Inflationary fears stalk the stock markets right now but in the U.S. sports-betting sector, it is the artificial inflation of handle and GGR figures caused by heightened promotional spending levels that is the cause for concern. As detailed this week by Deutsche Bank, analysis of the percentage spend across the states where promo spend is split out reveals a picture of excessive giveaways. It is doubly damaging. First, profitability is that much harder to achieve. Second, as with New York, the money thrown at customers creates the impression of the market being wildly successful when effectively it is being boosted from within. Soo Kim, the CEO at Standard General and chair at Bally Corporation, said this week the New York market was “insanity”. He was right.

PointsBet Q2 FY22

• Revenue up 11% to A$1.3bn and net win up 73% to A$77.3m.

• U.S. handle down 9% to $598.9m, but GGR up 425% to $41.6m, Australia handle up 34% to A$727m and GGR up 22% to A$92.2m. 

Brothers on the slide: The increase in U.S. GGR was not enough to halt the year-long slide in the company’s share price, it was down 5.9% to A$4.73 when trading opened in Australia this morning. Over the past 12 months the group’s share price has dropped 66.5%.

Oversharing: Online gambling shares have taken a beating in recent weeks PointsBet is no different. One way of countering the negative share narrative is to launch in more states (as it has done in New York this week) and increase scale and market share. However, its stated aim of achieving 10% share in the U.S. so far compares poorly with its 4.2% aggregate share of handle in the states where it is active. On the marketing front, U.S. expenses were A$29.7m of the group’s A$65.6m spend, which led to operating losses of A$51.8m vs. -A$38.7m in 2021.

Always testing: On the product side, PointsBet launched its live casino in New Jersey and West Virginia, but for its core betting product it said the successful testing of its  'Always On' (~90%+ uptime) in-game betting platform was a major step. On average those players’ bet sizes were three times bigger and twice as frequent than pre-game wagers, the group said. It added that it saw a 40% reduction in betting suspensions and a 44% rise in live handle. It will carry out more tests on the system before a full rollout for next year’s NFL season. 

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Deutsche Bank on promotional spend

Promo FOMO: Levels of promotional spend are a hot topic right now and this week’s igaming monthly report from the analysts at Deutsche Bank pulls together the recent data to give an overview across various key states, in particular Pennsylvania. Looking at the LTM (as of November) GGR of $451m, promos totaled $165m, or ~37% of the total.

By proxy: In Michigan, the DB team suggests the promo percentage steps up to 62% while in Virginia the figure was ~53% and in Connecticut in the first two months it was ~47%. As the DB team points out, using Pennsylvania as a proxy - because it has been reporting for the longest - “it becomes evident just how much lower net revenue can be when compared to the headline gross revenue”.

“Given promotional play is recorded in gross revenue, it is fair to say that as these customer incentives go away, and while they will never be close to entirely extracted, both handle and gross revenue metrics will likely decline, with the impact on net revenue perhaps being slightly less onerous than the full amount of promotions would suggest,” Deutsche Bank concludes.

Heat wave: Separately, analysts at Truist noted that promotional spend in Arizona was “running hot”. Notably, they pointed out that in the debut month the promotional spend likely way exceeded GGR as the state gaming authority capped reporting at 100%. Still, the market has “rationalised” somewhat with that percentage falling to 73% in October and 37% in November.

Genius Sports investor call

• FY21 revenue to hit mid-point of forecasts at $259m. Adj. EBITDA at $2m.

• Projects FY22 revenues of $340m and adj. EBITDA of $15m.

• U.S. GGR $3.7m FY21 rising to $5.5m in FY22 and $7.7m in FY23.

Marathon session: During a three-hour investor call yesterday the data and adtech provider offered up some detail on betting patterns among its client operators for the current NFL season. While the percentage of handle that was in-play came in “as expected” at 25%, the company warned that the crucial-for-Genius percentage of handle was only 13%.

All that heaven allows: CCO Jack Davison suggested that “in other markets” the percentages for in-play over pre-match was “the other way around”. Suggesting this was an issue of the U.S. being an immature product, he said Genius expects the percentages to change over time. CEO Mark Locke, meanwhile, was keen to suggest that a greater percentage of in-play was what the NFL also wanted to see.

“Everyone is aligned,” Locke said. “The sportsbooks, ourselves, all the stakeholders are aligned in pushing punters into the in-play space. It encourages more fan engagement and operator margins are so much better.”

Further reading: On Wagers.com, why data is a depreciating asset for the NFL.

Sector watch - social gaming 

Dear Prudence: The fact that cash-rich Scientific Games decided not to acquire the remaining 19% of SciPlay that it doesn’t own surprised the analysts. Truist said the SciPlay buyout would have cost $490m-$610m with the social casino company a core component of the group’s aim to shift “from deleveraging to growth” and a product strategy focused on “cohesive cross-platform content strategy and player network”. 

Moonlight Mile: The Microsoft/Activision deal is expected to shake up the video gaming world as the software giant gains access to 30-odd game studios as well as Candy Crush, which booked $1.2bn worth of revenues in 2020. For those who follow the industry more closely, however, the deal is all about the future and in particular the metaverse, an industry buzzword that is likely to join flywheel in WE+M’s stable of annoying corporate speak.

Right here, right now: Take Two’s $12.7bn acquisition of mobile games developer Zynga means the studio behind Grand Theft Auto is able to strengthen its console and PC offerings with mobile games, which make up half the console gaming market with revenues of $90.7bn in 2020. 

The team at Macquarie said the deal “underscores the value of proven mobile developers with strong live ops and monetization capabilities” and “highlights the strategic value and importance of mobile gaming as an entertainment platform going forward”. 

PHUK you II: Shares of social casino specialist Playtika dropped 15% this week on news that its largest stockholder, Playtika Holding UK II Limited (‘PHUK II’), was considering selling 15-25% of company stock. PHUK II is controlled by Chinese entrepreneur Yuzhu Shi and if the sale goes through it will mean he will no longer have majority control of the group‘s shares. No reason was given for the sale. 

Spring-heeled: Separately, Playtika has invested $7m in the Israeli startup Spring Games to develop NFT-powered games. It is Playtika’s first move into NFTs, Spring Games said its first game would go live mid-2022. 

Datalines 

Nevada Dec21

• Gaming GGR up 68.2% YoY and up 8.8% vs. Dec19 to $1.15bn

• Strip GGR up 123% to $650.8m and +10% on Dec19; locals GGR of $229.6m up 26.5% and +5.2% vs. Dec19 to $229.6m.

• GGR for sportsbooks was just $15.9m on handle of $1.01bn; mobile made up 76% and retail 24%.

Hoops nightmare: The surprise in the Nevada figures was the 1.6% hold rate for sports-betting which the breakdown revealed was largely down to a 0.7% hold for basketball. It meant the GGR figure was down nearly 78% on Nov21.

Omicrush: The team at Wells Fargo said December GGR trends had moderated relative to the two previous months, “which we believe was somewhat expected given the uptick in Covid cases that occurred in mid/late December and likely impacting NYE travel/demand”. Macquarie said they remained bullish beyond the near-term Covid-related deceleration given pent-up non-gaming demand, airline commentary and real-time pricing opportunities.

Newslines

Raising Arizona: The Hard Rock group will launch an online sportsbook in Arizona via a partnership with the Navajo Nation Gaming Enterprise, which operates five gaming and hospitality facilities across Arizona and New Mexico. Hard Rock’s sports betting platform is already in Iowa and New Jersey. Timing of the launch was not disclosed.

Speed data: ASX Sports, the next-gen virtual sports exchange, has announced it has done a deal with Sportradar for the provision of data. ASX was previously part of Sportradar’s Acceleradar startup incubator program.

License consideration: B2B suppliers may have to be licensed to work in Sweden from 2023 if the government succeeds in setting up a licensing framework for B2B companies working in the country. During a press conference, the minister for social security Ardalan Shekarabi unveiled a broad range of new regulatory proposals aimed at technology and affiliate services providers that will be submitted to the Law Council for consideration. 

Selling England by the pound: UK operator Genesis Global has been fined £3.8m by the Gambling Commission, but the UK regulator did not rescind the operator’s license. Genesis runs around 14 websites targeting the UK market, its license was suspended in July 2020 after the GC discovered major social responsibility and money laundering failures. 

Adding to the ranks: Ratings agency Sharp Rank has added NBA and NHL picks to its sports bets offerings. They will add to the college football and NFL picks that are already live and the company said it would add MLB, NASCAR, PGA and horse racing in the coming months. Soccer was “likely to be added” by year-end.

Term time: PlayAGS, has announced a refinancing of its outstanding credit facilities and extended debt maturities. the company intends to fully refinance its $521.2m term loan facility and its $93.6m term loan facility, both due 2024. As part of the refinancing transaction, AGS intends to seek a new $575m term loan facility due 2029 and use a portion of the cash on its balance sheet. 

On social

zerohedge @zerohedge

Dear @RobinhoodComms the opposite of green is not dark green

January 27th 2022

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RIP Barry Cryer, a legend.

Woman goes into a pet shop and sees a gorgeous parrot, only £20. The shopkeeper explains it’s cheap because the parrot used to live in a brothel, and its language might be fruitier than most. But it's so beautiful the woman buys it anyway.

She takes it home and puts it in the sitting room. “New premises,” squawks the parrot. “Nice.”

The woman’s two daughters walk in. “New girls, too,” says the parrot. “Very nice!”

Then her husband walks in. “Hello Keith,” says the parrot.

Calendar

• Feb 2: Red Rock Resorts Q4

• Feb 3: Penn National, Boyd Gaming Q4

• Feb 9: Evolution, Kindred, MGM Q4

• Feb 10: Betsson Q4

• Feb 11: Kambi Q4

Contact us

• Scott Longley scott@clearconcisemedia.com

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