Offshore

AkhenOsiris RT @RadnorCapital: Thought I'd share a few comments on OSB / iGaming from Ryan Sigdahl at Craig Hallum. Ryan is a class act and has been a voice of reason in the space. "Given the importance of the NFL and only four weekends in Q3, we highlight…

y could be even larger than they previously thought (industry data supports this claim). They are also not seeing any signs of weakness in the consumer with strong cohort behavior across the board – hard to tell how much is unique to their industry, given the broader consumer slowdown.

Importantly, the 2025 EBITDA (which is a close proxy to FCF for this business) guide was maintained at $900mm - $1bn, which can be viewed as a de facto raise, given management is now including the impact of the IL tax hike, without including potential upside from the tax surcharge.

As I mentioned, DKNG is implementing a gaming tax surcharge in high tax states (IL, NY, PA, VT where tax rates >20% of GGR), which is not embedded in 2025 guidance. I estimate the EBITDA benefit could be $200-300mm, but a lot depends on whether GGR holds. The questions here are whether others (primarily Fan Duel $FLUT) will follow and whether consumers will care. DKNG defending their margins with a low single digit % surcharge seems like a prudent move – customers obviously don’t like incremental charges, but DKNG has established brand loyalty, and while 5% is meaningful to DKNG, its less meaningful to customers, considering low average bet size. Also, betting is far more of a leisure activity than a way to make money (for most), which makes the 5% easier to digest. Tax surcharges are not uncommon in gaming and other industries – for example, hotels and taxis have taxes that get passed onto the consumer.

I don’t expect any further tax hikes in the near term (NJ is clear) and continue to believe IL was a perfect storm of a democrat governor / congress and massive budget deficits. It’s also important to note that IL is the home of Rush Street Interactive $RSI, which could explain the progressive nature of the tax, which protects smaller players. Importantly, the illicit market continues to be rampant, which is something the regulators need to consider when evaluating further tax hikes. Illegal sportsbooks obviously don’t pay taxes, which allows them to reinvest more in an increasingly attractive product.

Management also announced a plan to buyback $1bn worth of stock, which accounts for 6-7% of the current market cap.

Over the last few years, my estimates have been well above guidance, given managements history of conservatism. After this print and expectations reset, they need to reestablish credibility and momentum – I think it’s safe to assume they can do ~$1bn in FCF in 2025, which implies the stock is now trading ~16x FCF. I see this as very reasonable for a company compounding growth well >20% (with plenty of new state opportunities ahead in OSB and iGaming) and inflecting to meaningful profitability. "- Radnor Capital
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