Endeavor (NYSE: EDR) recently announced it came to terms with Scientific Games (NASDAQ: SGMS) on a deal that will see the sports and entertainment conglomerate acquire OpenBet for $1.2 billion in cash and stock. Considering many sportsbook operators have started to in-source technology and/or are building out huge product and engineering teams in an attempt to differentiate themselves from the competition, it is reasonable to wonder why Endeavor would be buying a B2B sports betting content, platform and services provider.
But Eilers & Krejcik senior consultant Alun Bowden explained that Endeavor is not buying a standalone sports betting tech business. While their product line resembles that of Kambi, GAN or SB Tech, Endeavor is really “buying future potential.” The company sees an opportunity to integrate OpenBet’s sports betting engine (the tech that actually processes bets), platform and managed trading services with their existing live streaming and official data supply capabilities to create “this large, powerful B2B supplier entity, along the lines of Sportradar and Genius Sports”—companies with market caps north of $8 billion and $3.5 billion, respectively.
JWS’ Take: As we first wrote back in July, Scientific Games’ decision to exit the sports betting space came from a desire to cut down its debt load quickly. The company is also looking to sell its legacy lottery division.
But it’s difficult to ignore the fact that the company is selling its sports betting arm at a time when the use of outsourced tech within the online sports betting industry is diminishing. “There has been this sense that sports betting suppliers [are] being minimized as operators take [development] in-house,” said Blake Weishaar (editor, Fantini Research).
While more operators are doing more of their own tech development as the U.S. market begins to mature, the managed trading services and betting engines that power the most prominent domestic online sports betting platforms are still supplied by third parties. So, there certainly still is a need for the technology Endeavor is buying (at least for now).
The addition of a proven, at-scale tech stack will enable Endeavor to create an all-in-one solution (think: data supply, media rights, sports betting products) comparable to what Sportradar and Genius Sports are offering. As Bowden explained, “It’s all about having these deep multi-layer relationships and being everything they need you to be.” But it is believed IMG’s long-standing relationships with all of the major sports rights holders will serve as a differentiator for sportsbooks seeking B2B services.
Endeavor’s preexisting sports betting business is known as IMG Arena. Several years back, the publicly traded company decided that because it was already negotiating rights on behalf of around 150 IMG Media clients, it would secure the rights to their official data and video streams and provide those services to sportsbooks. The company’s PGA product (they also have one for UFC) is considered “high standard for in-play [sports betting],” Eilers & Krecjik wrote in a recent note on the transaction. There is a belief the company can replicate the model with some of the other rights under the IMG Arena umbrella (think: ATP and USTA tennis, Wimbledon, MLS, Ryder Cup).
While Bowden believes Endeavor’s vision makes strategic sense, he is not particularly bullish on the prospects of the company pulling it together. Meshing “these synergies is going to be nowhere as simple as it may sound,” he said. “They face a big challenge ahead in making it work.”
That’s not to say it can’t be achieved. It will just require continued investment, strong execution and a bit of good luck.
The OpenBet deal should also help IMG Arena with customer acquisition. “They are basically buying preexisting deep relationships with a lot of the major European operators and some emerging relationships with U.S. providers,” Bowden noted. Most notably, OpenBet remains a core component of FanDuel’s tech stack.
While perhaps not the core strategic objective, Weishaar suggested that in addition to their B2B ambitions Endeavor could use OpenBet technology to launch an online sportsbook down the line. It’s not like they would be doing something out of the norm. The online sports betting supply sector is full of companies with B2C offerings alongside their B2B products and services.
And once the OpenBet deal closes, Endeavor plans to form a fourth financial operating segment around sports betting, suggesting it believes the category will be a massive part of the portfolio moving forward. For reference purposes, SGMS’ digital segment (which includes OpenBet) generated $67 million dollars in EBITDA last year.
Our July story on Scientific Games suggested its sports betting assets were worth somewhere between $750 million and $1 billion dollars. So, it would seem as if “[SGMS] got good value from this,” Bowden said. Jefferies managing director David Katz added that while sports betting companies in the “B2B category typically trade at four to eight times revenue,” Scientific Games is selling OpenBet at just 10.5x.
But as Katz explained, back in July when the tech conglomerate first announced its intent to sell its sports betting arm Jefferies put a 12x multiple in the proforma. “In this instance, we thought there was a particular premium paid for a strategic,” he said. Taking that expectation into consideration, 10.5x revenue would suggest it is Endeavor who got the deal.