Good morning. On Friday, Ontario finally announced a launch date for regulated sports-betting and igaming. Also in today’s newsletter:

• There is more OSB data from New York.

• Analysis of last Friday’s PointsBet earnings call.

• News on the Florida sports-betting petition failure.

• This week’s startup focus is on Narrativa.

I got you babe. Click here:

Ontario launch

Set the date: Licensing authority iGaming Ontario confirmed that operators will be able to take single sports bets on April 4. It is thought the tax rate will be set at 20%.

Sizing Ontario: By population (c.14.5m) Ontario would be the fifth biggest U.S. state and thus is the second biggest market in the regulated North American sports-betting and igaming sector to open to date. Analysts estimate it could be worth close to $1bn of GGR in its first year of operation.

Welcoming the news: 

Martha Otton, iGO executive director: “Consumers can be assured that companies who successfully enter the new Ontario market will have met rigorous standards of game and operator integrity, fairness, player protections and social responsibility, allowing all players to play with confidence.”

Paul Burns, president and CEO of Canadian Gaming Association: “The move to establish a regulated iGaming market in this province will ensure that the people of Ontario have access to safe and legal gambling options online while encouraging investment and job creation in Ontario."

Who’s in? 

• Old school: As mentioned by Entain on its recent trading update analyst call, the belief is the switch for grey market operators to the regulated space will be seamless. Alongside its Bwin and PartyGaming offerings, the brands with existing positions to defend include Super Group (Betway and Spin) which generated 48% of its $1.11bn of 2020 revenue from Canada, Bet365, PokerStars and 888.

• Lottery: Then of course there is the incumbent Ontario Lottery and Gaming (OLG) which is sure to be a strong competitor.

• The new breed: They will be joined by all of the larger US brands. In recent months, DraftKings, FanDuel, BetMGM, PointsBet, Caesars and Rush Street Interactive have all stated their intention to enter the Ontario market.

• TheScoreBet: When Penn National Gaming bought Score Media & Gaming for $2bn last summer the company promised its new all in-house app would be ready for Ontario’s launch. Jan Snowden, CEO at Penn, said Friday it was “uniquely positioned to capitalize” on the Ontario opening.

• NorthStar Gaming: The company recently signed a deal with Playtech for igaming provision. CEO Michael Moskowitz, said on Friday Ontarians now have “more choice and flexibility for online wagering and gaming.”

The shape of things to come: Truist noted late last year that Canadian bettors won’t necessarily follow the path trodden by their counterparts in the U.S. It means more betting on hockey, fans betting more on players rather than teams and less of a focus on NFL and NCAA football.

Not everyone’s happy: Great Canadian Gaming, which earlier in January launched a campaign to halt the deregulation, complained that the legislation fell short of providing a fair and competitive market. This was supported by the Mississaugas of Scugog Island First Nation who condemned the launch.

Go deeper: Follow the developments in Ontario and Canada with The Parleh.

The Parleh Reporting on Canada's sports betting industry By Steve McAllister

**Sponsor's message: Spotlight Sports Group (owned by Exponent Private Equity) is a leading technology, content and media business specialising in sports betting. Its industry-leading Superfeed is used by the biggest betting brands in the world including bet365, Flutter and Entain. The content engine powers on-site engagement by delivering impartial expert betting insight for 20 sports in 70 languages.

For more information visit: spotlightsportsgroup.com   

New York data

Billion-dollar baby: The news that New York has broken through the billion-dollar barrier after only three weeks is confirmation - as if it were needed - that New York will indeed be the biggest single state market so far. Analysts at Macquarie noted the $1.2bn figure from the New York State Gaming Commission data means that in monthly handle terms, it has taken New York less than three weeks to achieve what New Jersey managed after three years.

“In our view, however, it was never the revenue opportunity that was in question; rather, it was profitability, given the state’s 51% tax rate,” the Macquarie team added.

On ramp: Suggesting the promotional backdrop was “relatively rational”, the Macquarie team said Caesars would be happy with its early lead (45.7% of GGR). But they noted BetMGM’s performance - 5.8% share in its debut week  - highlighted the degree to which “being live on Day One can impact a sportsbook’s ramp.”

Louisiana launch

Tiger warning: Louisiana duly got underway on Friday with seven operators making it to the starting line including Barstool, BetRivers, Caesars, DraftKings, FanDuel, WynnBet and BetMGM. However, controversy followed hot on their heels after reports emerged on social of Caesars - which has a sports-betting partnership with LSU - emailing all students with a $300 in free bets offer.

Data note: Louisiana’s 11 retail sportsbooks took in $39.5m in handle in Dec21.

PointsBet earnings call

Bold claims: PointsBet has recently upgraded its in-play proposition in the U.S. including zero suspension and 100% uptime betting recently on the Raiders/Bengals play-off game and a new in-play same-game parlay product. CEO Sam Swanell said these types of product upgrades were “beyond the capabilities of most operators” and made PointsBet the “King of in-play”.

Sparky: Swanell trumpeted the capability brought in by the Banach Technology acquisition last March saying in-play handle was up 44% since the recent upgrade. COO Mark Hughes, previously CEO at Banach, said the new algo reduced the amount of time the in-play product was suspended by 40% and led to a 50% reduction in bets rejected.

Note: Genius Sports in its investor call last week said in-play only made up around 13% of NFL betting GGR this season.

Cutting their cloth: PointsBet hopes a reputation for market-leading in-play will obviate the need to match the market leaders in marketing spend as punters “gravitate” towards more product-led offerings. Despite marketing in Q2 hitting $27.9m - exceeding the $24.1m U.S. net win - PointsBet failed to hit its targeted 10% market share in any of the seven states it was operable in during Q2. 

Market share notes: PointsBet claimed a blended market share of 4.2% across operable states. According to analysts at EKG, PointsBet has a total market share of 2.6%.

“We thought in terms of a marketing budget that would allow us to achieve that is now effectively probably a marketing budget that's more akin to achieving, let's say, a 3% or 4% market share,” said Swanell.

Burning cash: The Australian business is profitable, producing A$53.1m in Q2. But such are the demands for investment in the U.S. business while it sustains continued losses that PointsBet saw net cash outflows in Q2 of A$96.5m. The company received A$400m from an issue of shares in Q1 and at the end of Q2 its cash balances stood at $523.3m.

Chart - monthly interactive app downloads

On the download: The Truist analyst team says that data from Sensor Tower suggests total North American sports-betting and igaming app downloads in Dec21 were up +105% YoY and +2% MoM with the top five accounting for 87% of all downloads. “We believe these trends speak to additional states legalized vs. 2020 with the sequential increase likely lending to higher OSB promo spend.”

Florida petition failure

Out for the count: Despite the best efforts of Barstool’s Dave Portnoy - or perhaps because of - the Florida Education Champions petition effort backed by DraftKings and FanDuel admitted failure on Friday, blaming the Covid resurgence for an inability to pick up in-person signatures. 

Coming up short: The separate Florida Voters for Change, backed by Las Vegas Sands, that hopes to get a question about a North Florida casino onto the November ballot, limps on but beset by legal challenges. As of Friday, it was reportedly 400,000 shy of the 900k+ verified signatures needed. 

Further reading: On Wagers.com, why the Florida petition effort was doomed.

FuboTV analyst update

Fantasy island: Analysts at LightShed Partners have raised FuboTV to Neutral from an outright Sell, but caution that the sports-streaming to sports-betting company “could very well be a zero” within two years. “Fubo’s financial challenges could worsen in 2022 if their recent sports rights licensing deals do not drive enough incremental subs,” they added.

“All that said, with Fubo stock down nearly 85% in 13 months and the company sitting on $375m of cash, we are going to wait and see whether management abandons their sports betting ‘fantasy’ to reduce the cash burn in 2022 and beyond,” the LightShed team wrote.

Further reading: On the perils of replacing a great business model with a less great one.

Q4 earnings preview

The good, the bad and the unacceptable: The macro backdrop and recent share price performances make it “tough to imagine this upcoming earnings season will serve as a stabilizing force,” said the team at Wells Fargo. 

“This feels like a quarter where beats will be met with caution, meets may not be good enough, and misses will be unacceptable,” the team added.

Q4 topic watch: Wells Fargo provides a bingo card checklist of key issues. These include the omicron impact on Las Vegas Strip trends; the wall of worry for regional operators; which companies did and didn’t undertake stock repurchases in Q4; and the ‘path to profitability in sports-betting and igaming. On this last point, the team noted the NY, LA and Ontario launches, while pushing revenue estimates up, will also see EBITDA losses mount. They forecast ~$700m of 2022 EBITDA losses for DraftKings and ~$685m for Caesars.

Talking point: “The EBITDA losses and high level of CAC/marketing spend that were tolerated in 2020/early 2021 are now being viewed as the industry’s Achilles heel.”

Startup focus - Sporttrade

Who, what, where, when: The New Jersey-based sports trading app developer was founded in 2019 by Alex Kane with the aim of offering two-sided trading for sports with players buying and selling in the same manner as they do on financial trading apps such as Robinhood.

Funding backgrounder: The company completed a $36m fundraise in June last year led by Nasdaq Jump Capital, Hudson River Trading, Impression Ventures, Tower Research Ventures, Jim Murren (former CEO of MGM Resorts) and Tom Wittman (former CEO of Nasdaq Stock Exchange).

So what's new? It plans to launch on the iOS platform in June this year, initially in New Jersey. The company also has a market access agreement for Colorado with more states to follow in 2022.

The longer pitch: Kane says the meme stock frenzy last year pointed to a shift in consumer behavior around trading. “Financial markets simply aren’t niche in the US,” says Kane. “It’s mainstream. The U.S. is a very fertile ground.” It means that when it comes to sports, there is an audience that is keen to “trade the spread”.

“The concept of being able to trade the spread is very powerful,” says Kane. “That is a magical consumer activity that doesn’t happen with sports betting today.”

Kane suggests Sporttrade, which has built its entire backend and PAM, will be a business that will benefit from the network effect. “As that happens, then the pricing will get tighter and then we will have more money for marketing.”

Low6 fundraise

Low key: UK-based sports-gamification provider Low6 has raised $5m from unnamed investors in order to fund expansion into the U.S. The company said it would be seeking an IPO later in the year. Low6 will be featured in Startup Focus in the coming weeks.

BREAKING NEWS: Entain is to launch a global innovation hub called Ennovate, with a first lab to open in London.  Ennovate will invest up to £100m in innovation projects, start-up investments and collaborations with £40m specifically earmarked for innovation investment in the UK.

The week in shares

DraftKings managed to arrest the slide in its share price which at one point saw the price fall to a low of $17.63 before a 6.5% rise on Friday helped it end the week up nearly 10% to $20.64. Penn National was similarly helped by a near 5% rise on Friday as the Ontario news came through, ending the week at $44.20. Analysts at Jefferies said investors have “continued to inquire” on the relative weakness of Caesars to the rest of the sector driven, they suggest, by feast over its “elevated” leverage.

Short report: Short interest in DraftKings has risen slightly to 12.1% from 11.8% at the start of January. Likewise RSI is now at 8.8% from 7%.

Further reading: Why is DraftKings being shorted?

The week ahead

On Wednesday Joey Levy of SimpleBet, Jordan Gnat at Playmaker, Ken Hershman from Champion Gaming and Rivalry’s Steven Salz will take part in a webcast called ’the boom in the sports gambling industry’, hosted by Canadian financial services firm TMX. Later on Wednesday, Red Rock Resorts reports its Q4s. In Q3 it trumpeted “seismic” margin improvements. Penn National Gaming and Boyd Gaming report on Thursday. For Penn the focus is expected to be on its plans in Ontario while with Boyd analysts will be looking for any sign of regional weakness after a record Q3.

Newslines

Stretcher bond: Gaming Innovation Group has successfully completed a SEK100m bond issue under the Group’s existing senior secured bond framework in order to partly finance its recent €50.8m Sportnco acquisition. Following this bond issue, the outstanding amount of the bond is SEK550m.

Bd spprt: Playtech shareholder Abrdn said it would vote in favor of Aristocrat’s support saying it “represents a fair assessment of value and certainty of cash”. The shareholder vote is due on Wednesday, Feb 2 but the company remains unsure about the intentions of a key block of Asian-based investors.

What we’re reading

Joe Asher: “Sports betting is probably the single greatest customer acquisition tool in the history of the U.S. casino business.”

Deep freeze: Surviving the crypto winter.

May the sun never set: Superbet lays out its ambitions.

On social

Michael P. Regan @Reganonymous

My conspiracy theory is there is only 1.5 million dollars in venture capital, you people just keep moving it around

Marc Andreessen @pmarca

My conspiracy theory is that there are only 1.5 million people in the world, 1.75 million tops. You all just move around. I challenge anyone to disprove this with photographic evidence.

January 29th 2022

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Calendar

• Feb 2: Red Rock Resorts Q4, TMX sports-betting webinar

• Feb 3: Penn National, Boyd Gaming Q4

Contact us

• Scott Longley scott@clearconcisemedia.com

• Jake Pollard jake@openmediaservices.com