Author: David Mckee

Rather than face (well-deserved) impeachment, New York State Gov. Andrew Cuomo (D) resigned in disgrace today. Which happened to coincide with the disclosure of the companies which have applied to be online sports betting provider(s) for the Empire State. Cuomo’s not-a-moment-t00-soon departure means that the contenders can hope not to be shaken down or chosen on the basis of how usuriously they are willing to be taxed (isn’t that tantamount to bribe solicitation, guv?). And Cuomo’s obvious favorite, DraftKings, now faces a level playing field. At least that is our hope. The finalists will be Bet365, Penn National Gaming/Kambi, FanDuel/BetMGM/DraftKings, TSG/FoxBet, TheScore and a jumbled combination of Kambi/Caesars Entertainment/Resorts World/PointsBet/WynnBet/Rush Street Interactive. DraftKings still has a very good chance of getting one of the plums, if for no other than reason than it’s riding the coattails of MGM and favorite son Empire City Yonkers. The second Kambi combination platter also has an edge since it contains two other New York brick-and-mortar operators, Rush Street and Resorts World.

“We expect to learn of the winning consortiums, and we believe two will be chosen, in the next 4-6 weeks. Based on the criteria put forth in the RFA, we believe there are obvious front runners from the list, and those for whom the prospects appear dim, based on their track records relative to the RFA selection criteria. That said, it’s New York and anything can happen,” wrote Carlo Santarelli of Deutsche Bank. Yes, anything can happen. Just ask Andrew Cuomo.

We Americans sure do love us some gambling. Maryland‘s July numbers just came in and it’s 20.5% (!) ahead of 2019. Casinos won $180 million and two extra weekend days obviously helped the tally. MGM National Harbor led with $72 million (+19%), outpacing Deutsche Bank analyst Carlo Santarelli‘s $64.5 million forecast. Maryland Live locked up a 35% market share and $63 million in winnings, up 28%. Penn National Gaming was just in time in reacquiring Hollywood Perryville on July 1, $9 million gross was a 34.5% improvement on two years ago. Ocean Downs leapt 28% to $10.5 million and Rocky Gap Resort‘s $6 million was a 22% gain. And in what has to be a triumph for Horseshoe Baltimore, it was flat with 2019, grossing $19 million. So there’s some hope for it yet. West Virginia casinos nudged 5% above 2019 numbers, driven by a 34% increase in table win. Hollywood Charles Town was up 7%, 1% higher at the slots and vaulting 42% at the tables.

Penn had Wall Street analysts eating out its hand after the latest earnings call. “Memes [and] grandiose proclamations run wild” wrote Santarelli. “Well, this one was interesting. Between the call commentary, 95% of which was focused on a business that, as we have said for some time, will likely never amount to more than 20% of total Company [cash flow], if it is wildly successful, the social media promotion that began immediately, and the post call livestream ‘pumpapalooza’, PENN threw all it had at the retail investment community to promote a transaction, which, in our view, speaks to exactly what we have been saying for some time, the sports, and especially iCasino, strategies aren’t working.” You see, Penn used the quarterly earnings announcement to hype its acquisition of OSB provider TheScore. “We get that PENN needed a tech stack, but buying a media Company for a tech stack, knowing the challenges peers have had buying tech companies with sports betting tech stacks, seems a bit strange, and frankly, risky. We also get that buying a Canada based company, which has billed itself as a presumptive leader in provincial sports betting, once legalized, seemingly makes sense, but if we have learned any lessons from the US market, the willingness to spend and lose is the path to market share gains, more so than media presence.”

In a deal that Nevada regulators would block if they had an ounce of spine, MGM Growth Properties proposes to sell itself to Vici Properties, which would put nearly all the prime land on the Las Vegas Strip under one owner. Vici already owns most Caesars-branded properties on the Strip and is on the verge of adding The Venetian and Palazzo. It was, as Deutsche Bank analyst Carlo Santarelli put it with delicious understatement, “a deal with far-reaching implications.” The price tag is a whopping $17.2 billion, paid in a mix of cash and stock. Of that, $5.7 billion is debt already carried by MGP. Adds Santarelli, “the true driver of M&A in the [REIT] sector was cost of capital, and with VICI having traded at a healthy equity premium to the group for some time, with access to inexpensive debt financing, the transaction makes both intuitive and financial sense.” Still, $17.2 billion is a not-inconsiderable amount of debt, however low your interest payments may be (3.75% in this case).

“In 2016 we started on our journey to become asset light and this announcement, together with our recently announced Springfield and CityCenter transactions, reflects the culmination of those efforts and a major step forward in simplifying our corporate structure,” said CEO Bill Hornbuckle. “As a result of these actions, we are well positioned and remain focused on pursuing growth opportunities in our core business, with significant financial flexibility to continue to deploy capital to maximize shareholder value.” In a goodbye note to MGM, MGP Chairman Paul Salem wrote, “We are thankful to the MGP management team for all of their efforts to develop MGP into a premier gaming REIT.” “We have always admired the exceptional quality of MGP’s real estate portfolio,” added Vici CEO Ed Pitoniak, unable to conceal his glee.

Mincing few words, MGM Resorts International CEO Bill Hornbuckle sent a letter to all employees, urging them to quit dithering and get their Covid-19 vaccinations, if they haven’t already. He pleaded, “In addition to the heart-wrenching thought of more illness and death, I fear that progressively more restrictive measures, including a return to social distancing and capacity restrictions, could be around the corner if we continue on this path. This would be a significant blow to our community, industry, and economy.” Clark County‘s current vaccination rate currently stands as a dismal 44%. The county is reliably “blue” territory, so this crisis goes beyond political chumming of the anti-vaxxer waters. Playing to his audience’s wallets, Hornbuckle warned that, as Las Vegas‘ health goes, so does its economy. If Coronavirus worsens and scares tourists away, furloughs and layoffs could follow. He wrote, “After the pain endured by so many these past 16 months–and the tremendous progress made in 2021–I can think of no more damaging scenario for us as a community.”

We think that Hornbuckle and others in like positions in Big Gaming are stopping one step short and need to mandate vaccination for their workers. If little outfits like Google, Facebook, Twitter, Netflix, Lyft, Morgan Stanley, Saks Fifth Avenue, The Washington Post, Ascension Health and BlackRock can do it, MGM can. We know you’re feeling cabin fever and ‘pandemic fatigue’ out there, America. We feel your pain. It would be great if events ran in a bright, linear fashion. But this is a war, a once-in-a-century calamity and, had we been so easily discouraged in the 1940s, the Axis powers would have won World War II (gladdening the heart of Imperial Palace founder Ralph Engelstad).

“Massive beat” and “exceptional” results were some of the terms being bandied about after yesterday’s Boyd Gaming 2Q21 earnings call. Wall Street expected $803 million in revenue and Boyd delivered $896.5 million, while profit margins at its Las Vegas locals casinos rose all but exponentially over 2019. “We believe this acceleration is likely to surprise investors,” wrote Deutsche Bank analyst Carlo Santarelli, adding that Boyd executives thought their performance targets had been too conservative. They also gave a hint about 3Q21, saying that June’s strength was (no surprise) carrying over into July. “While investors are sure to question the sustainability of margins going forward, as any right minded individual would, especially after this quarters [sic] performance, we continue to believe there is support in the thesis for the likes of” Station Casinos, Golden Entertainment and Boyd. Leadership, JP Morgan analyst Joseph Greff wrote, “notes that the 2Q21 undoubtedly benefitted from government stimulus and unemployment insurance padding consumer spend, but also strong demand from its core customer.

“While labor shortage is an issue, we don’t think elevated labor costs going forward will pierce margin gains in a significant way which poses risks to our new forecasts,” Greff continued. He liked a business plan “predominantly focused on a drive-to, leisure gaming customer. We think our estimates are reasonably based, with a steady return of its older demographic.”