Good morning. On today’s agenda:

• Fanatics lets Massachusetts committee into its launch plans.

• EKG suggests US OSB has hit an “inflection point”.

• DraftKings’ share price action suggests investors are not worried about competition.

• Expert analysis seems to confirm GeoComply’s patent claims.

• Our startup focus is motorsports fantasy gaming operator GridRival.

Copycat.

Pic via Brian Hall/Twitter

Getting fanatical

Fanatics will “play the role of innovator” when it launches online. 

Zoom in: The unlikely format of a streamed Massachusetts Gaming Commission suitability hearing gave insight into the thinking behind Fanatics’ upcoming betting and gaming launch. Leading the presentation, CEO of Fanatics Betting & Gaming Matt King said the company hoped to disrupt a market led by “day one” operators.

• “Innovation is incredibly important and new entrants are incredibly important to driving that innovation,” he told the assembled regulators.

• “We believe we are an innovator with a strong chance of being successful in the category.”

Second shall be first: When talking about the experience his team brought to the business, King pointed out SVP of trading Andy Wright’s experience with Sky Bet, which he said was “very analogous” to BetFanatics.

• “They did in the UK what we will do in the US, which is really be a second mover in the category,” he said.

• King noted Fanatics has a customer base of 2m in Massachusetts.

• He predicted the betting operation would be able to leverage that audience to challenge the market leaders.

Coming up 

E+M’s latest edition of Due Diligence being sent tomorrow will focus on the chances of the new entrants cashing the US online party.

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OSB inflection

Ahead of the BetFanatics launch, EKG says it sees a new dynamic emerging in US sports betting.

Ripe: The GGR market share dominance of the top four or five across most US markets might suggest “something of a settled state”, but the “underlying dynamics” suggest something different is going on,” said the team at EKG.

• They pointed to the product parity being achieved across the top tier on features such as same-game parlays and cash-out.

• At the same time, market access costs are “falling like a stone” just at the point that a raft of new market entrants are lining up to “take a shot” at establishing a foothold.

• These include Fanatics and betr as well as European “sleeping giants” such as bet365 and Tipico.

• “Now, therefore, feels much more like an inflection point where new strategies, brands and perhaps even product innovation could start to change the shape of the US market,” they added.

The shares week

The shareholders of online betting and gaming bellwether DraftKings appear unruffled by the prospects of new competition.

No fear: In among reports of Fanatics’ preparations to launch in Maryland within the next week and the debut of betr in Ohio, the share price reaction of DraftKings last week suggested investors aren’t too worried by the competitive threat. Since January 1, its shares are up nearly 28%.

🥳 Not fussed: DraftKings enjoys a 16.5% rise last week

GeoComply’s ‘mimicry evidence’

GeoComply manages to get damning expert analysis submitted suggesting XPoint copied code in patent case.

Sincerest form of flattery: GeoComply has managed to get a damning report produced on behalf of Hard Rock, which claims XPoint’s code “mimics” that of GeoComply and uses “identical” code processes, submitted as evidence. The report suggested the evidence of mimicry is a “big concern” as “should GeoComply become aware of the copying of their product, they could issue a cease and desist”.

• The report was written by ex-Hard Rock employee Lee Terflorth, now with New Jersey-based platform provider Out of the Gate (OTG).

• OTG refused a subpoena issued by GeoComply, suggesting the request represented a breadth of discovery at a “nascent stage” of the litigation.

• GeoComply’s patent infringement suit was filed in early October when it said it was “confident in the merits” of the case. 

Do not track: In other findings, Terflorth’s investigations also suggested XPoint “appears” to copy code from another company, where the developer team worked, which was producing ad location software, and that the XPoint app leaves “open” a device’s location when not in use, which it says is a “major flag”.

• The investigation also said the XPoint code required certain ports to be open “which do not serve traffic but are only used nefariously”.

XPoint no-background: XPoint secured a funding round in October led by Bettor Capital, Courtside Ventures, Acies Investments, the Raine Group and SuRo Capital. Its first deployment in the US came in late September when it announced its XPoint Verify product was live in New Jersey with Sporttrade.

Q4 preview

Online gaming is poised for a strong earnings season, suggests JMP.

Hammering the cramps: Favorable hold, declining promotions, some recent positive state launches and high adoption rates should “underscore” the positive about the upcoming reporting season, said JMP. Notably, the team have adjusted their model to account for better-than-expected sports results, with Q4 sports-betting GGR now expected to be up 40% QoQ and iCasino up 15%.

• But they added that promotional spend is set to increase in Q1 due to the sporting calendar, plus the upcoming Massachusetts launch, leading to elevated losses in the quarter.

• That will be succeeded, though, by a cleaner operating/expense structure from Q2 onwards.

• “Further rationalization will include profitability from several operators in 2Q23 and 4Q23,” the team said.

Union city blues 

Deutsche Bank suggests there will be some upward wage pressure from the current labor union negotiation in Las Vegas.

Pay the man: The current labor agreement across the 34 Strip casinos negotiated in 2018 expires in May and the team at Deutsche Bank anticipated some “upward pressure on the prior annual escalator in the upcoming negotiations”. Under that deal the compensation escalator was in the range of 2-5%.

• With unions looking for wage rises in the low teens, some “headline risk” was inevitable but “we believe the financial ramifications of the new escalators are relatively modest”, DB added.

• Wages make up the biggest part of casinos’ operating expenses at 35%-45%.

• In light of the pandemic and macro pressures a “wider than normal” range of pay outcomes was possible, but DB suggested any “notable deviations” from consensus forecasts would be revenue-driven rather than cost-driven.

Analyst takes

Truist: Last year proved how valuations could diverge from fundamentals when investors are fearfully looking ahead to a potential recession. Now, the analysts at Truist indicated, the market will need to see some weakness and then a meaningful recovery in order to break out of its current range.

• To confound this, the team suggested Vegas strength and digital progress could mean some “consolidated EBITDA growth”.

• “Bottom line, we’re still positive on Gaming,” they added.

REIT review: Having last week added four Pure Canadian properties to its portfolio for $200m, completed the $1.2bn MGM Grand and Mandalay Bay acquisition and raised nearly $1bn from investors, JMP suggested there was more to come for VICI.

• The team noted the company is sitting on ~$5bn in liquidity and has “reasonable” leverage of ~5.8x.

• Moreover, “much of the company’s competition has shifted to the sidelines, giving VICI a front-row seat to deal activity”.

• Similarly, the team suggested rival gaming REIT Gaming and Leisure Properties would also benefit from the more favorable competitive landscape. 

• After meeting management, they noted GLP is positioning itself to take advantage of greenfield opportunities in states such as Georgia and Texas.

• They added that while it is “paying attention” in New York, it is likely to stay on the sidelines. 

Startup focus – GridRival

Who, what, where and when: Founded in 2019 by Portland-based Ross Fruin and Jeff Shinrock, GridRival  is the world’s only multi-series fantasy motorsports gaming platform that has already surpassed 200k.

Funding backgrounder: The company completed a seed round of $3m In October 2021, led by prominent Chicago-based sports-tech fund KB Partners and with the involvement of Sharp Alpha Advisors, ESPT Ventures and Benjie Cherniak.

The pitch: Despite F1 coming to Las Vegas next year, the sport has never been too popular in the US, suggests Shinrock. For this reason, motorsport remains “hugely undervalued as a betting commodity” and its growing fanbase is “not adequately catered for by traditional sportsbooks,” he adds.

• “GridRival has already proven itself capable of targeting and engaging the motorsports fanbase at scale,” says Fruin.

• “GridRival is produced for motorsport fans by motorsport fans and we are delighted with the response from our loyal – and growing – userbase.”

• Fruin adds that with unprecedented audience growth across multiple motorsport disciplines, the North American market is of particular interest given the “revamped” Las Vegas F1 Grand Prix. 

• GridRival is also acquiring a license to enter the UK market where the fantasy product already enjoys significant traction.  

What will success look like? GridRival launched its DFS product in 23 states in Q4 2022. “GridRival has been built by racing fans for racing fans – and it’s a point of pride that we have been so well received by the motorsports community,” says co-founder Shinrock. 

• “With DFS, we’re providing what we believe is the first step in activating this very large audience towards a level of excitement with real-money games.”

The week ahead

Kambi will present to their investors on Thursday. In its Q3 earnings, it said revenue dropped 12% while EBITDA was off by 47%. Within the last fortnight it has extended its partnership with Rush Street and announced a platform deal with Miami Valley Gaming in Ohio.

Growth company news

What’s up doc? Former startup focus subjects WagerWire and Sparket have teamed up and integrated their platforms, allowing Sparket users to trade using the WagerWire platform. Zach Doctor, WagerWire’s CEO, said the partnership “paves the way to an entirely new era of betting”. 

• The partnership will enable secondary market trading for Sparket bets to be traded on WagerWire’s free mobile app that is launching early this year, and within Sparket’s platform. 

Gaming Society has partnered with the International Gaming Institute, an adjunct of the University of Nevada Las Vegas, to support betting’s relationship with women’s sports and provide betting education.

U.S. Integrity has announced Elys Game Technology as its latest partner for event monitoring, market intelligence and fraud prevention for the US market.

Datalines

AGA tracker: US commercial gaming revenue grew by 2.4% year-over-year in November, the 21st successive month of comparative growth, with nationwide gaming win reaching $5.02bn. It means that in the first 11 months of 2022, total GGR stood at $54.9bn, 13.5% up ahead of the same period in 2021.

Newslines  

New York luxury store Saks Fifth Avenue has confirmed that it will bid for a casino license to be situated on the top floors of its flagship store. 

What we’re reading

Personal services: VAIX’s Andreas Hartmann and the race for retention.

Calendar

Jan 17: Due Diligence #3

Jan 19: Kambi Capital Markets Day

Jan 26: Rank FY

Contact

This is a +More Media publication. 

For sponsorship enquiries, email scott@andmore.media.