Brian R. Gordon, CPA

Gaming Industry: Performance Review

Following the U.S. Supreme Court’s May 2018 decision that overturned the national sports wagering ban, a number of established gaming companies and sports betting operators have seized opportunities to enter new markets and explore fresh avenues to expand the reach of their brands. Major players including MGM Resorts International (MGM), Caesars Entertainment, Inc. (CZR) and William Hill US (WIMHY) have forged relationships with professional sports leagues and teams across the country, paving the way for new partnerships likely to be replicated by others in the future. In addition, regional operators continue to make moves in this evolving market space. For example, Boyd Gaming recently announced a strategic partnership with FanDuel Group. Sports wagering is legal and active in a half dozen or so states, and that number is expected to escalate in the coming years. In addition to the latest activity in the sports wagering world, a handful of company performances are included as well.

In July 2018, the National Basketball Association (NBA) announced MGM as its exclusive “official gaming partner,” marking the first such deal between a professional sports league and a gaming company in the U.S. Under the $25.0 million three-year contract, MGM will be promoted across the league’s marketing channels, including NBA.com, NBA TV, NBA-owned apps and social media accounts. MGM will also be able to utilize official NBA and WBNA branding and data across its sports wagering locations in the U.S. The non-exclusive engagement permits the NBA to enter into similar agreements with other companies also seeking the licensing of its official data.

MGM followed up its NBA deal with a similar partnership with the National Hockey League (NHL), which announced MGM as its “official sports betting partner” in October 2018. The first-of-its-kind arrangement for the league allows the company to market its brand offerings to millions of hockey fans through NHL media platforms. Additionally, MGM and the NHL will share marketing database information, which they expect to be of significant mutual benefit in the future in expanding their relative customer reach. The agreement provides MGM with access to unseen NHL proprietary game data that is currently under development by the league. The NHL said that the data will unlock new fan engagement and wagering opportunities wherever sports betting is available.

Sportsbook operator William Hill US announced in September 2018 a multi-year partnership with the Vegas Golden Knights, marking the first instance of a team from any of the four major North American sports leagues to sign a sponsorship agreement with a sportsbook operator. The deal involves signage on a dasher board along the ice in T-Mobile Arena visible during home games, other in-arena signage, a screen displaying live betting odds during intermissions, sponsorship of away game watch parties and promotion of the “William Hill Line Change” any time the Vegas Golden Knights make a line change.

William Hill US also struck a deal in October 2018 with the New Jersey Devils to become a sponsor at Prudential Center in Newark, New Jersey. The agreement details the allotment of dedicated arena space for a William Hill Sports Lounge, a first-of-its-kind lounge that will feature a full-service bar designed for the promotion of company app downloads and sports betting activities. While the lounge will not be a sportsbook, it may have the feel of one and will feature multiple TVs and an area for betting via its mobile app.

Caesars Entertainment entered the professional sports landscape with franchise-level agreements across several sports leagues. In October 2018, the company signed a 15-year agreement to be a founding partner of the Las Vegas Stadium, the future home of the NFL’s Raiders currently under construction. Under the agreement, Caesars will brand one of the five stadium entrances as well as host a drop-off zone, digital signage and various radio and print media for stadium events. The deal represents the Raiders’ first transaction with a gaming and resort brand, allowing Caesars to offer perks to VIPs such as access to its 50-yardline owner’s suite, special events and tours, premium tickets and exclusive experiences.

Additionally, Caesars signed partnerships with the Philadelphia 76ers and New Jersey Devils in October 2018, becoming the first casino operator to strike agreements with franchises of the NBA and NHL. While details were limited, Caesars’ multi-year deal with the Philadelphia 76ers will allow for advertising placements at their Wells Fargo Center home arena and across their social media platforms. Caesars’ partnership with the New Jersey Devils allows for the promotion of its properties and signature brands to regional and international fan bases via 80 digital boards, club-level tickets, promotional wristbands, as well as the construction of a 5,000-square-foot Caesars Club restaurant and bar on the main concourse of Prudential Center. Caesars Club will serve to promote Caesars-related experiences, its sportsbook operations and mobile sports betting app.

In August 2018, the National Football League (NFL) amended its rules on team relationships with gaming companies to allow the receipt of advertising from casinos and fantasy-sports companies, the use of team logos in advertising and allowing stadiums to be named after gaming partners. However, the sharing of revenues based on fan referrals to physical or digital casino locations remains specifically barred. Following the league’s relaxing of rules, a handful of franchises engaged with gaming companies.

The Dallas Cowboys became the first NFL franchise to partner with a resort-casino property in September 2018 by partnering with WinStar World Casino & Resort, a Chickasaw Nation tribal property in Thackerville, Oklahoma. As an official corporate sponsor, WinStar will be allowed to use the NFL teams’ logo as part of marketing and promotions, and it can participate in cross-promotional events with the team.

In October 2018, the Baltimore Ravens announced a non-exclusive arrangement with Caesars-owned property Horseshoe Baltimore in Maryland – a state that has not yet legalized sports gambling. The agreement therefore does not have anything to do with gaming, instead it places Horseshoe Baltimore as an “official casino partner” of the Ravens, allowing the use of team logos in marketing and promotions, and includes plans of restructuring an existing bar as a Ravens bar.

Also in October 2018, the New York Jets announced an agreement with MGM that includes signage at MetLife stadium, sponsorship of Jets Studio, use of logos at its resort properties including the Borgata in Atlantic City and provides opportunities for Jets season-ticket holders and team rewards members to win free hotel rooms and experiences at its properties. A unique component of this engagement includes the introduction of a game titled “I Called It” exclusive to the Jets’ app that is sponsored by MGM’s app called Play MGM. “I Called It” is free, available during the Jets’ home and away games and includes a variety of play options. Winners within the game can only be awarded prizes, with no options for wagering. The game has been constructed to comply with the NFL’s rules that permit gaming partnerships, but not partnerships that involve gambling.

MGM Earnings Positive in Q3 2018

Taking into account MGM’s particularly strong performance a year ago, the company reported respectable results in the third quarter of 2018. MGM reported consolidated net revenues of over $3.0 billion during the quarter, increasing 7.0 percent from the third quarter of 2017. Revenue growth was primarily driven by the casino segment, which increased by 14.2 percent compared to one year ago. Domestically, net revenue decreased by 1.6 percent from the prior year, falling from $2.27 billion to $2.23 billion.

In the third quarter, MGM’s adjusted property earnings before interest, taxes, depreciation and amortization (EBITDA) at domestic properties fell 12.0 percent from $712.0 million in the prior year to $627.0 million. During the quarter, EBITDA margins decreased from 31.4 percent to 28.1 percent on a year-over-year basis for the company’s domestic resorts. Domestic properties with the strongest EBITDA margins in the third quarter of 2018 included New York-New York (35.7 percent), MGM Grand (34.3 percent), Excalibur (34.0 percent) and MGM Grand Detroit (32.6 percent).

MGM China’s performance improved year over year with net revenue growth of 37.1 percent from $442.1 million to $606.0 million. MGM Cotai, which opened in February 2018, contributed $171.8 million in net revenue during the third quarter of 2018. Adjusted EBITDA margins at MGM China fell from 27.4 percent to 21.5 percent in the third quarter.

Sands’ Macao Operations Shine

Las Vegas Sands (LVS) reported positive overall results in the third quarter of 2018. Sands’ quarterly net revenue rose 6.7 percent from $3.16 billion to $3.37 billion due entirely to operations in Macao. Net revenues in Macao increased 13.1 percent year over year during the third quarter, rising from $1.90 billion to $2.15 billion. In Singapore, Sands’ net revenues improved from the prior quarter to $766.0 million, yet were down 2.9 compared to one year ago, primarily due to lower win on table games.

MGM Resorts International and Caesars Entertainment have been in the forefront in forging partnerships with professional sports leagues and franchises since the U.S. Supreme Court decision that overturned the nationwide ban on sports betting. MGM recently announced multi-year agreements with the National Basketball Association and the National Hockey League as well as the New York Jets of the National Football League. Caesars has partnered with the Oakland Raiders and Baltimore Ravens of the National Football League and the Philadelphia 76ers and New Jersey Devils of the NBA and NHL, respectively. (Photo credits: Michael Neil Thomas and Jason Patrick Ross / Shutterstock.com)

Sands posted a company-wide adjusted EBITDA increase of 6.0 percent in the third quarter of 2018 compared to the prior year, an improvement sourced to the company’s Macao operations where EBITDA increased by 15.8 percent to $754.0 million with a 35.0 percent margin. Significant EBITDA growth came from properties including the Venetian Macao, which reported an increase of 30.3 percent to $344.0 million with a 40.1 percent margin, and Sands Cotai Central, which reported growth of 22.1 percent to $188.0 million with a margin of 35.0 percent.

Sands’ Las Vegas operations reported an adjusted EBITDA of $76.0 million in the third quarter of 2018, matching the value reported one year ago, as net revenues on the year fell 2.1 percent from $387.0 million to $379.0 million. The company’s food and beverage and casino segments were the source of revenue decreases in the third quarter of 2018, falling 9.1 and 4.3 percent, respectively, when compared to the same quarter of the prior year.

Macau Carries Wynn Resorts

Wynn Resorts (WYNN) reported year-over-year operating revenue growth of 10.2 percent from $1.55 billion to $1.71 billion in the third quarter of 2018. The company’s latest performance was driven by the company’s continued strong performance in Macau, as Wynn’s Las Vegas portfolio experienced a 14.1 percent decline in operating revenue from the $464.3 million one year ago to $398.9 million in the third quarter of 2018.

Wynn’s Macau properties reported combined operating revenue growth of 20.5 percent during the quarter, rising from $1.09 billion to $1.31 billion. The performance at Wynn Palace was primarily responsible for the increase, while operations at Wynn Macau remained positive. Casino revenues at Wynn Palace rose 39.9 percent on the year from $447.1 million to $625.6 million in the third quarter of 2018.

Caesars Climbs After Bankruptcy

Caesars Entertainment (CZR) posted net revenue of $2.19 billion in the third quarter of 2018. The latest financial report reflects the inclusion of Caesars Entertainment Operating Company (CEOC), which emerged from bankruptcy in the fourth quarter of 2017, and the July 2018 acquisition of Centaur Holdings, LLC, an owner of several regional assets.

Enterprise-wide net revenues rose 2.9 percent from $2.12 billion to $2.19 billion from the prior year, while adjusted EBITDAR (EBITDA before rent payments) decreased 2.1 percent on a year-over-year basis from $613.0 million to $600.0 million. Caesars management attributes the loss in EBITDAR to lower hotel revenues in the Las Vegas region and increased competition in Atlantic City.

Brian Gordon is a principal with the Nevada-based advisory services firm, Applied Analysis. Gordon has extensive gaming and leisure experience from an accounting, finance and operational perspective. Contact Brian.