Entain reiterates confidence in BetMGM H223 profitability despite marketing investment possibilities

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Entain CEO Jette Nygaard-Anderson doubled down on the group’s confidence that BetMGM will deliver profitability in the second half of 2023, citing the launch in new states and an improved product as major reasons for the change in fortunes. 

Addressing investors after publishing Entain’s 2022 annual report, Nygaard-Anderson was bullish on its US joint venture’s mid-to-long-term outlook as more states are set to deliver profitable years in 2023. 

Here is a look at Entain’s full group results for 2022: 

Group NGR: $5.18bn, up 12% year-over-year

Revenue: $5.12bn, up 12% YoY

Gross profit: £3.21bn, up 11% YoY

EBITDA: $1.18bn, up 13% YoY

The group revealed that BetMGM’s NGR for 2022 stood at $1.44bn, up 71% YoY, and according to Entain, ahead of expectations. BetMGM held a 29% market share in online casino and a 19% share in sports betting and online casino in 2022 and anticipates an NGR of $1.8bn-$2bn in 2023.

A function of where we are

Explaining Entain’s confidence in profitability in the second half of this year, Nygaard Anderson told investors: “We are quite confident when we look ahead for the year in terms of profitability, and in the second half. First and foremost, it’s really a function of where we are at the moment and the model. Five states contributed positively last year, including all of the igaming states. 

“There should be more than 10 states being contribution positive this year. So when we run the math and our models, that’s really what leads to profitability in the second half with the states that we know now. And the biggest states that are coming online, is, of course, Ohio which went online in January, and then tomorrow, we’re launching in Massachusetts, and from what we know, now, it’s a couple of smaller states and product launches that we have to go there.” 

Entain noted that its data-based approach to acquisition has helped to result in a record cost-per-acquisition improvement over the last year, with BetMGM having a 21% lower CPA compared to 2021. 

However, when asked about whether marketing costs could ramp up and potentially offset profitability hopes later this year, the CEO explained that there is scope for further investment in promotions but that the focus is now on optimization. 

She elaborated: “It is quite deliberate that the team there is focusing on being rational in the market and we’ve done a lot of work based on the intent CRM and that basically gives them confidence in what they’re doing on bonus optimization. And that’s really how this is playing out now. But they have the full flexibility we talked about before we try to keep our marketing flexible, so they can invest where they see the highest ROI.”

Brazil on course for regulation

A major commitment that Entain made in 2022 is that 100% of its revenues will come from regulated or regulating markets by the end of 2023 as it seeks to set a precedent in the industry. 

This turned the discussion towards Brazil, a country that has long been waiting for regulated sports betting, with President Lula set to sign regulations in the coming weeks or months

Entain had previously set out its expectations for Brazil in its Q4 earnings call, anticipating regulations this year. However, investors were keen to know what the breakdown of revenue was in 2022 between regulated and non-regulated markets.

Responding, leadership explained that 92% of revenue comes from regulated markets, leaving 7-8% of revenue from unregulated markets. 

Brazil, Entain claims, counts for around 6-7% of group NGR, meaning that regulation there would almost turn 100% of revenues to regulated markets. 

Nygaard-Anderson added her thoughts on Brazil’s chances of regulating this year: “When we look at Brazil, and also the other markets that we haven’t exited, yet, we’re quite confident that they all have a clear path to regulation. 

“When we look through the remaining markets, we were very, very diligent in looking at, do we see a clear path to regulation than we are staying in however, if we don’t, then we will pull out and that’s what we’ve done. So Brazil is the biggest one and overall, it’s 7-8%, of group NGR, which is still to be regulated.

“Brazil is a market that we have a very strong position in, as you saw from our results there. We are growing strongly. And therefore, what we’ve said now is that in the markets that we’re in, we believe that there is a path to regulations in 2023, you shouldn’t see that as a strict deadline.”

RG Pledges

At the start of 2023, Entain and BetMGM placed a greater emphasis on responsible gambling and have set out their stall on how it will achieve this, making a 12-point pledge and ensuring RG messaging on all of its marketing materials going forward.

Reiterating the firm’s commitment to RG when quizzed by investors, the CEO detailed: “BetMGM just like Entain wants to lead on responsible gaming and there’s been a number of initiatives. We’ve seen the launch of the partnership with GameSense. Entain actually helped lead getting the industry together with the online operators on 12 principles that the markets would operate by when it comes to responsible gaming and safer gaming. 

“In fact, BetMGM is also now tapping into our ARK program, so they’ve started implementing the markets of protection, as you might recall, the first level is really a number of highly detailed markets of protection that we can implement into our customer journeys that will flag different behaviors from customers. And it’s been well received by the regulators.”

Finally, CFO Rob Wood set out the firm’s guidance for 2022, noting that Entain expects low-to-mid single-digit growth in online NGR and an online contributing margin of around 40% 

Wood also revealed that there will be around $75m in BetMGM funding and that the group will have an EBITDA margin of around 26%, slightly down from 2022’s 27% margin.