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Last week saw Golden Nugget Online Gaming (GNOG) report its Q1 financial results for 2021. There are some stellar growth percentages in there and plenty of expansion plans across US states. However, in putting its focus on online casino before other verticals, is GNOG missing out?
GNOG reports 54% revenue growth year on year with a 30% EBITDA adjusted margin in New Jersey. It’s also showing great customer acquisition stats:
The company currently operates its online casino in New Jersey and Michigan. Its revenue split at the moment is 60% NJ and 40% MI, but GNOG expects them to equalize over the next couple of years.
Expansion plans include:
Golden Nugget has no plans to move into online poker however, and its sportsbook under-performs compared to its online casino. With investors throwing money at any stock with exposure to the US sports betting market, Golden Nugget’s laid back attitude towards that vertical stands out.
Most successful US online gambling brands balance sports and casino. Nonetheless, GNOG Chairman and CEO Tilman Fertita is quick to defend his company’s strategy. A slide presentation accompanying the Q1 results offers the justification. GNOG provides figures from Eilers and Krejcik showing that “online casino revenues in 5 states match online sports betting in 15 states.”
It follows up with a slide showing that “In the 4 largest iGaming States, Online Casino GGR is Twice The Size of OSB [online sports betting].”
On the investor call, Fertita doubled down again. He told investors to think differently about the issue:
“In terms of the economics of new states, the first thing is that you really need to look at iGaming states versus sports in new states differently. One, because when you offer a new sports, it’s extremely difficult to get to profitability, the real profitability comes when you add iGaming to that.
So when we have the opportunity to operate in an iGaming state, as this is really where we want to focus our marketing investments, because this is where we will get the higher return on investment.”
The reason for the strategy is simply “that’s where the money is.”
Fertita also owns Landry’s, an entertainment corporation with restaurants, hotels and gaming across the US.
He observed that other US online casino brands have spent large sums on media deals and other marketing which investors admire. Meanwhile he feels not enough attention is devoted to the synergies available from GNOG’s relationship with Landry’s.
“It is Landry’s massive customer base. Across Landry’s over 500 restaurants, five casinos and many other entertainment venues across 40 U.S. states, we have access to tens of millions of customers and we’re just in our infancy of unlocking the value there. I don’t think the market really understands the powerful relationship that exists and is available to GNOG through Landry’s.”
As legal state regulated gaming rolls out across the US, Fertita believes Landry’s provides the kind of strategic advantage that FanDuel and DraftKings have with their DFS customers.
Fertita is also proud of GNOG’s innovations. In 2016, it opened the first a live dealer studio for the New Jersey market, powered by Ezugi, at a time other companies hadn’t yet seen the value in that new product class.
Now, the facility is used by multiple brands and is a source of B2B revenues for GNOG. Live dealer games will launch in Michigan in just a few weeks, powered by Evolution Gaming, which acquired Ezugi in 2018.
In the next quarter, when Golden Nugget online casino launches in West Virginia, it will be with all new casino software. This will then roll out to other Golden Nugget states throughout 2021.
The new casino portal brings “user interface improvements, a quicker navigation and will allow us to release new features faster.”
In the world of online casino, even minor points of differentiation matter. There are only so many casino game publishers, and US operators draw most of their games from the same pool of third party suppliers. Having a better platform to host these games helps to distinguish GNOG from its competitors.
Over the last four years GNOG grew by a compounded 50% year-on-year. That is an impressive figure and a resounding vote of confidence for GNOG’s strategy. However, all of its competitors are chasing sports betting as with as much if not more determination than online casino, and they have their reasons for that.
In New Jersey, Golden Nugget’s license has topped the online casino revenue tables for years. In addition to its own brand, that license is home to Betfair Casino, SugarHouse and TwinSpires, which contribute significantly to that revenue. Even so, in recent months its chief competitor, Borgata, has pushed its way into first.
The two continue to jockey for position, but as a full service online gaming platform, Borgata is benefiting from cross selling. It has a large number of customers for all verticals. Golden Nugget has no poker at all, and sports betting revenue for its license is less than one-tenth that of Borgata.
In Michigan, we get a better picture of the Golden Nugget brand on its own, without a shared license. There, it is way off the top of the leaderboard, but still in the middle of the pack for casino. For sports, it is almost at the bottom of the list, and once again, it doesn’t offer poker at all.
GNOG expects its Michigan revenue to grow to match that in NJ, and it may well hit that goal in the short term. Long term, is the Golden Nugget brand and link to Landry’s enough to sustain that 50% growth rate?
Time is a factor in the new US market. GNOG boasts that its online casino focus will get the business into profitability in two to three years. It claims that’s faster than what sports-focused companies will manage.
On the other hand, the operators making the investment in sports betting now are building up broader customer bases. If sports betting states add online casino in the future, as Fertita expects, will the Golden Nugget be able to capture the market share it would like?
GNOG’s first quarter of 2021 is a good one. Its future prospects look good for revenue expansion. It remains an open question, however, whether all-but-ignoring sports betting and online poker might hurt customer acquisition for its casino in the long term.