Sports Betting Future
US Sports Gaming Industry Ready To Roll. Century Casinos, Inc (CNTY) & Draft Kings Inc (DKNG) Well Positioned For Growth
The 44-story Circa Las Vegas hotel and casino, scheduled to open in October, overlooks the Golden Gate casino.
“Play ball!”
Sports bettors and fans across America have been anxiously waiting four months to hear those two hallowed words.
So has Derek Stevens, chief executive officer of Las Vegas-based Circa Sports, who plans to open the $1 billion, 777-room Circa Las Vegas hotel and casino in October, featuring a three-story, state-of-the-art sports book.
It’ll be the best “seat-for-seat, pixel-for-pixel” sports book not only in Las Vegas, rivaling Westgate and Caesars Palace, but best in the world, Stevens confidently asserts during a recent interview at The D, his namesake hotel and casino formerly known as Fitzgerald’s.
Stevens has no fear of losing revenue to online sports betting, which is legal in 18 states following the U.S. Supreme Court’s 2018 decision to overturn the Professional and Amateur Sports Protection Act (PASPA), with legislation pending in eight other states.
Circa Sports CEO Derek Stevens
It shows America’s growing acceptance of sports gambling. Stevens jumped on the train in February when Circa Sports partnered with Century Casinos to launch a mobile sports betting app in Colorado.
Century Casinos Inc. (CNTY) is rated strong buy by one broker and buy by four brokers, with an average price target of $7.75. If this proves correct, Century stock provides upside potential of over 88% from Friday's close of $4.12. On comparative valuation metrics, CNTY trades at a significant discount to its casino industry competitors, trading at 25% discount to book value and 67% discount to the group. On a prices/sales basis, CNTY trades at approximate 60% discount. To shore up its balance sheet and secure growth capital, the company files a $100 million shelf offering.
“Before the Supreme Court ruling, I was asked about other states,” says Stevens, the Detroit native who unabashedly gambles on sports himself. “Will it hurt Las Vegas or not? I’ve always said it’ll be good for Las Vegas. It just grows the size of the pie.”
People who bet sports in their home state are going to eventually come to Las Vegas, he believes. “For all reasons, Vegas is Vegas, and the sports book is part of it,” he says.
Football fever
While many states saw growth in sports betting revenue before the COVID-19 pandemic shut down the economy, including live sporting events, the handle – or amount wagered – dropped off a cliff when bettors were limited to obscure sports such as Ukrainian table tennis, German soccer and a few UFC fights.
Along with MLB starting its 60-game season on July 23, the NBA, WNBA and NHL are resuming play in “bubble” environments, and the NFL is set to play in September, though fan attendance remains a question. College football is also in limbo.
Even with no fans or limited attendance, the popularity of the NFL and other pro sports will boost betting, says Michael Gaughan, owner of South Point hotel and casino in Las Vegas.
“Remember, football is still No. 1 in sports handle,” Gaughan notes.
“The main unknown is how many games will be played. California has banned all football in the state. The Rams and the Chargers will play in Las Vegas and Phoenix and the 49ers will (play) in Seattle. Also, the players union is another wild card.”
If all the games are played, it will be a “banner year for sports,” the longtime Las Vegas gaming executive believes. Everything changes if the season is curtailed due to different state regulations or player union demands.
Favorable laws
California ran into tribal opposition that killed sports betting legislation in June, but eight other jurisdictions are in the process of legalizing sports betting, including North Carolina, which is tribal; Tennessee and Washington, D.C., which have regulations in place; Washington, Virginia and Puerto Rico, which are currently in the regulatory phase; and South Dakota and Maryland, where sports betting will be on the ballot in November.
Circa CEO Stevens would consider expanding his sports betting app into other markets, but only if the regulatory environment is favorable. Some states such as Illinois and Montana have introduced sports betting legislation in a manner that is “not as inviting” as others, he says.
Illinois, for example, sets a money line of minus-125 each way, meaning bettors must wager $1.25 to win $1.00 no matter which side they bet, whereas Las Vegas is minus-110, sometimes minus-105 in promotions.
“Look at New Jersey, all the markets have been blown away. We expect the same thing in Colorado,” Stevens says.
California took a step back, but most gaming analysts and operators still see a wide-open window of opportunity following the PASPA ruling.
South Point’s Gaughan offers no opinion on California, potentially the richest pot for sports betting with a projected $1.5 billion in total revenue generated and $195 million in taxes. Officials there have been talking about it for three years.
One company that felt the brunt of the California delay was Draft Kings (DKNG). The stock was trading in the low $40s prior to the announcement and sold off sharply to a low of $29.50 in the wake of the legislative delay. Still, with the re-opening of most major sports around the world, Wall Street analysts are forecasting strong growth ahead, seeing revenues doubling over the next 2 ½ years, increasing from $497 million to over $1 billion by year end 2022. This possibility is not lost to investors with DKNG sporting a market cap nearly double the value of MGM Resorts (MGM) and Wynn International (WYNN). Twelve analysts cover the stock, with four strong buys, six buys and two hold ratings. The “street” estimates a price target of $47 for DKNG providing over 25% upside potential. The company recently secured financing its growth plans with a $1.6 billion equity sale with approximately $600 million representing new equity issuance.
Other issues with legalized sports betting must be resolved.
“As of this moment in Congress, there are people trying to outlaw betting on collegiate sports,” Gaughan says. “Between different states with different regulations and different taxes, and some of the leagues wanting a piece of the action and some of the states wanting to give it to them, I see nothing happening soon.
“Always remember, sports betting is not a lottery. It is a very low marginal business. You have to win the money. There are no guarantees. Most states don’t understand this,” he says.
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