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Fanatics makes BetPARX bid
Fanatics poised to launch M&A move, Deal Talk reaction, Kambi investor day recap, startup focus – IO Stadium +More
Good morning. On today’s agenda:
Fanatics’ US sports-betting debut overshadowed by news of BetPARX bid.
Deal Talk offers some instant reaction.
Kambi talks up the next generation of betting algorithms.
Our startup focus is NFT marketplace IO Stadium.
Fanatics’ BetPARX bid
The apparel-to-sports-betting giant is in talks about a takeover that analysts believe could be worth $100-$150m.
Ball Parx: The news late on Friday that Fanatics has signed a letter of intent with the Greenwood Gaming-owned online operator came on the same day that the company took its first bet. No agreement has been reached, but analysts at JMP said it would likely be worth between $100m and $150m.
Parxlife: BetPARX only launched last year and operates in five states, including New Jersey, Pennsylvania and Michigan.
The operation is a collaboration between owner Greenwood Gaming and Playtech, which provides the online gaming infrastructure.
The sportsbook backend is provided by Kambi, which said last week BetPARX was one of its “most important customers” in the US.
Its land-based parent runs the largest casino by GGR in Pennsylvania, the PARX Casino in Shippensburg. It generated $598.7m in GGR in 2022 for nearly 18% market share.
However, online it was sixth in joint SB/iCasino in Pennsylvania with 2.9% market share. In both New Jersey and Michigan it barely registers.
EKG estimates its market share across all iCasino states at 1.5%.
Breaking the seal: The company took its first bet in Maryland yesterday and going by a comment from CEO Matt King during a Massachusetts regulators meeting a fortnight back it appears that MA might be its debut online state.
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Deal Talk instant reaction
Access points: Gideon Bierer, managing partner at Partis, suggested the key likely hinges on BetPARX’s market access in Michigan where the company has a partnership with the Gun Lake tribe. Bierer pointed out that Michigan is a ~$1.5bn GGR market and in terms of further market access is something of a closed shop.
Sources confirmed that market access to one of the few multi-product and low-tax states was central to the deal.
“It seems like a quick and cost-efficient way to secure market access since there isn’t much value in the technology or customer database,” said one investment advisor.
The team at JMP suggested BetPARX offered Fanatics a pathway into iCasino. Bierer said it would gain a “scaled, experienced” operational team.
It would also – whether it wanted it or not – gain a partnership with Playtech. One source suggested it might signal that Fanatics is thinking of deploying Playtech.
What’s it worth? JMP indicated BetPARX generated LTM GGR of ~$80m, implying net revenue of $50m. Their price tag estimate is based on current trading levels for DraftKings of between 2x-3x sales.
Fanatics can easily afford it. The company raised $700m late last year and said it was earmarked for M&A in either the betting and gaming space or collectibles.
“I wouldn't expect Fanatics to stop with this acquisition,” said Chris Grove from Acies Investments.
“Given the team, the scale of their ambition and the acquisitive nature that is part of the company's DNA, BetPARX is likely to be only the start of Fanatics’ M&A roadmap.”
The backend supplier was keen to emphasize where it thought machine learning was taking sports betting.
Where we’re going, we don’t need roads: COO Erik Lögdberg spoke about the challenge of the next generation of algorithms that will be able to take the “exploding bubble” of sports data and feed it into a “limitless sportsbook” for the end user.
“When we look at what the big sportsbooks are focusing on, we don’t see much of this type of third generation out there,” he added.
Noting that research shows the majority of machine learning projects fail, Lögdberg said it was a “big risky bet” but Kambi was “over that hurdle”.
CFO David Kenyon admitted the investment in algos would mean a “ramp-up” in costs in 2023 but that it would eventually mean less resources in trading.
Shape of things to come: CEO Kristen Nylen said the acquisition of Shape Games was about fulfilling the operator need for native apps – he noted that in the US consumers were overwhelmingly choosing apps over browsers. He added that “no-one is doing everything in-house”. “A lot of legacy tech is failing.”
Shape’s current clients include Danske Spil, Norsk Tipping and the recently-signed BetCity (owned by Entain).
The shares week
Rivalry: The Toronto-listed esports-led betting operator enjoyed a good week after announcing an upbeat Q4 trading update.
🎮 Rivalry gets a bump off the back of this week’s upbeat trading update
Here we go again: Financial news site CTFN cited an industry source and an investment banker in suggesting MGM will ‘explore’ a bid for Entain only after the UK government’s White Paper on gambling is released.
Inevitable: Analysts at Jefferies repeated that they believe a deal is an “eventuality” given the strong performance of BetMGM and MGM’s investor interest in a merger. “Timing remains a matter of active debate,” the team added.
Analyst takes – Macau
Don’t dream it's over: “Unreasonable expectations” and the dangers of “dreaming the dream” about a return to pre-pandemic levels in Macau are the primary risks at present, suggested the team at Deutsche Bank.
Citing the structural changes to the VIP market and the lack of a specific China stimulus a la the US recovery, DB predicted a return of GGR to 2019 levels to be “unlikely”.
The team also warns about falling for the “head fake” of excitement around Chinese New Year. They point out that historically it is actually the week after CNY that outperforms.
Behind the velvet rope: On VIPs, DB pointed out that under the new rules for junkets they can no longer extend credit, participate in revenue shares or work with multiple concessionaires. As such, the number of junkets has declined dramatically since its peak in 2012.
The impacts for operators will be higher margins but greater EBITDA volatility and more bad debt provisioning as operators themselves take on more credit risk.
🌇 End of the road for junkets? (Deutsche Bank/Macau DICJ)
More analyst takes
Las Vegas: The boom looks set to continue at least into March, according to analysis of the latest room survey data from the team at Truist, who say the rates are robust but with convention-based weekdays showing stronger than leisure weekends.
Regionals: The harsh weather impacted player visitation at the end of 2022 but should be viewed as a one-time impact, suggested the team at JMP after conducting a property road trip.
Tough it out: They noted comments that January, though, was “right where we would expect to be at this time of year”, with the sense conveyed that the consumer remains resilient.
The week ahead
Las Vegas Sands: On Wednesday, LVS will give an update against the backdrop of guarded optimism over Macau and the more robust Singapore. Jefferies analysts will be hoping for comment on the Macau concession renewal commitments and the expectations around the VIP business.
Casino-to-bingo operator Rank will report its half-year numbers on Thursday. In mid-December, the company warned once again on profits, suggesting FY23 operating profits would fall to between £10m and £20m.
On Tuesday, the debut issue of Compliance+More will be sent, including the latest from Massachusetts and Kentucky, an update on the sale of the Park Lane Club in London and a look at what UK Gambling Commission’s deputy CEO said in a speech in Copenhagen.
Startup focus – IO Stadium
Who, what, where and when: Las Vegas-based IO Stadium was founded in August 2021 by CEO Catherine Lee, who saw the potential for a fan-first full-service NFT development agency and marketplace.
The company has expanded into technology offerings for gamified loyalty in sports and gaming and has created a path from web2 to web3 for IP holders through loyalty and fan experiences powered by blockchain technologies.
Funding backgrounder: IO Stadium is a founder-funded start-up.
The pitch: The company says there is an opportunity to create more immersive, gamified, utility-backed loyalty experiences in the world of sports and entertainment through web3 technologies, while brands can create new revenue streams and lay the groundwork for brand-centric economies.
One of IO Stadium’s early launches was the PokerGO Genesis NFT collection.
Totaling 1,326 NFTs and representing the number of possible starting hands in Texas Hold’em, it sold out in October 2022.
In December, PokerGO hosted the inaugural NFT Invitational at the PokerGO Studio in Las Vegas.
“We see land-based casino loyalty as a legacy market ripe for innovation,” says Lee.
With IO Stadium’s HQ based in Las Vegas, she says they have already had exploratory conversations with multiple gaming groups. “We expect these conversations to extend to sports and gaming verticals that endemically crossover into casinos as well.”
What will success look like? “Success looks like an all-in-one rewards experience for gamers of all kinds that properly incentivizes loyalty to the brands they love,” says Lee.
The Delaware State Lottery has issued an RFP for its iGaming contract, which is currently held by 888.
Pollard Banknote has extended its relationship with the North Carolina Education Lottery to provide an iLottery platform until 2025 with renewal options through to 2028.
What we’re reading
Marge vs. the Monorail: a classic Simpsons episode remembered.
Jan 25: Las Vegas Sands
Jan 26: Rank, BetMGM
Feb 1: Entain
Feb 2: Evolution, Penn Entertainment, Boyd Gaming
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