The Impact of Sports Betting on Sports Media Transactions and Valuations
The legalization of sports betting is poised to have a transformational effect on the sports ecosystem as some industry experts predict that annual wagers may ultimately reach more than $150 billion in the U.S.
In order to create this betting volume, sportsbooks are expected to spend billions per year in marketing and customer acquisition. This spending will be a boon to sports media companies that possess attractive audiences and prominent brands. While most sports media companies will simply collect this marketing money, others have decided to become sportsbooks themselves. Regardless of monetization strategy, the effect of sports betting legalization will likely enhance valuations of sports media companies and enable them to outperform content entities that focus on entertainment, news, or general interest subjects. While we are still in the early days of sports betting legalization, it is instructive to examine some case studies and transactions that illustrate the importance and value of sports media in the emerging U.S. sports betting market.
theScore
theScore Inc. is a mobile-first sports news and information service that trades on the Toronto Stock Exchange. In December 2018, the company announced its plans to launch a mobile sportsbook in New Jersey in 2019. According to CEO John Levy, theScore became “the first media company in North America to announce its plans to launch online and mobile sports betting in the United States.” To facilitate its sportsbook, theScore completed commercial arrangements with the operator of Monmouth Park in New Jersey (for market access/licensing) and Bet.Works (for its sports betting technology platform). Because theScore controls its own content and user interface, it will be able to create compelling betting integrations that may be more effective than standard advertising units. In order to succeed, theScore will need to overcome stiff competition in the New Jersey marketplace, but the company has already benefited from the advent of sports betting. Prior to the repeal of the Professional and Amateur Sports Protection Act (PASPA) in early May 2018, the company had a market capitalization of approximately C$50 million. Following the Supreme Court decision on PASPA on May 14, 2018, the stock price more than doubled, and recently theScore had a market capitalization of more than C$120 million as investors anticipate the value created by sports betting.
Fox RSNs (Regional Sports Networks)
The largest sports-related transaction over the past year was the sale of the Fox RSNs to Sinclair. The 21 networks sold for a reported $10.6 billion. While subscriber and advertising revenues were surely important, a key part of the acquisition thesis appears to relate to sports betting. The RSNs are well-positioned to capitalize on the emerging sports betting opportunity. They boast a wide range of live, exclusive programming and achieve strong audience ratings. Over time, these live telecasts may prove to be extremely valuable for betting if in-game wagering, prop bets, and other integrations can be executed. Some of these potential executions may be subject to league or team policies, but the opportunity to combine live programming with betting will be extremely attractive, not only for its direct revenue potential but also for its ability to drive fan engagement and ratings. In addition to a large inventory of live games, the RSNs are also well-suited to betting because of their local geographies. Since sports betting is being legalized on a state-by-state basis, it is more efficient for sports betting companies to market via local/regional media versus national media. Hence, Sinclair will be in an excellent position to capture significant marketing dollars from betting companies, assuming it chooses this approach (versus operating a sportsbook like theScore).
Fox Sports/The Stars Group
In May 2019, Fox Sports and The Stars Group, a leader in online and mobile betting, announced a groundbreaking arrangement to launch products under the FOX Bet umbrella. The parties plan to launch a free-to-play game and a FOX Bet game with real money wagering in states where sports betting is legal. In addition to this commercial arrangement, Fox acquired 4.99% of The Stars Group common shares for $236 million. In many respects, this arrangement is modeled after the successful Sky Bet business created in the U.K. In the instance of both Sky Bet and FOX Sports, a prominent media brand was licensed for a consumer facing sports betting product. This level of integration and association with betting is far more extensive than the initiatives announced by most of the other major sports media companies that have created betting related TV programming, in-casino television studios, or other modest programs. The Stars Group/Fox Sports deal illustrates that media companies can provide value, not only through their audiences, but also via their powerful brands.
Sports Illustrated
Houlihan Lokey served as the financial advisor to Meredith on the sale of Sports Illustrated (SI) and is currently advising Meredith on the sale of FanSided. In both divestiture processes, the impact of sports betting has been significant. When the SI sales process began in March of 2018, PASPA had not yet been overturned. However, once the Supreme Court ruling was announced in May of 2018, sports betting became an important acquisition rationale for several of the buyers in the process, especially given the strength of the SI brand. This interest intensified over the course of 2018 as the early results in New Jersey indicated that FanDuel and DraftKings were doing very well, likely due to strong brand affinity and awareness. More recently, The Stars Group/Fox Sports arrangement provided another proof point that media brands were incredibly valuable to sportsbooks. As a result, as the SI process came to a close, virtually every finalist viewed sports betting as a core component of its acquisition thesis.
FanSided
Sports betting has also become an important part of the FanSided sales process but for different reasons than SI. FanSided is a digital content property consisting of more than 300 owned sites that reach over 40 million monthly users. Betting companies have expressed strong interest in FanSided based on its audience and content production capabilities. Moreover, research indicates that the FanSided audience indexes very well with respect to online bettors. While the process is still ongoing, it is clear that many sports betting companies believe that owning a U.S. sports content destination may be a strategic imperative. While these sportsbooks can advertise on a wide range of digital and traditional media outlets, owning a property enables a betting company to exert a greater level of control over content, thus facilitating more effective marketing integrations.
Chris Russo is a Managing Director in Houlihan Lokey’s Technology, Media & Telecom Group. Questions or comments may be directed to CRusso@HL.com. Statements and opinions expressed herein are solely those of the author and may not coincide with those of Houlihan Lokey.
