FuboTV (NYSE: FUBO) announced on Oct. 17 it would cease operation of its owned-and-operated Fubo Sportsbook immediately. “We have concluded that continuing with Fubo Gaming and Fubo Sportsbook in this challenging macroeconomic environment would impact our ability to reach our longer term profitability goals,” CEO David Gandler said in a press release.
Fubo’s over-rationalization of the market and technological hangups hurt its sportsbook effort. But the decision to make sports betting a central part of the company narrative forced its team and technology to meet sky-high expectations, drove the steep losses and ultimately led to the shuttering of Fubo Gaming.
“In a world where Fubo wasn’t saddled with such outsized expectations for sports betting, and didn’t need to tell such a grandiose story, Fubo Sportsbook could have been more sustainable and maybe would have worked out differently,” Chris Grove (co-founding partner, Acies Investments) said.
JWS’ Take: Industry insiders had been waiting for Fubo to announce it would be shut down its gaming arm since the company said it was performing a strategic review of the business back in August. “Once the review was announced, jettisoning the sportsbook business was the only realistic outcome,” Grove said.
Fubo’s underlying watch-and-bet premise was flawed—or at least ahead of its time—and it was never in position to maximize the advantage it had as a sports streamer. The competitiveness of the U.S. market, a complicated regulatory environment and ongoing struggles with sports betting tech also dragged on the company’s ambitions. “The technology for real-time, zero-latency betting on Fubo’s stream is not there yet,” Grove said. “It just doesn’t exist.”
But Fubo Sportsbook’s downfall can ultimately be tied back to Q1 ‘21 decision to place gaming at, or near, the center of its public market story. The company sold investors on the idea it would tightly integrate sports betting into the viewing experience. Once the company started down that road, it had to pursue market access in the big states, push to own more of its own technology and spend aggressively on marketing the app where live.
The decision was not controversial at the time. “It’s what a lot of companies were doing two years ago with sports betting, because they were being rewarded handsomely by the markets for doing so,” Grove said.
Penn Entertainment (NASDAQ: PENN), Caesars Entertainment (NASDAQ: CZR) and to a lesser degree MGM Resorts International (NYSE: MGM) all leaned into online sports betting at the time. And like those companies, Fubo saw its stock price climb (from $28 on Dec. 31, 2020, to nearly $49 on Feb. 5, 2021).
But investor sentiment has firmly swung in the other direction over the last 20 months, toward return-generating companies. As a result, “The tide has come back in on all of these stocks,” Grove said. Fubo closed at $3.73 yesterday.
Gaming companies such as Penn, Caesars and MGM have little choice but to navigate the macro headwinds. However, as a streamer, Fubo “lacked a compelling rationale for holding onto their sports betting ambitions once investor enthusiasm waned,” Grove said. Company shares popped up 32% on the news a strategic review of the gaming business was underway (from $2.97 to $3.93).
Had the company simply rolled out a Fubo-branded sportsbook and marketed it to the existing user base, the business “probably could have chugged along without being such a drag on the balance sheet,” Grove said.
But Fubo needed its sports betting story to be ambitious for it to have the outsized impact the company desired. “Unfortunately, Fubo didn’t have the technology, funding or runway to build something that matched those ambitions,” Grove said.
It is logical to try and draw parallels between Fubo and Fanatics, another operator whose core business is not gaming. However, “Fanatics is a much different team, with a different set of resources and with a less speculative path to integrating sports betting into its core businesses,” Grove said. “It’s a lot easier to see how a consumer database that was built on selling sports merchandise can be leveraged to drive sports betting conversions than it is to see a streaming service that wants to offer real-time on-screen betting against that streaming service.”
Fubo should be able to derive some value from its sportsbook assets in the months ahead. “I suspect they are going to offload some of the market access and some of those marketing commitments,” Grove said.
The company should also be able to retain some sports betting upside. Fubo can “generate Sportsbook revenues in the future as either an affiliate or a partner to an operator in the space,” Benjie Cherniak (principal, Avenue H Capital). “They have around 1 million subscribers today, and that number will grow as they double down on what they do well moving forward.
Fubo is not the first operator to exit the U.S. market; Churchill Downs announced in February that it will shutter its sportsbook, and Wynn Resorts has also pulled back on its ambitions and operations. It seems likely that others will follow suit as the market matures. “Market share is concentrating more heavily in the top three players, especially the top two players, than anyone expected,” Grove said. “There just isn’t a lot of visible opportunity here, not in the same way there was two years ago.”
The overall market size hasn’t changed; in fact, “people have gotten more bullish about that part of the opportunity,” Grove said. What has changed is how stakeholders perceive their ability to gain a material share of that opportunity. “As things stand, if your name isn’t DraftKings, FanDuel, BetMGM, Penn maybe, Caesars maybe, there’s not a lot for you to like here—at least not if you’re looking to do something ambitious to audacious.”
Operators such as Circa, who see their sportsbook operation as a platform to help support other businesses, are in a different situation. “There are plenty of ways to be successful with more targeted goals and ambitions,” Grove said.
It is hard to envision stakeholder sentiment changing without a catalyst. “It could shift if you had more online casino states, if Fanatics or Bet365 were able to materially cut into the FanDuel, DraftKings, MGM tri-opoly, or if new entrants were to expand the market materially,” Grove said.