The Big Kick-off: Sports Gaming Ready To Rumble
The Big Kick-off: Sports Gaming Ready To Rumble
(William Hill reported strong online wagering on Germany’s Bundesliga professional soccer league)
Gauging by lines of customers waiting outside casinos hours before reopening in Idaho, Arizona, California and Louisiana, recovery in the gaming industry may be stronger than economists are forecasting.
Sports bettors are emerging from their COVID-19 doldrums, grabbing action on the first weekend of Germany’s Bundesliga professional soccer league, which was second in online wagering only to the UFC 249 card in Florida, William Hill reported.
DraftKings (DKNG), William Hill (WIMHY) and Score Media and Gaming (SCR.V) experienced a slight uptick in share prices in May as gamblers turned to online sports betting platforms during the coronavirus quarantine period.
William Hill (WIMHY) offered drive-thru locations at five Nevada casinos for customers to create a mobile sports betting account in advance of the May 9 UFC event. One bettor put down $105,000 on favorite Tony Ferguson, who lost to Justin Gaethie in the main event.
“Ahead of the largest sporting event of the month, we wanted a safe way to meet the current demand from our customers,” CEO Joe Asher said. “It sure is nice to have an American sport to bet on.”
The bigger question: How will bettors react to pro and college sports without fans in the stands? Most analysts agree that sports wagering will lag previous highs until the leagues allow the return of spectators.
Resuming play
MLB: Wants to launch a shortened 82-game season in July with health and safety protocols in place, though negotiations with the players union over salary reductions linger as a complicated point of contention.
NFL: Taking similar steps to start practicing in July, including coronavirus testing for players and staff, social distancing measures in locker rooms, training rooms and weight rooms, and sanitizing all equipment.
NBA: Chose Orlando, Fla., to resume the season in July.
NHL: Approved a 24-team, conference-based playoff for the Stanley Cup.
NCAA: Lifted its moratorium on athletic activities as of June, though fall sports will not return without students on campus, NCAA President Mark Emmert said.
Going mobile
The online betting trend is expected to continue as states look to bolster depleted budgets, and gaming tax revenue could be a lucrative source.
Prior to the pandemic pause, New Jersey surpassed Nevada for the first time in sports betting revenue with $320 million in March, compared with $305 million for Nevada, less than two years after the U.S. Supreme Court’s repeal of the Professional and Amateur Sports Protection Act. Pennsylvania was third with $108 million.
New Jersey collected $39.4 million in sports betting taxes in March, compared with $20.6 million for Nevada, which has the lowest gaming tax rate in the nation at 6.75 percent.
Historically, sports have shown healing power in the aftermath of a crisis, and momentum gained by the repeal of PASPA will only feed America’s fever for betting on the games.
“As states look to fill budget gaps, sports betting and online gaming will likely creep into the conversation,” Steven Gallaway, managing partner of Global Market Advisors, said in a May report. “For those states that already have legalized sports, an increase in the tax rate should not be seen as a solution to fill a budget gap. In a high volume, low margin business, this would only hinder an already pressured market.”
Reopening casinos
Gaming stocks have tumbled this year. Some are climbing back as the economy reopens in phases and coronavirus data trends decline.
Wynn Resorts (WYNN), MGM Resorts (MGM), Las Vegas Sands (LVS), Caesars Entertainment (CZR) , Boyd Gaming (BYD) and Red Rock Resort (RRR) laid out plans to reopen casinos in early June, but it’s up to the Nevada Gaming Control Board and Gov. Steve Sisolak to give them the green light. The board meets May 26, and casinos could open June 4 under the next phase of relaxed restrictions.
Caesars (CZR) announced on May 21 that it will resume gaming and hospitality operations at its flagship Caesars Palace and Flamingo hotel in Las Vegas on the day specified by state officials. Its stock rose 11 cents to $11.12 on May 22.
“Reopening Las Vegas in a phased approach will be a significant milestone for Caesars Entertainment as the country continues to emerge from this necessary closure period,” said Tony Rodio, CEO of Caesars Entertainment. “We are hopeful that the country’s continued progress in addressing COVID-19 and business conditions will allow us to reopen more of our properties and bring back more of our colleagues as it is appropriate to do so.”
It will not be business as usual. There will be no live entertainment, bar service, spas, buffets, or valet parking. When those amenities are restored, they will be operated in a manner consistent with physical distancing guidelines. Other Caesars properties and dining amenities are expected to reopen based on customer demand.
Boyd Gaming in May reopened three Louisiana properties (Delta Downs Racetrack and Casino, Evangeline Downs Racetrack and Casino and Treasure Chest Casino) and two Mississippi properties (IP Casino Resort in Biloxi and Sam’s Town Hotel and Gambling Hall in Tunica).
Stock performance updates and recent news:
Our proprietary sports gaming index has been on a tear since the March market lows led by Penn Gaming (PENN) +600%, Full House Resorts (FLL) +565% and Eldorado Resorts (ERI) +450%. In fact, many of the casino/resort stocks are within striking distance of their pre-COVID-19 highs and may be fairly valued for now. Moreover, the group may be vulnerable to the Wall Street maxim “sell on the news” as the reopening of Las Vegas looks imminent on June 4.
(Penn National Gaming)
Several sports gaming only plays may have further to run.
(Draft Kings)
Draftkings Inc, (DKNG) is the reigning” King of the Hill” in publicly traded pure sports gambling plays measured in terms of market capitalization and revenues and boasts a breathtaking valuation of nearly 100 times its trailing 12-month revenues .Q1 2020 revenue rose as its online sports betting business went live in more states and it saw strength in iGaming business, such as online blackjack and roulette. QTRLY REVENUE GREW 30%, DESPITE COVID-19. Management has issued 2021 guidance reiteration for $700 million of revenue, an increase of over 30% from FY2020 estimates and doesn’t expect an impact to FY2021 revenues due to COVID-19. DKNG is now up ~44% from opening price since company’s Nasdaq debut on Apr 24. DKNG Reported q1 rev& eps misses of approximately 19%, but got a COVID-19 pass. The Street’s mean price target is $32, up about 12% from current levels. We would wait for a pull back for a more attractive entry point.
William Hill (WIMHY), may look like the better value on the surface but WIMHY derives only 8% of revenue from the fertile US sports gaming markets. Top line revenue growth is a tepid 6%.
We urge management to consider a spinoff of its faster growing US division to enhance shareholder value. The Street analysts’ mean upside estimate is approximately 12%.
Score Media and Gaming Inc. (SCR.V) is a Canadian-based company that seeks to leverage its position in sports info applications and partnership to operate online sports gambling with Penn Gaming (Penn) to attain rapid growth.
Score Media was temporarily granted a sports wagering vendor license for Indiana. Receipt of this temporary license is the first step of a multi-stage regulatory approval and licensing process that must be satisfied before the company can offer wagering in Indiana. SCR.V secured market access to offer mobile sports betting in Indiana due to its alliance with Penn National Gaming (PENN) and anticipates launching theScore.Bet later this year.
Canadian banking firms have a price target of .93( cdn), approximately 50% above current levels. The company has disappointed on revenue growth over the last two consecutive quarters, missing estimates.
(Singular Research Sports Gaming index)
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