Wynn (WYNN) buys online gaming unit as inventory tumbles and customer acquisition costs soar
The first victim of the highly competitive – and low-margin – online sports betting market appears to be Wynn Resorts, after reports that the casino giant is putting its online sports betting product on the block at a steep discount.
The New York Post reported on Monday that Las Vegas-based Wynn Resorts is seeking $500m (£370.8m) for its online sports gaming platform Wynn Interactive, which operates the WynnBet betting app.
Less than a year ago, Wynn Resorts announced the planned sale of the unit to special purpose acquisition company (SPAC) Austerlitz Acquisition for a $3.2 billion valuation.
The SPAC merger, which included $640 million in cash for the new entity to use in marketing costs, would have allowed Wynn Resorts to retain 58% of the newly formed standalone Wynn Interactive. The proposed merger was discarded last November.
High customer acquisition costs
Announcing the mutual termination of the merger agreement, Wynn Interactive CEO Craig Billings said, “In light of the high marketing and promotional spend in the sports betting industry, we are directing our efforts from user acquisition to a more targeted strategy focused on ROI.
“In doing so, we expect the capital intensity of the business to decrease significantly from the first quarter of 2022.”
As legalized sports betting spread across the country, stiff competition between operators has prompted massive advertising campaigns and losing odds to lure customers. Wynn even signed a former professional basketball player to the Hall of Fame Shaquille O’Neal as its brand ambassador.
Caesars Sportsbook, the largest new online sports betting operator in New York State, has kicked off a publicity blitz across the tri-state area featuring comedian JB Smoove, Oscar-winning actress Halle Berry and all the Manning family.
Teaser betting odds
Sports betting operators routinely offer odds payouts of 100-1 for easily achieved results at a sporting event, or that a team keeps the end result within a 100 point loss margin and even safety nets for new users.
These teaser-odds bets often come with stipulations, such as bets capped at $10 and winning bets paid in credits that must be ‘waged’ on the platform up to 20 times before they can be withdrawn.
Customer acquisition costs are estimated to be between $300 and $500 per user, according to the New York Post, and customers are free to switch between platforms to research prices at the slightest discrepancy in odds or point spreads.
High volume, low profit in New York State
Since legalized sports betting was allowed in New York State – by far the most populous state to allow online betting – on January 8, the four platforms that were granted operating licenses have seen over $603 million combined in total bets, according to retained data by the New York State Gaming Commission.
Wynn Interactive was licensed to operate in New York but did not begin operations in the state.
The largest of the four licensed to operate in New York, Caesars, reported taking $257.7 million in bets in the first two weeks of trading in New York alone. On the total or “handle” bet, Caesars returned $22.7 million in winnings held, for a hold rate of 8.81%.
That $22.7 million in earnings or gross gaming revenue (GGR) is subject to the highest national tax rate at 51%, leaving Caesars with $11.1 million, or a weekly average of $5.55. millions of dollars.
At the other end of the spectrum is Rush Street Interactive, which hasn’t engaged in a saturating ad campaign or offered teaser ratings in the greater tri-state area.
For the first two weeks of legalized sports betting in New York, Rush Street reports $446,696 GGR from approximately $10.6 million management for a 4.2% withholding rate. The GGR is subject to over $227,000 in gaming revenue taxes, leaving Rush with $218,881, or $109,440 a week.
Amid a massive stock sell-off, gaming stocks have mostly lagged the Nasdaq Composite Index. While the Nasdaq is down 14% year-to-date, three of New York’s licensed gaming operators, along with Wynn, are down 20.7% on average.
The biggest year-to-date decline is in shares of DraftKings, the purest online betting platform that is also publicly traded. Since Jan. 3, DraftKings stock has fallen 30.3%, opening Tuesday at $19.36 per share, down 74% from the 52-week high of $74.38 seen last March.
For its part, Wynn Resorts, which is much more diversified, with physical betting parlors and hotel operations in several US and international states, is only 5.71% through 2022 and 42.5% on its share high of $143.88 over 52 weeks. price set in March.
Read more: Casino stocks roar after Macau changes gambling regulations
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