Month: June 2024

Hedge-fund billionaire Cohen has set out plans for a development at Citi Field, the New York Mets’ stadium in Flushing Meadows-Corona Park. The proposed $8bn development in partnership with Hard Rock International includes a new entertainment complex, a live music venue and a Hard Rock hotel alongside gaming facilities.

This would be supported by community investments including 20 acres of new park space, five acres of athletic fields and playgrounds, underpinned by a commitment to “climate-ready infrastructure”. 

Named Metropolitan Park, it would be built on a 50-acre plot of land, currently used as the stadium’s parking lot.

However, Ramos has now taken a direct stand against the plans, reports Casino Reports. 

Ramos refusal could kill Cohen’s Queens casino

The Democrat, representing New York’s District 13, says she will not introduce legislation that would downgrade existing parkland in Corona to facilitate its redevelopment for the casino. 

“We want investment and opportunity, we are desperate for green space and recreation for the whole family,” Ramos said in a statement. “We disagree on the premise that we have to accept a casino in our backyard as the trade-off”.

Ramos decried “the generations of neglect that have made so many of us so desperate that we would be willing to settle” for a casino as the only way to spur a renewal of the area. This could prove a definitive blocker to the project, which requires Ramos to pass a parkland alienation bill, which would give Cohen permission to build on a site that is technically city-owned parkland. 

Instead, Ramos proposes an alternative alienation bill “that strikes a balance”. It would allow Cohen and Hard Rock to build a convention centre and hotel, as well as doubling the proposed open green space – but no casino. 

“The parcel in question is in strategic proximity to LaGuardia Airport, and allows for visitors and tourists to feed into our vibrant food scene while addressing the consequence of climate change in the area,” she said.

“Mr Cohen and Hard Rock would still make a profit, albeit less.”

Has the field for New York’s downstate casinos narrowed?

While the New York State Gaming Commission doesn’t expect to finalise the three downstate casino sites until late 2025, there are still plenty of operators jostling for position, with each facing their own difficulties.

Currently there are prospective sites across four boroughs including Cohen and Hard Rock’s Citi Field proposal, and one in Yonkers.

The runners and riders

Two of the bidders, MGM Resorts and Genting Group, aim to repurpose existing facilities. MGM aims to transform the Empire City Casino – a video lottery racino – into a full-scale commercial resort, while Genting’s Resorts World NYC in Queens could undergo a similar transformation. 

The Chickasaw Nation is part of a consortium vying for a licence in Brooklyn’s Coney Island in partnership with Saratoga Casino Holdings and Thor Equities. Locals have already voiced opposition through community forums, however. 

In Manhattan, there are two prominent bidders; Wynn Resorts and Caesars Entertainment. Wynn’s site in Hudson Yards is considered particularly attractive, though again locals have raised concerns especially about adding more traffic to an already congested area. 

Caesars, meanwhile, has partnered Jay-Z’s Roc Nation for a site in Times Square, one of the busiest areas of New York City. 

Up in the Bronx, meanwhile, Bally’s Corporation is bidding to build at the former Trump Golf Links at Ferry Point. That may hinge on a shareholder battle for control of the business. K&F Growth Capital is looking to prevent Standard General from taking the operator private, proposing a more streamlined approach that would take it out of the mix for New York.

Significant shareholder Donerail sent a letter to the Penn board of directors and board chair David Handler. In the letter, Donerail urged the company to sell assets to generate “meaningful and certain” value creation for investors.

Donerail stated its belief that Penn’s casino assets alone are valued at over double the company’s current market capitalisation.

The hedge fund manager noted heavy criticism of Penn from the investment community over its capital allocation strategy. It highlighted that Penn’s shares are down over 80% over the last three years.

Donerail said: “The growing pattern of guidance misses, alongside a demonstrated unyielding appetite to continue to invest in the company’s fledgling interactive projects, irrespective of past results and without a clear return framework, has significantly damaged the credibility of this management team and board of directors.”

Donerail is urging Penn to consider the sale of Penn’s assets, especially with other companies looking to grow through M&A.

“Our research over the last few months has left us with resounding confidence that the crown jewel of the company – Penn’s 43 gaming properties spread across 20 states – not only remains intact but has a stronger foundation than ever and continues to be highly valuable,” Donerail declared.

Interactive strategy “destroyed” shareholder value

In 2023, Penn divested Barstool Sports, selling the sportsbook back to its founder Dave Portnoy for $1 before launching ESPN Bet in November. This followed regulatory pushback, with Portnoy himself stating Barstool wasn’t a good fit with the gambling industry with concerns over his reputation.

“We underestimated just how tough it is for myself and Barstool to operate in a regulated world,” Portnoy explained, according to ProFootballTalk. “Every time we did something, it was one step forward, two steps back. We got denied [gambling] licenses because of me. So the regulated industry, probably not the best place for Barstool Sports and the type of content we make. It’s back to the pirate ship.”

In urging Penn to sell, Donerail was critical of the company’s ability to execute its interactive strategy. It stated the implied value of its estimated $4bn (£3.1bn/€3.7bn) investment into the sector was meaningfully negative.

Penn’s interactive revenue, which includes ESPN Bet, fell 11.1% to $207.7m over Q1. Penn attributed this to unfavourable hold on the major sporting events over the quarter. The company’s entire revenue decreased 3.8% to $1.61bn in the first quarter.

Donerail added: “While we understand that ESPN Bet appears as the company’s newest bright and shiny object that may very well have significant value under the right owners, we ask that the board take a moment to reflect objectively on the past four years of execution, assess the shareholder capital that has been destroyed, and recognise that shareholders may simply be tired of continued gambling on uncertain outcomes.”

Donerail questioned whether such loss of credibility could be rectified. The group called for an “immediate strategic shift” to prevent Penn’s equity price and shareholder returns stalling further.

Snowden criticised

Donerail criticised Jay Snowden, appointed Penn CEO in January 2020, for failed online gaming investments such as Barstool.

Donerail also highlighted the $99.3m in compensation Penn’s board had approved for Snowden between 2020 and 2023.

In 2022, when Penn’s stock fell by over 40%, Snowden received more than $14m. In the past, Donerail’s fellow investors such as BlackRock and Vanguard have voted against Penn’s executive compensation.

“Perhaps most concerning, Mr. Snowden appears to have little confidence in his own strategy or ability to lead Penn to success, given the fact that he has consistently sold stock and is, in fact, responsible for the most stock sales by any Penn executive since being named CEO,” Donerail continued.

“Since he was named CEO, Mr. Snowden has sold more than 750,000 shares, for proceeds of approximately $45 million, with several of his sales coming on the heels of the company’s deals and his own seemingly optimistic comments.”

Truist: Penn would survive without ESPN Bet

Despite Penn’s struggles, a Truist Securities report in April concluded the company would operate as normal even if ESPN Bet was to fail.

Penn’s interactive division would keep the company afloat should ESPN Bet stall, according to the report. Truist also stated Penn was well-placed to capitalise on ESPN Bet’s success despite the fact it’s still in the early stages of its existence.

“What we think the market is missing is that Penn Interactive is comprised of multiple businesses beyond just ESPN Bet,” Truist analysts wrote. “In the event that ESPN Bet falls through, then we think interactive would still have value for Penn.”

On the face of it, raising the sports betting tax rate seems like a good way for any state to bring in more revenue. But stakeholders say Illinois consumers will likely be the recipients of unintended consequences. During the house budget debate, one Republican representative suggested an appropriations line for funds to treat the Democrats’ unchecked “spending addiction.”

The budget bill is now headed to Pritzker’s desk, and it seems like a slam dunk that he will sign it. That, stakeholders say, will seal the fate of Illinois bettors.

“Players are probably going to see fewer promotions, and that is not good for the consumer,” West Virginia lawmaker and government affairs chief for Play ‘n Go Shawn Fluharty told iGB. “It could impact the lines, and that is another negative for the consumer. And it could force some operators out, which means less choice, which is also bad for the consumer.”

Increase bigger than Pritzker proposed

The progressive tax-rate idea surfaced last last week. The senate amended and passed the house budget bill 26 May. Two days later, the house concurred on a FY2025 budget that includes $700m (£549.7m/€645.1m) in tax increases. The bill must be sent to Pritzker within 30 days of passage.

Prtizker was the reason the legislature even considered a hike. The governor earlier this year began talking about an increase and ultimately proposed bumping the 15% tax rate to 35%. In the end, at least some operators will end up with an even bigger increase.

The budget that the general assembly sent to Pritzker includes a graduated tax rate that is dependent on adjusted gross revenue. Here’s a look:

20% tax on AGR up to $30m

25% on AGR of revenue between $30m-$50m

30% on AGR of revenue between $50m-$100m

35% on AGR of revenue between $100m-$200m

40% on AGR of revenue over $200m

The proposal separates retail and digital AGR, meaning that any in-person bets with a sportsbook will be taxed separately from digital bets. In 2023, no brick-and-mortar sportsbook reached wagering AGR of $30m, so it’s likely that going forward, all will be taxed at 20%.

It’s unclear if operators will pay a blended or single rate once AGR exceeds $30m. Seven of the state’s eight digital platforms had AGR above $30m last year. Will the first $30m of an operator’s AGR be taxed at 20%? And then the amount between $30m-$50m taxed at 25%? If so, operators will pay a blended rate.

Smallest operator would still see a 30% increase

On the digital side, DraftKings ($350m) and FanDuel ($421m) exceeded the $200m threshhold for FY 2024. Under the new plan, both would be taxed at 40%, a more than 140% increase. No other operator had AGR above $100m. The other six operators would see their tax burden increase up to 100%:

BetRivers ($81m) new tax rate — 30%

Fanatics ($51.7m) new tax rate — 30%

BetMGM ($44m) new tax rate — 25%

Penn/ESPN Bet ($42.3m) new tax rate — 25%

Caesars ($36.1m) new tax rate — 25%

Circa ($880k) new tax rate — 20%

The Sports Betting Alliance (SBA), comprised of BetMGM, DraftKings, Fanatics, and FanDuel, went beyond what Fluharty had to say.

“It’s also a subsidy to bookies and illegal market: legal operators have just started to make serious inroads into Illinois’ robust illegal sports betting market,” the SBA said in a statement. “Worse odds, no promotions, worse product all give the offshore illegal market apps (who pay no tax) a massive leg up when competing for customers. We shouldn’t be driving back customers to dangerous bookies and illegal offshore operators. That will mean less—not more—tax revenue for the state in the long run.”

‘Volatile’ tax rates make doing business tough

The decision by Illinois lawmakers isn’t a first. Last summer, Ohio Governor Mike DeWine was the architect of doubling that state’s wagering tax. Operators there saw their rate double, from 10% to 20%. New Jersey lawmakers are contemplating an increase — from 13% to 30%. Massachusetts lawmakers earlier this month shot down the idea of hiking taxes from 20% to 51%.

The changing landscape could make it difficult for operators to commit to certain states.

“Operators need to budget when they enter a state,” Brian Wyman of Innovation told iGB. “For the state to go from 15% to 35%, it makes it impossible for operators to pay fair prices to their suppliers, and they can’t pay high licensing fees. If the rules of the game are so volatile and everyone is waiting for the ‘other side’ to do something different, that’s not a good way to do business. You’re going to see a backlash as other states come on.”

Illinois operators have already paid high licensing fees — it cost $10m to get into the state tethered to a casino or pro sports venue.

DraftKings, FanDuel have made capital investments

As budget negotiations were going on in Illinois, it was reported that DraftKings and FanDuel might have to reconsider their presence in the state. Dating to 2019, when sports betting was legalised, it has seemed as if Illinois didn’t want them. The law includes three $20m stand-alone mobile licenses intended, it seemed, for companies with no retail footprint. Owners of those licenses would have had to wait 18 months to launch, while those tethered to casinos were able to launch sooner.

At the time, neither DraftKings nor FanDuel was much in the brick-and-mortar sportsbook business. But both partnered and invested in existing businesses in order to launch sooner. Five years later, there is a DraftKings-branded sportsbook at Wrigley Field and a FanDuel-branded sportsbook at the United Center. DraftKings also has a retail sportsbook at the downstate Casino Queen, and FanDuel has a physical location at Fairmount Park.

Wyman said it would seem that lawmakers would want to give “preferential treatment” to companies that invest in a state. Illinois is not the first place to at least appear not to do that.

In Maine, when sports betting was legalised, the state’s two casinos were shut out in favour of its four Indian tribes.

‘Prescription to promote, preserve’ black market

A bigger concern, as pointed out by the SBA, is whether or not the decision to raise taxes will ultimately create an opening for the black market. Operators have long contended that restricting betting markets or limiting choices sends bettors looking for better deals.

To that end, raising taxes to the point where operators cut back on promotions, increase odds, or do anything that could cause a consumer to seek another option is perceived as negative by the industry.

“Increasing tax rates at a time when market entrants are directly competing with illegal offshore sites is merely a prescription to promote and preserve that still-present illegal market,” American Gaming Association SVP for government relations Chris Cylke said via e-mail.

“As regulations evolve and policymakers consider changes, it is crucial they continue to design and promote regulated markets that emphasize continued innovation and competition that build on the industry’s momentum in migrating bettors out of the illegal market and into the legal market, not jeopardise that progress.”