Vitaly Umansky, Global Gaming Senior Analyst, Seaport Research Partners
Vitally Umansky is the Global Gaming Senior Analyst at Seaport Research Partners and has been based in Hong Kong for the past 18 years.
Prior to Seaport, Mr. Umansky was the Global Gaming Analyst with Bernstein Research (Sanford C. Bernstein) for nine years.
Before research, he was in private equity and advisory in the gaming and leisure industries; was CFO of New Cotai Holdings, a private equity backed casino development investment and company; and earlier in his career was with Merrill Lynch investment banking in M&A and leveraged finance, where he did work in gaming, leisure and hospitality, among other industries.
“I do global gaming.
I’m based in Hong Kong, and I frequently travel to the U.S.
My coverage is largely the gaming stocks that have Asia exposure, both the large caps in the U.S. and Hong Kong-listed Asian gaming stocks.
We’re going to be expanding coverage down the road to include more U.S.-oriented gaming companies, as well.
I’ve been doing equity research since 2014.
I previously was with Sanford Bernstein, and I’ve been with Seaport for about two years.”
“The first company in my coverage reported yesterday afternoon, so it’s good timing.
Las Vegas Sands (NYSE:LVS) had the best performance that they’ve ever had in Singapore, which is their flagship property.
The Marina Bay Sands, which is the largest casino in the world, blew away all expectations, well above consensus estimates and significantly above my bullish estimates for that market.
That’s probably been the biggest surprise so far.
It’s literally just getting underway, so you haven’t had that many companies reporting yet in the gaming space — it’ll be happening over the next two or three weeks.
But I think if you look at the entire market, that Las Vegas Sands’ result in Singapore will probably stand out as one of the biggest surprises of the third quarter results.”
Mr. Umansky focuses in on the online gaming sector.
“In my coverage, MGM is a half-owner of BetMGM, which is the third-largest online operator in the United States.
They pre-reported their Q3.
They’d been having some problems, but the last two quarters they’ve been seeing a nice turnaround.
They’ve engineered some changes within the company.
They’re much more focused on the online casino piece of the business, which is more profitable than sports betting.
You’ve got operators like DraftKings (NASDAQ:DKNG) and Flutter (NYSE:FLUT), which owns FanDuel, which dominate the sports betting market in the United States.
I think the biggest question around the sports betting market coming out of these earnings and management conversations is going to be around prediction markets — a new market that’s been developed by other operators who are unlicensed gaming operators, and they’re trying to implement a sports betting type of business without complying with state law, using a federal loophole in the Commodity Futures Trading Commission rules to try to create what they do not call a gaming market, but is effectively a gaming market.
In the long run, if it’s allowed and if the lawsuits that are currently in process go the way of the prediction markets, they are a new competitive force within the online sports betting industry.
That’s something to keep an eye on. But overall, the online business in the United States is the growth market for gaming in the world right now.”
The international “whale” high-roller in the Las Vegas market looms large in investor’s minds but perhaps it should not.
“The bulk of the business in Las Vegas is U.S.
International business has been a very small piece of Las Vegas, 5%, for some operators maybe a little bit more, a little bit less for others.
That business is softer.
The Canadian business, for example, has seen a significant drop off in visitation into Las Vegas.
As we’ve seen, the overall number of tourists coming into the United States from Canada dropped off dramatically.
This is largely in light of some of the new regulations and laws passed around visitation, in terms of potential risk for tourists coming in and what they have to deal with, and there seems to have been backlash, especially from Canadians, about coming to the United States.
If you look at Florida, for example, not necessarily a gaming market, but visitation to Florida, which was a really big destination for Canadians, especially in the winter months, softened dramatically.
We’re seeing a significant amount of residential real estate being put up for sale by Canadian owners who no longer want to come to the United States.
The same thing is happening in Las Vegas.
They’re just not coming.
We’ve seen a 40% or so drop in the number of airline seats flying into Las Vegas out of Canada.
So, it’s definitely been in decline.
However, recently there have been some new airline routes into Las Vegas. Air France, for example, now has a direct flight from Paris to Las Vegas.
They haven’t had that in a long time.
Overall, international business has been soft, but it doesn’t impact the regional casino market in any way whatsoever.”
More insight into the current gaming market and interesting plays in the new online gaming sector are revealed in our interview with Chad Beynon.
Chad Beynon, Managing Director and Head of U.S. Research at Macquarie Capital (USA) Inc.
Chad Beynon is a Managing Director and Head of U.S. Research at Macquarie Capital.
Since 2007, Mr. Beynon has headed its consumer sector coverage and has been conducting research and publishing reports on gaming, lodging and movie theater companies.
In 2012, Mr. Beynon received recognition as one of Institutional Investor’s Rising Stars of Wall Street in gaming and lodging as voted on by corporate clients.
Prior to joining Macquarie, Mr. Beynon worked at Prudential Equity Group covering the beverage sector, followed by the gaming sector.
Mr. Beynon graduated from the University of Maryland, double majoring in finance and logistics/supply chain management.
“It’s difficult to appreciate the wealth effect from rising equity prices and home prices for higher income earners, but it’s really helped the economy.
In addition, we believe that up to 40% of U.S. homeowners don’t have a mortgage anymore, so their liabilities have come down.
And, as mentioned, they continue to prioritize spending on travel, whether it’s bucket list types of items, taking their families on vacations, or just exploring parts of the world that they’ve only read about in a book.
And then shifting to the digital landscape, we continue to see a healthy shift towards digital versus. retail experiences.
This includes mobile gaming — sports betting or iGaming — media streaming, as well as wellness trends aided by technology.
In addition, improved technology has benefitted the travel experience, from booking to curating the experience.”
“The second one that we like is Churchill Downs (NASDAQ:CHDN).
This is a $10 billion market cap company.
They have a prize-winning asset in the Kentucky Derby, which generates money from sponsorships, media, ticket sales, and wagering around the Kentucky Derby, which is the first week of May every year.
That event continues to grow.
They also have exposure to land-based casinos that benefit from the horse racing industry in states where the local governments are trying to maintain the level of investment in that horse racing industry.
The company also increases their dividend by 7% per year, which is rare in the space.
They have acquired 5% of their own stock this year.
And we think they’re trading at a fairly attractive valuation.
So, that also fits into the higher end spending category.
A second thematic is towards digital, particularly the picks and shovels side of technology.
Within sports betting there are two companies that provide the official data to the leagues, to the teams, and also to the media broadcasters.
And importantly, they are the leader in sports betting integrity, so when we see potential issues from a sports betting integrity standpoint, these companies also serve as the whistleblower.
They are extremely important to the leagues, which continue to see rising valuations.
These companies include Sportradar (NASDAQ:SRAD) and Genius Sports (NYSE:GENI).
They essentially have a duopoly in the space.
They have deep moats around their data collection processes, and they continue to work with advertising companies to increase the value of their business.
Next, we do want to have exposure to the B2C side of this sports betting growth, and that leads us to DraftKings (NASDAQ:DKNG).
This company is a top two player domestically in sports betting and iGaming.
Recently there’s been some competition in the prediction markets, which are a highly contested form of trading.
These trades or contracts may be around potential outcomes of an election, a game show, or even the World Series.
There are legal issues around this, but we think DraftKings will come out of this in great shape, regardless of the decision.
Last week, they even made an acquisition in this space, so they essentially bought an insurance policy to participate in this space if it remains legal, and if it doesn’t remain legal, we think it’s a value stock at these current levels.
Bottom line, they’re growing 20% and currently trading at below average valuation levels.”
Get access to the complete interviews of both of these world class analysts, along with many more, in the current sector report from the Wall Street Transcript.
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