Morgan Stanley Report on US Gaming: IA: Strong Sept Sports Betting Handle but Low Hold; Casino Revs Accelerate from Aug

IA reported Gaming revs today, becoming the first state to release NFL sports betting data this year. Sept handle was 17% above MSe while revs were 55% light on low hold (~3%). Resulting 3Q sports betting handle was also 17% above MSe, while revs were 20% below. Casino revs were up 16% vs. ’19.

IA Sept sports betting handle exceeded expectations, revs missed. Sports betting handle was ~17% above our expectations in Sept/3Q while revs were (55)%/(20)% lower. The miss was driven by weak hold in Sept where revs were only ~$5.6m (vs. MSe $12.6m), implying ~3% hold. While IA allowing operators to deduct promotions from revs likely means it had lower than the US mkt hold, the weak Sept hold is relatively surprising given the weekly NFL results highlight over 50% of underdogs have covered sportsbook spreads, which is typically good for sports books. However, it highlights the importance of single games (e.g. Chiefs-Ravens, Ravens-Lions). On handle, CZR increased handle share from 33% in 2Q to 35% in 3Q, with July 35.0%, Aug 34.7%, Sept 34.9%, suggesting benefits from the Aug 2 re-brand from William Hill to Caesars.

IA 3Q casino revs ahead of expectations. 3Q IA casino revs were $442m, up 26% y/y and +18% vs. ’19 levels. Sept revs grew 16% vs. ’19, compared to Aug +13% and July +26%, echoing recent operator commentary that they saw a brief deceleration in revenue in late Aug likely driven by the Delta strain and back-to-school, but trends have since re-accelerated. For operators under coverage who have IA properties, 3Q CZR IA casino revs of $115.8m beat MSe by 3%, BYD’s $46.5m beat MSe by 7%, and PENN’s $45m beat by 15%.

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