BetMGM expects to be EBITDA positive in the second half of 2023, the joint digital gaming venture between Entain and MGM Resorts announced in an investor update Thursday.
BetMGM reported $1.44 billion in 2022 revenue, which was slightly ahead of projections, along with $440 million losses in earnings before Interest, taxes, depreciation, and amortization, on par with projections. Meanwhile, digital-based revenue grew by 51% in its existing states.
iGaming will carry BetMGM into positive EBITDA this year when it anticipates between $1.8 and $2 billion in net revenue, CEO Adam Greenblatt said during the call. Entain and BetMGM will invest another $150 million into the online sports betting business, which Greenblatt said continues to benefit from reduced customer acquisition costs, a more targeted retention strategy, and a surge in parlay popularity.
MGM Resorts shares fell 2.5 percentage points at market open, but after the call rose over 1.5% on the day. Entain shares were also up slightly.
BetMGM iGaming offsetting sports betting
iGaming will continue to be the backbone of BetMGM’s path to profitability.
BetMGM was the U.S. iGaming market share leader in every calendar month, holding 30% of the North American market versus just 13% of the legal online sports betting market.
BetMGM is live in 25 North American markets, after adding Illinois, Kansas, Louisiana, Maryland, New York and Ontario last year.
“iGaming states have all beat our expectations and become profitable quickly,” BetMGM CFO Gary Deutsch said.
What about online sports betting?
He declined to set the same profit expectations for online sports betting this year when asked.
“For the four states in the U.S. that we had long-ago launches in iGaming— those are all full year contribution positive for us, even Ontario is basically right on that line,” Deutsch said. “All the states that [have] combined sports and iGaming are contribution positive. We have a handful of sports only states that went full year revenue positive in 2022 and more should be positive going forward once we get through Q1 and March Madness.”
Promotional sports betting spending was much higher to start last year than the company had anticipated, he added. That is likely a reference to New York’s surprise early launch in January.
“Those states turned out to be slower, but the timeline for a positive pathway in [newer states] is shorter,” Deutsch said. “Massachusetts, Maryland, Ohio all fit within 36 months and 18 months.
Greenblatt mentioned an iGaming bill recently introduced in Maryland, but added that he does not believe any states legalizing it this year.
Quality of customer drives lower promo spend
BetMGM reduced its customer acquisition costs by 21% in 2022, which management attributed to more data-focused marketing and an improved ‘player bonusing’ approach.
“Our data science has gotten excellent,” Deutsch added. “Our model has gotten a lot sharper at understanding how players are going to evolve. Some of it is figuring out when it’s time to cut bait and our model has gotten a lot better at predicting that.”
That change was reflected in its both its sports betting handle and promo spend drops in a state like Virginia.
Virginia spend declines
It has long led all Virginia operators in the state’s total promo spend, but that number steadily declined over the past year, moving from 37.3% in March to 33.9% by November. Aside from Caesars, it was the only VA operator to cut its promo budget. During that same span its share of total handle fell 2% while FanDuel, Barstool Sportsbook, DraftKings and PointsBet all increased market shares.
The philosophy of weeding out less-profitable customers and focusing on ones that wager more is hardly a new concept. But it has been an increased focus during these sorts of calls as of late.
“We want to make sure we put our arms around our good players and don’t put our arms around players that don’t mean exceptional value,” Greenblatt said, who added that BetMGM plans to leverage more rewards through MGM Resorts’ retail assets to keep the right customers loyal and engaged.
Subject to change
BetMGM’s plan could change depending on external factors, Greenblatt warned, adding that promotional spending would have been much different if California had legalized sports betting this year.
“We haven’t even discussed Texas, Florida, California coming back … all those scenarios would need a rethink of our capital plan and of course the tax and regulatory environment is not static either,” Greenblatt said.
A ‘better football season’
BetMGM saw a 150% gross win margin during NFL regular season betting when factoring out losses from promotions, Deutsch said.
The primary driver is a huge surge in one of the most lucrative bets a sportsbook can take.
BetMGM saw parlay bets increase 90% from 2021 and parlays as a percentage of total bets increase by 15%.
“It was also a better football season,” Deutsch added. “We reduced the volatility in our weekly swings. We have less singular risk on a given game. We’ve seen a couple games that we thought could cause trouble, but we had much less volatility as a result of player mix.”
