Susquehanna Makes $65 Million Wager on PointsBet

Finance giant Susquehanna has purchased 12.76% of PointsBet, making it the gambling operator’s largest shareholder.

PointsBet will issue 38.75 million new shares to SIG Sports, a unit of Susquehanna International Group, or SIG, at $1.68 ($2.43 AUS) per share, the company said Sunday in a filing with the Australian Securities Exchange. That’s a roughly 13% increase over PointsBet’s closing share price on Friday.

In addition to the $65.2 million ($94.16 million AUS) investment, PointsBet announced that Nellie Analytics, which was founded by SIG, has entered into an agreement to provide technology and data to the company.

The investment is a bet that despite early returns from the rapidly-expanding North American sports betting industry, where aggressive marketing and pricey bonuses are the main way companies are acquiring customers, bettors will eventually move to the sportsbook with the best pricing. And that’s where SIG’s expertise is most valuable, according to co-founder and managing director Jeff Yass.

“When we combine [PointsBet’s] analytics with our analytics, we think we can make the best price in the business,” Yass said in an interview. “That’s our bet, that the best price is going to win. If it’s a marketing contest, then frankly Susquehanna doesn’t add much value.”

The money should help PointsBet continue to grow its North American business, as new jurisdictions legalize wagering in both in the U.S. and Canada. While PointsBet is based in Melbourne, it has prioritized North America for business growth, and not necessarily in the same way that DraftKings and FanDuel have. While those companies are spending with the aim of eventually controlling huge chunks of the market, PointsBet executives have preached a more conservative marketing approach with a stated goal of eventually having about 10% market share. (It’s currently around 4%, according to estimates from Eilers & Krejcik).

Yass said that if his thesis about pricing is correct, there’s no reason PointsBet couldn’t exceed that 10% target. “If it’s 10% that you don’t have to spend crazy amounts on advertising to get started, I think that’s a reasonable goal,” Yass said. “I’m hopeful that if we have the best prices in the long run, we can have a lot more than 10%.”

There are no changes to the PointsBet board as a result of the SIG investment, according to the filing.

The partnership with Nellie Analytics will be run through Banach Technology, a company that PointsBet purchased last year for $43 million in cash and stock. Under an initial exploratory agreement, Nellie will provide exclusive data services at no cost to PointsBet for a nine-month period, according to the filing. The plan is to eventually ink a long-term partnership.

PointsBet is hoping that Nellie’s technology in areas such as live betting and micro markets will improve its offering. While most major sportsbooks outsource a lot of those services to other companies, PointsBet has often discussed the advantages of owning its tech in-house. That has allowed the sportsbook, according to executives, to be more flexible in its offerings, and to ensure that its product is sufficiently differentiated from its competitors. Working with an outside company, albeit one owned by PointsBet’s largest shareholder, is at least a partial deviation from that approach.

Overall, it’s been a rough 12 months for publicly traded sports betting stocks, particularly in the U.S. The broader market shift away from growth companies has highlighted the huge costs operators are incurring to retain customers and attract new ones. Onerous tax requirements in states like New York, a critical market, and other market contractions have further stressed the business.

PointsBet, which is currently operating in 10 U.S. states, hasn’t avoided those concerns. The company’s stock is down about 70% this year. It closed Friday with a market cap of market cap of $374 million (AUS $540.33 million).

Headquartered in Pennsylvania, Susquehanna is one of the world’s largest closely held trading firms. It has additional business verticals that include an institutional brokerage, private equity and venture capital, structured capital and sports analytics. The firm has more than 2,300 employees worldwide.

The new shares will be issued under PointsBet’s existing placement capacity, according to the filing. They are expected to be quoted “on or around” June 17. The SIG shares include a voluntary lock-up period of 24 months, which can be shortened if the long-term partnership with Nellie doesn’t materialize.

(This article was altered in the fourth, fifth and seventh paragraphs to add the quotes from Yass.)

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