Gaming: Record new Jersey Betting Handle in Aug, likely Leading to 3Q Upside

Morgan Stanley Reaserch: New Jersey sports betting handle increased 128% y/y on a packed calendar vs. July +25%/ declines March-June. iGaming income grew 114% but slowed from current months. Sports betting revs will likely beat our 3Q est however lack of significant sports in Nov/Dec suggest year in line. Casino revs fell (31 )% vs. July (47 )%.
NJ's Division of Gaming Enforcement released Aug sports wagering, online gambling, and gambling establishment (slot/table) income data today. Sports wagering & iGaming profits together increased 92% y/y to $127m from $66m last year, down somewhat from 105/104% in July/June, but greater than March/April/May +10/ 43/78%. Including physical gambling establishment profits that decreased (31 )% in Aug, all-in income was down (7.5 )% to $326m, much better than July down (21 )%. As a tip, a lot of NJ casinos re-opened 7/2 with 25% video gaming capacity/no F&B. We highlight CZR and WMH as our preferred plays on the nascent US sports wagering/ iGaming chance, where we see more undiscovered worth.
New record for sports wagering volumes. NJ's Aug sports wagering handle increased 128% y/y to $668m, setting a new record vs. $563m in Nov '19. Handle had actually increased just 25% in July (to $315m), while June was down (40 )%/ May (63 )%/ April (83 )%/ March (51 )%. Aug manage increased 112% m/m, which was lower than IN's up 140% (report), though NJ is more mature having introduced online in Aug '19 vs. IN Oct '19. With NJ casino traffic still low, we highlight that online sports wagering handle increased 142% y/y vs. July 39%/ June down (27 )%/ May (55 )%/ April (79 )%/ March (45 )%. While we usually see the amount wagered in Aug as favorable, we highlight results benefitted from having NBA, MLB, and NHL playing vs. typically only MLB. We anticipate promotions (free bets) were likewise high. Amounts bet must stay strong in Sept given all 4 big leagues will be playing vs. simply the NFL and MLB last year. However, we beware Nov-Dec could soften as it will see simply 2 months of NFL and 1 month of NHL (potentially) vs. NBA, NFL, and NHL all playing in 2015. Net-net, there are 11 more cumulative months of the 4 significant sports leagues playing through YE vs. 12 last year.
Sports wagering income in line, with minor share motions. Aug income was $40m, growing 57% y/y, showing 6% hold (vs. Aug '19 9%/ historic avg 7%). Revenue was above July $30m (9% hold), June $13m (8% hold) and Aug '19 $25m (9% hold). NJ sports betting income of $66m over the previous 2 months recommends NJ will likely surpass our $101m 3Qe, however there's threat 4Q underperforms our $164m estimate (+50% y/y) with less major sports in session. In Aug, FanDuel-Pointsbet-Meadowlands reported 54% market share, up from July 48%/ June 48%/ YTD 51%, while DraftKings-FOX Bet-Resorts posted 25% vs. July 28%/ June 31%/ May 38%/ YTD 29%. It appears William Hill held its share at ~ 10%, though it runs throughout several shared licenses.
iGaming remained strong. NJ iGaming earnings was $88m in Aug, up somewhat vs. July $87.5 m/June $85m/May $86m, though development was a little lower at up 114% y/y vs. the previous 3 months each up 123-124%. Revenue is now run-rating $1.1 B on an annualized basis vs. our 2020/2021 market quotes of $945m/$1.0 B, and 3Q is now tracking to $263m (straight-line) vs. MSe $260m. We had expected strong growth from stay-at-home tailwinds however saw threat of more considerable deceleration due to improving physical gambling establishment traffic driving churn of March-July sign-ups. NJ iGaming profits is now $598M YTD, up 101% y/y, and $783m TTM, up 93% y/y. Market shares were fairly comparable m/m, with the exception of Golden Nugget (incl. FanDuel) falling to 32% (from July 36%/ June 34%). Resorts (incl. DKNG) had 20% share vs. July 21%/ June 20%, Caesars 11% vs. July 11%/ June 10%, Tropicana 7% (in line with July/June), and Acid Rock 7% vs. July 6%/ June 7%. We continue to think the financial impact of COVID-19 paired with strong recent iGaming results in both NJ and PA need to spur more states to legislate, though have seen more momentum for sports betting.
Still prematurely to check out into gambling establishment outcomes. Aug gambling income declined (31 )% y/y to $199m, was lower on an outright basis vs. July $147m, though July was down (47 )%. Casinos re-opened on 7/2 but some reopened later on e.g. Borgata 7/26, and 25% capacity limits/ absence of indoor dining remain substantial headwinds. By contrast, Las Vegas Strip casino earnings decreased (39 )% y/y in July after falling (61 )% in June after re-opening 6/4. Regional markets are performing far better, with MD July/Aug income down (6 )/( 3 )% after re-opening 6/19, OH July/Aug income +12/ 5% after re-opening 6/19, and MO revenue down (9 )/( 13 )% after re-opening 6/1, though IL July/Aug profits decreased (29 )/( 26 )% after re-opening 7/1. In NJ, Ocean gambling establishment profits significantly outperformed with earnings up 1% y/y to $24m, while the other casinos saw double-digit y/y income declines.