MGM Could Look to Unlock BetMGM Value, Says Analyst
Will MGM Resorts International (NYSE: MGM) finally take action this year to buy the 50% of BetMGM that it does not already own and look at ways to increase the value of that business for shareholders?
According to one analyst, they are potential outcomes. Texas Capital analyst David Bain, who began covering the Bellagio operator, points out that investors may be prompted to look at alternative digital gaming growth vehicles as a result of BetMGM competitors DraftKings (NASDAQ: DKNG) and FanDuel parent company Flutter Entertainment (NYSE: FLUT) entering the prediction markets. That might encourage MGM to consider BetMGM's choices.
"We believe this, in turn, should re-expose circular, digital/omnichannel benefits and the significantly implied lower digital valuations of MGM and Caesars versus digital peers,” observes Bain who rates MGM a “buy” with a $56 price target.
The idea that Caesars Entertainment (NASDAQ: CZR) would spin off its internet division is a topic of much conjecture. That operator would have an easier time since it owns its interactive unit in its entirety, while MGM and Entain Plc (OTC: GMVHY) each hold half of BetMGM.
Returns of BetMGM Speculation
MGM's leadership has stated that it wants complete control over BetMGM, and as the company's financial situation continues to improve, this desire may be intensifying. It is unclear if and how such a transaction will proceed.
As Bain notes, MGM has the option to purchase the Ladbrokes owner entirely or buy out Entain's 50% share in the online sportsbook operator. Five years ago, the Luxor operator tried to do precisely that but was turned down. However, five years is a long time in business terms, and there is sell-side feeling that Entain is stabilizing after years of leadership changes and that this could be the right time for the company to make money off of its BetMGM stake.
“BetMGM consolidated in MGM financials and the optionality of a partial (or full) spinout of the business while maintaining the digital benefits to its land-based business should support a higher overall valuation, in our view,” says Bain.
Although he admits there haven't been "strong checks suggesting any potential price bogey of late," the Texas Capital analyst notes that Entain trades at 8x estimated 2026 enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) and that MGM would probably need to offer well north of 10x EV/EBITDA if it wanted to buy the company outright.
BetMGM Attracts MGM Due to iGaming
The ambition to spin off BetMGM to public investors is probably influenced by iGaming, but there is still a long way to go before MGM can even entertain the concept.Bain points out that BetMGM's 20% market share in the US iGaming industry compares favorably to FanDuel's and DraftKings' 25% and 24%, respectively, highlighting the idea that BetMGM might be valued similarly to those competitors on its own.
Furthermore, despite the general belief that no states will pass legislation pertaining to online casinos this year, the potential growth of the business may persuade lawmakers to change their minds.
“While there is little momentum in any state for new iGaming expansion fiscal state concerns could reverse the current lack of momentum,” concludes Bain. “Overall, we believe additional iGaming state expansion is a “matter of time,” though timing visibility is admittedly low. Notably, almost all states are already ‘a little pregnant,’ with other approved forms of gaming.”
