“Caesars believes its sizable near-term investments in new players will turn profitable as its Caesars Rewards loyalty marketing prowess drives retention with integration into its land-based business,” Jonas said. “Management noted it’s early days, but it is exceeding initial targets.”

In a review of gaming technology, Jonas noted the “solid content,” with several new cabinets at the tradeshow, but “no showstoppers” or step functions in innovation.

“We saw strong products during our booth tours of Playags, Everi, IGT, and Scientific Games,” Jonas said. “Notably, we didn’t see a lot of new flashy branded participation products (with Aristocrat’s Dune game one exception). That’s probably a good thing, given the sizable expense and uncertain return on investment.”

Jonas said strong gross gaming revenue trends could bode well for slot budgets. Several operators may resume spending on machines, with some adding lease/participation units, he added.

Jonas said the offset is operators are using social distancing-driven COVID moves to justify permanently reducing floor sizes. They’re eliminating and not replacing their worst-performing games, while driving higher utilization on remaining machines.

There’s an ongoing concern in the slot world about supply-chain issues, Jonas said. The industry might not meet potential incremental demand quickly enough, as delivery issues are facing every manufacturer and driving delays.

“Manufacturers have effectively had to reverse any lean manufacturing strategies and load up on what components they can get, often at significantly higher prices (not to mention materially higher shipping costs),” Jonas said. “We believe there have been offsets, but it will be interesting to see if there’s an impact to the average sales prices and/or margins while this issue continues.”

As expected, Jonas indicated that cashless gaming “was a key focus point, with many operators highlighting the wide-ranging potential applications, though the full potential may take time to realize.”
Jonas believes Everi is the “best way to play cashless,” given its greater materiality.

“While IGT, Scientific Games, and other casino-management-system players have strong cashless products, we remind investors that they still need to integrate into payment providers with money transmitting licenses — meaning, Everi can still potentially participate to some degree,” Jonas said.
The other business-to-business buzzword was omnichannel, with an increased focus on igaming, which Jonas said is “a more attractive B2B business versus sports betting, given less vertical-integration risks.”

Gaming-tech companies like Inspired Entertainment highlighted “their strong and diverse content,” with many tied to successful land-based game themes, while the larger players (IGT and Scientific Games) also benefit from controlling the platform. “Not surprisingly, there is enthusiasm in more states legalizing igaming, with Connecticut set to launch shortly,” Jonas added.

In sports betting, many operators are moving fast to acrrue market-share gains today, while others are taking a longer-term less-costly approach, Jonas said. As sports betting promos/advertising reach new highs, many companies and investors are questioning the sustainability of the current spending model.

“Many believe more consolidation needs to happen or some players will disappear for the market to be sustainably profitability,” Jonas said.

The DraftKings/Entain/MGM Resorts International drama over DraftKings’ $22 billion offer for Entain, MGM’s joint venture on BetMGM, came up in every meeting, Jonas added.

“Many are suggesting DraftKings’ motivation could simply be to offset continuing U.S. losses with Entain’s profitable international cash flows, albeit with slower topline growth.”

“For Vegas, despite international and midweek groups still lagging, the Strip was crowded during our stay and Caesars noted 85% midweek occupancies (at their self-imposed ceiling for now). Groups should improve into 2022, though COVID-related attrition is unknown.

While we think results may be solid without the group recovery, a group guest has greater than $50 total (revenue per occupied room night) advantage to a leisure customer — perhaps greater in the current environment.”

Jonas said labor shortages and wage creep continue to worry investors, who are also “concerned about tougher comps into 2022 and the sustainability of current trends and demand.” Management teams, however, highlight “the sizable savings rate post-COVID across the U.S. and feel good at least about visibility into 2022.”

At the same time, the delta surge has reduced the competitive threats of alternative entertainment options for now, he said.

Jonas said Penn National has never been willing to lose significant amounts of money to build its interactive business and Truist’s meeting with them “drove home their longer-term, measured approach, which is underscored by the strength of the Barstool brand and database.” Their market-share gains will be helped by Penn’s acquisition of theScore, a Canadian digital media company.

For Scientific Games, Jonas said a pending IPO/sale of the lottery division, along with continued investment in digital and transformation of its gaming business, “could help drive another leg in the story (we think the long-term bull case is $2 billion in AEBITDA).

“For IGT, we continue to see upside into its November analyst day. An imminent Scientific Games lottery IPO/sale should also support multiple re-rating for IGT, though we don’t necessarily see any major commensurate corporate actions by IGT,” Jonas said.