Wynn Resorts and Austerlitz Acquisition Corporation Friday announced they’ve terminated a mutually agreed plan of merger. That agreement, which was to combine Austerlitz I and Wynn Interactive, a subsidiary of Wynn Resorts, is terminated immediately.
“As we discussed on the Wynn Resorts, limited third quarter earnings conference call earlier this week, 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,” said Wynn Interactive CEO Craig Billings in a statement. “In so doing, we expect the capital intensity of the business to decline meaningfully beginning in the first quarter of 2022. WynnBET’s best days lie ahead of us.”
Billings was introduced as Wynn’s CEO November 9, replacing Matt Maddow, who is stepping down at the end of January 2022.
In May 2021, Wynn Resorts announced it was spinning off Wynn Interactive into a separate public company. The Las Vegas-based gaming operator estimated the sports betting and online gaming operation could have an enterprise value of more than $3.2 billion following its merger with a blank check acquisition company.
Blank check companies are another name for special purposes acquisition companies, or SPACs.
At the time, analysts speculated that said the investment through a blank check merger could fuel Wynn’s growth.
Reaction to Friday’s announcement on Wall Street was swift. Joseph Greff, a J. P. Morgan analyst, wrote in a statement that the firm was lowering its December 2022 price target to $93, down from $101, “to account for less net equity value associated with Wynn’s Wynn Interactive business.”
“This event isn’t entirely surprising given recent Wynn’s 3Q21 earnings conference call commentary on the U.S.,” Greff wrote. “Online sports betting market’s elevated marketing and promotional spend (3Q21 results across the board, to wit) and its subsequent very recent intent to pivot user acquisition efforts to lose less money and reduce Wynn Interactive’s capital intensity starting more meaningfully in the 1Q22 (which is consistent, at least directionally, with our model).”
Carlo Santarelli, an analyst with Deutsche Bank, said the announcement was unexpected, but in retrospect understandable.
“While somewhat surprising, the tea leaves were present in the days leading up to the announcement,” Santarelli wrote, “as Craig Billings, CEO of Wynn Interactive, was announced as the successor to Matt Maddox, as the CEO of Wynn Resorts, and Wynn announced that it was pivoting its strategy in sports betting and iCasino, given the irrational customer acquisition behavior they see taking place in the market.”
David Katz, a Jefferies analyst, wrote that during Wynn’s recent earnings call, management indicated plans to “curb user acquisition spend at Wynn Interactive noting unreasonable unit economics in the current environment.”
“While (management) cited a pivot in user acquisition efforts, the reason to terminate the SPAC was not entirely clear to us,” Katz wrote.
Greff added that J.P. Morgan previously ascribed $16 of equity to Wynn for online sports betting given the valuation of the merger. That equity is now $7 of value to WynnBET, “as we assume a 4.0x multiple on our 2023 net revenue estimate of $213 million,” he wrote.
“We continue to rate WYNN Neutral as we see a valuation that more or less balances/gets the right the value associated with Las Vegas and Encore Boston Harbor momentum,” Greff added, “as well as the challenges associated with Macau uncertainty and lack of visibility related to travel mobility and regulatory considerations.”
