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Casinos, Investors Bet on Gamblers Playing From Home
Covid-19 has kept people out of casinos and pushed operators to focus on expanding their online business; ‘once in a decade’ opportunity
The MGM Grand Detroit casino in March, when Michigan launched legalized sports betting.
PHOTO: PAUL SANCYA/ASSOCIATED PRESS
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Casino operators and investors are making bets that online gambling is ready to take off in the U.S. as the coronavirus pandemic keeps gamblers away from slot machines and blackjack tables.
Casinos have long viewed online gambling warily, as a potential siphon of the dollars that come from gamblers attending their venues. But with bricks-and-mortar gambling decimated by the pandemic, casino operators are treating online gambling as an opportunity, making big investments and pursuing public spinoffs as a way to unlock the value of their online operations.
U.S. casino companies’ revenue plummeted by as much as 97% in the most recent quarter, thanks to pandemic closures and slow reopenings. Gambling revenue for slots and table games in casinos were each down more than 80% in the three months ended June 30, compared with the prior year, according to data released by the American Gaming Association, an industry trade group. By comparison, online casino and poker more than tripled, to nearly $403 million, the report said.
Tilman Fertitta, the billionaire owner of five Golden Nugget casinos, took his digital-gambling division public in June.
PHOTO: EVAN VUCCI/ASSOCIATED PRESS
The successful stock-market debut of DraftKings Inc. DKNG 2.27% in April focused the casino industry’s attention on online gambling. Valued at $3.3 billion as it began trading, the company now has a market capitalization of $12 billion, surpassing casino giants MGM Resorts International and Caesars EntertainmentInc.
“Online betting in the U.S. is in the first chapter—maybe even just the foreword—in terms of the growth story,” said Chris Grove, analyst with Eilers & Krejcik Gaming. “There simply aren’t as many opportunities for growth on the retail casino side.”
On Friday, DraftKings posted a $161 million loss for the three months ended June 30, but online casino games mitigated some of the revenue damage from canceled sports. The company in July released a new casino-focused betting app.
“It is perhaps a bigger opportunity than we or others were giving it credit for,” DraftKings Chief Executive Jason Robins said on a conference call.
The cancellation of sports events has hurt betting revenue, but it hasn’t put a dent in the longer-term expectation that sportsbooks, particularly online, will be a bigger business, according to analysts. Already, 22 states and the District of Columbia have approved sports betting, while eight more are considering legislation to allow the practice, according to the American Gaming Association.
Meanwhile, online casino-style betting—now legal in only six states—surged with people socially distancing at home and casinos closed. Poker is the only casino-style game Nevada allows online.
A series of investments this year reveals how casino operators are chasing the trend. Mr. Robins said as more companies focus on the industry, momentum will build around convincing more states to adopt sports and online betting.
Last month, Rush Street Interactive LP, the online gambling company affiliated with casino operator Rush Street Gaming LLC, agreed to go public in a merger with blank-check company dMY Technology Group Inc. The deal values the betting company at $1.8 billion including debt. dMY Technology is a special purpose acquisition company, or SPAC, that raises money to find companies to acquire.
Tilman Fertitta, the billionaire owner of five Golden Nugget casinos, including locations in Las Vegas and Atlantic City, made a similar step in June to take his digital-gambling division public through a blank-check company. Golden Nugget Online Gaming Inc. is valued at about $745 million under the transaction. Mr. Fertitta’s closely held bricks-and-mortar casinos don’t disclose financial information.
Gambling Fever
A state-by-state look at where sports betting is allowed or being considered.
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In an interview, Mr. Fertitta, who also owns the Landry’s restaurant empire and the Houston Rockets NBA franchise, said he hadn’t considered the move before DraftKings started public trading.
“We realized that we have an online gaming business that is worth a lot more than we thought it was worth,” Mr. Fertitta said.
Now, Caesars Entertainment—which became the largest U.S. casino operator after merging with Eldorado Resorts Inc. in July—might follow suit. CEO Tom Reeg said Caesars will consider a spinoff of its sports and online gambling operations. In a recent conference call, Mr. Reeg said sports and other online betting is “the most exciting growth opportunity that I’ve seen in over 25 years.” But, he warned, “we’re not going to react in a knee-jerk fashion to those valuations.”
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Meanwhile, MGM Resorts International said this past week thatIAC/InterActiveCorp. has spent $1 billion to build a 12% stake in the casino operator with plans to help MGM expand its online business. The company’s online-gambling revenue is “so small that it rounds down to zero,” IAC Chairman Barry Diller and CEO Joey Levin told investors in a letter this past week.
“We believe MGM presented a ‘once in a decade’ opportunity for IAC to own a meaningful piece of a pre-eminent brand in a large category with great potential to move online,” the letter said.
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MGM Resorts has a partnership with British sports-betting company GVC Holdings PLC to operate the BetMGM online brand, with the companies investing a total of $450 million into the venture, including a $250 million injection announced in July. The BetMGM app is operating in five states, including Nevada, New Jersey and Indiana.
By the end of 2022, 34 states will have some form of legalized sports betting, giving access to 57% of the U.S. population, according to projections by Eilers & Krejcik analysts.
Penn National Gaming Inc., which operates 41 gambling properties in 19 states, plans to launch a new sports-betting app in September in Pennsylvania after buying a stake in digital-media company Barstool Sports Inc.
“We think Barstool’s loyal followers and our existing casino guests will agree it’s unlike anything in the market today,” Penn National CEO Jay Snowden recently told analysts, adding that the company’s online-casino revenue has continued to grow even as bricks-and-mortar casinos reopened. The company’s stock price has more than tripled over the past three months to $52.48 on Friday.
In the end, there will be only a handful of winners in the U.S. online gambling industry, according to analysts, and a crowded field of competitors is jockeying for turf, pouring huge sums into their brands.
“It is a long-term play to win in this space,” MGM CEO Bill Hornbuckle said in an interview. “It won’t be for the faint of heart.”
Write to Katherine Sayre at katherine.sayre@wsj.com
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