17 Aug: GAN: Operators ‘underestimate’ tech stack challenge

GAN, Elys Technology, Playmaker, Raketech Q2s +More

Aug 17, 2021

Good morning and welcome to another packed E+M newsletter. We start our coverage this week with GAN’s Q2s and CEO Dermot Smurfit’s confident comments about the importance of B2B platforms to the US igaming ecosystem. Then we have Elys Technology, Raketech’s plans to activate US assets, Playmaker’s strategy for the Latam region and a debut initiation note on Gambling.com initiation plus NJ, MI and Mass July GGRs.

If you were forwarded this newsletter and would like to subscribe, click here:

GAN

The top line

As prefigured in the Q2 pre-announcement, GGR was up 24% QoQ to $34.6m with strong B2C (Coolbet) growth (up 68% to $24m) in Latin America and Europe. B2B was down c$3.5m QoQ to $10.6m.

Adjusted EBITDA rose 171% to $4.6m vs. $1.7m in Q1. Net losses were trimmed QoQ to $2.7m vs. $4.5m. The company has cash reserves of $52.1m as of June 30. FY revenue guidance maintained at $125-$135m or 270% YoY growth at mid-point.

Battle hardened: While B2C led the way in Q2, CEO Dermot Smurfit said the B2B pipeline in the US and Canada would drive much of the revenues in H221 and beyond. Referring to Canada, Smurfit said “there is an exciting B2B opportunity for a battle-tested platform that has been deployed successfully in the US, which makes us a very attractive proposition if you’re looking to launch in Canada.”

Lean on me: Smurfit said GAN was scaling up to meet the US demand for its B2B services and as major US brands opt for in-house tech teams and platforms, he said “existing US B2C online operators with their own in-house tech, (are) looking to lean on our battle tested platform as they run short of engineering bandwidth.” He repeated the point for good measure and added that the recent M&A activity made GAN’s technology “demonstrably scarcer and more valuable”. The cost, technical and regulatory expertise required to bring platforms in-house meant it was not a realistic option for most casinos.

“Some who tried will ultimately fail, as they have again and again throughout Europe, which must serve as a cautionary tale for all who underestimate the challenges here in the U.S, which remain(s) the high watermark of online regulatory technical complexity anywhere in the world,” said Smurfit.

New York I love you, but… : GAN opted against entering any of the consortia vying for sports-betting licences in New York, because it “didn't see a path to a positive ROI”. Smurfit said it would err on the side of caution and “remain true to our B2B business model”. He added that he was “cautiously optimistic that continuing opportunities to deploy as a platform for commercial operator participants, or New York's tribal operators” would remain open in the near-term.

No buena onda: Smurfit was bullish and outspoken on betting kiosks. To date he said they had been a mainly “standalone part of the industry that had been served by one or two major providers of sports betting tech broadly describable as plugging in a microwave.” “We’re offering something that combines online and land-based and we will leverage our online tech to infiltrate this very lucrative corner of the industry”.

However, referring to GAN’s patented iBridge product that is designed to connect mobile to customer loyalty programs, analysts at Macquarie noted “it continues to appear that many of the omni-channel players are linking their customers’ accounts without the use of what we thought was a critical piece for GAN. We will continue to monitor this in the near term.”

Playmaker Q2

The top line

Revenue came in at $3m (pro forma $4.2m) while H121 revenues hit $7.6m pro forma vs. $3m in H120.

Pro forma adjusted EBITDA came in at $1.6m in Q2 and $2.8m pro forma for H1. cash and cash equivalents stood at $23.5m at period end.

Buying spree: The recently-listed Playmaker bought the Futbol Sites business in April and followed that up with a deal in July to acquire the Yardbarker media outfit and its popular Morning Bark newsletter for $4m (including earnout). On the call, CEO Jordan Gnat said the Morning Bark was the “jewel”. “Over 360,000 subscribers have curated their personal sports page, based on their preferences, and we deliver it to their inbox every morning,” he said. “Imagine how valuable that will be to sports-betting companies?”

El score: Asked about any read-across from Penn National’s recent deal to buy Score Media & Gaming, Gnat said he saw it as validation of their strategy of placing themselves in among the ecosystem of sports fans. “TheScore has done a fantastic job of that and we're just getting started at doing something very similar,” he added. Noting Futbol Sites’ presence in LatAm markets, he said they were “theScore in those particular markets.” “That’s who we are and that’s where our opportunities lie,” he added.

Elys Technology Q2

The top line

GGR rose 153.8% to $14.9m while revenue rose 143% to $11.7m. Net loss from operations increased 32.1% to $2.7m. Cash and cash equivalents stood at $19.2m at period close.

Forza Italia: The Q2 revenue increase was driven solely by the group’s interactive operations in Europe. The company remains hopeful the land-based business in Italy will kick on soon as the European soccer season restarts. Elys closed the US Bookmaking acquisition during the period and will benefit from the Q3 onwards from its current operation in four states. Michele Ciavarella, Elys’s executive chairman, said the deal represented a “fundamentally strategic milestone” for Elys. Elys will conduct a call with analysts on August 23.

Raketech

The top line

All-time high revenues came in at €8.8m, up 25% YoY and 6% sequentially while EBITDA of €3.4m was up 21.4% YoY and 6.2% QoQ. NDCs of 34,839 were, however, down 14.7% YoY and 12.6% off QoQ.

Hit the trail: Raketech has continued its moves to buy its way to a wider geographic footprint having announced two acquisitions in July as well as a new €15m credit facility. Its recent acquisition of Infinileads will give it a bigger footprint in LatAm (though currently it is mainly Portuguese, Spanish and Italian revenues), while the deal last month for P&P Vegas Group and QM Media added US and Indian exposure. On the earnings call, CEO Oskar Mühlbach said the deals would add around €6m yearly revenues to the business and will be cash-flow positive “from day one”.

US revenue is predicted to be worth between 8-12% in the medium-term and non-Nordic revenues will be around 45% of total revenues. Mühlbach said there was “huge upside” potential in adding affiliates revenues to the Picks&Parlay subscription service that came as part of the QM deal.

Gambling.com analyst initiation

Affiliate validation: The US affiliate sector as a whole will receive a boost from the initiation note on Gambling.com issued by the analysts at Jefferies. Noting the credentials of Gambling.com’s founders Charles Gillespie and Kevin McCrystle, Jefferies suggest the growth opportunities in the North American affiliate sector could lead to a TAM of $2.3-$4bn.

Value drive: Referring to a proprietary survey, they go on to suggest that 50% of players are driven by value rather than brand. They also note that the affiliate sector is in the minority in generating profits right now, with margins at circa 40% of EBITDA. “In the context of the lower-risk business-structure revenues, profits and capital intensity, coupled with the control of its progression, separate from the intended acquisitions, we apply appropriately higher-end multiples,” they add.

New Jersey July GGR

Sports betting handle was down 24.5% MoM to $579m but up from the $315m recorded in Jul20. Revenues were up 86% YoY to $55m and down 22.9% MoM. Mobile betting generated $50.7m of the GGR, down 18.5% MoM; land-based revenue dropped 52.9% to $4.3m MoM. Hold was up 20 bps MoM at 9.5% vs. hold of 7.8% in 2021.

Duel purpose: Sports-betting market share remained the same with PointsBet/FanDuel at 58.2%, DraftKings in second with 20.9% and BetMGM in third with 11.6%. FanDuel also led in retail betting with 51.3% share, William Hill was second with 9.2% and Resorts third with 6.6%. Gambling Twitter noted that the hold on parlays hit 24.1%.

Online casino revenue was up 35.7% YoY and c11% MoM at $118.7m with market share unchanged. MGM’s Borgata led with 30.7%, Golden Nugget was second with 28.2% and Resorts third with 19.6%.

In land-based gaming, slots GGR was up 5.8% vs. Jul19 and up 32.8% MoM to $204.6m. Handle increased 2% vs. Jul19. Table games GGR (excl. poker) was down 13.6% vs. 2019 but up 19.7% MoM to $70.2m, as table volume increased 3.0%, versus 2019, and hold decreased ~280 bps versus 2019.

Michigan July GGR

GGR came in at $20.8m (92% mobile mix) and icasino hit $92.3m. Land-based GGR was down 2.8% vs. Jul19 and up 9.2% sequentially. Mobile handle was down 20% MoM to $188m. While FanDuel was almost overtaken by DraftKings on share of handle (29% vs. 28.4%) it remained dominant in GGR terms with c. 40% GGR with BetMGM in second spot at 25%, then DraftKings (16%) and Barstool Sportsbook (7%).

Massachusetts July GGR

GGR was up 17.5% vs. Jul19 and up 13.9% MoM to $95.7m in July. Wynn’s Encore resort led the market with GGR of $59m, a rise of 12.4% MoM and up 21.6% vs. Jul19. MGM Springfield was second with GGR of $23.7m, up 16.3% vs. Jul19 and up 17.4% MoM. Penn National ’s Plainridge Park was third with GGR of $13m (up 3.3% rise vs. 2019 plus 14.4% MoM).

Macau update

Daily revenue dropped to MOP78m per day during the second week of August, bringing daily revenue to MOP103m vs. MOP125m per day last week and MOP200m per day since October 2020.

VIP volume was down 45% MoM with a normal win-rate of 3.3%. Mass volume was down 62-65% MoM, “with little visibility on travel restrictions in the near term,” according to analysts at Jefferies.

Growth restrictions: Although most of Macau’s entertainment facilities (i.e. cinemas, game centers, bars, nightclubs) are expected to reopen on Wednesday, ongoing border restrictions and testing procedures are contributing to lower casino performance and daily revenues. The team at Jefferies said Macau’s “ recovery should continue to evolve slowly through the remainder of 2021 and potentially approaching normal in 2022, with the financial impact enduring longer.” The stricter and tighter domestic China travel restrictions from medium- and high-risk areas continue to delay Macau's recovery with Hong Kong, Taiwan and Guangdong in particular impacting demand in Macau. Jefferies added that “Macau will only reduce health quarantines measures for mainland China visitors once domestic China travel restrictions ease.”

Newslines

Boom bang-a-bang: Fresh from announcing a minority investment from Rush Street Interactive, Boom Entertainment has announced a similar partnership with Golden Nugget Online Gaming. Under the terms of the agreement, GNOG will gain access to Boom’s content library of games and its RGS as well as market access in Ohio and has invested in Boom’s recent fundraising.

Lads, lads, lads: MaximBet, the betting brand of the men’s lifestyle magazine, has announced a market access partnership for Arizona with the White Mountain Apache tribe. It is the fifth state where MaximBet now has access. MaximBet will launch on the Carousel platform in September.

Safety play: Paysafe has announced the acquisition of Latin American-facing SafetyPay for $441m. It is Paysafe’s second deal in the region in as many weeks following the deal for the mainly Peruvian-facing PagoEfectivo. “We see exciting synergies in key industry verticals like iGaming where we want to win,” said Paysafe chairman Bill Foley.

Feed the Goat: GOAT Interactive brand Premier Bet has signed a partnership agreement with Portuguese soccer side Benfica to become the official betting partner in the territories of Angola and Mozambique. Premier Bet operates in 16 countries across Africa

All part of the plan: The Washington Football Team is the first NFL team to join the American Gaming Association’s ‘Have A Game Plan. Bet Responsibly’ public service campaign to promote responsible sports betting. The partnership will feature ‘Have A Game Plan’ in-stadium activations, sponsored content on the team’s website and campaign promotion throughout upcoming preseason radio and television broadcasts. AGA SVP Casey Clark commented: “Today’s announcement puts Have A Game Plan in front of more fans and is a step further in building a responsible, sustainable legal market.”

Empire State betting: Jay-Z has joined Fanatics as vice chairman of Fanatics Betting & Gaming and will work with Fanatics founder Michael Rubin, who will be CEO of the new entity, to obtain a mobile betting license in his home state. Fanatics is part of the Kambi platform consortium applying for a NY license, former FanDuel CEO Matt King is heading up the group’s sports betting and gaming development and roll out. Jay-Z is one of a number of high profile investors in Fanatics, the group is estimated to have a market capitalization of $18bn.