Can Bally's play catch up after buying its way into online betting?

For many, 2020 appeared to be the year that drove legacy casino companies to take a long hard look at the reality of their declining sector and embrace the online opportunity. In the past, brick-and-mortar industry figures have fought against the implementation of online gambling in the US, particularly the late casino mogul Sheldon Adelson, who funded the Restoration of America’s Wire Act (RAWA) federal bill back in 2014, to reverse any positive momentum in the legalization of online poker. Almost seven years on and Adelson’s Las Vegas Sands casino business is in talks with potential partners to establish its online presence.

In the last four months, we’ve seen Caesars, Wynn Resorts, MGM Resorts International, Las Vegas Sands, and Bally’s all make a play for mobile betting as Covid-19 hastens the decline of retail gaming. While these longstanding casino giants have the advantage of understanding the retail casino player, could their late entry to the party hinder their chances of making a significant dent in the already well-established online sector? “There’s no right or wrong solution, at least at this point, with how these companies are approaching this space,” Macquarie Group analyst Jordan Bender explains. “Someone like DraftKings obviously has the money, the online presence, and the marketing power to go after a lot of these customers, while someone like Bally’s has the omni-channel approach. They might not necessarily need the capital to go acquire players, as they have a database that they can really cross-sell from casino to their online platform,” Bender adds.

As in politics, nothing in the gaming industry happens by accident, and the timing of these legacy casinos moving into online is certainly of note. Bender predominantly covers land-based operators, and claims these casinos began to consider the market “a year [after PASPA was repealed]” but they were unsure how the market would take shape. “We started to see states like New Jersey really ramp up in 2019 and then Covid accelerated the stay-at-home market and they started to realize how big this opportunity was,” he adds.

Bally’s share price soared 58% on the $125m acquisition of Las Vegas-based sports betting platform Bet.Works, and its subsequent media partnership with Sinclair Broadcast Group on November 18. It hit almost $54 on January 6, causing Bender to raise his price target for the operator to $61 per share. In a recent Macquarie note, he attributed at least $11 of the target to news the operator had secured an online casino license in Pennsylvania via an auction carried out by the state regulator.

In January, Bally’s released plans to build a casino in the vicinity of Penn State University in Centre County, Pennsylvania. Bender estimates Bally’s could seize up to 10% of the state’s market for mobile wagering and igaming within 18 months of launch. “This deal with Bet.Works and Sinclair is supposed to close about mid-year this year. That’s when they’re going to start launching their app, then they have to get out to the market and start integrating some of the product within Sinclair. So, the way that I look at it, my estimates suggest 2022,” Bender notes.

Bally’s crept into the news after rebranding from Twin River Worldwide Holdings in 2020 via a $20m naming rights deal with Caesars Entertainment. It has grown its casino estate from five properties last year to 15 once its Indiana, Illinois, and Nevada casino acquisitions are finalized. The tactical approach to securing properties in certain key states reflects Bally’s desire to make waves in the mobile betting world. Integration of the 130-strong Bet.Works employee network, across three North American offices, is well underway as the operator targets a Q2 product launch.

“We plan on taking a different approach than most industry operators,” Bally’s Corporation president and CEO George Papanier tells EGR NA. “As we successfully increased the size of our national footprint and acquired an iconic brand synonymous with US gaming and entertainment, it became time for us to augment our portfolio and acquire a company that would allow Bally’s to become the first truly vertically integrated sports betting and igaming company in the US with a B2B2C business model,” Papanier says of the firm’s Bet.Works purchase. “The acquisition naturally complemented that long-term growth, development, and unification strategy, and in addition its technology will support future Bally’s product launches and allow us to receive a margin advantage of 10%-15% for owning the player account management technology and sports gaming engine,” he continues.

“The primary focus will be on growth, which will continue on the B2B side, and will involve a rapid ramp-up of B2C” – Bally’s CEO George Papanier

Bet.Works for us

US operators are frequently approached and courted by B2B betting suppliers looking to be acquired and merged into larger groups with the marketing firepower and investment capital to fund expansion and growth in such a competitive and expensive market that is the US. Unsurprisingly, US entities have looked to well-established and highly experienced European platforms to power their North American betting efforts. DraftKings’ acquisition of SBTech is one key example, as is Wynn Resorts’ recent purchase of UK-based social wagering platform BetBull.

But Papanier insists Bally’s was seeking a US-centric brand with experience trading US lines to US bettors. Bet.Works’ trading and risk management team has been overseen by Vegas veteran Jay Rood, whose career spans 25 years as VP race and sports at The Mirage. Conversely, intuitive betting startups are being bombarded with offers for investment from SPACs, private equity, and venture capitalists all keen to cash-in on North America’s mobile betting opportunity. Bet.Works and Bally’s commenced discussions as potential B2B partners as the betting platform’s founder and CEO David Wang reveals he was never actually on the hunt for any M&A activity.

“We have a good relationship with Bally’s, and this discussion originated as a traditional partnership, but as we spent a lot more time together, whether it was the Bally’s team understanding our technology, the team, or vice versa, the conversation gravitated towards an M&A discussion because it just made so much sense,” Wang recounts. “I felt Bally’s had all the key ingredients to become a major player in the US sports betting space.

“The company has an iconic brand and the appetite to be a very digital-first organization. We truly feel that we now have everything under one roof to compete with any other player in the marketplace. And they believe in the B2B2C business model, which allows us to continue growing our current B2B business,” he adds. Leveraging and scaling the platform to entice additional clients onboard is crucial for the company’s progression, Wang says.

As part of the Bally’s takeover, a new tech hub will be established in the operator’s home state of Rhode Island, with plans to hire at least 25 product, engineering, and design folk this year. “We’ll look to broaden out the technology scope as Rhode Island has a unique talent pool from engineering to design and so forth,” Wang says. “We are hoping to have at least 25 individuals in Rhode Island in 2021, and that is a very significant component of our organization going forward.”

Talent hunting

Bet.Works currently powers Canadian sports media heavyweight theScore’s mobile betting product in a handful of states, as well as ELITE Sportsbook’s retail offering in Colorado. Wang says Bet.Works’ current clients are excited for the supplier’s future and opportunity to scale, despite potential conflicts of interest that may arise in it developing its own B2C business.

Wang has been appointed CEO of the Bally’s Interactive arm and is on the hunt to grow his team significantly. “We have over 100 additional positions available from operations to engineering,” Wang hints. “It’s going to be a very significant ramp up over the next few quarters. [These positions are] going to be across all three of our office locations, whether it’s Las Vegas, Atlantic City, or even in Vancouver.”

Bally’s’ management has been wise to give Wang and his team free rein of the soon-to-be formed interactive business, considering their experience and understanding of the market. Wang previously spent time leading former European operator PartyGaming’s strategic marketing efforts, before a six-year spell as CMO at SEGA Games. In 2014, he returned to the industry, overseeing all aspects of interactive gaming development for MGM Resorts and later Wynn Resorts before establishing Bet.Works in 2018 as one of the few suppliers with a deep knowledge of US betting. His experience at brick-and-mortar casinos will surely aid the group’s plans to adopt an omni-channel approach, leveraging Bally’s casino database of over 14 million active customers.

“Extensive plans are in the works,” says Wang. “But we are focused on unveiling a unified loyalty card and tying our physical presence to the digital world. Many of these Bally’s properties were recently acquired and we are going to make sure we take advantage of that because we can create these new opportunities for the company.” In January, MGM’s joint venture with Entain, BetMGM, reported it was starting to see its omni-channel investment pay off as a high single-digit of its customer acquisitions were coming through the casino’s M life Rewards loyalty program. In July 2020, BetMGM said it was investing heavily in integrating the rewards scheme into its betting and igaming app.

Where Bally’s is at an advantage over some of its peers is in the very limited disruption it says the Bet.Works integration will cause. Conversely, DraftKings’ acquisition of SBTech has required a complex merging of operations as the DraftKings product is shifted off its current platform provider, Kambi. There is also the matter of unavoidable downtime across its products as they are currently live and often very busy. As Bally’s is not yet live with any sports betting or interactive offerings, Bet.Works will have full control of the development from day one.

“We’re anticipating a Q1 close,” Wang says of the operational integration. “From a resource standpoint, we’re going to be a large company. And having a ‘B2B2C’ business model is going to allow the business to be in a number of additional spaces very quickly. I think this allows the company to focus a lot more on innovation, and we have an opportunity to really have a unique footprint,” he nods.

Game, set and match

Industry analysts and keen followers are waiting with bated breath to see how Bally’s innovates on its media partnership with Sinclair, the largest owner of over-the-air television stations in the US. In a presentation to analysts in November 2020, Bally’s senior management said the tie-up would “create unrivaled sports gamification content on a national scale.” Although both Wang and Papanier remain tight-lipped on what these integrations might include, they highlight the key aspects of the deal, particularly the power of marketing their brand through Sinclair’s regional sport networks (RSNs).

All of the broadcaster’s 19 Fox Sports RSN will be renamed Bally Sports in Q2 2021. “Despite having this major national reach, we will look to localized integrations as well, given the regional nature of sports betting here in America,” Wang explains. “I think over the next year or two, the market will be very impressed and excited about all the unique products that we develop, as we’re going to look to deliver a one-of-a-kind online gaming experience and really have it very tailored to the local audience.”

Wang sees significant value in Sinclair’s Tennis Channel, which airs 96% of all live matches broadcast in the US. In October last year, the channel gained the rights for the APT Tour Masters 1000 events held in North America beginning in 2021, making it the exclusive US broadcaster of all these events.

“One of the areas that I was most excited about with Sinclair was the opportunity to integrate with the Tennis Channel,” says Wang. “As we all know, tennis is a very significant betting activity. I just think that we’re going to do a lot of very innovative things with that integration, which will create a product that is not in the marketplace today. [This would be complemented by] Sinclair’s 24/7 multi-platform sports network, Stadium, and STIRR, its fast growing direct-to-consumer streaming app offering live and on-demand content.”

Bally’s Interactive CEO David Wang

Macquarie’s Bender admits the Sinclair contract generated real interest in the Bally’s brand among analysts. “When Bally’s announced the Sinclair partnership, that really transformed the company from maybe a 1% or 2% market share online player to a 5% to 10% market-share player,” he acknowledges. “It transformed them into a company that could compete with some of the larger companies like a Barstool/Penn National Gaming or Caesars/William Hill.”

Sinclair appeared to be one of the last of the traditional sports broadcasters that operators have been scrambling to tie down, as PointsBet partnered with NBC Sports last year, as did Caesars with ESPN, William Hill with CBS Sports, and back in 2019 The Stars Group started the trend with Fox Sports. Although Fox Bet has not yet caused a real dent in the mobile betting market, PointsBet and Bally’s are expected to begin leveraging their agreements this year.

Papanier says that although other broadcasters were considered before the Sinclair contract was signed, its diversified business content, distribution, and advertising platforms made it the right choice. “This partnership will allow us to market, design, and integrate products on a state-by-state basis and deliver one-of-a-kind online gaming experiences through bespoke offerings tailored to local audiences,” Papanier clarifies.

The operator will continue to expand its market-access reach in 2021, as a number of casino acquisitions are finalized. It will also see outside capital pour in via its market-access contracts with operator partners FanDuel, DraftKings, and theScore. “The primary focus [this year] will be on growth, which will continue on the B2B side, and will involve a rapid ramp-up of the B2C business. Strategically acquiring users to the Bally’s platform and building meaningful market share in the jurisdictions where we launch will be key. We are also looking to continue to deliver new and exciting innovations that will be deployed for the Bally’s brand,” Papanier concludes.

Despite it missing out on the early-mover advantage, Bender believes Bally’s could comfortably secure a fifth or sixth place in the market-share rankings across the US. “At this point I’m not going to say Bally’s is going to be at the top of the pile, but I definitely don’t think it is a small company anymore,” Bender alludes.