Bally’s Corp. on Wednesday reported lower second-quarter profits on substantially higher revenue.
The company raked in $455 million, compared to $207.5 million year over year, with most of the growth coming from brick-and-mortar casinos. Profitability, though, was down to $59.5 million from nearly $70 million in 2Q21. Drags on the bottom line included Bally’s Atlantic City, generating $3 million in negative return on investment (ROI) and $60 million negative ROI from North American online sports betting and igaming.
Still, CEO Lee Fenton said, “We’ve made considerable progress over the last 10 months. We recognize that we’re entering a period of global turbulence. … We would anticipate some inflationary pressures.”
He blamed the slow ramp-up in Atlantic City partly on “some bad luck with hold.” Over the long run, Atlantic City is expected to be a contributor of $10 million to $20 million in annual cash flow; $10 million in cost savings has already been implemented.
On the positive side, the international interactive segment has rebounded, with July its best month so far and easier comparisons to come in the second half of 2022. The only international disappointment was Asia, where currency weakness led to flat interactive performance.
The oncoming World Cup is expected to benefit Bally’s sports books internationally, less so in the U.S., which is “still in wind-up mode,” according to Fenton. Domestically, the company is targeting New Jersey, where it aims to double its icasino market share from three percent to at least six percent next year, possibly eight percent.
“It is an aggressive target. We’re going for it,” CFO Robert Levan maintained. “We’ve made some major strides in terms of upgrading our product. We’ve got a lot more product to bring over the next 12 months.
“Icasino states are our priority,” remarked Fenton, particularly Pennsylvania and Ontario, with Indiana next and possibly Illinois, while the business model is to minimize customer-acquisition costs. “The product isn’t where we want it to be,” he allowed, with the online sports-betting application already in its fifth iteration, but more features yet to come. “We still have a lot of integration to do. The numbers will come to us over time, but we’re focused on the quality of the product.”
Bally’s was bullish on its $1.6 billion Chicago megaresort project, with President of Retail George Papanier saying, “The demand for gaming in Chicago is in excess of supply. The city of Chicago has little benefit from gaming,” most of which is happening in Des Plaines and in Gary, Indiana. The Medinah Temple temporary casino is predicted to open in June 2023 with more than the promised 800 gaming positions, at a $70 million cost. The permanent casino will be completed three years later and Papanier forecasts $400 win per slot per day, double the industry average, as well as a $250 million return on investment (15.6 percent) in the first year.
Company execs assured investment analysts they were tracking long-lead-time items and site factors that could inflate the Windy City budget, including inflation, and that it was going very well. The two main risks are being able to deliver on time and budget and inflationary pressures. As a backstop against those, the company is taking such measures as ordering slot machines over the next 90 days, to have them in place by June 2023. The executive team exuded confidence about the Chicago market and tourism in particular, saying that key hotel operators have told them that visitation has been coming back strongly over the last six months.
“We continue to focus on profitability by cutting costs” at Bally’s terrestrial casinos, added Levan, who prognosticated fourth-quarter cash flow at Tropicana Las Vegas of $6 million, double the amount Bally’s will be paying in rent.
Regarding the seemingly doomed Trop, Fenton said, “We will continue to run the property for the next 12 months,” by which point joint-redevelopment partners are expected to have been identified.
The company was curt on the subject of New York City, with Fenton saying Bally’s was quite interested in exploring Gotham, “but it’s still very much in the development stage.”
At the company’s birthplace property, Twin River in Lincoln, Rhode Island, Levan said the casino was recapturing Asian play from Encore Boston Harbor, while Fenton noted that business had been through the roof since removal of the smoking ban. As for other regional casinos, Papanier said margins have stabilized, especially at Hard Rock Biloxi, which was described as pushing the profitable focus on high-end customers. Eliminating buffets company-wide “removes a lot of cost structure,” too.
Despite the company’s $3.4 billion in debt versus $176 million cash on hand, Levan assured investors, “We have ample liquidity to fulfill all the projects” currently in train. First-quarter trends were continuing, Fenton resumed, with low-end play softening, but higher-end play firming up.
Finally, Fenton was asked about the long-anticipated White Paper on future United Kingdom gambling regulation.
“New prime minister, same [Conservative] party,” he said, “so I don’t expect radical departures from the current trajectory. We’ve been taking preemptive action on the White Paper for the last three years, it feels like,” he joked, before waxing serious about the measures the company had incepted. These include lower slot-machine-bet limits and smaller – but more frequent – jackpots. The White Paper “will give us a framework, but the details will get filled in over time.”