Entering MGM Resorts’ quarterly earnings call on Wednesday, speculation mounted that the major casino corporation could renew its pursuit of U.K.-based Entain plc.
The rumors intensified last week when Entain announced that the company would cease its financial commitment to BetMGM if the online gaming operator is profitable in the second half of 2023. One prominent analyst even went so far as describing MGM Resorts’ pursuit of Entain as practically “inevitable.”
On Wednesday, MGM Resorts CEO Bill Hornbuckle quashed any speculation that the company will pursue an acquisition bid by offering strong words about MGM’s commercial relationship with Entain. Given the noise surrounding a potential bid, the comments came as somewhat of a surprise.
“It’s time to be definitive and give a little direction. The simple answer on Entain is we’ve moved on,” Hornbuckle said in a call with Wall Street analysts. “We value Entain, we value BetMGM. But as it comes to the rest of the world, we’re going to move forward with a different proposition.”
Nearing profitability
BetMGM is coming off a strong year in which it posted net revenue of $1.4 billion, surpassing internal targets by approximately $100 million. Moving into this year, BetMGM projects revenue guidance in the range of $1.8 billion to $2.0 billion, falling within the range of estimates from Bank of America. More importantly, BetMGM anticipates positive EBITDA over the second half of the year — representing the first potentially profitable period in the five-year history of the venture.
Shortly after the U.S. Supreme Court’s historic PASPA decision in 2018, MGM Resorts and Entain formed BetMGM as a 50/50 joint venture. Entain provides a sophisticated tech stack to power the network, while MGM Resorts provides one of the industry’s most recognizable brands. In the short history of the sports betting operator, the companies have invested approximately $1.25 billion combined into the joint venture.
In light of Entain’s comments last week, a source close to BetMGM told Sports Handle that since the venture expects to generate positive cash flow internally, the funding requirement from shareholders will cease.
Hornbuckle indicated Wednesday that he does not anticipate MGM Resorts contributing a substantial amount of capital into BetMGM beyond this year. In 2022, MGM Resorts completed an acquisition of Swedish online gaming operator LeoVegas for $604 million. While Hornbuckle sees potential in LeoVegas’ expansion, MGM Resorts is not able to use LeoVegas’ technology capabilities with BetMGM under the contractual agreement with Entain.
Two years ago, MGM Resorts made an $11 billion (£8.1 billion) bid to acquire Entain, one that the global operator dismissed, claiming that it “significantly undervalued” the company and its prospects. Since then, Entain’s valuation has dipped considerably, in line with numerous leading gaming stocks worldwide. As of Thursday, Entain had a market capitalization of $8.25 billion, fueling speculation that the company is ripe for a takeover.
Hornbuckle’s comments indicate any takeover will not come from MGM Resorts — at least for now. It is important to note that Entain has not stated definitively that it will exit the joint venture. JMP Securities analyst Jordan Bender suggested that Wednesday’s development implies that the BetMGM brand will “operate in its current form” over the course of the agreement.
“We view this as the only negative takeaway during the quarter, given our belief the entity would be able to better operate under a single entity,” Bender wrote in a research note.
During a BetMGM business update last month, the venture indicated that it ended 2022 as one of the top three sportsbook operators in the U.S. with a nationwide market share of approximately 13%. As a standalone entity, BetMGM is valued from $3 billion to $6 billion, while trending toward the higher end of the range, Roundhill Investments CEO Will Hershey told Sports Handle. Hornbuckle did not address whether MGM Resorts would make an attempt to take full control of BetMGM at some point this year.
Stock movement
MGM Resorts reported consolidated net revenues of $13.1 billion in full-year 2022, an increase of 36% from the previous year. For the fourth quarter of 2022, MGM reported EBITDAR of $957 million, topping analyst expectations by 11%.
MGM Resorts opened on Thursday around $45 a share, surging 9% on the earnings’ beat. After a challenging year in 2022, MGM is up 34% since Jan. 1.
Bender increased his price target on MGM Resorts by $4 a share to $60 while valuing its core business at $43 a share. In terms of BetMGM, JMP Securities values BetMGM at $15 a share.
