Are Prediction Markets Supercharging U.S. Retail Consolidation?

The rise of prediction markets could have made land-based giants such as MGM Resorts International and Caesars Entertainment more attractive to investors, with the recent announcements and speculation around the sale of both companies not being seen by industry insiders as coincidental, writes David Cook. 

In late May, Caesars announced it is to be acquired by Tilman Fertitta’s Fertitta Entertainment in a deal worth approximately US$17.6 billion (£13.3 billion). 

Caesars’ board of directors have approved the transaction – although the agreement includes a “go-shop” period through July 11, which also allows Caesars to consider alternative acquisition proposals from third parties.

As owner of the iconic Golden Nugget on the Vegas Strip, and the largest shareholder in Wynn Resorts, Fertitta is already deeply embedded in the casino and property spaces. Among myriad other entertainment and hospitality investments, he also owns the restaurant chain Landry’s. 

On June 1, meanwhile, MGM Resorts confirmed it had received an offer from People Inc., owned by media mogul Barry Diller, of fabled People magazine, to acquire all the remaining shares it does not currently own for US$48.30-per-share, valuing the operator at more than US$18 billion (£13.61bn). 

Surge

The timing of these two mega acquisitions quite naturally provokes the leading question: Why are two of the biggest players on the Las Vegas Strip on the market at the same time?

The two heavy-hitters operate some 60 percent of the casinos on the Las Vegas Strip between themselves – and more than 80 casino resorts and hotel and gaming properties across the globe. 

The reasons for the separate deals are nuanced. 

But one major factor, argue a number of top gambling gurus, could be the surge and increasing popularity of prediction markets.

With the likes of Kalshi and Polymarket attracting attention to the emerging vertical, many investors believe there is a critical “price mismatch” with the more asset-heavy retail gambling companies. 

Market Concerns

And this may be the perfect time to swoop for the likes of MGM Resorts and Caesars, with the uncertainty created by prediction markets meaning investors are reacting to the threat they present. 

Customer acquisition could also be seen as easier to achieve due to competitors spending their resources elsewhere.  

Paul Richardson, Managing Partner at Partis Solutions, told iGamingFuture:  “The entire sector has traded off. 

“Concerns around prediction markets have created uncertainty among investors.

“Prediction markets remain largely unproven, but investors have reacted as though they represent a major competitive threat. The market often prices future possibilities before they are fully validated.

“That uncertainty has weighed on gaming stocks generally, including MGM, Caesars, Flutter Entertainment and DraftKings.”

Share Fluctuations

MGM Resorts’ share price has essentially flat-lined across the last five-years, since the end of COVID-19 restrictions; although it has risen from US$36.97 to US$46.84 in the last six-months.

For its part, Caesars’ share price has experienced a steady decline in that same half-decade. But, like MGM Resorts, has also showed an uptick in the last six months, from US$25.02 to US$29.22. 

The nascence of prediction markets has had a particular impact on online sports betting though – with FanDuel owner Flutter Entertainment’s NYSE stock falling from US$189.03 a year ago to US$101.83. 

And there has been a similar drop-off at DraftKings, from US$41.46 a year ago to US$26.39 today. 

Premium Multiples

Steve Ruddock, an analyst and consultant for the gambling industry, notes:

“These companies [MGM and Caesars] have historically received lower multiples, but with so much focus on the online sector and the next big thing, the Tilman Fertittas and Barry Dillers of the world are saying ‘there’s a lot of proven value over here, and the price is even better than usual’.

“I’ve always felt traditional retail-focused gambling companies trade at discounted valuations relative to their cash flows, real-estate, brands, and capability to transition into digital channels, whereas prediction markets and online verticals get premium multiples.”

Next Wave

With the MGM and Caesars acquisitions on the cusp of realisation, speculation about these deals sparking a wave of M&A across the market has soared. 

In a Substack post, Vaughan Lewis, Managing Director of TEISE Advisory, teased:

“If cost of capital is what determines who consolidates whom, then the interesting question is no longer which incumbent rolls up which challenger. 

“It is whether the next wave of buyers comes from inside the regulated industry at all.”

Watch this space!