Analysis: Is MGM Setting Up For Another Run At Entain?

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US sportsbook operators cannot stop talking about Entain, with MGM chief among them.

DraftKings CEO Jason Robins called the company a “great asset” this month after their failed takeover talks.

But that failure talks might have paved the way for MGM to make another run at its BetMGM co-parent. MGM, of course, tried to buy Entain earlier this year, albeit at around half the price of the DraftKings bid.

Read between the lines

MGM CEO Bill Hornbuckle was asked directly about a tie-up at MGM’s Q3 earnings last week. Hornbuckle said MGM had come close to “walking away” with the Entain technology during the DraftKings/Entain negotiations.

“We were prepared to do it if the other parties could get to the finish line,” Hornbuckle said.

And the exec appeared to leave a deal on the table going forward.

“I like where we are as a developing business,” he said. “I like the fact that Entain shares in half of this development cost. It’s an aggressive environment as we know. But, we did comment earlier that we want to be bigger. We want to be global. We want to be a lot of things. And time will tell how we ultimately project into that space.”

MGM is building liquidity

The going global comment is particularly interesting. That is the exact reason DraftKings gave for its own bid for Entain.

MGM also has around $10 billion of liquidity on hand, per the Q3 report. The casino giant is also selling off the Mirage property in Las Vegas, potentially boosting its buying power farther.

And how might it deploy that capital?

“We are just getting started in the digital world,” Hornbuckle told analysts. “As we continue to think about expanding that business through partners or with others, that will take some capital. It’s a space we want to be dominant in on a domestic and potentially a global basis. And I think that will take some cash.”

Ideal fit for MGM

Entain of course is the quickest route to a global online gambling operation.

The London-listed firm has gambling licenses in 27 countries, and 24,000 staff across five continents.

That business is also expected to generate around $1.2 billion in EBITDA in FY21.

One more crack?

DraftKings ‘offer came in around $22.5 billion which MGM would presumably need to match to convince Entain shareholders to sell.

“I think they at least try to make another run at Entain,” said Will Hershey, CEO of Roundhill Investments. “It is a high bar but if MGM stock keeps moving higher, maybe they get to a point where they can do it.”

MGM’s market cap is around $21.5 billion as of this week.

MGM might also have backing from IAC. IAC first invested in MGM because of its online gambling opportunities and offered up $1 billion to help get the last bid over the line

Why is Entain so attractive?

Entain provides the technology that powers BetMGM. The joint venture had another solid quarter, with revenues at $227 million.

For comparison, FanDuel revenues were $363 million in the quarter.

In the three months to August, BetMGM commanded a 23% share nationwide across US sports and betting and iGaming.