At a time when major sports betting operators are working feverishly to control customer acquisition costs, Genius Sports is encouraged by its sportsbook partners’ ability to attract customers at relatively affordable rates.
The exclusive gatekeeper of the NFL’s official sports betting data platform, Genius entered into a landmark data partnership with the league last spring that is potentially valued at more than $1 billion over the life of the contract. Genius views the historic partnership as a springboard for accelerating growth in numerous segments of its business. During the 2021-22 NFL regular season, Genius acquired one new depositing customer on behalf of its sportsbook clients approximately every five minutes, the company noted Thursday during a 2022 first-quarter earnings presentation.
At the same time, Genius reported net losses of $40.2 million over the first quarter, significantly above last year’s total of $5.3 million during the same period. On Thursday, Genius reported a net loss per common share of -$0.21, compared with per share net losses of -$0.08 in the previous year’s first quarter. Furthermore, Genius missed S&P Capital IQ consensus estimates of -$0.09 for Q1 in 2022.
— Briefing.com (@Briefingcom) May 12, 2022
Nevertheless, Genius generated revenue of $50 million from its betting technology, content, and services segment, slightly exceeding the company’s outlook of $48 million. For this, Genius credited increases in contract renewals and renegotiations, along with an expansion of value-add services.
Despite outperforming the company’s expectations from its betting segment, Genius’ losses continues to mount across its core segments. After reporting adjusted EBITDA of $9.3 million in the first quarter of 2021, Genius turned negative during the first three months of 2022, reporting adjusted EBITDA across all segments of -$2.9 million.
Examining the acquisition calculus
As leading gaming companies continue to report first-quarter earnings, Wall Street analysts remain focused on metrics associated with the costs to acquire new sports bettors. For months, the costs spiraled out of control as top companies inundated the airwaves with commercials and offered generous sportsbook bonuses in an effort to attract new customers.
The industry may have reached a crossroads in February, when Caesars Entertainment CEO Tom Reeg announced that the company planned to pull a costly ad campaign in order to pursue a more disciplined approach for acquiring sports bettors.
When Caesars completed its acquisition of William Hill in 2021, the company unleashed an ambitious plan to spend $1 billion to expand its online gaming offerings. Months later, though, Caesars made an abrupt U-turn, admitting that the intense customer acquisition wars could not be sustained over the long term. Nearly all of Caesars’ competitors in the sports betting space have followed suit by reining in advertising spending over the first few months of 2022.
On Thursday, Genius indicated that its average cost-per-acquisition (CPA) for a new sportsbook customer hovered around $225 per player, well below the industry average of approximately $300. Major sports betting providers such as Genius and its arch rival, Sportradar, provide sophisticated managed trading services that enable top sportsbooks to offer in-game betting odds in real time. Since Genius already has the technology in place to facilitate in-gaming betting, the company does not need to spend extra to service its clients when new sportsbooks come online, CEO Mark Locke said Thursday.
It is important to note that Genius is a business-to-business (B2B) operator that does not interact directly with sports betting customers. Genius maintains official data partnerships with a bevy of sports betting industry heavyweights, most notably DraftKings, FanDuel, and BetMGM. In New York, the three sportsbook operators are handling the lion’s share of mobile sports betting activity, representing approximately 85% of the market share in the Empire State.
Last December, as New York prepared to launch online sports betting, some analysts expressed concern that acquisition costs within the state could fall within a range of $1,000 to $2,000 per customer. (By comparison, DraftKings reported in 2020 that average customer acquisition lingered near $370 per bettor nationwide.) Also on Thursday, BetMGM indicated at its annual Investor Day presentation that it is on track to hit its CPA target of $250 per customer, with costs slightly lower in sports betting than iGaming.
New York sportsbooks are taxed at a 51% of online gross gaming revenue, the highest rate in the nation along with New Hampshire. Over the first quarter, Genius delivered positive revenue generation from its New York-related business, Locke added.
Commercial activity in Russia and Ukraine
For the three-month period ended March 31, Genius indicated Thursday that the loss of business in Russia and Ukraine could have a negative impact of $0.6 million in revenue. While Genius suspended all new commercial investments in Russia on March 30 due to the conflict in Ukraine, reports surfaced last month that the company still supplied in-game odds to Russian sportsbook Marathonbet.ru.
At the time, Genius said in a statement provided to Sports Handle that it does not supply odds to Russian sportsbooks. Since Marathon Bet is an international sports betting company that operates under six active licenses granted by the U.K. Gambling Commission, there are indications that Genius does not consider Marathon Bet, which was founded in Moscow in 1997, to be a Russian sports betting entity.
Locke did not address the reports surrounding Marathon Bet on Thursday’s call.
Last month, @GeniusSports gave assurances that it disabled all software used by its Russian sportsbook clients. But now there are indications that Russian book https://t.co/5mUFryeYFJ used Genius data through at least April 5. Our story in @sports_handle https://t.co/qArcvrHPzW
— Matt Rybaltowski (@MattRybaltowski) April 18, 2022
During the first quarter, Genius delivered group revenue of $85.9 million, an increase of 59.9% over the year-ago quarter. Genius reaffirmed its 2022 full-year group revenue and group EBITDA outlook of $340 million and $15 million, respectively.
Genius shares rose 0.18% to $2.77 in Thursday morning’s session. Genius is down considerably from its 52-week high of $25.18 last May.
Sports betting stocks have fallen precipitously over the last six months amid global inflation and long-term profitability concerns. At a gaming industry conference Thursday in New York City, Macquarie analyst Chad Beynon noted that B2B operators continue to move lower despite turning a profit.