MGM Online Gaming Efforts Could Be Credit Tailwind

Posted on: June 28, 2024, 04:52h. 

Last updated on: June 28, 2024, 04:52h.

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

Earlier this week, MGM Resorts International (NYSE: MGM) said that its LeoVegas unit is acquiring the the US iGaming and sportsbook operations of Tipico Group for an undisclosed sum — a purchase that’s already drawing praise among some analysts.

MGM Grand on the Las Vegas Strip. An analyst is bullish on the operator’s bonds and digital gaming efforts. (Image: MGM Resorts)

The Tipico buy is more about bolstering technological capabilities than it is gaining market share, but Gimme Credit analyst Kim Noland still described the deal as “a key element” of MGM’s digital strategy, adding that the operator’s efforts in that space are starting to pay incremental dividends.

MGM’s sports betting and digital offerings are beginning to provide a profitable addition to its luxury international casino resorts presence and could be a growth tailwind going forward,” wrote the analyst in new report to clients.

Tipico will eventually cease its US operations and some of its US-based management, technology, and trading staffers will join LeoVegas when the transaction is finalized in the third quarter.

MGM Could Leverage Tipico Buy for International Digital Expansion

When MGM acquired LeoVegas in 2022 for more than $600 million, it was a clear sign that gaming company was seeking to broaden its digital horizons beyond the U.S. The soon-to-be acquired Tipico technology could be additive in that endeavor.

MGM’s international plans for its digital gaming segment are pertinent to investors because the operator isn’t encumbered by its relationship with Entain outside the U.S. In this country, BetMGM is a 50/50 joint venture between MGM and Entain, but related competitive restrictions aren’t applicable to MGM outside the US.

“The Tipico technology will help to scale MGM/LeoVegas across multiple jurisdictions and can be deployed internationally where the BetMGM joint venture doesn’t have exclusivity,” added Noland. “In addition, MGM recently joined a partnership with Playtech to offer live casino content, streamed directly from the gaming floors of Bellagio and MGM Grand in Las Vegas, to international regulated markets, with an option for entrance into U.S. markets in the future.”

The analyst said it is possible the Playtech live gaming venture could encounter regulatory bumps, but overall, MGM’s iGaming unit is growing.

Opportunity with MGM Bonds

Shares of MGM rallied nearly 15% this month, but the stock doesn’t pay a noteworthy dividend, meaning income investors might want to evaluate the operator’s bonds maturing in 2027. Noland rates that issue “outperform” and notes it sports a yield-to-worst of around 6%.

She observed the gaming company’s free cash flow generation and other sturdy fundamentals support the bullish outlook for the bonds.

“Our free cash flow estimate (adjusted EBITDAR less cash rent, interest, taxes and capex) is based on management’s guidance of $850 million capex and totals near $1.5 billion. In addition, MGM’s stock repurchases are significant ($511 million in the first quarter) and its remaining authorization is a hefty $1.7 billion,” concluded the analyst.