Igaming Focus: 888 US asset sale, Super Bowl hits Feb margins, DraftKings’ live focus

March 28, 2024 8:00 AM
Photo: Shutterstock
  • Jake Pollard, CDC Gaming Reports
March 28, 2024 8:00 AM
  • Jake Pollard, CDC Gaming Reports

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

We have a(nother) stacked newsletter this week:

  • Breaking: 888 sells U.S. B2C assets to Hard Rock Digital
  • Books feel the hit from the Super Bowl in February
  • VIPs in the dock: High value players help Fanatics Betting and Gaming in NJ as DraftKings sues its new VIP boss
  • Results round up: Flutter, Sportradar, Gambling.com
  • DraftKings set to focus on live betting as product differentiator
  • M&A trail: Rush Street Interactive puts itself on M&A radar
  • People moves and news shorts

888 sells U.S. B2C assets to Hard Rock Digital

888 has announced the sale of its U.S. consumer operations to Hard Rock Digital as part of its decision to exit the U.S. market. The value of the transaction was not disclosed and 888 said it is subject to regulatory approval. “It is expected that the disposal will be completed in a number of phases, with final completion expected in Q4 2024,” the company added in a statement.

  • 888 said it intends to fully cease operating in the U.S. by the end of the year and that the exit will drive recurring adj. EBITDA savings of around £25m from 2025. Approximately £10m of those funds will be reinvested, it added.
  • This week 888 reported a 23% rise adj. EBITDA to £308m and a 41% uptick in revenues to £1.7bn, with net loss cut by more than half to £56m in 2023. It said it expects to incur net one-off costs of approximately £40m from 2024 to 2029 related to its U.S. exit, inclusive of the Sports Illustrated licence termination fee already announced.
  • The Sports Illustrated-branded sportsbook is live in Colorado, Michigan, New Jersey and Virginia, the 888 online casino brand is only live in New Jersey.

Shutterstock: Chiefs vs. 49ers

Shutterstock: Chiefs vs. 49ers

Sportsbooks take Super Bowl hit in February

Kansas City Chiefs’ Super Bowl win hits GGR hold levels with BetMGM taking the heaviest blow. 

Margin call: Deutsche Bank’s  latest monthly update reported that gross gaming revenues (GGR) for U.S. sportsbooks were up nearly 13% in February 2024 as handle expanded 20.3% YoY, but margins were down 50 bps to 7.4% because of the Kansas City Chiefs’ Super Bowl win over the San Francisco 49ers.

  • The analysts’ coverage included figures from seven states (NJ/PA/IN/IL/CO/WV/OR) and with a “solid start” underpinning Q1, operators should benefit in comparison to “the heavily promotional launches in OH (January) and MA (March)” of the corresponding period last year, they added.
  • Space oddity: Online casino GGR was up 33% YoY as Pennsylvania and Connecticut grew 40.5% and 50% respectively. Deutsche Bank added that “Pennsylvania represented somewhat of an oddity” as monthly “GGR per day was up 32%” and the increase “was split relatively evenly between slots and tables”.
  • Space oddity #2: The monthly GGR rise came to $35m and Penn National’s skin licenses, which include Penn Interactive, DraftKings and BetMGM, were responsible for 76% of the increase (c$27m).
  • Hold on to this: With some states still to report, Q1 hold currently stands at 9.8% vs. 9% in 2023 and “should provide a healthy tailwind” for quarterly GGR, added Deutsche Bank.
  • The analysts also confirmed that New Jersey and Illinois data reporting had been erroneous and that restatements should be forthcoming.
  • BetMGM’s sheer drop: Diving into operator numbers, Jefferies said February GGR was up +9% YoY for FanDuel, +48% for DraftKings but -36% for BetMGM, with the latter’s drop driven by Super Bowl losses in New York, “where BetMGM’s GGR fell -92% YoY on margins of just 0.4%”.
  • Leaders: FanDuel continues to be market share leader with 47%, followed by DraftKings with 36% and BetMGM with 5%. ESPN Bet was +1% MoM, “though GGR share remains low at 2%”, said Jefferies.
  • Data up to 10 March showed that handle was up 5% YoY and GGR +16%. Combining that data with January and February provides 80% coverage of Q1; and New York handle was up 12% and GGR +27%, with FanDuel GGR at +27%, DraftKings +49% and BetMGM at -30% due to the Super Bowl.
  • Jefferies said BetMGM’s +8% handle growth was “more encouraging and reflective of underlying performance”.
  • Parlay nugget: Parlay penetration in Maryland reached its highest level to date in February, added Jefferies, as parlays represented “49% of state handle but 82% of GGR” because of the “16.5% margin for parlays vs 3.4% for single bets”.
  • Superbad: The Super Bowl result however led to a -34% drop in GGR margins for NFL betting in February.
  • Promotional spend across “same-store states (PA/MI/CT/MD/KS)” was up 8% to $64m, which equated to 3.6% of handle, a 30 bps drop on the 3.9% ratio of handle of February 2023. February handle was up 20% YoY to $4.8bn and GGR was up nearly 13% to $360.5m (from NY, NJ, PA, MI, WV, IA, IN, TN), added Deutsche Bank.

Private jet in hangar

Shutterstock

VIP treatment 

The importance of VIPs was once again demonstrated in New Jersey, where Fanatics, operating under its PointsBet brand (January 2024, yellow column right of the visual below), recorded GGR of nearly $30m, some 17 times “its trailing three-month GGR and 2x its trailing 12-month GGR”, said Eilers & Krejcik Gaming.

  • The GGR figure was good for 17.5% share of the Garden State’s market. “In other words, the brand did two years of revenue in one month,” added Eilers & Krejcik Gaming.
  • Industry contacts said the growth was VIP-driven and Fanatics had recently ramped up its strategy to attract those high value players.
  • DraftKings did something similar in the third and fourth quarters of 2023 after it “nabbed some VIP business from FanDuel” and temporarily led the state in betting GGR.
  • According to the Wall Street Journal, PointsBet generated more than 70% of its revenue from 0.5% of customers during 2019 and 2020.
  • The figures match European trends, where 80% to 90% of operators’ revenues are generated by just 20%, 10%, or even fewer, of their players.

Eilers & Krejcik Gaming: Six months of New Jersey GGR

DraftKings sensing VIP blood

DraftKings-Fanatics relations were already bad following the latter’s PointsBet acquisition – and they look set to worsen. 

Staying on the topic of Fanatics and VIPs, Michael Hermalyn, who recently joined Fanatics as its new president for VIPs, last week said DraftKings’ suit against him relied on “unnecessary character assassination” and was done to “instil fear” in employees who might want to leave the company.

  • DraftKings is accusing Hermalyn of downloading details of high value players and has urged a federal judge in Boston to issue a preliminary injunction that would prevent him from working for Fanatics.
  • As part of his efforts to block the motion, Hermalyn said DraftKings was trying to make an example out of him and that 186 DraftKings employees had applied to work for Fanatics since 2021.
  • He added that trying to take customers away from DraftKings was pointless since most regular bettors have an average of 2.9 accounts they bet with.

On social 

Shutterstock

Results round up: Flutter, Sportradar, Gambling.com

FanDuel sitting pretty in the U.S. 

Fair maiden: FanDuel parent company Flutter Entertainment’s maiden results as a New York-listed company showed that its U.S. revenues were up 41% in 2023 to nearly $4.5bn and adjusted EBITDA came in at $167m compared with a loss of $263m in 2022.

  • Having raised its medium-term leverage target of 2x-2.5x debt to EBITDA from the previous range of 1x-2x, CEO Peter Jackson said the additional access to debt would allow it to take advantage of “value-creating acquisition opportunities”, notably outside the U.S.
  • Small is beautiful: Jackson said that in the U.S. Flutter had “agreed a small capability to support our leadership in igaming” and “will use it tactically” if needed.
  • He added that the business was “very pleased with the [U.S. acquisition] volumes” it is generating currently and said its 2024 U.S. revenues will come in at $5.8bn-$6.2bn and adjusted EBITDA will be between $635m and $785m. Current Q1 trading was up 56%, with sportsbook up 64% and icasino up 50%.
  • Group-wide revenues were up 25% to $11.8bn and adjusted EBITDA was up 45% at $1.9bn. UK and Ireland (UKI) revenue rose nearly 14% to $3bn, Australia was down 2.8% at $1.4bn and international revenues were up 34% to $2.8bn. Adjusted EBITDA for UKI was up 16% to $911m, Australia was down 23% to $356m and international rose 42% to $627m.

Sportradar’s “business as usual” 

As the betting data provider’s revenues climbed 20% YoY to €878m and adjusted EBITDA rose 33% to €167m in 2023, the group said it was confident it would maintain margin targets of more than 20%.

  • CFO Gerard Griffin commented that “the largest element of that growth is coming from what we call business as usual” such as “contractual increases year on year [and] market growth”.
  • Operating profits jumped 230% to €35m in 2023 and Q4 revenues were up 22% to €253m. The company has €497m on the balance sheet, which includes a €220m revolving credit facility.
  • Commenting on the U.S., CEO Carston Koerl said he expects Sportradar “to outperform the market growth” and that soon-to-be-regulated Brazil “is a priority [because] it’s a very scalable and sizeable opportunity. And it’s an opportunity which is driven by soccer. It’s a focused area for us”.

Gambling.com set for ramp

Affiliate group Gambling.com’s Q4 revenues were up 52% to $32.5m (45% cc) and adjusted EBITDA was up 54% to $10.6m (+47% cc), but the Truist team noted that the group’s adjusted EBITDA margins of 32% were “-300 bps/-310 bps less favorable than we/Street had modeled”.

  • Gambling.com’s cash flow of “-$0.1m missed our estimate of $10.4m”, Truist added, due to “a greater cost of sales from media partnerships (~50/50 splits) and higher capex of ~$6.4m” linked to European domains acquired in Q4.
  • Jefferies added that the North Carolina launch will continue to be positive as Gambling.com recorded organic revenue growth of 103% in North America and new depositing customers were up 94% YoY to nearly 160,000.
  • The company also acquired Freebets.com for c$40m during the period which it expects will add $10m in revenues and $5m of adjusted EBITDA.
  • Macquarie said the group will focus “on fewer (but) bigger media partners to drive higher market share” and “with only ~50% of North America live” with regulated online betting and just 11% with the much more lucrative igaming, “we think the Gambling.com growth story is still in the very early innings.”

DraftKings to focus on live difference

Group will develop live offering as a way to boost product differentiation to U.S. bettors.

In-play to boost margins: DraftKings is set to focus its resources on developing its in-play betting product in the near term as a way to boost its margins as its leadership team told JMP analysts that it was “confident in its ability to improve gaming margins to be more in line with FanDuel”.

  • DraftKings CEO Jason Robins, the group’s senior director of finance Michael DeLalio and its VP of investor relations Joe DeCristofaro recently met with the JMP team to provide insights on its revenue and growth roadmap.
  • As the U.S. online sports betting industry matures, average margins have “seen a solid uptick to 9.5% from 6.5% in 2021 and 7.7% in 2022” as trading, product and risk management knowledge improved operators’ margins.
  • On the FanDuel trail: But, said JMP, that “trails FanDuel” and the 15.9% adjusted EBITDA margins it generated in 2023.

Spot the difference: JMP noted that product enhancements such as adding more legs to parlays would lead “to double-digit margins” in 2024, but that Robins considered in-play betting products to be “a differentiator”.

  • While this would be “a positive catalyst” for data suppliers like Sportradar and Genius Sports, JMP added that players would increase legs on pre-game parlays, “but [this would be] slightly offset by a lower margin in-play”.
  • Still, “the impact on revenue will be positive” as “players increase time on device, leading to higher average revenues per monthly user (ARPMU), reinvestment rates and lifetime values”.
  • DraftKings’ ability to provide the most product offerings would also be a way of hedging against “more volatile events and protecting margins”, as it did during the Super Bowl vs. mainly negative outcomes for peers.

Rush Street Interactive puts itself on M&A radar

iCasino-focused operator’s North and South American activities could attract numerous suitors.

Bloomberg reported that Rush Street Interactive was exploring “strategic options” that could lead to sale and that the group had approached a number of potential buyers which included DraftKings.

  • A DraftKings spokesperson commented that the group “speaks to a variety of companies regarding various matters in the normal course of business, and it is our general policy not to comment on the specifics of any of those discussions”. Rush Street Interactive is based in Chicago and has a market value of $1.4bn at the time of writing.
  • Its 2023 revenues were up 17% to $691m and it generates much of that income via its online casino activities, which could prove attractive to DraftKings as it seeks to increase revenues from that vertical.
  • JMP noted that DraftKings’ historic preference for “us[ing] equity in M&A” could cause “friction” with Rush Street Interactive shareholders and Caesars could see the group as “a strategic fit, allowing it to expand its igaming operations, a core focus”, with potential for cross-sell and a triple-branded approach of Caesars, PlaySugarHouse and BetRivers.
  • Hard Rock also has the balance sheet and its focus on U.S. igaming would also be a natural fit, along with Rush Street Interactive’s tech stack and exposure to Mexico, Colombia and potentially Brazil, where the Hard Rock Café brand could be used to cross-sell its other consumer brands, added JMP.

People moves 

IGT’s Marco Drago will leave the group on May 14 after finishing his term as a non-executive director. Drago will be replaced by his son Enrico, who will leave his role as CEO of IGT PlayDigital as part of the change. PlayDigital’s president of igaming Gil Rotem will see his role expanded.

Advertising and marketing agency The Tenth Man has appointed Gethin Evans as its new CEO with a focus on establishing a London office and team to develop the group’s client base in the UK. Evans joins from Spotlight Sports Group where he was CMO and has held senior roles at Paddy Power Betfair (Flutter Entertainment).

Catena Media has nominated Erik Flinck and Dan Castillo to be elected to the board of directors at its annual meeting. During the meeting, Göran Blomberg, Esther Teixeira-Boucher and Austin Malcomb declined to seek re-election. The other board members Øystein Engebretsen, Theodore Bergquist, Adam Krejcik and Sean Hurley were nominated for re-election.

Embattled Australian casino group Star Entertainment’s CEO Robbie Cooke and CFO Christina Katsibouba have stepped down from their positions.

News shorts 

Simplebet has unveiled “first-of-its-kind NHL micro-betting markets”. The markets are currently available on the Caesars Sportsbook and feature markets like ‘Next Goal Exact’, ‘Next Goal Strength’, ‘Next Power Play Results’.

Checkd Dev has expanded its Opta deal with Stats Perform to enable licensed operators to embed Checkd Dev’s Opta data-powered Smart Acca interactive betting tool into market pages for football and U.S. sports in their online and mobile sportsbooks.

Platform provider White Hat Studios is now live with Caesars Digital across four states after launching its games with the operator’s New Jersey online casino. The move follows the successful launch of the brand in West Virginia in February and joins Michigan and Pennsylvania as states where White Hat is active with Caesars.

On social 

See you in two weeks!