Dave & Buster's Inches Closer to Sports Betting

The brand believes the attraction would increase frequency and duration of visits.

December 8, 2021 Ben Coley

Dave & Buster’s interim CEO Kevin Sheehan said the chain is going through a “new phase of innovation, growth, and value creation,” and part of that is the integration of sports betting and fantasy sports.

Former CEO Brian Jenkins hinted at this possibility in April, saying sports betting “could represent a mean accelerator to our appeal as a sports-watching destination and better leverage our watch assets.” At the time, Dave & Buster’s said it could offer online sports betting in roughly 13 locations, or three states.

Grand View Research estimates the global sports betting market will reach $140.26 billion by 2028, good for a compound annual growth rate of 10.1 percent. Sheehan says that if Dave & Buster’s is successful with this endeavor, frequency will increase and customers will stay longer. That allows for diversification of entertainment, like introducing a DJ, and traffic boosts on weekdays.

“We're working very hard in getting to an agreement on sports betting and fantasy sports,” Sheehan said during the brand's Q3 earnings call. “And to me, there's a great opportunity there first because of the economics that go along with that agreement. But the other part of it—and that's where the art is to make sure we get the best result—is in the promotional activities that we can create with the partner that we have in that agreement.”

Major brands have already hopped onto this movement. In March, Buffalo Wild Wings unveiled an exclusive launch with BetMGM in which guests inside restaurants have access to better odds on select bets and custom promotions. The brand also created “OT Odds Powered by BetMGM,” an in-bar channel that deliver sports-betting content like live-game odds, as well as fantasy and betting advice from FantasyPros and BettingPros.

In early 2020, Hooters activated KonekTV, which displays real-time game statistics, analytics, and odds from BetRivers Sportsbook and promotions from Hooters.

“Once you get that deal done, then you start to roll it out,” Sheehan says. “You're going to focus more in the states with sports betting already in place and test the concepts and constructs over a course of a couple of quarters. And then I see it quickly moving out across the brand, at least with the sports fantasy and the opportunities to talk about what our capabilities are.”

Dave & Buster’s has spent months prepping for this future. The eatertainment chain cut its food offerings by 33 percent and pushed an “Inspired American Kitchen” culinary direction while also evolving its beverage lineup. The brand is combining the new menu with tablets and a mobile web platform that facilitates a contactless dining experience and lower labor costs. The company is taking it a step further by testing a completely self-serve, web-enabled ordering experience in two stores.

These initiatives will be overseen by new blood at the top. CEO Brian Jenkins retired at the end of September after working at Dave & Buster’s for nearly 15 years, and CFO Scotty Bowman announced his resignation in November.

As the brand worked through these changes in the third quarter, same-store sales increased 1.1 percent compared to 2019, excluding seven stores in markets with vaccine mandates. More specifically, a drop of 1.2 percent in August and lifts of 2.9 percent and 2.2 percent in September and October, respectively.

Including those locations, comps decreased 0.4 percent. Walk-in sales grew 6 percent, but special events sank 64 percent versus two years ago, mostly impacted by fewer corporate events.

For the first five weeks of Q4, comps rose 3.5 percent against 2019 and walk-in business lifted 14 percent. Dave & Buster’s expects continued softness in its special events business for the rest of the quarter, which will prove to be a bigger impact given the historically high penetration of holiday parties.

Dave & Buster's

The keys to continuing growth in walk-in business, as well as accelerating the recovery of its special events sales, is opening more efficient locations and upgrading the existing fleet, Sheehan said.

To set the scene, he described a hypothetical 75,000-square-foot legacy store built in a trade area that no longer attracts much traffic. The CEO said the better route is to replace that outlet as it nears the end of its lease with two strategically positioned locations in more relevant parts of the market.

“As we find out that these new slightly smaller stores are significantly better returns and have a more optimal use of space, it is that new concept opens up a lot more markets for us to expand the brand,” Sheehan said. “So we have plenty of room to grow for years and years to come.”

The other part of that discussion is reexamining the “exciting factor in each and every store” to make sure when customers return, they feel a “refreshing experience.” To accelerate this, Dave & Buster’s is ramping up a refresh and remodel program that features varying levels of transformation. A more formal, full remodel costs $2 million, and the refresh would be in the $500,000 range.

Long-term, the plan is to look at all 143 locations, determine which option is best, and schedule what year they need it by.

“These stores come back almost like new and get a lot of people to come in and try it again,” Sheehan says. “And if we do it right, that then expands the traffic and the demand in those markets. I think we want to be balanced because I feel strongly that we need to make sure the existing stores are the right experience for our guests, and since we generate so much cash flow, we still have the ability to build a number of stores each year.”

“And we have to be attentive to doing and balancing all of the capital allocation across all the uses of cash to make sure we're being as thoughtful to our shareholders as possible,” he adds.

In terms of macroeconomic headwinds, the chain is seeing commodity inflation in the high-single digits, but the brand has mostly offset those increases with its new menu and service model. Adjusted EBITDA for Q3 was $68.2 million, a 47 percent increase compared to 2019. That’s also up from 39 percent in the second quarter.

Dave & Buster’s earned $318 million in revenue in Q3, versus $109.1 million in 2020 and $299.4 million in 2019. Net income totaled $10.6 million, or $0.21 per diluted share, compared with net loss of $48 million, or $1.01 per share in Q3 2020 and net income of $500,000 or $0.02 per diluted share in Q3 2019.