U.S. hotel and casino operator MGM Resorts (largest casino company in the world) and the international sports betting operator GVC Holdings are expected to announce a $200 million sports betting joint venture this week; perhaps as early as today. Reports indicate that each group will post $100 million towards the new venture and each would own 50%. Designed to span 25 years, the deal allows for either side to buy the other out after 10 years; paving the way for a potential merger. MGM will bring their significant portfolio of U.S. casinos to the table, while GVC Holdings technology will serve as the backbone for the JV’s mobile and brick and mortar gaming operations.
Howie Long-Short: MGM’s domestic portfolio includes 13 properties in Las Vegas (includes: MGM Grand, Bellagio), 1 in Michigan (MGM Detroit), 1 in Maryland (MGM National Harbor), 2 in Mississippi (Beau Rivage and Gold Strike) and 1 New Jersey (Borgata); the company also just acquired Empire City Casino in New York and will be opening its doors at the new MGM Springfield (Massachusetts) in August.
On the balance sheet, MGM has transformed itself over the last several years to transition from a “debt burdened enterprise to cash rich one”, returning over $1 billion to shareholders since early ‘17. That appears to be just the start of the payouts, though. The company is first now approaching “the end of our current investment cycle (invested $8 billion since mid ’14), which puts us into the exciting period of generating significant free cash flow.” It’s “our desire to continue to return this accelerating free cash flow to our shareholders in the form of dividends and share repurchase.” MGM will report Q2 ’18 earnings on Thursday.
GVC Holdings (OTC: GMVHF) has grown rapidly through a series of acquisitions, now controlling several well-known sports betting/gaming brands including Bwin, Ladbrokes, partypoker and Sportingbet. The company reported “acceleration in year-on-year growth in Q2 2018 over Q1 2018 driven by good underlying momentum and the World Cup”; a tournament that drove both “volumes and value of new customer deposits.” Company shares are currently trading at $14.32, 3.5% off their 52-week high.
Fan Marino: While MGM and GMVHF are clearly bullish on the future of sports betting in the U.S., that’s oddly not the case with every gaming company. Penn National Gaming told investors on their July 26th earnings call that “sports betting would likely prove more beneficial in terms of increased hotel room bookings and table drop than from the actual betting revenue.”
We’re nearly certain that won’t be the case and we’re not the only ones. Gambling industry expert Chris Grove (OnlinePokerReport.com) recently wrote, “sports betting is top-tier product by revenue in almost every international market, and there’s clear demand in US for sports. If done right, no reason it can’t be a double-digit direct contributor.”
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