SBJ Betting: Collins, Grubman ready to hit the market with Super Group – Sports Business Journal

We are now 15 months into this bi-weekly newsletter, heading into our second Super Bowl. Ive gone from contemplating the impact of legalization on The Big Game to wondering whether New Jersey will find a way to introduce legal betting on Wordle to get New Yorkers to go back to betting from the train platform in Hoboken. Guess our baby is growing up.

Next week will be a big one for former NFL Exec VP Eric Grubman and NHL COO John Collins, who in September 2020 teamed up to lead a SPAC that would target acquisitions in sports and entertainment. The following April, after raising $400 million via IPO, they announced a merger with the parent of global sportsbook operator Betway at a valuation of $4.75 billion. They expected the deal to close by November and said the brand could be operating sportsbooks in as many as 10 states by years end.

Delayed more than two months by complexities arising from the SECs closer monitoring of the SPAC process, as well as Super Groups roots as a privately held company registered in Malta and operating from the British Isles, the company expects to finally complete its path to the public markets next week.

On Wednesday, shareholders in the SPAC will vote on whether to convert their holdings to Super Group stock or withdraw their investment. Assuming that goes forward as expected, the transaction will close on Thursday, setting up Super Group management to ring the bell on the NYSE on Friday, trading under the symbol SGHC. On recent road shows, Grubman and Super Group management touted metrics that traditionally resonate with investors: Nearly two decades of profitability, $350 million in EBITDA in the most recent year, $400 million cash on the balance sheet and no debt -- all in a sector thought to have high growth potential globally.

In a couple of key ways, Super Group will fly into a headwind. Investors have cooled on the gambling sector of late, troubled by losses associated with high marketing and promotional spends. They havent been crazy about SPACs, either. Its a double whammy, said Collins,who will move from CEO of the SPAC to a board position for Super Group, which Grubman will chair.

SPAC has fallen out of favor," added Collins. "And there have been some other deals that have rewarded these high-flyer growth companies, but without a lot of profitability. And thats not what Super Group is. Super Group is globally scaled, been at it 20 years, highly profitable, flush with cash, with no debt. But you get lumped in with the SPAC deals and the gaming sector.

We're at this awkward moment where youve got a capital market thats a little concerned. Volatile is the best word that Ive heard on CNBC and in our investor meetings. So Super Group and the SPAC have to navigate that. But theres a lot of confidence that once we get through that birth in a difficult market, Super Group is going to be what we always thought it would be -- a great public company.

Collins, who was CEO of NFL On Location until it was sold to Endeavor in January 2020, has been at this long enough to see the temperature swing among potential investors. At the start, they questioned why Super Group signed on to a merger that valued the company at less than $5 billion, which seemed cheap compared to other deals in the sector. Of late, skepticism has come from the opposite direction. Now, guys are saying I love the company, but the gaming sector is down significantly, Collins said. And were saying, Yeah, because people are valuing what we hoped they would value in Super Group, which is profitability. This company makes money every day.

Betway doesnt fit what has been the profile of stocks to watch in U.S. sports betting. Though open in five states -- Colorado, Indiana, Pennsylvania, New Jersey, and Iowa -- it hasnt done significant handle in any of them. Betway bought some visible sponsorships during the Stanley Cup Playoffs and with NBA teams, but those have been global branding plays -- not local market pushes -- and choices driven by the companys ability to expose a single sportsbook brand on broadcasts around the world.

Management argues that the fact that Super Group is not the market share leader in a single country as irrelevant, pointing instead to what it sees as the more meaningful performance indicator, incremental revenue that turns directly to profit. Collins predicts that eventually will resonate with investors, and possibly acquirers.

It will take a quarter or two of continued strong performance for people to say, You know what? These guys got the model," Collins said. Because the capital market is kind of coming back to what we saw in Super Group, rewarding companies that are global, that have scale, that have no debt. At some point, the capital markets are going to reward that, because thats what they look for.

When my college buddy Tom Farrey phoned a few years ago to ask what I thought about a big idea to funnel some of the tax proceeds from legalized sports betting to rescue school and youth sports programs in underserved communities, I told him I thought his heart was in the right place, but that his feet were likely to find themselves near the back of a long line. The first states to legalize typically sent revenue from gambling to their respective general funds, to be divvied up among interests. Problem gambling organizations might get a tiny sliver of earmarked funding. But school or community sports? It didnt seem likely. The broader budget deficits faced since then made it even less likely.

Im glad that Tom, who leads the Aspen Institutes sport and society initiative, pressed on with the idea, which since has taken hold. Some of the heavily taxed proceeds from sports betting in New York soon will fund a grant program that will steer $5 million a year to youth programs in underserved communities. The bill signed into law in Ohio in December directs 98% of the proceeds from its 10% tax on sports betting revenue to schools, with half of that going to interscholastic athletics and other extracurricular activities.

A coalition of youth sports organizations and businesses lobbied legislators in both states, striking gold in New York when its message resonated with state assembly member Monica Wallace, who convinced other lawmakers it made sense to use newfound money from sports to address a crisis in youth sports. You want to find a Monica Wallace; someone who can champion this idea with other legislators, said Matthew Gould, a spokesman for the PLAY Sports Coalition. As these opportunities arise, Play Sports will continue to get involved.

If the proceeds from legalized sports betting can help revive shrinking public school athletic departments or save imperiled youth programs -- and there are too many of both -- thats a good thing.

MGM Resorts and Entain will infuse another $450 million in the BetMGM joint venture this year, bringing their combined investment to $1.1 billion since launching in 2018. The companies pointed to 2021 performance that outpaced projections. They said they expect 2022 net revenue from operations to rise to $1.3 billion, up from $850 million. On an analyst call following the announcement Wednesday, BetMGM CEO Adam Greenblatt said he anticipates profitability in 2023, but couched that with a realistic reminder of the volatility of the emerging U.S. market, which requires massive marketing spends each time a new state opens.

There will be months next year when we will be EBITDA positive, Greenblatt said. But lets not lose sight of our reality. We are not selling toothpaste in a very mature market in a price stable environment. Thats not this business. The market is still in its relatively early ... with lots of new states becoming addressable at different and uncertain times. Were also subject to short-term results based volatility in sports. You only have to look to this football season to bear that out. October was tough. November was fantastic. So while we cannot commit as I stand here today to profitability for the full year 2023 at this stage, we do expect to enjoy many months of positive EBITDA as the year progresses.

Greenblatt also predicted the likely slowing of the runaway train of promotional spending, which has sportsbooks dangling as much as $5,000 in refunds on a first bet by a new customer. Ultimately, capital is rational, Greenblatt said. And capital in this market is getting smarter. So what we at BetMGM are able to do with our board is demonstrate the cohort economics and the value of that cohort ROI, which fuels the fire and almost justifies further investment. I wouldnt comment about any of our competitors. But I do think capital is going to become more demanding, which will drive more selective investment."

Added Greenblatt: What we will see is a path to a rationalization of the promotional environment. And it may happen through the course of this year. I think we maybe weve got one more NFL cycle of exuberance ahead of us. But certainly over time maybe Im old-fashioned but capital is rational. Money is rational.

The record-shattering performance of sportsbooks in October, which likely will turn out to be the peak of 2021, offers a good opportunity to check in on how online market share is shaping up across the US when all legalized states are combined. Unfortunately, the two states with the largest handle, New Jersey and Nevada, do not break that out sportsbook by sportsbook. But eight states that together took $3.27 billion in sports wagers in October do.

The combined share of handle in those states (Illinois, Pennsylvania, Michigan, Indiana, Arizona, Iowa, Connecticut and West Virginia) shakes out like this:

DraftKings leads in four of those states; FanDuel in three. PointsBets fall to 3% in those more transparent states mirrors a U.S. market share drop that it logged in its last earnings report in October, when it pointed to outsized advertising and promo spends by its competitors as the likely reason.

For the quarter that ended in September, PointsBet saw share of handle drop in six states:

The first states to report December results showed continued decline from Octobers handle records. At $1.23 billion, New Jersey was down 2% from November and off 6% from October. It was the fourth consecutive $1 billion month for New Jersey, spanning the entirety of the NFL season.

Iowa was down 7% to $266.5 million, but still more than 50% ahead of the same month in 2020. New Hampshire ($86.4 million) and Oregon ($33.7 million) fared better, up 4% and 3%, respectively. Pennsylvania ($750.4 million) was off by 1%. Indiana ($463 million) finished even with last month. Connecticut ($150.1 million) was up 3%. Michigan was the lone large state to post a gain, up 3% at $514.6 million.

NOTES: Michigan and Connecticut sportsbooks were not operating online in 2021. Mississippi and Arkansas are retail only.

Enjoyed a recent guest spot on a podcast and video series hosted by SeventySix Capital Managing Partner Wayne Kimmel, who did a nice job of turning the tables on me. Im usually the one asking him the questions. We dove into recent sportsbook sponsor movement around college sports, how sports betting fits into the media landscape and what the coming year might bring -- and told a few war stories. You can find the YouTube video here or Apple podcasts version here.

SeventySix Capital's Wayne Kimmel and I discussed the state of sports betting

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SBJ Betting: Collins, Grubman ready to hit the market with Super Group - Sports Business Journal