• Investors circle two of the biggest casino operators.

• In +More: GiG Media acquisition, Macau numbers.

• Flutter’s CFO departure doesn’t go down well with investors.

• Pips squeak: Flutter and DraftKings’ bad tax reaction.

• Startup focus is newly minted affiliate Third Planet.

This game is all just snakes and ladders.

Troop maneuvers 

Icahn opener: In something of an activist double whammy last Friday, Penn Entertainment investor Donerail issued a letter severely criticizing Penn’s management while a news report from Bloomberg disclosed famed activist Carl Icahn, who has previous with the gaming sector, has “amassed a sizable position” in Caesars Entertainment.

• Both share prices soared on the news, with investors betting on more corporate moves for two of the biggest US casinos and online betting and gaming operators.

• Caesars gained as much as 15% at one point before closing up nearly 12%, while Penn climbed more than 19% on the day.

🔥 Penn and Caesars’ shares up on activist news

Donerail party: Icahn, who owned a chunk of the Caesars’ pre-Eldorado merger entity, offered no comment. But the latest salvo from indignant Penn shareholders was much more public and piled on the pressure after similar public outbursts from shareholders HG Vora, which controls 9% of the shares of the company, and Greenlight Capital.

• In January, HG Vora went public with its desire to get a seat on the board and prevent the company “fumbling the opportunity” with ESPN Bet.

• In late May, David Einhorn’s Greenlight Capital said the Barstool “fiasco” had left investors with “serious doubts about the company’s strategy and management’s competence to execute.”

Piling in: In an open letter, Will Wyatt, managing partner of Donerail, said it was the investment group’s belief that the share price was “significantly below” the intrinsic value of Penn.

• The letter railed against Penn’s record of investment in its online operations before complaining about an “obstinate” board that was “willing to compensate CEO Jay Snowden an exorbitant amount of money.”

• Recall, Earnings+More also revealed what one source suggested was “excessive” private jet usage within the last two-and-a-half years.

Good knight and good luck: Analysts at Jefferies said on Friday that the Donerail letter “highlights not only key drivers of the shares’ (under)performance but also prospective alternatives for driving higher value.” 

• Sources spoken to by E+M on condition of anonymity suggested Penn Entertainment could be the subject of a white knight bid in the coming months.

• Potential buyers include Boyd Gaming, which would be interested in the B&M gaming assets, and Hard Rock.

While Donerail bemoaned the “destruction of value” represented by Penn’s “inability to execute” in interactive, the company’s “newest bright and shiny object” ESPN Bet could yet find a home with another buyer.

• Sources suggested Boyd would be unlikely to wish to continue with ESPN Bet. But it could likely find another company that might take it on, such as Rush Street.

• In comparison, it is thought by sources that Hard Rock would in all likelihood keep ESPN Bet and would relish the opportunity to leverage the brand in Florida.

Read the room: The content of the Donerail letter and the share price reaction mean events now “have their own momentum,” said one source. "If your shareholders are calling for a review and the share price is telling you that it could be worth more, then maybe the board might feel it can save face,” the source added.

Proxy music: What the Penn board will want to avoid is a looming proxy battle over board appointments. While there won’t be a challenge in the upcoming AGM vote in June, it is believed activists HG Vora are primed to present a slate of alternative board directors at next year’s AGM.

• “The board is fully aware of the HG Vora threat,” said one source. “HG Vora is digging in.”

See tomorrow's special Due Diligence edition for more on the content of the Donerail letter and what might happen next at Penn.

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Venture capital firm Yolo Investments manages in excess of €500m in capital across 100 exciting fintech, gaming and blockchain companies. The Yolo Investments' Gaming fund, regulated by the Guernsey Financial Services Commission, has taken positions in fast-growth suppliers and operators, including Dabble and Enteractive. Yolo Investments (yolo.io) wants to hear from readers of this newsletter. Get in touch with your pitch, or for a chat about innovative products which can plug into our investment ecosystem.

+More

GiG Media has announced the acquisition of iCasino advocacy and review platform Casinomeister for €3m. GiG said the acquired business will continue to operate under its brand within the portfolio, “preserving its unique voice.” The deal is expected to close in June. 

Earnings in brief

Playgon: The live casino provider saw a sequential decline in revenues in Q1, down 20% to C$230k ($169k) after the loss of a customer. Net losses rose 12% YoY to C$4.5m.

By the numbers

Macau: GGR was up 30% YoY in May to $2.51bn, a sequential improvement of 9% and representing the highest post-pandemic total to date though still nearly 20% below 2019 levels. The analysts at Seaport suggested the total was “better than expected.”

• “If it had not been for extreme weather during the end of the Golden Week period, May would have likely come in stronger,” the team added.

Arizona: Belated March numbers showed sports-betting GGR up over 10% to $37.9m on handle that rose 42% to $758m. FanDuel remains the market leader with 46% of GGR share, followed by DraftKings on 29%.

Career paths

Finger lickin’ good: Churchill Downs has appointed Sam Ullrich as VP of investor relations. Ullrich was previously director of commercial and financial planning for KFC. Evoke has appointed Anne Sewell as chief people officer. Star Entertainment has installed Jeannie Mok as group COO. Catena Media has named Jasleen Kals as VP of product. Carl Hallam, the former head of marketing at BetVictor, is to lead the new Gibraltar hub of Manchester-based marketing business Vega.

Flutter departures

Goodbye and good riddance: As if to wave a dismissive goodbye to Flutter, its share price in London suffered a volatile day on Friday when the confirmation of the company moving its primary listing to New York coincided with the news of the departure of CFO Paul Edgecliffe-Johnson.

• The shares fell 17% at one point in early trading before recovering to end the day less than 5% down.

• The whipsaw move wasn’t replicated in the US where investors took a more sanguine approach, nudging the shares up just over 2%.

👻 Spooked: UK shareholders react badly to news of Flutter’s CFO departure

Nothing to see here: The team at Jefferies said the share price reaction was understandable given the “immediate effect” nature of the departure, but insisted it did not reflect any change in guidance.

• “Standing back, we expect Flutter would have been obliged to include commentary around any material change in the numbers or guidance, if that were the case,” the team added.

• “A lack of commentary should therefore be taken as reassurance around the financials.”

With great power comes great responsibility: Recall, Flutter said on Friday Edgecliffe-Johnson was leaving due to personal reasons and an inability to commit to spending time in the company’s new US HQ in New York. 

• He has been replaced by Rob Coldrake, previously Flutter International’s CFO, and the team at JMP said his immediate task would be to decide how to wield Flutter’s financial firepower.

• “We believe the first large test will be Brazil when it flips to a legal market in late-2024 and how the new CFO allocates capital through investment and/or M&A.” the team suggested.

The team at JMP also noted the “next goal” for Flutter would be inclusion in the S&P 500, which as they pointed out, currently has no online gaming company. “Given Flutter’s profitability and global scale, it meets nearly all criteria as a candidate for inclusion,” the team argued.

The pips squeak

To the hilt: Flutter’s share price action on Friday came after a volatile week for the bellwether’s of the online betting and gaming sector. Flutter ended the week down over 5% while rival DraftKings shipped almost 15% of its market cap on the news of the tax hike in Illinois.

• Recall, the new graduated tax policy will see the pair pay a punishing top rate of 40% on their OSB operations in the state.

😱 The shareholders are revolting

Contagion risk: The analysts at Truist said the share price moves reflected concerns that other states “could potentially follow suit.” But as the team at Jefferies said last week, the moves in Illinois were very much about protecting local casino operators.

• “Elsewhere, we have only seen a recent New Jersey proposal for a rate increase to 30% (from 15%) and Ohio doubling from 10% to 20% last year,” the team added. 

• “There appears little governor support in NJ and Massachusetts, where the likelihood of an increase seems negligible.”

Mitigate, mitigate: Still, Jefferies added that rising taxes were a “likely narrative” as the market matures. “Where taxes have risen elsewhere, operators recapture lost margin with lower promotional activity, less favorable odds to customers and market share shifts to the larger operators,” they added.

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Growth company news

The decentralized betting exchange BetDex founded by ex-FanDuel co-founder Nigel Eccles, has officially launched operations in Ireland. See Wednesday’s The Token Word for more.

The AI-generated slots provider Xgenia has launched a platform that it said would allow operators to create unique slots games using AI technology in under 20 minutes.

Startup focus – Third Planet Affiliates

Who, what, where and when: Founded by Cal Spears and Adam Small, Third Planet is a remotely operated entity that, says Small, brings “top-quality casino and lottery news to the US-facing industry without putting anything behind a paywall.” 

• “[Cal] and I co-founded PocketFives.com way back in 2005 and have since worked together on multiple other businesses, including the network of sites [RotoGrinders, USBets and SportsHandle, among others] that sold in 2019 to Better Collective for ~$58m,” Small adds.

• Brett Smiley, who co-founded SportsHandle, was an early addition to Third Planet as an equity partner and chief content officer.

Funding backgrounder: So far, there has not been any outside funding.

The Third degree: “Right now, resources are lacking for those who want to follow and educate themselves about the online casino and lottery spaces,” suggests Small. “Particularly in lottery.”

• “We aim to bring higher-quality journalism, as well as tools and resources, to those who want to better understand these products and the industries pushing them forward.” 

• While it takes time to build news brands and gain a reputation, “early signs point to this being an area of need for the industry.” A need that has been well received, he adds. 

No messing: For now, Third Planet is solely US-focused, covering regulated online casinos, the sweepstakes and social casino sector, and the lottery. “We’ll also be hanging around the rim looking for good sports-betting opportunities if they come up. But as of now we’re not messing around in that space,” says Small.

• Starting out with LotteryGeeks.com, Third Planet launched its second site CasinoReports.com in late March, and added former USBets managing editor Eric Raskin to the team.

• The company will be launching version 2.0 of both sites “sometime this summer,” and expects to be approved for affiliate licenses in New Jersey, Pennsylvania, Michigan and West Virginia “quite soon.” 

What will success look like? Medium term, Third Planet’s goal is to be known as the top source for high-quality journalism on online casino and lottery. It also expects “consistent” positive revenue by “sometime in 2025.” 

• As for an exit, given the rapidly changing M&A environment, “it’s too hard to know” what that looks like, says Small. “As such, none of us are thinking too much about that right now.” 

• But, he adds: “We want to position ourselves as relevant and make money, and if a good opportunity to sell comes along in a few years we’ll be ready to evaluate it.” 

Calendar

• Jun 4-6: G2E Asia, Macau

• Jun 6: Gaming in Holland, Amsterdam

• Jun 18-20: Canadian Gaming Summit

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