Sports Betting Could Grow NFL Revenues by $2.3 Billion Annually

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Nielsen projects (based on a fan survey) that a fully mature (i.e. nationwide) U.S. sports gambling market could be worth up to $2.3 billion annually in new revenue to NFL teams. The report (commissioned by the American Gaming Association) assumes media rights fees continue to rise (projected: +18%) because of increased fan interest/engagement, that sponsorship (think: team-casino partnerships) and ancillary advertising revenues will grow (projected: +7%) and that the league will be successful in striking “official data partnerships” with sports betting operators (projected: worth $30 million/year); it’s also assumes ticket sales will increase (projected: +6%). It’s important to point out that “integrity fees” were not included the projections.

Howie Long-Short: The American Gaming Association has called the $2.3 billion projection “conservative” and they’re not the only ones who believe that. Morgan Stanley analyst Ben Swinburne pegged the potential for new advertising and sponsorship revenue alone at nearly $2 billion.

While it’s fun to talk about a nationwide, legal sports betting market, the reality is that we’re years away from realizing it; if ever. As it stands today, just NV, NJ, DE, WV and MS are taking bets on individual sporting events. Even the most aggressive of estimates have just 35 states legalizing sports betting within 3 years.

Regardless which of those 35 states NFL fans reside in, it’s likely they’ll have the opportunity to place a bet at a William Hill (WIMHY) sportsbook; the company already operates in NJ, MS & WV and maintains 31% of the Nevada sports betting market share. It’s now being reported that the company has established a partnership with Eldorado Resorts (ERI) and two have plans for an online JV. The deal gives William Hill distribution in the 13 states where ERI maintains brick and mortar casinos, in exchange for 20% off WIMHY’s U.S. business; ERI will also receive $64.5 million in restricted stock (vests over 5 years) in the U.K. based parent company. WIMHY shares rose 6% on Wednesday, closing at $13.70; ERI was up 1% (to $47.35).

The English bookmaker’s aggressive approach to entering the U.S. market has been motivated by a government crackdown on gambling in the U.K. New regulations on FOBTs (fixed odds betting terminals) has resulted in company shares treading water over the last 12 months. GVC Holdings (another U.K. company, owns Ladbrokes) announced a similar partnership with MGM back in late July. U.S. gaming companies with brick and mortar properties in multiple states, which offer the access and reach new players to the space require, are well positioned in the current sports betting market.

Fan Marino: The NFL has reversed a long-standing ban on casino advertising, opening the door for teams to ink deals with local casinos (it’s unclear if casino partners be required to purchase the league’s official data). Don’t expect to hear of team-casino partnerships spreading across the league this season though, New Jersey remains the only state home to NFL teams and with legalized sports betting legislation on the books. Expect both the Jets and Giants to take advantage of this newfound revenue stream before the end of the ’18 season.

That’s not to say fans in the NYC market are going to be bombarded with casino advertisements when watching the home teams play. While the league will now allow its teams to take gambling money, regulations are in place to limit casino advertising to pre-and post-game programming; sports gambling ads are also prohibited.

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Churchill Downs Preparing for Legalized Sports Betting, Closes at 52-Week High

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Churchill Downs, Inc. (CHDN) has announced it will be acquiring casinos in Pennsylvania and Mississippi, as it prepares to capitalize on legalized sports betting. The company will buy the Presque Isle Downs & Casino in Erie, PA (for $178.9 million) and the Lady Luck Casino (for $50.6 million) in Vicksburg, MS, from current owner, Eldorado Resorts (ERI). Both PA & MS have passed sports betting legislation that would change their laws, should the SCOTUS strike down PAPSA. CHDN also owns brick and mortar casinos in Illinois, Kentucky and Louisiana, 3 other states actively working towards sports betting legalization.

Howie Long-Short: Churchill Downs released Q4 ’17 financials on February 28th. Q4 ’17 adjusted EBITDA was +23% YOY (to $37.6 million) on net revenue that rose 11% YOY (to $179.8 million). Changes to the recent U.S. tax code added $57.7 million to Q4 net income. CHDN shares are up 4.5% since the company issued their Q4 earnings report, closing at a 52-week high on Tuesday ($268.20).

Fan Marino: While Presque Isle Downs & Casino is among the lowest revenue generating casinos in Pennsylvania, it’s a significant acquisition for CHDN; PA recently legalized online gambling and the law passed covers mobile wagering on sporting events (assuming permitted by federal law). While land based casinos are profitable, it’s mobile sports betting that really has CHDN excited. TwinSpires, the company’s online horse betting platform, accounted for $256.7 million in ’17 revenue (+15% YOY). One can safely assume the company will look to turn their database of users betting on the ponies, into mainstream sports gamblers.

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Casino Consolidation Continues, Penn National Gaming and Boyd Gaming Scale Up

U.S. casino operator Penn National Gaming, Inc. (PENN) has agreed to acquire Pinnacle Entertainment, Inc. (PNK) for $2.8 billion, with the deal expected to close by the end of 2018. PENN will own 78% of the combined entity (41 properties, 53,500 slots, 1,300 tables and 8,300 hotel rooms), with PNK owning the balance. PENN and PNK were ostensibly already partners; in 2013, PENN spun off Gaming and Leisure Properties (GLPI), a REIT that owns much of the land PNK operates its casinos on. As an adjunct to the PENN/PNK deal, Boyd Gaming (BYD) agreed to buy 4 PNK properties, from PENN, for $575 million. In a separate transaction, Boyd Gaming announced it has acquired Valley Forge Casino Resort for $280.5 million; the company’s first asset in PA; the 2nd largest commercial gaming state in the nation.

Howie Long-ShortPNK shareholders will receive cash and PENN stock worth $32.47/share; or 48.5% premium to PNK shares at the close on October 4, the day prior to the first reports of merger talks. PENN shares hit a 52-week high on Wednesday, closing at $30.90. It’s been a busy year for local casino operator mergers. Earlier this year, Eldorado Resorts (ERI) bought Isles of Capri Casinos Inc. for $1.7 billion and GLPI bought the Bally’s Casino Tunica and Resorts Casino Tunica (properties in Mississippi) for $82.6 million.

Fan Marino: High rollers, like the guy who bet (and won) $880K on Mayweather to beat McGregor, will be pleased to learn that the revised tax code “largely preserves the ability for our customers who itemize to net their gambling income” – The American Gambling Association. Here’s a fun gambling story, some guy won $37,600 on a $47 10-team NFL parlay last Sunday.

Penn National Gaming strikes $2.8B deal to buy competitor

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