The Rundown (8/14/21)
Genius Sports is a Monopoly in Sports Data
Genius Sports is an essential operator in the global sports betting industry, with sports betting operators relying on the company for real time data. The company partners with multiple globally recognised sports leagues including the NFL, NBA and Premier League to aggregate and distribute official data.
Since its public debut after its SPAC merger with dMY Technology Group, the company’s stock has fallen to its lowest levels at $17 a share. Genius has several things going for it including market dominance, sticky revenues, a great track record and multiple catalysts for long term growth.
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Exclusive Sports Data Provider
Genius partners with sports leagues to acquire exclusive official rights to sports data from major leagues and federations around the world. In addition, the company partners with small scale sports leagues by providing vital technology services in exchange for official rights. Genius boasts over 400+ partnerships including the NFL, NBA, NCAA, FIBA, FIFA and the Premier League. The company’s technology powers the entire sports data ecosystem. What separates Genius is the fact that it is currently the only company that specialises in sports data aggregation and distribution.
The company has relationships with a majority of the sports book operators globally with over 300 customers including DarftKings, bet365, SkyBet and WilliamHill. The company’s software platform is highly customizable and helps manage every aspect of a sports books data and trading services. Genius analyses risk and manages markets probabilities and results for over 240,000 sporting events every year.
Genius also provides other solutions including integrated media, streaming solutions and other risk management tools. The service also provides advertisement tech products which drive personalized messaging to drive customers acquisition and retention. The company has over 100 media and advertising customers worldwide, including gaming operators like Caesars and Golden Nugget, media publishers like MSNBC and sports leagues like MLB and NFL.
Core Business Model
Genius’s core business is broadly categorized until three segments which includes: Sports Technology, Betting Technology and Media Technology. Under the Sports Technology segment, the company offers technology and various services to enable sports leagues to collect, analyze and monetize their data. In exchange for the embedded technology, Genius acquires long term data or in some cases streaming rights deals which typically last between three and five years. The exception for this is Tier 1 sports where the deal is structured typically, where Genius is paid for the software and it pays for access to the data and streaming rights.
Under the Betting Technology segment, the company supplies the technology, content and services which power global sports books under long-term contracts. This includes real time updates, live odds and other supplemental data. The benefit of these deals is the fixed minimum guaranteed payments, which also scale over time. These commitments range between 3 and 5 years and historically have a low churn rate. Finally, the media technology segment provides services which enable its partners to acquire, engage and retain customers in a cost effective manner. Publishers and Sports Companies work with Genius to better monetize their audience with respect to sports betting.
The global sports betting market is around $31 Billion and is poised to grow rapidly to $59 Billion by 2025. While the current global sports betting market is still in its infancy, there are multiple tailwinds including deregulation and strong growth in sports viewership. Sports betting is now legal in 20 states in the US, with many more soon to follow. Genius is now live in 11 states and has begun rolling out with applications in the other 9 states. Similarly, parts of Europe and Asia also plan to deregulate the sports betting market, with new regulations mandating the use of official data which is sanctioned by various sports leagues.
As the total utilization of the sports betting market increases, the subsequent need for low-latency data will increase and so will the company’s revenues along with this demand. This will also make it difficult for new companies to effectively compete with Genius. The company currently holds a majority of the official data rights with sports leagues which would make it difficult for competitors to replicate the scale of the relationships. Since Genius enters into multi-year licensing agreements for access to data, there’s a wide moat that insulates the business from new threats.
Financials and Valuation
Genius has seen strong, consistent growth in the past five years, with revenues growing from $42 million in 2016 to over $145 million in 2020. Genius believes that the total addressable market is currently around $1.5 Billion. The company expects this revenue to grow rapidly to $300 million by 2022 with recurring revenue targets of 70%. The company posted EBITDA margins of 29% in 2020, which is in line with its long term target of the company’s 40% EBITDA margins.
Investors are willing to pay a premium for companies in rapidly growing industries like Online Sports Betting and the run up in the stock price of Genius Sports is a reflection of the demand. Genius currently trades at a Price to Sales of around 22.5, which is slightly price but based on the company’s projections, it would trade at a Price to Sales of 12.5., which is in line with valuations of other companies in the online gaming market.
Genius’s scale and existing established relationships with sporting leagues and sports book operators prevents new entrants from entering the market, while generating long term recurring revenue for the company. The company also continues to benefit from the legalization of online sports betting in the US and other parts of Europe and will help scale revenues substantially in the future. While the company is currently trading at a premium valuation, given that it continues to dominate the market and is a beneficiary of favorable tailwinds, its is just a matter of time until the fundamentals catch up to the valuation.