The most-recent edition of Australian Gambling Statistics, which was released late last year and contains national data from 2017 to 2018, reaffirmed our long love affair for taking a punt. Total gambling expenditure across the nation increased 5% from $23.69bn in 2016–2017 to $24.89bn in 2017–2018. Meanwhile, per adult gambling expenditure rose 3.3% to $1,292.25.
While electronic gaming and casino expenditure represent the majority of this volume – in total, about 71% – the fastest-growing categories are the race betting and sports betting segments. The race betting segment grew 7.1% to $3.55bn, while the sports betting sector grew 16.3% to $1.24bn.
More broadly, Australia has even led the way on a global scale when it comes to expenditure, tracking roughly 40% higher per capita than any other country. All the more, Australia has also recorded the biggest gambling losses per resident adult, while on an absolute level, the country outpaces the likes of the UK, Germany, France and Canada.
Despite mounting losses for punters, more and more Australians divert spare funds towards betting. Even as COVID-19 wreaks havoc on professional sporting activities all around the world, and casinos have been shut, gambling expenditure has jumped as much as 60% year-on-year, with a large number of Australians even allocating their early super withdrawals towards such activity.
It only seems a forgone conclusion that the ASX would be home to a number of gambling stocks. Within this broad segment are casinos, gaming operators and suppliers; lottery agencies, as well as betting providers. There is even some overlap in terms of companies operating across these industries.
Nonetheless, with the race and sports betting segments showing significant growth, and these activities now gearing up for full resumption in many parts of the world, we take a look at three of the leading betting providers listed on the ASX.
Tabcorp (ASX: TAH) – share price: $3.35; market cap: $6.81bn
Tabcorp is an Australian diversified gambling entertainment company with operations spanning across various segments of the betting and gaming industry. With more than 3 million customers and in excess of 9000 venues across Australia, the company boasts the largest Australian retail footprint among its betting peers.
Around 41% of the company’s revenue is sourced from wagering and media, with the remainder attributed to gaming services (5%), plus lotteries and keno (54%). During H1 FY20 the company managed to increase Group revenue by 4.4% to $2.91bn, while EBITDA rose 2.1% to $596.5m.
Within its lotteries and keno division, the company saw strong digital and retail growth with customers up 39.8% and 5.2% respectively, not to mention 300,000 new registered customers. As such, revenue in this division leapt 12.4% to $1.58bn.
Growth was driven by changes to the company’s game portfolio, as well as accelerated marketing initiatives, plus a deeper alignment with retail partners as Tabcorp pursues an omni-channel strategy to penetrate the market.
As far as the wagering and media business, Tabcorp has cited the effects of a “soft” market for its core ‘TAB’ brand. Discretionary spending was lower and industry turnover has reduced, reflecting increased yields and pricing.
While TAB account turnover was down in absolute terms, account turnover market share actually increased due to Tabcorp’s generosities strategy, as well as enhanced product and customer experience. Revenue for this division fell 3.7% to $1.18bn in 1H FY20, while the drop in EBITDA was even more pronounced at -7.8% to $233.8m.
Nonetheless, with Tabcorp seeking to integrate the acquisition of UBET with the TAB brand, management believe there will be synergies and improved performance ahead. Due to these integration efforts, Tabcorp is targeting $130-145m in recurring EBITDA benefits throughout FY21.
Some of the company’s growth initiatives to facilitate this target include:
- Consolidating wagering call centres in 2H FY20
- Shifting towards fully insourcing data centre and retail network management operations
- Migrating UBET customers to the TAB platform by mid-2020, thus offering greater product benefits and saving costs related to legacy systems and decommissioned infrastructure
- Retail venue roll-outs, including refreshed sites
- Improving data and personalisation capabilities to enhance customer engagement, with new marketing and communications technologies part of the transformation
- A strengthened product suite to include new content and personalised platforms for customers
- Leveraging an enhanced US sports offer, including rights to NBA and NFL, plus securing key racing media rights
Amid COVID-19 and the pressure arising from impacted operations, the company recently secured a covenant waiver from its bank lenders with respect to its next two testing dates (mid 2020; end 2020). As at the middle of May, Tabcorp had $820m in available liquidity.
With diversified operations providing it with multiple revenue streams, as well as exposure to different types of customers, Tabcorp will be hoping its integration efforts help leverage the necessary synergies and business improvements to retain a commanding position in the market.
PointsBet Holdings (ASX: PBH) – share price: $6.32; market cap: $965.9m
PointsBet is a corporate bookmaker with operations in Australia and the United States. The company operates a scalable cloud-based wagering platform dedicated to race and sports betting, with the aim to provide more markets for Australian and US sports than all other bookmakers. Its product offering consists of fixed odds sports, fixed odds racing and PointsBetting.
Following a landmark decision in May 2018 where the Supreme Court of the US lifted the federal ban on sports betting, the US has become a major growth market for PointsBet and it secured seven access agreements in the second half of 2019. A slew of states have since legalised sports betting or passed a law that facilitates this, while an even greater number of states have pending legislation to ‘open’ the sports betting market. This is represented by the company’s market access opportunities, which have grown from US$1.9bn (Jan 2019) to US$5.2bn as at 31 January 2020.
The company’s 1H FY20 result marked the first positive net revenue half in the US, with bets accelerating to record levels and exceeding 4 million in the final months of the year. PointsBet’s US division, which only really began operating the half prior, achieved $183.9m in turnover and $2.6m in net revenue.
Meanwhile, Australian turnover jumped 67% in 1H FY20 from $209.6m to $349.2m, continuing a steady upwards trend of strong growth. With net wins also rising prominently, net revenue leapt 105% to $24.8m. In total, the Group’s gross profit was $12.3m. However, PointsBet is still pursuing significant expansion. The company incurred $40.7m in operating expenses due to heavy investment in marketing and employees, which meant that EBITDA showed a loss of $28.4m.
Since those half-year results, the company delivered its first positive EBITDA quarter for its Australian trading business in Q3 FY20, underpinned by a record quarterly net win of $15.5m. This was a 90% improvement on the prior corresponding quarter, where its net win was just $8.2m.
In the US, net win was $3.3m compared with a net loss of $0.5m in Q3 FY19. Turnover has also soared in this market by 285% to $90.7m on the back of a 176% increase in active clients (22,700). With that said, this growth has deteriorated in light of COVID-19, where sports have been suspended until only recently.
The early stages of Q4 have also been fruitful for the company. Despite sports closures, the Australian trading business achieved a net win of $18.2m for the period April 1 to 25 May 2020, while the US business achieved a net win of $0.3m for the same period. These results have been driven by a shift of gambling expenditure online, PointsBet’s industry outperformance in the race betting industry, and a “greater share of wallet” from existing customers.
In favour of the company are some of its significant ‘wins’ in recent months. These include:
- Securing market access in Michigan and Kansas
- Receiving a sports betting license in Colorado
- Launching online sports book operations for Indiana (its third digital sports book in the US)
- The first full quarter of contribution from the company’s digital sports book in Iowa
- Striking an exclusive partnership as official betting partner of LaLiga North America
- Becoming exclusive wagering partner for Fox Sports AFL (Fox Footy) during 2020
Looking ahead, PointsBet has two main areas of focus that serve as growth channels.
First, the company’s US expansion stands to provide it with the greatest leverage towards expanding its customer books. PointsBet has secured a 5.6% market share in the fast-growing New Jersey market. It will be rolling out new operations in Illinois, Colorado and Michigan, plus seeking to broaden market access and explore partnerships to expand its US media strategy.
Secondly, PointsBet continues to focus and develop its products and technology, including the iGaming vertical. The company hopes that its casino access partners will help promote and penetrate these online casino products into the market in order to further diversify PointsBet’s turnover while also facilitating cross selling. With the segment recording CAGR of 31% between 2014 and 2019, management believe this market could be even larger than the US sports betting market.
All the while, with the backing of an established and competitive sports betting market in Australia, where consolidation has been taking place among competitors like Tabcorp and UBET, as well as SportsBet and BetEasy, PointsBet is hoping it can acquire market share through increased marketing activity in 1H FY21.
BetMakers Technology Group (ASX: BET) – share price: $0.405; market cap: $192m
BetMakers Technology Group is a wagering technology and data partner for some of the world’s most recognised and respected bookmakers and rights holders. The company offers what it describes as the “most complete” wholesale racing wagering solution in the world.
During its most-recent half, the company achieved revenue of $4.04m, which was 45% higher than the prior corresponding period. Much of this figure consisted of recurring revenue, which helped bolster EBITDA to $0.65m and ultimately trim the company’s net losses.
A primary focus for the company has been product expansion and customer on-boarding across Australia, UK and the US. BetMakers Managed Trading Services technology is relevant to domestic on-course bookmaker markets, as well as racetrack and casino racing services in the US.
The company has extended its partnership with Racing Victoria by developing a new Victorian Bookmakers Association price (“VBA Price”) for Racing Victoria and the Victorian Bookmakers Association, allowing real-time wagering markets from on-course operators.
It has also solidified its position as a leading B2B technology provider for the racing industry by providing the data and technology for the Waterhouse Group to power two significant new wagering products. With the technology servicing over 80,000 punters via the Tom Waterhouse app, plus a B2B solution for wagering operators whom outsource their trading operations, this development is expected to provide a material benefit to the company from FY21.
BetMakers has only recently entered the US market, when it signed a 10-year exclusive agreement to manage fixed odds horse racing in New Jersey via online bookmakers licensed in the state. This is a market with US$4.5bn in sports betting turnover, where BetMakers is integrating its technology into waging operators across the market. It is also launching the exclusive distribution of Monmouth Park racing content throughout other parts of the US and internationally.
Another development for the company has been the successful launch of its white label technology platform with Noah Rose, a Victorian on-course bookmaker, extending its reach into online wagering with a customised racing and sports book. It comes after the roll-out of the platform to NSW bookmaker, Bbet.com.au. With the company estimating that just 10% of the 433 licensed bookmakers in Australia might have an online presence, this platform provides scope to leverage B2B growth while deploying this technology across the industry.
In a further endorsement of its technological capabilities, the company has upgraded and extended their agreement with leading global wagering operator William Hill Group until the end of 2022. BetMakers is now designated as a preferred distribution partner, offering expanded racing products as part of the amended contract, in addition to existing wagering technology services such as Pricing and Trading solutions. This will provide incremental increases in fees to the company.
Recently, in a key announcement for the company, BetMakers signed a commercial partnership with international gaming company Pronet Gaming, where it will offer its customers BetMakers’ racing solution. The announcement also included deals for two of the nation’s most well-known on-course rails bookmakers, Rob Waterhouse and Mark Sampieri, which have signed on for new technology platforms and automated products to cater for digital wagering.
The cancellation of sporting events around the world amid COVID-19 has in some part served as a tailwind for the company, with existing and new clients seeking additional content through BetMakers’ Global Racing Network (GRN). The company has responded in an agile manner to cater to this growing demand from Australian and international wagering operators.
In lieu of pursuing its EBITDA growth trajectory, BetMakers has instead opted to invest further resources into its technology and team so that it can service early-stage opportunities in the growing North American market.
As the biggest development for its North American operations thus far, the company has just announced that it has signed a 5-year agreement to manage on-course fixed odds terminals and kiosks at New Jersey’s race track, Monmouth Park. Management expect this deal will provide revenue in excess of US$1 million per annum from FY22.
With these tailwinds in effect, including strong growth in the UK market, and being a frontrunner in terms of leading implementation of fixed odds horse racing in the US, BetMakers has reiterated its guidance to return a positive EBITDA for FY20. However, it is future years where scale is touted by management as the lever to drive the company forward.
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