Consolidation In U.S. Gaming Industry Unlikely To Slow In 2022

January 5, 2022
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As the gaming industry welcomes a new year, the only constant theme within the business, whether in sports betting or commercial and tribal casino gaming, is a high volume of change that industry observers believe will continue in 2022.

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As the gaming industry welcomes a new year, the only constant theme within the business, whether in sports betting or commercial and tribal casino gaming, is a high volume of change that industry observers believe will continue in 2022.

Even as the industry continues to navigate coronavirus variants that could have an impact on their business, there seems to be an appetite for mergers and acquisitions.

“Our view is that we are going to see continued M&A activity, along with related activity in the capital markets (SPAC acquisitions and IPOs), for several years,” said Rick Arpin, office managing partner with KPMG in Las Vegas.

“The M&A is not just a horizontal consolidation effort within the online operator space, but we expect continued vertical mergers within the product ecosystem, as well as convergence deals across sports, media and gaming,” Arpin said.

Consultant Brendan Bussmann agreed the trend of M&A activity in the sports-betting industry will continue in 2022.

“Part of this will be with existing brands in the market but part of it will likely also be outside the sector, companies that have an interest in playing in the sector,” said Bussmann, a partner and director of government affairs at Global Market Advisors.

“There has and will always be an ebb and flow to M&A activity in the industry and as consolidation happens, innovation happens in other corners that helps feed the cycle,” Bussman said.

Last year alone, deal activity in the gaming space included the sale of The Venetian, Palazzo and Sands Expo and Convention Center to VICI Properties for $4bn. Apollo Global Management also acquired the operating assets from Las Vegas Sands for $1.2bn.

Caesars Entertainment acquired William Hill for $4bn, before selling off the William Hill non-U.S. assets to 888 Holdings for approximately $3bn. Meanwhile, the San Manuel Tribe will reopen the Palms casino in Las Vegas this year after receiving regulatory approval for its $650m purchase from Red Rock Resorts.

Other significant deals include Penn National Gaming acquiring digital sports media company Score Media and Gaming in a $2bn deal, DraftKings picking up Golden Nugget Online Casino for $1.56bn and Scientific Games selling its OpenBet sports-betting business to Endeavor Holdings for $1.2bn.

Even iconic magazine brand Sports Illustrated got into the sports-betting business in 2021, after its parent company Authentic Brands reached a deal in June with 888 Holdings to develop an SI-branded online sportsbook.

MGM Resorts International and Bally’s Corporation were both involved in a number of significant transactions in 2021, with MGM’s sale of the operations of The Mirage in the final weeks of the year coming as a surprise to many long-time observers.

MGM sold the operations to Hard Rock International for $1.075bn, a deal that is expected to close in the second half of 2022. VICI Properties is The Mirage’s property owner.

MGM also spent $1.65bn to acquire the operations of The Cosmopolitan of Las Vegas from Blackstone Group, while its real-estate assets were sold to the Cherng Family Trust, Stonepeak Partners and Blackstone Real Estate Income Trust for more than $4bn.

Other deals include the sale of MGM Springfield in Massachusetts to MGM Growth Properties (MGP) for $400m, and VICI’s $17.2bn pending purchase of fellow real-estate investment trust (REIT) MGP.

Bally’s, which began as Twin River Worldwide Holdings with two casinos in Rhode Island, spent 2021 acquiring the operations of the Tropicana Las Vegas and Tropicana Evansville in Indiana in deals involving Gaming and Leisure Properties (GLPI), a REIT spun off from Penn National Gaming in 2013.

The company also acquired fantasy sports operator Monkey Knife Fight and Degree 53, a UK-based creative agency that specializes in websites, mobile apps and software development for the online gambling and sports industries. Bally’s also completed its landmark acquisition of Gamesys Group.

REITs played a crucial role in the merger and acquisitions space last year, allowing gaming companies to unload some of their real estate to focus on operations.

But analysts believe there are more opportunities for gaming REITs.

“REITs still have significant runway in terms of land-based casino deals, given the disparate and distributed ownership of casinos in the U.S.,” said Arpin. “Compared to other real-estate sectors, REIT ownership is still relatively low in gaming.”

Bussmann said REITs have become the dominant component in M&A activity.

“I am still old school and want to own the asset with the operations; however, that’s not the way many of these deals are working going forward,” Bussmann said.

“There is a risk at some point that you’ve stretched resources too far on these but that is going to be dependent on how prudent some of these deals have been as well as overall economic conditions.”

After a busy year of activity driven by low interest rates and the ability of companies to navigate coronavirus variants, Becky Harris, former chair of the Nevada Gaming Control Board, believes merger activity will continue despite expected Federal Reserve rate increases this year.

“Yes, interest rates are at historic lows and though rates are creeping upward, as long as rates remain relatively stable and don’t rise too quickly, capital will remain relatively cheap,” Harris said. “Despite the omicron wave of COVID, there seems to be optimism that a strong economic recovery is on the horizon.”

Bussmann cautioned there are several factors that could cause a cooling in M&A activity including special purpose acquisition companies (SPACs), rate increases from the Fed, uncertainty on policy from Washington, D.C. to general economic conditions.

“The volatility of not only the U.S. economy with inflation, supply chain, and other issues mired in the continued ups and downs as it relates to the pandemic are all factors that could cool or accelerate M&A in 2022,” Bussmann said.

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