MGM Reserved in Outlook for BetMGM

Posted on: February 23, 2024, 02:08h. 

Last updated on: February 23, 2024, 02:39h.

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

While broadly bullish on the prospects for its integrated resorts in Las Vegas and Macau, MGM Resorts International (NYSE: MGM) is more restrained in the optimism it’s directing to BetMGM and iGaming.

BetMGM
The BetMGM logo. Half-owner MGM Resorts International is optimistic about the betting online betting company’s future. (Image: NY Sports Day)

That’s the take of Jefferies analyst David Katz who recently met with MGM management in Las Vegas. Earlier this month, the Bellagio operator reported record fourth-quarter results, helped in large part by its Sin City and Macau venues.

While BetMGM was profitable on the basis of earnings before interest, taxes, depreciation, and amortization (EBITDA) in the second half of 2023, MGM management acknowledged that the online gaming entity in which it owns 50% shed some market share. Katz noted that while MGM executives waxed “bullish” on land-based casinos, they’re just “optimistic” regarding iGaming and “somewhat more measured about BetMGM.”

In its latest financial update, BetMGM reiterated that it expects to achieve $500 million EBITDA in 2026.

Hope for BetMGM

While BetMGM runs third to FanDuel and DraftKings (NASDAQ: DKNG) in online sports betting market share, and is in decent position in the iGaming realm, MGM management told Katz the 50/50 joint venture with Entain Plc (OTC: GMVHF) can “flourish.”

How that materializes remains to be seen. Entain is in a period of transition after activist investors forced the ouster of former CEO Jette Nygaard-Andersen. Some of those activists have direct ties to MGM, stirring speculation that the casino giant will revisit a takeover bid for its BetMGM partner — an idea previously endorsed by Katz.

Before her departure, Nygaard-Andersen said joint ventures don’t last forever, and it’s possible that new executives and directors at Entain could favor a sale of its 50% in BetMGM to MGM. That would raise cash for the seller and allow it to focus on markets outside the US.

That would also likely be the preferred and certainly the most cost-effective option for MGM, too. At the end of 2023, MGM had $2.92 billion in cash and cash equivalents, giving it one of the stronger balance sheets in the industry, but the gaming company would need more firepower to make a credible offer for Entain in its entirety.

Expect More iGaming Acquisitions

While MGM executives were conservative in their iGaming comments to Katz, it’s clear they remain constructive on the space because the analyst noted the management team “remains focused on digital as an area of growth warranting investment.”

That includes more acquisitions comparable to the operator’s $604 million acquisition of LeoVegas in 2022. While MGM isn’t capital-constrained, Katz observed the gaming company could deploy more cash to digital acquisitions over share repurchases with the former potentially being more rewarding for long-term investors.

“As the need for capital becomes greater, opportunities for repurchases are offset. Our view has been that the buybacks are moderately productive, while the potential for growth in digital and new markets could be even more impactful on the shares,” concluded the Jefferies analyst.