LeoVegas Deal Gives MGM Profitable European Foothold

May 3, 2022
MGM Resorts International confirmed the acquisition of European online gaming operator LeoVegas for $607m in cash Monday, granting the company a global presence but teeing up potential problems with BetMGM partner Entain.


MGM Resorts International confirmed the acquisition of European online gaming operator LeoVegas for $607m in cash Monday (May 2), granting the company a global presence but teeing up potential problems with BetMGM partner Entain.

Daniel Politzer, senior equity analyst at Wells Fargo Securities, said MGM’s proposed purchase of LeoVegas “may make things a bit more awkward” with Entain, its 50-50 partner in BetMGM.

“In the U.S. and Canada, MGM operates under BetMGM, while in Europe and globally, MGM and LeoVegas will actively compete with Entain, and in Canada, BetMGM, Entain, and LeoVegas each have a presence,” Politzer wrote in a research note published before MGM's earnings release.

“[Merger and acquisition discussions] with Entain has not solved MGM’s issue of not controlling its U.S. operations (both direct and via DraftKings, Entain), and time will tell if LeoVegas proves strictly complementary or if it also increases tensions with Entain,” Politzer wrote.

Bill Hornbuckle, MGM's CEO, dismissed any notion Monday that MGM's relationship with Entain was strained by the proposed acquisition of LeoVegas, assuring analysts that the partnership remains strong.

He said LeoVegas and its “technology platform and pipeline for growth presents a compelling opportunity for our business to grow online.”

“I want to start by stressing that our partnership with Entain, as it relates specifically to BetMGM and what we’ve accomplished, has never been better,” Hornbuckle said.

Regarding Entain specifically, Hornbuckle reminded analysts that MGM tried a year ago to buy the company.

“We said then and I am going to repeat now, we need and want to diversify the revenues of this company,” Hornbuckle told analysts during a first-quarter earnings conference call.

“We absolutely thought this space was the right space … when we did the BetMGM deal and it has now been double validated by the iGaming segment which LeoVegas is extremely strong in, and so we made our move.”

MGM’s presence in the online gambling market is currently limited to its BetMGM joint venture with Entain in various U.S. states and Ontario in Canada, where LeoVegas has also recently launched its eponymous LeoVegas and Royal Panda online casino brands.

Currently, BetMGM is in 23 markets with New York, Illinois, Louisiana and Puerto Rico coming online in the first quarter and Ontario launching in early April. Hornbuckle noted that in February, BetMGM commanded a 24 percent market share in both U.S. sports betting and iGaming, which “put them in the number one position nation-wide,” based on the markets where BetMGM is active.

Through the acquisition, MGM is taking ownership of a profitable online gaming company, with expansion plans for the U.S. via a market-access partnership in New Jersey with MGM rival Caesars. Earlier Monday, LeoVegas posted first-quarter revenues of €98.5m.

LeoVegas, which is listed on Nasdaq Stockholm, operates in eight jurisdictions with a strong position in Sweden and other Nordic markets in particular.

As for LeoVegas operating in grey markets and potential scrutiny by U.S. regulators that license MGM, Hornbuckle said 75 percent of the company's revenues come from regulated markets.

“There are a few and only a few that will be closed because of BetMGM, New Jersey being one of them where they had 1 percent market share last month,” he said. “I don’t consider any of it a real hurdle to get through.”

Barry Jonas, a gaming analyst with Truist Securities, said the deal is an opportunity for MGM to grow its online business globally while acquiring an experienced management team, as well as a customer base of more than 500,000.

“While relatively modest from a financial perspective and the markets are clearly cooler these days on interactive gaming, MGM will acquire 100 percent of a profitable international online gaming company not reliant on Entain Group,” Jonas said.

“While the addition of LeoVegas will add geographical regulatory complexity to MGM, we think it helps address some of the shortcomings we’ve addressed in the BetMGM structure. Namely, BetMGM’s 50/50 ownership stricture composing the digital piece of MGM’s omnichannel strategy dependent on Entain technology,” he added.

Hornbuckle told analysts that when the deal closes MGM will bring on several hundred technology employees, “something our company could desperately use and need, not only for this effort but potentially other things long-term in the company.”

In terms of BetMGM, MGM's 50 percent of BetMGM’s losses in the first quarter amounted to $92m, which was driven by the initial marketing investment in New York. Jonathan Halkyard, MGM’s CFO and treasurer, said he expects those losses to narrow in the upcoming quarters.

On Monday, MGM reported a first-quarter net loss of $18m, or 6 cents a share, on revenue of $2.85bn. In the same quarter a year earlier, MGM posted a net loss of $331.8m, or 69 cents a share, on revenue of $1.65bn.

The company announced its purchase of LeoVegas as it prepares to close it acquisition of the Cosmopolitan of Las Vegas and sell The Mirage.

MGM in September announced plans to acquire the operations of the Cosmopolitan from Blackstone Group for $1.63bn. Three months later, Hard Rock International agreed to buy The Mirage for $1.08bn.

The Cosmopolitan transaction is scheduled to be reviewed on Wednesday (May 4) by the Nevada Gaming Control Board. If approved, the deal would need to gain final approval from the Nevada Gaming Commission later this month.

Hornbuckle said the company reached another “important milestone” when the acquisition of MGM Growth Properties (MGP) by VICI Properties closed on Friday.

He said that transaction allowed MGM to fully deconsolidate MGP from its financial reporting and netted some $4.4bn in cash to use to invest in its core business and to continue to assume meaningful growth opportunities.

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