MGM Resorts Expected to Announced Joint Venture with Sports Betting Operator GVC Holdings

MGM

U.S. hotel and casino operator MGM Resorts (largest casino company in the world) and the international sports betting operator GVC Holdings are expected to announce a $200 million sports betting joint venture this week; perhaps as early as today. Reports indicate that each group will post $100 million towards the new venture and each would own 50%. Designed to span 25 years, the deal allows for either side to buy the other out after 10 years; paving the way for a potential merger. MGM will bring their significant portfolio of U.S. casinos to the table, while GVC Holdings technology will serve as the backbone for the JV’s mobile and brick and mortar gaming operations.

Howie Long-ShortMGM’s domestic portfolio includes 13 properties in Las Vegas (includes: MGM Grand, Bellagio), 1 in Michigan (MGM Detroit), 1 in Maryland (MGM National Harbor), 2 in Mississippi (Beau Rivage and Gold Strike) and 1 New Jersey (Borgata); the company also just acquired Empire City Casino in New York and will be opening its doors at the new MGM Springfield (Massachusetts) in August.

On the balance sheet, MGM has transformed itself over the last several years to transition from a “debt burdened enterprise to cash rich one”, returning over $1 billion to shareholders since early ‘17. That appears to be just the start of the payouts, though. The company is first now approaching “the end of our current investment cycle (invested $8 billion since mid ’14), which puts us into the exciting period of generating significant free cash flow.” It’s “our desire to continue to return this accelerating free cash flow to our shareholders in the form of dividends and share repurchase.” MGM will report Q2 ’18 earnings on Thursday.

GVC Holdings (OTC: GMVHF) has grown rapidly through a series of acquisitions, now controlling several well-known sports betting/gaming brands including Bwin, Ladbrokes, partypoker and Sportingbet. The company reported “acceleration in year-on-year growth in Q2 2018 over Q1 2018 driven by good underlying momentum and the World Cup”; a tournament that drove both “volumes and value of new customer deposits.” Company shares are currently trading at $14.32, 3.5% off their 52-week high.

Fan Marino: While MGM and GMVHF are clearly bullish on the future of sports betting in the U.S., that’s oddly not the case with every gaming company. Penn National Gaming told investors on their July 26th earnings call that “sports betting would likely prove more beneficial in terms of increased hotel room bookings and table drop than from the actual betting revenue.”

We’re nearly certain that won’t be the case and we’re not the only ones. Gambling industry expert Chris Grove (OnlinePokerReport.com) recently wrote, “sports betting is top-tier product by revenue in almost every international market, and there’s clear demand in US for sports. If done right, no reason it can’t be a double-digit direct contributor.”

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Delaware Realizes $1 Million+ From June Sports Bets

Delaware

The State of Delaware took in more than $7 million in sports bets between June 5th-24th, realizing $1,000,247 in revenue over the 20-day span. Delaware sports fans placed +/- 70,000 wagers at the state’s land-based racinos (i.e. no mobile), with the average bet worth $100. 75% of the dollars placed were on baseball games, with the World Cup (10%) and NBA Finals (8%) also drawing heavy action. The First State became the 1st state (besides Nevada) to offer single game sports wagering following SCOTUS’ May ruling to overturn PASPA.

Howie Long-Short: +/-$1 million in revenue equates to a 14% hold, far higher than the 5.5% Nevada has averaged dating back to ’92. Those results were “pleasantly surprising” to DE Lottery Director Vernon Kirk, who acknowledged that he’d “be surprised if it (the handle) stayed that strong.”

I asked Dustin Gouker, Managing Editor of Legal Sports Report why he thought the handle was so high; he said, “it’s too early to read too much into the hold. It’s a small sample size and it may simply be lots of bettors that are not terribly savvy, trying to figure out wagering.”

Just one of DE’s land-based racinos is publicly traded, Dover Downs Hotel & Casino, a subsidiary of Dover Downs Gaming & Entertainment (DDE); the company netted $57,293 in June from sports bets. However, all 3 of the state’s sports betting contractors are publicly listed. Scientific Games (SGMS), William Hill (WIMHY) and StadiumTech (a subsidiary of GVC Holdings, OTC: GMVHF) combined to take in $125,000 (12.5% of gross revenue) in DE sports gambling revenue for the 3-week period ending on June 24th (fiscal month).

Fan Marino: A recent white paper from GamblingCompliance projected the U.S. legal sports betting market would be “worth between $3.1-$5.2 billion in annual revenue by 2023.” The report also predicted that 25-37 states will “have lawful wagering within 5 years”, that New York would become the largest sports betting market (generating $700 million/year in annual gross gaming revenue) and that NY would become the “first state to grant leagues a cut of betting handle and require use of their data.” While those last 2 prognostications may be true, they likely won’t come to fruition before 2019; state legislators failed to pass a bill before adjourning the session. Governor Cuomo is on record doubting that a sports betting bill would pass this year.

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