MGM Online Gaming Efforts Could Be Credit Tailwind

Earlier this week, MGM Resorts International (NYSE: MGM) announced that its LeoVegas division is purchasing the US iGaming and sportsbook assets of Tipico Group for an undisclosed amount — a transaction that is already receiving positive feedback from certain analysts. 

The Tipico acquisition emphasizes enhancing technological strengths over merely expanding market presence, yet Gimme Credit analyst Kim Noland referred to the transaction as “a key element” of MGM’s digital strategy, noting that the operator’s initiatives in this area 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 the analyst in new report to clients.

Tipico is set to halt its operations in the US, and certain members of its management, technology, and trading teams located in the US will move to LeoVegas once the deal is completed in the third quarter. 

 

MGM Might Utilize Tipico Acquisition for Global Digital Growth 

When MGM bought LeoVegas in 2022 for over $600 million, it was an obvious indication that the gaming company aimed to expand its digital reach beyond the U.S. The impending acquisition of Tipico technology could enhance that effort. 

MGM’s global strategies for its digital gaming division are relevant to investors since the company is not restricted by its partnership with Entain beyond the U.S. Here, BetMGM operates as a 50/50 joint venture between MGM and Entain, but related competitive limitations do not apply to MGM outside the U.S. 

“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 U.S. markets in the future.”

The analyst noted that the Playtech live gaming project might face regulatory challenges, but in general, MGM’s iGaming division is expanding. 

 

Chance with MGM Bonds 

MGM's shares surged by almost 15% this month, yet the stock offers no significant dividend, suggesting that income investors may want to consider the operator’s bonds maturing in 2027. Noland assesses that matter as “outperform” and mentions it has a yield-to-worst of approximately 6%. 

She noted that the gaming company's generation of free cash flow and other strong fundamentals underpin the positive outlook for 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 the analyst.