Citing two unidentified sources close to the matter, CFTN reported Monday that the Hart-Scott-Rodino (HSR) Act guidelines pertaining to the deal will expire Monday night, with no need for Standard General to file a second request with federal regulators.

Under the Hart-Scott-Rodino (HSR) Act, parties to certain large mergers and acquisitions must file premerger notification and wait for government review. The parties may not close their deal until the waiting period outlined in the HSR Act has passed, or the government has granted early termination of the waiting period,” according to the Federal Trade Commission (FTC).

Standard General — the hedge fund that’s the largest investor in Bally’s — floated a $15 per share takeover offer in March. That was upped to $18.25 a share, which the regional casino operator accepted in July.

Standard General Bally’s Buy Not Big Enough to Draw FTC Concern

The proposed deal assigns an enterprise value of $4.6 billion to Bally’s and while that isn’t a small amount of money, it’s not the price point at which the FTC would consider making the buyer make adjustments to the initial deal structure.

For example, the FTC sued to block the $24.6 billion merger of Albertsons and Kroger — the largest deal on record in the grocery store industry — because it’s anticompetitive. Some states have taken up that mantle, too, and have launched their own antitrust investigations into the merger.

Some Democrat donors have reportedly encouraged Vice President Kamala Harris to fire Khan should the former win the presidential election in November. The Harris campaign hasn’t publicly said if such a move is on the table.

Next Steps for Standard General

With federal antitrust concerns apparently not an issue, the next step for Standard General is dealing with regulators in the states in which Bally’s operates land-based casinos. Those are Colorado, Delaware, Illinois, Indiana, Louisiana, Mississippi, Nevada, New Jersey, and the gaming company’s home state of Rhode Island.

Standard General is aiming to have the Bally’s acquisition wrapped up in the first half of 2025.

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Shares of the prospective seller posted a double-digit gain in London trading on Monday after media reports surfaced indicating the two companies could reach an agreement in the coming days. Should that price be what Flutter offers, it would represent the entirety of Playtech’s market capitalization.

Speculation regarding Flutter’s interest in Snaitech began last month with Playtech ultimately confirming it was in talks with the Paddy Power owner.

Snaitech is one of the largest gaming companies in Italy and should Playtech shed that entity, the seller would have no consumer-facing operations, allowing it to focus on its business-to-business technology offerings. Playtech’s Monday surge was aided by news that the company reached an agreement with Mexican gaming firm Caliente regarding a long-standing argument over payments purportedly owed to Playtech. It’s also possible that if Playtech sells Snaitech, bidders could emerge for the former’s tech business.

The sale of Snaitech, will leave Playtech as a business-to-business provider of software, and, according to analysts, is likely to result in a formal takeover bid in the medium term,” reported Mark Kleinman for Sky News.

Last month, Playtech granted Flutter a period of exclusivity to perform due diligence on Snaitech, indicating the seller is not yet fielding offers from other suitors.

Snaitech Buy Keeps with Flutter Tradition

Should it reach a deal for Snaitech, the purchase would extend Flutter’s tradition of deal-making that’s allowed the operator to bolster its footprint in Europe, including in Italy where it’s already one of the largest gaming operators.

Italy is an attractive market for a company for multiple reasons. It’s the third-largest economy in the Eurozone and is Europe’s largest regulated gaming market outside of the UK, meaning a presence there diversifies Flutter’s revenue stream while reducing reliance on the UK.

Although it’s already a large market within the European wagering scene, Italy is rapidly growing thanks to the evolution of iGaming, a sector in which Snaitech has some leverage. Snaitech also operates in Austria and Germany, but is a smaller player in those countries.

Flutter’s Been Acquisitive of Late

Snaitech isn’t the only potential acquisition Flutter is working on. Last week, the company said it’s spending $350 million in cash to buy a 56% stake in Brazil’s NSX Group, which controls the popular Betnacional brand in that country.

Flutter is the parent of FanDuel, the largest online sportsbook operator in the US.

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NSX operates the Betnacional brand. Including Betnacional, NSX is the fourth-largest iGaming and online sportsbook company in Brazil. Importantly to Flutter, the target is already profitable. Flutter said NSX is expected to generate 2024 revenue of $256 million on adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $34 million.

The $350 million transaction, which was announced last Friday, is scheduled to close by the second quarter of 2025.

NSX Buy Could Be Smart Move by Flutter

Flutter taking a stake in NSX could prove to be a prescient move because Brazil is slated to fully regulate its iGaming and online sports betting markets at some point next year.

That’s expected to open the floodgates for international operators to bid for licenses in the country. Flutter has an advantage because it’s already established in Brazil, but partnering with a local company like NSX could be viewed favorably by regulators and it’s a move some rivals have signaled they’ll employ as well.

“Strong demand for sports betting and iGaming products with compound annual gross gaming revenue (GGR) growth in the unregulated market of 38% since 2018, to almost $3 billion in 2023,” according to a statement issued by Flutter.

Brazil’s Booming Gaming Market

In the eyes of many US investors, Flutter is viewed as the parent of FanDuel — the largest online sportsbook operator in this country – and while that’s accurate, the company has a massive international footprint that includes exposure to Australia, Europe, and Latin America.

“Flutter Brazil will be exceptionally well positioned to take full advantage of the significant growth opportunity in the newly regulating Brazilian market,” concluded Flutter in the statement. “In line with our successful strategy in other newly regulated markets such as the US, we expect to drive market share growth and embed future profitability through disciplined customer investment. This is expected to result in a Flutter Brazil adjusted EBITDA loss of approximately $90 million to $100 million in 2025.”

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Weakness in China’s economy — the world’s second-largest — is a credible reason for market participants to avoid Chinese stocks and Macau gaming names such as Wynn Macau. However, Stifel analyst Steven Wieczynski argues that investors are currently ascribing no value from Macau or the operator’s United Arab Emirates (UAE) project to the stock. That scenario is “ridiculous,” says the analyst.

We do believe current trading levels of WYNN shares are essentially pricing in almost zero value for their Macau assets (as well as their UAE project), which we believe is way too pessimistic/Draconian,” wrote Wieczynski in a new report to clients.

Wieczynski added that while he lowered estimates on Wynn’s Las Vegas and Macau integrated resorts, he views the stock as attractive and recent weakness as a potential buying opportunity. He reiterated a “buy” rating while paring his price target to $103 and $121. Even with that reduction, the new forecast implies upside of about 35% from Thursday’s close.

Wynn, Other Macau Stocks Are Deeply Discounted

For the better part of five years now, Wynn Macau and shares of the other concessionaires in the Special Administrative Region (SAR) have struggled, and those woes intensified this year amid lethargy in the Chinese economy and worries ahead of the US presidential election.

“We get it as to why investors don’t want to look at WYNN right now as there are fears out in the marketplace about the China macro backdrop coupled with fears around the health of the U.S consumer. But based on where shares are trading today, we believe the market is more than discounting enough potential headwinds for this name,” Wieczynski added.

He also noted that while Macau equities are likely to move in fits and starts, Wynn should be able to extract considerable long-term value in Macau due to the operator’s focus on higher-margin gaming segments and cost controls.

Wynn Stock Has Catalysts

Macau stocks are clearly moribund, and with Wynn down 16% over the past 90 days, it would be easy for investors to be dismissive of the shares. That view, however, ignores the point that the stock has tailwinds, including the Wynn Al Marjan Island project in the UAE.

Wieczynski argued that the venture, which is positioned to be the first regulated casino hotel in the Arab world, currently isn’t reflected at all in Wynn’s stock price even though it could eventually be worth $10 to $17 a share in today’s dollars.

“We would note WYNN is doing an extensive (three plus hours) investor day/presentation in early October out in Las Vegas,” concluded Wieczynski. “We believe WYNN will spend a considerable amount of time going through their long-term growth opportunities with a specific focus around their UAE project. We don’t believe WYNN management would be holding such a detailed investor event unless they were confident in the long-term financial benefits this project should bring.”

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District Court Judge Jia Cobb recently ruled in favor of Kalashi, which the Commodity Futures Trading Commission (CFTC) previously blocked from offering election markets. The CFTC regulates the company and others like it. Kalashi sued the commission in 2023, arguing it overreached when it barred the exchange from offering cash-settled election outcome contracts. Last than two months before the 2024 presidential and congressional elections, Cobbs ruling was released. In it, the judge pointed out that the contracts offered by Kalashi are neither gaming nor an illegal act.

This case is not about whether the Court likes Kalshi’s product or thinks trading it is a good idea,” Cobb stated in her opinion. “The Court’s only task is to determine what Congress did, not what it could do or should do. And Congress did not authorize the CFTC to conduct the public interest review it conducted here.”

Soon after Cobb’s ruling, two election-related? betting markets went live on Kalashi — one each on whether Democrats or Republicans will have control of the House and Senate after the Nov. 5 elections.

Interactive Brokers Election Betting Access Could Be Boon for Bettors

To date, betting in the traditional sense on US elections has been illegal in this country, but some companies have been able to get into the election game by doing things differently. For example, Polymarket has seen a surge in interest, helped in large part by the 2024 election, by allowing clients to purchase shares in an event and because the shares are an asset, the asset does not constitute a bet.

For bettors and market participants that want to invest in the 2024 election, the access provided Interactive Brokers could prove crucial. The company runs the largest electronic trading platform in the US, procession more than three million trades per day and is regulated. Interactive Brokers has more than 1.7 million client accounts, indicating there could be significant profit potential in allowing clients to wager on elections.

The demand is there. As of early August, data indicated more than $1 billion had been wagered on the US presidential race in gray market venues such as PredictIt and Smarkets.

Interactive Brokers Has Relevant Experience

Interactive Brokers has experience in finance-related event contracts. It recently launched its ForecastEx platform, which allows bets on economic data such as consumer sentiment, inflation, and the monthly jobs reports.

Other financial services firms are getting into the game, too. Earlier this year, trading house Susquehanna International Group commenced making markets on Kalashi relating to the Federal Reserve’s plans for interest rates and movie reviews.

Still, some groups believe election betting isn’t appropriate and could weaken democracy.

“Democracy in America is at a fragile crossroads, with more Americans questioning the integrity of elections than ever before” said Cantrell Dumas, director of derivatives policy at Better Markets, in a statement. “The shocking attack on the Capitol on January 6, 2021, is just one glaring example, but across the country, less visible incidents continue to chip away at the public’s confidence in our elections and democracy itself. In this shaky political moment, the last thing our country needs is for democracy to be undermined further by allowing gambling on elections.”

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At the Goldman Sachs Communacopia and Technology Conference, Fox CEO Lachlan Murdoch said the media company is proceeding with plans to take an 18.6% interest in FanDuel, the rights to which were acquired in 2020 when Flutter doled out $12.2 billion for The Stars Group (TSG). Fox sold Sky Bet to TSG in 2018 for $4.7 billion, taking an equity stake in the buyer.

Murdoch told attendees at the conference that Fox values FanDuel at $35 billion, meaning 18.6% is worth $6.5 billion. Assuming he’s correct and FanDuel is worth $35 billion, that implies the gaming company is worth $17.22 billion more than DraftKings (NASDAQ: DKNG), its most direct competitor. At the close of US markets on Wednesday, DraftKings sported a market capitalization of $17.78 billion.

Fox Won’t Leave $2 Billion on the Table, Says Murdoch

That $6.5 billion figure is well in excess of the $4.3 billion Fox previously estimated it would need to pay to exercise its rights to acquire 18.6% of FanDuel. To buy that portion of FanDuel, Fox must be a licensed sportsbook operator in the states in which FanDuel does business. Murdoch mentioned at the Goldman Sachs conference that the company is working to address that issue.

We’re not going to leave $2 billion on the table,” he said.

It’s clear FanDuel has appreciated in value. Following a legal spat in 2022 between Flutter and Fox, the latter agreed to buy that 18.6% of FanDuel for $3.72 billion with a 5% annual escalator, meaning that for each year the option wasn’t exercised, the price would go up 5%.

“FOX has a 10-year call option that expires in December 2030 to acquire 18.6% of FanDuel for $3.72 billion, with a 5% annual escalator,” according to a November 2022 statement issued by the media firm. “FOX has no obligation to commit capital towards this opportunity unless and until it exercises the option.”

Murdoch said Fox has already initiated the process of procuring state gaming permits.

“We’ve begun the process with state regulators,” Murdoch said. “To fully monetize the option, we need to be licensed as a gaming operator, even with only with only 18.6% and so we’ve started that process with state regulators to begin the gaming licensing approvals.”

Where’s Fox Going to Come up with $4.3 Billion?

Murdoch didn’t get into specifics of how Fox would come up with the $4.3 billion needed to activate its FanDuel stake. Coincidentally, the media entity had $4.31 billion in cash and cash equivalents at the end of fiscal 2024.

He didn’t mention the possibility of selling debt to fund acquisitions or the purchase of the FanDuel interest.

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At the Bank of America’s Gaming and Lodging Conference last week, Robins acknowledged DraftKings customers scoffed when it proposed a small levy on winning sports bets placed by clients in Illinois, New York, Pennsylvania, and Vermont to deal with the elevated taxes in those states.

Clearly, this was something that our customers — they didn’t like this type of solution,” Robins said at the conference. “Our thinking behind it was, well, we can invest more in promo for you and other things because we’re going to be collecting more upfront. But we got feedback that people didn’t like this particular solution, so we changed it.”

After announcing the surcharge plan on August 1, DraftKings reversed course less than two weeks later as none of its rivals followed suit. Though the company didn’t say the two events were linked, DraftKings scrapped the surcharge plan on August 13, the day on which FanDuel parent Flutter Entertainment (NYSE: FLUT) reported second-quarter results and told investors it had no plans to follow its competitor on the tax on winning bets gambit.

Robins Looking for Ideas to Contend with High Taxes

While Robins didn’t mention specific ideas, he said the gaming company he co-founded is examining avenues through which it can better contend with some states’ high taxes on online sports betting.

“The bottom line is, at some point, I guess it depends on what happens in other states, but I don’t think that in perpetuity, it will make sense for anybody to completely just eat any tax increase that happens anywhere,” said Robins at the conference.

Some analysts have speculated that either or both of Illinois and New York could pass iGaming legislation next year, and that would be an avenue through which operators such as DraftKings could offset some of their sports betting tax exposure.

Other Legislative Issues Confounding Gaming Companies

Shares of DraftKings are up 5.47% year to date – a tepid showing relative to some peers and broader domestic equity benchmarks. One reason the stock has been lethargic in 2024 is because there’s been little of note in terms of positive legislative action.

“DKNG’s total addressable market should increase over the next 3-5 years as states legalize sports betting,” noted Zacks Equity Research. “As budget deficits continue to balloon, more states will likely turn to sports betting as a much-needed tax revenue source.”

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On a recent edition of “The Greg Hill Show,” Boston sports talk radio host Courtney Cox said there are three finalists who could acquire the Celtics: Amazon founder Jeff Bezos, Boston Red Sox President Sam Kennedy, and Encore Boston Harbor. Located in Everett, Mass., Encore Boston Harbor is Wynn’s lone US casino hotel outside of Las Vegas. The property is the holder of the first sportsbook license in state history.

Kennedy’s potential involvement implies it would be Fenway Sports Group, which owns the Red Sox and the NHL’s Pittsburgh Penguins, among other sports interests, that makes a bid.

Bezos being interested in the Celtics isn’t surprising as he’s long coveted a professional sports franchise. Last year, he was among the bidders for the NFL’s Washington Commanders, but the team was ultimately sold to another group.

Wynn Resorts Buying Celtics Seems Iffy

The unidentified source cited by Cox isn’t from Boston and Wynn hasn’t commented on any interest in buying the Celtics or any other professional team.

Speculation that the gaming company could be mulling a bid for the team may be attributable to the operator’s hopes of expanding Encore Boston Harbor and the surrounding area. There’s been chatter that such an effort, if approved, could include a new arena for the Celtics and Boston Bruins. There’s also been scuttlebutt that the basketball team could relocate its offices to Everett.

As for the NBA allowing an owner with gaming interests, that’s not an issue. Golden Nugget boss Tilman Fertitta owns the Houston Rockets and Dr. Miriam Adelson and Patrick Adelson recently acquired majority control of the Dallas Mavericks. Adelson is the largest Las Vegas Sands (NYSE: LVS) shareholder, and Dumont is president and chief operating officer of that gaming company.

Steve Wynn an Unlikely Bidder

Born in Connecticut, Steve Wynn is a native New Englander and could well be a Celtics fan, but for now, his possible involvement in acquiring the Celtics appears to be mere speculation.

Assuming the Celtics’ sale price were to approach $5 billion, that might be too rich for Wynn’s blood, but it would be easily affordable for Bezos. One of the richest people in the world, Bezos is worth an estimated $190.4 billion.

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The newly issued senior notes mature in 2033 with an interest rate of 6.25% and are “guaranteed by all of Wynn Resorts Finance’s domestic subsidiaries” except Wynn Resorts Capital.

Wynn Las Vegas, LLC will use the amounts to (i) redeem in full Wynn Las Vegas and Wynn Las Vegas Capital Corp.’s 5.500% Senior Notes due 2025 (the “2025 LV Notes”) and (ii) pay fees and expenses related to the redemption and (b) use the remainder of the net proceeds for general corporate purposes, which may include covering all or a portion of the $130 million forfeiture under the non-prosecution agreement described in our Current Report on Form 8-K filed with the Securities and Exchange Commission on September 6, 2024,” according to a statement issued by the gaming company.

Last Friday, Wynn disclosed to investors that it reached a $130.13 million settlement with the Justice Department — the largest-ever penalty applied to a single domestic casino — “based on admissions of criminal wrongdoing,” according to DOJ.

Wynn Bond Sale Implies Swift Payment of DOJ Penalty

While the gaming company didn’t comment on exactly when it will pay the $130.13 million it owes to the government, noting that some proceeds from the bond sale could be used for that purpose implies the casino operator could swiftly deal with that obligation.

In one example highlighted by the DOJ, Wynn Las Vegas permitted a Chinese patron who “had spent six years in prison in China for conducting unauthorized international monetary transactions and violations of other financial laws” to wager at the property.

As part of a nonprosecution agreement (NPA) with the government, Wynn Las Vegas acknowledged wrongdoing and noted that it has extensive measures to bolster its anti-money laundering protocols while telling the government that staffers involved in the questionable transactions are no longer employed by the company.

Wynn Bond Sale Serves Another Purpose

While the Wynn bond sale serves the aim of potentially quickly moving the DOJ liability off its books, the transaction is important because it also allows the operator to redeem bonds coming due next year.

In separate though related news, gaming device and lottery giant International Game Technology (NYSE: IGT) said Tuesday that it’s selling a new euro-denominated bond issue to redeem nearly $500 million in senior secured notes maturing in 2025.

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The announcement was made in a regulatory filing with the Hong Kong Stock Exchange (HKSE). An entity known as Venetian Venture Development Intermediate II and a financial services firm plan to purchase the Sands China equity. Based on Sands China’s September 9 closing price, $103 million represents 59,612,518 shares or 0.74% of the gaming company’s freely floating stock.

Sands China is the largest casino operator in Macau, running five integrated resorts in the lone Chinese territory where gaming is permitted.

LVS Could Further Boost Sands China Stake

News that Las Vegas Sands is upping its interest in its Macau unit isn’t surprising because it did so last year. Some analysts believe LVS’ plan is to eventually take that percentage to north of 75%, but not ultimately buy out minority investors.

That listing is important because it allows local retail investors and professional market participants in Hong Kong and mainland China to access the stock. In turn, that listing shows commitment to Macau and China, which can be viewed as a positive among Chinese regulators.

In his August note, Umansky added that Sands China is unlikely to restart its dividend before next year although it’s been 14 months since LVS resumed its quarterly payout. Sands China is one of three Macau operators that doesn’t currently pay a dividend.

Another Reason the Sands China News Isn’t Surprising

There’s another reason why it’s not surprising that LVS is again upping its equity holdings in Sand China. The company told investors such moves were possible when it sold Venetian and Sands Expo and Convention Center on the Las Vegas Strip more than three years ago.

Private equity giant Apollo Global Management now operates the Venetian while VICI Properties owns the property assets of the integrated resort and the convention center.

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A recent filing with the Securities and Exchange Commission (SEC) indicates that on September 3, Snowden bought 54,200 shares of the regional casino operator’s equity at a weighted average price of $18.44 per share. That resulted in an overall purchase price of $1 million. The prices he paid ranged from $18.15 to $18.76, according to the regulatory document. Penn closed at $17.67 on Monday, extending a slide that’s seen the stock shed 5.61% over the past month.

Snowden’s purchase of his employer’s stock may signal a vote of confidence in ESPN Bet and Penn’s regional casinos, but the chief executive’s office didn’t comment to that effect. In many cases, corporate insiders buy their company’s stock because they believe it is undervalued and poised to appreciate.

Snowden Buying Penn Dip

Beleaguered Penn investors may well be hoping that Snowden’s recent purchase of the stock is an expression of confidence because the shares have shed nearly a third of their value year to date.

PENN has had a volatile few months, with pressure at the 200-day moving average as well as the $20 region,” according to Schaeffer’s Investment Research. “Despite the red ink in 2024, there’s not a single ‘sell’ rating among the 19 analysts covering the security. Should Penn stock continue to underperform, downgrades could add pressure to the equity.”

The stock has been a battleground this year. In May, investor Donerail Group encouraged the gaming company to abandon its online sports betting ambitions and consider selling itself. That stoked speculation of a transaction in which rival Boyd Gaming (NYSE: BYD) would acquire Penn’s regional casinos and ESPN Bet would be sold to another buyer.

No such deal has materialized as of yet, and Snowden made comments to analysts that indicate Penn isn’t actively shopping itself and that it wants to remain an independent company.

Snowden Buys While Other Gaming Execs Sell

Another reason Snowden’s purchase of Penn stock could be viewed as a positive is because it’s a departure from what’s been seen in the gaming space in 2024. For the most part in 2024, industry executives have been sellers, not buyers, of their companies’ shares.

With the September 3 buys, Snowden now owns now owns a total of 853,045 shares of Penn.

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The fine, which is part of a non-prosecution agreement (NPA), is believed to be the largest on record for any US-based casino company “based on admissions of criminal wrongdoing,” according to DOJ. Las Vegas-based Wynn Resorts notified investors about the penalty in a form 8-K filing with the Securities and Exchange Commission (SEC) late Friday.

Pursuant to the NPA, Wynn Las Vegas agreed to forfeit $130 million in funds involved in the transactions at issue and continue to make certain enhancements to its compliance program. The DOJ agreed that, subject to Wynn Las Vegas’s fulfillment of its obligations under the NPA, it will not bring any criminal charges against Wynn Las Vegas concerning the subject matter of its investigation, subject to standard reservations of rights and certain reserved claims,” said the gaming company in the regulatory document.

News of the penalty hasn’t spooked Wynn shareholders as of yet as the stock was down just 0.16% in Friday’s after-hours session. As part of the NPA, Wynn Las Vegas admitted that it used an illegal money transfer system to skirt regulated, traditional anti-money laundering protocols.

Wynn Las Vegas Money Transfers Had China Ties

DOJ outlined several scenarios in which violations at Wynn Las Vegas had ties to China. In one example known as “Human Head” or “Human Hat” betting, a? guest of the Sin City casino resort would use a proxy to wager their funds for fear that if they bet themselves, they’d run afoul of US Bank Secrecy Act or Anti-Money Laundering (BSA/AML) laws.

“A money processor, acting as an unlicensed money transmitting business, collected U.S. dollars in cash from third parties in the United States and delivered that cash to a WLV patron who could not otherwise access cash in the U.S. The patron then electronically transferred the equivalent value of foreign currency from the patron’s foreign bank account to a foreign bank account designated by the money processor,” said DOJ in a statement.

Wynn Resorts’ Wynn Macau unit runs two integrated resorts in the Chinese territory, but DOJ didn’t mention anything about the operator’s Macau exposure playing a role in the money transfer schemes that occurred at the company’s Las Vegas property.

DOJ added that in another example of Wynn Las Vegas flouting anti-money laundering regulations, the venue didn’t report millions of dollars in transactions attributable to a Chinese guest who “had spent six years in prison in China for conducting unauthorized international monetary transactions and violations of other financial laws.”

Wynn Looks to Put Ominous Chapter to Bed

While the bulk of the operator’s earnings and revenue are derived from Macau, Wynn’s Las Vegas complex, consisting of the namesake casino hotel and adjoining Encore, are vital to its US presence and overall investment thesis. That confirms it behooves the operator to put the illegal money transfer issue to rest.

“In reaching the resolution set forth in the NPA, the DOJ took into account the historical nature of the transactions at issue; Wynn Las Vegas’s cooperation with the DOJ’s multi-year investigation; that Wynn Las Vegas no longer employs or is affiliated with any of the individuals implicated in the transactions at issue; and Wynn Las Vegas’s extensive remedial measures, many of which were undertaken prior to the parties entering into the NPA,” said the gaming company in the SEC filing.

The case was investigated by the DEA, Homeland Security Investigations (HSI), and the IRS.

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In a note to clients on Thursday, Deutsche Bank analyst Carlo Santarelli observed that Red Rock’s property-level margin expansion is more sustainable than market participants perceive it to be. The analyst said multiple factors support that thesis.

These three drivers, each of which we break down on their own, are: 1) the current portfolio versus the 2019 portfolio, 2) gaming promotions, which are less structural, but nicely beneficial at present, and 3) the food and beverage segment,” wrote the analyst.

Indeed, Red Rock’s portfolio looks much different today than it did before the coronavirus pandemic. As a result of the global health crisis, the gaming company closed the Fiesta Henderson, Fiesta Rancho, and Texas Station, and never reopened those venues. It also sold the Palms, taking a loss on the deal. Conversely, Red Rock opened Durango in Southwest Las Vegas last December, and that new casino is off to an impressive start.

Market Doesn’t Appreciate Red Rock Changes

Following the pandemic, casino operators, including Red Rock, enjoyed immediate boosts to margins because many culled less profitable nongaming offerings, such as lower-end dining and entertainment options.

“While the most considerable pushback we get to our bullish view on RRR relates to valuation, we also believe there is considerable apprehension related to the margin outperformance, relative to 2019, when looking at RRR on a standalone basis, as well as looking at RRR relative to peers. In our view, the market is underappreciating the true structural changes that are driving the bulk of the margin improvement, changes that do not relate to operating performance, nor the broader competitive environment, to a great degree,” according to the analyst.

Santarelli added that Red Rock is likely to continue its margin expansion event if revenue growth encounters headwinds.

Red Rock Solid By Comparison

Year to date, shares of Red Rock are higher by 9.43%. That’s good for one of the best showings among all small-cap casino equities and it far outpaces broader small-cap benchmarks. Since the start of the year, the Russell 2000 and S&P Small Cap 600 indexes are up 6.7% and 5%, respectively.

Santarelli rates the stock a “buy” with a $65 price target, implying upside of 13.3% from Thursday’s closing price.

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In a recent report to clients, Deutsche Bank analyst Carlo Santarelli observed that 2024 and 2025 maturities among publicly traded gaming companies “are relatively limited,” adding that of the 12 casino companies the bank covers, just five have debt coming due this year or in 2025. That quintet is comprised of Gaming and Leisure Properties (NASDAQ: GLPI), Las Vegas Sands (NYSE: LVS), MGM Resorts International (NYSE: MGM), VICI Properties (NYSE: VICI), and Wynn Resorts (NASDAQ: WYNN).

Santarelli added that most of the debt the aforementioned quintet has coming due over the near term is at favorable interest rates, indicating the casino operators wouldn’t materially benefit from refinancing those obligations. That would remain the case even if interest rates decline significantly in the months ahead.

Lower Interest Rates Will Help Casino Debt

While some of the casino operators mentioned above don’t need to rush to refinance outstanding debt, there are benefits to be accrued in the industry from lower base rates.

We do believe the next 6-12 months will likely bring some relief to those with larger variable debt mixes. As evidenced in our analysis, a reduction in base rates will have the most notable and favorable impacts on discretionary free cash flow, based on our current 2025 discretionary free cash flow forecasts,” wrote Santarelli.

Boyd Gaming (NYSE: BYD), Caesars Entertainment (NASDAQ: CZR), Golden Entertainment (NASDAQ: GDEN), Light & Wonder (NASDAQ: LNW), Penn Entertainment (NASDAQ: PENN), Red Rock Resorts (NASDAQ: RRR), and Wynn could all experience increases of at least 3% to discretionary free cash flow if rates fall by 150 basis points throughout 2025, according to Santarelli.

At the high end of that range, Caesars would save $91.1 million in annual interest expenses if interest rates fall by 1.5%. That’s followed by Sands at $42.1 million, according to Deutsche Bank estimates. On a percentage basis of increased free cash flow assuming rates fall 150 basis points, Golden Entertainment is tops at 7.3%.

Casino Operators Facing Biggest Near-Term Maturities

Assuming no refinancing takes place over the near term, Las Vegas Sands and VICI face the largest 2025 maturities. Sands has $2.121 billion in bonds at a blended interest rate of 4.6% coming due next year while VICI has $2.050 billion at a blended interest rate of 4.2% maturing next year, according to Deutsche Bank.

Additionally, VICI’s contracts with gaming operator tenants are long term with gradual rent increases –two traits that provide earnings visibility.

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Speculation recently surfaced that Genius, a data provider to sportsbooks, was mulling a takeover of Sweden-based Kambi, but Anders Str?m, chairman of the Kambi board of directors, said no such conversations have taken place.

While Kambi tends not to comment on rumour and speculation, I can confirm that Kambi is not engaged in any such discussions,” he said in a statement.

With its shares up 15.35% year to date, Genius has the currency with which to hunt for deals. It has a market capitalization of $1.5 billion, which is well above Kambi’s market value of $370.1 million.

Kambi Takeover Rumors Getting Old

Rumors about Kambi being a target aren’t new. In fact, they date back to at least the second quarter of 2023, and the purveyors of the chatter have some factors to hang their hats on.

Furthering the speculation is the fact that Kambi recently pulled its longer-ranging financial targets, in part citing regulatory issues in Brazil. That prompted the resignation of then-CEO Kristian Nylén. High-level executive departures often stoke takeover talk.

Additionally, more gaming companies are looking to bring sports wagering technology in-house, which could further the allure of Kambi as a takeover candidate. The company’s North American clients include Bally’s, Churchill Downs, Penn Entertainment, and Rush Street Interactive, among others. Kambi also works with gaming companies throughout Australia, Europe, and Latin America. The corporation recently extended its partnership with Rush Street.

Genius Sports Denies Rumor, Too

Genius Sports also denied the scuttlebutt.

As policy, we do not comment on unfounded and ill-informed rumors. To prevent any further speculation, we can confirm that we are not involved in any discussions of this nature with Kambi,” said CEO Mark Locke in a statement.

While Genius might not be interested in Kambi, there could be an ample number of other potential suitors should the firm put itself up for sale. After the company adopted the poison pill provision in 2022, Alinea Capital Management, a Norwegian hedge fund, said there could be as many as six US-based companies interested in buying Kambi.

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In a report to clients issued on Tuesday, Benchmark analyst Mike Hickey hit Sphere with the ominous rating and a $40 price target, which implies downside of about 9% from current levels. His bearish call on the Sphere comes in the midst of a pullback that’s seen the stock shed 9.54% over the past week. Still, the shares are higher by 15.9% over the past month and 30.55% year to date. Hickey noted there are significant risks to the Sphere investment thesis.

With only one screen to recoup these significant investments, the financial risk is substantial,” he observed.

The Las Vegas entertainment venue got off to a stellar start last year thanks to a series of live U2 concerts, but Sphere Entertainment needs to display proficiency in landing top-tier acts and programming to ensure “economic viability,” according to Hickey. Besides Benchmark, seven other sell-side firms cover Sphere, with three rating the stock “buy” or “strong buy,” and four rating it “hold.”

Don’t Expect More Spheres Soon

Las Vegas is arguably the ideal city for the Sphere, which is massive and emits constant light and noise. That’s the case with many venues on the Strip, and while those traits are common in Sin City, they’re not necessarily appealing to other cities.

“Given that the original Sphere took five years and $2.3B to construct, rapid expansion seems impractical,” noted Hickey, adding that smaller versions of the Las Vegas Sphere probably aren’t attractive because they would lack appeal due to their diminutive stature, and economic opportunity could be threatened as a result.

MSG Networks Could Weight on Sphere Stock, Too

When Sphere was spun off from Madison Square Entertainment (NYSE: MSGE), regional sports networks (RSNs) MSG Networks and the YES Network were included with the former. That could be problematic because MSG Networks has $850 million in debt coming due next month.

Hickey called Sphere Entertainment essentially an exhibitor business while adding that MSG Networks is a debt-ridden entity in a declining industry.

The post Sphere Production Costs, Scalability Issues Prompt Sell Rating appeared first on Casino.org.

The company spent the weekend in talks with stakeholder groups, lenders, and regulators in an effort to raise funding – to no avail, reports the Australian Financial Review (AFR).

Star has asked the government of Queensland for tax relief, and those negotiations are ongoing. The New South Wales (NSW) government has already refused to offer any such bailout because it would be used to support the company’s Queen’s Wharf project in Queensland.

Suspended from ASX

The news comes a day after Star was suspended from the ASX for missing the deadline to file its full-year financial results.

The report by the New South Wales Independent Casino Commission (NICC) concluded the operator had failed to sufficiently address the “governance and cultural concerns” raised by a 2022 inquiry that found it unfit for licensing.

Criminal Gangs

Star’s Sydney license has been suspended since 2022 when the inquiry concluded it had allowed itself to be used by criminal gangs to launder money in private high-roller junket rooms.

Despite the license suspension, gaming at the Star Sydney has remained operational. In a statement last week, the NICC said it was “contemplating [the new report’s] findings, including four compliance breaches,” adding that it would respond in due course.

Too Big to Fail

Queensland Premier Steven Miles said Wednesday his administration would do everything it could to keep Queens Wharf open.

This is a fantastic asset for our city. It is a big job generator. It is a major attraction to our city and state,” he said. “It is an important platform for Brisbane 2032 and everything that we’re going to do in our city over the next decade or so.”

Miles added that any bailout would still require Star to pay all of its taxes and license fees, but they would be deferred.

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In a note out on Tuesday, analyst Dan Wasiolek initiated coverage of the FanDuel parent with a four-star rating (five is the highest) and a fair value estimate of $250. That implies potential upside of 18.4% from Tuesday’s closing price.

Flutter’s construction of a daily fantasy sports product in July 2009 provided a first-mover lead to take advantage of a 2018 Supreme Court ruling that allowed for legalized sports and iGaming wagering in the US. As a result, Flutter holds a commanding 40% digital revenue share in the US,” wrote Wasiolek.

Flutter owns 95% of FanDuel, which is half of the US online sports betting (OSB) duopoly, with DraftKings (NASDAQ: DKNG) representing the other half. While the two companies are often joined at the hip, their share price performance hasn’t been in lockstep. Year to date, shares of the FanDuel owner are up nearly 18% while DraftKings is lower by 4.54%.

Flutter’s Non-US Operations Help Stock’s Case

The FanDuel brand is one of the most valuable in the gaming industry and highly recognizable to US daily fantasy sports (DFS) participants and sports bettors. Even so, many American bettors and some investors don’t know that Flutter has significant operations outside of this country.

Outside the US, Flutter’s decades of expertise in product development and risk management have also led to top revenue share. “The company holds 29% and 46% online gaming revenue share in its most mature markets of UK and Ireland (26% of 2023 sales) and Australia (12%), respectively,” added Wasiolek.

The analyst pointed out that Flutter has smartly integrated its parlay offerings and tech stack into Sisal since acquiring that firm in 2022, allowing it to increase revenue share in Italy. Italy is an important market for Flutter because it’s the Eurozone’s third-largest economy and Europe’s largest regulated gaming market after the UK.

Flutter Thriving in Multiple Countries

At a time when smaller operators are frequently waving the white flag in the US OSB space, and some midsized players are failing to grab share from FanDuel and DraftKings, Flutter is asserting earnings prowess in this country and others.

It’s doing so in such a way that earnings before interest, taxes, depreciation, and amortization (EBITDA) margins are expanding at an impressive pace.

“The company’s UK and Australian segments still see over 20% EBITDA margins, despite stringent regulation and industry maturation in these regions,” concluded Wasiolek. “ESPN Bet’s aggressive entry into the US market in the past several months has not prevented share gains or expanding EBITDA margins at Flutter’s FanDuel brand.”

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The largest operator of casino resorts on the Las Vegas Strip is selling bonds “in aggregate principal amount of 6.125% senior notes due 2029 at par.” That transaction is expected to close on September 17. MGM will use some of the proceeds to pay an issue that comes due in 2025.

The Company intends to use the net proceeds from the offering of the notes to (i) repay indebtedness, including its outstanding 5.750% senior notes due 2025, and (ii) pay transaction-related fees and expenses, with the remainder for general corporate purposes,” according to a statement. “Pending such use, the Company may invest the net proceeds in short-term interest-bearing accounts, securities or similar investments.”

As is the case with many of its peers, Las Vegas-based MGM sports junk credit ratings, but in the case of the Bellagio operator, it has one of the strongest balance sheets in the industry. The company had $2.41 billion in cash and cash equivalents as of the end of the second quarter.

MGM Bonds Not Highly Risky

S&P Global Ratings rated MGM’s latest bond sale “BB-,” noting there would be a high recovery percentage in the event of a default. The ratings agency used a model to run various default scenarios, but didn’t say the gaming company is a candidate to default on its debt obligations.

“We assigned our ‘BB-‘ issue-level rating and ‘2’ recovery rating to the company’s proposed $675 million senior unsecured notes due 2029. The ‘2’ recovery rating indicates our expectation for substantial (70%-90%; rounded estimate: 80%) recovery for noteholders in the event of a default. This is in line with our issue-level and recovery rating on MGM’s existing unsecured debt,” observed the research firm.

Buyers of corporate bonds typically focus on credit and default risks, which are amplified when evaluating junk-rated debt. The new MGM bonds fit that bill.

As such, issuers of noninvestment-grade corporates must sell those bonds with higher interest rates than higher quality equivalents to compensate bondholders for the elevated risk. The current 30-day SEC yield on the widely followed Markit iBoxx USD Liquid High Yield Index is 6.96%. More than 52% of the bonds in that index carry one of the three “BB” grades — the spectrum in which S&P rates MGM’s newest debt sale.

Eliminating 2025 Bonds is a Smart Move by MGM

Using the newest issue to take care of some of its debt maturing in 2025 could prove to be a shrewd move by MGM. Before the news of the MGM bond sale, Deutsche Bank estimated the gaming company had $1.175 billion in debt at a blended interest rate of 5.5% maturing next year.

Highlighting MGM’s strong positioning on the Las Vegas Strip, free cash flow capabilities, and share repurchases, some analysts are bullish on the operator’s corporate debt.

The post MGM Resorts Upsizes Debt Sale to $850M appeared first on Casino.org.

The deal includes the land, building, and select other operating assets. It’s a two-pronged deal in which the buyer will pay $7 million for the real estate assets and $2 million for the operating rights. The property part of the transaction is expected to close later this month. After that, Full House will pay monthly rent of $50K to Clarity until the sale of the operating rights is finalized. When that part of the deal is completed, all operating responsibilities will be transferred to Clarity.

Stockman’s Casino has more than 10K square feet of gaming space and two restaurants. It’s one of three casinos in Fallon, a town of about 9,300 in Churchill County. The other two are the Bonanza Casino and the Fallon Nugget.

Sale Part of Full House Transition

The sale of Stockman’s Casino is part of Full House Resorts’ transition — one that’s seeing the regional gaming operator focus on newer, glitzier venues.

As we have continued to grow in size, we find it prudent to focus on our larger properties in our portfolio, including our newly-opened Chamonix and American Place casinos. We are proud of our transformation of Stockman’s Casino over the years,” said Full House CEO Daniel Lee in a statement.

Chamonix is the operator’s newest property in Cripple Creek, Colo. It opened last December and is widely viewed as the most upscale gaming venue in that town. American Place refers to the Full House venue in Waukegan, Ill., where the operator currently runs a temporary version of the casino while it works through some legal challenges brought by rival bidders.

Including American Place, Chamonix, and Stockman’s, Full House runs seven gaming venues. The others are Bronco Billy’s in Cripple Creek, Colo., the Silver Slipper Casino and Hotel in Hancock County, Miss., Rising Star Casino Resort in Rising Sun, Ind., and the Grand Lodge Casino in Lake Tahoe, Nev.

Clarity, Full House Neighbors in Cripple Creek

Before the Stockman’s sale announcement, Clarity Game and Full House were neighbors and rivals in Cripple Creek. Last December, Michael Gaughan and a group of partners formed Rocky Mountain Gaming to acquire two casinos in the Colorado town.

Gaughn, who also owns the South Point Las Vegas, and his Rocky Mountain Gaming partners are behind privately held Clarity Game LLC.

Gaughn also owns the operating rights for the more than 1,400 gaming machines located inside Harry Reid International Airport.

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The company told shareholders on Friday that it would halt trading and publish its full-year results later in the day. That’s while it “considered the implications” of a damning report by New South Wales (NSW) regulators that found it was still unsuitable to hold a gaming license for its flagship Star Sydney property.

The report by the New South Wales Independent Casino Commission (NICC) concluded the operator had not sufficiently addressed the “governance and cultural concerns” highlighted in a 2022 inquiry that initially found it unfit for licensing.

It has only very recently turned its attention to dealing with challenges that should have been prioritized earlier,” NICC chief commissioner Philip Crawford said.

“It was unclear whether The Star could feasibly operate under less supervision, when it was exhibiting past behaviors with its license still suspended,” he added.

Secret VIP Room

The 2022 inquiry determined that The Star Sydney had failed to protect itself from being used by criminal gangs to launder money in private high-roller junket rooms.

Star allowed Macau-based junket operator Suncity to secretly operate an unbranded VIP room, referred to as “Salon 95.” This was despite Australian authorities having identified Suncity as having links to organized crime.

Salon 95 continued to operate even after then-Star CEO Matt Bekier told regulators his company had severed business links to Suncity.

The casino also allowed Chinese high rollers to withdraw a total of $900 million for gambling using China UnionPay (CUP) credit cards while disguising these transactions as “hotel expenses” to avoid breaching CUP’s no-gambling transaction rules. Star subsequently lied to CUP and the National Australia Bank in an effort to conceal the deceit.

Crown Passes Test

Star’s competitor, Crown Resorts, faced similar accusations of cultural shortcomings and was also found unsuitable for licensing in NSW following a 2021 inquiry. But last April, the NICC determined that the company had successfully addressed its failings.

The report, published last Thursday, came just two days after Star opened its AU$3.8 billion (US$2.5 billion) Queens Wharf in Brisbane, Queensland. It also runs The Star Gold Coast in Queensland.

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Some analysts believe the sports betting data provider has more upside in store for investors. In a note to clients today, B. Riley analyst David Bain reiterated a “buy” rating on Genius with a $10 price target, implying upside of 31.2% from today’s close.

On its 2Q24 earnings call, GENI stated it expects 20%-plus revenue growth for the ‘foreseeable future,’” wrote Bain. “However, calendar year (CY) 25E consensus sales growth is 14%. 20% growth from CY24E estimates implies an additional $29M of CY25E revenue versus consensus. Using GENI’s general midpoint flow-through guidance implies an additional $12M of EBITDA, 11% higher than CY25E consensus EBITDA estimates.”

With the arrival of football season, Genius could further be in focus because it is the exclusive provider of the NFL’s real-time, official play-by-play statistics, which are in high demand by sportsbook operators because football is the most wagered on sport in the US.

Genius Sports Could Notch Near-Term Upside

The arrival of football season is seen as a boon for a variety of gaming companies and while Genius is a business-to-business firm, expectations that bettors will wager more than ever before on the NFL could be a legitimate catalyst for the already high-flying stock.

“We estimate a 500 bps mix shift to U.S. OSB NFL-only in-play from pre-match wagering equates to an additional $3M of EBITDA to GENI. Operators have been transparent about increasing the in-play mix of betting with additional propositions, placing in-play betting opportunities, and using low-latency technology (including GENI’s BetVision),” noted Bain.

The analyst added that markets may not yet be fully appreciating the potential positive impact in-game wagering expansion could have on Genius shares.

Genius Sports Has Other Catalysts

In July, Genius announced a deal with X (formerly Twitter), one of the largest social media platforms in the world. Under the terms of the agreement, Genius will leverage its ad-tech products to deliver advertisements specific to conversations taking place on X.

With more media rights negotiations coming up, ad-tech could be unheralded catalyst for Genius shares while diversifying the company’s revenue stream.

“While more difficult to quantify, we believe many of GENI’s new ad tech offerings — ads placed directly into live streams or a self-service platform offering GENI’s unique data for advertisers to use in ad buys (100% margin business for GENI) — are potential levers for media growth relative to consensus. We believe some U.S. take-rate negotiations will benefit GENI’s media division with higher go-forward commitments,” concluded Bain.

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In the seventh month of the year, Nevada casinos and gaming bars won $1.3 billion, a 7% year-over-year drop. GGR on the Las Vegas Strip — the casino hub of the US — tumbled 15%, representing the first month-over-month decline in four months. That’s prompting some analysts to take a more cautious view of domestic leisure travel demand.

In a new report to clients, Macquarie analyst Chad Beynon acknowledged that July 2024 was a tough comparison for Strip operators relative to the year-earlier period because there were two fewer weekend days in the month this year. He added that revenue per available room (RevPAR), one of the key nongaming metrics for casino operators, dipped 4% last month.

Although we remain positive on the nongaming outlook in Vegas given strong group travel and events calendar, we are becoming more cautious on slowing leisure travel demand, which could lead to a more competitive promotional environment and hurt Vegas margins,” Beynon observed.

He maintained “outperform” ratings on MGM Resorts International (NYSE: MGM) and Caesars Entertainment (NASDAQ: CZR), the two largest Strip operators, while keeping $52 price targets on both gaming stocks.

Lower-End Strip Casinos Could Be Hurt By Consumer Pullback

Beynon added that the aforementioned 4% RevPAR drop experienced in July was largely attributable to “lower-end” Strip properties.

Both companies have their share of high-end Strip properties, but as the operators of venues such as Excalibur and Luxor (MGM), and Flamingo and Harrah’s (Caesars), each could be hampered if middle-class consumers dial back gaming-related spending and travel.

“We still expect table and slot volumes to rebound back to trend in August. For 2024E, we now expect Strip GGR to come in around -2% with a tougher 2H comp,” added Beynon.

California Could Be Problematic

Over the past several years, the US economy has grappled with the highest inflation rates in four decades and, as a result, the highest interest rates in over 20 years. Still, consumers have remained dedicated to casinos, particularly in Las Vegas, and with inflation cooling, that’s stoking hope the gaming industry will remain resilient.

Specific to Nevada, the state’s casinos could be pinched by other macroeconomic headwinds, including the fact Nevada is tied with California for the highest unemployment rate in the country. That could weigh on Las Vegas locals’ gaming venues and taverns while California’s elevated jobless rate and the highest gas prices in the country could compel some consumers there to reduce visitation to Las Vegas and Reno. California accounts for about 20% of visitation to Las Vegas gaming properties.

The post Las Vegas Casinos Could Be Pinched by Consumer Lethargy, Analyst Says appeared first on Casino.org.

Unidentified sources with knowledge of the matter told Bloomberg that as of yet, the size of the bond and leverage loan aren’t known. Last month, Apollo surprised investors when it announced a $6.3 billion offer for Everi and the two IGT businesses. In February, IGT and Everi announced a $6.2 billion deal that would have resulted in the slot machine manufacturer merging with the pair of IGT units.

Under the terms of the Apollo proposition, the private equity firm will pay $4.05 billion in gross proceeds to IGT and $14.25 a share to Everi investors.

Prior to Apollo emerging as a suitor for those entities, IGT had struck an agreement with Deutsche Bank and Macquarie Capital for $3.7 billion in financing to acquire Everi and combine the Las Vegas-based gaming device maker with its global gaming and digital operations.

Timeline for Deutsche Bank Funding for Apollo

Deutsche Bank and Macquarie, which is also involved in the financing effort, have some time with which to orchestrate bond and leveraged loan sales for the Apollo financing because when the private equity firm announced its plans for the acquisition, it said it expected the transaction to close in September 2025.

Leveraged loans are typically extended to junk-rated firms and, as a result, those loans also carry interest rates to compensate lenders for the added risk. One of the advantages of leveraged loans is that they are backed by floating rate instruments, meaning they’re often less sensitive to changes in interest rates than are fixed-rate bonds.

These instruments are frequently used to extend credit to buyers in mergers and acquisitions and can secured by assets including property, equipment, and intellectual property.

Speaking of Interest Rates …

It’s possible that Deutsche Bank and Macquarie are waiting on the Federal Reserve to lower interest rates before actively marketing the junk bond and leveraged deals on behalf of Apollo. It’s widely expected the central bank will do that next month, perhaps by as much as 50 basis points.

That would likely result in lower financing costs for high-yield issuers, though the average interest rate on highly rated junk debt has steadily trended lower over the past 10 months.

“US High Yield B Effective Yield is at 6.63%, compared to 6.62% the previous market day and 8.53% last year. This is lower than the long-term average of 8.48%,” according to YCharts.

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Financial terms of the transaction weren’t disclosed. When rumors of the deal surfaced in May, it was speculated that DraftKings could pay $120 million to $170 million for privately held Simplebet. The pair have an existing relationship. In 2021, they inked a deal in which Simplebet provided microbetting services to DraftKings Sportsbook.

The Proposed Transaction would allow for the integration of Simplebet’s proprietary machine-learning models into DraftKings’ best-in-class pricing and technology platform to create highly accurate betting opportunities during every moment of a game,” according to a statement issued by the buyer. “The Proposed Transaction would improve the quality, breadth and speed of data throughout the DraftKings trading lifecycle, and would unlock a faster and more frictionless experience for the Company’s customers.”

Boston-based DraftKings is Simplebet’s largest client. The target was valued at $210 million following a Series C funding round of $28.6 million three years ago.

Simplebet Could Be Smart Deal for DraftKings

For DraftKings, the purchase of Simplebet could prove shrewd because microbetting is a fast-growing derivative of in-game or live betting — areas operators are pushing into in efforts to increase handle and revenue.

In-game wagering has long been popular in mature sports wagering markets such as Australia and Europe, and it’s rapidly gaining momentum in the US. Underscoring why DraftKings may have found Simplebet to be an alluring target is the need for technology to make live and microbetting work.

“Simplebet has developed a scalable, maintainable, and highly performant foundation for a live betting platform that is algorithm oriented. With machine learning and automation to supplement the betting experience, Simplebet’s proprietary models offer more in-play moments for bettors,” according to the DraftKings statement.

Inside Simplebet’s Story

New York-based Simplebet was founded in 2018 and is a business-to-business provider of microbetting markets on college basketball and football, Major League Baseball (MLB), the NBA, NFL, and the NHL.

In addition to DraftKings, Simplebet sportsbook clients include Caesars Sportsbook, ESPN Bet, FanDuel, and Hard Rock Sportsbook, among others.

It’s not yet clear if those operators will remain with Simplebet when it becomes part of DraftKings or if they’ll pursue microbetting relationships with Simplebet competitors.

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Sam Hou Fai, 62, stepped down as president of the Court of Final Appeal ahead of his announcement this week. He is expected to be the only candidate to be approved to run for office by a pro-Beijing election panel.

Macau has its own financial system and a degree of political autonomy as a Special Administrative Region (SAR) under China’s one country, two systems policy. However, candidates for the chief executive role are chosen by the Beijing-approved 400-strong panel comprised of politicians and businessmen. This renders ordinary citizens’ right to vote for their leader almost meaningless.

‘Wild’ Expansion

Sam’s views on the gaming industry echo Beijing’s policies, which have long sought diversification of the SAR’s economy. The central government is currently engaged in a crackdown on money laundering and capital flight from the mainland, which has moved from targeting the casino junket industry to illegal money-exchange businesses.

For a period of time, the tourism and gaming industry developed in a disorderly manner and expanded wildly,” Sam said at a press briefing Wednesday, as translated by Bloomberg. “Having one dominant industry is not beneficial for Macau’s long-term development and has had a very negative impact.”

The casino industry’s dominance has strained the resources of society such as manpower, and narrowed the career choices of young people, Sam claimed. As such, the city’s economic and political development faced “unavoidable” challenges, and Macau needs to “reform and innovate.”

“Macau’s long-term development is only possible with the country’s support,” Sam added, referring essentially to heightened cooperation with Beijing.

Casino Stock Impact

Shares in Macau casino operators fell slightly on the news. Sands China Ltd. was down 2.8% Wednesday, while MGM China dropped 2.5%.

His predecessor, Ho Iat Seng, announced last month that he would not seek a third term as chief executive, citing poor health.

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In a Form 144 filing with the Securities and Exchange Commission (SEC), the Boston-based gaming company told the commission that CEO Robins sold 20K shares of stock on August 21 for gross proceeds of $6.96 million. Fellow co-founder and President of Product Liberman dumped 88,441 shares on Monday for gross proceeds of $3.23 million, according to a separate regulatory filing. Both transactions were exercises of stock options.

Conversely, there’s been little evidence over that time of insider buying at the company. Kalish, Liberman, and Robins each have a $1 annual salary. However, they are heavily compensated in equity and are frequent sellers of shares of the company they founded.

Not Robins’ Only Recent Sales of DraftKings Stock

The August 21 sale wasn’t the only of late by Robins. According to the SEC, the DraftKings CEO sold 20K shares on August 8 for gross proceeds of $6.14 million. That was preceded by the sale of another 20K shares on May 21 for $8.78 million in gross proceeds.

From late January through early February, Lieberman, Robins, and General Counsel Stanton Dodge sold $78.76 million worth of DraftKings equity in the days leading up to the operator’s fourth-quarter earnings report.

However, the rampant insider selling at the gaming company, particularly when considering there’s been scant buying, contradicts statements made by Robins in 2022. In March of that year, he took to X (then Twitter) to tell investors who were selling DraftKings stock at that time that they’d ultimately regret that decision.

Some Rivals Do Things Differently

DraftKings isn’t alone when it comes to heavy insider selling in the online gaming industry. For example, some investors have recently criticized similar moves by executives at Rush Street Interactive (NYSE: RSI), itself a young emerging-growth company.

Flutter Entertainment’s (NYSE: FLUT) recently published annual report indicates that CEO Peter Jackson will be paid a salary of $1.39 million for the upcoming fiscal year with a maximum bonus of 400% of that figure. Said another way, Jackson’s maximum compensation for the upcoming year will be $6.95 million, or $100K less than the amount of DraftKings stock Robins sold last week.

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When news of the NFLPA’s suit against the gaming company broke last week, related documents were sealed by the court, but there was speculation DraftKings could owe the union $32.39 million because that was the amount listed in the accounts receivable section of the NFLPA’s 2023 annual report. The union listed that figure as attributable to OneTeam Partners, the marketing agency that brokered the initial deal between DraftKings and the NFLPA.

In the legal document, counsel for the players’ union doesn’t specifically state that $65 million is what the organization is owed. Rather, attorneys for the plaintiffs highlight compensation for five DraftKings executives, including co-founders Jason Robins (currently chief executive officer), Matt Kalish, and Paul Liberman, since 2021, noting the amount owed to the union is four times what was paid to the quintet of executives.

All told, the compensation of just these five aforementioned officers since 2021 is approximately quadruple of what DraftKings owes to the NFLPA licensors,” according to the legal filing.

In addition to Kalish, Liberman, and Robins, the other executives mentioned by the NFLPA are former CFO Jason Park and Chief Legal Officer R. Stanton Dodge. In all five cases, the bulk of their compensation overe the past several years was derived from sales of the company’s common stock, a theme that continues to this day.

NFT Class Action Could Have Implications in DraftKings/NFLPA Rift

In late July, the online sportsbook operator announced the closure of DraftKings Marketplace and the halting of Reignmakers fantasy sports game that was based on the NFTs sold in the marketplace. It’s widely believed the decision was made because US District Judge Denise Casper last month ruled that a class-action suit against the gaming company stemming from issues with the NFT marketplace can move forward.

The NFLPA said “buyer’s remorse” isn’t a valid reason to end a contract and that the gaming company knew the NFT deal wasn’t a risk-free accord.

“At the end of the day, and despite DraftKings’ best efforts to muddy the waters, this case is extraordinarily simple. DraftKings’ inability to profitably commercialize the intellectual property it licensed does not excuse performance, and DraftKings must pay what is due,” according to the union’s legal document. Counsel for the players union added the group renegotiated terms of the pact with DraftKings although it was under no legal obligation to do that.

Reignmakers Started Hot, Pinched by NFT Collapse

DraftKings launched its NFT marketplace and Reignmakers at the height of the NFT craze in 2021. Reignmakers participants would purchase digital NFLPA-licensed collectibles for use in the fantasy game that functioned akin to traditional fantasy sports.

The purchase acted as an entry fee of sorts and the plan was successful for a while, but following the “cryptocurrency winter” of 2022, NFT prices plunged in early 2023, discouraging players from shelling out cash for Reignmakers. As NFT prices wilted and liquidity in the market evaporated, the NFLPA said DraftKings expressed concern about the economics of the licensing agreement and that the gaming company didn’t make a related payment to the union in April 2023. The amount of that payment was redacted in the court filing.

Counsel for the union claim that DraftKings’ decision to abandon the NFT business has no bearing on its financial obligations to the NFLPA and that since the start of this month, the union has received no payments from the gaming company.

The NFLPA is asking the US Federal Court in the Southern District of New York to compel DraftKings to pay all unpaid sums, which are redacted in the filing, due under the amended licensing agreement and to compensate the union for court costs and legal fees.

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In a note to clients today, Macquarie analyst Chad Beynon highlighted the familiar seasonality associated with sports betting equities such as DraftKings. Simply put, football is the most wagered on sport in the US and the arrival of the season often generates upside for online sports betting wagering equities, including DraftKings. He noted the operator is likely to improve upon some of the hold issues that have hampered it in previous fourth quarters.

While history has shown that holding the stock for the two months leading up to opening NFL week has been most profitable, we think much of the 4Q stock softness in recent years can be attributed to DKNG’s hold falling 50-100bps below market expectations for September through December,” wrote the analyst. “Given current 3Q hold/ growth trends, an easier year-over-year hold comp in 4Q, and recently recalibrated ’24 guidance, we think DKNG is well positioned to exceed expectations in 2H.”

Beynon reiterated an “outperform” rating on DraftKings with a $50 price target, implying upside of more than 42% from today’s close.

More Football Catalysts for DraftKings

Shares of DraftKings are off 3.33% over the past month, potentially a sign that football seasonality isn’t yet baked into the stock. The 2024 college football season commences in earnest this Saturday with the start of the NFL following on Thursday, Sept. 5.

Those are among the reasons online is widely viewed as the long-term growth driver of the gaming industry. The possibility that more states will embrace iGaming bolsters that thesis.

“Thus, we view any pullback in the sector from consumer sentiment, regulatory headlines, or low hold as a long-term buying opportunity, with much of the sector now generating positive free cash flow at reasonable valuations,” added Beynon.

Other Football Season Issues to Monitor

Beyond the impact football season could have on shares of DraftKings, there are some other operator-specific issues to monitor as America’s most popular sport unfolds in the coming months. Those include the ability of smaller contenders such as Fanatics and Penn Entertainment’s (NASDAQ: PENN) ESPN Bet to make headway against larger rivals FanDuel and DraftKings.

Some analysts and investors believe the 2024 football season is make or break time for ESPN Bet while others are curious to see how Fanatics can deal with what could be an elevated promotional spending environment.

“1) Do Missouri residents vote in favor of legalizing OSB in Nov (10% proposed tax rate)? 2) Does DKNG close the gap between its handle and GGR market share? 3) Will Fanatics hold on to its recent market share gains during the promotionally high NFL period ? 4) Will ESPN BET monetize its active user base to increase GGR share and how will its NY launch go? 5) Will BetMGM get a material boost from having one digital wallet across states?,” concludes Beynon.

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That’s the view of Seaport Research Partners analyst Vitaly Umansky. In a new report to clients following meetings with Las Vegas Sands management at the 2024 Seaport Annual Summer Conference, Umansky said it’s not likely LVS will consider moving out Sands China minority shareholders, which would result in delisting of the gaming stock from the Hong Kong Stock Exchange.

There is not a likely scenario at this stage of a full buyout of the Sands China minority, and delisting of Sands China,” observed Umansky. “A listing in Hong Kong continues to show Sands’ commitment in China.”

Last December, LVS boosted its ownership of the China entity to 71.19% from 70%. Umansky said it’s possible the Las Vegas-based parent would like to increase that stake to 75% or more, but moving out minority investors entirely isn’t in the offing. Sands China operates five integrated resorts in Macau.

Sands China Dividend Could Return Next Year

It’s been 13 months since LVS resumed its quarterly payout, and Sands China remains one of three Macau concessionaires currently not paying a dividend. Melco Resorts & Entertainment (NASDAQ: MLCO) and SJM Holdings are the others.

“Hong Kong investors like dividends, so it makes sense to restart some dividends at Sands China,” added Umansky.

Many of the largest market participants in Hong Kong are institutions with ties to mainland China or state-owned banks. The implication is that Sands China could potentially garner some favor with Beijing by bringing back its dividend.

LVS Likely to Focus on Buybacks Over Dividend

Since announcing the return of its quarterly distribution in July 2023, Las Vegas Sands hasn’t increased it from 20 cents a share per quarter. Before the coronavirus pandemic, the company was one of the steadiest growers of its dividend in the gaming industry, but Umansky said the operator’s current emphasis will be share repurchases over dividend growth.

Las Vegas Sands will prioritize share buybacks — especially at current valuation — over dividend increases,” he noted.

In terms of goings on in Macau, Umansky said it’s likely part of Sands China’s much-ballyhooed Londoner hotel will open before the end of this year with another tower to follow next May. The Cotai Arena at Venetian Macao will reopen before the end of 2024 and be fully operational by the end of the first quarter of 2025, according to the Seaport analyst.

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In a new note to clients, GimmeCredit analyst Kim Noland acknowledged that it’s been a brisk summer for the real estate investment trust (REIT) as it’s engaged in a variety of transactions that support long-term growth, but also resulted in the need to issue some new bonds. Some of those proceeds will be directed to paying for maturing issue that comes due next month.

In addition to agreeing to finance $110 million for the Belle of Baton Rouge to come ashore, GLPI announced in July that it’s providing Bally’s (NYSE: BALY) with $2.07 billion in financing that, among other objectives, will help the regional casino operator complete its permanent gaming venue in Chicago.

The provision of construction financing to tenants has become an important part of GLPI’s growth initiatives,” wrote Noland. “In addition to the July deal, it already agreed to provide Bally’s with construction financing for a sports stadium that complements Bally’s gaming resort in Las Vegas. While construction financing is somewhat riskier than the more usual propco/opco transactions of existing properties, the higher interest income is helping to expand GLPI’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).”

Bally’s and Penn Entertainment (NASDAQ: PENN) are GLPI’s two largest tenants, though the REIT counts other casino operators among its clients.

GLPI Bonds Could Be Supported By Bally’s Rent

In addition to the Chicago financing, GLPI said it’s acquiring the real estate of Bally’s Kansas City and Bally’s Shreveport for a total of $395 million. The combined annual rent on those properties will be $32.2 million, “representing an 8.2% initial cash capitalization rate.”

Financing to clients to enhance venues already owned by REITs is a new growth avenue for GLPI and rivals because, as Noland pointed out, that’s not the typical operating methodology in triple-net leases.

“Second quarter financial results included consolidated total revenue of $381 million (+7%) and adjusted EBITDA was $340 million, a 4.6% increase from $325 million in the prior year period,” said the GimmeCredit analyst. “While annual interest expense has increased to near $350 million (on a pro forma basis), capex is modest since the leases require the tenants to maintain the properties.”

Cash Flow, Rates Could Boost GLPI Bonds

REITs, including casino owners such as GLPI, are sensitive to changes in interest rates. That explains the group’s laggard performance over the past couple of years and why some investors believe real estate equities could rally should the Federal Reserve lower borrowing costs in September.

In rating GLPI debt maturing in 2027 and 2030 “outperform,” GimmeCredit’s Noland highlighted the REIT’s cash flow and strong competitive advantages.

“The gaming REIT has good cash flow visibility; its business model benefits from high barriers to entry due to limited supply and a significant regulatory environment for gaming operator tenants,” she concluded. “While GLPI’s rental income is still weighted toward PENN (see recent PENN report dated August 21) newer tenants such as leading gaming companies Caesars, Boyd Gaming and Bally reduce the risk of individual tenant underperformance.”

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That’s the take of GimmeCredit analyst Kim Noland. In a new report, Noland pointed out that Penn is likely to generate lower free cash flow this year than it did in 2023 due to planned expenditures to enhance some of its regional casinos. She added that losses in the operator’s digital unit, which includes ESPN Bet and the Hollywood Casino iGaming outfit, will also pinch 2024 free cash flow.

Penn has considered competitive openings in constructing guidance for regional casinos at $1.88-$2 billion of earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR). Our own 2024 projections continue to reflect this guidance and the expected loss from the interactive segment,” wrote Noland. “We now forecast negative free cash flow (EBITDAR less cash rent expense less capex and interest) of over $450 million.”

At the end of the second quarter, the gaming company had what it called “traditional debt” of $1.7 billion and total liquidity of $1.9 billion, including $877.6 million in cash.

ESPN Bet Near-Term Progress Essential

With the imminent arrival of the 2024 football season, there’s a sense among analysts and investors that this is “put up or shut up” time for Penn’s online sports betting ambitions.

“The numbers game for Interactive could improve as management steps up digital integration of ESPN Bet and the legacy ESPN product,” noted Noland. “There is a big annual cash outlay ($150 million) required under the ESPN contract — that outlay combined with the cost of the concomitant marketing effort might pay off with longer term increases in adjusted EBITDA. Penn’s strategic view of the interactive segment continues to rely on cross selling to retail casino customers and mass market sports fans.”

Noland added that while ESPN Bet’s current financial results are “lackluster,” Penn management expects the business can become profitable in 2026, even if its market share doesn’t expand beyond the current level of 7%.

Not Much to See with Penn Bonds

The bulk of corporate bonds issued by gaming companies currently carry junk ratings, and that’s true of Penn debt. In her report, Noland highlighted the casino operator’s bonds maturing in 2027, rating that issue “underperform,” while adding there’s limited downside.

“The two main players in the market are unlikely to be unseated by Penn’s ESPN Bet. So we think earlier projections that ESPN Bet could achieve a big uptick in market share won’t be realized near term,” concluded the analyst.

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Last week, the Nevada Gaming Control Board (NGCB) said it wants to pursue financial penalties against Resorts World Las Vegas because the casino hotel allegedly permitted known black market bookmakers to wager there without declaring from where their funds were sourced. One of those bookies was Mathew Bowyer — the man believed to have taken millions of dollars in bets from Los Angeles Dodgers star ?Shohei Ohtani’s interpreter Ippei Mizuhara.

The extent of RWLV’s financial punishment isn’t yet known, but S&P Global Ratings believe Genting will support the integrated resort while it deals with the regulatory pressure.

We believe it will receive extraordinary support from its parent, Genting Bhd., under almost all foreseeable circumstances,” observed the research firm.

S&P rates RWLV BB+ with a “stable” outlook.

Possible Template for RWLV Fine

Former Resorts World Las Vegas President Scott Sibella is at the center of the scandal and it’s possible that the manner in which the NGCB dealt with MGM Resorts International — his employer prior to RWLV — could prove instructive in terms of what financial penalties the Genting venue could face.

“Genting group has a track record of gaming operations in different jurisdictions for over five decades. The group also has the strategic significance of expanding its foothold into the U.S. gaming market. We expect RWLV to work with regulators to resolve and address the issues raised,” added S&P.

It remains to be seen, but if the levies faced by RWLV stemming from the Sibella imbroglio are on par with those incurred by the MGM properties, parent Genting can easily absorb those expenditures.

RWLV Vital Part of Genting Portfolio

RWLV is one of the three crown jewels of the Genting gaming empire, along with a flagship property in its home country of Malaysia and Resorts World Sentosa in Singapore. As such, the parent company is incentivized to provide financial support to the Las Vegas venue.

While the BB+ corporate credit rating on Genting’s Strip casino resort is one notch into junk territory, it doesn’t appear to be in near-term danger of a downgrade and the conglomerate has the resources to support that rating.

“The stable outlook on RWLV mirrors that on the parent, which in turn reflects our expectation that the company’s market position across its operations will translate into a stable operating performance, such that its ratio of funds from operations to debt remains above 30% over the next two years,” concludes S&P.

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Prosaic as that thesis is and it is, it’s also sensible because football is the most wagered on sport in the US. The 2024 football season will be DraftKings’ fifth as a freestanding public company. Over the prior four, the stock’s average gain was 5% from the start of the NFL campaign through the Super Bowl, according to Dow Jones Market Data.

DraftKings stock has been a battleground of late, but the shares may already be pricing in football season optimism as highlighted by a 10.69% gain over the past week. Some analysts believe the recent punishment endured by the gaming stock could signal a pre-football season buying opportunity.

With the 2024 NFL season starting on September 5th and DKNG’s share price down 32% from its $50 high in March, this year’s potential return over this seasonally significant window could be meaningful,” wrote Benchmark analyst Mike Hickey in new report to clients.

He reiterated a “buy” rating on DraftKings with a $44 price target, implying upside of 26.4% from today’s closing price. The analyst called the gaming name a “top idea.”

Football, Free Cash Flow Could Boost DraftKings Stock

Football and a robust free cash flow path are among the potential catalysts for DraftKings and there may be more to the story.

“DKNGs’ improved outlook, fueled by stronger market win margins in Q3, new user growth, traditional tax mitigation strategies, and valuation contraction ahead of the NFL season, creates an attractive entry point,” adds Hickey.

Then there was news that the gaming firm is shuttering its nonfungible token (NFT) marketplace and halting the Reignmakers fantasy sports game because of legal issues. Additionally, DraftKings recently sold Vegas Sports Information Network (VSiN) and it’s rumored that the sale price was pennies-on-the-dollar compared to the $70 million the gaming company paid for the radio network in 2021.

“DKNG has turned into a battleground stock,” wrote Needham analyst Bernie McTernan in a recent report to clients.

Analysts Still Bullish on DraftKings Stock

While “battleground” is an accurate description of the current state of affairs with DraftKings, Wall Street remains mostly constructive on the shares.

“Within this market, we believe DKNG has a sustainable customer acquisition strategy that should continue to drive its first- or second-place position in all states,” McTernan noted. “We expect margins to scale with from tech stack ownership, benefits of national vs local marketing and reaching terminal market access penetration.”

In a report out earlier Tuesday, Oppenheimer placed DraftKings on its list of top equity ideas for August and September. Those 32 stocks could outperform over the next year.

“The company [will be] a critical player in accelerating the shift in U.S. sports betting from about $150B wagered illegally/offshore to licensed domestic operators,” said Oppenheimer of DraftKings.

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Flutter’s second-quarter earnings report contained multiple points suggesting FanDuel can maintain and extend its expand its already dominant footprint in the domestic sports betting space. Those include favorable average revenue per monthly active user (ARPMAU) trends. As Eilers & Krejcik Gaming (EKG) points out, FanDuel’s first-quarter ARPMAU was $134 compared to $137 for rival DraftKings, but during the June quarter, the tide turned in favor of FanDuel.

Possible explanations in our view: FanDuel improved its Major League Baseball (MLB) parlay product (it called this out specifically at earnings), plus a relative shift of the player base from daily fantasy sports (where there was a ‘some cannibalization’ in terms of active users) to casino, where monthly unique players (MUPs) were up 30%,” noted EKG. “DraftKings decline, meanwhile, was likely affected by the inclusion of Jackpocket customers into its MUP number and thus the calculation.”

Improvements to the parlay product are notable for any operator, particularly with the imminent arrival of the 2024 football season. Some studies indicate that NFL bettors are planning to wager more frequently this year than in 2023. Parlays have long been part of operators’ toolkits when it comes to spurring more betting, especially during football season.

Long-Term Focus Can Benefit FanDuel

Relative to competitors such as DraftKings and some others, FanDuel has the advantage of being a unit of a larger, mature company. So while competitors are focusing on near-term profit objectives to foster confidence among analysts and investors, FanDuel can focus on long-term objectives.

Owing to the support of a well-heeled parent and its own commendable execution, FanDuel has long been profitable and has used that cash to reinvest in the business, whether it be in customer acquisition, technology, or other areas.

“FanDuel noted payments costs had increased to ~6% of NGR, thanks in part to a faster deposit/withdrawal system that meant customers were transacting more often,” added EKG. “That’s costing FanDuel money, but the product payoff is worth it, per CFO Rob Coldrake, because ‘customers love that feature.’ That type of focus on product has helped FanDuel to five straight no. 1 rankings in our OSB app testing.”

FanDuel Smart to Eschew Surcharge

As was widely expected, FanDuel didn’t follow DraftKings in announcing a surcharge on winning sports wagers in select high-tax states. In fact, when the former didn’t play ball, the latter was forced to reverse course on the controversial issue.

While DraftKings scrapped plans for the surcharge, rivals such as FanDuel that passed on the opportunity may have already won the battle in the court of public opinion and beyond.

“However we believe it was a wise move to avoid the potential backlash from customers and, perhaps more importantly, policymakers, who we suspect would not have looked kindly on any attempts to skirt paying taxes,” concluded EKG.

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Some analysts remain constructive on the battered regional casino stock. For example, Truist Securities analyst Barry Jonas recently met with Penn management, prompting him to reiterate a “buy” rating and $25 price target. That implies upside of almost 30% from today’s closing print at $19.24.

Takeover chatter pertaining to Penn started in late May when investor the Donerail Group sent a letter to the gaming company’s board of directors encouraging it to sell itself to increase shareholder value. Since then, analysts have consistently said such a transaction is unlikely and it’s probable that Penn is not a willing seller.

LaBerge Hire Could Be Meaningful for Penn

With some industry observers viewing the 2024 football seasons as make-or-break time for ESPN Bet, Penn’s hiring of former Walt Disney (NYSE: DIS) executive Aaron LaBerge as chief technology officer (CTO) could bear fruit.

Though he hasn’t worked in the gaming space before, we believe the benefits of his prior experience far outweigh any online sports betting-specific intricacies (which can be learned), especially with strong support at PENN,” wrote Jonas.

While at Disney, LaBerge played important roles in developing the company’s non-theme park mobile applications, including one for ESPN and another for the sports network’s fantasy sports games.

Jonas added that at a time when Penn’s ESPN Bet is attempting to close the gap with rivals DraftKings and FanDuel, LaBerge could be a valuable addition to the gaming company because while at Disney, he had experience developing tech to address rivalries. Jonas cited the example of Disney vs. Neflix in streaming entertainment.

Netflix “had a 10-year and many-million-subscribers head start, though DIS was able to compete in time as its product became increasingly sophisticated,” noted Jonas.

More ESPN Bet Insight

The bulk of Penn’s earnings and revenue are derived from its land-based casinos, but ESPN Bet has taken center stage in the eyes of many investors. That makes Penn’s planned enhancements to the sports betting app pivotal.

Jonas pointed out that ESPN Bet growth is likely to be gradual, but he applauded the operator’s efforts in catering to both avid and recreational bettors. The analyst added the app is gaining above-average traction with female bettors.

An area to keep an eye on is Penn’s ability to smooth out some issues with Hollywood Casino-branded iGaming platform, which to date hasn’t materially benefited from conversions from ESPN Bet. Jonas said management is highly focused on improving iGaming execution.

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That’s according to the recently published working paper, “Gambling Away Stability: Sports Betting’s Impact on Vulnerable Households,” which was authored by researchers from Brigham Young University (BYU), Northwestern University, and the University of Kansas. In the paper, the research team asserts that following the 2018 Supreme Court ruling on the Professional and Amateur Sports Protection Act (PASPA), allocations for sports betting haven’t displaced the expenditures households directed to other forms of wagering, but the dollars directed to sports wagering often come at the expense of “positive expected value” pursuits, including investing in stocks.

In contrast with the sizable effects on equity investments, we find that increases in sports betting do not coincide with decreases in participation in lotteries or other online gambling outlets like poker sites,” according to the study. “Cryptocurrency exchanges see a small decline in deposits, but of a much smaller magnitude than either the sports bets themselves or the declines in equity investments. Overall, these results suggest that most of the displacement driven by increases in sports betting falls on positive expected value ‘investments’ rather than other types of negative expected value ‘bets.’”

The researchers studied all state-level sports wagering legalizations post-PAPSA through September 2023. They claim that since PAPSA, for every $1 a bettor directed to sports wagering, there was a $2 drop in that person’s allocations to stocks and other investments.

It’s Hard to Beat Stocks with Betting

What makes the claims detailed in “Gambling Away Stability” potentially alarming is that the prime demographic for sports wagering — roughly the 21 to 35 age demographic — is also one that should be capitalizing on the advantage of having time on their side and leveraging it for investment success.

In a hypothetical example that assumes average annualized returns of 6%, an investor that starts with a basic broad market fund with $10K and contributes $500 to that fund every month for 10 years will have $99,145 at the end of that decade.

With some bettors diverting capital from stocks to fund sports wagers, the researchers behind the paper argue that’s a signal policymakers cannot ignore.

“Policymakers should consider how the allure of betting might divert funds from savings and investment accounts, particularly for constrained households, which can affect household financial stability and long-term wealth accumulation,” they observed. “Understanding these dynamics is important for crafting policies that mitigate potential negative impacts while allowing for the economic benefits and entertainment value of legalized sports betting.”

Other Financial Implications from Sports Betting

A recent study by the University of California Los Angeles (UCLA) and the University of Southern California (USC) showed that credit scores are modestly declining and bankruptcy filings are ticking higher in states that allow mobile sports wagering.

“Financially constrained households increase their credit card balances by about $368 relative to less constrained households, an 8% increase in credit card debt relative to the sample mean,” concludes the study. “Additionally, we find that more constrained households reduce their credit card payments and increase overdrafts of their bank account. Combined, these results suggest that sports betting exacerbates the financial constraints of households already operating with less flexibility. The reduced payments towards credit card bills, coupled with rising debt levels, indicate that these households are not merely shifting funds from one type of entertainment to another but are instead becoming more indebted to fund an addictive losing proposition.”

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In a note to clients, Jefferies analyst David Katz called the operator’s August 1 surcharge announcement a “head fake.” When it delivered second-quarter results on August 1, DraftKings said it planned to roll out a surcharge on winning sports wagers in Illinois, New York, Pennsylvania, and Vermont to offset exposure to those states’ high tax rates.

That move was widely panned in both the investment and sports wagering communities, and it was dropped Tuesday when FanDuel parent Flutter Entertainment (NYSE: FLUT) said it wouldn’t play along.

Our view had evolved to consider the notion that the initiative was intended to spark debate and awareness rather than actually recoup margins,” observed Katz.

Katz reiterated a “buy” rating on DraftKings with a $54 price target, which implies upside of more than 68% from Wednesday’s closing price.

Analysts Defend DraftKings Following Surcharge Misstep

In a late Tuesday announcement highlighting its decision to scrap the surcharge plan, DraftKings said the move was the result of listening to its customers.

In his report, Katz acknowledged that some shareholders may have viewed the DraftKings surcharge plan as premature, particularly in Illinois and New York, which could consider iGaming legislation. It’s believed that in those states, online casinos could be the compromise between lawmakers and gaming companies contending with high sports betting taxes.

Truist Securities analyst Barry Jonas said DraftKings dropping the surcharge could remove some uncertainty that’s recently plagued the stock. He reiterated a “buy” rating and a $50 price target.

“The reversal should remove some uncertainty around execution risks, but also raises the question of how DKNG can offset the impact and/or if guidance needs to be tweaked,” wrote Jonas.

Mixed Views on DraftKings Among Institutional Investors

With 13F reporting season here, market participants are getting a sense of how professional investors view DraftKings. Despite several recent public relations missteps and the fact that the stock is down year to date, the institutional investor situation with DraftKings is decent.

However, Soros Fund Management, LLC, the family office founded by billionaire financier George Soros, added a modest DraftKings stake in the second quarter and overall institutional ownership of the stock remains at the highest levels since the operator’s 2020 debut as a standalone public company.

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Media reports indicated FanDuel could pay as much as $2.56 billion for Snaitech, which represents a healthy premium to Playtech’s market capitalization of about $2.12 billion. Founded in 1990 and branded as Snai, Snaitech offers horse and sports wagering services in Italy and operates more than 49,000 gaming and lottery devices in that country.

The website, snai.it, offers a vast range of gaming and entertaining services including all online products: sport and horse racing betting, poker cash and poker tournament, skill games, casino and cash games, betting on virtual events, forecasts, bingo, lotteries and number games, virtual sports. Betting and casino apps are available also from website using a technology that adapts to all devices,” according to the company.

Snaitech also has bit exposure to Austria and Germany through its 2022 purchase of Happybet. At one point today, Playtech shares were up 22% on the news, marking the stock’s biggest intraday pop in nearly three years.

Playtech Deal Could Finally Come to Fruition

Currently, there’s no indication as to how advanced the talks are between Flutter and Playtech, but the would be seller said it is in exclusive negotiations with the prospective buyer.

In October 2021, Playtech agreed to a $2.8 billion deal with Aristocrat Technologies and two other suitors emerged for the gaming software company, but those two suitors ultimately pulled their bids and the deal with Aristocrat fell apart. In July 2022, Playtech scrapped plans to list Caliente Interactive’s Caliplay unit on a US exchange via a reverse merger with a blank-check entity.

For Playtech, the allure in selling Snaitech is that such a transaction would allow the seller to become a full business-to-business (B2B) player in the European gaming scene while reducing its exposure to volatile consumer spending trends.

Deal Would Boost Flutter’s Italy Footprint

For FanDuel parent Flutter, the potential acquisition of Snaitech makes sense because it would increase the buyer’s presence in Italy, which is the Eurozone’s third-largest economy behind Germany and France.

In 2022, Flutter paid $2.2 billion for Italian lottery giant Sisal. Prior to that acquisition, Flutter’s PokerStars and Betfair were operational in Italy with significant market share.

Italy is Europe’s second-largest regulated gaming market after only the UK. Adding to the allure of Snaitech for Flutter is the point that while penetration of online wagering in Italy has surged in the aftermath of the coronavirus pandemic, it remains far below the rates seen in comparable markets such as Australia and the UK. That implies there’s ample room for growth and Flutter’s potential purchase of Snaitech could be validated over the long-term.

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In a clear blow to rival DraftKings (NASDAQ: DKNG), FanDuel parent Flutter Entertainment (NYSE: FLUT) announced today it has no plans to implement levies on winning sports bets in select high-tax states.

Dublin-based Flutter reported second-quarter results this afternoon — 12 days after DraftKings said it will charge a small surcharge on winning sports wagers in Illinois, New York, Pennsylvania, and Vermont starting Jan. 1, 2025. Dashing the hopes of some DraftKings investors, Flutter CEO Peter Jackson said the company won’t play along.

We often find as well that smaller players may also have to increase their prices, which leads to us capturing more share , which provides an offset for us,” said Jackson in response to analyst question on a conference call. “And so we think that moderating the level of reducing local marketing is the best customer options and we have no plans to introduce a surcharge on winners.”

Investor reaction to the news was clear. At this writing, shares of Flutter were higher by 10% in after-hours trading while DraftKings was down 4%. Year-to-date, the FanDuel parent is up 6.92% while rival DraftKings is down 10.81%.

Welcome to Surcharge Island DraftKings

Following DraftKings’ Aug. 1 announcement about the surcharge, which the company told analysts and investors could be accretive to 2025 earnings before interest, taxes, depreciation, and amortization (EBITDA), there was ample speculation among some market participants that the plan could be validated by FanDuel following suit. Some so-called experts even believed that was likely.

Flutter joined Rush Street Interactive (NYSE: RSI) as the operators overtly saying they will not levy winning wagers in high-tax states. Likewise, BetMGM and Caesars Sportsbook parent Caesars Entertainment (NASDAQ: CZR) recently delivered financial results and didn’t mention plans for a surcharge.

Last week, ESPN Bet owner Penn Entertainment (NASDAQ: PENN) said it’s monitoring the surcharge situation, neither endorsing nor deriding the idea. That’s the closest a gaming company has come to siding with DraftKings, but it’s a stretch at best.

Flutter Bashes Illinois Tax Scheme

Jackson told analysts that he believes the bulk of the state’s in which FanDuel operates have “sensible” approaches to taxing regulated sports betting, though he added he’s not a fan of the graduated tax scheme recently implemented in Illinois.

Starting in July, Illinois instituted a tax plan that mandates high revenue sportsbook operators such as DraftKings and FanDuel pay significantly higher rates than smaller counterparts. As a result, the effective rate for those two more than doubled in that state.

“I do think instituting a graduated tax system that punishes those who’ve invested the most to grow their businesses is wrong,” said Jackson in response to an analyst question. “I think it will drive customers to offshore operators or potentially to onshore operators who offering unregulated, untaxed prop parlays under the guise of sweepstakes.”

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