Stake in the ground
Assessing Stake.com, Entain’s Angstrom deal analyzed, and could a betting operator get to own some of ESPN +More
Good afternoon. In this month’s Due Diligence, we take a closer look at Stake.com and the emergence of its Kick streaming platform.
The company has grown by some estimates to be the seventh biggest gambling company in the world. In recent comments on a YouTube streaming channel, co-founder Ed Craven suggested an acquisition of a listed US gambling entity was on the cards. The latest rumor is that the company is in the process of seeking a license in Australia.
Elsewhere in this month’s issue, we take a look at yesterday’s news about Entain’s acquisition of Angstrom, a deal that has implications for BetMGM JV.
Plus, the recent news that Disney might be looking to sell a stake in ESPN sees some sports-betting names mentioned in dispatches.
Lastly, we have the latest analyst takes on DraftKings, Genius Sports, Bally’s and Gambling.com.
I wanna know, how do you go all the way up?
Stake and chips
The largely crypto-based operator has risen in prominence in recent months.
Lights out for the territory: Having become the subject of scrutiny from the unlikely source of the Chelsea Supporters’ Trust, Stake.com appears willing to accept further scrutiny after a report in Australia suggested the company has applied for a license in the Northern Territory.
According to the Herald Sun, the company is “two or three months” into the process of applying for a corporate bookmaker license.
Although Stake.com is run out of Melbourne, the company does not currently operate in the country but runs instead off of a Curaçao license as is the case in the rest of the world.
The only other exception is the UK where it operates under a white-label arrangement with Isle of Man-based TPG. This allows the company to advertise within the UK.
Notably, it has a shirt sponsorship deal with Everton and recently hit the headlines when it emerged it was in talks with Chelsea about a rumored £40m-a-year deal.
That deal got nixed after protests from the Chelsea Supporters' Trust.
Bigger than you thought: As was discussed in an FT article earlier this year, using data from Regulus Partners, the paper estimated Stake.com was seventh in the list of global gambling companies by GGR with revenues of $2.6bn,.
Founded by Ed Craven and Bijan Tehrani, the company has used sponsorships to, as Craven told the FT, overcome the “difficult stigma” of being a platform that mixes crypto and gambling.
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Kickabout
Venting: Craven appeared on a Gamers Update stream earlier in July suggesting that a large acquisition was on the cards. Stake was, he claimed, primed to make a “very big move into the USA with a very big acquisition”.
A source pointed out that while Stake.com would appear to have the money for the deal, any due diligence process by a regulator would make the completion of a transaction “problematic”.
Still, analysts at EKG noted recently that “not many companies” fit the description of large, regulated and for sale.
“Rush Street Interactive is a logical fit, given it has long been up for sale, and holds online casino licenses that Stake would presumably covet,” the team added.
Just look at these streams: The interview appearance on the gaming stream followed the news that the Twitch rival Kick, which shares a common ownership with Stake.com, had completed a $100m deal with a streamer called xQc.
Kick is a combination of gaming, gambling and 4chan-style politics that emerged after Twitch banned gambling-related streams.
Gambling content and slot streaming is not a new phenomenon. The rise of younger streamers with impressionable audiences streaming does posit responsible gambling issues, however.
Sponsorships and affiliate agreements are vague, with viewers effectively having no idea if the money being gambled is just house credit or real money being deposited.
Angstrom acquisition
The £203m deal for Angstrom gives Entain a sports-betting edge.
Mea culpa: First, E+M must apologize for mistakenly suggesting the total buyout price for the UK-based sports-betting supplier was £122m. This was due to a misreading of the press release from Entain which, in our defense, wasn’t entirely clear about the total value of the contingent consideration. We are pleased to be able to correct the record.
The mistake doesn’t change the fact that, according to sources, Entain has bought itself something of a jewel when it comes to odds and data supply.
One industry source compared it favorably to Banach, which itself was bought by PointsBet in 2021 for $43m and was recently part of the sale of the US-facing business to Fanatics.
“It is more than just the algos that Banach specializes in,” said the source. “It’s the full package of odds generation.”
“This is the equivalent of buying Kambi in terms of the breadth of what Angstrom can provide,” they added.
Gimme, gimme, gimme: It is also worth noting that, given Angstrom’s footprint in the provision of US sports, the deal will cement Entain’s central role as the provider of the technology backend to the BetMGM business.
Analysts have speculated that the joint venture nature of BetMGM has to be “solved” sooner or later (and preferably sooner from their point of view).
One popular option is that MGM Resorts buys out Entain but that would depend on being able to disentangle the Entain tech from the BetMGM operation.
Augmenting the tech backend gives Entain a stronger hand in any future negotiations.
“The Angstrom Sports acquisition announced this morning will improve the underlying functionality of the BetMGM app,” said the team at JMP
JMP noted BetMGM has lost market share against the “materially improved” product offerings from DraftKings and FanDuel. Angstrom can “address recent struggles”, the team added.
ESPN sale
Sports-betting operators have been mentioned as potential buyers of ESPN.
Turn off: Comments last week from Disney CEO Bob Iger suggested that the entertainment giant might look to offload a stake in ESPN. In a sit down, which took place at Allen & Co’s annual get-together in Sun Valley, Iger indicated discussions around the future of ESPN could be on the agenda.
“We’re going to be open-minded,” he said.
“Not necessarily about spinning ESPN off but about strategic partners that could help us with distribution or content. But we want to stay in the sports business.”
As noted by Sports Business Journal, the media space experts believe the likeliest partners would be private equity, including KKR, Apollo and Candle Media, a Blackstone-backed media company run by former Disney executives Kevin Mayer and Tom Staggs.
The article suggested that such a move would enable ESPN to be “more aggressive” in its moves into gaming and streaming.
Disney would then likely have the option, after a period of time, of buying back its stake in a diversified ESPN.
But SBJ also speculated that sports-betting operators might also be interested in taking a stake. Recall, late in 2022 DraftKings was strongly tipped to be on the verge of agreeing a partnership with ESPN, which would have involved a major marketing tie-up.
However, the deal went cold as the issue of the cost of marketing became a more prominent discussion within the US online gaming space.
The SBJ article also noted that a sale of an ESPN stake to a betting operator would represent a “leap” for Disney, even if it has overcome its previous distaste for all things betting-related.
Another angle could be Fanatics, which, SBJ said, quoting sources, “could make sense if Iger decides that he wants to lean into sports gambling”.
But again, a move into media might not be on Fanatics’ agenda right now given its current focus on merchandising, trading cards and gambling.
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Analyst takes
DraftKings: Analysts are generally positive on the upcoming earnings numbers, suggesting the company is on course to hit breakeven in Q2 before tipping back – temporarily – into loss-making territory in Q3.
The team at Deutsche Bank said they believe DraftKings is likely to grow market share from here.
From a low point in Q2 last year of just over 20%, DraftKings has moved up to over 30% in the quarter just past.
Genius Sports: The 25% share price rise following the announcement of the extension of Genius Sports’ deal with the NFL demonstrated the extent to which a renewal had weighed on the minds of investors, suggested analysts at B Riley.
The team noted how the agreement secures the two-year option from the original deal and adds a further one-year extension.
Similar to the deal with Football DataCo for UK soccer rights, the team said they believe there was “no competitive bidding process”.
Bally’s: The regulation of iCasino by Rhode Island brought a fillip for Bally’s, which alongside IGT holds the monopoly for operation in the state. JMP suggested the market could be worth up to $15m to Bally’s.
The team noted there are limitations to what can be offered by live dealer, with only table games allowed and no roulette.
“For a levered, regional-centric operator… incremental $15m-$20m of free cash flow is meaningful and a much-welcomed positive,” the analysts said.
Gambing.com: Roth MKM initiated on Gambling.com this week and said the increased reach from partnerships brought incremental revenue at a reasonable margin. But partnerships also provide SEO benefits, the analysts suggested.
These improvements could yield “even greater benefits” by making websites “even more relevant within search results when popular media websites link in”.
Calendar
Jul 19: Las Vegas Sands
Jul 20: Betsson
Jul 21: Evolution
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