5 Nov: Weekend Edition no.21

Nov 5

Good morning. What’s more worrying if you are a DraftKings shareholder? That Jason Robins takes to Twitter to declare “it’s not about the money” or that he has a bored ape as his avatar? The spat occurred yesterday after an extract of a sell note from analysts at Roth Capital was posted saying DraftKings was likely to miss its Q3 numbers when it publishes later this afternoon. We’ll find out soon on that front. But Robins hopes to keep attention focused on the long-term and the $1trn valuation he boasted about on Twitter. “Do you think Bezos or Elon care about the money?” Robins asked portentously. Probably not. But will DraftKings reach the ubiquity levels of Amazon, AWS or even Tesla? That is a much more difficult question to answer and the news from elsewhere in the sector yesterday suggested that ubiquity comes at a price.

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Penn National Gaming analyst reaction

Portnoy complaint: Initial reaction to Penn National Gaming's missed Q3 forecasts yesterday afternoon was quickly overtaken by a Business Insider article about Barstool Sports founder Dave Portnoy’s alleged treatment of women. Portnoy denied the allegations and followed up with a nine-minute video on Twitter in which he questioned Insider’s motives. PNG shares dropped 9% when its Q3s came out, this turned into a 20%+ drop in the wake of the Insider story.

Unwanted scrutiny: Analysts were generally sanguine. Truist lowered 21-23E EBITDAR by 4-6% and pointed out that “Portnoy has weathered similar storms in the past”. However, “multiple constituents may need clarity on the situation before we can fully understand the longer-term ramifications for Barstool and Penn.” The team at Wells Fargo said a ~20% drop in share price “may seem harsh”, but gambling is a highly-regulated industry and such stories invite “unwanted scrutiny and become a major distraction” for both management and investors.

“Timing is also not ideal given recent concerns on excessive USSB marketing/promotions and calls for more responsible gaming,” the Wells Fargo team added.

Overreaction: The Credit Suisse team suggested the share price reaction yesterday was “overdone” with the implied multiple of 8x FY23 Street EBITDA estimates suggesting zero value was being ascribed to either Barstool or the recent Score Media & Gaming acquisition. “We think that Score Media & Gaming was one of the most attractive takeover targets in OSB, and that the launch in Canada (now expected in 1Q22) can be a real catalyst for shares.”

Talking point: The high-profile nature of the sports-betting sector right now is perhaps unprecedented and certainly the media profile of the likes of Portnoy and Robins is something new. They would like to see themselves as being at the forefront of multimedia, lifestyle brands with key positions in a wide spread of marketplaces, from NFTs to new media with bookmaking somewhere in the mix. The outside world - and particularly punters - might opt to see them as something different.

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Bally Corporation analyst reaction

Tough road: Bally's Q3 results were viewed in a positive light by the analysts overall. Wells Fargo said it had “incremental confidence” that the group had a realistic strategy for OSB and icasino in the US.

But the Wells Fargo team “maintained the view that the company has a tough road ahead both internally (developing/integrating its tech stack and digital products, with Bally Bet 2.0 now set to launch in 1H22) and also externally given the high degree of competition/promotions”. The group’s new CEO, Lee Fenton, came off as “both credible and realistic in his view of the USSB/iGaming market”.

Interactive key: Jefferies said plans to generate FCF, invest in properties and “in North America interactive” were all positive, but intimated that digital would play a key role in the group’s progress, especially as “Interactive/Gamesys doesn't anticipate much impact from the UK white paper”. “We are now including contributions from Gamesys, which is expected to grow at high single digits at margins of around 28-30%”. Truist said Bally’s “underappreciated interactive strategy was moving ahead” with E2022 revenues of $125m and losses at ~$80M (~$60M in 2023). “It’s too soon to say when Interactive could turn positive (...), management noted they walked back from prior 10% market share goals in the US at maturity, we have always assumed 5% for our base case.”

Caesars analyst note

First down for Caesars: Macquarie said despite disruption to Caesars’ Las Vegas activities, land-based EBITDAR of just over $1bn represented 19% QoQ vs. market GGR of 18%, with Caesars likely to build on the recovery of non-gaming/convention business in 2022-23. Caesars’ digital revenues of $96m (vs. MGM ~$205m and FanDuel more than $300m) were positive; “but wagers tell an even more encouraging story” with share climbing (~17%) and the Caesars database (~60m) a driving force for early results. “We believe CZR has the ability to sustain mid-teens share, but as (management) noted, it will come at a near-term cost,” the analysts said.

Earnings in brief

AGS: Revenues were up 36.5% to $67.2m YoY but down 15.2% on Q319. Adj. EBITDA rose 18.1% to $31.9m. Within that, EGM products made up the majority of revenues at $61.6m with table products ($3.1m) and interactive ($2.6m) making up the rest. CFO Kimo Akiona said the company hoped to be “nicely” cash-flow positive at the end of the year. Analysts at Credit Suisse noted the company was benefitting from the focus on higher-quality and higher-margin products such as the Orion Curve Premium. They also noted the installed base grew sequentially for the first time since the pandemic.

Key takeaway - Improved prospects for machine suppliers: “Bottom line, we think sentiment among slot manufacturers and casinos has continued to improve, with casinos more willing to spend capital to acquire machines,” said the Credit Suisse team.

Century Casinos: Revenue rose 22% YoY while adj. EBITDA of $33.1m was also up 49%. The company said the results were “outstanding” given the pandemic backdrop, noting that all its casinos in the US, Canada and Poland had been open since June. The company said it now plans to shift its last remaining riverboat casino in Missouri to a land-based prospect.

Datalines

Iowa: GGR for October was $151.6m, up 24.7% YoY and also up 26.6% vs. Oct19. Sequentially, October was also a beat, up 8.5% on Sep21. Sports-betting GGR hit $6.6m, up 14.7% on Sep21 with handle up 33.5% to $280.9m. Deutsche Bank analysts noted the move to remote registration earlier this year has “since promoted healthy acceleration”. They noted that on an LTM per adult basis, Iowa sports-betting revenue is tracking at ~$43.

Betting Partnerships

Both DraftKings and FanDuel have signed up as official sports-betting partners with the NBA. As part of the deals, the pair will continue to utilize official NBA betting data and league marks and logos across their sports betting and free-to-play game offerings.

Newslines

Five live: According to reports, Maryland has approved the following five online sportsbooks: Barstool Sportsbook via its partnership with Hollywood Perryville, Caesars Sportsbook through the Horseshoe Baltimore, FanDuel through the Live! Casino Maryland, BetMGM-National Harbor and Twin Spires Sportsbook vis its agreement with the Ocean Downs Casino.

Grind on: Better Collective had completed the acquisition of the remaining 40% shareholding in RotoGrinders Network for €33m. BC acquired 60% of Rotogrinders in 2019 and said the early buy-out of the outstanding stake was “driven by significant potential synergy upside and strong US business growth”. Payment will be made via a €22m cash consideration, the remaining part will be paid in shares or cash before the end of the year. The total price paid for RotoGrinders comes to €51m dependent on 2021 financial performance and is equivalent to 7.5x E2021 EBITDA.

Up the bracket: Challenger sportsbook PlayUp has secured market access for its Pennsylvania icasino product. The group recently secured access for its online gaming portfolio in Iowa. CEO Layla Mintas said sports betting is “ultra-competitive in the US” and “igaming and other services are central to our roadmap of including a wide breadth and depth of options in our product portfolio.” Meanwhile, Tipico has launched with online casino in New Jersey, its first igaming launch following its sports-betting debut earlier this year.