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How to Play the Game

Sports betting affiliates and data providers give investors new opportunities to profit

How to Play the Game

It is natural that investors trying to capitalize on the sports betting boom will focus on companies running sportsbooks and those that provide technology to them.

The names are well known: DraftKings, Flutter’s 95 percent-owned FanDuel, Caesars, Penn National, Bally’s, Rush Street Interactive among the operators; GAN and Kambi among the technology providers.

But there are other ways to play the boom. One group of companies are the affiliates, the publishers of newsletters and websites that build subscriber bases of likely sports bettors and then deliver them to operators at a price. Among the best known of the publicly traded affiliates is Catena Media, Stockholm-listed but with a big and growing American presence.

Of course, not everyone needs an affiliate. Big casino companies like Caesars, Penn National, MGM and Wynn have tens of millions of proven players in their databases, and the ability to reach out to others as PENN does with Barstool Sports and will soon do with Score Media and Gaming, which it is acquiring.

Likewise, companies like Caesars, DraftKings and Rush Street Interactive have their own technology.

But there is one component of sports betting that everyone needs, whether operators setting odds and fighting for market share, sports leagues or regulators monitoring integrity or gamblers trying to beat the odds. That one need is data.

And where there’s a need in our capitalist economy, someone will fill it.

Until recently, the data side of sports betting was little known or understood by investors, and there wasn’t a way to make money from it.

But now, there are two choices—the largest of the data companies, Sportradar, is about to go public, and its chief rival, Genius Sports, which went public in April.

Genius stock is up over 20 percent since April and the company recently nudged up its revenue guidance for this year to the top of its range, $255 million to $260 million, and reiterated EBITDA guidance at $10 million to $20 million.

Sportradar says it will sell 19 million shares at $25 to $28 apiece. Combined with existing ownership, it will give the company, which will trade under the symbol SRAD, a nearly hefty $30 billion market cap. Genius Sports, which trades under the symbol GENI, has a $4.3 billion market cap.

The long-term attractiveness of these two companies is that, because everyone needs their data, they are a play on the certain growth of sports betting in itself.

Further, because they are capturing all the data through long-term contracts with leagues and operators, competition will be limited. In effect, they are a growing duopoly.

Reeg Does It Again

Caesars CEO Tom Reeg has gotten a reputation for 1) executing excellently on integrating acquisitions; and 2) under-promising and over-delivering.

He has done it again with the sale of William Hill’s non-U.S. operations. While many speculated that William Hill would fetch £1.2 billion to £1.5 billion and were happy with that as a positive for Caesars, Reeg had indicated he expected to get more.

He did.

U.K. online gaming operator 888 will pay £2.2 billion, which translates to over $3 billion.

The sale has two big positives for Caesars:

  • It allows the company to reduce its debt leverage. Jefferies analyst David Katz estimates Caesars will cut its debt-to-EBITDA ratio to 6.1 times next year from 6.5 times, and to 4.9 times by 2023.
  • It gets a lot of issues behind and positions Reeg and his team to focus on building its U.S. casino and digital businesses.

Given the company’s large number of physical casinos for cross-marketing and its player database of more than 60 million customers, that presents a lot of resources for Reeg to again over-deliver.

Ballyhoo

There is what might be called a Caesars Lite that deserves attention, and that is Bally’s Corporation.

Like Caesars, Bally’s is focused on U.S. casinos and has been developing an ambitious digital operation.

And like Reeg, CEO George Papanier has been building a company that delivers on integrating acquisitions and on operating performance.

Bally’s also has two properties that might be considered wild cards—Bally’s Atlantic City and soon-to-be-acquired Tropicana Las Vegas.

Both properties have suffered from ownerships that didn’t know what to do with them, did not invest in them or relegated them to low priorities.

Yet, both properties have significant potential.

Being able to focus on these properties and fulfill their potential could be home runs.

Welcome Back, Harald

Ainsworth Game Technology is a $300 million market cap company that is getting a multibillion-dollar experienced CEO in Harald Neumann, who takes the reins on October 1.

Neumann was CEO of international gaming conglomerate Novomatic, which owns a majority interest in Ainsworth. He also serves on Ainsworth’s board.

Novomatic, in turn, is owned by its founder, Dr. Johann Graf.

That Graf has decided his longtime trusted executive should take charge of Ainsworth suggests he has serious plans for the company.

And, that Neumann, an Austrian like Graf, will operate the Australian company out of Las Vegas suggests those serious plans will rest heavily on the U.S.

In relocating to Las Vegas, Ainsworth will follow in the path of fellow Australian games provider Aristocrat, which a number of years ago realized that the U.S. is the most important market, so its top executives should be located there.

Interestingly, Aristocrat and Ainsworth were founded by the same man, Len Ainsworth.

If Ainsworth Game Technology enjoys even a portion of the success in its move that Aristocrat has achieved, investors will be well rewarded, and it won’t be a penny stock anymore.

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