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Endeavor Looking for Buyers for Sports Betting Biz, Including OpenBet

Endeavor Group Holdings, Inc. (NYSE: EDR) is looking to sell its sports betting and data arm comprised of OpenBet and IMG ARENA.

PGA Tour Endeavor Fenway LIV Golf — Endeavor CEO Ari Emanuel. The company is looking to sell its IMG Arena and OpenBet units. (Image: Getty)

The company said those divestments are part of an effort to pat with select assets ahead of the $13 billion go-private transaction with venture capital firm Silver Lake announced in April. Los Angeles-based Endeavor reported second-quarter results earlier today.

During the quarter, we began to actively market the businesses comprising the Sports Data & Technology segment, OpenBet and IMG ARENA. As such, for financial reporting purposes, these businesses are considered Held for Sale and the Sports Data & Technology segment is presented as discontinued operations in the Q2 2024 consolidated interim financial statements. During this process, these businesses will continue operating as usual,” according to a statement.

The company did not say if it’s held talks with any potential suitors as of yet nor did it mention potential selling prices for IMG Arena and OpenBet.

Endeavor Quick to Sell OpenBet Following Purchase

Endeavor is quickly looking to sell OpenBet after announcing in September 20221 that it would pay $1.2 billion to the company then known as Scientific Games for the business.

The buyer was originally supposed to pay $1 billion in cash and $200 million in stock for OpenBet, but that price was lowered to $800 million in June 2022 with Light & Wonder (NASDAQ: LNW) — formerly Scientific Games — landing $700 million in after-tax proceeds.

OpenBet was folded into Endeavor’s Owned Sports Properties segment, which includes UFC, the Professional Bull Riders (PBR), and Euroleague.

Endeavor positioned the acquisition of OpenBet as an addition to the IMG Arena business, which provides data and other technology to sportsbook operators. It’s not clear if Endeavor will break-even on OpenBet, turn a profit or take a loss, but it could be an opportune time to sell the unit because a technology arms race is forming in the sports betting industry.

OpenBet Has Had Plenty of Owners

OpenBet was founded in 1996 as Orbis Technology and over its nearly three decades in business, it’s already been through a slew of owners. In 2000, NDS Group, a unit of News Corp., acquired Orbis.

A decade later, Orbis was renamed OpenBet and in 2011, NDS sold the sports betting technology business in a management-led buyout that was supported by private equity firm Virtuvian Partners. Five years later, NYX Gaming Group bought OpenBet. In 2016, Scientific Games purchased NYX, folding OpenBet into its SG Digital arm.

According to its website, OpenBet clients include BetMGM, DraftKings, FanDuel, Paddy Power, PointsBet, Super Group, and William Hill, among others.

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Penn CEO Quashes Takeover Speculation on Earnings Call

Penn Entertainment (NASDAQ: PENN) delivered second-quarter results earlier Thursday and recent speculation that the regional casino operator is a takeover target was briefly addressed on the company’s conference call with analysts.

Regarding consolidation rumors of which their firms at the center, the typical response by executives at companies in any industry is that they don’t comment on speculation. In response to a question from JPMorgan analyst Joseph Greff, that was the approach taken by Penn CEO Jay Snowden, but he added rumors aren’t always accurate.

What I will say is that as a company and as a board, we’re always and always have, always will evaluate opportunities to enhance value and we’ll continue to take actions that we believe are in the best interest of the Company and our shareholders,” Snowden said. “And, I would say, don’t believe everything you read.”

Takeover chatter pertaining to Penn started in late May when investor the Donerail Group sent a letter to the gaming company’s board of directors encouraging it to sell itself to increase shareholder value. Related speculation ramped up several weeks later amid reports that rival Boyd Gaming (NYSE: BYD) was considering a bid of $9 billion or more for Penn.

ESPN Bet Improvements Could Limit Penn Desire to Sell

In the weeks since the Penn takeover rumor emerged, analysts have widely speculated that Boyd is an unlikely buyer if the target’s interactive unit, including ESPN Bet, is part of the package and that a third party may need to get involved to buy the digital business.

There’s also been discussion of Penn being a reluctant or an unlikely seller because ESPN Bet isn’t a year old and the operator likely wants to see how the sports betting unit performs over the course an entire football season. Penn’s interactive unit posted a second-quarter adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) loss of $102.8 million, but that was far better than the company’s prior guidance of a loss of $135 million.

“Management cited improved risk & trading and parlay mix driving NGR growth (likely at high-flow through), with better than guided losses also benefiting from further sequential improvement in promo reinvestment,” noted Stifel analyst Steven Wieczynski in a note to clients.

ESPN Bet monthly active users surged 138% year-over-year with Penn management highlighting benefits from improved efficiencies, risk management, parlay offerings as drivers of improved structural hold.

Penn Casino Sales Face Complexities

Penn runs 43 gaming venues in 20 states, implying it has an extensive menu from which to select for potential asset sales, but Snowden acknowledged there are complexities associated with such transactions.

“With regard to your specific question on assets, just remember that our assets, land-based assets are all part of different leases, and so it’s not as simple and easy as you just sell off an asset,” the chief executive officer told Greff.

Gaming and Leisure Properties (NASDAQ: GLPI) owns the bulk of the land on which Penn casinos reside and would have to approve any sale of individual venues’ operating rights to another company because the buyer would enter into a new lease agreement with the landlord.

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Caesars CEO Reeg Says No Involvement with Penn, Eyes Buybacks

Caesars Entertainment (NASDAQ: CZR) CEO Tom Reeg told analysts the company isn’t “even tangentially involved” in the takeover scuttlebutt that’s recently surrounded rival Penn Entertainment (NASDAQ: PENN).

Reeg made the comments Tuesday evening on his company’s second-quarter earnings conference. In response to a question from Wells Fargo analyst Daniel Politzer, the Caesars chief executive officer noted that while predecessor firm Eldorado Resorts frequently used equity for acquisitions that fueled growth, he’s not inclined to look at the option today because Caesars stock has struggled.

I’m not an issuer of stock at $36 wherever it was today (Tuesday). We’re going to be a significant even more significant free cash flow producer as these as the project spend runs down,” said Reeg.

At this writing, shares of Caesars are up 13% today, but the stock is down 30% over the past year, making it one of the worst-performing gaming names over that period.

Reeg Not Going to Give Away Caesars Stock

Speculation about Penn being a takeover target dates back to late when one of its investors suggest the company should consider a sale. Subsequent rumors to that effect have centered around Boyd Gaming (NYSE: BYD) potentially making a move on Penn, but neither regional casino operator has commented to that effect.

With Caesars already having exposure to many of the markets in which Penn operates and the former focusing on reduce, Reeg is likely shooting straight when it comes to his company having no involvement in the purported Penn sweepstakes. He’s also adamant that he’s “not going to give our stock away.” Rather, he’s focusing on ways to eventually return capital to shareholders when capital spending on new projects falls off the operator’s to-do list.

“So that will open up a leg of shareholder returns so you should expect us to start buying in some of our stock. If the stock moves to a different neighborhood that can change,” Reeg said.

As more casino operators have initiated and increased quarterly dividends and boosted share repurchase, Caesars has done neither as it’s worked on trimming one of the largest debt burdens in the industry and opening new regional casinos in Nebraska and Virginia.

Lower CapEx, Interest Rates Could Help Caesars

Caesars’ shareholder rewards efforts could be boosted by a reduction in capital expenditures and interest rates, the latter of which could arrive as soon as September.

“A significant portion of CZR’s project capex rolls off this year, Digital earnings before interest, taxes, depreciation, and amortization (EBITDA) should accelerate, and potential non-core asset sales (we believe, the Promenade) come closer to fruition,” wrote B. Riley analyst David Bain in a note to clients today. “Given a more benign interest rate environment — we calculate $60 million of interest savings/new FCF for every 100 basis point drop drop in rates — we believe CZR’s shares can sustain upward momentum from current valuation levels.”

Reeg previously expressed a willingness to sell “non-core” casinos, a view he reiterated on Tuesday’s call.

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