• Profit shortfall blamed on the worst run of sports results since PASPA.

• Coates hanger: bet365 ‘disappoints’ with its annual results.

• Analysts wrestle with likely Trump tariff effects on Macau.

• High hopes: a focus on the only gaming IPO of 2024.

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Losing streak

Coming up short: The most customer-friendly run of results in the NFL regular season since the launch of regulated sports betting in 2018 has been blamed for Flutter’s revenue shortfall of $390m and a hit to forecast adj. EBITDA of $260m.

• In a brief update issued after market close yesterday, the company said Q4 revenue would be 2% lower at midpoint at ~$5.78bn.

• After some cost mitigations, including less market expense, adj. EBITDA will now be ~$205m lower at $505m or 7% down at midpoint.

• Q4 net revenue margin across its sportsbook was 6.6% for the quarter.

Taking a knock: The post-close announcement caused a near-3% fall in after market trading, implying a $1.3bn loss of value. The team at JMP said they believed the worse-than-anticipated Q4 earnings would be “viewed in a negative light” by investors.

• Lancing the boil: Still, they noted that shares were already down by 10% in the past month vs. a 3% decline in the Russell 3000.

Gut punch: The impact on the US business was stark. Total GGR was off by $643m, meaning revenue came in 6% lower at ~$1.59bn or $550m short of the previously communicated target. US adj. EBITDA took a $360m hit, coming in 56% lower at an estimated $161m.

• The bad run of NFL results continued right to year end, with what Flutter termed as “significant adverse results” on December 30.

• The company said the NFL season-to-date has seen the highest rate of favorites winning in nearly 20 years.

Temporary respite: The bright spot for Flutter was that the ex-US business continued to see momentum over the quarter, partly due to what it said were “favorable” results in the English Premier League.

• Revenue and adj. EBITDA would be ~1% and ~2% better than the previous expected guidance of $8.2bn and $1.82bn respectively.

• Fluter said the “temporary nature” of the sporting results meant it still had confidence in its long-term prospects.

Cape fear: The news confirms the fears of analysts who in recent days had been busy cutting their estimates for both Flutter and rival DraftKings.

• JMP said this week that the NFL season had been “nearly historically bad” for the sportsbooks in Q4, with the trend of heavy favorites winning being “front and center.”

• They added that the first several weeks of the year, including the NFL playoffs, will be “optically important” not only for Flutter but also for the industry.

Feeling the heat: The news of Flutter’s warning means its rivals, notably DraftKings, will now be under pressure to follow suit. JMP said this week it expected DraftKings was all but certain to miss guidance, estimating a $105m-$110m hit to adj. EBITDA.

• Recall, last week JP Morgan also lowered its revenue and adj. EBITDA estimates for DraftKings by $150m and $100m respectively, noting prophetically the further run of unfavorable sports results in December.

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The previously announced acquisition of CasinoPortugal by Cirsa has received the needed approvals from the gambling regulators and the competition authorities.

Red Rock Resorts is reported by the Las Vegas Review-Journal to have begun construction of the $116m Phase II expansion of its Durango property, which includes additional casino floor space.

Jackpot.com has launched its online lottery app and website in Arizona, its eighth US state.

The Musburger Media-owned VSIN Sports Betting Network will be available via SiriusXM as of January 17.

Everyday people

Flagging: Disappointing is not a word oft-used when talking about the performance of bet365, but that was how the analysts at Regulus termed the results from the company’s accounts for the year to March 2024.

• The figures were still positive: Gambling revenue rose 9% to £3.7bn but, while betting revenue rose 11%, gaming was flat.

• As Regulus noted, the numbers were boosted by the year featuring 53 weeks vs. 52 weeks in the prior 12 months.

• The team added that the 9% decline in customer deposits to £394m was a “sign of flagging momentum.”

Rebound: Still, profits did rebound to £396m following the loss reported for the previous year of £24.5m, which the company said was due to investments in new market launches and a sizable increase in its tech and infrastructure spending.

• Regulus also noted that cash on hand and investments ex-customer funds totalled £1.8bn. “Disappointment is perhaps therefore relative,” they added.

• Similar perspective is needed when looking at the halving of boss Denise Coates’ pay – down to £159m.

Worry monster: Yet, Regulus do worry that bet365 is losing market share “dangerously rapidly” in an environment where in-play growth has stalled and is now a “relatively mature commodity.”

• “Significantly, US #2 DraftKings generated 85% of bet365’s revenue in the same period and its comparable FY25 revenue is likely to be materially bigger,” they added.

• Elsewhere, they noted Kaizen Gaming is “catching up fast” and is now likely to be #1 in Brazil, “knocking bet365 off a long-held top spot.”

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Analyst takes

The river runs dry: The analysts at JMP argued that the rate of conversion of fantasy-into-sport betting appears to be slowing, at least for DraftKings and FanDuel.

• But the team added that “incremental verticals within gaming are building momentum” outside traditional sports betting, such as PrizePicks and Underdog Fantasy.

• Moreover, they believed several of the larger fantasy companies are now generating revenue in the hundreds of millions to >$1bn range.

• “The momentum will continue to capture customer wallets,” they said.

Macau: The weaker-than-expected December numbers were generally seen as being “underwhelming,” said the team at Seaport, who suggested the concerns over GGR and “geopolitical developments” were weighing down on Macau-related stocks.

• Setting a more hopeful tone, though, are the early gaming revenues from January, which Jefferies analysts reported as being ahead by 16% in the first five days of the year.

• Deutsche Bank analysts cautioned that the noise around January and February was caused by Chinese New Year being earlier this year.

• Near term, the DB Q1 forecast of 4.5% YoY growth was less than the 7.1% consensus estimate.

Tariff raff: The DB team tackled the subject of those geopolitical concerns, namely the likely reaction to Trump’s threatened tariffs on Chinese goods. As DB noted, “while the rhetoric and potential actions should have little to no effect on the Macau operator stocks, it is likely they will.”

• According to DB, historically there has been “little correlation” between Macau fundamentals and US government policy abroad.

• The evidence does point to tariff implementation during Trump’s first term having an impact on VIP play. But reliance on VIP has reduced, meaning that “should not be a rational concern.”

Enigma machine: Complaining about the complexity of attempting to understand the puts and takes (mostly takes as far as the management incentive scheme is concerned), the team at Peel Hunt said forecasting the future for Playtech is “hard.”

• Still they believed the Caliplay JV would “continue to deliver material cash” to Playtech while management turned the rest of the B2B business cash flow positive.

• “Under the new scheme the team is incentivised to do so,” they added.

Venture playground

Growth company focus – High Roller Technologies

Why go down the IPO route? It is rare for smaller companies to opt for an IPO, but, for High Roller, this path represented “a massive opportunity, not just for us but also for investors to participate in the rapid growth of the online casino industry,” says Ben Clemes from previous owners Happyhour.io.

• The decision to go public was to not only fund growth in the company’s current markets but to also finance its strategic expansion into new territories.

• “What makes High Roller’s listing unique is not so much the size of the company, but the achievement of becoming one of the few pure-play online casinos successfully listed on the NYSE,” says Clemes.

• Until this point, the company had been entirely self-funded by its founders.

How will High Roller capture and retain investors? “The High Roller experience – centered around exclusivity, excitement and world-class service – positions us as a premium offering in this space,” says Clemes.

• He believes that to keep investors engaged and informed, transparency and consistent communications are key. “This includes sharing updates on our performance, strategic initiatives and market opportunities so investors can confidently be part of our journey.”

What’s next? M&A is “certainly something that remains on the horizon if the right opportunity aligns with our overall strategy,” says Clemes. But the immediate plan is to “execute on our strategy post-IPO, deploying capital into our existing markets and fueling growth.”

• The company will also continue its market expansion strategy, which has started with the planned launch into the Ontario market in H225.

Funding news

Friendly society: UK-based social-betting company Betmate said it has received $2m of funding from London-based venture capital outfit Accelerate Ventures, which itself was only formed last year. This is Accelerate’s debut investment.

• Betmate co-founder Ryan Lawrence said on LinkedIn this marked a “significant milestone” for the company.

• Fellow co-founder Declan Dowling said the new money would help the company pursue its aim of providing “fun, social, responsible and low-stake alternatives to traditional sports betting.”

• Accelerate said in its post that the funding would help the company build the “next phase” of the business, building white-label games under the name Engage Games.

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Earnings calendar

• Jan 9: Mohegan (call)

• Jan 22: Las Vegas Sands

• Jan 23: PointsBet

• Jan 29: BlueBet

• Jan 30: Evolution, Rank

• Jan 31: Red Rock Resorts

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.

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