Key talking points from Golden Nugget’s takeover and plans to IPO

Golden Nugget (GN) is merging its business with special purpose acquisition corporation Landcadia II to aid its ambitions to go public.

Tilman Fertitta, CEO for parent-company Landry’s, yesterday told investors the move was to fund Golden Nugget’s expansion into additional igaming states while still maintaining profitability.

Landcadia II will pay $745m to acquire the online gaming business and fund its IPO on the Nasdaq stock exchange.

But how exactly will the funds be invested and what are Golden Nugget’s expectations for growth beyond the deal’s completion?

Here are some of the more interesting talking points from yesterday’s investor call:

Golden Nugget is on a seven-year growth trajectory

As a private company, GN’s performance has until now been judged entirely on monthly per license revenue figures released by the New Jersey gaming regulator.

Although GN’s figures are always scores ahead of other igaming licensees, it is difficult to estimate exactly how much of that revenue belongs to GN and not its sub-brands.

FanDuel’s Betfair Casino also sits on the GN license and is estimated to be the top earning online casino in the state with a market share of 16% according to Eilers & Krejcik Gaming (EKG).

GN SVP of online gaming Thomas Winter yesterday said the operator has experienced a seven-year growth trajectory of 50% YoY since launching igaming in New Jersey in 2013, with overall revenue having doubled between 2018 and 2019.

Winter also said the firm expected to reap $95m in GGR for 2020 with an EBITDA of between $24m and $25m.

He estimates that GN holds 18% of New Jersey’s “pure casino” player group, meaning those that sign up directly to igaming apps without being cross sold by sportsbooks. Pure casino players account for two-thirds of the igaming market in New Jersey.

Another interesting nugget from Winter was live casino accounts for up to 20% of GN’s monthly revenue, with exclusive games being key to its profitability.

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Sportsbook investment is coming

Sports betting revenue estimates from Eilers & Krejcik Gaming placed GN 15th out of 17 operators in 2019, with a tiny market share of 0.27%.

Winter has spoken publicly about the operator’s lack of investment in its betting product in the past, as it faced a ban on taking NBA bets due to Fertitta owning the Houston Rockets team.

But the ban was overturned in September last year and Winter subsequently told EGR NA the firm would increase its marketing spend for the product, while using the 2019 NFL season to better understand the market.

Yesterday, Winter told investors the business would shift its focus and invest $2m into marketing its sportsbook in Q4 2020.

GN’s expansion into Michigan, as part of a market-access deal with an unnamed tribe, will include going live with sports in January 2021.

Winter said ad spend in Michigan and Pennsylvania in the first year would be as much as the operator spent in New Jersey in its first three years.

Fertitta maintains control

In a roundabout way Fertitta has maintained control from all sides of  the deal. He and Winter will remain at the helm of GN’s day-to-day operations and major strategy planning.

But he also co-sponsors the SPAC that is taking over the operator and will maintain a 52% stake in the new company.

As part of this, Landry’s will earn a 3% royalty of the new group’s yearly revenue.

The $745m price tag is said to be low, as it is based on 6.1x GN’s current valuation, while similar deals usually value a firm at 8.5x, vice chairman for Landcadia’s co-sponsor Jeffries Jim Walsh said.

To maintain control, Fertitta will pay down half of a $300m loan that Golden Nugget took on earlier in the year.

Maintaining profitability, how hard can it be?

The main point both Fertitta and Winter drove home yesterday was GN’s capacity to be profitable in a market where most operators are still losing money.

Fertitta said investment from launching an IPO or private equity firm was crucial at this point to help the operator expand into new markets while maintaining profitability.

Winter estimates that across three states GN could be bringing in $122m in net revenue by 2021.

While Fertitta believes expanding into Pennsylvania and Michigan could open GN to a market worth $2.5bn, including New Jersey’s igaming market which he valued at $800m.

However, the firm expects to lose $15m in Pennsylvania and $13m in Michigan in its first two years of launch, excluding market-access costs.