Truist Securities: Understanding the dynamics of US gambling

Drawing upon a deep industry rolodex, Barry Jonas – Managing Director of Truist Securities – speaks to SBC Americas about the ever-changing dynamics of the US gambling space and why he believes it’s too soon to make any predictions as to how the industry will evolve.

SBCA: Can you give us some background of Truist’s relationship with the gambling industry?

Truist Securities is the investment banking arm of Truist Financial Corporation. Truist was formed in 2019 with the merger of SunTrust and BB&T. Today we are the sixth largest commercial bank in the United States. 

The bank is deeply committed to the gaming industry- having a long standing relationship lending and advising the wider sector – mostly with a North American focus. 

SBCA: Can you talk about your history with the gaming industry?

I’ve been involved in the space since 2003, when I was recruited out of business school to work for MGM Resorts (at the time known as MGM Mirage) in Las Vegas in an internal group focused on corporate strategy and merger integration. I moved to International Game Technology in 2004 (the predecessor company before combining with GTECH in 2015)  to focus on M&A, working closely with the CEO and senior management. 

While traditional land based gaming was the key focus, one of our more interesting transactions was for a company called Wagerworks in 2005, an online gaming B2B provider. This marked IGT’s first real foray into iGaming/sports betting and allowed me to dig into the space; though admittedly we had some hope of the regulated U.S. market developing sooner that it ultimately did. After a stint of heading finance for IGT’s China division, I moved to Wall Street in 2010, working for a number of companies focusing on equity research for gaming, lodging and leisure.

In 2018, I was asked to head the gaming equity research platform at SunTrust Robinson Humphrey, which is now Truist Securities. My group focuses almost exclusively on U.S. listed gaming companies, which aligns with the bank’s current focus. 

While we provide our clients detailed quantitative and qualitative analysis into the many companies we follow, we also seek to stay on top of worldwide gaming industry trends – drawing on our deep industry rolodex.

SBCA: How do you view the B2B supplier space?

For sports betting, it’s become clear that vertical integration has become a key strategy for the larger players who want to control their technology roadmap and differentiate. Some of the B2B players note that technology is harder than it looks, but for now that sports betting TAM for B2B technology providers appears more limited to smaller to medium size operators or more unique services like data feeds and in-play wagering.

iGaming looks to be a better story for the B2B players. Having diverse, sizable and in some cases more sophisticated game content can be a real differentiator. It may not make financial sense to limit some branded game content to just one operator given the associated costs.

SBCA: Do you think we’ll see more consolidation in the space?

For B2C, I think we need to see more consolidation if we ever want to reach target profitability margins. The promotional environment in this land grab environment is just too intense. There are just too many players out there right now with access to capital and looking to gain market share with no immediate concern for profitability. 

So I think operators will look at M&A to narrow the competitive field, while also looking to deepen their tech stacks with any complementary technology and sub-vertical acquisitions – potentially beyond just gaming. 

For the B2B players, we could see more M&A to drive scale, but also combining online focused players with land based gaming suppliers could make some sense in an increasingly ‘omni-channel’ world.

SBCA: Are there risks to the US market that you think are not well appreciated?

The market is in hyper growth mode now with little focus on near-term profitability as companies seek out new customers with strong bonuses. There’s a view that first mover advantage is everything and the market will settle on a few winners with the bulk of market share followed by second tier players fighting for scraps. 

I personally think it’s too soon to say how the U.S. will evolve – namely how concentrated market shares will be in the long-run, and how easy and quick it will be for companies to pivot to profitability. There are limited switching costs today and I expect the time to set up a new account on a new app will continue to dwindle, as will any differences between the quality of offerings.

But even if the market will ultimately settle with a limited number of winners – perhaps driven by M&A, a large factor we think some investors don’t fully appreciate is the regulatory oversight seen across gaming on a state by state basis. It’s a unique industry where too much accessibility, too much success can have unintended social consequences which ultimately drives more regulation that can impede market growth. Ultimately gaming is a privilege, not a right. 

While there’s real momentum for sports betting now (and to a lesser extent iGaming), tax revenues states are currently seeing are less meaningful than many would think. I think the smarter operators understand the dynamics here and are committed to responsible gaming, but it’s a real risk worth watching.