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Retail-rooted American gaming companies are likely to continue their gaze toward their online-focused European counterparts, as evidenced by the proposed $11 billion takeover of Entain by MGM Resorts, gaming industry analyst and SpringOwl Asset Management CEO Jason Ader said.
Ader, whose company held interest in bwin.party Digital Entertainment before facilitating a $1.7 billion acquisition by Entain (then GVC Holdings), called the proposed MGM marriage “a great one” and expects it will be completed out of benefit to both parties.
The pieces simply fit, Ader said, particularly as the gaming industry consolidates at a quicker pace under continuing economic pressure hastened by COVID-19 impacts.
“It’s unique because they have a pre-existing relationship, then MGM has a lot of assets that have been devastated by the pandemic, and it’s timely because the land-based casino operators have woken up and realized that the online business, not only is it is a real opportunity, a potential threat, but the timing of the threat has been accelerated as a result of the pandemic.” Ader told PlayUSA. “Just like we’ve seen in many industries, the pandemic has accelerated the speed of which the online technology is implemented by the traditional consumers of gaming. So, there’s a lot of owners of casinos in Las Vegas and around the US who are really panicked and feel they want to be in the online gaming business yesterday and they have nowhere to go.”
Why the MGM-Entain marriage makes sense now
Although Entain shareholders are reportedly disconcerted at the value of the offer, and the company CEO resigned this week, Ader believes the deal will get done.
“You never put your best out first and they know that and everybody knows that. So I think there’s room to move up,” said Ader, who formed a special purpose acquisition company, 26 Capital, this week to further his mergers and acquisition pursuits. “I think it will get done and I think there’s a lot of logic to it getting done.
“There’s been some reports that nobody else could buy Entain because MGM has a relationship. I’m not convinced that’s the case, but I do believe that MGM has an advantage as a result of that.”
The deal would be yet another extension of the mergers and acquisition wave underway within the industry, and with Entain in recent years. Entain, known as GVC Holdings before September, has an impressive history. The company split the sports betting market it acquired with William Hill in purchasing Sportingbet in 2012, acquired British sports betting giant Bwin for upwards of $1.7 billion in 2016, completed a deal to buy Ladbrokes Coral for up to $4 billion in 2018, and entered into a $200 billion deal with William Hill later that year to exploit the burgeoning American legal sports betting market through ROAR Digital.
“Now with the name change, they’re a FTSE 100 company,” Ader marveled. “From AME-listed obscure gray market company to powerhouse, this has been an amazing success.”
European online companies become assets in American sector
Ader has a vested interest and belief in American companies continuing to target European counterparts. Spring Owl owns 5% of European gaming software company Playtech, which, Ader told Bloomberg in August, would be a plumb acquisition target for DraftKings, which earlier added SBTech as a platform provider through a merger. Caesars Entertainment’s purchase of William Hill to broaden its sports betting reach and the MGM-Entain deals will perpetuate the trend, he said.
“I think that the European and UK companies trade at lower valuations than the US companies. And I think the US companies recognize that the UK and Europe has been far ahead of the U.S in online gaming and therefore they’re better, more successful and more experienced companies,” he said. “And so we saw this with William Hill and Caesars. Now it’s MGM and Entain.
“But I think there’s about a dozen land-based companies in the US that would love to own a European gaming company. So who’s left?”
NetEnt-Evolution, Ader said “is too big.” Bet365 is private. Flutter, the world’s largest online gaming company, which will eventually own up to 95% of FanDuel, is too large to consume for most, Ader said.
“888 stands out as being a very attractive acquisition candidate for a US company and they have great people, great technology, great business, but small, so there’s some scale and they could benefit from having a large partner in the US,” he said. “Then there’s Playtech. And full disclosure, I think I’m the largest holder of Playtech. So Playtech, to me, has the best [business-to-business] platform. I think it’s better than SBTech by a lot. By a mile. SB Tech is part of DraftKings. So is there a role for Playtech business inside of the larger US company? I suspect there’s a lot of buyers looking at PlayTech.”
How do MGM and Entain complement each other?
A key boon for Entain is the opportunity that a well-known company with land-based assets – particularly a “great brand” like MGM, he said, or other marquee global ones – can offer to real money online casino or sports betting customers. This, he said, could be a critical component in customer acquisition.
“MGM is sort of a well-known entertainment brand and it goes back many, many years in the beginning of Hollywood. They do bring what I’d argue is the ability to bring a convergence, if you will, in my opinion, one that helps with key metrics, customer acquisition and customer-retention,” he said. “And I think a land-based casino company, combined with an online company can help with retention and acquisition by using some of the attractions that they have in Las Vegas – rooms, dinners, special events – as a way to target customers.”
The lure of tangible experiences could help cultivate or rejuvenate online players, he said.
“That means if you’re one of Entain’s best customers, or you’re a customer who has been a good customer, but you’ve not been active in a while and Entain is concerned about you having hit lifetime value, having the ability to bring you back or engage you more by offering the ability to travel, get discounted to travel, access to special events, it’s pretty exciting,” Ader explained. “It’s very different.
“All the online companies do hosted special events for their top customers. So even better, if you could do hosted special events at your own venue and cross over, and bring your best online customers into your land-based venues, that’s really where land-based companies can affect, in my opinion, the two metrics that matter most.”
Different gaming companies have different plans
Two very different companies have proved different facets of the above thesis. Ader points out both Walmart and Barstool Sports, the bro-forward media brand that Penn National Gaming paid $163 million in cash and convertible preferred stock for a 36% stake as a branding tool for its casinos.
“Barstool has certainly proven there’s media value to customer acquisition. I think that there is land-based and entertainment value for bringing down customer-acquisition costs, and then the customer-retention, converting a first deposit into a second deposit and a third deposit, by being able to entice your customers with discounted access to many, many properties around the US and in Las Vegas and even Asia,” he said. “That’s pretty unique and that’s actually exactly what Walmart does with its online storefront business.
“If you think about why Walmart’s been successful, they have land-based, they have online, they compete with Amazon, they compete with every retailer. So I sort of see what MGM is doing, is it’s kind of thinking about the business like Walmart: how do we dominate the storefront? How do we dominate online and compete against Amazon? And how do we be a winner in both? And MGM would be very well positioned to mimic that success.”
And what does Entain bring?
“They have great technology and great, great people,” said Ader. “They have everything an online gaming company could want and it’s exactly what MGM doesn’t have.
“They’ve got everything you’d want as it relates to technology content, customer list. They’re in that very top, and there’s not many in that top group.”
