TGS SPECIAL REPORT...THAT'S BILLIONS--WITH A "B"
by Bruce Marshall, Goldsheet.com Editor
While the coronavirus pandemic does its best to impact sport in all corners of the world, one grouping within the extended industry continues to bop along. Sports gaming has indeed had to juke and jive to stay afloat and relevant during COVID-19, but the sector continues to move forward and make news.
In one sense, however, it is definitely not business as usual in the sports gaming arena. While conventions are not the lifeblood of the industry, they have emerged as important markers as the business continues to evolve. Sports gaming has long been a part of the all-encompassing ICE shows (which highlight all manners of gambling), on many continents, in recent years. But like many of these in-person events in various industries, the ICE showcases, which have become grand in scale, have temporarily been forced to re-make themselves as virtual entities. This includes the ICE North America Show, which will be taking place this week in digital format. Though it is hoped that other ICE shows slated for 2021 can return to their normal in-person selves; the biggest show of them all, ICE London, is tentatively scheduled for next April in a traditional in-person format at the Excel Center. The corresponding iGB Affiliate Show in London, usually held in conjunction with the larger ICE show, is also targeting a spring date for its traditional show. Though it’s anyone’s guess if the pandemic will have subsided enough for either of those major events on the gaming calendar to take place with live attendees next spring.
In the meantime, it will have to be the virtual setting for any industry shows (such as this week's ICE North America), which includes various gaming offshoots specific to sport. Such as the highly-informative Sports Betting USA conferences, held for the past three years each November in New York City, attended by TGS, and also going the virtual route next month. In the past few years, this event has served as an annual “State of the Union” for sports wagering in the USA, beginning with its debut show back in 2017 when on the cusp of New Jersey finally getting its day in front of the US Supreme Court as it sought to unravel PASPA, the 1992 Professional and Amateur Sports Protection Act, when select states (Nevada, Oregon, Delaware, and Montana...but not New Jersey) were “grandfathered” by federal law to accept sports wagers, though only in the case of Nevada including single-game wagering; it was parlay cards only for the other states. That storyline meandered through federal court for several years before finally being granted an audience in December of 2017 by SCOTUS, which in a landmark 7-2 decision in May of 2018 would rule in favor of the Garden State. Thanks to the ruling, each state was thus free to establish its own regulated sports betting laws.
Subsequent Sports Betting USA conferences have highlighted the evolving sports gaming business in the states and provided valuable insights into the direction of the industry. Whether this November’s scheduled virtual event is able to effectively convey such updated industry information remains to be seen.
Regardless of the pandemic, and the temporary disruption of live-attendee conferences such as ICE North America and Sports Betting USA, the sports gaming industry continues to evolve. This includes activities on the periphery of the bookmaking end of the sector. Related businesses, indeed almost any that disseminate and distribute sports information with a gaming slant, are seeking to capitalize on a newer, less-restrictive environment. For the past couple of years post-PASPA, varieties of these businesses have been sold to eager buyers. The new name of that game, as it has become across many industries, is moving audience; the more eyes and potential customers that can be transferred via sale, the more valuable the business in the marketplace, regardless of profits. Buyers, if possible, want an existing customer base to cultivate. The larger, the better. Especially for those on the bookmaking end.
So it goes for the ongoing news, often head-spinning, that continues to filter from the industry. Such as the latest reported during the past week in the Wall Street Journal, which in a departure from the pre-PASPA repeal days has been obliged to cover developments within the sports gaming sector due to their sheer magnitude.
(Sports gaming in the states as big news in the Wall Street Journal? Goodness, how times have changed!)
The latest, as reported by Ian Walker and Katherine Sayre in WSJ last Tuesday, involves Caesars Entertainment’s advanced talks for a $3.7 billion (with a “b”) cash takeover of U.K. sports gambling giant William Hill PLC, with a focus on keeping its American assets and betting technology.
Not so fast, however, for Caesars; William Hill also said last week that it had received a separate offer from Apollo Global Management, suggesting a possible bidding war in the offing as gambling heavyweights compete for a slice of the ever-growing US sports betting market.
This is now extreme high-stakes territory. William Hill’s board has said that the Caesars bid “is at a price level that they would be minded to recommend to (William Hill) shareholders.” The offer would be roughly at a 25% premium to Hill’s closing price the previous Thursday, the day before Hill said it had received an approach.
What’s at stake as it relates to an either-or for Hill in regard to Caesars or Apollo Global? As for Caesars, it is already involved in a joint sports-betting venture in the states with William Hill in which Caesars owns 20% and Hill 80%, a partnership that has given Hill valuable access to operate in states where Caesars is a licensed gaming operator.
Caesars, however, warned that under terms of that venture, it could end those market rights if William Hill were to be acquired by Apollo Global, a New York-based private equity colossus. Which caused a significant whipsaw in Hill’s share prices on consecutive days within the past week.
According to the WSJ story, whatever transpires in any potential transaction with William Hill, is merely the latest in a series of mergers and public offerings this year to build on the increasing demand for legalized sports betting in the states. More than ever, domestic companies are focusing upon building customer databases and buying technology platforms for online wagering, including sports betting and virtual casino games on mobile phones.
As for the value and size of those customer databases? As reported in the WSJ story, William Hill would get access to Caesars’ vast customer-loyalty program, which had in the neighborhood of 60 million members at the end of 2019.
Not that this year’s pandemic has caused minimal gyration on the William Hill side. Hardly. Already in 2020, Hill has been prompted to close more than 100 of its U.K.-based stores, which have been under pressure from increased regulation and the shift to online betting. The states, however, have been a nice growth area for Hill in recent years, and contributed 7% of group revenue in the first six months of the year.
(Re: the regulatory atmosphere in the U.K., it is a fascinating, ongoing tale that is mostly overlooked on these shores but will soon be another feature in an upcoming issue of TGS.)
As the WSJ story noted, the U.S. online gaming market (casino and sports-betting) is expected to grow to $18 billion (again, with a “b”) by 2025, with the top three players in market share projected to be Flutter Entertainment PLC (owner of FoxBet and FanDuel brands) at 28%, DraftKings at 20%, and Caesars at 12%, according to Macquarie Research Group. Caesars has become an increasingly active player in the market, having recently signed a deal with ESPN that would see its odds integrated into ESPN’s website and fantasy apps in states (at this moment counting 22 plus the District of Columbia) where sports betting is now legal. In February, William Hill had earlier announced a deal with CBS Sports enabling the gaming company to seek new customers among ViaCom CBS’s immense audience.
This saga of Caesars and William Hill was also the featured story in last Tuesday’s popular “Heard on the Street” commentary section of WSJ. In this piece, WSJ made note that Caesars was clear it was mostly interested in Hill’s U.S. business, in which it already owns a 20% stake. Hill’s English betting shops that are an ubiquitous fixture of the British high street are apparently not the subject of Caesars’ desires.
As Heard on the Street noted, American appetite for gambling has bounced back quickly from the earlier days of the pandemic, when almost everything temporarily slowed. Investors are now seeking a new breed of gambling stocks. For example, the enterprise value of DraftKings has swelled to the vicinity of $19 billion (again, with a “b”) since it went public this past spring–a valuation once more reminiscent of the software sector.
Though the market still remains in flux as the pandemic endures, sports betting nonetheless continues as one of the new fascinating industry groups of the investment world. According to Heard on the Street, if high valuations for sports betting companies persist, Caesars might eventually benefit from listing the William Hill business, along with its nascent online casino, as a separate vehicle. As WSJ noted, Caesars chief executive Tom Reeg has recently stated the need to excavate attractive businesses (such as William Hill’s U.S. operations) that are currently buried within a lower-growth vehicle. Caesars could also use the cash that Hill’s U.S. operations generate; its recent merger with Eldorado Resorts, which closed in July, saddled Caesars with extra debt just as pandemic-altered cash flows collapsed, especially from Las Vegas
As Heard on the Street concluded, this will be a storyline to follow for a while, as even if Caesars can complete the acquisition, it wouldn’t happen until the second half of 2021. And only then if current William Hill shareholders are convinced they are getting a decent deal. But if Caesars plays it correctly, it could end up with a lot more chips than it puts down.
As all gamblers know, that’s a winner.
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