Good morning. On today’s agenda:

• DraftKings caught up in hack attack.

• Morgan Stanley reboots on the sector.

• Bally’s secures funding for Chicago project.

• AGS sets the Apollo record straight.

That’s not my name.

DraftKings hack attack

Shares recover some ground after reports suggested DraftKings customers were seeing money being withdrawn from their accounts without their knowledge.

Hack me or sack me: DraftKings shares recovered to end the day 5% down yesterday after the Action Network broke the news that customer account details had been compromised by hacks on third-party sites leading to unauthorized withdrawals.

• The company confirmed the reports but said that none of its security systems were breached and that only around $330k of customer funds were affected.

• “We currently believe that the login information of these customers was compromised on other websites and then used to access their DraftKings accounts where they used the same login information,” it told Action Network.

• Having fallen 10% in early trading yesterday, the shares recovered some ground to end the day off by 5%.

😱DraftKings shares recover ground after hack news

Not ideal: Analysts pointed out that the news of the breach came at a “crucial time” for DraftKings ahead of the soft launch in Maryland, which will launch fully on Wednesday, while the World Cup also started over the weekend with the USA playing yesterday (a 1-1 draw with Gareth Bale).

• “While impact to the overall DraftKings business appears to be minimal at this point, consumers might show hesitancy depositing money into the platform over the next several days,” they added.

• They noted the unconfirmed reports of other unauthorized withdrawals elsewhere in the OSB/online gaming ecosystem.

• If the past is any guide: The JMP team suggested the evidence from past security breaches is that the impact is minimal.

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Analyst reboot

Morgan Stanley has issued a sector note suggesting online sports betting and iGaming is the best growth story in consumer stocks.

Here, there and everywhere: In an initiation note heralding the arrival of ex-Goldman Sachs analyst Stephen Grambling, the team at Morgan Stanley put DraftKings up as their top pick, suggesting the profit inflection point is “here”. The team point to Pennsylvania, where they say promotional spend has “declined precipitously” since the state went live in 2019.

• With the advertising costs falling, MS suggested they “see a path to EBITDA margins more consistent with the more mature UK/Australia markets at 20%-plus”.

• Further reading: See E+M’s recent Due Diligence on DraftKings and profitability from last week.

Other highlights: MS cautioned, though, on whether or not iGaming is accretive for the gaming sector, saying that, similarly to ecommerce, it has the potential to both drive incremental revenue and cannibalize incumbents.

• They noted that land-based gaming in states with online has lagged that of non-online states in the post-Covid recovery.

• “It appears that some component of iGaming is hampering growth in physical locations, which could pressure margins of properties,” the MS team added.

• But new players and increased spend could be driving overall spend higher.

• Around the world: MS also tipped Las Vegas Sands, suggesting the company’s “clean balance sheet” should enable it to take advantage of new gaming developments globally.

• Closer to home: Meanwhile, MS suggested the “squarely Las Vegas locals” focused Red Rock has “some of the best demographic trends and highest barriers” for any gaming market.

Bally’s Chicago backing

Bally’s announced it has secured $500m of backing from an unnamed real estate private equity firm to build its Chicago casino.

Brass construction: The deal will see the unnamed investor stump up $200m in order to buy a 30-acre parcel of land on which Bally’s Chicago will be built, plus an additional $300m of development funding with leaseback arrangement for the land. The initial rental cap rate is 8.5% annually, moving to 7% after certain construction milestones.

• Wells Fargo estimated rent payments will be ~$15m in 2023 and $35m in 2024.

• They suggested the deal “addresses the financing overhang” relating to its $1.7bn project.

• The team at JMP noted Bally’s now has the wherewithal to complete the project having also recently received $635m from a sale/leaseback of the Tiverton and Biloxi properties with GLP and with ~$300m of annual free cash flow.

Stock watch

🚀Bet-at-home soars over 26% yesterday

Analyst takes

AGS: After a virtual meeting with management, Truist suggested the departure of Apollo as  a shareholder and the rejection of the $370m Inspired bid were not linked and that it was the board’s decision to repulse the takeover bid on the basis of undervaluation.

• Stub: AGS also noted that Apollo's investment in AGS was the last remaining from a nine-year old fund that had since closed.

• The Truist team also noted the significant potential for the Naskila property in Livingston, Texas, that could see the company ”develop a sizable resort-style Class II casino” following the Supreme Court decision in the summer.

Newslines

No booster shot: Morgan Stanley suggested the resumption of eVisa travel, which restarted on November 1, had failed to result in increased visitor numbers.

Entain has been awarded licenses by the State Administrative Office of Saxony-Anhalt for the operation of its gaming and poker services throughout Germany.

Better Collective has initiated a share buyback program for up to €5m to cover future payments relating to acquisitions and LTI programs.

Inside The Pocket, the F2P provider, has announced a deal with Brazilian operator PixBet for the 2022 World Cup in Qatar.

King of Queens: The New York Post has reported that Steve Cohen, the NY Mets owner, is planning to build a soccer stadium in New York as part of his casino bid. Cohen is reported to be in talks with Hard Rock over the deal.

Asking price: iGB is reporting that Catena Media has received “numerous” offers for its AskGamblers unit but that the sale price will be below what it bought it for.

What we’re reading

Crypto is the ‘commoditization of populist anger, gambling and crime’: Stephen Diehl interviewed in the FT.

On social

Gutsy…

Hillel Neuer @HillelNeuer

⚡️ BREAKING: #Iran football team captain defies regime, backs protests: “We have to accept that conditions in our country are not right & our people are not happy. They should know that we are with them. And we support them. And we sympathize with them regarding the conditions.”

2:38 PM ∙ Nov 21, 2022

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Calendar

Dec 6: The Startup Month #5

Dec 13: Deal Talk #5

Dec 20: Due Diligence #2

Contact

• Scott Longley scott@clearconcisemedia.com

• Jake Pollard jake@openmediaservices.com