May 31: GAN slammed by ex-Coolbet founder

Earnings+More

May 31, 2022

Good afternoon. In today’s news:

GAN is under attack from shareholder and former Coolbet founder Jan Svendsen.
Gambling.com posts record North American numbers.
An Oslo hedge fund runs the rule over potential Kambi acquirers.

Cool for cats. Click below:

GAN under attack

Ex-Coolbet founder calls for the replacement of GAN CEO Dermot Smurfit.
Claims leadership team is “non-effective” and board is “weak”.
Svendsen still owns 870,000 GAN shares..

Revenge is a dish best served cool: The ex-founder of Coolbet Jan Svendsen posted an open letter on LinkedIn and Reddit late last week with some explosive allegations about his treatment by GAN CEO Dermot Smurfit and the current state of the board.

Friends and family: Svendsen alleges that the chairman of the board Seamus McGill is “an old friend” of Smurfit and points out that his uncle Michael Smurfit is also a board member.
He also says it “does not seem wise”; to have the CFO Karen Flores on the board.

The timeline: The B2C Coolbet business was acquired by GAN in Jan21 for $218.1m of which ~$111m was in cash and ~$107m was in stock.

Svendsen says that “while I had many reservations about GAN buying Coolbet, I wanted to respect my management team and the other Board members of Coolbet and all the shareholders that made it possible for me to build Coolbet”.
Svendsen claims Smurfit verbally offered him a board seat. However, no board seat was offered, and Svendsen was given the temporary director of sports-betting role.
In May21, GAN offered Svendsen an office manager role in Spain which he “took as an insult” and resigned.

Board pay: Svendsen says “one of the most disappointing issues” is the level of board pay and bonuses.

In 2021 GAN made a net loss of $30.6m which Svendsen says was “a horrible year”.
“GAN did not deliver on the bottom line and the share price dropped significantly. Regardless, the leadership team gave themselves huge bonuses.”
According to a filing in Mar21, Smurfit earns a base salary of $620k with a 100% bonus.
GAN’s share-based compensation amounted to $8.1m in 2021 and $10.2m in 2020.

Parting shot: Svendsen says he has taken to the open letter approach in the hope he can “start a process, a process that leads to a new board and a new CEO of GAN”.

“It’s a company with great potential because of what Coolbet brings to the table.”

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Gambling.com Q1

Revenues up 70% to $19.6m, adj.EBITDA up 1% to $7.2m.
North American revenues grew 544% to $10.6m.
FY22 guidance of $71-76m and adj. EBITDA of $22-27m reaffirmed.

Perfect sense: CEO Charles Gillespie said he expects “affiliate marketing spend to remain robust even as other marketing activity reduces, as we’ve seen in Europe in the past”.

But with talk of recessionary environments and tight marketing budgets dominating industry chatter performance marketing makes perfect sense”.
“All our clients are doing all they can to maximize their affiliate relationships. They can only spend so much in bidding wars and that is when the (performance marketing) model thrives.”
“It’s an easy choice, investors care about the path to profitability and performance marketing is the way to get there.”

Waiting to launch: On the regulatory front Gillespie said all eyes were on when regulated mobile sports-betting would launch in Ohio or Maryland. Both states are likely to launch OSB in late 2022 or Jan23.

Gillespie said conversion rates in Ontario had “underperformed” and because it was a “new and unique market, there were teething pains and kinks operators had to work out. We saw that in the US, there were similar issues, they’ll get worked out.”
“We’re very confident about Canada, (Ontario has) not been a blowout like New York, but the numbers are healthy and expectations for the future are equally healthy.”

Margin call: Margins were maintained at 31-36% on a FY basis because the group expects to hire more staff and invest in tech and other projects. “We are continuing to hire and invest, so we’re not expecting to grow margins,” said CFO Elias Mark.

Dutch flyer: Group revenues in Europe could be positively impacted should previous market leaders such as Unibet, Betsson or Entain launch in the Netherlands, although the group wasn’t including any “Netherlands tailwind” in the guidance.

Kambi speculation

Nearly everybody gets twitterpated in the springtime: A Oslo-based hedge fund Alinea Capital with a focus on gaming-related stocks weighed into the rumors over sportsbook backend supplier Kambi’s future via the medium of Twitter late last week. In a series of tweets, the hedge fund laid out who it believes might look at buying the Stockholm-listed firm.

MGM: Noting LeoVegas’ status as a Kambi customer, Alinea said the operator was “very satisfied” with its sportsbook supplier having previously used BetConstruct and SB Tech.

Alinea also noted that ion MGM’s conference call following the bid, CEO Bill Hornbuckle, said MGM has a “couple of targets in mind with them [LeoVegas] to continue to grow that we think makes us a bigger piece of the pie for us and ultimately puts us on the map”.
“If Kambi plays a part of Leo’s expansion plan, we believe it would make sense for MGM to buy Kambi, to not jeopardize it being acquired by someone else.”
“We do also see the neg. scenario where MGM makes another bid for Entain, and potentially migrates Leo to Entain’s sportsbook.”

Aristocrat: Alinea noted Aristocrat’s recent comments about “accelerating its efforts” within real-money gaming including targeting US iGaming market share medium-term.

“As the B2B supplier currently lacks a sportsbook, Kambi fits well into its strategy.”
Alinea also noted the $2.8bn of cash Aristocrat raised for the failed Playtech bid.

We're not the only deer in the forest: Alinea also noted the names speculated elsewhere including Fanatics, Disney, Sportradar and Las Vegas Sands.

Why buy Kambi? “We believe the short answer is: Kambi has a market-leading sportsbook in a large and rapidly growing sports-betting market, and the replacement cost is significant.”

“Kambi is quick to market, has a deep product offering and manages to stay on top of innovation with products like the recently introduced betbuilder function. Kambi is also known for its technically secure and stable platform.”

It takes time to build: Alinea notes the ‘case studies’ of DraftKings/SBTech and Paddy Power/Betfair that it takes around one-and-a-half years to switch platforms.

But it can take anything up to 6-to-8 years to “develop a fully-fledged sportsbook from scratch”.
Plus, running a sportsbook is resource-intensive. “By the end of 2021 Kambi had ~1000 employees and an annual cost base of ~$115m,” Alinea tweeted.

Whatcha doin'? Hibernatin'? If no bidder emerges, Alinea said they “still believe” Kambi can “prove itself at the current valuation”.

“Kambi has a strong product that is currently being modularized to even address customers with in-house sportsbook that don’t have capacity to insource every function.”

Sportech trading update

Stepping down: Sportech CEO Andrew Lindley has announced he will step down from his role with current non-executive chairman Richard McGuire appointed executive chairman. The company said trading had been in line with expectations in the first five months of the year.

Sports betting experienced a high rate of growth which “should see betting handle in the group's Connecticut venues come close to that of pari-mutuel for the full year”.

“The introduction of sports betting has been very positive,” the statement added.

Startup investor focus - Lloyd Danzig

Investor backgrounder: Lloyd Danzig is the CEO of Sharp Alpha Advisors, a venture capital firm specializing in sports betting and online gaming.

Capital levels: Sharp Alpha usually makes initial allocations of between $100K-$1m and then plans to write a “4-8x larger check in the subsequent funding round”, says Danzig who adds that Sharp Alpa will always look to collaborate with angel investors, strategic corporate investors, and other VCs.

Founding importance: Danzig says especially at the seed stage, the founding team is the “single most important facet” of an investment decision with the best founders “tending to exhibit clarity of thought, exceptional communication skills and relentless resourcefulness.”

Danzig points to some of the founders he has worked with including Seth Schorr (FSG Digital), Steve Kane (Golden Hearts Games), Jack Barrett (Almost Friday Media) and Jason Shapiro (Betcha).

Exits: Betcha was acquired by Vivid Seats; TRNDS Sports was acquired by Fansure.

Current involvements: Almost Friday Media, Betcha, BigBrain, FSG Digital, Golden Hearts Games, GridRival, Griiip, Kero Sports, Parleh Media Group, PickUp, Players’ Lounge, Prophet, Rimble, SharpRank, SharpSports, SnapOdds, VerdictMMA, VicTree, Winner Winner.

Investment focus: Danzig says he looks for companies that have built “compelling and scalably-monetizable solutions to important problems”.

“Thematically, we are focused on customization, automation, instant gratification, tokenization, gamification and the minimization of decision fatigue.”
“We are especially interested in products and infrastructure that enable users to maximize their utility derived from betting, gaming, and sports fandom.”

Funding and M&A outlook: Danzig says despite the recent equity market “recalibration”, the opportunity for “significant capital appreciation across the startup landscape remains robust” with a significant innovation gap that the larger entities are “ill-positioned to bridge”.

Window of opportunity: CAC, the pace of market development and the regulatory burdens “incentivize large businesses to buy or license technology rather than building it”. Thus a “window of opportunity for early-stage companies” appears.
Meanwhile, market conditions have produced a more investor-friendly negotiating environment along with an “increasingly rigorous focus on high-quality management teams” who have validated demand and “carved a path to long-term profitability”.

Newslines

Last gasp: Scout Gaming announced over the weekend it had reached an agreement with some of the major shareholders concerning a bridge financing priced at a market interest rate to “solve the liquidity for the coming months”. The company said it will “within the near future inform concerning the work which was initiated last week concerning capital raising going forward”.

Crown heights: Crown Resorts has been fined A$80m by the Victoria state gambling regulator for enabling illegal transfer of funds from China. The news comes ahead of ahead of the watchdog's decision on the casino operator's $6.3bn buyout by Blackstone The fine related to illegal conduct between 2012 and 2016.

Star fail: Meanwhile, ABC News reports that Star Entertainment was found unsuitable by the New South Wales regulator for its Sydney casino license following an inquiry into ties to organized crime, money laundering and fraud.

Instant VIPs: Paysafe’s Skrill USA division has launched a VIP-focused digital wallet catering to high-staking US players. Online sportsbook PlayUp is the first operator to go live with the new program in Colorado and New Jersey. Once players have passed individual KYC checks they will be able to make higher and instant deposits up to their pre-agreed limit.

King for a day: African-focused gambling operator and digital entertainment company BetKing, part of the KingMakers Group, has joined the International Betting Integrity Association (IBIA).