MGM’s Digital Expansion Bolstered by Tipico Acquisition

MGM's digital expansion bolstered by the Tipico acquisition
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MGM’s Digital Expansion Bolstered by Tipico Acquisition

Earlier this week, MGM Resorts International (NYSE: MGM) announced that its LeoVegas unit is acquiring the US iGaming and sportsbook operations of Tipico Group for an undisclosed sum. This strategic move is already receiving praise from analysts who view it as a significant enhancement to MGM’s technological capabilities rather than merely a market share grab. Gimme Credit analyst Kim Noland described the deal as “a key element” of MGM’s digital strategy, emphasizing that the company’s efforts in the online gaming sector are beginning to yield incremental benefits.

“MGM’s sports betting and digital offerings are beginning to provide a profitable addition to its luxury international casino resorts presence and could be a growth tailwind going forward,” wrote Noland in a new report to clients.

Enhancing Technological Capabilities

The acquisition is set to finalize in the third quarter, at which point Tipico will wind down its US operations. Some of Tipico’s US-based management, technology, and trading staff will join LeoVegas, integrating their expertise and technological advancements into MGM’s digital infrastructure.

Leveraging Tipico for International Expansion

MGM’s purchase of LeoVegas in 2022 for over $600 million marked the company’s intent to expand its digital footprint internationally. The integration of Tipico’s technology is expected to further this ambition.

MGM’s international digital plans are particularly relevant to investors because the company is not restricted by its US-based joint venture with Entain. While BetMGM operates as a 50/50 partnership between MGM and Entain in the US, these competitive restrictions do not apply internationally.

“The Tipico technology will help to scale MGM/LeoVegas across multiple jurisdictions and can be deployed internationally where the BetMGM joint venture doesn’t have exclusivity,” added Noland. “In addition, MGM recently joined a partnership with Playtech to offer live casino content, streamed directly from the gaming floors of Bellagio and MGM Grand in Las Vegas, to international regulated markets, with an option for entrance into US markets in the future.”

The analyst acknowledged that the Playtech live gaming venture might face regulatory challenges, but overall, MGM’s iGaming unit is on a growth trajectory.

Opportunity with MGM Bonds

While shares of MGM surged nearly 15% this month, the stock doesn’t offer a substantial dividend. Hence, income investors might consider MGM’s bonds maturing in 2027. Noland rates these bonds as “outperform,” noting a yield-to-worst of approximately 6%.

She highlighted the gaming company’s robust free cash flow generation and strong financial fundamentals as supportive factors for the positive outlook on the bonds.

“Our free cash flow estimate (adjusted EBITDAR less cash rent, interest, taxes, and capex) is based on management’s guidance of $850 million capex and totals near $1.5 billion. In addition, MGM’s stock repurchases are significant ($511 million in the first quarter) and its remaining authorization is a hefty $1.7 billion,” concluded Noland.