U.K. Sportsbooks Agree to “Whistle to Whistle” Ban on T.V. Betting Advertisements

RGA

The Remote Gambling Association announced its members have agreed (under political pressure) to abide by a “whistle to whistle” ban on television betting advertisements during live sporting events (save horse racing), that begin prior to the 9p watershed hour. The 35-member collective made the difficult, but necessary, decision in a pre-emptive attempt to stave off industry crippling government legislation (see: Italy). British authorities (along with the public) have become concerned with the onslaught of betting adverts during sporting events, as the number of problem gambling cases continues to rise (to 430,000) within the United Kingdom. The ban is expected to go into effect prior to the start of the ’19-’20 football season.

Howie Long-Short: Expect all of this (advertising crisis, problem gambling, public outrage, restrictions on gambling adverts) to play out in the U.S. too, as the availability of sports betting expands. There’s far too much money at stake and far too little corporate restraint to otherwise prevent it.

Many suspect the ban will result in an earnings decline for Europe’s largest gaming companies, which is why Ladbrokes (GMVHF), Paddy Power (PDYPY) and William Hill (WIMHY) are down -10.5%, -8% and -7% since the news was reported on 12.6, but I believe the market is overreacting; gaming companies spend 5x the amount on online advertising as they do on television ads and will simply re-allocate their resources accordingly. Until the ban includes shirt sponsorships, stadium naming rights agreements and digital advertisements visible on television, fan behaviors seem unlikely to change.

95% of the English soccer matches during the 2017 season had advertisements for gaming companies, so many assume a whistle to whistle ban means “tens of millions in lost revenue” for broadcasters like Sky and BT Sport; but this is English soccer, both companies will find there are no shortage of advertisers interested in the valuable spots (and Sky had already announced plans to limit in-game sports betting ads anyway). If there’s a real concern for broadcasters, it’s the possibility that the ban could cause the value of future television contracts to “fall dramatically”.

Chris Lencheski is an experienced global sports, media, and private equity executive with c-suite stops at Comcast-Spectacor, TPG Specialty Lending, IRG Sports and Entertainment, SKI & Company and currently an adjunct professor at Columbia University. I asked Chris, if a decline in media rights values is on the horizon or if the broadcasters are simply posturing as the measure still requires ratification from Industry Group for Responsible Gambling?

Chris: I don’t think that the media rights are going to go down any time soon – and we’re talking Premier League here – by the RGA self-administering a ban on adverts on television. If you’re suggesting the broadcasters are posturing, I would say they’re closer to doing that than they are truly panicked because nearly 80 percent of the current ad-mix budget for these gaming organizations across Europe is sitting on social and digital; and it’s not just in football, but in Formula One, Rugby and Handball too. Putting it in perspective, it (the ban) only amounts to about 15% of the tv adverts and there’s plenty of available opportunity to bring in new partners or to extend with current ones in both real-time television coverage and in virtual television coverage.

Fan Marino: While on the international soccer kick (pun intended), Barcelona announced it won’t be traveling to Miami (as planned) for La Liga’s first game on U.S. soil. The match against Girona, scheduled to be played Jan. 27, 2019 in Miami, is off (at least temporarily) as the clubs failed to gain the support of the Spanish Football Association, FIFA or UEFA; Reuters has since reported that the game could be played in North America late next year. Back in August, La Liga announced plans to play at least one game/year in the United States, after agreeing to a 15-year agreement with Relevant Sports to promote the league in country.

I should mention that horse racing is exempt from the RGA ban due to the sports’ reliance on the participation of sports bettors.

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U.K. Sportsbooks Exploring Self-Regulation to Stave Off Crippling Government Legislation

RGA

The board of the Remote Gambling Association (European trade organization) will meet later today to discuss self-regulation, a pre-emptive attempt to stave off industry crippling Government legislation within the U.K. The proliferation of mobile/digital gambling has spurred an onslaught of sports betting advertisements during sporting events, with bookmakers aggressively competing for market share. Bans on pre-watershed (see: prior to 9p) advertising and in-play ads, and a hard limit on the number of gambling ads permitted within a single commercial break (1) are amongst the most solutions that will be explored. The meeting is not expected to produce a consensus on recommended changes to the industry’s voluntary advertising code.

Howie Long-Short: The implementation of (or change to) any bylaw(s) restricting Remote Gambling Association member advertising would have widespread impact on the industry. Their membership base includes some of Europe’s largest gaming companies including; Bet365, Ladbrokes (GMVHF), Paddy Power (PDYPY) and William Hill (WIMHY).

While the focus of the annual meeting (i.e. this was not called as an emergency summit) indicates that European bookmakers understand what’s at stake (see: Italian ban on all gambling advertising), with membership divided on corporate social responsibility it’s likely that only Government regulation (or broadcaster intervention) can curb the volume and frequency of sports betting ads. That’s because unanimous participation (35 member companies) is unlikely and no one is willing to operate at a competitive disadvantage (i.e. if one continues as is, they all will). Expect this exact scenario to playout in the U.S. as the availability of sports betting expands, there’s far too much money at stake and far too little corporate restraint.

If the gaming companies won’t self-govern, perhaps the media companies selling the spots will follow Sky’s (SKYAY) lead and do it for them. SKYAY announced that beginning with the ’19-’20 season it will limit gambling ads per commercial break (1 spot/per) and as of June 2020, the company will offer technology that enables viewers to avoid gambling advertising all together. While it’s been estimated that the company earns +/- $262 million in advertising money from licensed sportsbooks and some suspect a “self-imposed limitation will cost it tens of millions in lost revenue”, I think the loss will be negligible; SKYAY will find another advertiser to take the valuable slot (remember: this is English soccer, no shortage of demand) and increase the price of their now more limited gambling inventory.

Fan Marino: Howie referenced the U.S. gambling market, so it would seem like an opportune time to mention that New Jersey issued its October sports betting report. The state’s gamblers bet 41% ($260 million) more last month than they did in September, but only took in half the revenue ($11.7 million). Why? The public side came in “at a heavier than average clip” (on NFL games) and both MLB and World Series futures were paid out during the month. DraftKings (+ Betstars NJ) once again took in more revenue ($5 million+) than any other licensee in the state, as online/mobile platforms outperformed retail sportsbooks; +/- 2/3 ($175 million) of the state’s October handle originated from a computer or handheld device.

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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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