Bally’s (BALY) Q2 2023: UK Interactive Surges 12%, Chicago Casino Set for $60M EBITDA Boost

August 3, 2023 | By EarningsIQ Research

Bally’s delivered record casino and UK interactive results, while North America Interactive losses widened as new launches ramped. Transformational moves in Chicago and Las Vegas are reshaping the asset base, but capital allocation discipline and integration remain critical as expansion accelerates. Guidance was reiterated, with leadership emphasizing incremental growth levers and omnichannel execution heading into 2024.

Summary

• UK Interactive Outperformance: Market share gains and consolidation tailwinds are fueling above-market growth.
• Chicago and Vegas Projects Reshape Portfolio: Major development milestones and partnerships are unlocking asset value.
• Omnichannel and iGaming Expansion: U.S. digital ramp and Rhode Island exclusivity position Bally’s for incremental EBITDA streams.

Business Overview

Bally’s operates a diversified gaming business spanning casinos, resorts, and digital gaming platforms. The company generates revenue through three main segments: Casinos & Resorts (land-based gaming and hospitality), International Interactive (online gaming, primarily in the UK and Asia), and North America Interactive (iGaming and sports betting). Bally’s leverages its brand and player database to drive cross-channel engagement, with a growing focus on omnichannel customer acquisition and digital expansion.

Performance Analysis

Second quarter results reflected strength in core casinos and international digital operations, offset by continued investment in North America Interactive. Casino and resorts delivered record revenue and adjusted EBITDA, underpinned by improved margins and the impact of recent property upgrades. International Interactive, led by the UK, posted double-digit growth and margin stability, benefiting from market share gains as smaller competitors exited under regulatory pressure.

North America Interactive losses expanded, driven by upfront costs tied to the Pennsylvania iGaming launch and technology platform transitions. However, management highlighted positive contribution margins in mature iGaming markets like New Jersey, and initial results in Pennsylvania exceeded expectations. The company reiterated its full-year guidance, reflecting confidence in the resilience of core operations and the ramp of new projects.

• Casino Margin Optimization: Centralized procurement and reporting systems are driving sustained cost discipline across the property portfolio.
• UK Interactive Market Share Gains: Algorithmic marketing and compliance readiness are enabling outperformance in a consolidating market.
• Digital Losses as Investment: Increased North America Interactive spend is tied to platform upgrades and new market entries, with an eye toward future profitability.

Cash flow was impacted by development outlays and restricted cash for the Chicago Tribune site, while share repurchases continued at a measured pace. The balance sheet remains leveraged, but management is actively weighing sale-leaseback and real estate monetization options to fund growth without overextending.

Executive Commentary

Strategic Positioning

1. UK Interactive: Consolidation and Compliance as Growth Catalysts

Bally’s UK digital business is capitalizing on regulatory-driven market exits by smaller competitors. The company’s established compliance infrastructure and algorithmic marketing are driving both customer acquisition and margin stability, positioning Bally’s as a consolidator in a maturing, highly regulated market.

2. Chicago Casino: Transformational Asset with EBITDA Upside

The Chicago temporary casino is on track for a September opening, with management projecting $50 to $60 million in annual EBITDA contribution. The project’s scale was expanded, and the permanent facility remains slated for 2026, leveraging an existing customer database and local market penetration for incremental growth.

3. Las Vegas Tropicana: Unlocking Option Value

The Oakland A’s stadium partnership on Bally’s Tropicana site adds long-term strategic value and optionality. While near-term customer uncertainty has modestly affected property performance, management sees this as a unique asset transformation opportunity with future upside.

4. North America Interactive: Platform Transition and Omnichannel Focus

BallyBet’s migration to Cambi and White Hat platforms aims to improve product quality and operational efficiency. The company is prioritizing iGaming profitability over promotional spend, using sports betting as a customer funnel and leveraging omnichannel data for targeted acquisition and retention.

5. Capital Allocation: Real Estate Monetization and Deleveraging

Management is evaluating sale-leaseback transactions and standalone project financing to fund development while managing leverage. The timing of major capital outlays is being balanced against operating cash flow and equity/debt repurchases, with flexibility to adjust as projects progress.

Key Considerations

This quarter marked a clear pivot to asset monetization and omnichannel integration, with Bally’s balancing near-term digital losses against long-term market share and EBITDA expansion. The interplay between regulatory headwinds, competitive consolidation, and capital discipline will define execution risk and upside from here.

Key Considerations:

• UK Regulatory Environment: Ongoing review of the UK white paper could further accelerate market consolidation, benefiting scale players like Bally’s.
• Chicago Ramp Dynamics: Temporary casino opening and permanent build-out will test execution and cash flow management as capital needs rise.
• North America iGaming Margin Path: Achieving profitability in new digital markets depends on disciplined spend and effective cross-sell from retail databases.
• Balance Sheet Leverage: Real estate monetization and project-level financing are critical to funding growth without overextending leverage ratios.
• Integration and Cost Containment: Leadership is reassessing centralization versus property-level autonomy to preserve margin and nimbleness.

Risks

Execution risk is elevated as Bally’s juggles multiple large-scale projects and digital platform transitions. Regulatory changes in the UK or U.S. could disrupt core earnings streams, while competitive pressure remains acute in both land-based and digital markets. Leverage and capital allocation decisions will be closely watched, especially as development spend ramps and real estate options are explored.

Forward Outlook

For Q3 2023, Bally’s guided to:

• Continued strength in core casino and international interactive, with incremental contribution from Chicago temporary casino post-September launch
• North America Interactive losses moderating as platform and market launches normalize

For full-year 2023, management reiterated guidance:

• $2.5 billion to $2.6 billion in revenue
• $665 million to $700 million in adjusted EBITDA

Management highlighted several factors that will drive results:

• Chicago and Kansas City project completions, Twin Rivers expansion, and Shreveport smoking ban reversal as margin and revenue tailwinds
• iGaming launches in Pennsylvania and Rhode Island, with exclusive rights in Rhode Island providing long-term digital upside

Takeaways

Bally’s is executing on a multi-pronged strategy to grow both its physical and digital gaming footprint, with the UK and Chicago as key near-term drivers.

• UK Digital Outperformance: Market share gains and regulatory barriers are consolidating Bally’s position in a profitable, mature market.
• Chicago and Vegas Asset Value Unlock: Transformational projects are set to drive incremental EBITDA and long-term strategic flexibility.
• North America Digital Ramp: Investment in platform and omnichannel capabilities is necessary for future profitability, but requires tight cost control and disciplined execution.

Conclusion

Bally’s delivered record results in its core segments, while laying groundwork for future growth through major asset developments and digital expansion. The company’s ability to balance capital allocation, integration, and regulatory navigation will be decisive as it enters a period of accelerated transformation.

Industry Read-Through

Bally’s results reinforce the growing divide between scale players and smaller competitors in both land-based and digital gaming. Regulatory tightening in the UK is driving market exits, favoring operators with compliance infrastructure and marketing sophistication. In the U.S., omnichannel integration and database leverage are emerging as critical differentiators, as iGaming and sports betting become increasingly intertwined. The company’s asset monetization and real estate strategies signal a broader industry trend toward capital recycling and project-level financing to fund growth while managing leverage. For peers, the quarter underscores the need for operational flexibility, disciplined digital investment, and proactive regulatory engagement.

BALY Consumer Discretionary Gaming Omnichannel iGaming Regulation Real Estate Digital Expansion