1.  RSI PLAYING THE LONG GAME

• RSI said the exit was “consistent with our long term strategic goals,” and “in the best interest of RSI and our stockholders.”
• Significant money was apparently involved, with channel checks suggesting RSI had committed well over $100mm to the CT Lottery over the 10-year span of the deal. 
• Those guarantees were made against a different market backdrop, but also when RSI was in the running for the ESPN deal/brand that may have enabled it to better compete against FanDuel and DraftKings—both in CT and on the national stage.
• However, given those guarantees and just ~$20mm of CT retail + OSB NGR generated in CY22 (vs. $86mm in combined OSB NGR at FanDuel and DraftKings), RSI clearly thought it could better deploy capital and resources elsewhere.
• The removal of overhang from the CT Lottery deal, though it likely came with a penalty, could make RSI more attractive for a buyer, especially with the firm now trading around an all-time low (its EV at the time of writing was approximately $465mm).
• The CT news comes as RSI is scaling back its U.S. OSB ambitions. Indeed, the BetRivers operator did not aggressively contest recent OSB launches in OH and MD and declined to move forward with OSB expansion into MA and KS.
• Instead, RSI looks to be embracing more of a “local hero” approach in the U.S. based around states where it has properties and / or online casino access, such as IL and PA. For perspective, it currently has around a 10% share of IL OSB GGR and, per our estimates, approximately 16% share of PA online casino GGR.
• It may also pay to keep costs tight until online casino, RSI’s forte, starts to roll out more widely across the U.S. If current glacial trends in U.S. online casino expansion hold, however, “more widely” could be some ways off.

3. HOW MUCH FOR HARD ROCK?

• Assuming Playtech took a 2% stake, the implied valuation for HRD would be over $4bn. For comparison, the aforementioned RSI currently carries an EV of less than $500mm.
• What's driving such a relatively lofty valuation for HRD? 
  • Playtech was willing to pay handsomely to secure a needed leg up in the U.S. online casino market—a market that’s currently being won by rival online casino suppliers like Evolution and Light & Wonder—and to be the partner of choice for HRD’s global expansion into LatAm and Europe, in our view. 
  • HRD is an extension of the Seminole Tribe of Florida, and if online casino is legalized in populous FL, we would expect HRD to be a market leader—or perhaps even the lone market operator. For context, we project FL online casino GGR would reach over $3bn at baseline maturity.
  • HRD boasts a globally known brand, a sizable global customer database, a respected management team, omni-channel potential, and (it has to be mentioned) the world’s most recognizable soccer player as a possible brand ambassador. However, squeezing the most out of these assets—and on a global scale—will require execution of the highest order.
• This is an interesting deal premised heavily on the online casino potential of HRD, in our view. Indeed, HRD is closer to an upstart than a power player in U.S. online casino, for example, with the brand currently live in just one state (NJ) and holding <1% U.S. GGR share. HRD’s Light & Wonder-powered online casino app also tends not to perform well in our proprietary testing—though we note HRD is planning to switch to an in-house online casino tech foundation in 3Q23.
• FL online casino jackpot worth gambling on? If there’s one potential offshoot of this deal that intrigues us, it’s FL online casino. Consider that if Playtech exclusively supplied live dealer to a HRD FL monopoly, and if live dealer is ~20% of of the FL GGR TAM, then Platyech’s cut of that alone—depending on your assumptions for bonusing and Playtech’s NGR-sharing rate with HRD—could more than pay back its initial $85mm investment.