20 Oct: Catena Media’s European writedowns

Catena Media Q3 update, DraftKings/Entain bid extension reactions, Nigel Eccles/BetDEX news +More

Oct 20, 2021

Good morning. Germany continues to bedevil the European online gaming sector with the affiliate sector now in the spotlight following the news of Catena Media’s writedown of German assets bought four years previously. Next, we have some analyst reaction to the predicted DraftKings/Entain extension and last, we have potentially sector-breaking news from former FanDuel founder Nigel Eccles and his new decentralized sports-betting exchange.

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Catena Media Q3 update

The top line

Revenue estimated at €33.1m, up 33% YoY with North American operations up 124% and now worth 51% of total group revenues. Adjusted EBITDA estimated at €16m, up 33%.
German revenue fell 82% over the period and now down to 4% of group revenue. A total writedown of €49.4m will be taken on the previously acquired German and French assets.

Mein Walkman ist kaputt 2: Back in Nov17, Catena Media bought the BayBets business for €63.5m. The deal involved an upfront payment of €26.5m and a two-year earnout from the remainder. At the time, BayBets was generating quarterly revenues of ~€2.25m with an operating margin of 70%. It isn’t achieving that now, needless to say. The French assets refer to the ParisSportifs operation bought in April 2018 for €6.2m in cash and a further €2m in shares.

Drums and wires: CEO Michael Daly said the writedown

“adjusts our European business to new market realities” and reflects an “updated assessment by management of the assets’ expected future earnings in the context of recent regulatory changes in Germany’s iGaming market and overall market conditions.”

Recall, between 2014-18 Catena went on a huge buying spree of European and US assets and more write downs of the European buys may follow: “Management regularly assesses expected future earnings in accordance with IAS 36 and may further adjust assets’ amortisation plans,” said Catena.

Mr Brightside: Catena can at least be thankful for its foresight with regards to the PlayNJ assets bought in Dec16, with the US now driving the whole show.

CEO Michael Daly said Q3 was “an exceptional quarter” with revenues in September breaking the company’s own one-month record. “This was the result of our strategic investment in organic development, particularly in North America, and was supported by two recent acquisitions in the United States and the opening of the iGaming market in Arizona,” he added.

DraftKings/Entain bid extension reaction

Give me a minute: As predicted by WE+M yesterday, DraftKings got an extension from the London Stock Exchange until Nov16 to put further work into its bid for Entain. DraftKings’ limited statement said it will “continue to engage in discussions between both companies and to conduct more substantive due diligence and analysis regarding its possible offer”.

Legal highs: Entain put some flesh on these discussions, saying they encompassed the terms of any supply agreement for BetMGM and MGM, the “governance rights and value protection” for the combined entity’s stake in BetMGM, management composition of the pro forma DraftKings/Entain entity and potential antitrust and regulatory clearances. One thing is sure: the advisors will be racking up the fees here.

Push me: Wells Fargo noted the “complexity” of the three-way negotiations but “remain encouraged by the likely prospect of MGM owning 100% of BetMGM”. What makes “most sense” is for MGM to acquire Entain’s 50% BetMGM stake on ”fairly attractive terms” and then license the tech from DraftKings “for several years with multiple extensions” as MGM “evaluates whether to build/buy its own tech stack”.

Pull you: The alternative is MGM could pay a “premium” price for both the 50% of BetMGM it doesn't already own and Entain’s tech stack which DraftKings could then license from MGM for its newly-acquired international operations. DraftKings would then be left with the long-term buy or build option.

Talking point
As discussed in a previous Wagers.com article, the problem is that DraftKings and MGM can’t both own the tech. Meanwhile, neither scenario discussed here mentions Endeavor, which now owns the OpenBet platform on which BetMGM is built or what DraftKings might do with the SBTech platform it acquired in 2020.

Nigel Eccles/BetDEX news

Making plans for Nigel: Taking to LinkedIn yesterday, former FanDuel founder Nigel Eccles broke the news that his next project would be a “decentralized sports-betting exchange” that he suggested would “bring crypto to sports-betting and revolutionize the industry for consumers.” The product will be built on the Solana blockchain technology which BetDEX claims will enable the company to build a secure platform that can handle “extremely high levels of turnover” of up to 50,000 transactions per second.

A future as good as sealed: The company says on its website that a decentralized backend would result in “incredibly cheap” transactions costs ($0.00025). If such technology proved to work - and that really is Grand Canyon-sized if there - it goes without saying it would disrupt the entire sports-betting ecosystem to a huge extent and would be truly revolutionary.

All of my friends are here: As Eccles stated on LinkedIn, “starting a company means getting to pick who you get to hang out with for (the) next 5-10 years”. Joining him on the project are ex-FanDuelers Varun Sudhakar and Stuart Tonner. “It is going to be one incredible journey and we are now actively hiring.”

Datalines

Pennsylvania, September

Sports betting handle was up 25% YoY to $578.8m, with GGR up 163% to $48.1m, mobile handle came to $527.4m, a rise of 27.4% YoY.
NGR after promotions were up 351% YoY to $28.3m.
iGaming GGR was up 72% YoY and up 10.3% MoM to $97.8m.
Land-based casinos recorded GGR of $283m, a YoY rise of 30.6% and up 9.3% vs. 2019.

OSB vs. OSB-iGaming share: DraftKings and FanDuel lead in OSB with a combined ~66% of mobile handle (34.8% for FanDuel, 31.2% for DraftKings), Barstool was third with 10% share. The team at Wells Fargo estimates that Rush Street Interactive is market leader in OSB-iGaming share with $31.4m GGR or 24.9% share, followed by FanDuel at $30.2m GGR (24% share) and MGM at $21.6m GGR (17.2% share).

Channel breakdown: Retail betting brought in GGR of $7.2m, OSB GGR was $40.9m, with promotions of $19.9m making up 48.6% of the figure, compared with promo spend in Sept20 of $12m, or 91% of OSB GGR.