A Wall Street firm’s summer conference this week, in which analysts met with 20 gaming and leisure companies, painted a positive outlook for Las Vegas through the Super Bowl in February, with no signs of consumer weakness and optimism for the Oakland A’s looming relocation to the Strip on the Tropicana site.
The Jefferies Nantucket Consumer Conference hosted the annual event that featured PENN Entertainment, Bally’s Corp., Caesars Entertainment, Churchill Downs, Gaming and Leisure Properties, DraftKings, Rush Street Interactive, Gambling.com Group, VICI Properties, IGT, Light & Wonder, and Everi. The conference also highlighted growth in digital gaming.
“Broadly speaking, management teams projected confidence in near-term business trends with no evidence of consumer weakness,” equity analyst David Katz said in a note to investors. “Among the most prominent aspects of our discussions, the fundamental strength across Las Vegas and digital gaming is notable, with more mixed specific dynamics in regional gaming.”
Katz highlighted the “nascent growth” in digital gaming, Churchill Downs’s opportunities in regional markets, and the mergers-and-acquisitions landscape, particularly for IGT, Everi, and Light & Wonder.
Katz said Jefferies favors gains in the gaming stocks of DraftKings, Churchill Downs, Caesars, and VICI.
As for Las Vegas, Katz cited growth opportunities for Caesars, along with Bally’s, which has an agreement in place for the Oakland A’s $1.5 billion domed stadium. Bally’s is focused on putting forth a clearer set of strategies, including operating and capital plans, and Katz mentioned a range of options for the redevelopment of the Tropicana.
GLPI, the Tropicana’s landlord, has signed off on the deal and A’s have secured $380 million in funding from Nevada and Clark County for stadium development.
“(GLPI) management continues to express excitement over the prospective Oakland A’s agreement with Bally’s that should bring forth attractive investment opportunities,” Katz said.
GLPI is more focused on development and redevelopment as large-scale mergers and acquisitions prove to be challenging due to a tougher financing environment in the near term.
“Management noted some moderation of the spread on variable loans that should become an earnings tailwind in the future, with $400 million in maturity coming up next year,” Katz said.
Outside of Las Vegas, Bally’s temporary casino in Chicago “is progressing well” for a late August or early September opening. Its Gamesys business continues to perform and grow, Katz added.
With Caesars, Katz noted that “the runway for Las Vegas is extremely positive through Super Bowl 2024.” He said that 75% of rooms at Caesars Palace are booked at $750 to $2,000 a night. The segment should be $500 million of EBITDA a quarter going forward.
Caesars’s regional business is solid, but more mixed, with competitive pressure in Council Bluffs, Iowa, Chicagoland, and Tunica, Mississippi, with an upside from Danville in northern California and Lake Charles in Louisiana, according to Katz. Longer term, the addition of a New Orleans hotel and capital expenditures of $470 million should add $75 million to $80 million of EBITDA.
Caesars’s digital business should continue to progress, with new product launches for igaming in July and a single wallet across states, with Nevada transitioning to its Liberty platform app.
PENN National’s regional business comps in May and June are “still somewhat irregular,” with 2019 as the appropriate comparison, Katz said. There’s competition at its Black Hawk and Council Bluffs properties. PENN’s digital plan remains on track and the U.S roll-out of Score tech/product should drive margin growth. There’s ongoing dialogue with (controversial) Barstool Sports founder Dave Portnoy on the future, but Katz said considerable content is driven by other suppliers.
“The media business is still driving growth investment, although public-market credit is not recognized and could alter the strategy as such.”
Churchill Downs’s corporate focus is on horse health after suspending its track operations through July 3. Company executives are comfortable that the surface isn’t the cause and surveillance and testing have increased. Since it’s now at the end of the spring/summer meet, it has a modest impact on earnings.
Churchill Downs in partnership with Urban One announced June 14 a host agreement with the city of Richmond a casino-resort. Katz called the opportunity “compelling” and management is optimistic about a referendum in November. The partnership is expected to develop a $562 million facility.
“DraftKings sees an opportunity in a potential acquisition of PointsBet and could drive “considerable synergies should it work out,” Katz said. Management has an offer in mind that embodies “a disciplined value add.”
DraftKings’s bid to acquire the U.S. segment of PointsBet is for $195 million and exceeds the $150 million offer accepted from Fanatics. Katz expects further bidding from Fanatics, which had been relying on the acquisition to jump-start its sports betting capabilities in the U.S.
DraftKings has product-improvement upside that should drive margin expansion. Katz cited social engagement, bet slip experience, and cash-out opportunities as notable with a parlay product.
Rush Street Interactive continues to focus on igaming, about 75% of revenue, with incremental opportunities for new markets in Latin American and the U.S., Katz said.
A process in Connecticut to replace Rush Street’s operations should be down to final candidates, which will remove losses in the near term, Katz said.
“Our impression is that management is taking note of the recent M&A activity and maintains a realistic perspective,” Katz said.
Without getting into specifics, Katz said VICI continues its relationship building and educational dialogue around sports facilities and sees potential opportunities at universities and training facilities. The key issue in underwriting remains value proposition and economic viability. “It intends to keep its loan book relatively small, with strategic priority on locking in partnership that will lead to real estate ownership.”
In assessing gaming-technology companies, Katz said Everi has a flow of new products in the for-sale and recurring-model categories and is progressing toward a release during the Global Gaming Expo in Las Vegas in October, “with expected positive impacts on trends.”
Everi announced this week that it has been selected by the Inter Miami soccer club, which has acquired the rights to soccer star Messi, for their fan-engagement mobile strategy using Everi’s Venuetize platform.
Light & Wonder repositioned its gaming ops and refocused resources, Katz said. It’s gaining share in Australia, which is a leading indicator, and cited new game designers joining from competitors and products hitting the market now.
Digital-gaming drivers are gaining traction and it’s cross-selling content from land-based. Its Authentic live dealer goes live in the next couple of quarters, Katz said. Guidance for 2025 embeds high growth from the digital business.
Katz’s impression of IGT is that management is committed to the exploration process for the gaming business, and alternatives are worth considering on a global scale. Gaming has been a share gainer in the for-sale category and a share donor in participation, he said.
Gambling.com Group remains optimistic over continued progress in the U.S. market, which currently accounts for 53% of its revenues. The European business continues to steadily grow as well, Katz said.