Twin River and Dover Downs Merge But Challenges Await Them

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Twin River sports betting

Rhode Island casino group Twin River is taking up a position in Delaware. Little states, let your powers combine!

In a joint press release issued this week, Twin River and Dover Downs announced a merger that will spawn a single, publicly traded company. Dover Downs currently is public, but Twin River is privately owned by a group of six casino investors.

Executive Chairman John E. Taylor said Twin River is “excited about the many benefits” to come from the union.

Dover Downs and its team are experienced in not only brick and mortar casino operations, but in sports betting, which we think will be helpful as we introduce that amenity at our properties, and in the online gaming sector which continues to evolve nationwide.

Delaware sports betting and online gambling are both legal and operational under state regulation. The Dover Downs sportsbook began taking wagers on June 5. Rhode Island sports betting is slated to go live in the coming months.

The two groups expect the transaction to close during the first quarter of next year.

Twin River to absorb Dover Downs

The deal will primarily link Rhode Island and Delaware, though Twin River does own a couple of properties elsewhere:

Mississippi sports betting is also set to launch within a matter of days or weeks.

Dover Downs common shareholders will exchange their shares for a total of 7.225 percent equity in the combined company. Each existing share converts into approximately 0.0225 new shares. Twin River is contemplating a preemptive stock split in order to bring prices into a “marketable trading range.”

The Dover Downs board of directors unanimously approved the merger, and the requisite majority of shareholders likely will sign off. If and when the deal closes, auditor Jeffrey Rollins will join the Twin River board.

President Denis McGlynn called the deal “transformational” for Dover Downs.

We believe this transaction will help us grow our business, invest in our people and our facilities and compete more effectively given changes in gaming on the horizon. We expect to see many positive benefits for the State, the Delaware Lottery and our employees and stockholders.

Twin River straddling two tough markets

Let’s talk about the state of Delaware because this is an intriguing deal for Twin River.

On one hand, it will acquire a turnkey casino operation in a new market, the mid-Atlantic. Dover Downs already operates online gambling and sports betting, two things Twin River plainly is pursuing. This seems logical so far.

If sports betting created the spark for this merger, however, Rhode Island and Delaware are curious places to begin based on market size.

This is not to pick on them, but these are the two smallest states in the country, both ranked in the bottom ten in population. Even if Twin River is able to capture the majority of the new market, the ceiling is low. As for pinpoint geography, the spot Delaware Park occupies between Philadelphia and Washington D.C. is the enviable one.

Delaware did earn a small early-bird boost by rolling out sports betting ahead of the competition, but any advantage was fleeting. New Jersey sports betting since has gone live, and both Pennsylvania and West Virginia are set to follow shortly. Availability in neighboring states will limit the need for bettors to travel.

Market size isn’t the only thing that matters, but the physical structure of both gambling industries further caps potential revenue.

Delaware is challenging

In both Delaware and Rhode Island, the state lottery is responsible for regulating and administering sports betting. “Administering” is the relevant bit; hence the turnkey nature of the deal from Twin River’s perspective.

The DE lottery licenses operations to the state’s three racinos, keeping half of all sports betting revenue for its troubles. Through the first 20 days of legal wagering, the state had skimmed almost $440,000 of the $1 million total.

After the suppliers receive their 12.5-percent cut, DE casinos keep just 40 percent of the remainder. Dover Downs’ share amounted to less than $60,000 during the same period.

West Virginia provides the nearest source of comparison for those numbers, and there is no comparison.

The WV lottery will also regulate sports betting, but it will not employ a revenue-sharing system like Delaware’s. Instead, it will collect a simple tax on revenue amounting to 10 percent. After paying that and the federal excise, operators should keep around 85 percent of their revenue.

If you think Delaware is tough, wait until you hear about Rhode Island.

Rhode Island is more challenging

When the numbers shake out, DE casinos will actually keep about twice as much from sports betting as RI casinos.

The RI Lottery takes 51 percent of revenue, and suppliers get another 32 percent. That leaves operators with what amounts to crumbs — just 17 percent of the total take. Roughly speaking, the Twin River properties need to book around $2,000 in wagers to earn $17 in revenue.

State-run operations also preclude casinos from choosing their own partners or negotiating a better deal. In Delaware, sports betting is supplied by William Hill US and online gambling by 888. Those are the partners Dover Downs and the two other properties are stuck with, like it or not.

Although Twin River has a gambling monopoly in its home state, there’s no flexibility there either. IGT appears to have secured the lone contract for the RI Lottery. Online gambling, including online/mobile sports betting, remains illegal in Rhode Island.

Viewed through this lens, DE sports betting might look a little more appealing than it might normally to Twin River.