The news around Dave Portnoy is distracting for a number of reasons, not least because it obscures a pointed suggestion from the analysts at Deutsche Bank. Namely, the fortunes of the interactive business are “irrelevant” for Penn’s long-term prospects. This conclusion is based on what DB believes will be the medium-term OSB and igaming TAM picture and what they think Penn can hope to achieve in terms of long-term market share. With the majority of yesterday’s earnings call looking at the interactive business, it left the DB team making an acute observation: “Why this remains the sole focal point of the discussion around the Company, we do not know.”

Penn National analyst reaction

Irrelevant: Having termed Penn’s earnings announcement as taking place “In the shadow of the sideshow,” the team followed up yesterday afternoon with a note saying the fortunes of the interactive business were “irrelevant” to Penn’s future. The verdict was based on estimates for medium-term OSB and icasino TAM and what Penn can hope to achieve in terms of market share across both verticals.

The long-term interactive calculations: Having run the numbers on sports-betting and icasino medium-term TAM, Penn’s like market share, the impact of promotional spend and corporate expenses, the DB team suggest aggregate interactive EBITDA of ~$350m.

Apples and oranges: On the call yesterday, Jay Snowden was keen to point to Barstool’s lower marketing expense as a percentage of revenue. But the DB team were sceptical.

Deutsche Bank: “We think the Barstool piece of the Interactive segment becoming profitable ahead of peers is basically a comparison of apples and oranges, given the customer acquisition spend for both Barstool and theScore is on the balance sheet, with the two acquisitions, which, when announced, totaled ~$2.5bn.”

Note: EKG analysts said that as of Nov21, Barstool’s OSB market share was trending up above 5% with icasino at ~3%.

Addressing the elephant in the room: Looking at the potential impact of the latest Portnoy allegations, Truist said the evidence from a recent player survey undertaken on their behalf suggested the controversy would likely not have a material effect.

• Only 51% of our respondents were familiar with him.

• Of those, 65% either strongly or mildly like Portnoy.

• Only 10% strongly or mildly dislike.

• 53% of participants said their view of Portnoy/Barstool would not affect whether they use PENN’s Barstool Sportsbook.           

Licensing concerns: Wells Fargo said the purchase of the remaining 64% of Barstool it didn’t already own was “further aligning Penn (for better or worse) with Portnoy”. “Penn does not currently anticipate licensing to be a concern,” they added.

Unanswered questions: DB were more negative, suggesting it raises licensing questions that they don't believe have “easy/straightforward” answers. “It would appear that Penn plans to, in a way, restructure the roles of some personalities, to perhaps, minimize their influence, in the eyes of regulators, though it appears a lot is left to be determined.”

Share price reaction

Shareholders endured a rollercoaster on Thursday, up 10% at open before giving back all the gains and ending the day down just under 1%. Macquarie said the results “should put a floor on the shares”.

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Boyd Gaming Q4

• Revenues up 38.4% to $879.8m, and adj. EBITDAR up 65% to $347.3m.

• Digital EBITDAR $24m, expected EBITDAR to exceed $30m in 2022.

• Share repurchasing program of $300m resumed.

Steady as she goes: DB analysts said they felt the group’s Q4 earnings were “sound, with little to pick at”. Boyd’s comments on OSB and icasino also showed that it planned to take advantage of opportunities in the online sphere. CEO Keith Smith said growth would come from the group’s (mobile and retail) sportsbooks in Louisiana that it operates with FanDuel.

iCasino major: Sports betting was becoming “increasingly important” for Boyd, but icasino was “a more compelling digital opportunity”, the group said. 

Kevin Smith, Boyd Gaming CEO: “We view iGaming as an attractive complement to our existing land-based operations and an opportunity to engage our customer base by integrating online gaming with our existing player loyalty program.”

What they say on M&A  

Kevin Smith, Boyd Gaming CEO: “We don't see anything -- I don't want to say see anything interesting, we don't see anything out there that is maybe (of) interest (to) us.”

Josh Hirsberg, Boyd Gaming CFO:  Low leverage and strong FCF generation meant “investors are obviously concerned you're going to go out and do something crazy with that money. I would basically tell you that we have this conversation internally all the time just because we can doesn't mean we will.”

Marginal gains: The group acknowledged the uncertain environment around inflation and labor shortages and the potential pressure on wages that could exert, but Smith said the group had been dealing with them “for a while now”. Wells Fargo estimated that “even with flat revenue, margins would be down 100-150bps (i.e., gaming opex ex-taxes would be 2.5-3.5% higher y/y), and more labor should have a requisite uptick in revenue”. 

Analysts at Truist said the Dec/Jan softness caused by Omicron had passed and “operating trends have returned to normal” and despite the group not providing guidance for 2022 the “outlook (is) positive with strong development pipeline”.

Sector watch - streaming

Back to plan A: The news that DAZN’s bid for BT Sport has collapsed means the OTT sports streaming operator now has to go back to the drawing board for its next moves. DAZN is walking away from a takeout that would have given it EPL broadcast rights and leaves Discovery discussing a JV with BT Sport.

Kevin Mayer, the DAZN Group chairman: “We remain fully committed to growing our business and investing in the UK, as you will see in the near future. On this occasion however, the deal for BT Sport became uneconomical for DAZN. However, we respect that BT chose a different strategic path.”

Disrupt this: This isn’t the only recent EPL-related disappointment for DAZN after the news in mid-January that it had lost out to rival FuboTV for the Canadian rights. As one Canadian newspaper put it, the disruptor itself got disrupted as Fubo signed a new three-year deal.

Kaputtes Geschäftsmodell: Back in Europe, and staying with DAZN, the company also found itself under attack by football fans in Germany after it raised the price of its Bundesliga coverage to €60 a month. A survey of fans found that (surprise, surprise) the most acceptable price was the current one of €15. This is on top of issues in Italy where the quality of the streaming of Serie A has been called into question.

Man who fell to earth: Things aren’t much better with Fubo, however. Though analysts at LightShed recently upgraded the stock to neutral from a sell, this was largely due to the share price falling back to earth after a period in the meme stock sun.

Analysts at LightShed: “Fubo would likely not even exist today if not for investors believing (for a time) management’s aggressive spin that they were a mix of Netflix, Roku, DraftKings, etc, enabling Fubo through stock and convertible offerings in the past two years.”

TMX webinar: Ontario and the boom in sports betting 

Increasing the pace: All the executives taking part in the discussion have high hopes for OSB in Ontario and North America generally.

Note: Eilers & Krejcik forecast revenues of C$572m in 2022, rising to C$904m in 2026.

What they said: 

Jordan Gnat, CEO of Playmaker: The current appetite for sports media and betting content meant the main issue was “increasing the pace of growth, rather than trying to solve business problems”. 

Ken Hershman, CEO and founder of Champion Gaming: “One of the challenges is on the content side. We have to find a way to reach customers and not get lost in the generic noise.”

B2C perspective: From an operator’s perspective, however, Steven Salz, CEO of esports-betting operator Rivalry, said product and branding commoditization and huge marketing budgets mean Rivalry “can’t ever win on balance sheet, so we deliver on product and innovation and having a standout brand”. 

Steven Salz, CEO at Rivalry: “When there was massive compression on share prices at the end of last year, betting came off as one of the worst performing sectors because people realised that DraftKings is losing half a billion a year and spend more on marketing in two days than we spend in a year; and that when your balance sheet is your only competitive advantage then it’s a just a race to the bottom.” 

Further reading: OSB webinar illustrated difference in B2B and B2C outlooks.

Datalines

Louisiana: Louisiana outperformed New York per capita in a GeoComply comparison of the first weekend of legal online sports betting in each state. The GeoComply data on the first 36 hours of legal online wagering noted that unique players in Louisiana represented 3.6% of the state’s population, compared to 3.3% in New York.

Newslines

Impartial: Bally said a special committee of "disinterested directors" has been formed to consider last week's proposed $38-a-share takeover offer from major shareholder Standard General. The company said the committee would also consider "any potential strategic alternatives to the proposal".

Dark end of the street: Wynn Resorts will brief the Massachusetts Gaming Commission on a plan to develop an entertainment venue, restaurants and parking garage across the street from Encore Boston Harbor. The commission said it would likely address whether a development across the street would be considered part of Encore’s gaming establishment and possibly subject to commission oversight. 

All-star: The NHL renewed a partnership with BetMGM and MGM as official sports-betting and resort partners. The news comes as MGM Resorts, which operates T-Mobile Arena, prepares to host Honda NHL All-Star Weekend festivities in Las Vegas on Feb 4-5. 

Grassroots love: Kindred’s Unibet will continue to sponsor 300 amateur football clubs in France through the #AuCoeurDuFootball program for a fourth season.

Ontario approvals: PointsBet and theScore have each gained approval as licensed sportsbooks in Ontario. Each will hope to launch with the rest of the market on April 4.

Winterreise: Spotlight Sports has developed a website to enable Sweden’s state-owned online gaming operator Svenska Spel to offer odds and sports analysis on the Winter Olympics. 

Over the hill: Playtech has announced it is working with the UK’s Jockey Club on a selection of online casino games, bingo and virtual sports which the pair hope will be up and running ahead of the Cheltenham Festival.

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Calendar

• Feb 8: Evolution online event

• Feb 9: Kindred Q4, MGM Resorts International

• Feb 10: Betsson Q4,

• Feb 11: Kambi Q4, LeoVegas Q4

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