Old takes on new in the world of online gambling
Las Vegas casino giants are ready to battle the industry’s newest online players, investing billions of dollars into acquiring and building their own online gambling platforms.
The Motley Fool reports that while DraftKings, Golden Nugget Online Gaming and Rush Street Interactive start to carve out their market share, seasoned campaigners like Caesars Entertainment, MGM Resorts and Wynn Resorts are ready to fight the next generation of gambling.
The growth of the online gambling business hasn’t been lost on traditional Las Vegas giants, who are investing in their own platforms and partnerships they hope will put them one step ahead.
Caesars Entertainment announced a multi billion dollar deal to acquire online gambling partner William Hill, while Wynn Resorts recently announced a restructuring of Wynn Interactive, which will bring gaming to as many as 16 states in the near future.
Wynn owns 71 per cent of that venture.
These companies are bringing their big names and balance sheets to the world of online gambling and they’re hoping well known partnerships will help attract customers.
Wynn has a deal with Nascar and MGM has deals with the NBA, MLB, NHL, MLS, WNBA and many more sporting organisations, including individual teams.
Caesars’ biggest agreement is with ESPN.
These partnerships are important because they give casino giants viability with consumers and a way to reach customers with advertisements and customer acquisition is the name of the game for online betting right now.
Profitability low in new online gambling ventures
It’s hard to overstate how unprofitable the online gambling business is today and how expensive it is to acquire customers.
In its first nine months, DraftKings lost $575 million from operations on $292.3 million revenue.
Sales and marketing costs alone are 104 per cent of revenue and general and administrative costs of $274.2 million show just how much overhead costs.
The biggest problem right now is that customer acquisition costs far exceed revenue.
That might be temporary as DraftKings casts a wider net with advertising that it can address with legal gambling markets.
This is definitely a negative-cash-flow business today and looks to be so for the foreseeable future.
However, incumbents Caesars, MGM and Wynn have casino businesses that generate cash on an ongoing basis, so they can put some of that money into building online gambling presences.
In other words, they can withstand investing in the acquisition of online gambling customers as a path to long-term growth.
DraftKings and its online only counterparts don’t have that same flexibility without raising cash.
If we knew that legal online gambling markets would increase from just over a dozen states today to the entire US in a few years, it may be worth buying online only gambling companies because they will be better growth stocks long-term.
But there’s a lot of uncertainty around when states will legalise more online bets and that could give incumbents a time advantage, where they can withstand the cash burn online gambling will take for years.
That’s why an established player like MGM will ultimately be a better bet than a company like DraftKings.
At the very least, Las Vegas casino giants are not giving up online gambling without a fight and that could make it hard for DraftKings and others to live up to lofty investor expectations.