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Big numbers but small impact from mobile sports wagering?

Maintain BUY call and MYR3.40 DCF-TP

New York State Gaming Commission (NYSGC) announced the winners of its Mobile Sports Wagering Platform Providers Request For Applications. 49%- owned Empire Resorts will act as an operator. Betting will be huge but high prize payouts coupled with high tax rates will not translate into meaningful impacts to Empire and GENM. Maintain our estimates, BUY call and MYR3.40 TP. We like GENM for the opening of Genting SkyWorlds and potential to secure a downstate commercial casino license instead.

Empire to offer mobile sports wagering in New York

There were 2 winning platform providers which will operate with 7 operators (link). Platform providers will integrate operators’ wagering system into its own platform, accept and register all wagers, generate all electronic wagering tickets, compute wagering and payoffs, maintain records of all wagering activities and generate and/or submit to the NYSGC all required reports. As an analogy, the platform provider is the principal and the operators are the agents. Empire will be an operator.

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Returns may not be that attractive though

Former New York Governor, Andrew Cuomo expected mobile sports wagering to generate USD10b p.a. in bets (link). But sports wagering offers high prize payouts (80-90%). Mr. Cuomo expected USD1b p.a. in net revenue (i.e. bets less prize payout). The principals will pay 51% tax on net revenue. Divvying the remaining 49% share of USD1 p.a. in net revenue after deducting 40-50% of net revenue as expenses (link) across 7 operators will not leave much for Empire, in our view.

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Will help with Empire’s losses anyway

At this point, we are unable to quantify the potential impact to Empire and thus, GENM. At the very least, Empire’s Resorts World Catskills will earn USD5m p.a. plus reasonable expenses to host platform providers’ servers. All online gaming will have to be run through servers located physically within upstate casinos. We maintain our Empire (Fig. 1) and GENM earnings estimates for now coupled with our GENM BUY call and MYR3.40 DCF-TP.