US casino operator Boyd Gaming Corporation reported a net loss of $7.3m in Q1 2013, compared to a net profit of $5.9m in the same period a year ago. Analysts had expected much worse, however, and the ‘good’ news was enough to push Boyd stock up nearly 23% to $10.98 on Wednesday. Boyd, which operates wholly owned gaming facilities in seven US states and owns 50% of the Borgata casino in Atlantic City, saw Q1 revenue rise 16.4% to $737m. Much of the red ink is attributed to tax and interest expenses related to Boyd’s $1.45b acquisition in November of five Peninsula Gaming properties.
On a post-earnings call with analysts, Boyd CEO Keith Smith said he expected the Borgata to be among the first applicants for a New Jersey online gambling license. Boyd and MGM Resorts International, which owns the other half of the Borgata, have entered into a three-way online gambling joint venture with pan-European operator Bwin.party digital entertainment. Smith said he was “confident” that the Borgata brand would allow the troika to “capture substantial share of this lucrative market.”
Smith said Boyd was still “evaluating” the best way of entering the “robust, yet crowded” online poker market shaping up in Nevada. (Bwin.party has already stated it has chosen not to battle for crumbs in Nevada.) Smith said online gambling represented “a compelling opportunity to significantly grow and diversify” the business and Boyd intended “to seize that opportunity to the fullest.” Boyd “will be part of the process around the country” as new states hop aboard the online gambling legalization train.
Unlike some of his competitors, Smith doesn’t believes online gambling poses a threat to the brick-and-mortar casino business in that online play “largely speaks to a different customer … at the end of the day, it probably grows the pie.” Smith noted that online poker had “reinvigorated” the land-based poker market, while the introduction of mobile sports betting in Nevada has had “no detrimental effect” on traffic at Las Vegas casino sportsbooks.
JUST HOW BIG IS IT?
Asked about the potential scale of the New Jersey online gambling market, Smith noted that annual revenue estimates have ranged anywhere between $200m and $1.2b, while Boyd’s own estimate lies “probably somewhere in between.” New Jersey Gov. Chris Christie’s administration has estimated the state’s tax haul alone will be worth $180m in the first year of online operations, but another study issued last week by industry research firm Gambling Data put the state’s expected take at just $39.3m, based on total market revenue of $261.9m in the first full year of regulated online play.
A similar study prepared for industry group iMEGA by Econsult Corp. suggested the market would generate $210m to $260m in total revenue in its first year, resulting in the state collecting between $31.5m and $39m in taxes. Regardless of whose numbers you choose to believe, it’s worth noting that in February, Goldman Sachs’ poured cold water on Boyd’s online hopes and dreams, saying New Jersey would be a highly competitive market in which margins would be much lower than companies like Boyd were expecting. Just a suggestion, but if you really want to make a killing in New Jersey, buy shares in advertising firms.
