IAC Wagering on Online, Sports Betting, Takes $1 Billion MGM Stake

Posted on: August 10, 2020, 08:12h. 

Last updated on: August 10, 2020, 02:07h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Flush with cash from the recent separation of online dating site Match, Barry Diller’s IAC/InterActiveCorp (NASDAQ:IAC) is making a bet on the future of online gaming and rebound prospects in Las Vegas. The company is spending roughly $1 billion to amass a 12 percent stake in MGM Resorts International (NYSE:MGM).

IAC Chairman Barry Diller sees a big opportunity in MGM, so much so that his company owns $1 billion worth of the gaming enterprise. (Image: CNBC)

News of the deal sent the Bellagio operator’s stock higher by 20 percent earlier Monday, rising to its highest levels since early June. The name is higher by 12 percent at this writing. New York-based IAC has interests in a variety of internet companies, including Ask.com, Care.com, and media property The Daily Beast.

In a letter to shareholders, IAC acknowledges MGM is a business “that has relatively little to do with the Internet today,” but points out the opportunity to invest in a company that’s increasing its online footprint was too compelling to ignore.

We believe MGM presented a ‘once in a decade’ opportunity for IAC to own a meaningful piece of a preeminent brand in a large category with great potential to move online,” wrote Chairman Diller and CEO Joey Levin.

IAC, which becomes the latest high-profile investor to take an interest in the Mandalay Bay operator’s equity, told its shareholders it’s been buying MGM stock for several months. MGM Chairman Paul Salem said the company will invite representatives of IAC to join the gaming company’s board of directors, though he didn’t mention how many seats will be granted to the new investor.

Once Again Online Proves Alluring

Through ROAR Digital — a partnership with GVC Holdings Plc — the gaming company is a growing player in the online casino and sports wagering businesses with its BetMGM and partypoker brands, and it’s clear that its internet footprint, though small for the moment, drove IAC’s interest in MGM.

IAC, which has deep roots in e-commerce, said it’s been monitoring the iGaming arena for some time, but was “generally unsatisfied with the landscape we saw,” pointing to burdensome regulations that require companies like MGM to maintain brick-and-mortar outlets in the states in which they’re looking to offer online casinos.

“While we believe that regulatory environments generally catch up with consumer demand, it’s taken quite a while in this category, so we found one of the leading players operating in 7 going on 11 states by the end of 2020:  MGM, which pairs a strong physical presence and brand with talented online operators in a fast-growing joint venture in online gaming,” said IAC.

Diller and Levin compared MGM’s opportunity in internet casinos and sports betting to Walt Disney in the streaming entertainment space, noting Disney has brand cache via merchandise, movies, and theme parks — something many streaming rivals lack. The investors see a similarly “aspirational” brand in MGM, one that can convert physical customers to online patrons.

IAC isn’t a stranger to investing in nascent internet businesses. When the company invested in Match in 1999, the online dating platform had no paying subscribers. Today, it has north of 10 million. IAC invested in Expedia in 2002 when the US online travel market was worth $9 billion, a fraction of the $1.1 trillion it’s worth today.

Long-Term Investment

In highlighting MGM’s strong balance sheet — $8.1 billion worth of liquidity as of June 30 – IAC says this is a long-term investment and it’s enthusiastic about the recovery prospects in Las Vegas, where the gaming company is the Strip’s largest operator.

“And when Las Vegas fully re-opens — even if it must wait until a vaccine for that to occur — we expect it to roar back: a new NFL team, a new stadium, a driveable destination, and months of pent-up demand could drive a powerful resurgence,” said Diller and Levin.

The IAC executives say financial markets aren’t adequately valuing MGM’s balance sheet, and that, over the next decade, the operator’s free cash flow is likely to be in excess of its current valuation.