Sportradar is working on acquiring an undisclosed business in a deal valued as much as $475 million, according to details revealed as the company takes on new debt to finance the transaction. The potential fundraising and purchase could also be part of any potential Sportradar plans to go public.
The Switzerland-based sports data and content service is raising nearly $500 million through a senior secured term loan, requiring it to reveal some financial details to major ratings services in order to establish a debt rating required by institutional investors.
“While we do not know who the target is, we understand that there are significant revenue synergies with the target and is of considerable size, with an estimated annual EBITDA of €20 million-€25 million,” S&P Ratings stated in a note today. Fitch Ratings also issued an opinion on the debt, citing a likely, but not guaranteed, acquisition by Sportradar. Of the $500 million Sportradar will raise, about $147 million will pay off existing debt, with most or all of the rest going to finance an acquisition price of $350 million to $475 million. The company may also attempt to raise funds though a credit line.
The two ratings opinions also provide a partial glimpse into Sportradar’s financials. Among them, the company has experienced a $42 million “impairment” of its NBA contract, according to Fitch. That likely means Sportradar has had to write down a portion of its NBA deal to account for being unable to monetize basketball data as expected. Sportradar works with the NBA on both data and audio/video rights, and the report doesn’t specify which contract was impacted. The write-down “highlights the initial execution risks associated with investing in the U.S. market,” Fitch stated. Sportradar and the NBA didn’t immediately respond to requests for comment.
The ratings notes also revealed Sportradar has EBITDA between 16% and 20%. The measure of earnings before interest, taxes, debt and amortization is lower than may be expected from a data provider, according to the ratings agencies. That’s below other non-sports companies that are seen as having similar business models, such as Dun & Bradstreet, which approaches 30%. The lower EBITDA stems from the high licensing fees Sportradar has to pay to professional leagues. Sportradar’s EBITDA is around $59 million annually, based on information included in the ratings opinions. The company appears to generate billions of dollars in cash flow a year, based on slightly different financial ratios the ratings agencies cite as debt coverage. Still, only 6% of Sportradar sales come from within the U.S., indicating a large market opportunity for the company.
While revenue amounts aren’t disclosed, the pandemic hasn’t hurt Sportradar’s business as much as might be expected. Total sales are down just 1% in the year through June, according to Fitch, while S&P noted a 10% decline in the second quarter compared to 2019. Sportradar has seen annual revenue gains of 18%, 28% and 34% in 2019, 2018 and 2017, respectively, according to S&P.
Founded in 2000, Sportradar has attracted a slate of high-profile private investors, including Mark Cuban, Michael Jordan and Ted Leonsis. It has built up a business with a number of competitive advantages, the ratings agencies said. For one, Sportradar has a 40% market share in global sports betting data and odds and 28% share in sports audio visual. Its long history of data from operations and technology advances give it an edge over potential competitors, while its business model compares favorably with traditional bookmakers without exposure to real estate and regulatory risk that bookies face.
The new debt Sportradar is looking to sell is rated “B” by both Fitch and S&P. In Fitch’s methodology, that is considered “highly speculative”; in S&P’s it means a company is “more vulnerable to nonpayment.” Generally, for each firm the rating means that Sportradar is susceptible to economic conditions and has relatively lower cash flow multiples to its debt than higher-rated companies have. The rating isn’t indicative of potential default or financial trouble at the company.