“We are incredibly excited about our business and our outlook.”
That was how BetMGM CEO Adam Greenblatt concluded a marathon earnings call, in which he reported same-state revenue increases for fiscal year 2022 of 51 percent, combined with a 21 percent reduction in the cost of customer acquisition. “Our lead shows no signs of wavering,” Greenblatt remarked, pointing to BetMGM’s 30 percent share of North American igaming and 13 percent share of the sports-betting market.
Negative return on investment for FY22, however, was $440 million, seven percent higher than Jefferies Equity Research analysts were expecting. Nonetheless, “Confirmation of expected profitability in 2H23E should comfort investors around the ongoing market rationality. We see profit delivery in North America as a key catalyst for the sector,” Jefferies staffers wrote.
“Recall that earlier this week, [Caesars Entertainment] reported preliminary 4Q digital revenues of $236m to $238m and an EBITDA loss of $4m to $6m,” chimed in J.P. Morgan analyst Joseph Greff in an investor note, “and we estimate that BetMGM’s revenue market share in both online sports betting and igaming is ahead of CZR, aided by its first-mover advantage. But from an EBITDA perspective, it should make Caesars Digital 4Q22 EBITDA result even more impressive.”
Deutsche Bank analyst Carlo Santarelli found the 68-minute call “refreshing,” because BetMGM had stopped using total-addressable-market projections, “as it presumably leads the industry away from: 1) benchmarking against largely misleading forecasts, given the gross to net conversion and the pliability of gross revenue; and 2) overly aggressive forecasting.” He found the call largely free of surprises, with revenue somewhat less than expected and negative ROI modestly better than forecast.
Whereas BetMGM had guided Wall Street to expect 2022 revenues of $1.3 billion, it delivered almost $1.45 billion. For the coming year, Greenblatt and Chief Financial Officer Gary Deutsch anticipate revenues of between $1.8 billion and $2 billion. They also expect to be return-on-investment-positive in the second half of next year, although Wall Street opinion is divided on this, with Jefferies among the more optimistic investment houses, projecting a plus-side $32 million. Pressed for a prediction of second-quarter profitability by one analyst, Deutsch replied, “It’s possible. We’ll see.”
Parent companies Entain and MGM Resorts International are putting another $150 million of capex investment into BetMGM, bringing their total underwriting to $1.25 billion. Deutsch expects it to more than cover any EBITDA losses in the next fiscal quarter or two. The company is enjoying 20 percent market share in states where it went live with igaming and sports betting on day one.
“This implies a loss of share in [gross gaming revenue], which we anticipate is driven by BetMGM bonus optimization measures,” wrote Jefferies analysts.
Among the accomplishments that the CEO hailed was a presence in 25 U.S. jurisdictions, reaching 45 percent of the total population, along with four new retail sportsbooks nationwide, including one at State Farm Stadium, site of this year’s Super Bowl, in Glendale, Arizona.
“We are executing with purpose, passion, and discipline,” Greenblatt enthused, citing first-place awards from EGR North America, SBC North America, and the North American Gaming Awards, all of which cited BetMGM as the top igaming site on the continent.
The executives believe their igaming foothold is firm, while sports betting “came of age” just last year. Deutsch added, “It’s really astounding, the player growth that we’ve seen. … We basically did 150 percent gross win this football season,” partly because gamblers like parlays, which have higher margins for the house, and “promotional players are less sharp. We see much less volatility as a result of the player mix.” Greenblatt followed up, saying, “The deeper the loyalty, the more engaged your player, the lower the [promotional] contributions required.”
One thing inching BetMGM closer to black ink is a lower-than-expected marketing outlook. “We thought California would go [live] this year,” said Deutsch, alluding to sport-betting’s wipeout at the Golden State ballot box. “Obviously, it didn’t, but it would have been a big part of our marketing spend.” Better-than-expected revenues gave BetMGM the lucre to “take a swing” at the state, he added.
The company is currently putting its push behind TV advertising, with Greenblatt saying, “As a business, we value flexibility and we value the data.” Deutsch elaborated, “You will have seen the investment in NBC and ‘Football Night in America.’ That was a tactical purchase.”
Greenblatt continue, “The early exuberance [of sports betting] is abating” and the company is now focused on “opportunistic investments.” When asked where the $150 million capex would be spent, Deutsch replied that such “tentpole” events as the Super Bowl would see an increase in spending across all BetMGM markets.
“We have best-in-class live gaming,” said Greenblatt of the company’s internet casino, adding that its VIP product is also state of the art. “The benefit of our work starts to become its own snowball,” he added, giving as an example an ongoing relationship with Carnival Cruise Lines that will begin to yield an igaming dividend. “So we’re feeling pretty confident,” especially since BetMGM saves money by using Entain’s extant game library and platform.
As for real-cash dividends, Deutsch was vague. “We haven’t even discussed Texas, Florida, even California coming back” into consideration for sports betting, all of which would require a rethink of corporate spending. “No one metric tells the story in this industry.”
Deutsch explained that the timeline from launch in any given state to breakeven is 18 months for sports betting, but much faster for icasinos, as is happening in Ontario. Greenblatt allowed that, as gray-market operators remain active in the Canadian province, “the competitive environment is still fierce.”
Stateside, Greenblatt said, BetMGM is investing in lawmaker education, “sowing the seeds for future legislation,” but not expecting any this year. In the meantime, “There’s a thriving black market, players are not being protected, and guidelines are not being followed.”
While BetMGM has modest expectations for the growth of igaming in the U.S., Greenblatt was more expansive about sports betting.
“The competitive set is churning and the outcome is uncertain,” he explained, adding that the handful of market leaders continued to advance in share last year. Citing bet365’s decision to pull back from the nascent Massachusetts market, he continued, “It’s complex, it’s expensive, and competing with the established leaders is difficult,” especially for those operators who are going “from a standing start. We can’t be lackadaisical about our position [however] and don’t take anything for granted.”
