Caesars, Penn dimmed; Barstool fined; Card room zinged

Both Caesars Entertainment and Penn Entertainment lost traction yesterday on Wall Street after Bank of America analyst Shaun Kelley downgraded the casino giants. His primary concern was a potential downturn in gaming, due to larger macroeconomic issues, that has yet to manifest itself. Kelly reset his price target for CZR to $55 and PENN to $40. Presently, Caesars is trading at $48.30/share and Penn is languishing at $32.94. Noting that casinos were the largest “over-earners” compared to the pre-Covid economy, Kelley fretted that “unlike other areas in consumer discretionary [spending], estimates have not yet come down, leaving potential risk should the consumer soften.” Given the extensive regional exposure of both companies, should non-Las Vegas casinos weaken first (as history suggests they will), Penn and Caesars would have their butts hanging out in the breeze.

One of the reasons for flagging interest in Penn is its womanish attachment to Barstool Sports. Not only is the latter the subject of controversy, its relatively low market share (rarely more than 5%) is giving investors pause. “2023 is likely about refocusing & re-accelerating growth via Barstool’s media integration, the launch of its in-house technology stack, and minding a stable/cash-generative core business, albeit one with slow growth and meaningful operating leverage,” added Kelley. Investor skepticism extends to Penn’s decision to double down on Illinois, an at-best moderately grossing market and one that is seeing new competition headed swiftly down the pike. Also, the considerable upsizing of M Resort has not met with Wall Street favor.

Caesars got dinged for its failure to pull the trigger on a major asset sale. Kelley predicted that thusly it could take three years or longer “to reach leverage levels that make consistent shareholder returns possible,” adding, “Given competition, it’s unlikely we see online reach its margin potential in the next 1-2 years.” By contrast, J.P. Morgan analyst Joseph Greff forecast that Barstool would generate positive ROI next year and that Caesars Sportsbook would lose no more than $70 million in ROI, tops.

Barstool got Penn into trouble in Ohio before it could even launch online sports betting. The renegade media operation broadcast its Barstool College Football Show from the campus of the University of Toledo. That’s in contravention of a Buckeye State law that forbids marketing sports betting to college students. Penn will have to pay $250K to put out Barstool’s latest dumpster fire. You can’t gamble in Ohio if you’re under 21. “During the show, the commission said[,] Barstool advertised its sportsbook by promoting pre-registration with its own cash bonuses and with ‘mycash’ which could be used at Penn’s casinos,” reports the Akron Beacon-Journal. Whoops.

Penn is now going to have to give all its employees a crash course in the do’s and don’ts of Ohio sports betting and the promotion thereof. Penn did not indicate whether or not it intends to comply, hinting at an appeal. Meanwhile, illegal offshore gaming sites got one kick in the patootie when Ohio denied a license to PlayUp, citing its past, unlawful marketing to U.S. consumers. So much for that sports-betting partnership with Jack Cleveland. Do a better job of vetting your associates next time, Jack.

Although the language in the Indian Gaming Regulatory Act is pretty clear-cut as to where tribal gambling may or may not take place, a federal appeals court may resort to judicial activism to extend it into cyberspace. That’s what the Interior Department would like to see happen. “The district court’s contrary conclusion was based on an error of law, although admittedly a relatively narrow one,” Interior attorney Rachel Heron argued lamely, in response to lower-court Judge Dabney Friedrich‘s ruling that the Seminole Tribe‘s latest compact rested upon a “fiction”: namely, that i-gaming anywhere in the state was legal so long as the servers were on tribal land.

The Seminoles, for their part, have airily contended that they’re above mere laws, thanks to sovereign immunity. It might work, too. Skeptic and gaming-law attorney Daniel Wallach appears to think the appellate court is leaning in the tribe’s favor. It seems pretty dodgy to us, especially since Secretary of the Interior Deb Haaland gave the compact a wide berth by letting it go into law without her signature. But screwy gambling-related rulings have coming out of the courts lately, so why should this one be any saner?

Another day, another California card room scandal. This one, happily, was resolved in favor of the player. A newbie poker pro, Robbie Jade Lew, beat a more seasoned one with an unconventional play at Hustler Casino, in Gardena. The outcome, streamed live on YouTube, resulted in conspiracy theories galore. An investigation into the brouhaha was so extensive it even involved dismantling the poker table itself to find out whether its RFID systems had been compromised. In the end, Lew was not exactly vindicated. “That does not mean that no wrongdoing occurred,” concluded High Stakes Poker Productions. “It means that the investigation failed to find credible evidence.” And as Donald Rumsfeld once said, absence of evidence is not evidence of absence.

However, we’re inclined to give Lew the benefit of the doubt, although the specter of collusion presented itself when it was revealed she was staked by pro Jacob “Rip” Chavez. But if amateur sleuths offered $250K to find evidence couldn’t come up with any and neither could High Stakes, Lew was probably playing on the square. However, a cybersecurity company did find that Hustler’s live stream was vulnerable to potential manipulation. Compromised oversight at a Cali card room? Say not so! Yes, Virginia, card info “could be seen by anyone in the production room just by turning their head.” Heightened security measures are being belatedly put into place by High Stakes and Hustler, the latter of whom may have had a vested interest in seeing the jackpot overturned. After all, it pays loser Garrett Adelstein to promote the card room and has welcomed him back onto the show. Nothing to see here, keep moving.