Vertical Betting MGM Resorts International ‘Entains’ More Action In The Sports Betting Vertical By: Damien Connelly

VERTICAL BETTING

MGM Resorts International ‘Entains’ More Action In The Sports Betting Vertical. By Damien Connelly

GM Resorts

MInternational, an S&P 500® company, made an acquisition play for Entain plc, a FTSE® 100 company. It was a slightly surprising offer, but not wholly unexpected. The rationale was simple and included:

1. Entain has a proprietary B2C and B2B technology stack. This acquisition would enable MGM

Resorts to take ownership of that end-to-end technology stack;

2. Entain is MGM Resorts’ sports betting partner in their 50/50 joint venture, BetMGM; and 3. This acquisition would have delivered full control of BetMGM to MGM Resorts – beneficial to

MGM Resorts as sports betting is rapidly growing across America and companies such as Entain, which has its roots in the UK, have decades of experience in running legal omnichannel, multi-jurisdictional sports betting operations.

The premium was 22% to the share price for Entain based on closing prices on 31 December 2020 – not a “Wow” premium. The offer was publicly acknowledged on 4 January by both parties, and withdrawn 19

ABOVE: Jette NygaardAndersen CEO Entain

January by MGM Resorts “after careful consideration and having reflected on the limited recent engagement between the respective companies”. On 21 January, Entain announced the appointment of a new CEO – Jette Nygaard-Andersen – with the previous CEO said to have quit, having only been in position since July 2020.

A Good Fit?

In my opinion, these companies were not, and are not, a good fit – especially culturally. Rather than being accretive, I think this acquisition would have been value-dilutive; to employees, to investors, and also to the broader stakeholder community. MGM Resorts’ experience is in large-scale, high margin, (mostly) destination properties. Entain is experienced in small-scale, low margin, locals properties, as well as in digital. From a financial perspective, there may have been cost synergies, but from a marketing perspective (especially customer cross- and up-selling), I see a limited fit between Entain and MGM Resorts.

Synergies between sports betting and casino customers are limited, and there’s not much overlap between destination and locals customers either. There are spend overlaps between sports betting and casino customer cohorts for resort amenities such as hotel rooms, food and beverage, and live entertainment. However, a base requirement for this acquisition to have been asset accretive would have, in my opinion, been the potential to cross- and up-sell sports betting customers to become destination resort customers. I don’t see that happening in enough volume to make it value-accretive. Additionally, as 5G increases its footprint, I think this will create more and more in-stadia (locals) sportsbooks – except for multiday events such as March Madness. Why would a sports betting customer go to a destination resort if they can go to a stadium and experience sports events live? 5G creates opportunities for customer-facing entertainment companies to grow and extend their customer touch-points, products, and revenues; including being the sportsbook of choice for stadium operators.

ABOVE: William Hornbuckle CEO MGM International

A Superior Fit

MGM Resorts’ attempted acquisition of Entain shows it is interested in developing its in-house sports betting capabilities. There are, in my opinion, multiple superior corporate and cultural fits for MGM Resorts to build-out its in-house sports betting skillset. Several of these ‘superior fits’ would enable MGM Resorts to offer customers a multi-brand approach, which I think is a necessary development in the sports betting vertical – it is not a vertical where ‘one size fits all’ in branding terms, as is currently the case in this industry.

I will not name the companies I think are a superior fit here because MGM Resorts is a stock-market listed company, and some of the targets that I think are a superior fit for MGM Resorts are also listed companies … while some are privately owned. One aspect I am confident of – in the sports betting vertical, this will not be the last acquisition offer by a large resort casino company for a sports betting specialist. Indeed, given the acquisition of Barstool Sports (36%) by Penn National Gaming and William Hill by Caesars Entertainment, it is obvious that other major casino operators will make acquisitions short-to-mediumterm as they seek to absorb into their corporate culture, product offerings, and revenues, in-house sports betting technology stacks and (digital) customer experiences.

While I can see reasoning as to why MGM Resorts would seek to acquire Entain, I think it was more of an asset splitting play rather than a growth play; MGM Resorts would have kept the assets it wanted (the technology stack and customer databases) and sold off the assets it deemed non-core (especially the retail assets). However, the cultural mismatch would have been the long-term Achilles heel.

RIGHT: Damien Connelly at Borgata Resort Casino

Outsource Vs In-House

Referencing the mantra developed in a famous Harvard Business Review article that organisations should focus on their core competencies, sports betting is a wagering product where customers definitely have demand for resort amenity products like hotel rooms, F&B, and live entertainment. As an example, when I visited MGM Resorts’ Borgata sportsbook in Atlantic City whilst on assignment for Casino Life, I was thoroughly impressed by the quality and variety of amenities and product offered. I believe bringing sports betting in-house can provide accretive stakeholder value to resort casino operators such as MGM Resorts, so long as they don’t overpay for those assets. The fact MGM Resorts did not increase its offer signals that it also recognises this logic.

We are all watching avidly the development of the U.S. sports betting market; and, indeed, the global sports betting market, which is also developing quickly. As jurisdictions legalise sports betting, I expect further M&A activity worldwide.