Bally’s we hardly knew ye; IGT bets big on lotteries

Shares of Bally’s Corp. sprang to $36.76 apiece yesterday on the news that the company’s largest stockholder wants to take Bally’s private for $2 billion. Hedge fund Standard General—founded by Bally’s Chairman Soo Kim—is offering $38/share for the mini-major and selling the idea as a way of ameliorating risk (not that we thought of BALY as a particularly perilous play). Standard General already owns 21% of Bally’s.

Normally we would frown upon such a proposal, as private equity has a mostly disastrous record in the casino industry. However, the presence of Kim in both camps is reassuring. He put the current Bally’s management team into place and is likely to keep giving them his ear. The LBO would be financed by the sale and lease-back of unspecified assets. Jefferies Equities analyst David Katz said Bally’s would go for cheap, as the offer didn’t price in the value of the Gamesys acquisition: “With the current market context for dismissing value on North American digital opportunities, the offer is opportunistic.”

Truist Securities analyst Barry Jonas had just met with Bally’s management and had been led to believe that some form of share repurchases were on the way, particularly as execs were “clearly upset” that the Gamesys buy wasn’t reflected in the stock price. “Standard General also noted this is an expression of interest only and they reserve the right to withdraw or modify the proposal,” Jonas wrote, adding that Standard General promised not to liquidate its BALY position if the deal went south. A bigger question may be what becomes of the various initiatives Bally’s laid out when Jonas visited on the 19th.

These include a Twin River Lincoln expansion that is expected to be finished by year’s end. The property is being re-tailored to attract Asian players who have been lost to Encore Boston Harbor. Jonas observed, “we note the slot floor was very fresh with many major hits across a very diverse set of manufacturers.” On a broader front, management intends to preserve 2021-level margins by “economies of scale” on the slot floor and scrapping buffets, as well as some entertainment. All casinos—what’s left of them—will be rebranded Bally’s by year’s end except for Hard Rock Biloxi (which shows good sense). “On the promotional side, BALY noted they will not spend to gain incremental market share as customers have proven they will play regardless. Management noted that gaming as an activity appears to be seeing increased wallet share despite the return of other entertainment options,” and even without Baby Boomers.

Whilst in Rhode Island, Jonas also paid a visit to International Game Technology, which had just juggled its top management team. He wrote that “We left incrementally positive on the Lottery business, with management highlighting the sustainably higher play levels COVID has brought for this traditionally recession-resistant business,” one worth 80% of the estimated 2022 cash flow. “While a lack of entertainment options was the catalyst for new player’s trialing lottery/increasing play levels, many players have continued to play as COVID restrictions have eased,” driven by new, younger customers. Although state legislatures fear revenue cannibalization, IGT management is confident all lottery-enabled states will seriously consider online lotteries, if they have not already done so. “IGT believes cannibalization is unfounded based on available data, with management pointing to Illinois’s ten years of history.”

As for IGT’s slot business, Covid-driven slowdowns in casino play caused the thinning out of slot floors, particularly lower-performing machines and revenue-sharing ones. Now, with casinos focusing more on a pure gambling offering, the demand for new machines is expected to increase. While supply chain issues may impede delivery, IGT says it has a cost-savings plan in place to offset potential inflation. (“Management is hopeful for some relative easing in 2H:22 into 2023, though 1H:22 is expected to look a lot like 2021.”) They’ve also reinstated dividends and are planning a $300 million share-repurchase program. As for digital gambling and wagering, IGT continues to study this segment with an eye to spinning it off into a separate IPO. Finally, the new CEO, Vincent Sadusky, is a longtime veteran of the company. Predicted Jonas, “We believe Mr. Sadusky, whose management experience is media (not gaming focused) has supported [Marco Sala‘s] strategy and expect little changes.” Why tinker with a winning product?

Sports betting was phat in Arizona in November, with $467 million in handle boiling down to $51.5 million in revenue (almost exclusively generated online). Arizona became the fastest state to reach a cumulative $1 billion in handle. In terms of that handle, DraftKings led the pack with 32.5%, followed by FanDuel‘s 25%, BetMGM‘s 20% and Caesars Sportsbook‘s 14%, leaving Barstool Sports and WynnBet tied with 4% each. Said PlayUSA analyst C.J. Pierre, “The early launchers caught the vast majority of the football season and they were in position to catch the early excitement created by the [Phoenix] Suns’ hot start. Plus, Arizona’s sports books were able to ride a historic wave of winning in November that easily produced record revenue for operators in the U.S. All of it has helped the state’s sports books get off to an unprecedented debut.”

Although Gov. Doug Ducey (R) got taken to the cleaners in October, November was much better for state coffers. Promotions fell sharply, down to $18.5 million, leaving $32 million in taxable revenue, levied at 10%. Since inception, however, retail sports books have generated only $7.5 million in wagers, making them a mere amenity, if not a loss-leader. In terms of all-important revenue, FanDuel got the most bang for its buck ($16 million), outdueling DraftKings ($12.5 million). BetMGM and Caesars followed with $9.5 million and $7.5 million respectively, then came Barstool and Wynn, tied at $2 million, while Rush Street Interactive, Twin Spires and especially Unibet had to settle for chicken feed. They’ll have to be content with that. Said Pierre, “Once operators gain a foothold, as DraftKings and FanDuel have in Arizona, it has proven nearly impossible to dislodge them from the market lead.”

Although we’re starting to get Adele Fatigue, it’s the story that keeps on giving, turning weirder with every news report. An artificial lake? A crane? An aerial harness? 18-hour workdays? Only five weeks of rehearsals (in Fresno, no less)? A new video screen for the Colosseum? A custom-made sound system? Although some of the mishegas was Adele-imposed, the whole scenario could hardly have been better calculated to prompt the collapse of one of the most fragile psyches in show business. If Weekends with Adele ever happens, it will be a miracle. Oh, and the artificial lake? Ms. Adkins herself slagged it as a “baggy old pond.” Vital Vegas is taking the party line that Caesars Entertainment was “100 percent ready” but it doesn’t sound to us like they knew what they were getting into. Sting cannot arrive a moment too soon.

Jottings: Well, now we know what Wynn Resorts will be doing with the money it won’t be spending on WynnBet. It’s inked a pact to develop a resort in the United Arab Emirates, on Al Marjan Island. The project will involve “1,000 hotel rooms, meeting and convention space, a [gambling] area, and a slew of other amenities,” according to Deutsche Bank analyst Carlo Santarelli. Completion is slated for 2026 … It looks like Keith Urban will be helping fill part of the Adele void at Caesars Palace. He’s announced five new dates for March and early April … Change.org has launched a petition drive to save the volcano at the The Mirage from demolition by Hard Rock International. Would-be signatories can affix their John Hancock here … Hawaii‘s Lege is considering legalizing sports betting. The mooted tax rate is 55%, which takes some nerve … Southland Casino, just a stone’s throw from Memphis in Arkansas, is putting the finishing touches on a $250 million expansion. The main challenge is filling 400 jobs. “We’re trying to fill some roles that are opening,” said Marketing Director Jeff Strang. Isn’t everybody? … Japan is no closer to choosing casino operators but has published a long list of new regulations, many of which seem aimed at stifling play by locals (three visits per week, tops) … Arizona‘s Gila River tribe has opened a $143 million hotel tower at Wild Horse Pass Casino in Chandler. Amenities include an adults-only pool … Ocean Casino Resort in Atlantic City is investing $4 million in a new sports book, which probably won’t drive significant revenue but will enhance Ocean’s not-inconsiderable curb appeal.