Last week, Apollo Global Management agreed to purchase Yahoo and AOL (along with some other digital media assets) from Verizon Communications for $5 billion. Given some of Apollo’s recent acquisitions in the gaming arena—it’s added the Venetian, Great Canadian Gaming and Gamenet in the last 18 months—the speculation is that the private equity firm is hotly pursuing the sports betting gold rush, looking to cash in on Yahoo’s more than 900 million monthly active users. “Sports betting is high on the list [of Apollo’s plans to develop new revenue streams for the company],” said the Financial Times, adding that the PE firm believes “its considerable foothold in the gambling world puts it in a good position to turn Yahoo Sports into a powerful online gaming and sports betting platform.”
But Eilers & Krejcik Gaming principal Chris Grove isn’t convinced that trying to turn Yahoo Sports into a DraftKings and FanDuel competitor is “where Apollo wants to end up. It just doesn’t make a ton of sense,” he said. “Being a sportsbook operator in the U.S. is incredibly expensive and what you get for buying your ticket to the ball is entry into a room, where everyone’s dance cards are already overflowing. There aren’t a lot of good reasons to believe Yahoo would be all that interesting or distinct of a sportsbook brand.” Apollo did not respond to multiple requests for comment.
Our Take: It is true that Apollo maintains a considerable foothold in the gambling world, holding gaming licenses in 200-plus jurisdictions. But that does not necessarily mean Yahoo Sports is well-positioned in a crowded sports betting ecosystem. As Grove explained, “It’s not like Apollo has [sports-betting access] reserved in every major market in the U.S. Being licensed [for gaming] and having access [to book sports bets] within a market are not necessarily the same thing.” For Apollo to launch a sportsbook nationwide, they’ll have to purchase market access in most/every state they wish to operate. For perspective, the cost to access the Texas market is roughly $30 million.
While gaining sports betting licensure is a costly endeavor, “if you’re spending $5 billion on an asset you’re not worried about the costs of market access,” Andrew Freedman (partner, Hedgeye Risk Management) said. That’s probably true, but it does not mean the PE firm is rushing to enter every legal sports betting market either. Said Grove: “Yahoo competing with DraftKings, FanDuel, BetMGM, Barstool, Pointsbet, etc., in the U.S. is a deep, dark hole with a fire at the bottom that you keep throwing money into, and of course it never fills up because the fire just keeps burning.”
The sports betting industry strategist suggested it makes more sense for Yahoo Sports to continue serving as a marketing partner to an existing sportsbook operator. “They have been a very productive partner for BetMGM, and there is easier money [in the marketing arena than sports betting] with fewer points of friction.” In fact, Grove said he would not be surprised if Yahoo’s partnership with BetMGM was ultimately “extended, given that the financials are already known; it already integrates well within the existing Yahoo Sports [business] model; and it wouldn’t require any radical changes or shifts in the cost structure. There is probably a lot of additional value that can be mined just from chasing that success, too.”
If there is a reason to believe Apollo can become a major player in the U.S. sports betting market, it’s because of the wealth of data they’ll acquire in the Yahoo deal. “The name of the game in sports betting is driving top-of-the-funnel flow,” Freedman said.
He noted that customer acquisition costs within the sports betting business are “insane” right now and that trying to compete as a new entrant on a nationwide basis is a fool’s errand. “It’s cost-prohibitive in so many ways. But that doesn’t mean there isn’t an ability [for Apollo] to take a share of the pie on a more regional level,” Freedman said.
Grove thought there also might be opportunities to “jam an existing sportsbook platform that they own or have an investment into Yahoo in a particular international jurisdiction.”
While the Hedgeye analyst believes Apollo will manage to create value in sports betting, he said, “the play is really going to be to leverage the [existing casino and gaming] assets they have to help drive customer acquisition costs down [using the data they’re acquiring], improve profitability and grow the business.”