Bet On It: Churchill Downs highlights record Kentucky Derby wagering

Welcome to the latest edition of “Bet On It,” where The Fly looks at news and activity in the sports betting and iGaming space. 

SECTOR NEWS: PlayAGS (AGS) has signed a definitive agreement to be acquired by affiliates of Brightstar Capital Partners. The company’s board of directors has unanimously approved, and recommended that the company’s stockholders approve, the agreement. AGS shareholders will receive $12.50 per share in cash. The per share purchase price represents a 41% premium to the Company’s volume-weighted average share price over the last 90 days and a 40% premium to AGS’ closing price on May 8, 2024. The proposed transaction, which is expected to close in the second half of 2025 is subject to customary closing conditions, including the receipt of regulatory approvals and approval by a majority of AGS stockholders. Upon completion of the transaction, AGS will become a privately held company and shares of AGS common stock will no longer be listed on any public market. In light of the proposed transaction, AGS has canceled its previously announced conference call to discuss its first quarter 2024 financial results, which had been scheduled for Thursday, May 9. Additionally, AGS will not be issuing a quarterly earnings release. 

The PGA of America and Penn Entertainment (PENN) announced a multiyear sports betting partnership. Under the agreement, ESPN BE becomes the “Official Sports Betting Sponsor” of the PGA Championship through 2026. The 2024 PGA Championship will take place at Valhalla Golf Club in Louisville, Kentucky from May 16-19. “This agreement marks a milestone for the PGA Championship as it becomes the first men’s golf major to establish an official sports betting sponsor. ESPN BET is a best-in-class online sportsbook that combines PENN’s proprietary in-house technology and deep sportsbook operational expertise with ESPN’s industry-leading brand and multiplatform reach,” the company and PGA stated.

Everi Holdings (EVRI) announced that it has terminated its stock repurchase program effective May 2, 2024. On May 3, 2023, the Company’s Board of Directors approved the stock repurchase program under which the Company was authorized to repurchase an amount not to exceed $180 million of the Company’s common stock through November 3, 2024. The Company repurchased 7.5 million shares of common stock, at an average price of $13.40 per share, for an aggregate amount of $100 million, under the Stock Repurchase Program. As of December 31, 2023, the remaining availability under the Stock Repurchase Program was $80 million. The Company has not repurchased shares of common stock under the Stock Repurchase Program subsequent to December 31, 2023.

Churchill Downs (CHDN) said wagering from all sources on the Saturday’s Kentucky Derby day program set a new record of $320.5M, beating last year’s record of $288.7M. All-sources wagering on the Kentucky Derby race was a new record of $210.7M, beating the previous record of $188.7M set in 2023. All-sources handle for Derby Week rose to a new record of $446.6M, beating last year’s record of $412.0 million. “We expect the Kentucky Derby Week Adjusted EBITDA to reflect a new record with $26 to $28 million of growth over the prior record set last year,” Churchill Downs said in a statement. Separately, Churchill Downs announced that NBC Sports will continue to host the Kentucky Derby on NBC and Peacock through 2032. ” This multi-year partnership extension will make NBC the first media company to present the most prestigious event in horse racing for over three decades,” the company said in a statement. The extension includes multiplatform rights to the Kentucky Derby, Kentucky Oaks, and Derby and Oaks Day programming, which will be presented on NBC, Peacock, USA Network and additional NBCU platforms.

EARNINGS RECAP: Gan Limited (GAN) reported first quarter earnings yesterday, falling short of analyst expectations. “We continue to optimize how we operate the business as we work toward a successful closing of our merger with SegaSammy. GAN shareholders overwhelmingly approved the merger in February, and more recently, we have submitted our application to the Committee on Foreign Investment in the U.S. as well as all applications with relevant gaming regulatory authorities. We continue to expect the transaction to close in late 2024 or early 2025.”

In comparison to year-ago figures, Brag Gaming (BRAG) missed estimates in terms of earnings per share, but surpassed its revenue mark. The company said, “We carried our strong momentum in 2023 into the first quarter, delivering robust growth that underscores the ongoing success of our efforts to transform Bragg into a content-focused iGaming solutions provider across expanding North American and European markets. Year-over-year revenue increased by 4.2% to EUR 23.8 million, largely propelled by organic growth from our current client base, the addition of new customers in multiple jurisdictions, and impressive results from our in-house Wild Streak Gaming casino games studio.” Additionally, the company backed its full-year outlook.

Accel Entertainment (ACEL) also posted mixed results in the first quarter, citing unfavorable weather out of the gate. Accel CEO Andy Rubenstein commented, “I am happy to report that we delivered another solid quarter despite some unfavorable weather early on, once again demonstrating the strength of our business model. We are cautiously optimistic about legislative trends we are seeing outside of Illinois and continue to explore opportunities to expand our national footprint. Given the strength of our balance sheet and experience with locally-focused gaming markets, we continue to believe that we offer one of the best investments in the industry.”

Light & Wonder’s (LNW) Q1 came in ahead of consensus. The company commented, “Our strong momentum continued into 2024 across the business with our compelling global product offerings driving Game Sales growth in North American adjacent markets and in International markets led by Australia and Asia. SciPlay and iGaming both reached record revenue levels yet again with consistent double-digit year-over-year growth. The performance in the quarter validates our execution plan and we expect growth to be further enhanced by key hardware and content launches in both our land-based and digital markets throughout the year. Our differentiated product roadmap and targeted commercial strategy enable us to capitalize on growth opportunities beyond our solidified core businesses. We will continue to execute on our initiatives to deliver sustainable growth underpinned by our robust product portfolio and world-class talent.” Despite the beat, Susquehanna downgraded Light & Wonder to Neutral from Positive with a price target of $95, down from $111. The analyst thinks the Q1 results “signaled an unofficial end” to Light & Wonder’s “impressive operational turnaround.” Results from here are more reliant on industry factors, and the stock no longer deserves a premium turnaround multiple, the analyst tells investors in a research note. The firm says Light & Wonder’s international sales in Australia helped quarterly outperformance over the past three quarters, but its 40% Q1 ship share from Dragon Train is unlikely to continue.

Genius Sports (GENI) raised its FY24 outlook following Q1 results in which the company said it outperformed expectations. “Following a strong year of execution in 2023, we are pleased to continue our momentum to start the new year, with the first quarter of 2024 marking another period of outperformance relative to expectations,” said Mark Locke, Genius Sports Co-Founder and CEO. “As we expand our technology footprint and work to extend one of our most important data partnerships with Football DataCo, we feel an enhanced sense of excitement and confidence in our outlook for 2024 and beyond.”

Wynn Resorts (WYNN) shares gained after releasing earnings this week, noting a new record in adjusted property EBITDAR in Q1. “The strong momentum we experienced in our business throughout 2023 continued to build during the first quarter with Adjusted Property EBITDAR reaching a new all-time record. The investments we have made in our properties, our team and our unique programming continue to extend our leadership position in each of our markets,” said Craig Billings, CEO of Wynn Resorts, Limited. “On the development front, vertical construction on the hotel tower at Wynn Al Marjan Island is well underway, and we are confident the resort will be a ‘must see’ tourism destination in the UAE. We are excited about the outlook for the Company, and we believe we are well positioned to deliver continued long-term growth.”

BILL FALLS SHORT: Legislation aiming to introduce sports betting in Alabama alongside a lottery has fallen through, Pat Evans of Legal Sports Report noted. Despite initial momentum, the Alabama legislature concluded its session on Thursday evening without passing HB 151 and HB 152, both of which were intended to establish an Alabama Lottery. Furthermore, the proposed measures would have required voter endorsement through a special election in August. Originally introduced in the House, the bills encompassed the legalization of sports betting in Alabama. However, as they progressed through the Senate, the provision for sports betting was removed. Consequently, the matter did not feature in the final compromise reached in the conference committee.

BIG APPLE DATA: Recent data from New York indicates a recovery in profit margins following a noted downturn in late March, according to Jefferies. Throughout the initial three weeks of April, margins expanded by 0.8 percentage points month-on-month to reach 9%. Nonetheless, margins still lag behind year-on-year figures by 0.7 percentage points, although to a lesser extent compared to March. Analyzing the data on a weekly basis, the firm said margins experienced a dip in the second week after starting at a normalized level in the first week of April, followed by a rebound in the third week. During the first three weeks of April in New York, FanDuel (FLUT) and DraftKings (DKNG) shared a 39% market share each in terms of handle. However, FanDuel maintains its dominance in gross gaming revenue, or GGR, share with a 2.2 percentage points higher hold rate, resulting in a GGR share of 47% for FanDuel versus 37% for DraftKings. Nevertheless, DraftKings appears to be gaining momentum in year-on-year market share after a stagnant performance in March. Specifically, DraftKings saw a YoY increase of +6 percentage points in handle and +5 percentage points in GGR share during the first three weeks of April.

ADDITIONAL ANALYST COMMENTARY: MoffettNathanson initiated coverage of Flutter with a Buy rating and $240 price target following Flutter’s recent U.S. listing. The firm sees a unique opportunity to invest in what it identifies as “the leading global online sports betting and iGaming company with, most importantly, the #1 position in the U.S., the fastest growing and largest market in the world.”

Morgan Stanley upgraded Melco Resorts (MLCO) to Overweight from Equal Weight with a price target of $9.60, up from $8.30. The stock’s risk/reward profile appears attractive as the company’s free cash flow could grow meaningfully in 2025. Stabilizing and improving market share trends in March and April, along with a projected jump in 2025 cash flow compared to 2024, drives upside to the price target, says the firm. It expects that continued market share gain could lead to consensus estimates bottoming for Melco.

Citi elevated its price target on DraftKings to $57 from $53 and kept a Buy rating on the shares following the Q1 beat and 2024 guidance raise. Management is exploring its capital allocation options and expects to provide an update next quarter, says Citi, which would not be surprised if the company ultimately authorizes a share repurchase program. The firm continues to believe DraftKings’ first-mover advantage, scale, and product innovation place it in a strong position to maintain its status as one of the leaders in the “rapidly growing” U.S. online betting market.

Mizuho lowered the firm’s price target on Gaming and Leisure Properties (GLPI) to $46 from $47 and keeps a Neutral rating on the shares. The analyst believes the triple net real estate investment trust subsector continues to offer one of the best risk-adjusted growth stories across REITs. Despite elevated and volatile interest rates and uncertainty surrounding timing around potential rate cuts, the subsector enjoys high visibility on 2024 growth – without the need to raise any additional capital to reach its acquisition and growth targets, the analyst told investors in a research note.

PUBLICLY TRADED COMPANIES IN THE SPACE INCLUDE: Accel Entertainment (ACEL), Bally’s (BALY), Boyd Gaming (BYD), Caesars (CZR), Churchill Downs (CHDN), DraftKings (DKNG), Flutter Entertainment (FLUT), Gambling.com (GAMB), Gan Limited (GAN), Genius Sports (GENI), Las Vegas Sands (LVS), MGM Resorts (MGM), Penn Entertainment (PENN), Rush Street Interactive (RSI), Super Group (SGHC) and Wynn Resorts (WYNN).