Mar 23: GAN waits on fragmentation

GAN Q4, Deutsche Bank promo spend note, Playmaker Q4, regulatory roundup +More

Earnings+More

Mar 23, 2022

Good morning. On today’s agenda:

GAN says it is waiting on iGaming legislation in the US.
Deutsche Bank scratches the promo spend wound.
The CEO of Playmaker says the company is sailing under a wet sail.

Just. Click below:

GAN Q4

Q4 revenue of $30.5m up 242% YoY but down 6% QoQ and lower than expectations.
FY revenue came in at $125.5m, at the lower end of forecast.
Adj. EBITDA fell to minus $5m for Q4 and minus $6m for the full-year.
FY22 guidance introduced at between $155m-$165m.

Dermot Smurfit, CEO: “Market fragmentation has been slower to evolve than we previously expected.”

Hold that thought: The company blamed poor hold in CoolBet’s European business - which fell to 4.6% in Q4 - for the underperformance which CFO Karen Flores said represented a “significant challenge”. B2C revenue was down 9% on Q3 at $19.2m. B2B revenues were static at $11.2m.

A win’s a win: Launches in the year ahead include Red Rock Resorts in Nevada and with the Soaring Eagle tribe in Michigan. Smurfit said the Red Rock deal was an opportunity to launch “at considerable scale in Nevada, arguably the most complex regulated market environment in America”.

California dreaming: On the market fragmentation, Smurfit said that major native gaming states such as California would present a “major opportunity”.

Churchillian: Asked about Churchill Downs' recently announced exit from sports-betting, Smurfit noted the business was only worth a “relatively modest” ~3% of total revenues. He went on to strike a philosophical note.

“Announcing an exit is very different to actually exiting,” said Smurfit, suggesting GAN was talking to third-parties with regard to picking up Churchill Downs’ market access deals.

Hill of beans: Asked about the fragmentation issue, Smurfit said smaller operators could drive profits as with what happened in Europe if the full online opportunity was opened up. “I think really the question (is) about how quickly does iGaming legislation get implemented,” Smufit suggested.

Dermot Smurfit: “I'd like to characterize the B2B opportunity here in the US as deferred and somewhat delayed as opposed to materially impacted at a fundamental level.”

Trolling MGM: According to Bloomberg, the lawsuit mentioned in the results statement is with MGM with GAN accusing the casino giant of patent infringement with regard to the iBridge omnichannel conversion platform. GAN says the infringement relates to the connection between the M Life platform and BetMGM.

GAN says MGM has known of the patent since at least as early as 2016, when the parties discussed “a contemplated business relationship” involving “GAN’s online gaming software-as-a-service solutions.” It’s seeking a royalty as damages.
On the earnings call, Smurfit said: “This is something that we, of course, prefer not to do of long-standing industry participants. But as the situation calls for it, we're certainly not afraid to take legal action.”

After hours: Results came post-close in New York, but in after hours trading GAN’s share price slumped nearly 20%.

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Deutsche Bank scratches promo itch

Pumped up kicks: Looking at the “more evident” link between excessive promo spend and elevated handle growth, the team suggest that “when pulled back, we expect handle and GGR to follow”.

“Promotions are not waning, but instead rising, in what we believe is an effort to continue to maintain an optically robust growth cadence in both handle and GGR in more developed states.”

Let me down gently: DB reached the conclusion that the market “as defined by net revenue” is likely to be “considerably smaller than how most people articulate it at present”.

Ruffling feathers: The team acknowledged this “can be construed as being somewhat aggressive/judgemental”. They note three main arguments against:

It is early in the formation of many state sports-betting markets.
The datasets from which they are working are limited in their history.
The subset of states that provide promotional figures are limited.

When the levee breaks: In response, though, they point out it is “hard to ignore” the continued rising spend in Pennsylvania - both in absolute terms and as a percentage of handle - which has just completed its third full NFL season.

“We think most will be surprised to learn that sports-betting net revenue in Pennsylvania was actually down 2.5% YoY, over the course of the football season (September, 2021 to February, 2022).”
While some of that is due to lower hold, GGR grew 19% over the period but this was “entirely offset” by a 58% increase in YoY promotions.

Comparison shopping: The comparisons across operators are revealing. Broadly, while FanDuel and Barstool pulled back their promo spend between Dec21-Feb22 (down 5% and 49% respectively), DraftKings and BetRivers increased their spend levels (up 187% and 45%). Yet, while Barstool suffered an 11% fall in handle, FanDuel’s rose 21%. Meanwhile, DraftKings saw handle rise 40% over the three-month period and BetRivers rose 10%.

You do it to yourself, you do

And that’s what really hurts

Regulatory roundup

Kansas lawmakers postponed voting on an online sports-betting bill, giving elected officials more time to consider tax rates, problem gambling funding and several other issues brought up during a committee hearing.
The Michigan Gaming Control Board has provided guidance on offering interstate online poker with a document suggesting the state is poised to enter into an interstate online poker agreement with at least one other state.
Sports betting has stakeholder agreement and the blessing of the Massachusetts House of Representatives, but the Senate remains lukewarm to the idea.
Meanwhile, in horse bolts/stable door closes news, New York's highest court has ruled that daily fantasy sports are legal.

Playmaker Q4

Pro forma revenue of $7.5m in Q4, up 49% YoY and FY21 at $23.8m up 91%
Quarterly adj. EBITDA up 23% to $2.9m, FY21 $9.3m.

The company you keep: “We are in that conversation,” CEO Jordan Gnat said of Playmaker’s status as #6 of Comscore’s sports digital media groups for the Americas among such names as ESPN, CBS and Yahoo Sports. In Latin America the company was #1.

We are sailing: Gnat said 2021 was “foundational” for Playmaker after it added four acquisitions in Q4 (including TNN, Super Poker and Cracks) and has completed one more (Futmarketing in Brasil) since January.

The tailwinds for the business were clear, he suggested, including the World Cup, the Ontario opening (“with Alberta to follow”) and Brazil inching towards sports-betting regulation. “Our sails are raised,” he added.

Gnat noted that though the company has $7m of cash on the balance sheet, should it seek further sizeable assets then “we need to think about our balance sheet”. That means either debt or equity.

Jordan Gnat: “The acquisitions that would make the most sense would mean a modest amount of debt and then either doing a convertible or doing straight equity.”

Newslines

Elevated view: iGaming Academy and the UNLV’s International Gaming Institute have created a new training program called ElevateRG that will bring IGI’s responsible gaming (RG) training to gaming industry staff and learners across the US and worldwide.

Micro-transaction: Bragg Gaming subsidiary Oryx Gaming has signed a content deal with Microgame in Italy for a range of slots.

Spam-a-lot: Exiting UK National Lottery operator Camelot has been fined £3.15m for sending marketing messages to app users who had either self-excluded or had been identified as showing signs of gambling harm. Camelot also informed up to 20,000 players that their winning ticket was a non-winner and double-charged 22,210 players who had purchased a single ticket through the app.

X marks the spot: Free-to-play gaming services startup Sparket has signed XPoint Tech as its provider of geolocation and fan engagement services. Sparket currently counts US Bookmaking and Cahuilla Casino in California as clients and will be rolling out its free-to-play wagering contest platform Social Betwork in the coming months.

Paid in full: Payment services provider Global Payments will supply its sports betting-focused payment products to 888 for the group’s Sports Illustrated-branded sportsbook.