Bally’s Corporation may have beat quarterly earnings estimates on Thursday (August 4), but the Rhode Island-based company could face a serious blow to its bottom line in its home state from new forms of gambling opening up in Massachusetts and Connecticut.
Republican Governor Charlie Baker is expected to sign a bill legalizing sports betting in Massachusetts, a decision that is expected to generate $30m in annual tax revenue, with some of those tax dollars currently benefitting Rhode Island residents.
Since last September, the Mohegan and Mashantucket Pequot tribes have been permitted to offer online casino games and mobile sports betting state-wide.
Patrick Kelly, professor of accountancy and director of the Ethics in Business Education Program at Providence College School of Business, said the parallels to legalizing casinos are significant because it has become state against state.
“If you have sports betting and we don’t have sports betting, we are losing tax revenue and we will try to legalize it,” Kelly told VIXIO GamblingCompliance in a phone interview.
“The impact is going to be significant for Rhode Island, especially how they are going to tax [sports betting],” he added. “The tax rate is 51 percent in Rhode Island. It is going to take a hit, but we need to balance it against the growth of sports betting in the state.”
“In two years, we’ll know what happens,” Kelly said.
In an email Thursday, Jane Cole, chief financial officer with the state's Department of Revenue, said they are reviewing the Massachusetts legislation and its impact on Rhode Island.
“We will be working closely with the Rhode Island Revenue Estimating Committee to evaluate the future impact of surrounding states,” Cole said.
Projections provided to VIXIO by Christiansen Capital Advisors (CCA) show the dramatic impact that expanded gaming in both Massachusetts and Connecticut is expected to have on Rhode Island.
Connecticut’s sports betting and online gambling industry are projected to affect Rhode Island gaming revenues by approximately $9.m to $9.5m per year.
Sebastian Sinclair, president of Christiansen Capital Advisors, estimated $2m to $2.5m for sports betting and $7m in lost casino revenue, primarily at Twin River in Lincoln.
Bally’s also operates a casino in Tiverton and offers retail and mobile sports betting. Land-based betting began in November 2018, while mobile wagering launched in September 2019. Consumers in Rhode Island wagered more than $352.9m in the fiscal year 2021-2022, with revenue totaling $39.7m.
Sports betting in Massachusetts is projected to affect Rhode Island gaming revenue by an additional $10.5m to $11m per year, including $3m in sports-betting revenue.
Sinclair said its study assumed that Massachusetts sports betting would be available for this upcoming football season, but that is not happening, so the projections are for 2023.
During its second-quarter earnings conference call on Thursday, Bally’s CEO Lee Fenton did not discuss the pending legalization of sports betting in Massachusetts. Messages left with Bally’s seeking comment were not returned.
Bally’s Q2 Profit Declines Slightly
Bally’s reported a second-quarter net income of $59.5m, down from $70m in the same period last year. On a per-share basis, the company said it had a net income of 98 cents, while earnings, adjusted for non-recurring gains, were 32 cents per share.
The results beat analyst expectations. The average estimate of seven analysts surveyed by Yahoo! Finance was for earnings of 25 cents per share.
The gaming company posted revenue of $552.5m in the quarter, which fell short of estimates of $606.2m. Bally’s expects full-year revenue in the range of $2.2bn to $2.3bn.
“We’ve made considerable progress over the last ten months,” Fenton said. “We recognize we are going into some global turbulence.”
Fenton said Twin River in Lincoln continues to perform above expectations, a result of the removal of mask mandates and the return of indoor smoking.
However, he said, the turnaround of Atlantic City will take longer than hoped for, with the “resort having a negative $3m of EBITDA versus our expectation of a positive $4m.” The property is expected to contribute $10m to $20 in annual cash flow in the future.
“Atlantic City is not where we want it to be,” Fenton said.
Despite issues with its brick-and-mortar business, the company is targeting New Jersey, where it aims to double its mobile sports betting and online gambling market share from about 3 percent to at least 6 percent, maybe 8 percent, by the end of 2023.
“It’s an aggressive target,” he said. “We are going for it. We think we can get there.”
Fenton stressed that iGaming remains a priority, noting the company plans to deploy its completed app, with both sports and casino games, in Ontario in the second half of the year. Bally’s recently launched a web-only product in a Canadian province.
Bally’s also remains focused on getting licensed in Pennsylvania, while Fenton believes Indiana and Illinois will be the next states that could legalize within the next couple of years.
In terms of its mobile product, Fenton said it has made some strides with upgrading its mobile product, although he admitted it was not on par with the UK product. He told analysts the company still has a lot of integration to do but it remains focused on the quality of the product.
Fenton said the international segment has rebounded with modest revenue gains in the UK, and its operations in Spain profitable, but currency weakness in Asia led to a flat interactive performance.
He told analysts that there was some softening of the UK consumer in the first quarter, but that did not continue in the second quarter.