A patron entered a wager at an MGM casino in Detroit in March.
Photo: Paul Sancya/Associated Press
U.S. casino operators are wrestling for control of an online- and sports-gambling market that has softened the blow of Covid-19 closures, but there is a long way to go before digital wagering can match the profits from bricks-and-mortar casinos.
Las Vegas-based MGM Resorts International MGM -5.74% has made the equivalent of an $11 billion takeover offer for Entain PLC, one of the U.K’s largest gambling firms and the owner of the Ladbrokes brand, the companies said Monday, confirming an earlier Wall Street Journal article. It marks one of the biggest potential deals in the race for the growing online- and sports-betting industry. Entain said the £8.09 billion offer significantly undervalues the company but asked for more information on the strategy behind a merger.
In a written statement Monday, MGM said it believes the deal would position the company as a global operator across online and retail gambling and diversify its operations. MGM said it “looks forward to engaging with Entain on this basis.”
MGM owns more than a dozen resorts on the Las Vegas Strip, along with casinos across the U.S. and in the Chinese territory of Macau. MGM and Entain are partners in the venture behind BetMGM, a U.S. sports- and online-betting brand. A merger would give MGM full control over what the company has pointed to as a significant area for growth.
Last year was a tumultuous one for the gambling industry. The coronavirus pandemic prompted casinos to maneuver through monthslong closures and reopenings under occupancy limits, wiping out revenues. Covid-19 vaccines have gambling operators hoping for a swift return to normal this year, but much remains uncertain.
Caesars agreed to buy U.K. sports-betting firm William Hill last year.
Photo: paul ellis/Agence France-Presse/Getty Images
The pandemic increased gambling companies’ interest in the online space, with a flurry of acquisitions and investments last year. MGM rival Caesars Entertainment Inc. CZR -3.59% reached a $4 billion deal to buy another U.K. sports-betting company, William Hill WMH -0.26% PLC, which already has a partnership with Caesars.
The total revenue generated from online casino and sports betting, though, is still a fraction of what gambling operators get from slot machines and table games in bricks-and-mortar casinos.
From January through October of last year, total commercial gambling revenue fell 33% from the previous year to about $24 billion, according to the most recent data compiled by the American Gaming Association, an industry trade group. More than $19 billion of that came from gamblers at slots and table games.
Meanwhile, gross revenue from online casino games more than tripled during that period, but the total revenue amount was still only $1.23 billion. Sports betting, including online sports wagering, rose 39% to more than $957 million.
Online casinos, which include digital versions of slot machines and roulette, have been legalized in only five states: New Jersey, Pennsylvania, West Virginia, Delaware and Michigan. Nevada limits online casino games to poker only.
Sports betting has been easier for state lawmakers to accept as being in the mainstream, while online casinos have been a tougher sell, said Brendan Bussmann, partner and director of government affairs at Global Market Advisors.
“It’s going to be harder for legislators to feel comfortable putting a slot machine or table game on somebody’s phone sitting at their house,” Mr. Bussmann said.
“ ‘There’s enough of a market to play in, at this point, that establishing your brand, establishing your operations, all of those things matter quite a bit more to the long-term success of an operator like MGM. Three or four years ago, planting a flag in the U.S. online gambling market wasn’t worth that much.’ ”
Sports betting has been adopted more quickly across the country since the Supreme Court in 2018 issued a ruling that cleared the way for states to legalize the practice. Now, 25 states and the District of Columbia have legal sports wagering. Some states allow online sports wagering, while some have limited the practice to in-person sports betting at casinos.
“There’s enough of a market to play in, at this point, that establishing your brand, establishing your operations, all of those things matter quite a bit more to the long-term success of an operator like MGM,” said Chris Grove, gambling-industry analyst and partner at Eilers & Krejcik Gaming. “Three or four years ago, planting a flag in the U.S. online gambling market wasn’t worth that much.”
Meanwhile, total gambling revenue, particularly in casinos outside of Las Vegas, has begun to recover after the springtime closures of casinos wiped out revenue. In October, total gambling revenue fell about 6% from the previous year, according to the trade group.
Under the proposed MGM-Entain deal, the resulting combined company would generate about 30% of its earnings before interest, taxes, depreciation and amortization from digital operations, with the remainder coming from traditional enterprises, according to analysts at Jefferies Group LLC.
Write to Katherine Sayre at [email protected]
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