Bet On It: Scandal shakes up New York City casino license race

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: The odds in a closely watched race for three lucrative casino licenses in New York City are getting rejiggered, which is partly due to an alleged bookmaking scandal in Las Vegas, Josh Kosman and Carl Campanile of The New York Post reported. Until last week, MGM Grand (MGM) and Resorts World had been considered shoo-ins to win two of the three full-scale casino licenses. However, those chances may have been upended following news that former head of MGM Grand casino in Las Vegas Scott Sibella has been ousted. After federal agents probed employees at MGM Grand, it was discovered Sibella had been using company assets to pay off gambling debts. Casino giants Caesars Entertainment (CZR), Wynn Resorts (WYNN), and Las Vegas Sands (LVS) are also among those battling for the three licenses.

According to a security expert, the “hackers” who breached security at casino giants MGM Resorts International and Caesars Entertainment also infiltrated “the systems of three other companies,” (OKTA), “said five of the company’s clients, including MGM and Caesars, and others in different industries, “had fallen victim to hacking groups known as ALPHV and Scattered Spider since August,” added the Reuters story.

Despite the cyber attacks, Macquarie continues to see a healthy and stable Gaming customer, particularly in Las Vegas. The firm said there is no canary in the coal mine at this point and that the cyber attacks were eye-opening as property internet, reservation desks, check-in desks, elevators, and machines were not running smoothly. Macquarie told investors that the financial damage was contained and relatively minimal.

NFL CATALYZES: Macquarie calculated football market hold of 11% for the week of Sept 11–17. The firm estimated the NFL accounted for 70% of football betting this week with college representing 30% of football betting this week. Despite above-average market hold of 10% for Q3, the firm estimates hold will be headwind for Q3 given a tough hold comp which included favorable football game outcomes last September. According to the firm, operators have seen significant improvements in hold rates in recent months, particularly Rush Street Interactive (RSI). Overall, Macquarie believes Q4 will be a bigger catalyst for the sector given much higher profits.

Canaccord told investors in a research note that week two did not go as well for sportsbook operators as four of the five largest favorites won outright and 13 of the 16 games went over the projected total, which likely also helped bettors cash in on more of their same game parlays, as there is typically a correlation between higher scoring games and more player props hitting. On the other hand, the four prime time games during week two featured more mixed outcomes and underdogs went 10-5-1 against the spread overall for the week. Total industry-wide gross gaming revenue in New York grew 74% to $56.5M during week one. According to the firm, GeoComply reported that total geolocation transactions grew 56% during week one across the US, with 1.1M new player accounts created, up 40% y/y. In New York:

• FanDuel (PDYPY) came in on top with a 47% share of handle and a 57% share of gross gaming revenue, or GGR
• DraftKings (DKNG) remained in second place with a 33% handle share and a 29% GGR
• Caesars earned 10% of handle and 8% of GGR
• BetMGM rounded out the top four with 5% handle share and 4%.GGR share

Benchmark noted that the Seminole Tribe is allowed to relaunch their Hard Rock betting platform about two years after their short-lived launch in 2021. The case involves the U.S. Department of Interior and a few parimutuels about the legality of the agreement between the State of Florida and the Seminole Tribe. Although experts expect that West Flagler will escalate the case again, many believe that they will be shot down by the Supreme Court by the end of the year., according to Benchmark. Gaming Consultant Brendan Bussman of B Global was quoted saying, “I will be surprised if this is the last that we have seen of this case, but this avenue’s path seems to have hit a road block, if not a dead end…West Flagler has other options, but I do see a path forward where Hard Rock may starting taking wagers until told otherwise.”

BofA data shows “strong” demand for online sports betting and a rational early competitive environment. The firm contends online sports betting demand appears “strong and in-line” with or above their market growth assumptions for Q3. New York’s GGR growth of 15% for Q3 to-date compares to Q3 OSB same-state market forecast of just 2% and overall of 16%. Overall data could also be helped by operators including Fanatics that is not in New York. In NFL Week 1, New York handle was up 26%, gross gaming revenue was up 74% with a 13.6% hold rate. Multiple sources tell LSR the legislative proposal was done without the knowledge of the original sports betting sponsors from this spring.

WE’LL START THE BIDDING: Benchmark also highlighted that BetMGM, DraftKings, FanDuel , Fanatics, and Penn Entertainment (PENN) have all submitted bids to offer sports betting in Vermont. The law enables six operators to launch in the state. Vermont has elected to use a point system in vetting potential operators, including scaling points higher for the potential licensees who would accept higher tax rates, up to 51%. Vermont is aiming to launch sports betting by the end of 2023, but have not announced a concrete date for the launch.

COMMUNICATION ISSUES IN NORTH CAROLINA: North Carolina professional sports teams could potentially garner more power in the North Carolina sports betting market., according to Pat Evans of Legal Sports Report. A budget proposal by the North Carolina General Assembly, obtained by WRAL Monday, gives control of the sports betting market access strictly to the state’s professional sports teams. In current online sports betting law, operators partnered with the organizations are given license priority. The General Assembly is expected to vote on the $30B budget this week. The industry is required to go live between January 8, 2024 and June 14, 2024, according to language in the bill. Multiple sources told LSR the proposal was done without the knowledge of the original sports betting sponsors from this spring.

ADDITIONAL ANALYST COMMENTARY: Morgan Stanley resumed coverage of Entain (GMVHF) with an Overweight rating and 1,740 GBp price target. The quantum and timing of Entain’s online growth recovery is uncertain, but appears “deeply discounted” in the shares, the analyst told investors in a research note. The firm sees potential for corporate action to unlock value.

MGM Resorts shares are down 6% since the start of the hack, but JMP Securities analyst Jordan Bender tells investors in a research note that the firm believes MGM has a $200M cyber insurance policy covering ransom payments and business interruption. If the breach is fully covered within the policy, MGM will incur minimal costs along the way, and see insurance premiums go up, but would amount to a drop in the bucket for the company, the analyst says. The firm made no change to its Outperform rating or $60 price target and said fundamentals for the quarter had been positive prior to the business disruption.

Barclays raised the firm’s price target on Flutter Entertainment to 16,000 GBp from 15,500 GBp and maintained an Equal Weight rating on the shares. The firm also raised the firm’s price target on Entain to 1,520 GBp from 1,450 GBp and reiterated an Overweight rating on the 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 (PDYPY), 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).