Gambling revenues in Atlantic City defied the cold last month, surging 15% to $212 million. Borgata, naturally, led the market with $58.5 million, a 20.5% vault. Next up was Hard Rock Atlantic City with $36 million, a 3.5% nudge, followed by Ocean Casino Resort‘s $30.5 million, a moonshot of 26.5%. The Caesars Entertainment threesome all gained–indeed, nobody in town was revenue-negative. Harrah’s Resort was up front with $20 million, a 16% gain. Then came Caesars Atlantic City with $17 million, up 5%, and Tropicana Atlantic City‘s $16 million, a 12% jump. The remaining three were all bunched at the rear, with Bally’s Atlantic City doing $11.5 million (a 31.5% catapult … management must be finally gaining traction), and Golden Nugget and Resorts Atlantic City fighting for last place with $11 million (+5.5% and +20% respectively). All in all, a very encouraging report.
Internet casinos gained 11% to hit $153 million. DraftKings was well in front with $56.5 million, followed by BetMGM ($41 million), and also-rans FanDuel ($16 million) and Caesars ($14.5 million). Sports betting fell sharply, thanks no doubt to New York State, with handle of $1.1 billion boiling down to revenue of $72 million (a 20% improvement at that level), despite low hold. FanDuel was out front with $43 million, trailed by DraftKings ($12 million), BetMGM ($7 million), Caesars Sportsbook ($2 million) and Barstool Sports ($1.5 million). BallyBet claims to be making Garden State inroads but wasn’t a blip on the radar.
Louisiana casino revenues looked better last month but that was a mirage. Subtract brand-new Horseshoe Lake Charles and a 2.5% gain turns into a 3% decline. Foot traffic was 6.5% higher by but consumers curtailed spending by 4%. There was also one less weekend day. Even so, the best spin one can put on the numbers is to call them a wash. Sports betting generated $36 million on high hold (13%) and handle of $282 million. Despite its novelty factor, the new Horsehoe only engendered $10 million, last in the Lake Charles market. Delta Downs outperformed it with $13 million (+4%), although the big boys took a haircut. Golden Nugget was flat at $26 million and L’Auberge du Lac ceded 7% to a still-market-leading $28 million.
Turning to New Orleans, the main beneficiary of January was Harrah’s New Orleans, up 13.% to $20 million. Boomtown New Orleans did $10 million (-15.5%) while construction-disrupted Treasure Chest fell 16% to $7 million. Fair Grounds racino nudged 1.5% upwards to $3.5 million. Amelia Belle sank 21% to $2.5 million and Evangeline Downs was flat at $6 million. (It wasn’t a bad month for the racinos.) Belle of Baton Rouge, upriver, finally gained some market share, up 4% to $1 million. Hollywood Baton Rouge dropped 11% to $4 million and L’Auberge Baton Rouge slumped 11% to a still-robust $15 million.
Which leaves Shreveport/Bossier City. That market was handily led by reigning champ Margaritaville, up 1.5% to $17 million. Horseshoe Bossier City fell 11% back to $12 million. Just when we thought smokeless Sam’s Town had hit bottom, it slid -9% to $3 million, while equally smoke-free Bally’s Shreveport shot up 15% to $9.5 million. Also-rans were Boomtown Bossier ($4 million, +12%) and Louisiana Downs (-4%, $3 million).
When expectations (and share prices) are as low as they’ve been for DraftKings, any improvement is bound to look dramatic. Such was the case when DKNG reported better-than-anticipated 4Q22 results. Whereas Wall Street was looking toward net revenues of $799 million, DraftKings delivered $855 million. Negative ROI, despite $75 million in Maryland and Ohio launch costs, was only $50 million, not the expected $110 million. In an immediate reaction to the data, J.P. Morgan analyst Joseph Greff concluded that DraftKings is “emerging as a more rational OSB/iGaming operator, not dissimilar from its peers.” He also found it to be becoming more efficient in its promotional outlays. In mature markets, marketing was down (-15%) and revenue way up (+50%). Monthly unique players were up 31% to $2.5 million and the spend by the average on was 42% higher: $109.
Extrapolating from these numbers, DKNG believes it will end the year with $700 million cash on hand and finally hit positive ROI sometime next year. The company predicts that 2023 will bring as much as $3 billion in revenue and $350 million-$475 million in negative ROI. Deutsche Bank analyst (and longtime OSB skeptic) Carlo Santarelli was less impressed than Greff, dismissing the beat as “largely as expected.” He was somewhat scornful of the “structural hold improvements” (which “we guess weren’t previously contemplated?”) and wrote off $10 million of the beat to sheer luck. He also acidly noted a $20 million loss related to the Maryland launch.
Following the formal earnings call, Greff refined his thesis, projecting a $328 million loss of ROI this year, turning $125 million positive by December. He predicted positive investment returns of $207 million next year and $519 million in 2025: “We embrace management’s incremental pivot on reducing fixed costs and engaging in more efficient promotional behavior; management deserves credit for recognizing the need to do this as well as tying its go-forward incentive compensation to EBITDA targets, not just revenue ones.” (Although he raised his price target from $12/share to $16, that was still below where DKNG was trading at the moment.)
While happy with DraftKings, Greff noted that there were better risk/reward scenarios in the OSB universe, particularly MGM Resorts International, Caesars and Boyd Gaming. Still, DraftKings is profitable in 11 states at present, has 11% i-casino market share in the U.S. and 40% Internet gambling/sports betting share in Ontario. In home-state Massachusetts and in Puerto Rico, DKNG is on the verge of launching. By comparison, Santarelli asked, “Tons of volatility both ways. What has really changed?” Moving his price target to $15/share, he clarified, “the near term momentum is favorable for DKNG, with broader market risk tolerance likely posing the greatest risk to shares at present.”
Of next year’s negative ROI, he wrote, “this is still likely to be the largest loss amongst the Digital gaming players of scale. For reference, DKNG, at the midpoint of their respective net revenue guidance ranges, will generate ~$1.05 bn more net revenue than BetMGM in 2023. Despite the stronger net revenue, DKNG is guiding to an adjusted EBITDA loss of $400 mm in 2023, while BetMGM is guiding to an adjusted EBITDA loss that is less than $150 mm.”
He added that while BetMGM was probably getting hammered on the OSB front, positive returns from i-gaming were softening the blow. Also, the BetMGM’s exposure to i-casinos was superior to DraftKings’. “We believe this furthers our view that investors aren’t recognizing the vast differences in the margin profiles of iCasino and OSB, and just how deep the OSB losses are for most, at present.”
All that being said, our Christmas wish for DraftKings (if you recall) was “A business plan.” It looks like they finally got one.