Good morning. The news this week that DraftKings would not be pursuing its $22bn bid for Entain dominated the headlines, but it is the comments from Kindred and PointsBet about the pressures in the US that are equally instructive. We already knew about the extent of the marketing spend from the revenue for Michigan, in particular. Now we also know the effect of this spend and it doesn’t spell good news for those lower down the pyramid. Is the market share battle over? Not yet. But the pressure is telling on those hoping to gain and retain a foothold.

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Churchill Downs earnings call recap

The top line

• Net revenue rose 16.3% to $337.8m and adj. EBITDA rose 28% $156.1m.

• Live racing and historical racing (HRM) was up 14.6% to $81.5m; TwinSpires was down 19.6% to $102.2m and gaming was up 38.8% to $185.6m.

Easy does it: CEO Bill Carstanjen said the group would remain cautious in how it approached OSB and icasino. He said the focus was on expanding the footprint “smartly and efficiently and then evaluating what works from a marketing perspective,” and once again discounted any possibility that CHDN might enter any kind of marketing arms race when it comes to recruiting OSB and icasino players.   

Twin winnings: With the 2020 Kentucky Derby taking place in September instead of May, Twin Spires was down 19.6% YoY but up 31% vs. 2019 (active uniques +23%). The analysts at Macquarie said the group could leverage Twin Spires with its emerging OSB and igaming business “to build larger customer acquisition channels”. “We believe the high barriers to entry makes horseracing an attractive segment for those with exposure to the industry,” they added. President and COO Bill Mudd said the pandemic had seen online horse racing numbers peak at c70% during 2020 and had now normalized to c50%.

Received loud and clear: Speaking of horse racing and competitors coming into the market, Carstanjen gave the notion polite but short shrift. New operators “need the approval of the content creators” such as the racetracks and breeders and this meant high barriers to entry. In other words, any new brand would get no help whatsoever from CHDN in getting approved. Discretion was obviously the better part of valor as none of the analysts asked for his opinion on New Jersey recently legalizing fixed-odds horse racing betting. 

Free movement: The Arlington racetrack sale to the Chicago Bears and upcoming sale of 116 acres around the Calder Casino in Florida (expected to bring in ~$116m) will help finance CHDN’s key projects focused on its flagship racetrack, Derby City Gaming outlets and Rivers des Plaines and Fair Grounds properties. Carstanjen said the group would leverage their “geographic density”. “It’s important that customers can enjoy seamless movement and spend across facilities,” he said. 

“We never made it a focus, but within Kentucky it’s apparent that we can leverage it and we can add an extra facility in Oak Grove.” “These are exciting times, we have strong cash flow and monetization of underutilized assets that enable us to invest in new opportunities.” 

VICI earnings call recap

Predictable: The focus of the call was the upcoming finalization of the “transformational” merger with MGM Growth Properties. As Truist noted, VICI CEO Ed Pitoniak “left no doubt there are multiple avenues for incremental growth”. This likely means more M&A with a “brisk pipeline” in sight. The company believes Las Vegas remains an interesting market. Analysts also noted the comments from management that investment-grade status was “well on the way” with discussions continuing with ratings agencies.

Earnings in brief

Gaming & Leisure Properties: Revenue fel 2.9% to $298.7m but adj. EBITDA rose 4.3% to $276.7m as the company saw all 50 of its properties now reopened. During the period, GLP completed the sale of the Hollywood Casino Perryville back to Penn National resulting in proceeds of approximately $31m.

Startup shoutouts - Huddle

Calling the shots: Hoping to take up the cudgels in the battle for sports-betting services provision is Huddle, the London and New York-based sports-betting services provision challenger which recently launched its US sports odds service. Led by founders Francesco Borgosano and Jesse Wachtel, the company has the backing of Emma Capital, the Czech-based private equity firm, which took a 20% stake back in January.

The thick of it: Ownership of the tech behind sports-betting is a hot topic right now as is capability around in-play and same-game pricing.

It means that it is not just Huddle's product that is attractive but the whole company itself. As with other recent deals involving service providers, this could be B2B or B2C. But Huddle is working on offering a managed trading services (MTS) product and Wachtel suggests that exit conversations “should really wait”.

Event horizon: Huddle is in late-stage conversations with two initial potential clients which it hopes to finalize in November, after which Huddle will be looking at its next fundraise which it hopes to complete in Q1. “We have a sense of what we need - maybe between $6-7m,” says Wachtel.

Sector watch - payments

Superapp: Much as with gambling, the big news in the payments sector in recent weeks was the deal that never was. We’re talking about PayPal’s swiftly withdrawn bid for Pinterest which, a day after it was first announced, was swiftly pulled as investors appeared to question the logic of the $45bn offer.

Feeder: In response to the initial news, analysts were warily positive. “We could see how Pinterest could enhance engagement between consumers and merchants with PayPal being a central facilitator in the commerce journey, thereby feeding into the company’s vision of being a super app,” suggested analysts at Keefe Bruyette & Woods.

Pull the pin: One person’s good fit is another’s an awkward match, however, and eventually it was deemed that the business models were too different for the deal to make sense. Notably, when the news broke that the deal was off, Paypal shares responded positively, rising 12%.

Be more zen: The rest of the payment sector has also been busy. Paysafe has extended its partnership with payments provider Zen.com to enable users of its ecash solution Paysafecash to deposit funds into Zen’s virtual wallets across more than 20 European countries. In gaming, Paysafe has also “revamped” its Skrill USA offering allowing for instant deposits and payouts. Its own research found that fast and frictionless payments were more important to US punters than brand reputation, odds, sports markets and bonuses. 

A Nu you: Fresh from being granted an online gaming service provider vendor registration by the Connecticut Board of Consumer Protection, Nuvei also announced a deal to supply BetMGM with its payment solutions for its mobile casino brands Borgata Online, PartyPoker and PartyCasino.

What we’re promoting

Reputation Matters: Tickets are selling fast for the UK Gambling’s Future At Stake event which takes place on Tuesday 2 November at the Ironmongers’ Hall in the City of London. The event will consist of panels discussing the sector’s positioning as it enters a crucial phase of the Gambling Act review process. The event is headlined by John O’Reilly, Rank chief executive, who will provide the keynote. For ticket information, visit the Eventbrite page.

Datalines - Virginia September and Q3

• September handle ~$294m, +61% MoM. Quarterly handle down $60m QoQ to $638m

Falling leaves: September figures are due out on 1 November but a recent Lottery Board presentation enabled Deutsche Bank to calculate September handle of ~$294m which was up 61% MoM but ~3% below the March peak in the market, despite five incremental market entrants that were live by September end, the analysts said. DraftKings and FanDuel lead the market with 64% of handle in Q3, but FanDuel (at 36.9%) experienced ~950bps loss of share QoQ. 

Uneven timing: The separate launch times of the operators meant “the cumulative handle share data isn't entirely telling” and with Caesars Sportsbook launching in August its market share increased ~230bps QoQ. Barstool also launched in early August and had a 3.1% market share in Q3 (pro forma ~5%). The top four operators accounted for ~94% of handle. 

Newslines

Home game: Newly-listed Rivalry Corp. has submitted an application to the Alcohol and Gaming Commission of Ontario to become a fully-registered operator of online gaming and sports betting. Rivalry hopes it will commence esports, sports betting, and igaming in Ontario within the first half of 2022.

Horse tack: BetMGM is live with its horse racing mobile app in Ohio and is set to launch the product into more regulated jurisdictions across the country. The group has partnered with NYRA Bets, the official content and online wagering platform of the New York Racing Association, to produce the platform. 

On the house: Holland Casino has added IGT’s PlayCasino games to its icasino product portfolio. The Dutch operator is one of 10 operators to have been granted a dot.nl license and is busy developing market share while major competitors such as Unibet or Betsson observe the cooling-off period and hope to be granted licenses in 2022.   

What we’re reading

Good neighbors: Hard Rock aiming for two casinos eight miles apart.

What we’re listening to

Weihs words: The Gambling Files this week features an interview with Ory Weihs, the founder and former CEO at XLMedia, on the marathon that is going through an IPO process. “The bankers will promise you the world, but they don’t know.”

On social 

Chris Grove @OPReport

Illinois: On-the-ground commentary is rapidly trending positive on the chances that Illinois ends in-person registration for online sports betting. Powerful opposition remains, but “cautiously optimistic” is the common refrain from GR reps and lobbyists this week.

October 29th 2021

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Calendar

• 2 Nov: Reputation Matters, London, Caesars Entertainment, Red Rock Q3s

• 3 Nov: Everi, Golden Entertainment, MGM Resorts International Q3s

• 4 Nov: Aspire Global, Penn National Gaming, Gaming & Leisure Partners Q3s

Contact us

• Scott Longley scott@clearconcisemedia.com

• Jake Pollard jake@openmediaservices.com