Bally’s is ‘complicated,’ but emphasizes growth in size and scope David McKee, CDC Gaming Reports · November 4, 2021 at 8:09 pm Newly installed Bally’s Corporation CEO Lee Fenton walked Wall Street analysts through what one called “a very complicated story with a lot of moving parts” in today’s third-quarter-earnings conference. Fenton began by synopsizing the exponential growth of Bally’s over the past two years, since when it was called Twin River and had a market capitalization of $751 million. That market cap now stands at $3 billion “and we think we’re just beginning.” Calling in from Bally’s Shreveport, rebranded this week from Eldorado Shreveport, Fenton divided the company into three “funnels”: retail casinos (14 in 10 U.S. states), North American interactive gaming, and international interactive gaming, the latter two inclusive of online sports betting. The international segment “will continue to grow,” Fenton predicted, and interactive revenues will be fed into retail gaming. At present Bally’s has $400 million of free cash flow for capex investment in its brick-and-mortar casinos, share buybacks, “and most importantly,” North American interactive gaming. “As long as our stock remains as low as it is, we will be buying it,” Fenton said. Aside from Atlantic City, the third quarter saw record revenues for Bally’s brick-and-mortar casinos, which booked $301.6 million in revenue and $106.5 million in pre-rent EBITDA (earnings before taxes, interest, depreciation and amortization). However, $6 million in losses related to hurricane season and the Caldor wildfire in the Lake Tahoe area helped pull the company to a $14.7 million quarterly loss, as compared to $6.7 million in profit in the same period of COVID-afflicted 2020. Atlantic City generated $3 million in cash flow, although the company expects a full-year loss of $12 million on the Boardwalk. Likening Bally’s Atlantic City to the company’s Tiverton, Rhode Island, casino Fenton said, “It took us 12 months to get it right, but ultimately will be very focused. Atlantic City is a little behind where we expected it to be” in renovations, but should be ready by May. As for all the casinos, Fenton expects margins to be affected by increased, if incremental, outlays in terms of labor costs. Also, Bally’s has invested $66 million in capex so far this year and expects those numbers to keep ramping upward. Fenton identified his two top priorities as driving business to the land-based casinos and launching igaming and online sports betting, both products “that are loved by our customers.” That would not include the current iteration of BallyBet. “We haven’t really pushed it,” the CEO conceded. “It isn’t the app we want to put before our consumers” and the company is keeping its powder dry until BallyBet 2.0, which integrates its new acquisition, Gamesys Group, is ready. In an effort to allay analyst concerns that Bally’s would overspend on customer acquisition, currently a major talking point in the sports-betting sphere, Fenton replied, “Throwing money at the wall simply isn’t in our DNA. Our focus [at Gamesys] has always been on digital and understanding customers’ long-term value. That gives us huge leverage in opening or closing the hose on marketing.” Even so, the company doesn’t expect its North American interactive division to be free cash flow-positive next year. The Gamesys purchase closed on October 1, too late for the third quarter, but it seemed to be what stock analysts wished to discuss during the call. Fenton obliged by saying it had experienced record metrics in revenue and EBITDA, up 6 and 7 percent, respectively. Those numbers were 9 percent higher in the United Kingdom and 10 percent in Asia, but down 25 percent in Europe, “as we’re exiting non-core markets due to regulatory changes.” Gamesys “has a very predictable cost structure and we look to maintain that going forward.” Bally’s is setting a target of $125 million in North American interactive revenue for next year and to that end will invest 20 percent of its free cash flow. However, company executives will not speculate on when that segment will yield a positive return on investment. “If I look back at the United Kingdom,” Fenton reminisced, “I get quite a few lessons. The winners aren’t decided over the first few years.” He said it’s more like a 10-year gambit, not to be won by flinging money at the market. In the U.S., Bally’s can capitalize on its relationships with Sinclair Broadcasting and its casino-customer database, dynamics that Gamesys didn’t previously enjoy. The company is also pursuing an online sports-betting license in New York State and is “hopeful” about getting a decision in December. “We’re comfortable with our position,” Fenton assured investors. “Nobody is happy with a 51 percent tax rate, but it’s a big state” and Bally’s can leverage its relationship with Sinclair’s regional sports networks (a.k.a. Bally’s Sports). “Clearly, New York is not a state you want to miss out on.” The most recent news prior to the conference call was Bally’s two-site bid for a Chicago casino. Fenton turned the mike over to President of Retail George Papanier, who said the company’s possible $1.6 billion investment would cover its temporary casino and phase one of the permanent. “We felt Chicago would be a perfect place to position this property as a centerpiece” of Bally’s, citing the Windy City’s population density and strength as a tourist destination as potentially high return-on-investment generators.