Susquehanna Investment Group (SIG) recently took a $65 million position in PointsBet Holdings. SIG Sports, a division of the global quant trading firm, will control 38.75 million shares, making it the largest shareholder (12.76%) in the Australian sportsbook (OTC: PBTHF).
Sports betting operators prioritizing the U.S. (as PointsBet is) have found it costly and competitive to keep up with the market leaders who are leaning heavily on robust ad campaigns and bonuses to acquire customers. Backing a company without the horsepower to compete might sound like an odd choice, but SIG co-founder and managing director Jeff Yass believes that as the market matures, pricing and product will outweigh customer-acquisition budgets. “[As] the world settles down, and we’re just in the first inning, our bet is that the people who have the best traders and the best quants and the best technology are going to win,” Yass said.
JWS’ Take: PointsBet is not going to outspend the likes of FanDuel, DraftKings, BetMGM and Caesars. Its decision to not try is one of the reasons SIG saw the operator as a good fit. “We really liked PointsBet because their background is gaming, and at the end of the day, they want to win based on having the best product and the best experience,” David Pollard (head of gaming, Susquehanna International Group) said.
PointsBet was also “philosophically on the same wave length” as the quant trading firm in terms of what it wants to provide to the customer (think: array of offerings), how it wants to make markets and how it views making prices. Yass explained it was important for SIG to invest in an operator willing to take risks, one that would stand by its prices and not cut sharp money off. “It’s fairly common for sportsbooks to limit or cut off winners across almost all markets,” said Chris Grove (Partner Emeritus, Eilers & Krejcik Gaming).
Naturally SIG believes it can help PointsBet to deliver such pricing. “When we combine [PointsBet’s] analytics with our analytics we think we can make the best prices in the business,” Yass said. SIG-founded Nellie Analytics has entered into an agreement to provide data and technology to the gaming company. Nellie Analytics does not have a relationship with any other sportsbooks.
Pricing has made little difference in the U.S. market to date (at least in terms of market share). But that may be because “no tier-one sportsbook has really led with that as a brand identity,” Grove said. Concerns regarding sustainability of the approach and functional TAM have prevented operators from trying it.
Yass is convinced pricing will become increasingly important as in-play and micro-wagering gain momentum and latency is reduced—putting PointsBet in a position to make up ground. “Our real strength is in in-play. That is sort of the most mathematical part of sports betting, and it’s very complicated,” the SIG executive said.
While other operators may lack the confidence to price lines in-game and limit their markets accordingly, Susquehanna is “used to processing large amounts of data in real time and coming up with a price that [its] confident in, that reflects the true value of the security or in this case, the game,” Pollard said. In theory, that skill is what would allow PointsBet to accept those faster and larger wagers. “We think we can differentiate ourselves [by] doing that,” he added.
Grove was less certain. “Pricing will be important,” he said, “but it’s one of a constellation of factors that will determine share. Think of it like flying. While price matters a lot to a number of consumers, the brand, experience, schedules, amenities, and convenience also matter. … A sportsbook with better pricing will absolutely lose to a sportsbook with a demonstrably better product across the vast majority of consumers. Of course, the two are not mutually exclusive.
“PointsBet has a great exec team and a solid tech foundation. They are arguably the most compelling entry point for an outsider looking to shake up the industry.”
Eilers & Krejcik estimates suggest PointsBet controls about 4% of the U.S. online sports betting market. But unlike FanDuel and DraftKings (and perhaps BetMGM and Caesars), the company has not set out to become the market leader. PointsBet executives have previously stated 10% market share in each state it enters would be considered success.
As long as PointsBet does not have to spend heavily on advertising to achieve a 10% share, Yass thought that was a perfectly reasonable goal for the company to attain. But he said if PointsBet can deliver the best prices, technology and customer experience “there’s no reason why [it] can’t have larger market share than that.”
Grove agreed a sportsbook simultaneously delivering the best prices, tech, and customer experience could do better than a 10% share, assuming they also had the budget and acumen to tell the story. “The problem is that it’s exceedingly hard—not to mention expensive—to excel at all of those things,” he said.
Sports betting operators have been hit particularly hard by the market rotation from revenue growth stocks into companies with EBITDA and EPS. But Yass believes the pullback can largely be attributed to the unhealthy business models some operators have employed and the pace at which new states have come online. The correlated presumption is that as advertising spends decline and more states legalize sports betting, profitability and stock prices will improve.
Oppenheimer & Co. consumer internet analyst Jed Kelly agreed with that logic. “As states mature, we [should] start to see advertising leverage,” he said.
PointsBet shares are up ~25% since reports of SIG’s investment surfaced on June 19. SIG Sports controls around 13% of PointsBet. But Yass indicated the investment firm could increase its stake if an attractive complimentary asset were to become available. “We have a capital base that if there are opportunities going forward, either in consolidation or a deal with someone new or something else, we’ll have the capital to do it.”
If the investment firm is funding the acquisition, it is safe to assume its stake in PointsBet would increase.