Report: Wynn (WYNN) selling online gaming unit as stock slumps and costs soar
17:00, 25 January 2022
The first casualty of the highly competitive – and low margin – online sports betting market seems to be Wynn Resorts, after reports that the casino giant is putting its online sports betting product on the block at a big discount.
The New York Post reported on Monday that Las Vegas-based Wynn Resorts is seeking $500m (£370.8m) for its online sports gaming platform Wynn Interactive, which operates the WynnBet betting app.
Less than a year ago Wynn Resorts announced a planned sale of the unit to special purpose acquisition company (SPAC) Austerlitz Acquisition for a $3.2bn valuation.
The SPAC merger, which included $640m in cash for the new entity to use in marketing costs, would have allowed Wynn Resorts to retain 58% of the newly formed Wynn Interactive stand-alone firm. The proposed merger was scrapped last November.
Sports betting promos drive customer acquisition costs - Photo DraftKings Inc.High customer acquisition costs
When announcing the mutual termination of the merger agreement, Wynn Interactive CEO Craig Billings said: “In light of elevated marketing and promotional spend in the sports betting industry, we are pivoting our user-acquisition efforts to a more targeted ROI-focused strategy.
“In so doing, we expect the capital intensity of the business to decline meaningfully beginning in the first quarter of 2022.”
As legalised sports betting spreads throughout the country, heavy competition among the operators has prompted massive advertising campaigns and loss-leading odds to attract customers. Wynn even signed Hall of Fame former professional basketball player Shaquille O’Neal as its brand ambassador.
Caesars Sportsbook, the largest of the new online sports betting operators in New York State, has launched an ad blitz throughout the tri-state region featuring comedy actor JB Smoove, Oscar-winning actress Halle Berry and the entire Manning family.
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Teaser betting odds
Sports betting operators routinely offer 100-1 odds payouts for easily attained outcomes in a sporting event, or that one team keeps the final outcome within a 100-point margin of defeat and even losing-bet backstops for first-time users.
These teaser-odds bets often come with stipulations, such as wagers capped at $10 and winning bets paid in a credit that must be ‘bet through’ the platform up to 20 times before becoming eligible for withdrawal.
Customer acquisition costs are estimated at $300 to $500 per user, according to the New York Post, and customers are free to jump from one platform to another to price-shop for the slightest deviation in odds or point spreads.
Teaser bets offer readily achievable outcomes - Photo: TwitterVolume high, profit low in New York State
Since legalised sports wagering was cleared in New York State – by far the most populated state to allow online betting – on 8 January, the four platforms granted operating licences have seen more than $603m combined in total bets, according to data maintained by the NY State Gaming Commission.
Wynn Interactive was cleared to operate in New York but has not started operations in the state.
The largest of the four licensed to operate in New York, Caesars, reported taking $257.7m in bets during the first two weeks of trading in New York alone. Of the total bet or ‘handle’, Caesars reported $22.7m in winnings held, for an 8.81% hold rate.
That $22.7m in winnings or Gross Gaming Revenue (GGR) is subject to the highest national tax rate at 51%, leaving Caesars with $11.1m, or a $5.55m weekly average.
At the opposite end of the spectrum is Rush Street Interactive, which has not engaged in a saturating advertising campaign or offered teaser odds in the greater tri-state area.
For the first two weeks of legalised sports wagering in New York, Rush Street reports $446,696 GGR from roughly $10.6m in handle for a 4.2% hold rate. The GGR is subject to more than $227,000 in gaming revenue taxes, leaving Rush with $218,881, or $109,440 per week.
Underperforming Nasdaq
Amid a broader equity sell-off, gaming stocks have mostly lagged the Nasdaq Composite Index. While the Nasdaq is down 14% year to date, three of the gaming operators licensed in New York, together with Wynn, are down 20.7% on average.
The largest year-to-date decline is in DraftKings stock, the most pure-play online wagering platform that is also traded publicly. Since 3 January, DraftKings stock is down 30.3%, opening on Tuesday at $19.36 per share, off 74% from the $74.38, 52-week high seen last March.
For its part, Wynn Resorts, which is much more diversified, with brick-and-mortar betting parlours and hotel operations in multiple US states and internationally, is only off 5.71% through 2022 and 42.5% off its $143.88, 52-week high share price set in March.
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