Good morning. On today’s agenda:

• Entain buys Angstrom Sports for up to £122m.

• 888 shares crash as FS plan nixed, admits licensing review.

• A look at what to expect from the Q2 earnings season.

• The week ahead features Las Vegas Sands.

• Startup focus examines the sweepstake plans of Ultimate Odds.

You should watch, watch your step.

Entain’s next bolt-on

Entain snaps up specialist next-gen sports-betting odds provider Angstrom Sports for up to £122m.

Ang your hat: Entain has added a further bolt-on acquisition with the buyout for an initial £81m of the UK-based but US sports-focused pricing and analytics startup. The buyout price could rise to £122m depending on performance over the next three years.

• A deal was rumored in May. And Entain said today the purchase will add to its in-house suite of analytics, risk and pricing capabilities for US sport products.

• In particular, it said it would enhance Entain’s parlay and in-play products as well as “accelerating pricing expertise and risk management”.

• Jette Nygaard-Andersen, Entain CEO, said Angstrom would “unlock significant opportunities across BetMGM's US sports-betting offering”.

• The acquisition is expected to complete during Q3 2023.

• We told ya so: Recall, Angstrom was one of E+M’s 10 startups to watch for 2023.

Red rag: The move comes after Entain was on the wrong end of some shareholder pressure over its £750m STS acquisition. Major shareholder Eminence Capital said it was “outraged” by that deal.

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Crash, bang, wallop

888’s shares dived 25% on Friday after it admitted to UK licensing review, called halt to FS Gaming talks.

The Damned United: 888 said on Friday it has terminated discussions with FS Gaming regarding its plan to install Kenny Alexander as CEO, in part due to concerns raised by the UK Gambling Commission over his suitability for the role. 

• FS Gaming emerged as a 6.6% shareholder at 888 in June and unveiled a plan to have Alexander installed as CEO with Stephen Morana to take up the role of CFO and Lee Feldman becoming chair.

• 888 admitted it was now subject to a licensing review after the regulator expressed concerns over Alexander’s suitability due to the ongoing probe by the UK’s tax authorities over previous activities at GVC (now Entain).

• Entain said just prior to the FS Gaming news that it had entered into a deferred prosecution agreement with HMRC over bribery act violations with regard to its former activities in Turkey. 

Express yourself: 888 said it contacted the UKGC in the wake of receiving FS Gaming’s proposal, at which point the regulator “expressed its concern” over the potential appointments and told 888 it was in “close dialogue” with HMRC over the ongoing investigation.

• The UKGC requested it be kept abreast of developments and then on Friday it informed 888 that, lacking any further assurances from FS Gaming, it had decided to commence a licensing review.

• The UKGC said it believed the review was “appropriate in light of FS Group's investment… and the proposal”.

• 888 said it requested “clarification” from FS over the worries expressed by the Commission “but the most basic assurances that addressed these concerns were not forthcoming”.

• In light of the review, 888 said it concluded that FS Gaming’s appointment proposals “have no reasonable prospect of being approved” by the Commission.

• Moreover, “any actions by FS Gaming to effect a change of corporate control would likely put the Group's licenses to operate in the UK at immediate and significant risk”. 

You leave me no choice: Lord Mendelsohn, executive chair at 888, said the company was hopeful the review would now be brought to a conclusion “expeditiously”. He said the board had devoted “significant time” to consideration of the FS Gaming proposal but that it had “no option” but to terminate lest it risk its license in its biggest territory.

• He added that 888 was continuing its “temporarily interrupted” CEO search and hoped to announce an appointment in the “very near future”.

This ain’t over: In response, a spokesperson for FS Gaming said they were “completely surprised” by 888’s statement and “perplexed” by how 888 had “orchestrated this”. “We were engaged in dialogue regarding the best strategy to maximize the value of these world-class assets,” the statement  added.

• “We will continue with this effort.”

🚨 Hateful eight: 888’s shares hit the skids on Friday

Q2 preview

US online gaming’s inflection point is upon us. 

Show don’t tell: The main contenders in US OSB and iCasino are all predicted to achieve breakeven in Q2 with adj. EBITDA profitability just a whisker away, according to the analysts.

• The team at Wells Fargo said Q2 was the “show me” earnings quarter for EBITDA “inflecting positively” and that expectations were justifiably high.

• “We don’t see much reason DraftKings, Flutter and BetMGM won’t deliver upside revenue/EBITDA,” the team suggested.

• Protect and survive: But they added, with the top three controlling ~80% of the market, it’s “unclear” if the tier 2 operators such as Barstool, Caesars and Rush Street “are similarly thriving or simply surviving”.

• The team at Macquarie noted that “structurally improving hold” continues to benefit the OSB market leaders FanDuel and DraftKings.

The Weight: With EBITDA profitability a “foregone conclusion” sooner rather than later, the team at JMP suggested attention would now turn to the magnitude of the inflection to come later this year and into 2024.

• “Advertising, marketing and promotions will pull back, and profitability from legacy customers will well outpace current investment,” the team added.

• DraftKings said it would achieve breakeven in Q2 ahead of an expected marketing and promotions splurge in Q3, which would tip it back into loss-making territory. 

• Calm before the storm: Customer reactivation will start next month ahead of the NFL kick-off on September 8 with the Lions at the Chiefs. 

• The team at JMP noted that states with their first start of an NFL season – including Massachusetts, Ohio and now Kentucky – and the potential challenge from new entrants such as Fanatics and bet365 “could marginally shift market share” in Q3.

Macau 

A resurgent Macau will also be a prominent subject in the coming weeks.

Catalysts converter: Bullishness has replaced nervousness in Macau as the long-term picture has improved markedly in the first half. Monthly GGR totals are gaining ground on 2019 levels.

• June was at 64% of Jun19 vs. 53% recorded in May, and the team at Macquarie are forecasting further improvements over the summer as labor bottlenecks ease and properties become fully operational.

• But fears over the macro situation in China and the shape of the GGR recovery are the new causes for concern, said the team at Deutsche Bank.

Pump me up: In an initiation note on Galaxy Entertainment, Melco Resorts and SJM, DB said the gap with 2019 levels of GGR merely points to “plenty of room” for a further recovery with continued evidence of pent-up demand in China visitation.

• They also suggested that in response to the macro backdrop, the Chinese authorities could be contemplating a fiscal stimulus move.

• With the US and western Europe potentially heading into recession in H2, Chinese exports will face headwinds.

• “This means China will need to encourage domestic consumption to maintain GDP growth targets,” the CBRE team concluded.

The week ahead

Q2 proper gets underway with Las Vegas Sands on Wednesday.

London calling: Continuing with the Macau theme, the team at Macquarie suggested the newly opened Londoner property should help LVS grab market share. According to Deutsche Bank, LVS controlled ~25.5% in Q2 up to the end of May but this is down slightly on the 27.5% achieved in Q1.

• Macaqurie noted that Singapore continues to be the bright spot “and a reminder of what strong pent-up demand in the region could look like in 2023”.

• CBRE last week updated its Q2 EBITDA estimate to $911m.

Turkish delight: Betsson pre-announced its Q2 numbers just last week, saying revenues were expected to come in at €235.5m-€237.5m, up 27% YoY. Much of this growth came from the central and eastern Europe and central Asia region.

Calendar

• July 19: Las Vegas Sands

• July 20: Betsson

• July 21: Evolution

Datalines – New Jersey

On the up: Total GGR rose 14% to $457m, helped by a 69% YoY leap in sports-betting GGR to $67m, while iCasino rose 12% to $149m and land-based gaming was up 5% to $240m. In OSB, Wells Fargo estimated FanDuel’s share fell to 39% – a new low – while DraftKings was almost neck-and-neck on 38%.

Analyst takes

Light & Wonder: The journey towards 2025’s adj. EBITDA target of $1.4bn depends on exploiting key growth opportunities, including in live dealer, further iCasino content, more cabinet sales, casual games (largely via the proposed SciPlay envelopment) and, finally, systems transformation.

AGS: The team at Bain believes the machine manufacturer is continuing to take market share as it prepares the way to announce its 13th quarterly EBITDA beat.

• The team suggested AGS has “visible product and process momentum” for outperformance over the next 12 months. 

Startup focus – Ultimate Odds

Ultimate Odds launched its real-money sweepstake product across 42 states in late June.

Ready to rumble: Co-founder Jonathan Bierig says it has taken his company over a year to “go through the ins and outs of what we were really looking to build”, including UX iterations, user testing and research into what the market is currently offering. 

• “We finally felt our product can compete with the bigger fish and are ready to show that to the world,” he adds. 

Clean sweep: Noting the sweepstakes sector of gaming has “actually been around for a while”, Bierig answers head on the legality question.

• “I would argue that DFS and skill betting are more [of a] ‘gray area’ than sweepstakes, which is pretty clear cut in its requirements,” he says. 

• But he notes that no other offering in the space right now is “in our lane” in terms of the product features.

• “But we do feel as though we are giving the gaming space a unique gameplay that bridges fantasy sports and sports betting in a ‘March Madness pool-type feel,” he says.

• “We are also providing peer-to-peer bettors a top-tier UX that allows them to actually enjoy their time on our app and have opportunities to make real money.” 

Kings of the wild frontier: While still being in a “learning stage”, Bierig says the company wants to “conquer this space” before branching out into media with a few really exciting partners, which we will announce before NFL. 

• “We are really focused on our collabs,” he adds. “That is super key for startups.”

Growth company news

Betr is set to launch in Virginia in the coming weeks, according to CEO Joey Levy. It was granted a mobile-betting license in March.

Crab Sports has received an OSB license from the Maryland Lottery and Gaming Control Commission and will become the 11th operator in the state.

ZeroFlucs has agreed a partnership with Australian-based sportsbook platform provider GenerationWeb to provide same-game multis to its own clients.

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Career paths

Ruby Yam has stepped down as an independent non-executive director at Playtech with immediate effect due to personal family reasons.

NorthStar Gaming has elected Vic Bertrand, Brian Cooper, Chris Hodgson, Dean MacDonald, Chris McGinnis, Michael Moskowitz, Sylvia Prentice and Barry Shafran to its board of directors.

Marco Trucco is the new CMO at Videoslots.

Newslines

Penn Entertainment says the migration of the Barstool Sportsbook to its own proprietary tech stack has been completed, moving off the Kambi platform. The switch has been completed across all 16 of the jurisdictions where the app is live. 

• The move was made this weekend to take advantage of the lull in the sporting calendar occasioned by the MLB All-Star Weekend.

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