Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

MGM Resorts Makes Bid For Sports Betting Dominance

By Travis Hoium - Jan 6, 2021 at 11:30AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Is a huge buyout a shrewd move or an overpay for MGM Resorts?

MGM Resorts ( MGM -3.23% ) is going to be a big player in online betting -- for better or for worse. The company has entered into (likely costly) partnerships with the NBA, MLB, NHL, and many teams across the country in an effort to attract sports betters to its mobile platform, BetMGM. Now, if reports are correct, it's trying to buy its partner in BetMGM, Entain ( ENT 3.09% ), for over $11 billion. 

The move may seem crazy on the surface. Entain isn't a well-known name in the U.S. and online gambling is a relatively small business, particularly in North America. But this may not be as crazy a deal -- or price -- as it seems. 

Person betting on soccer on a mobile device.

Image source: Getty Images.

Why MGM wants Entain

As MGM's 50/50 partner in BetMGM, buying Entain would allow MGM to own all of its local operations. And the potential for betting in the U.S. is huge. In November alone, New Jersey and Pennsylvania saw $931.6 million and $491.9 million bet on sports, respectively, and 80% and 91% of bets respectively are made online. Revenue is much lower than what's bet after paying off winners (typically 5% to 10% of all bets), but we're still talking about potentially a $1 billion revenue market from just these two states if the market keeps growing. 

The U.S. market is still in a very nascent phase, with online betting of any kind only legal in 14 states. And only a few allow typical casino games or betting on things other than sports. As more states open online betting and more games open, it's feasible to see the online gambling business be worth tens of billions of dollars in revenue each year. And these digital games don't require the investment of billions of dollars in physical casinos, making it a very attractive market for MGM to own long term. 

What Entain brings to the table

Beyond its stake in BetMGM, Entain is actually a very large company in the gambling world. The company operates brands like Ladbrokes, bwin, partypoker, and Sportingbet.

The business generated $2.15 billion in revenue in the first half of fiscal 2020 and $472.5 million in EBITDA. For the full year, management expects to generate $976 million to $1 billion in EBITDA. When put that way, a price of $11 billion doesn't seem unreasonable at just over 11 times EBITDA, especially when you consider that Entain would bring MGM's business into Europe. 

MGM needs a big move

Online gambling is clearly a big part of the future of gambling, and MGM doesn't want to miss out on the trend. Buying Entain may seem like a pricey move today, but it's more important strategically to MGM than anything else. Entain would give MGM a critical footprint in online gambling, allowing for growth in the U.S. and around the world. And that's worth the price, in my opinion. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

MGM Resorts International Stock Quote
MGM Resorts International
$38.30 (-3.23%) $-1.28
Entain Stock Quote
$1,720.50 (3.09%) $51.50

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/02/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.