Ontario 2Q GGR Underwhelming, Not Catalyst for Penn Stock, Says Analyst

On Tuesday, Ontario finally updated analysts, investors and market observers on its iGaming and sports betting handle and revenue. The update encompassed the time span since the rollout of those activities in early April. Suffice to say, Canada’s largest province disappointed.

Data from the Alcohol and Gaming Commission of Ontario (AGCO) confirms Ontario residents wagered USD$3.11 billion in the second quarter (all figures in USD), generating revenue of $123.8 million for gaming operators. Single-game sports betting went live in the province on April 4, meaning just three days of the June quarter were missed.

Roth Capital analyst Edward Engel points out that handle equates to $34 in gross gaming revenue (GGR) per capita in Ontario. That is well below the marks set in US states, such as Michigan and New Jersey, that permit online casinos and mobile sports betting.

It’s important to note that several legacy gray market operators did not launch regulated products until late 2Q or 3Q. These launches, in addition to NFL season, should help ramp the Ontario market in the coming quarters,” wrote the analyst in a note to clients.

Grey market operators, including Bet 99 and Entain, took bets in Canada long before the government approved single-game sports wagering. It’s widely expected those firms will enter the regulated market — some already are — and could leverage solid results owing to familiarity among Canadian bettors.

Sluggish Start in Ontario Could Be Cause for Concern

In the US, the second quarter is historically the slowest period for sports wagering because it’s the only three-month span without football. However, things are different in Canada.

“Hockey is the most-watched sport in Canada, vs. #4 in the U.S. Meanwhile, iGaming GGR typically ramps quickly after state launches, thus we view Ontario’s $34/capita spend as disappointing. During the initial full quarter after launching both OSB & iGaming, New Jersey offered GGR/cap of $50, vs. Pennsylvania’s $19, West Virginia’s $28, Michigan’s $102 and Connecticut’s $100,” added Engel.

Potentially adding to the concern about the lethargic debut of single-game sports wagering in Ontario is the point that the second quarter included plenty of Toronto Blue Jays games for bettors to mull and the start of the CFL season.

Tepid on US Operators in Ontario

While Ontario is Canada’s most populous province, Roth Capital’s Engel argues it may not be the catalyst for sportsbook operators that comparably sized US states have been. As such, he advises investors be cautious about embracing Penn Entertainment (NASDAQ:PENN) as an Ontario play.

One structural difference is the inability for Ontario operators to advertise promotional offers, which we believe has a particularly negative impact on the iGaming TAM. As such, we believe today’s data release is a negative read-through for PENN, where we don’t believe Canada offers a meaningful enough opportunity to warrant owning the stock,” noted the analyst.

Last year, Penn shelled out $2 billion in cash and equity to acquire Score Media and Gaming to bolster its position in Canada.