GenM via Empire Resorts (49% associate) as part of a five-member consortium is one of the two winning bids for mobile sports gaming license awarded by the New York State Gaming Commission. Empire Resorts will be one of the nine operators licensed to operate mobile sports betting in New York. We are neutral on this development as we don’t expect this segment to contribute to the group’s earnings in the near to medium term. Maintain BUY with a TP of RM3.59 (from RM3.28) as we upgrade our EV/EBITDA multiples for RWG from 10x to 11x. On the local front, we are encouraged by the return of crowd to RWG. With the addition of SkyWorlds theme park, RWG will be able to attract a bigger and more diverse crowd from both gaming and non-gaming visitors.

NEWSBREAK

The New York State Gaming Commission (NYGC) approved 10-year licenses for two groups of gambling companies consisting of nine operators. GenM via Empire Resorts (49% associate) as part of a five-member consortium is one of the two winning bids. Empire Resorts will be one of the nine operators licensed to operate mobile sports betting in New York (see Figure #1). The operators will pay the state a 51% tax rate for 10 years. While there is no formal timeline, it is expected that the programs should go live by early next year in time for gamblers to place bets for the 2022 Super Bowl (Feb 2022).

HLIB’s VIEW

Mobile sports betting industry overview. Previously, US sports betting was only allowed in Nevada. However, in May 2018, the US Supreme Court ruled in favour of New Jersey’s law permitting betting on sports, paving the way for other US states to do the same. As at Sep 2021, sports betting is legal in 31 states, while online betting is available in 18 states (see Figure #2).

Punitively high tax rate. New York is one of the most attractive sports betting states given its large population (8.4m as at 2019) and its strong sports culture. Nonetheless, the operating license comes with an extremely high price tag, i.e. 51% tax rate on GGR, which is the highest tax rate in the US similar to New Hampshire. For comparison, most states have a tax rate of between 5-20% on sports betting revenue. Furthermore, operators in New York will have to face stiff competition as the market share in New York is distributed among 9 operators (vs. only 1 operator in New Hampshire).

Illustration. We will use New York’s neighbour state as an example to calculate the mobile sports gaming revenue for GenM as New Jersey has a similar population size as New York (8.9m as at 2019 vs 8.4m as at 2019 in New York) and it was the earliest state (other than Nevada) to allow sports betting (since June 2018). Thus, we expect New York to have a similar level of revenue as New Jersey after 1-2 years. YTD 2021 (up to Sep 2021), New Jersey has an average monthly GGR of USD62m, which translates to a projected annualized figure of USD744.1m. Assuming that 80% of the revenue is from mobile betting, this will translate to USD595.3m. If we assume that New York has similar revenue and the revenue is split evenly among the 9 operators, then each operator will have a market share of USD66.1m GGR or USD32.4m after deducting gaming tax. As GenM owns 49% of Empire, this will translate into USD15.9m (or RM65.9m assuming 4.15RM/USD exchange rate) of mobile sports betting annual net revenue for GenM. For comparison, this is roughly 1.8% of the net gaming revenue from RWG in 2019.

No significant contribution in the near term. We expect that Empire will need to undergo a gestation period before it can breakeven as we anticipate heavy marketing spend in its initial launch, especially given the stiff competition with a total of 9 players in the market. Empire recently raised USD450m in capital in Oct 2021 through (i) USD150m equity injection from GenM; and (ii) USD300m through bond issuance on the Singapore Exchange. We believe that part of this capital raised is in anticipation of the marketing and operating expenses for the mobile sport betting operations. We are overall neutral on this development as we do not expect this segment to contribute to the group’s earnings in the near to medium term.

RWG updates. Separately, on the local front, we are encouraged by the lifting of inter-state travel ban since 11 Oct. GenM should be able to benefit strongly from local visitors (due to pent-up demand and also due to the restricted traveling abroad). This was witnessed in GenM’s operations in UK and US where both regions have already seen their revenues recovered to pre-Covid levels. Furthermore, the much-anticipated Genting SkyWorlds theme park is targeted to open in Dec-2021 to coincide with the school holidays that will draw both gaming and non-gaming crowds to RWG. The crowd pull from the SkyWorlds should have a positive spill over effect to the other attractions in RWG.

Forecast. Pending the results release this month, we maintain our forecasts.

Maintain BUY with a higher SOP based TP of RM3.59 (from RM3.28) as we upgrade our EV/EBITDA multiples for RWG from 10x to 11x. We take this opportunity to upgrade the EV/EBITDA multiple for RWG as the prospects of this segment is improving with the return of crowd to RWG. Furthermore, with the addition of SkyWorlds theme park, RWG will be able to attract a bigger and more diverse crowd from both gaming and non-gaming visitors.

Source: Hong Leong Investment Bank Research - 10 Nov 2021