Lottery, Chvatal said it was good to achieve “clarity” and that the decision paved the way for the company to take over in April 2024.

He noted that part of Allwyn’s winning bid was that it had proven success in “increasing lottery revenues in both northern and southern Europe”.

Greek gifts: Since the end of Q2 Allwyn has further increased its stake in Opap to 50% (excluding treasury shares) and CFO Robert Morton said more share buying was “an option”. “We do think this is a great business and undervalued,” he said.

Chvata added: “We know the business well, we believe in the Greek market, we believe in Greek economic sentiment.”

Recall, in Q2 revenues rose 23% YoY to €902m while adj. EBITDA was up 17% to €277m. Meanwhile, late last week the shareholders of the Cohn Robbins SPAC gave their go-ahead to the merger with Allwyn, which should see the company list in December.

Further reading: see Tuesday’s Deal Talk for more on betting and gaming SPACs.

Macau concessions

Genting was the surprise name as operators submitted 10-year concession bids.

Seven and seven is: There were no surprises from the incumbent players with all six applying – Galaxy Entertainment, Melco Resorts, MGM China, Sands China, SJM and Wynn Macau. But with only six berths available, Genting’s involvement via an entity called GMM throws a potential spanner in the works.

Playing games: Wells Fargo said it was unclear what GMM’s “intentions and ambitions” were in Macau.
Beat the clock: It does not currently have any operations there and the 10-year concession would leave precious little time to acquire land, design, plan and build a likely multi-billion IR.

Recall, Genting hit the news in mid-July when reports suggested it had turned down an approach from MGM for Genting Singapore.

Sector watch – crypto

Merge here: The upgrade to the Ethereum blockchain known as the Merge (and, yes, we believe it is capitalized) occurred, depending on timezone, at some point between Wednesday and Thursday this week.

Up the stakes: The merge is actually a software upgrade that will adopt a different – and more energy-efficient way of creating tokens. Instead of a ‘proof of work’ model, it has moved to a ‘proof of stake’.
Owners of Ether will now be offered the opportunity to stake some of their tokens in exchange for a yield expected to be around 5.2%.
Major exchanges including Coinbase are already offering customers the chance to stake some of their Ether with them in return for a yield.

Going green: According to the Ethereum Foundation, moving to a PoS model vs. PoW will lead to 99.95% energy reduction. By way of contrast, the Bitcoin blockchain – which remains with a PoW model – uses as much energy as Belgium in sourcing coins.

You have reached your destination: The Merge occurred when the Terminal Total Difficulty hit a key figure that represented the cumulative difficulty of all mined Ethereum blocks. Or something. Anyway, that figure was hit on Sept 15.

Ill behavior: Experts believe the new PoS system guards against fraud while opening up the system for further innovation. They argue that it is also good news for applications built on the blockchain such as NFT marketplace OpenSea.

Further reading: FTX’s Bankman-Fried continues to prop up struggling crypto players.

Earnings in brief

Partouche: GGR increased 10.8% YoY in Q3 to €167.9m. In the course of the quarter the group sold its stake in the Crans-Montana casino in Switzerland and closed its OSB and icasino operations in Belgium. It also acquired a stake in the Middelkerke casino, also in Belgium. The group generated €153m of the GGR figure from its French home market.

Analysts in brief

Flutter: Jefferies says US profitability and the contribution from Sisal will be key catalysts in FY23 onwards. Notably, the “drag” from US EBITDA losses of ~£250m in 2021 and 2022 will “evaporate”. Meanwhile, the boost provided by Sisal will add ~£250 of EBITDA next year.
Wynn: Issuing an upgrade, Credit Suisse say positive Vegas trends, a bottoming out of sentiment on Macau and a compelling valuation means Wynn represents an “attractive risk/reward”.

Newslines

California vote: A survey undertaken by the Public Policy Institute of California has found only 34% of voters support Prop. 27 to legalize online sports-betting, with 54% against. The survey didn't ask the question about Prop. 26 to legalize retail betting.

Trucking: Caesars has announced it is taking a sportsbook branded 18-wheeler on a tour around the US, stopping at sport events around the country.

Imploding star: Star Entertainment has been found unsuitable to hold a casino license in New South Wales after a review that found the Star Sydney to be a haven for money laundering and organized crime. The New South Wales Independent Casino Commission called the review “shocking”. Star said it is reviewing the findings and will respond within 14 days.

XLMedia has extended its partnership with Advance Local to provide betting content services to its MassLive.com portal in Massachusetts.

Gaming Innovation Group has been granted a license to provide its PAM and sportsbook solution in Pennsylvania.