Bet On It: Penn seen as takeout target for multiple operators

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: Caesars Entertainment (CZR) announced the acquisition of ZeroFlucs Group, a provider of software that enables sports betting operators to augment their pricing offerings while leveraging their own existing data sources and relationships. The ZeroFlucs acquisition follows an integration of ZeroFlucs’ technology into the Caesars Sportsbook platform through a commercial arrangement that enabled the recent launch of new products, such as in-play same-game parlays and a vastly improved menu of “SGP-eligible” markets for Major League Baseball. ZeroFlucs will remain operational under the leadership of Steve Gray and Carly Christensen, who also joins Caesars Digital as senior VP of pricing technology, and will be augmented by members of Caesars’ data science and data engineering teams.

Flutter Entertainment (FLUT) is “sizing up” assets of casino operator Penn Entertainment (PENN), which recently received an indication of interest from fellow casino operator Boyd Gaming (BYD), sources familiar with the situation told TheDeal.com.

Everi Digital, the online gaming business of Everi Holdings (EVRI), announced the launch of the custom-branded online game “Caesars Emperors Gold” on the newly-upgraded Caesars Palace Online Casino platform via a direct integration with Caesars Digital. Now available to online players in Michigan, New Jersey, Pennsylvania, West Virginia, and Ontario, “Caesars Emperors Gold” is the second title Everi has developed specifically for Caesars Palace Online Casino and is a standard, five-reel video theme with mystery jackpots.

International Game (IGT) and Churchill Downs (CHDN) announced that they have expanded their HHR technology footprints to Malta via an agreement with National Lottery, a subsidiary of IZI Group. Per the agreement, IGT product will initially represent 100% HHR floor share at National Lottery’s first HHR venue, Izibingo situated in St. Paul’s Bay, and Exacta Services, Inc., a subsidiary of CDI, will power the property’s gaming floor with its Exacta Connect system solution. IGT and Exacta will also power HHR at several other National Lottery gaming venues throughout the island. These deployments mark the world’s first HHR technology deployment outside of the U.S.

Bragg Gaming (BRAG) has launched HardRockCasino.nl in the Dutch market, supplying its player account management, or PAM, software to the brand. The agreement marks Bragg’s sixth PAM client in the Netherlands, reinforcing Bragg’s status as the leading technology and content supplier in the Dutch market.

Flutter Entertainment announced the appointment of Christine McCarthy and Robert Bennett to the board of directors, effective July 30, 2024. McCarthy will sit on the audit committee and Bennett will serve as a member of the risk and sustainability committee. “Christine and Dob’s extensive experience in the entertainment industry will be an invaluable asset to Flutter as we continue to extend our leading position as a global online sports betting and iGaming provider,” said John Bryant, chair of the Flutter Board. McCarthy is an entertainment executive that has held several senior leadership positions at The Walt Disney Company (DIS) during her tenure, most recently as a strategic advisor. Bennett is the managing director of Hilltop Investments, a private investment company.

Macau’s gaming bureau reported June gross revenue from games of fortune in the region was up 16.4% year-over-year to 17.694B patacas

Sportradar (SRAD) has grown its Managed Trading Services, or MTS, clientele in the first half of 2024, welcoming 44 new sportsbook operators to leverage its operational capabilities. MTS offers operators a sportsbook management solution, enabling them to decide the extent of their in-house management or opt for external support. Year-to-date, Sportradar has processed more than 3.5B betting tickets via MTS for more than 200 clients. MTS provides operators with access to Alpha Odds, its AI-driven personalized odds technology.

LOOKING AHEAD: Leading up to Q2 earnings, BoFA adjusted its models to account for gaming gross revenue, or GGR, trends in Macau, Las Vegas, and regional markets. Initial indications point to underperformance in Macau, outperformance in Las Vegas, and regional results in line with expectations. Specifically, the firm revised estimates downward for Las Vegas Sands (LVS), Wynn Resorts (WYNN), and Caesars, while increasing Churchill Downs estimates. June’s Macau GGR came in at 17.7B MOP, falling short of the anticipated 18B MOP. Macau stocks have struggled recently due to weak weekly GGR checks. Although both Las Vegas Sands and Wynn show promise when analyzed from a sum-of-the-parts perspective, BofA anticipates negative revisions. The firm told investors that it expects both companies to lose market share quarter-over-quarter, with construction disruptions impacting Las Vegas Sands and Wynn Resorts being less aggressive than their peers in promotional efforts. The firm’s estimates are approximately 4% below the Street consensus

STATE UPDATE: In New York, weekly data up to the third week in June indicates encouraging trends, according to Jefferies. The first three weeks of June delivered a combined margin of 10.1%, surpassing both April and May and even outperforming Q1. Despite facing the toughest quarterly comparison of the year, margins across this period are tracking only slightly down. Among major operators, FanDuel maintains the highest margin at 11.8%, but it faces a challenging comp and has declined YoY. DraftKings, Caesars and BetMGM (MGM) also experienced margin fluctuations. Market share trends reversed in June: FanDuel leads with 47% GGR share, followed by DraftKings, Caesars and BetMGM. Focusing on the first three weeks of June, handle increased 23% YoY, GGR 52%, and margins reached 10.1%. Regarding the promotional environment in April and May, six states reported data on free bets. Across these states, free bet spend as a share of handle declined YoY to 2.7%. ESPN Bet reduced promotional spend to a more rational 3.0% of handle. All major operators cut promotions. Despite higher free bet spend, FanDuel dominated net gaming revenue market share, holding 53% while maintaining 42% share of handle.

ADDITIONAL ANALYST COMMENTARY: Stifel highlighted DraftKings as “a top pick” heading into Q2 earnings and the second half of the year, noting that shares are down 15% over the past two months, driven primarily by the Illinois tax hike as well as more recent downward consensus adjusted EBITDA revisions. However, legislative session and budget discussion timing suggests incremental catalysts on those fronts are likely limited until calendar year 2025, which the firm thinks should enable investor focus to shift back to DraftKings’ ongoing free cash flow inflection. The firm backed a Buy rating and $50 price target on DraftKings shares.

BTIG initiated coverage of MGM Resorts with a Buy rating and $52 price target, citing the company’s “attractive” fundamental story along with a “favorable” risk/reward and mixed investor sentiment on the stock. Las Vegas and China, as well as healthy capital returns with possible kickers from China dividends or Regionals property sales, position the company well for upward estimate revisions in the near term, the analyst tells investors in a research note. BTIG adds that the Street isn’t paying enough attention to the Outside U.S. MGM Digital story unfolding within the Management and Other Ops line.

Wells Fargo lowered the firm’s price target on Wynn Resorts to $126 from $128 and reiterated an Overweight rating on the shares. The firm is lowering its Macau forecasts for Wynn Resorts to reflect Q2 GGR and potential share shifts, with the firm’s Q2 Macau EBITDA now $298M for Wynn Resorts.

Wells Fargo also decreased its price target on Las Vegas Sands to $58 from $60 and maintained an Overweight rating on the shares. The firm cut its Macau forecasts for Las Vegas Sands to reflect Q2 GGR and potential share shifts, with the firm’s Q2 Macau EBITDA now $602M.

Oppenheimer lowered the firm’s price target on DraftKings to $58 from $60 and kept an Outperform rating on the shares. The firm is also reducing Q2/2024 EBITDA to $121M/$440M on Q2 hold pressures, higher new-player promo mix, Illinois taxes, and Jackpocket investments. Oppenheimer views hold pressures as transitory, higher promotions into larger new user-base as positive, taxes as structural but enough levers to offset IL in 2025, and Jackpocket providing massive cross-selling edge.

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).