Genius Sports CEO denies discussions with Kambi, July on pace for record margins and other notable stories in the sports betting and iGaming space Welcome to the latest edition of "Bet On It," where The Fly looks at news and activity in the sports betting and iGaming space.
SECTOR NEWS: In response to rumors, Mark Locke, CEO of Genius Sports (GENI) issued the following statement: "As policy, we do not comment on unfounded and ill-informed rumours. To prevent any further speculation, we can confirm that we are not involved in any discussions of this nature with Kambi."
Macau's gaming bureau reported August gross revenue from games of fortune in the region was up 14.8% year-over-year to 19.754B patacas.
NFL RETURNS: As the 2024 NFL season kicks off, the American Gaming Association, or AGA, projects that American adults will bet $35B with legal sportsbooks throughout the season, AGA's first-ever legal wagering estimate for the league's season. Driven by the continued expansion and maturation of the legal sports betting industry across the U.S., 2024 is expected to be the most legally wagered-on season in the NFL's seven seasons with legal wagering. AGA analysis conducted after the 2023 NFL season estimates that legal wagering on last year's NFL season reached $26.7B. Maine, North Carolina and Vermont have each launched new legal sports betting markets since last NFL kickoff. As legal sports betting grows, recent AGA data shows public support for the industry also continues to grow, with Americans increasingly seeing the industry as committed to responsibility:
"With the excitement of another NFL season upon us, Americans are placing their bets with the confidence that the legal sports betting market is prioritizing consumer protection and responsibility. As the season unfolds, the AGA and our members remain dedicated to working with leagues, regulators and other stakeholders to ensure fans have the knowledge and tools to keep sports betting a safe, fun part of the gameday experience." - AGA president and CEO Bill Miller.
GAMING SECTOR VS. S&P 500: Over the past two years, the gaming sector has faced challenges due to sluggish fundamentals, rising interest rates, and ongoing "late cycle" economic concerns, Morgan Stanley told investors in a research note. The S&P 500 has rebounded from the initial post-pandemic downturn and reached new highs, creating the largest valuation gap between the two sectors in years. This discrepancy suggests that the market views gaming as "late cycle" with sector-specific risks, a concern frequently discussed among investors, according to the firm. Most discretionary categories have experienced weaker growth compared to total personal consumption expenditures, while non-discretionary categories like health care, financial services, insurance, housing, and utilities have outperformed. Morgan Stanley noted fundamentals have been cyclical, with EBITDA declines ranging from 10%-45%, more pronounced in Vegas than in other regions. Additionally, the analyst contends changes in business models could exacerbate downside risks due to higher operating leverage compared to historical levels. Lastly, the firm noted stocks typically do not bottom until estimates bottom, and recent forecasts have merely plateaued. Given these factors, Morgan Stanley advises investors to remain selective within the gaming sector. The firm is shifting its focus from purely "growth" to now comparing and contrasting stocks within the sector. Morgan Stanley made the following changes on its coverage of stocks in the industry:
JULY AND AUGUST TRENDS: According to Jefferies, 22 states have now reported online sports betting data for July. Across the market, handle and gross gaming revenue, or GGR, increased 34% and 51% respectively. At 11.8%, July is on track to be the highest margin month on record, surpassing the previous record of 11.3% set in May 2023. By operator, the firm observes margins of 13.4% for FanDuel (FLUT), 11.1% for DraftKings (DKNG), and 10.6% for BetMGM, with gross gaming revenue growth of 56%, 55%, and 15%, respectively. New York has reported weekly data through the first three weeks of August up to August 18. During this period, margins are tracking at 9.2%. This represents a 1.9 percentage point month-over-month decline from July's highs, but remains up 1.3 percentage points year-over-year and up 0.2 percentage points on the last twelve months' average of 9%. By operator, August margins in New York are tracking at 10.7% for FanDuel, 8.6% for DraftKings, and 5.9% for BetMGM.
OHIO IGAMING BILL: A new bill introduced at the Ohio Statehouse aims to legalize iGaming, Natalie Fahmy of NBC4 reported. Senator Niraj Antani remarked, "I believe this is the next step in the evolution of gaming in Ohio." Senate Bill 312, sponsored by Antani, mandates that the Ohio Casino Control Commission collaborate with licensed casinos to determine which games can be legally offered online. "I think you're going to see poker, you're going to see roulette, you're going to see slot machines, things like that," Antani said, "Blackjack, any sort of card, game table, game, you'll see allowed. That's the idea here."
ADDITIONAL ANALYST COMMENTARY: JMP Securities upgraded Sportradar (SRAD) to Outperform from Market Perform with a $16 price target. The company has progressed through several operational and strategic initiatives in the last 12 months that offer an attractive buying opportunity ahead of the NBA season, the analyst noted. The firm contended the cost for sports rights now presents a clearer path, resulting in inflecting free cash flow and shareholder returns "for the largest data provider in the sports betting space."
Berenberg lowered the firm's price target on Entain (GMVHF) to 1,020 GBp from 1,140 GBp and backed a Buy rating on the shares.
JPMorgan said the share price of Wynn Resorts is back to March 2006 levels. In the mid-$70s, the stock represents a good risk/reward, with a value that reflects "reasonably low to fair" value for Wynn's Las Vegas and Encore Boston Harbor asset values and "hardly any value" for its Macau property cash flow, the analyst told investors in a research note. The firm sees not much priced into the shares for the company's Macau or United Arab Emirates properties. It kept an Overweight rating on Wynn Resorts with a $101 price target.
Susquehanna raised the firm's price target on DraftKings to $48 from $47 and reiterated a Positive rating on the shares. The firm believes expectations are too low considering a more "typical" seasonal pattern where DraftKings underperforms FanDuel in Q2 given FanDuel's stronger NBA product, but outperforms and gains share in 3Q given the strength/depth of its football product offering. Susquehanna sees DraftKing's trading levels having fully reflected off- season industry fears versus the favorable performance the firm expects in the second half.
Jefferies commented that although Macau GGR in August demonstrated strength following seasonal weakness in July, its expectations remain unchanged. The firm continues to be measured on the region as the heavy promotional environment challenges operators and anticipates that valuations remain compressed due to the deteriorating economic weakness in China. Looking ahead, Jefferies remains focused on the October Golden Week holiday, which could potentially provide another catalyst for the market/stocks. The firm's preferred stocks within its coverage are Galaxy (GXYEF) and MGM among U.S.-listed names, in part for Macau execution and easier comps in Las Vegas in 2024. Jefferies believes a catalyst is required for re-rating Las Vegas Sands and Wynn Resorts, and the current update is generally neutral for stocks.
PUBLICLY TRADED COMPANIES IN THE SPACE INCLUDE: Accel Entertainment (ACEL), Bally's (BALY), Boyd Gaming (BYD), Caesars (CZR), Churchill Downs (CHDN), DraftKings (DKNG), Flutter Entertainment (FLUT), Gambling.com (GAMB), Gan Limited (GAN), Genius Sports (GENI), Las Vegas Sands (LVS), MGM Resorts (MGM), Penn Entertainment (PENN), Rush Street Interactive (RSI), Super Group (SGHC) and Wynn Resorts (WYNN).
