DraftKings’ mixed results; Penn waxes, Iowa wanes

DraftKings exceeded analysts’ expectations with its 1Q21 revenues, leading Credit Suisse‘s Ben Chaiken to boost his 2021 revenue projection by $100 million, to $1.1 billion, in part “reflecting strength in new states such as Michigan.” Wall Street anticipated $239 million in first-quarter revenue and DKNG delivered $312 million but posted a return-on-investment loss of $139 million. Recent launches in Virginia and Michigan (and maturing markets elsewhere, no doubt) drove revenues up 175% year/year. JP Morgan analyst Joseph Greff exercised caution when looking ahead, projecting $226 million in second-quarter revenue and a cash-flow loss of $116 million. As ever, DraftKings’ pot of gold remains somewhere at the end of the rainbow. A pullback in the share price to $49.50 from the $70s seems to echo that view, with Greff writing that “we think the risk-reward is getting more interesting. However given its valuation versus peers, we’d wait for lower levels and/or more confidence in its path to profitability before becoming more positive on the name.”

Still, he lauded DKNG’s product, execution and likelihood of promising new markets, politics willing. Those 1Q21 numbers were buoyed by launches, in quick succession, in Michigan (Jan. 22) and Virginia (Jan. 24), bringing DraftKings’ presence to 12 states nationwide with 25% of the U.S. population. It lags somewhat in i-gaming, being in only four states currently. It also faces a hurdle to growth in Illinois now that Gov. J.B. Pritzker (D) has reinstated the in-person registration mandate. According to Greff, management’s guidance “assumes all professional/college sports calendars that have been announced come to fruition, but does not incorporate the potential launch of sports betting in Wyoming, Arizona, and New York.” Gross profit was way up from 1Q20, from $45 million to $129 million. So too, however, was the cost of acquiring revenue, caroming from $68.5 million to $183 million. DraftKings is the biggest dog on the block but it’s not exactly a risk-free pooch.

Penn National Gaming stock dipped 10% despite a strong first-quarter report. Chaiken downplayed the significance of this movement, writing that “we don’t think anything learned today suggests that street numbers should come down in either OSB or land based, in fact we raised our land based [cash flow] on better trends into April and better margin flow through than we were expecting.” He acknowledged “building sentiment” that Penn is maxed out at 12%-15% of U.S. gaming market share. But he thinks that i-gaming will change that, noting that Barstool Sports‘ Internet-gambling arm had debuted in Pennsylvania this week. This likely means that Penn can market i-gaming to its 20 million loyalty-club members, who weren’t a prime tranche for sports betting, “but once in the ecosystem should generate cross play into the OSB segment.”

Chaiken also believes Penn can start ramping up its marketing expenditures, spurning TV and other traditional methods in favor of direct engagement (“targeted player incentives”). For the sake of its players, let’s hope Penn is listening. As for terrestrial gambling, Chaiken called it “robust,” 8% higher in March and April that it was in the palmy days of 2019, with cash flow 29% bigger. “The takeaway here is that margin expansion was not just on a fraction of revenue, but seemingly the whole pie.” So the watchword at Penn will continue to be, “Thrift, Horatio!”

Also reporting 1Q21 numbers this week was Golden Entertainment and, while 2019 comparisons are not available, its first-quarter performance stacks up impressively against 2020, especially when the mid-March Great Shutdown is taken into account. Only the Nevada casinos suffered, posted $1.5 less revenue ($113.5 million), while every other segment was up. Montana slot routes leapt 48.5% to $25 million and Nevada ones were up 36.5% to $90 million. Rocky Gap Casino in Maryland grew 23% to $16 million. Management even reversed a 1Q20 loss of $32.5 million into a $10.5 million profit. Well done.

Sports betting in Iowa really hit a trough last month, with handle dipping to $118.5 million. Operator revenue was $8 million, good considering the anemic action. PlayUSA analysts struggled to find an upside. “Nothing can quite replace the interest that the NFL and the NCAA Tournament drives, so a pullback in April is no surprise,” offered Dustin Gouker, while Jessica Welman focused on revenue reaching a cumulative $101 million benchmark. “Seeing $100 million in lifetime revenue is an attention-getting milestone that crystallizes just how much growth Iowa has enjoyed this year,” she opined. “The removal of in-person registration at the beginning of the year has been the catalyst for the industry’s expectation-busting start to the year. But other factors have helped, too, including a fierce competition among some of the country’s best-known operators, which have been aggressive and creative in reaching new bettors.”

Thanks in part to its alliance with six Iowa casinos, William Hill led the market with $39 million in handle, which translated into $2 million in net receipts. Wild Rose had $2.5 million in revenue off $34.5 million in handle split between DraftKings and Bet Rivers. A FanDuel/BetMGM exacta engendered $29 million in handle at Diamond Jo, with $2 million in revenue. Enjoy it while it lasts, boys. The Hawkeye State market is in the process of being stormed by Wynn Bet, Circa Sports, USBookmaking, PlayUp, Vigtory, MaximBet and 888 Sports. Or, as Welman puts it, “The Iowa market is still a long way from maturity.”

In what we believe is the first sports book in Arizona, a sports bar-plus-book was announced for Phoenix‘s Chase Field, home of the Arizona Diamondbacks. It will be operated by Caesars Entertainment and cannibalize the old Game 7 Grill area of the ballpark. Caesars Rewards members will be able to redeem loyalty points for food, hospitality, entertainment and free play. The D-backs hope to have it open by late summer, just in time for the stretch drive. That’s not all. “It’s not just going to be during the season; it’s going to be throughout the year that people can come here and bet on sports be it for the Super Bowl, March Madness, or Wimbledon or The Masters,” said team CEO Derrick Hall. Team employees cannot bet on baseball and, just to be safe, Hall says, “The Diamondbacks cannot benefit from baseball betting at all—and that’s international baseball, it’s college baseball—any sort of baseball or softball.” Which is as it should be. Pete Rose, stay away.

Jottings: We’ve been busy on other fronts. For instance, we paid an in-depth visit to Agua Caliente Casinos, which continues to expand in the Coachella Valley. Unlike San Manuel Casino, we detect no Vegas aspirations, as Agua Caliente continues to sew the Palms Springs area up … We also delved into the history of Global Gaming Women and what its influence meant for member Nicole Fields … And, perhaps most importantly, we sat down for a lengthy chat with American Gaming Association President Bill Miller, covering the length and breadth of U.S. gaming and what to expect this year.