Bet On It: Breaking down third quarter earnings

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: Rush Street (RSI) Interactive announced the official launch of its anticipated proprietary online poker platform, in close partnership with Phil Galfond, a figure in the poker community. The company said this launch marks a significant milestone in RSI’s broader poker strategy, offering a unique player-first experience designed by poker players, for poker players. “We are incredibly excited about the launch of this platform. Our goal is to create a seamless experience for players, bridging the gap between the BetRivers digital and Rivers Casino offerings,” said Richard Schwartz, CEO of Rush Street Interactive. “By aligning with Rush Street Gaming’s strong retail presence, we are able to leverage our combined strengths to offer a truly unique poker experience that benefits players and drives growth across our entire portfolio.”

Penn Entertainment (PENN) and ESPN announced that account linking between ESPN Bet and ESPN is now available for customers. By linking accounts, fans now have the ability to track upcoming, live and settled bets within the ESPN app and on ESPN.com. The company said, “With this product enhancement, ESPN BET will soon bring fans more personalized bets and timely promotions based on their favorite sports, teams, players, and fantasy rosters. Account linking can be accessed either via a prompt within the ESPN BET app or by visiting settings within the latest versions of the ESPN BET or ESPN apps or ESPN.com.”

Macau’s gaming bureau reported October gross revenue from games of fortune in the region was up 6.6% year-over-year to 20.787B patacas.

Nevada reported September statewide gaming win was up 3.34% to $1.31B. The Nevada Gaming Control Board also reported September Las Vegas Strip gaming win was down 1.83% versus last year to $727.66M.

Caesars Entertainment (CZR) announced an agreement to sell the LINQ Promenade to a joint venture to be formed between TPG Real Estate and the Investment Management Platform of Acadia Realty Trust (AKR) for $275M. This sale is subject to customary approvals and other closing conditions and is expected to close during the Q4. “The sale of the LINQ Promenade represents an accretive, non-core asset sale that will accelerate our debt reduction goals. I want to thank all the team members and the tenants of the LINQ Promenade for their partnership over the last 10 years and wish them continued success,” said Tom Reeg, CEO of Caesars Entertainment. Latham & Watkins and Brownstein Hyatt Farber and Schreck, represented Caesars on the transaction. Kirkland & Ellis provided transaction counsel to TPG & Acadia.

DIFFERENCES SETTLED IN FLORIDA: West Flagler Associates, Bonita-Fort Myers Corporation, Southwest Florida Enterprises and Isadore Havenick, or West Flagler Parties, and the Seminole Tribe of Florida have entered into an agreement whereby the West Flagler Parties have agreed to refrain from engaging in any future litigation with respect to the Seminole Tribe’s gaming operations and instead will begin a new partnership to offer and promote wagering on Jai Alai on the Hard Rock Bet app. As part of Monday’s agreement, the West Flagler Parties have agreed not to bring or support any future legal challenge to the Seminole Tribe’s gaming operations, including mobile gaming offered by the Seminole Tribe now or in the future. In addition, Jai Alai provided by Battle Court Jai Alai, an affiliate of West Flagler, will be offered on the Hard Rock Bet app. The parties anticipate that the Seminole Tribe will launch Jai Alai on its Hard Rock Bet app in early 2025. This agreement ends years of disputes between the Seminole Tribe and the West Flagler Parties and avoids future litigation over the Seminole Tribe’s gaming operations. According to Jim Allen, CEO of Seminole Gaming, “This is truly a win-win agreement for the Seminole Tribe and West Flagler. This agreement establishes a relationship of collaboration among the Seminole Tribe and West Flagler in the State of Florida. Rather than engaging in years of additional litigation, this agreement will allow the parties to work together to promote Jai Alai, which has played an important role in Florida’s gaming landscape for nearly 100 years.” Isadore Havenick agreed, stating: “We are thrilled to be partnering with the Seminole Tribe in support of their gaming operations in Florida and to promote Jai Alai, which has been a critical component of Florida’s gaming industry since the 1920s. We are proud that Jai Alai will be featured on the Hard Rock Bet app and we look forward to developing a strong partnership with the Seminole Tribe.”

EARNINGS RECAP: MGM Resorts (MGM) fell short of analyst expectations in its third quarter report. However, the company did note particular strength in China. “We are pleased to report record consolidated net revenues for the third quarter, driven by record results from MGM China. In Las Vegas, we drove sequential improvement throughout the quarter and many key metrics are demonstrating strength including growth in ADR and occupancy,” said Bill Hornbuckle, CEO and President of MGM Resorts International. “MGM Resorts is well positioned for long-term growth driven by the positive inflection to come in our digital investments alongside the enviable integrated resorts pipeline of development that we have in Japan as well as opportunities in New York and beyond.” Barclays lowered the firm’s price target on MGM to $50 from $54 and kept an Overweight rating on the shares post the Q3 report. Las Vegas gaming volatility and sizable margin miss in Macau combined for a tough Q3, the analyst tells investors in a research note.

Accel Entertainment (ACEL) also missed the mark in terms of EPS consensus, but beat revenue expectations in Q3. Accel CEO Andy Rubenstein commented, “I am happy to report that we delivered another strong quarter and are making substantial progress closing our acquisition of FanDuel Sportsbook & Horse Racing, a natural extension of our convenient, local gaming platform. We continue to outperform casinos in our largest market, Illinois, and posted significant revenue increases in our fastest growing market, Nebraska. By strengthening our core and expanding our offerings, we believe we can continue to generate attractive low-teens returns on capital and improve our trading multiples, making Accel a compelling investment opportunity.”

Caesars’ muted third quarter results included a regional segment negatively affected by a few different circumstances. Tom Reeg, CEO of Caesars Entertainment, Inc., commented, “During the third quarter, we delivered another quarter of $1 billion of same-store consolidated Adjusted EBITDA. Results in Las Vegas reflect record third quarter hotel, F&B and banquet revenues driven by strong occupancy and cash ADRs. Regional segment operating results were negatively impacted by new competition, construction disruption and difficult comparisons versus the prior year. Caesars Digital set a new all-time quarterly record for Adjusted EBITDA driven by over 40% growth in net revenues.” Stifel raised the firm’s price target on Caesars to $63 from $58 and maintained a Buy rating on the shares. When looking at Caesars’ core operations, the firm would say “there is nothing to get overly excited about in the near-term.” However, with peak capital spending coming to an end, non-core asset optionality still in play, and a Digital business that is finally starting to inflect, free cash flow generation is going to rapidly improve moving forward and the firm believes there is further upside to come as it believes the long-term free cash flow generation “remains grossly undervalued,” the analyst contended. On the other hand, Wells Fargo lowered its price target on Caesars to $53 from $58 and backed an Overweight rating on the shares following quarterly results. The firm notes Q3 EBITDAR was -1% vs its and Street’s estimates, reflecting downside LV/Regionals and some offset from upside Digital. Wells’ key takeaway was that the regional EBITDAR inflection it had hoped for may not occur in 2025, but free cash flow/share remains strong.

Rush Street Interactive beat expectations in Q3, causing sending shares up over 8% on Wednesday. Monthly active users in the United States and Canada were approximately 168,000, up 28% year-over-year. Average Revenue per Monthly Active User in the United States and Canada was $388 during the third quarter of 2024, up 4% year-over-year. Richard Schwartz, CEO of RSI, said, “We are excited to report that we have achieved another quarter of exceptional performance, setting new quarterly records in both revenue and adjusted EBITDA. Our third quarter revenue surged by 37% year-over-year, and our adjusted EBITDA increased more than fivefold from the same period last year. These record results highlight the effectiveness of our strategic initiatives and ability to execute. Our focus on innovation to attract and retain high-value players continues to drive significant growth and profitability.” Craig-Hallum elevated its price target on Rush Street Interactive to $17 from $14 and reaffirmed a Buy rating on the shares. The firm said it is “starting to sound like a broken record” because again this quarter it was expecting strong results, and was positively surprised by the magnitude of the beat/raise with strong trends across LatAm, iCasino, and Delaware. Revenue growth is accelerating and the company is driving strong operating leverage, according to the firm.

BETTING ABROAD: Shares of Flutter Entertainment (FLUT) moved higher after British Chancellor of the Exchequer Rachel Reeves delivered her first budget. The group of UK gambling stocks moved higher after the budget did not include tax increases for gambling companies. The budget has “no change to working people’s payslips as income tax, employee national insurance and VAT stay the same, but businesses and the wealthiest asked to pay more,” Reeves said in a statement. Shares of Flutter were up 4% to $237.22 in Wednesday morning trading. Jefferies noted that the United Kingdom budget headlines did not include any change or commentary on gambling taxes. However, the supplementary Budget documents have highlighted the prospect of gambling sector online tax reform and the firm sees “an initial relief in UK-facing gambling sector share prices morphing into a concern” around future tax harmonization, which is “a term that most infer means a tax rise.” The firm’s talks with investors have “typically landed on a 25% rate for both online sports betting and online casino taxes” and in such a scenario the firm’s estimates for the unmitigated Group EBITDA hit would amount to 8% for Flutter, 6% for Entain (GMVHF) and 16% for Evoke (EIHDF), but the firm also notes that it has previously assumed that mitigation could reduce the year one impact by about 50%. Barclays said Flutter’s and Entain’s (GMVHF) tax overhang has been removed “for now” after the UK government released its budget. The news is a positive for shares, but risk to the company’s tax rate “probably can’t be written down to zero,” the analyst told investors in a research note. The full UK Autumn budget, also released today, notes the government will consult next year on proposals to bring remote gambling taxes into a single tax, rather than through a three-tax structure, adds Barclays. The firm keeps an Overweight rating on Flutter and Equal Weight rating on Entain.

NFL WEEK 8: Week eight of the NFL season saw mixed outcomes, with two of the five biggest underdogs winning outright and three of the five covering the spread. In total, five underdogs won outright, and eight covered the spread. Higher scoring this week favored public bettors, as twelve out of sixteen games, including all three primetime games, went over the total. Canaccord told investors that this trend may prompt operators to adopt a more cautious Q4 outlook given October’s relatively “unfavorable” results. Monday marked a “sports equinox” with the NFL, MLB, NBA, and NHL all in action, but data from BetMGM showed football’s betting dominance. Monday Night Football attracted 2.5 times the bets of the World Series, 9 times those of the most-bet NBA game, and 29 times those of the most-bet NHL game. Total handle in New York grew 18% year-over-year to $548M in week seven, though customer-friendly outcomes and tough comparisons led to a 74% year-over-year decline in gross gaming revenue, or GGR, to $10M, according to the firm. FanDuel and DraftKings (DKNG) continue to compete for the lead in New York, with 38% and 36% handle shares, respectively. However, FanDuel maintained a strong 56% GGR share due to unusually low industry-wide hold rates. Fanatics saw the largest movement, with its handle share increasing 600 basis points year-over-year to 7.4%.

ADDITIONAL ANALYST COMMENTARY: JMP Securities decreased its price target on MGM Resorts to $54 from $56 and keeps an Outperform rating on the shares. MGM’s Q3 EBITDAR missed consensus expectations by 1% despite benefiting from insurance claims stemming from the cyberattack in 2023, though BetMGM generated a profit in the period yet remains in an investment period with losses expected in the coming quarters, the analyst tells investors in a research note. The firm adjusted its EBITDA estimates to reflect a slightly more challenged environment on the Las Vegas Strip and its regional markets and expects revenue to slow across the total enterprise in 2025 following several years of same-store growth exiting the pandemic.

Wells Fargo noted Flutter’s is outperformance after the UK’s budget release. The near-term worst case for Flutter “seems averted,” but there will be additional studies in 2025 that could eventually result in higher taxes, the analyst told investors in a research note. Wells says that while some overhang on the shares is alleviated, the door remains open on a future tax increase in 2026. It reiterated an Overweight rating on Flutter with a $295 price target.

JPMorgan boosted the firm’s price target on Caesars to $58 from $54 and keeps an Overweight rating on the shares post the Q3 report. The firm does not view the results as materially different than investor expectations heading into the earnings release.

Barclays cut its price target on Caesars to $57 from $59 and reassessed an Overweight rating on the shares post the Q3 report. The firm said the company’s pieces are moving as expected, but with Regionals outlook somewhat worse and Las Vegas stable. Caesars’s Digital segment continues to accelerate, the analyst tells investors in a research note.

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).