Jan 10: NY eclipses PA and NJ on opening weekend
Good morning. In today’s email;
Four books in New York get off to a flyer.
Wells Fargo and Credit Suisse make their top picks for ‘22.
Jefferies meets with Scientific Games’ management.
A rescheduled ICE adds to events congestion.
Startup Focus talks to Parleh Media.
New York day 1
Volume control: The now wholly-unexpected news from the weekend is that according to data from GeoComply betting volumes on day one in New York have eclipsed those from the next biggest state of Pennsylvania. In a pair of LinkedIn postings, Lindsay Slader from the company said that New York saw 5.8m bets struck between 9am-9pm on Saturday versus 2.3m in Pennsylvania and 2.1m in New Jersey. Volume over the weekend totaled 17.2m with 8m coming from NYC’s five boroughs alone.
Instant dataline: Rush Street Interactive said its BetRivers app took $970,381 on Saturday with over $500k bet on football and $271k on basketball. As the smaller of the four brands already available - Caesars, FanDuel and DraftKings are the others - it is likely this represents only a small percentage of the total. Noting the absence of BetMGM, WynnBet, Bally Bet, Pointsbet and the Resorts World offering from the currently available roster, analysts at Jefferies said they expect “meaningful competition albeit more disciplined than other states given the high tax rate in the state.” Commenting on the figures from Arizona last week, they added comments which also apply in NY:
“The Street's concerns remain not with the opportunity for top-line growth but with the prospects for profitability,” Jefferies added.
Bears den: Also concerned about profitability were the analysts at Regulus who warned that though the early volume of bets likely in New York is likely to be impressive, the distortions caused by the high tax rate will soon be evident. With “normal” levels of bonusing unsustainable, it means reported TAM will suffer while market maturity will be “slower” to occur, particularly as higher value players will likely continue “betting commute” to New Jersey. But the Regulus team also warns about the “trap” of early success.
“Early aggressive bonusing to try to gain share will even drive ‘encouraging’ GGR and tax levels vs. underlying revenue trends, which is basically the industry digging a hole for itself faster,” the Regulus team suggested. “With nine brands currently or soon to be in action, there is just enough competition for the industry to engage in Mutually Assured Destruction.”
Numbers game: Still, simple demographics suggest New York should quickly establish itself as the largest state by handle and GGR. Meanwhile, EKG analysts noted that adding New York sees the percentage of the population that now reside in states where sports-betting is legal rises to 36%. That could rise to over 40% should Ohio, Louisiana and Maryland (legal but not yet operational) open as planned this year.
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Wells Fargo and Credit Suisse best ideas
Thinking caps: Taking a more positive view on the sports-betting opportunity generally, the team at Wells Fargo said in a sector outlook the U.S. sports-betting and igaming industry “can, and should, be profitable over time”. But that came with the warning that promotional and marketing spend needs to come down to “more rational levels”. This, they go on to add, is already happening.
“Following the highly promotional September 2021 period, promotional spend generally looks to be moderating, both on an absolute level and as a percentage of GGR,” the Wells Fargo team argues.
Bargain shopping: The Wells Fargo team suggest the recent pullback of sports-betting and igaming-exposed stocks (see weekly share review below) means there are “interesting opportunities”. They put up Caesars and Flutter as their picks for “patient investors looking to gain exposure to digital gaming”. Caesars also gets the vote based on its Vegas exposure and its “multi-year deleveraging story” that could see cash interest payments decline by between $300-$500m.
Cash converters: The CS gaming team, meanwhile, highlighted MGM Resorts and IGT as being their share picks for the year. On MGM, the team cite accelerating trends in Vegas, a more simplified operating structure, an attractive net cash position, upside to 2023 estimates and improving investor sentiment. For top pick IGT, the CS team say it will benefit from improving sentiment in the space, higher lottery estimates and precedent for a sector re-rating.
Scientific Games analyst note
Payment plan: With Scientific Games set to complete the $1.2bn sale of OpenBet in Q222 and with the $5bn sale of its lottery to Brookfield for $6bn, the group will pay down some of its ~$9bn debt and drive down leverage from 2.2x in 2022 to 1.5x in 2023. Following an investor meeting with management last week, Jefferies said the scenario was “admittedly based on the timing of debt repayments, but is realistic” and should thus generate FCF at “a higher-than-peer level valuation”.
Mark of authenticity: SGMS management said its goal was to grow the digital business aggressively to 2-3x its current size and to ~50% of the total business revenue from 32%. The group recorded EBITDA of $203m, including igaming EBITDA of $53m, in Q321, and Jefferies said the “implication is that the company can grow EBITDA considerably from present levels of ~$1bn”. Jefferies said the group had the assets to do that organically, including Authentic Gaming, the live-dealer provider it acquired in November which is due to go live by the end of the year.
Startup Focus - Parleh Media
Who, what, where, when: Parleh Media is a Toronto-based sports and sports-betting media content and production company formed just last year that runs The Parleh newsletter and two live-streaming sports channels including Parleh TV Toronto which launched in October.
Funding backgrounder: The latest funding round occurred in November when it successfully closed a $1m pre-seed financing from a group of investors including Benjie Cherniak, ex-CEO of Don Best, and Chris Grove (CEO of WE+M owner American Affiliate). The company hopes to be cash positive within the next 18 months.
So what's new? Parleh was a joint winner of the Wagers.com-sponsored First Pitch competition at the SBC Summit North America in early December. Asked what the company's plans are for the year ahead, editor-in-chief Steve McAllister said it would involve "more creators, more events, more content". "We want to continue improving our coverage of games and events relevant to the North American sports fan," he added.
The longer pitch: McAllister believes "absolutely there are more opportunities" for content creators in the North American sports-betting space. "Whether it's content or technology, we haven't seen sweeping standardization in the space," he argues. "It's ripe for startups to continue solving new problems. Genius Sports and Sportradar are very dominant, but if you're relying on them for data and not trying to compete with them, there's so much you can do."
Fixtures pile up: CES went ahead in Las Vegas last week despite some high-profile absentees and attendance figures that were 75% down. The betting and gaming sector however has not been so lucky in getting a big event out of the way early in the year after it was announced that ICE has been rearranged for mid-April.
The living will envy the dead: The Excel wingding - including the iGB Affiliate show - now takes place between Apr 12-14 and is one of two major events straddling Easter, the other being NIGA on Apr 19-20, taking place in Anaheim, California. SBC then slips in CasinoBeats on Apr 26 in Malta before the events charabanc moves on to three events scheduled for New York:
iGamingNext is set to move to May 12-13,
All-American Sports Betting takes place on May 26, and
SBC Summit North America returns six months after its last edition on Jul 12,
Followed a week later by SIGMA Americas on Jul 18 in Toronto.
Ahead of all those, iGB Live takes place in Amsterdam on Jul 5 while at the start of June, SBC host Betting on Sports Europe in London. And for those lucky enough to be invited, EGR holds its Power 50 event in Marbella on May 9-11 for good measure.
Rinse, repeat: This is just the highlights from a far longer list provided by our friends at iGaming Calendar.
Weekly share price review
Storm warning: The Fed minutes published last week did for any hopes of the betting and gaming sector enjoying a new year bounce as the sector was dragged down by the general market slump on Wednesday. DraftKings initially suffered worst, off by nearly 7.5% before recovering its poise at the end of the week to end less than 0.5% off. But Penn National had it worse, following its Wednesday decline of over 6% with a further drop over the week to nearly 9.5%.
Illinois Nov21: Aggregate hold (mobile + retail) which rose 390bps MoM in November helped push sports-betting GGR up 51% MoM to $79.3m despite handle slipping back 7% MoM to $780m. The top three accumulated ~82% of total handle - DraftKings on 38%, FanDuel on 28.7% and BetRivers on 15.1%. But the top two positions were reversed in GGR terms with FanDuel grabbing 40.4% and DraftKings 28.3%. Barstool (8.1% handle) and PointsBet (7.3%) fought it out for 4th and 5th.
Iowa Dec21: Casino GGR rose 21.6% YoY to $147.6m and 14.2% higher than Dec19. In sports-betting, handle rose 154% YoY to $266.5m while net receipts rose 77.4% to $13.4m on 5% hold. Handle mix was 90.7% online and 9.3% retail. Caesars topped share of handle with 36.2% followed by DraftKings (27.5%), FanDuel (16.1%) and BetMGM at 6.5%. Barstool’s share of handle was 5.8%.
Ohio Dec21: Casino and racino GGR was up more than $60m YoY to $197m while annual GGR rose to $2.3bn in 2021 vs. $1.9bn in 2019 and $1.4bn during pandemic-hit 2020. MGM’s Northfield Park and JACK Cleveland Casino led the field with $23m and $14.2m monthly GGR and also topped annual GGR figures with $273.9m and $257.4m respectively.
Don’t get even, get Maddox: The Las Vegas Raiders are reportedly lining up ex-Wynn Resorts CEO Matt Maddox for the role of president.
What we’re reading
“I’m not an anarchist” The world’s biggest crypto fortune began with a poker game.
Mind, blown: “The world we’re living in could be a virtual world. I’m not saying it is. But it’s a possibility that we can’t rule out.” Reality X by David Chalmers reviewed in the FT.
Jan 27: Rank H1
Apr 12-15: Rearranged dates for ICE
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