9 Nov: NY nine get to make it there

IGT Q3, New York licensees, Full House, Gaming Innovation Group, Bragg Gaming Q3s, DraftKings, Penn National analyst reaction +More

Nov 9

Good afternoon. On the results front there are the latest numbers from IGT and Full House Q3s. Elsewhere, New York is the business lead and we have analyst reactions on the news of the nine sportsbooks that have been granted licenses in the largest state to regulate OSB. We also have the news on the counterbid for Playtech. Earnings in brief come from GIG and Bragg. Analyst reaction focuses on DraftKings, Penn National and Accel.

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IGT Q3

The top line

Revenues up 21% to $984m, AEBITDA of $407m and margin of 41% “among highest in company history”.
Global lottery sales up 14% to $652m, global gaming up 34% to $289m, digital and betting up 37% to $43m.
Net debt leverage drops to 3.8x from 6.4x and by $1.2bn YTD thanks to strong cash flow.

Keeping their powder dry: CEO Maco Sala and CFO Max Chiara were not the most talkative during the earnings call due to the investor day the company is hosting next week, but they pointed out that their lottery activities in the US and Italy had returned to pre-pandemic levels thanks to a more stable environment.

Sala said consumers were exposed to broader offerings during the pandemic and “enjoyed the larger offerings of lottery games.” He added that the group anticipates “higher levels of spend and we consider the H221 trends as the new (revenue) base for lottery” and will sustain its strong instant win and scratch games growth “with good innovations in Italy in 2022”.

Digital outbreak: For the first time IGT has broken out its digital and betting revenues, the company said the arrivals of Joe Asher as President of Sports Betting and Gil Rotem as President of iGaming will mean a continued focus on those verticals as well on its cashless activities.

Installation issues: Machine unit sales were up 55% to 5,701 for two reasons, “MLP (master limited partnership) expansion and serious investment,” said Chiara. The other positives came “from new casino openings and expanding activities mainly in Canada”. However supply chain “delays and constraints” were adding “four weeks to normal delivery times, and structural changes related to World Lottery Association memberships in New York and Rhode Island will impact the install base in Q4, but if we exclude those 2022 will be broadly in line with 2021,” added Chiara.

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The New York nine

Winners: DraftKings, FanDuel, BetMGM, Bally Bet, Caesars, Rush Street Interactive, WynnBet, PointsBet, Resorts World
Losers: Penn National Gaming/Barstool, Fox Bet, Fanatics

Just a New York conversation: The nine winners of the New York bidding process were quick to celebrate their newly-won right to hand over a lot of tax money to the state (51% tax rate). If you accept the premise that access means all, then the big loser is Penn National and Barstool, which now finds itself shut out of the biggest market to regulate mobile-OSB to date. The good news for the winners is the likelihood that the market will be up and running before the Super Bowl.

Billion-dollar baby: Analysts at Jefferies noted the high-stakes of the New York decision, pointing out that it expects NY TAM to hit $1.3bn at maturity. Macquarie produced some back-of-a-napkin calculations to suggest the same, saying that from a GGR perspective, New York “represents one of the most attractive sports-betting states” given its population (~20m), wealth/income, and sports culture. Assuming $60 spend/adult, we estimate New York could generate $1bn+ of sports revs at maturity,” the Macquarie team added.

Talking point: “The downside risk is that other states adopt a similar structure; the upside risk that more US super-states (CA, FL, TX) are encouraged to seek additional tax revenues and legalize mobile sports-betting,” said the analysts at Jefferies.

Square dance: Other winners are New York’s sports team, including the Knicks and the Rangers and owner Madison Square Garden Entertainment. Jonathan Byer, president at Boyer Research, said that both teams are among the most valuable franchises with the NBA and NHL respectively and the approval of OSB “should have a favorable future impact on the valuation of both teams.” Not incidentally, Madison Square Garden Entertainment will also benefit from the potential for a sportsbook located on-premises.

Full House Gaming

The top line

Revenues in Q3 rose 12.6% to $47.2m and adj. EBITDA was up 8.9% to $13.6m.

Nature calls: The post-pandemic bounce continued into Q3 despite Hurricane Ida affecting the Mississippi property and wildfires near the Grand Lodge Casino in Nevada. Talking about the ongoing “hard dollar construction costs” for the Cripple Creek transformation, CEO Daniel Lee said the company was “very comfortable” it has the cash on hand to hit completion. “We did not want to go through and kind of eviscerate the quality of the hotel when we realized this was going to cost us somewhat more than we had originally envisioned,” Lee added.

Staggered Lee: Full House’s market access agreements brought in $1.6m of sports wagering revenues, more than double last year’s total. As it stands, five of the company’s six permitted skins in Indiana and Colorado are now live. Speaking to what he said was “staggering” levels of marketing spend associated with OSB, CEO Daniel Lee suggested it was a fight for market share that would be running for a while yet. “It’s reminiscent, to me, of 20 years ago when Amazon was trying to get big quick and they were losing money hand over fist, but trying to grow the revenues as best as they could,” Lee said.

“And you kind of knew at some point, they could (turn that expense off) and they would be pretty profitable,” Lee added. “The same thing is true of the sports betting operators. At some point, they will stop that advertising, and it will be a highly profitable business. But at the moment, they are all scrambling to try to build share.”

Taking a view: Admitting Full House wasn’t really part of that, he did note that two of the company’s market access agreements with Wynn and Twin Spires were up and running while Smakrets was “standing on the sidelines deciding whether it would get tooled up.” “But they can all be profitable on 2% (market share), even after paying our fee,” Lee said. He also noted that Full House would get more directly involved as and when any of the states Full House operated in opened up to online gaming.

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Earnings in brief

Bragg Gaming: Q3 revenues were up 10% to €12.8m but adj. EBITDA -22.7% to €1.4m. The company raised its FY21 revenue and adj. EBITDA guidance raised to €55-56m and €6.6-6.8m respectively, while FY22 guidance was raised to €59-61m and adj. EBITDA to €6-7m The company said the Q3 gross profits drop was due to ongoing investment in technology, products and the costs associated with going live in regulated markets in Europe and Latin America.

Gaming Innovation Group Q3: Revenues were up 20% to €17m, EBITDA rose 67% to €5.3m, EBITDA margin increased to 31.3% vs. 22.5% YoY. Media services recorded all-time high revenues of €11.2m (+30%) and most of group EBITDA (€5.1m). Platform revenues rose 6% to €5.7m (+70% excl. Germany), platform EBITDA was €600k ex-Germany, which despite the short-term losses the company expects “to be a good value driver over the mid to long term”. GIG’s paid media revenues were up 26% and publishing was up 32% “despite normal seasonality effects and a reduced sporting calendar”.

Raketech acquisition

Pick a rake: Staying with affiliates, Raketech has acquired the assets of the US tips publisher A.T.S. Consultants for $15.5m, with $13m to be paid in cash and the remaining $2.5m in Raketech shares. A.T.S.’s key assets are Statsalt.com, Winnersandwhiners.com and Pickpapa.com. Raketech (Q3s tomorrow) said US revenues will make up 20% of total revenues post-deal and sports-betting up to 35% by Q122.

DraftKings analyst reaction

Forgive and forget: Analysts were unruffled by the miss on consensus earnings forecasts last week, after the company pointed to the early-season unfavorable results in the NFL (worth $25m of revenue in Q3) and the extra costs from new state launches (around $15m investment). Add this $40m back into the $213m of revenues and the company would have overshot the Street consensus of $239m.

Holding steady: Noting this broke the company’s streak of six quarters of consensus beats, Macquarie said they remained “positive”. They suggested the current market shares for OSB and igaming of 33% and 17% respectively - both up 2% sequentially - “highlight that the company was able to fend off competition during the quarter and into October as others including MGM, Caesars and Penn National gained share.”

Hold pattern: On the call, DraftKings put forward an explanation for why it appears to be achieving far lower hold percentages than some of its competition. As Wells Fargo put it, these boiled down to three potential explanations. One, promo mix and a higher number of free bets handed out by the competition vs. DraftKings’s reliance on odds boosts. Two, DraftKings’ lower (but growing) mix of same-game parlays. And finally, customer mix variants.

Penn National Gaming analyst reaction

Any Portnoy in a storm: Dave Portney’s high-profile position at the helm of Barstool was already a concern for analysts prior to last weeks’ allegations against him, and as such Barstool’s value to Penn National “always bore greater risk,'' according to Jefferies.

“The (Q3 results) and peripheral newsflow highlight key risks associated with the long-term opportunities for Barstool in OSB and related media,” the Jefferies team said. “We are incrementally more conservative in assigning credit to Penn for Barstool and longer term for theScore, pending demonstrated results.”

Accel Entertainment analyst reaction

Accelerate the positives: Deutsche Bank and Macquarie were positive on Accel’s 9% Q3 beat of $193.4m revenues and $37.6m adj. EBITDA. DB said that with c$395m of available cash the group has “ample capacity to flex the balance sheet” and carry out M&A or instigate share buybacks. Macquarie said the higher bet limits seen post-COVID had led to a 30% rise in location win-per-day (WPD), with Accel saying these were sustainable into 2022. Geographic expansion following the Century Gaming deal (MT, NV) and new bills to potentially legalize distributed gaming in PA, GA and MO were also positive and would “be well received by investors”.

Datalines

Illinois: October gaming GGR $109.1m, up 37.9% YoY, largely due to Illinois casinos being at 50% capacity in Oct20. Caesars’ properties recorded a combined October GGR of $30.2m, up 38.7% YoY, Wells Fargo forecast total Q4 revenues from the state of $87.6m (+178.3% YoY) for the group. PennNational Gaming reported a combined October GGR of $19.2m (+28.4% YoY), with Q4 GGR set to reach $56.3m (+158.1% YoY). Boyd Gaming’s Q4 GGR from its Par-a-Dice resort is forecast at $14.8m (+146.5% YoY). Bally’s Q4 revenues forecast at $11.0m (+45.4% YoY). October GGR for Rivers (including 61% CHDN ownership) was $44m (+46.1% YoY).

Iowa: Casino GGR was up 24.7% YoY to $151.6m in October. Retail hold was 9.7% and online hold was just 1.4%, the handle mix was 89% online, 11% retail. For Q4, Caesars is expected to record casino GGR of $114m (+32.1% YoY), Boyd Gaming $43.4m (+19% YoY), Penn National Gaming $46.2, (+25.3% YoY).

Sports betting handle was up 243% YoY to $280.9m, net receipts post-promotions were $6.9m, down 27.8% YoY for a hold of just 2.3% (vs. 7% average margins). Share of handle as follows: Caesars 37.9% at $106m (+214% YoY), DraftKings 21.3% at $59.7m (+387% YoY), FanDuel 16.6% at $46.6m (+335% YoY).

Newslines

Fly like an eagle: Kambi will supply its online sports betting platform to the Saginaw Chippewa Indian Tribe in the state of Michigan and will also roll out its solution at the tribe’s retail sportsbooks located at the Soaring Eagle Casino & Resort and Saganing Eagles Landing Casino & Hotel. Kambi’s product roll out will include its betting kiosk and ‘Bet Builder’ product.

Rush hour: Rush Street Interactive’s online sportsbook BetRivers has gone live in the state of Arizona. RSI has a market access partnership with the Arizona Rattlers indoor football franchise.

Vorsprung durch technik?

“Turns out there is a company called Sprung Structures owned by a family whose last name is Sprung: who knew?”
Daniel Lee, CEO at Full House Gaming, discussing the potential for a temporary ‘sprung’ build structure should the company win its Illinois casino bid.