JAKE POLLARD: Hello and welcome to this week's Earnings+More podcast, brought to you by Wagers.com. With me is Scott Longley. Hello Scott, what are we looking at today?
SCOTT LONGLEY: Hi Jake. On the agenda today, we have the latest on Boyd Gaming's proposed acquisition of Pala Interactive. We will also be looking at what was said by XLMedia on Tuesday with its results. Plus, we have the headlines from Sportradar's Q4 numbers, released just earlier today. And then we have some thoughts on UK gambling, and particularly a pointer to people that might want to see the state of the debate in the House of Commons. Now, Jake, to start off, have you received any stage notes from our appearances as yet?
JAKE POLLARD: Plenty Scott, as you can imagine. And as you also know, I'm committed to following them, all the great advice I've received.
Scott, tell us about Boyd's deal for Pala Interactive. What does $170 million get you these days?
SCOTT LONGLEY: They are getting a player account management platform now. The PAM, the infamous PAM, plus casino and poker platforms, and a social casino platform.
And it has some B2B wealth, but the majority of Pala Interactive's revenues come from B2B relationships.
JAKE POLLARD: I see.
SCOTT LONGLEY: The only ones that I could see spoken about on its website were Kindred, which if you were kind to Kindred, you would say it had a toehold in the U.S.
I'm not even sure whether their presence actually constitutes even a toehold at this stage. Pala has B2B licenses in eight states and has a B2C operation, should I say, in New Jersey and Canada.
JAKE POLLARD: So in terms of the financials, what are we talking about exactly?
SCOTT LONGLEY: Not a lot was said. Boyd said it, that Pala made $5 million in EBITDA in 2021, which even by my poor math, makes for a pretty hefty multiple.
But this deal is, or it would appear to be, about the tech stack, which I think we've spoken about in the first two pods of this short series so far, we've spoken about tech stacks. It's something of an obsession right now. It's the control issue, everybody wants to be in control of their digital destiny, and owning elements of the tech stack is seen as being important in that regard, particularly for U.S. investors. I think we should look at this deal in light of what was said by GAN last week.
JAKE POLLARD: Right.
SCOTT LONGLEY: Pala is another provider of gaming architecture, which was, up until it got bought (is going to be bought), looking at picking up elements of the fragmented long tail in the U.S. iGaming space—and like I say, also had deals with Kindred, I think it had—bearing in mind that Pala Interactive is being bought from the Pala Band of Mission Indians.
JAKE POLLARD: Yes.
SCOTT LONGLEY: It has relationships, I think, with other tribal gaming entities. It has the Wind Creek casino, the only one I can see on its website, that it is definitively working with. Now, we don't know what Boyd's intentions are with regards to the existing B2B business, but at least according to Deutsche Bank, who released a note yesterday, the point about the deal for Boyd is that it will advance their B2C plans.
JAKE POLLARD: How does that work on the B2C front?
SCOTT LONGLEY: As Deutsche Bank noted, as it stands, Boyd Gaming has a sports betting relationship with FanDuel and in return for access to about 15 states, Boyd has a 5% stake in FanDuel. That would appear not to be affected by this deal, although up until now, the Boyd B2C iCasino offering, limited as it is, (which goes under the Stardust brand, and is a famous name from the Las Vegas strip) no longer was being housed by Flutter. There was a B2B relationship between Flutter and Boyd when it came to Stardust casino. Obviously, what would appear to be the case is that Boyd will be taking the Stardust product and putting that on the Pala platform, and Deutsche Bank said that the point about Boyd's approach here was that in terms of U.S. gaming, $170 million is not a lot of money.
Boyd was effectively taking a patient approach when it came to iCasino, and Deutsche Bank said it will use the PAM, the casino and poker platforms, to deliver customers profitably from the B Connected loyalty program that Boyd already has in existence.
Deutsche Bank also noted that Boyd had no tolerance for loss making. Who does? To quote them, “Net net, to the extent the transaction doesn't influence Boyd's capital returns strategy,” which basically is talking about their share.
“And hamper the focus on the efficiency of the core business,” which is obviously a regional game business, “We see the transaction as largely complementary to their longer-term potential opportunity set.” Which basically means it's a nice add-on to a business to make sure that they have a place in the iCasino market. That's what Boyd has done with Pala. Then, as we pointed out in yesterday's newsletter, the talking point here is, what does the acquisition of Pala say about prospects for the likes of GAN and other companies gaming?
JAKE POLLARD: Yes. That's it.
SCOTT LONGLEY: And any other PAM suppliers, not just those two.
JAKE POLLARD: Yes, indeed. To pick up on the B Connected loyalty program that Boyd wants to, using the PAM from Pala active to connect all the online and offline activities. Is it a play to do what the MGM has done with the end rewards program? What Caesars is talking about with regards to its land-based outlets?
SCOTT LONGLEY: It is, yes. I think it is exactly the same omnichannel principle.
JAKE POLLARD: Yes.
SCOTT LONGLEY: This was often said in European land-based businesses: that they wanted somehow to be able to capture their offline audience in the online realm. When it came to UK casinos for instance, Rank, historically, has always struggled to manage that. Now, the U.S. is a very, very different gaming market; omnichannel works in a very different way. They have existing, very good loyalty programs, as you say. The principle behind the likes of MGM and Caesars, from what I vaguely know, is that the aim was to funnel players from regional casinos. Particularly, when it came to Caesars, which has quite a large regional footprint, to funnel them towards their Vegas properties, because they would be higher spending.
JAKE POLLARD: Yes.
SCOTT LONGLEY: Now, like we say, Boyd is a regional gaming provider that has a site, has a different emphasis when it comes to its loyalty program and what it's trying to do with its players. But the same principle applies: it wants to keep those players for itself when it comes to online.
And the markets eventually open up to iGaming. The buyout for Pala puts it in a very good position to be able to offer a decent platform or a decent product to its own players, and hope that they maintain their loyalty to them via the B Connected program. That's the principle.
JAKE POLLARD: Yes, exactly. And certainly, in the U.S., loyalty programs seem to be a lot more prominent than we have seen in the UK, at least.
SCOTT LONGLEY: Yes, definitely. It's a very different market, obviously, we know that.
JAKE POLLARD: Indeed. Indeed. Picking up on your comments of GAN and White Hat. We talked about GAN last week. Is it possible that they could be ripe for acquisition? Who would acquire them?
SCOTT LONGLEY: The second one, I can't answer that question. It could be anybody and certainly, just in the general market at the moment, there is presumed to be more M&A coming, deals like this.
I'm pretty sure that conversations around GAN, White Hat, and any other PAM provider at the moment would probably be going on. It's as though there is a rolling news flow of M&A, and those companies there, almost certainly at some point, would be involved in conversations, I would gather.
To make a slight U-turn, so to speak, let's move on to fan tokens, which is one of your favorite subjects. The company we are talking about, and I believe this is right, is it Socios?
JAKE POLLARD: Yes.
SCOTT LONGLEY: And your friend of mine, Alexandre Dreyfus.
JAKE POLLARD: Yes, Alex Dreyfus.
SCOTT LONGLEY: Could you fill us in and explain why we're talking about Lionel Messi?
JAKE POLLARD: Yes. Indeed. We're talking about fan tokens and currently, by some distance, the most well-known provider of fan tokens is Socios.com. But of course, rewind to the most recent news. The first item really to mention is, of course, the $20 million deal Socios announced, I think yesterday, with Lionel Messi. So, Messi will be the figurehead of the Socios fan tokens brand for the next three years. The company also said it will be announcing another deal with another football legend very soon. It's also unveiling a new product roadmap today, Thursday, March 31st, in Istanbul, Turkey, which is possibly Socios' biggest market from what I can see.
SCOTT LONGLEY: Now, that's a very interesting point, isn't it, that it's taking place in Istanbul? I'm sure it's purely coincidence that Russia and Ukraine are currently sitting around the table. So, why Turkey?
JAKE POLLARD: Well, it's a good question. It seems to be, basically, one of the most active markets for fan tokens, for Socios' fan tokens. Clearly, just gauging on social media activity, it's all coming out of there. Some critics reckon it's because, basically, a lot of Turks, or some of them who own the fan tokens, use them to hedge against the huge inflation levels they have seen recently. And that's not compliment, put it that way.
SCOTT LONGLEY: No, and also, that seems very confusing for something which, and I think Dreyfus has already gone very public on this, hasn't he? Of saying this isn't a token, this isn't a coin, this isn't a crypto-currency at all.
JAKE POLLARD: Yes, that's it. It's kind of this weird, the product sits in this weird category where it's a “utility” token, I say “utility” in quote marks, because, again, the critics are saying, “what utility?” That's something I'll touch on in a minute. So there are all those issues, but just rewinding back slightly, to the whole reason why we're talking about fan tokens, really, is that they're not purely related to gambling, but they are part of a wider narrative about online destinations and how NFTs, crypto exchanges, tokens, sports merch, and even ticketing all form part of an online vision that digital companies are keen to promote. So as a Fulham fan token owner, for example, in the next few months yourself, Scott, you might go onto your online sports book and place a bet there.
SCOTT LONGLEY: I would never bet on Fulham, Jake, because you know I only ever bet against them. I saw something on social media earlier, it was a posting on Twitter from Chiliz, or whatever Socios was saying, welcome to the Leeds United fan token holders, here they are getting their exclusive tour behind the scenes at Elland Road. At which point I said, “Well, what's so great about seeing what's behind the scenes at Elland Road?”
JAKE POLLARD: That's exactly it, that's what a lot of critics say. They say, “Why do you have to buy tokens to go and do a tour of the stadium? Why do you have to have tokens to vote on what color your team's away kit or third kit might be, or what song you might want played when the teams walk into the stadium and onto the pitch?” There are all those issues and it's true. Clearly, for the clubs, it's a commercial transaction that they obviously get some kind of sponsorship income from, which you can understand, but you look at the criticisms of it, and essentially it's being traded like a financial asset.
That is the issue and people, as ever, were trading. As you know, people lose money on it. Some people might make money, but most others don't. The other thing is that, I think, it plays on the profile of the product. It's got deals with Juventus, Barca, PSG, and of course UEFA and FIFA. They're not going to miss out on stuff like that. And in the U.S., they've got deals with NBA franchises, like the Celtics, Bulls, Pistons, all the biggest teams. They have the profile and the aura of having associations with these major teams, so there's all that.
To get the fan tokens, you have to buy them. To buy them, you have to have Chiliz cryptocurrencies, which is an Ethereum-backed currency. To buy and trade them, you do that on the Chiliz exchange, which is owned by Socios. It's all a closed market owned by Socios, which is fair play in some ways, in terms of creating a whole marketplace from scratch. But Socios does generate income, thanks to the volume of trading that happens there. If there's no volume of trading, there's no income.
SCOTT LONGLEY: Now, part of the reason why we're interested in this is because Dreyfus has a history when it comes to online gaming, doesn't he? There is more of a link in the sense of in his past, than potentially in what he's doing right now?
JAKE POLLARD: Yes, indeed. He started the Chili Gaming group back in2005, if I'm not mistaken, or in 2006, and mainly poker and casino focused. He had some sports betting activities, notably in France, but when it regulated in 2010… I need to mention a disclaimer as well; I did work for one of his B2B media outlets for about three years, so I just want to make that clear so nobody thinks there are any ulterior motives or anything like that, which they aren't. But when it comes to fan tokens, the group is backed by pretty serious investors. Beijing-based Chinese investment fund, and in France, it has a man called Xavier Niel, who is a telecom mogul.
He owns the ISP called Free.fr, and is also part owner of Le Monde newspaper. He has serious backing behind him, but again, it's going back to the product. It is really more the case of, what are the tokens for, what utilities they fulfill, and it is not surprising, really, that in England, for example, many supporters groups have forced their clubs to U-turn on the sponsorship deals that they might have signed with Socios. That's kind of the thing, but the thing with the financial investment is whether it's a financial asset or not. That's a notion Socios are very keen to dispel, because if it was, it would imply that tokens are financial assets, and then if that's the case, we're talking about financial oversight regulations, costs, and so on and so forth, which is obviously a whole different ballgame.
SCOTT LONGLEY: Next on the agenda. Today, we had the Q4 numbers from Sportradar released just this afternoon.
The company expectations for the full year, revenues were up 39% to €561.2 million, while full year adjusted EBITDA was up 33% to €102 million. Q4 U.S. revenue, which the company was obviously keen to talk about, was up 92% to €23.2 million, and CEO Carsten Koerl was keen to add that, “What we see already is we are getting operational leverage.” He talks about, “We are decreasing our losses as market doubles on a revenue basis. That's great that doesn't compare to any market in Europe.” Which is a fair point, I think the U.S. opening is clearly very different to any market opening we've ever seen in Europe.
Now, the other issue that was the main talking point on the earnings call was Sportradar's exposure to the Russian and Ukrainian markets.
Koerl said that in a worst-case scenario, which would basically be if Sportradar was ordered by any of the UK, U.S., or EU authorities to cut ties with any sanctioned people in Russia who happen to own the books that they work with, it would mean that full year. So, if they had to cut all ties within Russia, it would mean that the full year 2022 forecast would potentially fall by 8% to €110 million from the current forecast of between €122 and €133 million, I believe.
Let's move on to the other business from the week earlier in the week, which was XLMedia, Jake.
JAKE POLLARD: XLMedia reported strong revenues on Tuesday. Most notably, really, was the growth from the U.S. for XLMedia and really, on the basis of their results, they seem to have handled the transition rather well. As we know, they were, shall we say, “stack them high, sell them cheap” casino affiliate websites. They were penalized by Google in recent years, and they have tried to restructure them, but it hasn't really worked, and they seem to be going all out for U.S. sports betting, regulating affiliate activities. They said that, basically, casino affiliate sales were still bringing in some revenue, but the losses will build up and that they would be willing to take the hit.
SCOTT LONGLEY: What's the phrase they used for their European business? Was it a legacy, or something?
JAKE POLLARD: A “managed decline.”
SCOTT LONGLEY: Managed decline in the European business, while the other side of the barbell is a booming U.S. business. So what if the same thing happens in the U.S.?
JAKE POLLARD: I guess the difference with the U.S. is that their sports betting websites or their affiliate websites are of higher quality than the casinos or casino sites ever were. They acquired Sports Betting Dime and Saturday Inc. last year, CBWG in 2020, and it's clearly going well. U.S. sports betting revenues grew 178%, to nearly $31.5 million, and apparently in the '21, '22 season, they are already at $38.4 million in revenues. Clearly, it's going well, they've executed well.
I know they have even appointed a new CFO, whose name I managed to get wrong. God knows why I called her Caroline Hoskins—it's Caroline Ackroyd. Apologies, Caroline Ackroyd.
SCOTT LONGLEY: Thanks very much for that, Jake. Before we leave you, as mentioned earlier, there was a debate in the House of Commons yesterday relating to the gambling harms. As our friend, Andy McArron at SBC, pointed out on Twitter, there were some interesting exchanges between the MP representatives of the anti-gambling lobby, and some more reasonable members of the house, including Aaron Bell, who's a conservative MP for Newcastle-under-Lyme, which is near Stoke, and formally a trading performance analyst at Bet365, according to LinkedIn.
JAKE POLLARD: Can you give us an idea of some of the tone of the debate?
SCOTT LONGLEY: At one point, Carolyn Harris, who is the ultra anti-gambling personage in the Labor benches, was asked about the whistle-to-whistle advertising ban, which you know has actually been quite successful. It's stopped the level of advertising for football around football, and certainly other sports events. And she said, “It wasn't worth the paper it was written on,” apparently. Which, I don't know what she means by that, because it's a TV thing. She's not to be swayed by any arguments, but there was a kind of a conversation between an MP Jonathan Gullis and Cowan, who's the Labor MP, another of the uber anti-gambling group.
That didn't go well. Gullis was accused of using a Bet365 briefing paper by Ronnie Cowan. They had a bit of, in parliamentary terms, they had a bit of a set to.
Next week, we'll be running our first quarterly survey of startup funding rounds in and around the betting and gaming sector, we've been tracking them since January. I think we're up to 12, unless there's anything more that comes in tomorrow, then that's the first quarter done and dusted. Second, following that soon after coming hot on its heels, we'll have the second edition of our quarterly awards.
