Igaming Focus: Boyd drives Penn bounce as M&A speculation heats up

June 13, 2024 9:23 AM
Photo: Shutterstock
  • Jake Pollard, CDC Gaming Reports
June 13, 2024 9:23 AM
  • Jake Pollard, CDC Gaming Reports

Hello and welcome to this week’s Igaming Focus newsletter.

On the slate this week:

  • Boardroom maneuvers help Penn and add to M&A
  • Content is king as emerging icasino suppliers compete with ‘Big 3’…
  • … as online gaming start-up funding bucks negative worldwide trends.
  • Market update: Online sports betting “impressive” in Q2.
  • Could tax alignment be on the cards for B&M and online rates?
  • News shorts: Genius-IBIA, New York, NCAA president speaks out against PASPA repeal, Tennessee fines ZenSports and Fanatics.

Boardroom maneuvers help Penn, add to M&A speculation

Boyd Gaming has recruited a highly experienced executive in move that could presage M&A approach for Penn Entertainment.  

Penned in and up for sale: Boardroom moves have boosted Penn Entertainment’s share price after Boyd Gaming added Michael Hartmeier to its board, which the markets are viewing as a potential sign that it could be planning a swoop for ESPNBet’s parent company.

  • Hartmeier has extensive experience in carrying out gambling acquisitions, having led the gaming and leisure investment teams at Barclays Bank, Lehman Brothers and Credit Suisse First Boston.
  • The Boyd news comes after activist investor Donerail Group called on Penn Entertainment to put itself on the market, saying the group “could attract double its current trading price in a sale”. The news pushed Penn shares up 20% at the end of May.
  • Feel the pressure: Penn Entertainment has been under pressure for some time. Recent strategic moves such as the c£2bn acquisition of Ontario-based bookmaker theScore Bet in 2021, buying the whole of Barstool Sportsbook only to close it down and sell it back to founder Dave Portnoy for a symbolic dollar and the $1.5bn partnership with the sports broadcaster ESPN to operate ESPNBet, have all contributed to pile the pressure on Penn and lead Donerail to call for action.
  • In an open letter addressed to Penn chairman David Handler at the end of May, Donerail managing partner Will Wyatt said: “Penn’s interactive strategy [had] destroyed shareholder value” and was causing it “to trade at a steep discount”.
  • Online pivot: Wyatt criticized how the group had “radically pivoted” away from its longstanding brick-and mortar heritage and unsuccessfully “bet the house” on building an online business to compete with DraftKings and FanDuel.
  • As the Boyd news emerged, the team at Jefferies said it expected “activism to remain in the background as ESPN Bet approaches football season, which is important for the business to establish its path forward”.
  • Since launching ESPN Bet in November 2023, Penn’s online sports betting market share has dropped steadily and some of its promotions to attract bettors have come in for strong criticism.

Content is king

Online casino market shares continue to evolve as new suppliers rise up the charts.  

In its June round up, the team at Citizens Bank noted that “sustained demand for online gaming content has opened the door for emerging suppliers” of icasino games. The ‘Big 3’ that are IGT, Light & Wonder and Evolution have seen their market shares “drop from 65% in Q2 2022 to just 51% today”.

  • Quality over quantity: Citizens added that as icasino suppliers are focusing “on quality over quantity and omnichannel content” they are likely to outperform competitors.
  • The trend, “amid an otherwise cooling growth environment”, is leading M&A activity in the space, with private equity firm Brightstar Capital Partners’ acquisition of AGS (Citizens was an advisor on the transaction).

Start me up: New companies and start-ups operating in the space, however, are finding it increasingly difficult to raise funds. The total amount of Q1 capital invested came to around $81bn, which made it “the lowest amount since Q2 2019”, Citizens noted.

  • At a global level, the decline “in VC investment was driven by China (40%) and the U.S. (29%)”. However, while this does “not bode well for nascent companies, investment in the online gaming space has accelerated with at least 16 deals representing over $60m in Q1, representing the most active quarter since Q2 2023”, added Citizens.
  • In the money: Companies like Betr, Splash Sports and Skill Money Games raised funds, while Lloyd Danzig’s Sharp Alpha Advisors closed its oversubscribed $25m Sharp Alpha Fund II.

Source: Shutterstock

Keep the juices flowing

Online sports betting continues to perform strongly in Q2, report JMP and Juice Reel.

 On the up: The JMP and Juice Reel teams are reporting “impressive results” so far in Q2 as data from 8,000 linked sports betting accounts showed handle-per-bettor was up 16% YoY and bets per person were 51%.

  • Despite an unfavorable sporting calendar in April same-store handle was up 22% (vs. +20% in Q1) and the month of May benefited from 15 more NBA and NHL playoff games compared to the prior year, the analysts said.
  • More than marginal: Margins have rebounded to “nearly all-time high levels of 10%” in the quarter and the average bettor was using 1.5 apps during the month and the average bet size was $39, down 23% YoY and -16% vs. the past 12 months.
  • Boost mix: Bet types flat, single-game bets accounted for 59% of handle in May, with parlays coming in 38% and odds boosts accounted for 47% of the total promotions in May, with the average bettor wagering $85 in free promos.
  • In OSB, FanDuel took share from DraftKings while in online casino, BetMGM gained 32 bps QoQ Rush Street was up +19 but DraftKings lost the most igaming share during April at -105 bps.

Igaming market share in the U.S.

Taxes and non-aligned states

Potential realignment: With Illinois recently raising taxes on online bookmakers, the JMP team noted that another potential scenario could see online gaming tax rates being aligned with brick-and-mortar (B&M) taxes, which are often gradual as opposed to flat in most digital states.

  • Online gambling companies operate “in a favorable tax environment”, even accounting for New York’s 51% tax rate, added JMP, and following the increase in Illinois, “only three states with online sports betting, including NY, NJ and IL (35% of U.S. GGR), have a higher tax rate, compared to the effective tax rate for brick-and-mortar casinos in their respective states”.
  • Political capital: Therefore, lowering taxes for land-based casinos could be seen as more beneficial “in the eyes of politicians given the ability for casino operators to invest more money into people and proprieties at a physical casino (jobs, 401k, etc)”.
  • In addition, “the mindset of politicians not to leave money on the table could bring parity to tax rates for B&M and online gaming if the two forms of gambling are viewed on an even playing field.”
  • However, the tax rises will not necessarily play into operators’ hands when it comes to lobbying for further regulation of online casino, although JMP said it believed “igaming in the two largest sports betting markets (and highest taxed), Illinois and New York, are only matter of time, despite the lack of momentum during recent sessions”.
  • Close shaves on the cards: Meanwhile online operators will look “to shave off basis points from promotions, platform, processing, and revenue-sharing fees”.
  • Indeed, most revenue-sharing agreements were agreed in 2018-19 and “are expensive in today’s environment”. This is compounded by declining demand for licenses “as companies are leaving the industry faster than new entrants”.
  • Therefore, “renegotiation with skin holders and online operators will present a meaningful driver of cost savings” added JMP.

Source: Shutterstock

Entain faces potential £100m Turkey penalty

UK giant sued by investors over Turkey business. 

Just when I thought I was out…: Entain, MGM Resorts’ joint venture partner in BetMGM, could be on the hook for up to £100m in compensation to investors following the group’s settlement with the UK tax authorities over past activities in Turkey.

  • The UK gambling giant, which alongside BetMGM runs brands such as Ladbrokes and Coral in the UK and bwin in Ontario, announced a £585m deal with HM Revenue and Customs (HMRC) in August to draw a line under its past activities in Turkey.
  • But investors are claiming that it failed to update them on the relevant issues, which were linked to bribery and corruption charges at its former Turkish business.
  • The claims go back to the 2011-2017 period when Entain, operating as GVC at the time, ran online gambling operations in Turkey. In May 2023 it announced that it would likely have to pay substantial damages to HMRC linked to those activities.
  • A spokesperson for Entain said the group was “currently unaware of any action of this kind against the company and have not received an issued claim” and “would defend any such action robustly”.
  • The claimants are represented by the UK law firm Fox Williams, which has also brought similar claims against the online fashion retailer Boohoo and supermarket giant Tesco.

News shorts

Genius Sports and the International Betting Integrity Association have agreed a global betting integrity and anti-match-fixing information sharing partnership. As part of the agreement the two groups will share information relating to suspicious betting and Genius Sports joins the IBIA as an associate member.

The NCAA president Charlie Baker has said he wishes the Professional and Amateur Sports Protection Act had never been overturned and that sports betting was not legal in 38 U.S. states due to the issues it is causing college athletes and the NCAA. Baker, the former governor of Massachusetts who has been NCAA president since last summer, said sports betting is “far more challenging for young people to avoid”.

Tennessee’s Sports Wagering Council has fined the sportsbook ZenSports $60,000 for not having enough money to cover its outstanding bets and Fanatics has been fined $50,000 by the SWC for self-reported, self-exclusion list violations.

See you in two weeks!