We are now days away from the deluge of first-quarter earnings reports, with many investors eagerly anticipating the answers to:
- How fast is business rebounding from COVID?
- How long until a complete recovery?
- How much of the EBITDA margin improvement achieved by cost-cutting casinos will be retained and made permanent?
As of this writing, only Las Vegas Sands and Churchill Downs have reported earnings, with no surprises, no special commentary from management and no special insight into those questions.
One comment from Las Vegas Sands is that the company’s dividends—proudly proclaimed “Yeah, dividends” by the late CEO Sheldon Adelson—won’t return until business normalizes. That less-than-ebullient comment might have contributed to the stock’s 4 percent decline on the following day.
Generally, however, there was little new to sway investors one way or the other. That should change in coming days as companies report and CEOs and CFOs get to answer the three questions cited above.
In addition to those post-Covid answers, another interesting area of inquiry will be the roll-out, trends and outlook for America’s fast-growing digital gaming industry, both sports betting and casino.
The bull runs by online stocks, and those seen as benefiting from online operations have been phenomenal, as everyone knows.
The poster child for that run is Penn National, which rocketed from a pandemic-panic low of $3.75 a share last March to $142 a share this March, even though most of its business remains regional brick-and-mortar casinos, historically a low-valuation, slow-growth business.
Interestingly, many stocks that spiked on the digital mania have come down considerably. Penn, for example is down to around $90 as of this writing. Golden Nugget Online, Score Media and Gaming and Rush Street Interactive are all down similar percentages or greater from their peaks. Even the vaunted DraftKings is more than 20 percent below its top.
In a way, the stocks of hot digital operators are mirror images of the regional brick-and-mortar casinos. While the latter have grown EBITDA on lower revenues thanks to cost-cutting, the former are losing more money as they spend to capture market share.
As is widely understood, that market-share battle is premised on the belief that, in the end, a handful of companies will dominate sports betting. Their names already are known: DraftKings and FanDuel at the lead, MGM and Entain’s BetMGM joint venture, Caesars’ William Hill, Penn National’s Barstool Sports and FoxBet among them.
The rest, the school of thought goes, will be bought up by the surviving giants.
However, there will be exceptions. Rush Street and Golden Nugget, for example, while playing in the sports-betting sandbox, are focused on casino games, which have higher margins and broader demographic appeal.
In that regard, it was interesting to see Rush Street achieve third place in market share in Michigan’s new and highly competitive market for online casino.
Another digital segment that gets far less publicity than sports betting is iLottery. There, the joint venture of Toronto-listed Pollard Banknote and Nasdaq-listed NeoGames has considerable market share.
iLottery operators, unlike those in online sports betting and casino, have the benefit of multi-year contracts with state lotteries that lock in monopoly positions. And it’s likely that the number of states with iLottery will grow several-fold to include most if not all lottery states.
That bodes well for IGT and Scientific Games, which get to play the whole field, providing platforms to sports betting and casino operators and benefitting from their long-term state lottery relationships.
In other words, sports betting grabs the headlines, but there are other ways for companies to win in the digital world.
