US Gambling Industry: Can More Deals Be Made?

For many years, the majority of the largest companies in the US gaming sector—encompassing operators, suppliers, and sportsbooks—have been publicly traded entities. However, recent transactions facilitated by private equity firms have sparked discussion about the sustainability of this trend. 

Since the beginning of 2024, the US gaming industry has witnessed three significant private equity-backed transactions. The most recent occurred on July 26, when Apollo Global Management announced its intention to acquire suppliers IGT and Everi Holdings in a deal valued at $6.3 billion. This acquisition will merge IGT’s gaming and digital operations with Everi’s gaming and fintech sectors, resulting in a new private company managed by Apollo. Meanwhile, IGT’s lottery division will be reintroduced as a separate publicly traded entity.

IGT and Everi had initially planned to merge in February 2024, but that agreement was ultimately terminated by the private equity firm. Both companies are leaders in nearly all US casino platforms, bolstered by their strengths in gaming and fintech. In the second quarter, IGT reported revenues exceeding $1 billion, while Everi generated $191 million.

Bally's Becomes Sole Private Operator

The day prior to the Apollo deal, hedge fund Standard General (SG) finalised its acquisition bid for Bally's, with SG, led by Bally's Chairman Soo Kim, offering $18.25 per share. This price marks a notable decrease from the $38 per share bid made in 2022, which Bally's had turned down. Since that time, the company has faced declining stock prices and increasing debt, making a share buyback strategy more appealing.

The transaction is anticipated to conclude in the first half of next year. As part of the arrangement, Bally's will merge with Queen Casino & Entertainment, another regional operator under SG's ownership, resulting in a combined company operating 19 casinos across 11 states. The new entity will continue to be publicly traded within SG's portfolio.

With this merger, Bally's will become the only major U.S. gaming operator owned by private equity, while other significant players in the industry, including Wynn Resorts, MGM Resorts, Caesars Entertainment, Penn Entertainment, Red Rock Resorts, and Boyd Gaming, remain publicly or family-owned.

Brightstar Bets Big on AGS

Prior to Apollo's acquisition interests in IGT and Everi, Brightstar Capital Partners made headlines by purchasing AGS, a gaming provider, for $1.1 billion in May. Brightstar offered $12.50 per share, representing a 40% increase from its price on May 8, just before the announcement was made public. Shareholders approved the transaction on August 6.

AGS has been publicly traded since January 2018, having previously been owned by Apollo, and is recognised as an innovator in the gaming industry. Its divisions focused on tabletop and interactive gaming have experienced notable growth in recent years.

The company received recognition in 2021 when its Bonus Spin Xtreme tabletop solution won a gold medal for Best Tabletop Product at GGB's Gaming & Technology Awards. Additionally, in 2023, its Triple Coin Treasures game on the Spectra UR43 earned silver for Best Slot Product.

Overall, there appears to be increasing momentum among gaming suppliers. The Association of Gaming Equipment Manufacturers (AGEM) Index—which tracks 12 suppliers, including IGT, Everi, and AGS—reported a 7% increase from June and a substantial 30% rise compared to July of the previous year.

Investors: Optimism or Excitement?

Frank Fantini, the founder of Fantini Research and a seasoned columnist, shared with iGB that the current trend in the gaming sector is driven more by low valuations than by an increased interest in the industry. He noted that many of the leading gaming stocks are significantly below their all-time highs, most of which were achieved shortly after the pandemic, making them increasingly appealing to investment groups aiming for profitability.

“Private equity firms have not altered their objectives or their strategies,” Fantini explains. “Their goal remains to acquire assets for resale at a profit. For instance, Apollo isn't trying to become the largest casino operator; they are simply capitalising on the opportunity presented by these low valuations as private investors.”

As a veteran investor in the casino industry, Fantini views the recent surge in deals as part of the ongoing financial narrative of the sector. He points out that prior to the late 1970s and early 1980s, the gambling industry was predominantly private. The expansion of the Las Vegas Strip and the decision by Atlantic City to allow casinos in 1978 enabled operators to go public to fund their growth. Fantini notes that this second wave of growth was driven by visionaries like Steve Wynn and Sheldon Adelson, who attracted unprecedented investment in the industry. However, after decades of continuous expansion, the market has matured, leading to greater challenges in achieving success.

“We are now entering a sort of third wave, characterised by a slight retraction, as the innovative leaders who once guided the industry are no longer present,” Fantini observes. “Additionally, corporate ownership is not performing as well.”

Who has money?

A current advantageous dynamic for private equity is the flexibility in movement within the industry. Rick Arpin, head of U.S. gaming at KPMG, notes that competitors in the gaming sector are struggling to position themselves as effective dealmakers. “The issue is that other gaming companies lack the capital resources to capitalise on the low valuations available to private equity firms,” Arpin explains. “They would need to resort to borrowing, which is costly, and their stock performance is also poor. This situation has created a significant opportunity for private equity as a prominent buyer in this market.”

The gaming industry is characterised by substantial barriers to entry, primarily due to licensing and regulatory requirements. Consequently, once a firm acquires a gaming asset, it becomes easier for them to pursue additional acquisitions if desired. They also have the option to exit and later re-enter the market with enhanced expertise, as demonstrated by Apollo.

"This trend isn’t surprising," Arpin states. "Given the current valuation landscape in our industry, it aligns well with what we’re observing... I wouldn’t be shocked to see more instances like this.”

What about bookmakers?

Negotiations with suppliers and operators have sparked speculation about the potential for major sportsbooks to transition to private ownership. Currently, most prominent US sportsbooks are publicly traded or linked to publicly traded entities, including FanDuel (owned by Flutter), DraftKings, BetMGM (a joint venture of MGM and Entain), Caesars Sportsbook, and ESPN Bet (part of Penn-Disney).

The notable exception is Fanatics Sportsbook, which is predominantly owned by its CEO, Michael Rubin, along with investments from SoftBank Group and Silver Lake Partners. Although there have been persistent rumours regarding a possible IPO for Fanatics, these have been denied. Nevertheless, a source within the company indicated to Front Office Sports.  that an IPO remains the "most likely long-term outcome."

Chris Grove, a sports betting investor and partner emeritus at Eilers & Krejcik Gaming, is sceptical about a shift to private ownership occurring in the near future. He highlights that entering the sports betting sector is particularly challenging compared to other gaming verticals. Although revenues are increasing, profit margins are narrow, and the costs associated with acquiring customers are on the rise.

“It’s improbable that any of the leading five digital operators in the US will go private in the near term,” Grove told iGB. “The market is complex, demand is insufficient, and the return on investment is not clearly defined.”

One significant challenge is that many sportsbooks have invested heavily over the years to expand their market share. This kind of investment makes future revenues particularly appealing, especially for the industry’s top players.

“DraftKings, FanDuel, and to a lesser extent Caesars and MGM are all on evident trajectories toward increased profitability,” Grove notes. “However, entering this market does not guarantee success for every new bookmaker. Nonetheless, the core market holds immense potential and is expected to ultimately generate billions in annual profits.”