Bet On It: Boyd reportedly approaches Penn about potential 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.

BOYD/PENN: Casino operator Boyd Gaming (BYD) has approached Penn Entertainment (PENN) to express interest in acquiring its peer in a potential combination that would be the biggest merger among U.S. gambling companies since Eldorado Resorts’ $17.3B acquisition of Caesars Entertainment (CZR) in 2020, sources told Reuters’ Milana Vinn and Anirban Sen. A deal could be challenging, however, since Boyd is the smaller company, the companies would need the blessing of regulators, and officials in several states and Boyd would need to win over Walt Disney (DIS), whose sports network ESPN has a partnership with Penn, the report on Thursday noted.

Following the report, Craig-Hallum analyst Ryan Sigdahl upgraded Penn Entertainment to Buy from Hold with a price target of $30, up from $20. The firm, which notes it has been critical of the company’s capital allocation and “overpromising/underdelivering in Interactive,” adds that it has “always argued there were highly valuable assets and significant stock upside potential” and it now sees recent activist involvement and M&A rumors providing a floor on valuation. The firm, which thinks the company’s retail casino assets are worth $30 per share and sees another $15 per share potential from either M&A or success with ESPN Bet, argues that M&A and activist potential, along with “a steady cadence of potential fundamental catalysts,” present “a compelling risk/reward opportunity.”

Meanwhile, Barclays analyst Brandt Montour maintained an Equal Weight rating on Boyd Gaming after the Reuters report. “We’re not completely surprised by this report, given this idea has been debated in the investor community for the last couple weeks,” the analyst told investors in a research note. However, the firm doubts Penn is a willing seller at this time, and says the deal would likely include more challenges than benefits for Boyd. Barclays believes Penn has more confidence in ESPN BET’s ability to gain ground from here, versus what the market expects and its current share price implies. It also doubts Boyd would be interested in giving an optimistic valuation for Penn Interactive or credit shareholders with the company’s cumulative investment in digital to-date.

Additionally, BofA moved to No Rating on PENN as Penn Entertainment shares, arguing that the shares no longer trade on fundamentals. The firm believes such a potential merger could be accretive to Boyd, but thinks it possible that the size and combination of financing and leverage required could be “unattractive,” geographic overlaps could result in divestitures, regulatory uncertainty and a lengthy closing, and that strategic synergies could be limited. The firm adds that it sees limited interest in ESPN Bet, which would require “further M&A or a solution down the road.”

OTHER SECTOR NEWS: Earlier this week, Caesars Entertainment announced the closing of the previously announced acquisition of the operations of WynnBET’s (WYNN) Michigan iGaming business and long-term extension of iGaming market access rights with the Sault Ste. Marie Tribe of Chippewa Indians. Caesars will assume operations on the existing platform under the WynnBET brand with no anticipated interruption to the customer experience. This transaction further enhances our iCasino Net Revenue growth in an EBITDA accretive manner. Caesars Entertainment will announce a new online casino brand and the transition of the WynnBET iCasino operations to Caesars’ Michigan iGaming Platform in the second half of 2024, pending regulatory approvals. “Caesars Entertainment would like to thank the Sault Ste. Marie Tribe of Chippewa Indians and the Michigan Gaming Control Board for their collaboration through this process,” said Eric Hession, President of Caesars Digital.

Meanwhile, Genius Sports (GENI) yesterday announced changes to the Genius Sports Board of Directors, which became effective June 2024. Kenneth J. Kay, former Chief Financial Officer at MGM Holdings, Inc. will be appointed as Chair of Genius Sports’ Board, leading the Board’s oversight of Genius Sports’ operations and strategy. Since March 8, 2023, Ken has served as an independent director of the Board. Ken will take up the position of Chair from David Levy, currently co-CEO of Horizon Sports and Experiences and former President at Turner Broadcasting, Inc. David will remain as a Strategic Advisor to Genius Sports. David was appointed Chair on April 20, 2021. His tenure has been characterized by exceptional standards of execution and technological innovation, as well as the acquisition of new customers and the strengthening of key partnerships across the sports, betting, media, and broadcasting ecosystem. In his advisory role, David will remain close to Genius Sports, offering his expertise and acumen to the management team. Claire Valoti, Co-founder of Haylo Ventures and former Vice President, International at Snap, will be appointed as an Independent Director. Claire’s executive experience in data-driven companies entails a strong focus on digital, mobile, and consumer experience. Notably, she played a key role in Snap’s international growth, spearheading the company’s expansion outside the US, before running all international operations for five years.

STATE UPDATE: Offshore betting and online casino Bovada now includes Michigan on its list of states that are not able to access the platform, Legal Sports Report’s Matthew Waters reported Thursday. The move comes just three weeks after the Michigan Gaming Control Board sent a cease-and-desist letter to the online casino, the author noted. Meanwhile, Connecticut’s gaming regulator confirmed to LSR that it issued a cease-and-desist letter to Bovada on June 14.

In other state news, Massachusetts sports betting operators have agreed to attend a roundtable discussion on restricting how much players can bet, Legal Sports Report’s Sam McQuillan reported yesterday. During a Wednesday meeting, the Massachusetts Gaming Commission expressed frustration at a virtual no-show from state sports betting operators at a previous meeting and said they need additional time before scheduling a subsequent meeting, the author noted.

ADDITIONAL ANALYST COMMENTARY: May digital gross gaming revenue is tracking to $1.67, a 24% year-over-year increase, decelerating from a 33% bump in April and up from 22% in Q1, according to BofA’s Shaun Kelley. Online sports betting GGR jumped 22% year-over-year in May, down from 39% in April and up from 20% in Q1. iGaming GGR growth of 27% last month accelerated from 22% in April and was slightly higher than Q1’s 26% figure, the analyst noted.

Kelley added that, based on trends from April and May, the firm believes DraftKings (DKNG) is tracking to a Q2 top line beat, with the mid-case being net gaming revenue growth of 28% in Q2, ahead of guidance of 25% growth. Flow-throughs could be lower this quarter, the analyst tells investors, given strong download activity, the timing of the North Carolina launch impacting promo leverage, and outsized GGR growth in New York given its playoff teams and its 51% tax rate.

Looking more broadly, the firm estimates a market wide hold of 10.1% in May, down from 11.6% in the same period last year, which was the highest hold month in history. While hold comps were tough last month, June 2023 hold was 8.9%, so BofA expects Juen growth rates to be healthy. In addition, the analyst believes the NBA Finals make up 15%-20% of June handle, with the firm believing the Boston Celtics’ victory was a good outcome for the sportsbooks.

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).