Bet On It: Apollo to buy IGT unit and Everi in $6.3B package deal

Welcome to the latest edition of “Bet On It,” where The Fly looks at news and activity in the sports betting and iGaming space.

SECTOR NEWS: International Game (IGT) and Everi Holdings (EVRI) announced that they have entered into definitive agreements whereby IGT’s Gaming & Digital business and Everi will be simultaneously acquired by a newly formed holding company owned by funds managed by affiliates of Apollo Global (APO) in an all-cash transaction that values the acquired businesses at approximately $6.3B on a combined basis. On February 29, IGT and Everi announced that they had entered into definitive agreements pursuant to which IGT would separate the IGT Gaming business by way of a taxable spin-off to IGT shareholders and then immediately combine such business with Everi. Under the terms of the new agreements, the Apollo Funds will acquire IGT Gaming and Everi. Following closing, IGT Gaming and Everi will be privately owned companies that are part of one combined enterprise. Under the terms of the new agreements, Everi stockholders will receive $14.25 per share in cash, representing a 56% premium over Everi’s closing share price on July 25. IGT will receive $4.05B of gross cash proceeds for IGT Gaming. IGT expects significant portions of the cash proceeds to be used to repay debt and to be returned to shareholders. De Agostini S.p.A., a societa per azioni organized under the laws of Italy, the majority shareholder of IGT, has committed to make a minority equity investment in the combined enterprise at the closing of the transaction. Upon completion of the sale of IGT Gaming to the Apollo Funds, IGT will change its name and stock ticker symbol. The transaction with the Apollo Funds has been unanimously approved by a special committee of the IGT board of directors and unanimously approved by all members of the Everi board of directors, and the previous transaction agreements between IGT and Everi entered into on February 28 have been terminated. Craig-Hallum downgraded Everi to Hold from Buy with a $14.25 price target after the deal. Everi stockholders will receive $14.25 per share in cash. Stifel told investors in a research note that the firm is “surprised” by the announcement. While unexpected, the firm sees the Apollo cash offer as a much more attractive outcome for shareholders owning International Game around the lottery re-rate thesis and while some Everi investors may feel management is taking the “easy way out,” Stifel believes $14.25/share in cash presents an attractive time-adjusted outcome. Stifel made no change to its Buy ratings on International Game or Everi. B.Riley said International Game benefits from the transaction change, as the new deal is a much cleaner structure, eliminating unknown tax implications from a previously planned Everi share distribution to International Game shareholders, which has been the subject of pushback from investors. The firm made no change to its Buy rating or $30 price target on International Game shares.

Super Group (SGHC) announced that Betway has become the Official Global Betting Partner of English Premier League Champions, Manchester City. With the club currently on their pre-season tour of the United States, and to mark this deal, figures from Super Group and Manchester City will be on-site for the NYSE bell-ringing ceremony later. Neal Menashe, CEO of Super Group, along with Ferran Soriano, City Football Group CEO, will ring The Opening Bell at 9:30am EDT. The multi-year agreement sees the Betway brand become the club’s Official Global Betting Partner from the start of the 2024/25 season. Manchester City joins Betway’s sports sponsorship portfolio, which includes teams from across the Premier League, La Liga, NBA and more.

Bally’s (BALY) announced that it has entered into a definitive merger agreement pursuant to which Standard General, the company’s largest common stockholder, will acquire the company’s outstanding shares for $18.25 per Bally’s share. The price represents a 71% premium over the company’s 30-day volume weighted average price per share as of March 8, the last trading day before the public disclosure of Standard General’s initial cash acquisition proposal of $15.00 per share. In lieu of receiving the cash consideration, Bally’s stockholders may elect to retain all or a portion of their Bally’s stock by means of a rollover election. Bally’s stockholders electing to retain all or a portion of their Bally’s investment will continue as stockholders of the combined company. The transaction values Bally’s at approximately $4.6B in enterprise value. The combined company will remain a publicly traded registrant under the Securities Act of 1934. Pursuant to the merger, Bally’s will combine with The Queen Casino & Entertainment, or QC&E, a regional casino operator majority-owned by funds managed by Standard General. QC&E is a regional gaming, hospitality and entertainment company that currently owns and operates four casinos across three states, including DraftKings at Casino Queen in East St. Louis, IL, the Queen Marquette in Marquette, IA, and the Queen Baton Rouge and the Belle of Baton Rouge in Baton Rouge, LA. QC&E is in the process of executing on transformational redevelopment projects at two of its four properties which are expected to be completed in 2025 and generate meaningful organic growth. The combination will expand the company’s Casino & Resorts segment to 19 gaming, entertainment and hospitality facilities across 11 U.S. states and enhance the company’s development pipeline with several exciting projects. In connection with the transaction, in addition to Standard General, Sinclair Broadcast Group (SBGI), and Noel Hayden have committed to support the merger and to make rollover elections. As a result, at least 47% of Bally’s outstanding fully-diluted equity interests will be rolled over into the combined company. A special committee of independent and disinterested directors of Bally’s board of directors, which has been advised by its own independent financial and legal advisors in evaluating the merger and the cash consideration, determined that the merger is in the best interest of Bally’s and its stockholders and unanimously recommended that the company’s board of directors approve the merger. Acting upon the recommendation of the special committee, Bally’s board of directors approved the merger and recommends that stockholders approve the merger. The factors considered by the special committee in arriving at its unanimous decision will be outlined in public proxy filings to be made by Bally’s. The Bally’s special committee and board of directors are making recommendations with respect to the cash consideration and are not making recommendations with respect to the rollover election. Standard General has obtained $500M of committed financing to support the merger. The cash proceeds from the financing, in connection with the company’s existing resources, will be used to effectuate the merger and fund the cash consideration to Bally’s stockholders. The transaction is subject to receipt of regulatory approvals, the approval by Bally’s stockholders, and satisfaction of other customary closing conditions, and is expected to close in first half of 2025. TD Cowen downgraded Bally’s following the pact.

Churchill Downs (CHDN) announced an $80M-$90M renovation to the existing grandstand at Churchill Downs Racetrack that will update ticketed seating options while improving and adding to the amenities available for all guests in the grandstand area. Construction on the Grandstand Club and Pavilion is scheduled to begin in August with completion planned in time for the 151st Kentucky Derby in May 2025. The renovation of the Grandstand Club will transform existing outdoor aluminum bleachers into a combination of 8,300 new seating varieties. Updated seating options will include covered and uncovered stadium-style seats as well as rail boxes along the dirt track’s outer rail that will offer a “trackside” seating experience. First-floor amenities for the Grandstand Club will include new and upgraded permanent concessions, bars and wagering windows. The project will also improve and add amenities for 2,800 guests in the existing third floor box seats under the Starting Gate Suites. The Grandstand Pavilion will create a more upscale social environment by converting the existing second-floor amenity area into a covered outdoor garden environment with new concessions, bars and wagering windows. Expansion to the second floor will create additional space for overall guest circulation and add an outdoor balcony for added dining seats. A new stately entrance to the Grandstand Pavilion will unify the surrounding exterior architecture.

DraftKings (DKNG) announced its intention to launch its online sportsbook in Washington D.C., pending licensure and regulatory approvals. The expected arrival into the nation’s capital follows a market access agreement with D.C. United, which would pave the way for the digital sports entertainment and gaming company to operate in The District of Columbia. “It has been incredible to see legalized sports betting grow rapidly over the past six years, and with plans to launch our online sportsbook in D.C., DraftKings looks forward to expanding its presence in more than half the country,” said Matt Kalish, President, DraftKings North America. “We would like to thank the D.C. Council for creating a path to bring DraftKings’ top-rated sportsbook to the nation’s capital. Together with D.C. United, we look forward to delivering fans a best-in-class experience through our customer-friendly product.”

Musburger Media announced it has purchased VSiN sports betting network, The Sports Betting Network from DraftKings. Original VSiN founders Brian Musburger and Bill Adee, who were part of the team that previously launched and led the multi-platform broadcast and content company, will lead it moving forward. VSiN will continue to deliver the news, analysis, and insights. With the strategy and team already in place, the sports betting network will focus immediately on expanding partnerships and distribution.

Entain (GMVHF) announced that Gavin Isaacs has been appointed as CEO, effective from September 2. “Gavin has over 25 years of experience across the global sports betting, gaming and lottery industries. His broad leadership experience has been built through previous roles within companies including Scientific Games Corporation, DraftKings Inc, SB Tech, Bally Technologies Inc, and Aristocrat Technologies. In 2022, Gavin was inducted into the American Gaming Association’s Hall of Fame, reflecting his extensive industry expertise leading and building a wide range of businesses. In line with the previously announced succession plan, and to support a smooth transition, Stella David will work alongside Gavin Isaacs before succeeding Barry Gibson as Chair of Entain following his retirement on 30 September 2024,” the company stated.

Churchill Downs announced that the suspension of Bob Baffert from racetracks owned and operated by the company, is rescinded effective immediately. The decision was detailed in a statement from CDI CEO Bill Carstanjen: “We are satisfied that Mr. Baffert has taken responsibility for his actions, completed a substantial penalty and is committed to running in full compliance with the rules and regulations going forward. All parties agree that it is time to bring this chapter to a close and focus on the future. Mr. Baffert is welcome to return to any of CDI’s racetracks, including our flagship Churchill Downs Racetrack, and we wish him and his connections good luck in their future competitive endeavors.” CDI’s decision to end the suspension follows a statement released by Bob Baffert earlier today that said, “I accept responsibility for Medina Spirit’s positive test in the 2021 Kentucky Derby. I am responsible for any substance found in the horses that I train, and I have paid a very steep price with a three-year suspension and the disqualification of Medina Spirit’s performance. I understand and appreciate that Churchill Downs and the Kentucky Horse Racing Commission took steps to enforce the rules that they believed were necessary to protect the safety and integrity of horse racing and the reputation of the Kentucky Derby. My family and I want to put this behind us and get back to doing what we love to do without anymore distraction or negativity. I very much look forward to returning to Churchill Downs and getting back to the Winner’s Circle.”

EARNINGS RECAP: In its second quarter earnings report, Boyd Gaming (BYD) came in ahead of analyst consensus in both earnings per share and revenue. Keith Smith, President and CEO of Boyd Gaming, said: “Our Company delivered a solid performance in the second quarter, in-line with our expectations. On a segment basis, conditions in the Las Vegas Locals market improved from the first quarter and our Las Vegas Locals business achieved market share growth in the quarter. We also produced strong growth in our Downtown Las Vegas operations and stable performance in our Midwest & South operations. Additionally, we successfully maintained operating efficiencies throughout the business, with property margins of nearly 41% during the quarter. In Louisiana, we opened our new land-based casino at Treasure Chest in early June, with strong demand since its opening. And we continued our commitment to returning capital to our shareholders, with nearly $200 million in share repurchases and dividend distributions in the second quarter. In all, we are pleased with our second-quarter performance, and remain confident in our ability to drive long-term growth across our business.” Shares were up over 3% on Thursday. Stifel raised the firm’s price target on Boyd to $67 from $65 and reiterated a Hold rating on the shares. Boyd “didn’t directly answer the question” about M&A, but they “also didn’t flat out indicate they wouldn’t be interested in large-scale M&A,” the analyst tells investors. Excluding all the M&A chatter, Boyd’s core operations performed better than the firm was expecting, with margins exceeding Stifel’s forecast, the analyst added. On the other hand, Macquarie lowered the firm’s price target on Boyd Gaming to $68 from $72 and kept a Neutral rating on the shares. The company reported a broad-based Q2 beat and increased guidance for its Online and Managed & Other segments, the analyst tells investors in a research note. The firm noted that while Boyd’s strong balance sheet and capital returns should provide a floor for shares, it expects competition and market softness to continue.

Gaming and Leisure Properties (GLPI) reported Q2 adjusted FFO right in line with expectations while beating revenue consensus. The company’s FY24 FFO outlook also fell into an expected range. Peter Carlino, chairman and CEO of GLPI, commented, “GLPI again delivered record financial results in the 2024 second quarter as we continued to leverage our consistent cash flow generation and benefit from our unmatched roster of the gaming industry’s leading operators. Second quarter total revenue rose 6.7% year over year to $380.6 million and AFFO grew 5.6% as we benefited from the growth of our property portfolio and rent escalations along with our discipline around liquidity and our capital structure. Furthermore, our consistent successes in building our tenant base clearly demonstrate our opportunistic approach to portfolio expansion as well as our ability to work with existing tenants to find exciting new ways to expand our close relationships. As we look to the balance of 2024, we expect to continue to deliver on our promise to shareholders to be a strong steward of their investment capital.

Las Vegas Sands (LVS) fell just short of the EPS and revenue marks in Q2, but the company did highlight increased Macau figures. “Our financial and operating results for Q2 of 2024 reflect growth in both Macao and Singapore compared to Q2 2023. We remain enthusiastic about our opportunities to deliver industry-leading growth in both markets in the years ahead, as we execute our substantial capital investment programs in both Macao and Singapore,” said CEO Robert Goldstein. “…Our financial strength and industry-leading cash flow continue to support our ongoing investment and capital expenditure programs in both Macao and Singapore, our pursuit of growth opportunities in new markets, and our program to return excess capital to stockholders. We repurchased $400M LVS shares under our share repurchase program during the quarter. We look forward to utilizing our share repurchase program to continue to return excess capital to stockholders in the future.” Susquehanna lowered the firm’s price target on Las Vegas Sands to $51 from $59. The firm noted they reported a Q2 miss due to significant construction disruption from its large ongoing projects in Macau and Singapore, and the impact of lower-than-expected Macau visitation on base-mass demand, which hurts Las Vegas Sands in particular given it’s the largest operator in Macau.

Inversely, Churchill Downs beat expectations in its Q2 release on the day the company simultaneously announce racetrack renovations. Shares rose 3% on Wednesday consequently. The company said, “Churchill Downs Racetrack ran the 150th Kentucky Derby with all-time record all-sources handle for the Kentucky Derby Race, Kentucky Derby Day Program, and Kentucky Derby Week Races, and with all-time record Derby Week contribution to Adjusted EBITDA. We signed a new seven-year agreement with NBC to continue hosting the Kentucky Derby Week on NBC and Peacock for 2026 through 2032. We opened the Terre Haute Casino Resort in Terre Haute, Indiana on April 5, 2024 and the hotel on May 15, 2024. On July 3, 2024, we successfully amended our revolving credit facility and Term Loan A facility to, among other things, extend the maturity dates from 2027 to 2029. We ended the second quarter of 2024 with net bank leverage of 4.0x.” JMP Securities raised the firm’s price target on Churchill Downs to $166 from $158 and keeps an Outperform rating on the shares. Churchill Downs beat across the board on EBITDA, and benefits to both revenue and EBITDA are being largely driven across its recently acquired and newly built assets, the analyst tells investors in a research note. The scale, product offering, and growth profile support a premium valuation to the gaming group, the firm says.

Red Rock Resorts (RRR) shares dipped lower following its second quarter earnings report on Tuesday. Wells Fargo downgraded Red Rock Resorts to Equal Weight from Overweight with a price target of $64, up from $63. The company showed solid execution and growth prospects in Q2, but the stock’s current valuation seems fair, the analyst told investors. Other analysts saw the report in a more positive light. For example, Susquehanna increased its price target on Red Rock to $70 from $63 and maintained a Positive rating on the shares. The firm noted they posted results higher than consensus with management citing “growth in all its customer categories” where cannibalization created by its new Durango property of its largest casino Red Rock is beginning to “backfill” especially from regional/national demand.

Q2 PREVIEW: In an uncommon move, Jefferies revisited its estimates mid-quarter for DraftKings due to the diverse challenges affecting Street estimates for Q2 and beyond. The firm contends these issues are more widespread than usual. Taking into account factors such as the Golden Nugget migration, Illinois taxes, and Jackpocket, the firm maintained its belief that EBITDA is poised to double from 2024 to 2025, sustaining robust growth that sets DraftKings apart from other stocks in our coverage. Consequently, the remains a top pick, the firm noted.

JUNE BOOM: In June, digital gross gaming revenue, or GGR, reached $1.37B, representing year-over-year, or Y/Y, growth of 36%, according to BofA. This acceleration was even more pronounced than the 26% growth observed in May. For the entire second quarter, GGR increased by 31%, outpacing the 22% growth seen in Q1. Online sports betting, or OSB, also performed well with a Y/Y growth rate of 49% in June, up from 25% in May. The launch of North Carolina in March contributed to the overall Q2 OSB GGR growth of 36%, surpassing the +20% Y/Y growth in Q1. Meanwhile, iGaming GGR maintained same-state growth, growing 23% Y/Y in June. Overall handle growth was robust, rising 42% Y/Y and 33% Y/Y on a same-state basis. Factors contributing to this growth include customer-friendly outcomes and better-than-expected new customer acquisition. In terms of market share, FanDuel (FLUT) led the OSB segment with 46%, followed by DraftKings at 33%, BetMGM (MGM) at 7%, ESPN Bet (PENN) at 4%, and Caesars (CZR) at 3%. In the iGaming space, DraftKings and FanDuel maintained a 25% share each, while BetMGM held 20%. Promotional efforts as a percentage of handle declined by 40 basis points Y/Y across the market. FanDuel and DraftKings dominated app downloads in July, each with a 19% share. Additionally, Bet365’s download share improved from 9% in May to approximately 13% in June and July, likely driven by increased soccer betting related to the Euro Cup and Copa America.

FINED: As per the Tennessee Sports Wagering Council, or SWC, BetMGM permitted customers to create same-game parlays that incorporated penalty cards issued during soccer matches, according to James Gazzale of Legal Sports Report. However, Tennessee sports betting regulators explicitly prohibit wagering on penalties. In related incidents, Action 24/7 and Penn Interactive faced fines due to violations related to self-excluded bettors. These fines were announced during an in-person committee meeting last Wednesday.

ADDITIONAL ANALYST COMMMENTARY: Truist downgraded Bally’s to Hold from Buy with a price target of $18.25, up from $16, after the company entered into a merger agreement pursuant to which Standard General, the company’s largest common stockholder, will acquire the company’s outstanding shares for $18.25 per Bally’s share.

Macquarie raised the firm’s price target on Churchill Downs to $162 from $154 and keeps an Outperform rating on the shares. The firm said that record-breaking Derby results highlight Q2 revenues and EBITDA beats, with all segments exceeding expectations. With industry regional gaming GGR down slightly in Q2, Macquarie continues to favor operators with outsized growth and premium assets.

Mizuho elevated the firm’s price target on Churchill Downs to $157 from $143 and reissued an Outperform rating on the shares. The company reported better than expected revenue, driven by the 150th Kentucky Derby, growth in its Virginia properties, and the recent opening of the Terre Haute Casino in Indiana, the analyst tells investors in a research note.

Morgan Stanley lowered the firm’s price target on Flutter Entertainment to 18,000 GBp from 18,800 GBp and keeps an Overweight rating on the shares.

Seaport Research dropped its price target on Las Vegas Sands to $56 from $59 and reaffirmed a Buy rating on the shares. The company reported Q2 results with “solid” performance in Singapore while Macau missed consensus, the analyst tells investors. The firm believes Q2 was likely the low point of the year as seasonality improves in the second half of 2024.

JPMorgan upped the firm’s price target on Red Rock Resorts to $69 from $62 and held an Overweight rating on the shares. The company reported solid upside in Q2 in Las Vegas locals market and is well positioned for future development related growth there, the analyst tells investors in a research note.

Stifel boosted its price target on Light & Wonder (LNW) to $106 from $98 and keeps a Hold rating on the shares. The firm forecasts Q2 earnings beats for PlayAGS (AGS) and L&W, a miss for Everi Holdings (EVRI) and inline results for International Game (IGT), the analyst tells investors in a Gaming Tech earnings preview note.

Jefferies sees the appointment of a new CEO as a positive catalyst for Entain and anticipates that investors will react positively to the appointment of Gavin Isaacs, who has a wide-ranging and highly credible track record across the gaming sector in multiple geographies, alongside several business disposals. The firm maintained a Buy rating and price target of 1,140 GBp on Entain shares.

PUBLICLY TRADED COMPANIES IN THE SPACE INCLUDE: Accel Entertainment (ACEL), Bally’s (BALY), Boyd Gaming (BYD), Caesars (CZR), Churchill Downs (CHDN), DraftKings (DKNG), Flutter Entertainment (FLUT), Gambling.com (GAMB), Gan Limited (GAN), Genius Sports (GENI), Las Vegas Sands (LVS), MGM Resorts (MGM), Penn Entertainment (PENN), Rush Street Interactive (RSI), Super Group (SGHC) and Wynn Resorts (WYNN).