MGM Resorts International (MGM) Earnings Call Transcript & Summary

All right. Good morning, everyone. We're very excited to have with us who is a newcomer to the JPMorgan Gaming, Lodging, Leisure Management Access Forum, is Adam Greenblatt, Chief Executive Officer of BetMGM. BetMGM has gotten a lot of attention from MGM investors, and it's obviously participating in a hyper-growth business segment, which is interesting, and we'll look to hear Adam's strategic initiatives and recent successes. Adam, thank you for joining us. We appreciate your time. I'll just start off by saying BetMGM is a -- is currently set up as a 50-50 joint venture between MGM and a U.K.-based company, Entain.

And can you talk about sort of the relationship with Entain? And if you want to talk about sort of what happened in January in terms of trying to control the whole entity, but just the sort of the working relationship with them as a 50-50 joint partner and how decisions are made operationally or with respect to access to capital or other strategic sets of initiatives.

I see you're starting with the easy ones there, Joe. Thank you. Look, the -- I can only speak for BetMGM, as you'd expect. And from my perspective, we have all the resources. We have complete commitment from both MGM and Entain. We have focus and access to the businesses operationally underneath the board. We have everything we need effectively to operate successfully. Our pace of product delivery hasn't abated at all. In fact, it has accelerated our access to MGM's physical properties in support of Bill and his team likewise. So from my perspective, what we are proving is that the existing structure can be successful, and there's been no hiccup at all.

Obviously, with shares that are #1, #2 or #3 in each and every market that you're in, there obviously has not been an impediment to success. So that's good to see. Maybe can you talk about how your approach to market share, utilizing both joint venture partners, might differ than, say, those who have led with fantasy sports, those who are similar in that they have a gaming operator database, but maybe have a different platform to help kind of mine new customers? Can you just talk about that -- your approach versus the approaches of others?

Yes, for sure. So it's probably worth just laying the table with the following initial observations. The first is that -- is what we do. So the what for BetMGM, we are sports betting, retail and digital, iGaming, casino and poker with some exciting new product verticals coming soon. Soon -- next 90 days soon. We are multi-brand, which also sets us apart. We own all end-to-end through the Entain relationship all our own technology. And through the MGM part of our structure. We have access to world-leading entertainment venues with a gaming centricity. And so what we have differently -- I'm sorry, the last point is every BetMGM new player -- so if you register with BetMGM, you become automatically enrolled into the M life program. So what do we do differently? And there are a few ways to think about it. So #1, end-to-end ownership of the technology allows us to curate our players' experience in our special way, our flavor, right? The fact that we go to market on -- certainly more on the gaming side with multiple brands allows us to serve different pockets of demographic, and we can talk more about that later. So there's another differentiation there. Back to the loyalty, the point about M life and the relationship with MGM. We see -- we have already seen tremendous success in driving depositors to BetMGM through MGM properties and the M life program. So on the acquisition side of our business. In fact, in the final quarter, we saw -- I think in the final quarter, December, we saw 17% of all of our first-time depositors having a preexisting relationship with MGM, right, a trackable preexisting relationship. And so that's good for us. Why? Because there is an already established brand relationship. And invariably, those players also represent higher value, higher value because of demonstrated preexisting enjoyment of our product. So more highly qualified players. Now what we would like to see imagining a post-COVID world are a good proportion of the 7 million guests that Bill and his team at MGM Resorts host on an annual basis in Vegas, a good proportion -- well, for certain, everybody is exposed to the BetMGM brand during their 3.5 days average day in Vegas. So brand exposure. But anybody with an inclination to bet sports is offered BetMGM's product and takes that product home to home state. Then while in home state, BetMGM continues to provide a tremendous and exciting betting and gaming experience, not just for 3.5 days, but for 361 days left in the year. So cementing that brand relationship, earning loyalty points by virtue of their enrollment in M life. And then encouraging that return to the following year or sooner to an MGM property. So that's the kind of virtuous cycle that we are seeking to put in place, and that is a key differentiator for us.

It's intuitive. I mean it's sort of like what they've been -- they have been doing and now has been doing sort of on the land-based casino side of things, where you spend more -- you bank more -- stuff rewards, loyalty benefits and then kind of this sort of circle of life where the bigger just becomes stronger. So with respect to loyalty and M life for it -- whether it's the sports betting and iCasino -- and I know it's not a huge amount of sample size of markets to look at. Is the benefit really on lower customer acquisition cost? And/or is it sort of on a spend basis versus non-M life? Does it enable you to do other things that help you generate profits? I would imagine, on the sports betting side, it's like the market dictates odds. You can have different -- less favorable odds than the guy down the street, but how do you view those things?

Yes. I mean this is where it gets really exciting, Joe, because what -- even during COVID, even with reduced occupancy, we, BetMGM working with MGM Resorts, have been recruiting players within those physical properties. And what we found is that they are significantly cheaper to acquire than standard digital acquisition in the open market. And here's where -- here's the kicker. They're also up to 2x more valuable than the standard player. So in terms of player level ROI, I mean, this is really the sweet spot. This is why this element of our strategy is so important.

Great. Excellent. And so if you were to index it, perfect success at 100. And you've achieved very good success in the markets that you're in, again, with at least top 3 share, in some markets 1. How much of it is sort of a market where you might have first-mover advantage versus specifically the technology and the breadth of offering that you're offering versus peers?

Yes. Look, first-mover advantage has been a topic that has been increasingly well explored recently in a number of these types of situations. What I would say from BetMGM's perspective, our business has developed, matured leaps and bounds. I think we're probably -- I can't put on -- put a number on it. Relative to where I would like to be, I think we're a B. I think we have enormous opportunity to refine, frankly, every part of our business, to improve every part of our business, and we're getting smarter by the day. One example. One example. Given the relative youth of the market, we do not have longitudinal data. We don't have deep history of things like seasonality, seasonality in sports betting year-to-year. So one example. One question. What do football betters do come year 2, come year 3, right? Many of our markets -- I mean, Michigan is a business which is less than 50 days old. So to really get smart in how we manage players, how we communicate players, how we incent players and -- through bonusing, reward, communication, CRM, we are -- we look to the data to guide us. We look to the data to help drive our next best action. And with such limited historic data, our ability to train our predictive models is more -- is structurally more limited. So this is where I say, as with every passing day, we are getting smarter. And with more data, it allows us to make better decisions that will allow us to, for example, optimize where we put our marketing money. So increased marketing efficiency is just one of the elements. Another element where our product opportunity is, bounce rates, drop-off points within the site, the most favored player journeys within our -- each of our products, but also between products. All of this is being tracked on a daily basis and refined. And so as I look to the future, we feel very, very optimistic about our ability to get much stronger than we are now notwithstanding the success we're seeing here.

Got it. Great. Excellent. You talked -- maybe you didn't say the word cross-sell, but cross-selling MGM's database into BetMGM. Can you talk about maybe what you're seeing in markets where there is overlap, the crossing -- or the crossover of sports betters into iCasino or iGaming?

Yes. Yes. So look, we've got -- we are preparing for a more fulsome disclosure next month. So what I would say is that we're very, very happy with the level of multiproduct play that we're seeing in states that have both sports betting and iGaming. And look, we're especially happy with the trends that we're seeing in Michigan, which, if we had to put them on a roster, Michigan is up at #1. What -- perhaps a little bit more color. We have -- we, BetMGM, have a higher proportion of solos casino players than solos sports players. So if you imagine the sports on this side -- sports service on this side, casino solos from this side, and then the group of multi-product players in the middle, we have a higher proportion of casino-only players than sports-only players. The sports to gaming cross-sell is at a higher level. I hope that's helpful.

Great. You mentioned Michigan. Obviously, Michigan has been a success story. And interestingly, you have you have the 4 operators accounting for, whatever, 95%, 96% sports betting handles. Four operators accounting for 90% of iGaming revenue. Do you see this as having predictive value for other states that launch where all the operators are launching coterminously? Or is there something different about Michigan with respect to BetMGM and the other 3 successes? So I guess, my question is more broadly on market concentration in markets where there's kind of a jump all as everybody kind of launches together.

It's an important question. I think there are a few dimensions that I'd like to explore with you. So go to the answer first. I expect we will continue to see a leading group that will account for the large majority of market share nationally. But then why, right? But let me refine that. At a state level, exactly where that percentage ends up depends on quite a few factors and local factors, local to the state, including regulation, strength of preexisting domestic brands. And I'd point to Iowa as the best recent example of this, where we had a digital registration tethered to property for a good length of time. And the market was configured in the way that it was. And if you're tracking, then you'll see. And what we are seeing now with the removal of that requirement for physical tethering, on-property sign-up, we are seeing a shift to a more, relative to today, traditional expected distribution of market share. So the point here is there will be states where you have a very strong incumbent casino brand or you will have these kind of, let's say, distortions, which drive market concentration. But zooming out, I think it'll become progressively more difficult for smaller players to compete on many of the competitive axes with the majors. To name a few, product. The overall quality and performance features, user experience. The ability to get new features into the market and innovate. Just on our side, I think Entain releases over 100 new features every day. This is industrial scale, enterprise-level development that smaller operators just won't be able to keep up with. And of course, we haven't talked about just the physical -- the scale of investment in marketing, just the brute force. That's the men's brand in the minds of potential players. Other things, sophistication and degree of integration of our marketing, technology and tools into the product, which allows us to personalize the player experience of the product. Scale efficiencies are another important factor which will drive concentration growth. So our ability to advertise nationally in an efficient way. So you need sufficient state coverage to ensure that the wastage in relation to states where you don't have an offering is more than offset by the reduction in cost per impression. And we expect to be in that position later on this year, by the way. And then things like -- that also impact the customer experience, customer service levels. We will offer -- we offer 24/7 support. This, over time, becomes meaningful to players. So you put all of this together. And where do we get to? That for customers, BetMGM's proposition is better. It's just an overall better offering. And I think the smaller players will be unable to match or better. And over time, where does that end up logically? It ends up with a high degree of market concentration.

A couple of things that you referenced in there is, over time, it'll be more efficient and leverage scale with respect to marketing. How much of marketing, say, over the next 12 months is sort of either done independent of what maybe the competitive set is doing versus what you think makes more sense and is strategic in terms of what you think your customers want?

We can't be blind to competitive forces, right? So we do need to show up for the battle where the battle is fought. Having said that, we measure everything. So we are not -- we actively -- and this is on an intraday basis. We manage our digital campaigns, many hundreds of digital campaigns, in order to optimize, to achieve the best possible CPA over time. And we will stop things where we don't see the marketing perform. And so we manage that very actively. I mean the other point is because of our strategic assets, we talked about the MGM properties, the MGM brand M life. We haven't talked about our relationship with Yahoo!, the athletic team partnerships. We want to play to our strengths and we'll lean more heavily into where we see different opportunities to differentiate, opportunities to reduce our effective cost of acquisition. And not only just the cost of acquisition. It may well be we want to pay more for a player because we have greater confidence in the expected value, particularly on the gaming side, where our predictive models are really throwing up some interesting results now.

Great. Can you talk about the MGM's rollout of newer states? You publicly have talked about being in 20 states or markets by the end of this year. Can you just talk about the launch there? And then would you expect each incremental launch to be more efficient relative to experiences in past launches?

Okay. So the launch first. So we are live in 12 states. We hope, expect, because this is an imperfect science given the legislative and regulatory dependencies, to be in 8 -- around 8 more between now and the end of the year. Included in that list in no specific order, New Mexico. We've actually just launched last week on-property mobile in the state of Oregon. Those have been delayed by COVID. D.C. is on our near-term road map. We have a strategic partnership -- long-term partnership with the Nats. So we'll be going live with both retail sports betting and also a mobile app geofenced around Nationals Park, and we're aiming to launch that around springtime. Illinois is another interesting one. We have digital market access secured. We're in the process of getting licensed. We could be live in the first half of 2021. But as you probably are aware, it's a complex situation with on-property registration on or off. And there is also a positive risk that we could see iGaming this year through legislation. So just looking at the longer list now, Joe, Maryland, Massachusetts, Ohio. We're also -- other states could also be Arizona, Kansas, Maine, Louisiana.

Got it. And your market share in the fourth quarter was 17%. How do you think about what your targeted market shares would be in sort of newer states over time on average? And is there a big difference between sports betting and iGaming anticipated market share?

Yes. So what we've guided to thus far is a 15% to 20% aggregate market share nationwide. You've rightly acknowledged that in the fourth quarter, we had 17%. That was actually artificially depressed because in the month of December, we launched in the state of Pennsylvania. So that was included in the average. And obviously, only part month and first month would dilute our overall performance. And that's not just lip service. So in the 3 months to December, it was 17%. In the 3 months to January '21, it's now 18% and growing. I think it's still early to comment about revising that 15% to 20%. What I would say is that our share in newer states is -- where we launched on day 1 is higher than our current average, right? And we've built the capability to launch on day 1 in every market where we have access. Within 87 days, I think we launched 5 new states with Entain. So the machine is really geared up. And also our playbook, which you referred to, our new state launch playbook is getting refined with every launch. So yes, I'd be very disappointed to lose ground relative to our current position over time.

Right. Who among your competitive set do you think has either the best product, is the best marketing machine, is the one competitor that you're like, yes, this is the serious one that we should really pay attention to? Obviously, there's probably like 5 that you're really -- or 4 or 5 that you're looking at that's sort of in your league or in your share category.

Look, the race we're running is really just with FanDuel and DraftKings in terms of relative maturity of product, demonstrated ability to acquire players at scale, big -- continuity in their business. They've been doing it at -- been doing some -- an adjacent activity for some time. Yes, they're really the -- those that we look at most closely. Barstool is doing a good job. Clearly, their different take on marketing has its place. But I think just in terms of the maturity of the machine from a product features, complexity, sophistication, ability to keep up with us certainly from a product experience and product development perspective, I think it's a very narrow group.

Great. When you -- how much of your time do you -- I mean, maybe you don't think of it this way, is spent on sports betting versus iGaming? I would say, like, from an equity investor's perspective, sports betting gets a lot of focus because of the relative revenue size and opportunity. But obviously, there's a decent amount of profit now and should be a good amount of high-margin profit in the future for iCasino. So when you think about sort of the opportunities and how to allocate your finite time, how do you allocate it?

So the first point I would make is that we're all working at 120%. So time has stretched, but it's all been very productive. But your point is right. How do we -- we should be allocating resources, not only time, but all resources according to the value of the market opportunity. And the point that you're making, which I agree with, actually, is that the relative importance of iGaming thus far is underappreciated. Give you one example. This is just one example and one with a limited sample size. The state of West Virginia. A small state, but interesting state. Why? It's a state where you've got both sports betting and iGaming and all the majors represented. So perhaps, as a fish bowl, that's something to look at. And in the most recent month -- and they have released February results. February results were good for BetMGM. We increased our sports betting market share from 14% to 18%. We increased our gaming market share from 47% to 52% against DraftKings, right? So notwithstanding having come late to the market, we have now taken over dominance in iGaming in that market. But that's just the setup. The key point I wanted to land was this. Just our gross gaming revenue in the month of February in West Virginia was bigger than the whole gross gaming revenue pool in sports betting, right? So while there is a fixation on percentages, I think we do -- it would do us -- it would allow us collectively, the investment community likewise, to rethink about where the value is. And certainly, our strength in gaming, we think, is a competitive advantage and also should be valued more highly.

I want to ask you the competitor set question before. The first 2, obviously, were FanDuel and DraftKings. Do you think you -- I mean, you already have a relationship with Yahoo! Sports. I mean do you need to buy a fantasy sports platform to further compete successfully against those 2? Or is that really an unnecessary thing to do right now?

Yes. We're not looking to own a daily fantasy type of offering at this point. Yahoo!, which rightly is investing in its bite- sized, if you like, fantasy products. So rather than try to recreate what essentially is a liquidity-dependent product without the liquidity, that's -- I don't think that's -- well, that's not the right strategy for us. What we are going to do is work with a terrific partner in Yahoo! Sports and leverage the potential of that relationship and help them to the extent possible with their, as I say, bite-sized fantasy products. You will have already seen that we are tightly integrating, coupling at a product level, BetMGM sports offering with their fantasy offering. So you can see -- you should expect to see more tight coupling in that area. So rather than buy, own, manage ourselves, use the assets of our strategic partners in a more efficient way.

All right. Adam, can you talk a little bit about in-game betting? Does BetMGM have an in-game betting product? To me, this would seem to be a technology that significantly drives a high velocity of further revenue growth for online sports betting. What's the gating issue there? Is it technology? Or is it regulatory?

So a few elements to that. Yes, we do have an in-game offering. And I'd suggest anyone who hasn't experienced it for themselves to jump on to BetMGM and try it out for yourself. Look, similar to international markets, live betting is already showing its potential in the U.S. A small example for you, real-life here in the U.S., month-to-date, Borgata sports label, New Jersey-only, more than 50% of our handle is in live betting in-play. Despite -- So more handle in live betting, okay? A smaller number of players. But clearly, a high degree of engagement. And yesterday, I mean, look, we've also -- at a particular time, yesterday, this is another interesting one. Our -- overall, our aggregate digital business, sports business yesterday, took more handle live than pregame. Now that is also driven by the nature of the sports that are driving the volume. And basketball and tennis at the moment are the leaders from a sports perspective in in-game. And so really that's what we're seeing. But absolutely, I agree with the strategic importance of in-game. And yes, there is no technology blocker from our side.

Okay. You referenced this earlier before as well, Adam. You mentioned about having multiple apps or brands in the same market. You recently launched the Borgata app in Pennsylvania. Can you talk about the differences between -- from a consumer's perspective, the BetMGM app versus the Borgata app in Pennsylvania? What's the strategic rationale? I mean I think I sort of understand the strategic rationale for having multiple or separate apps.

Sure. So the brands themselves resonate differently with different audiences. So we've -- and really, that means that by introducing a new brand, we actually are appealing to a wider -- we're expanding our audience. And what we've -- and we've actually seen that. We've seen an acceleration in our Pennsylvania gaming business since the launch of the Borgata brand. Another data point for you, also limited, but important. In the 10 days of March, so last 10 days, our active player base in gaming has increased by 54% versus the same period last time -- last month. And that's largely driven by -- yes, substantially driven by the introduction of the new brand. Borgata Casino demo is slightly older, and we have a higher proportion of women versus BetMGM Casino. Two more points on this. We, at BetMGM, are able to support multi-brand in a very efficient way because of the way the Entain platform has been built. So with a common platform to spin -- not only put up a new brand, but all of the operational processes underneath that have been designed into the platform. So it's really an efficient route to market for us. And by the way, I think there was a -- we used different skins as well -- skin parts in Pennsylvania.

Great. We're actually knocking towards the end of our 35-minute segment. It's gone by fast. We can have you speak for another hour or so, and I know investors would love to hear from you. But maybe the last question, since you're in New York and I'm in New York, maybe if you could talk about the latest that you're hearing on online sports betting legislation in New York. If there is support legislatively for sort of a single operator, single skin type of market access? Is there an avenue there? And do you have -- if you could answer that, that would be great to hear that. I know there's a lot going on with the governor, and that could also alter the pace of support for sports betting legislation.

Yes. Look, we continue to be hopeful that New York will legalize mobile sports betting in the very near future, eyeing this session. Look, BetMGM is -- we are exploring a number of potential access paths to ensure day 1 market access, including additional downstate casino licenses, second skin market access. And actually, the real potential that the final licensing structure may not be fully identified yet. I think there is consensus within, certainly, within all non-lawmaker circles that a single operator model is not preferred. And we believe strongly that New York wants the best proven sports betting operators in the state, right? And given the strong physical presence that MGM has in New York through Yonkers and the state's opportunity to impose a meaningful license fee and sustainable tax rate, we think it's in the state's best interest that BetMGM is in the market from day 1. All the arguments support it.

Excellent. Well, on that note, Adam, I want to thank you for your attendance. This is a great conversation, and we look to having more of these conversations with you in the future. Again, thank you.

Thank you very much for having me. I've enjoyed it. Thanks, Joe.