Call it a lesson in what you can expect when investing in a newly listed entity.
When Genius Sports and the NFL announced last May last year what they billed as a “strategic partnership” based around exclusive distribution of data ahead of the NFL season, it was reported as being worth up to $1 billion over the life of the deal including potential extensions.
It was a signal moment for Genius Sports which used the deal as a platform for its New York listing via a merger with the dMY Technology SPAC.
In a note issued at the time of the float, analysts at Goldman Sachs said Genius Sports was a ”best-in-class provider of picks-and-shovels” to the sports-betting sector.
When it listed in late April, the share enjoyed an immediate bounce, rising 11% on the day of the float and in subsequent weeks hitting a high of over $25. At its peak, this valued the business at around $5 billion.
Investors losing faith
Since then, however, the Genius Sports share price has hit the skids. From an intra-day high of $25.18 in Mid-May, the shares have collapsed by over 76% to a low of $5.85 at close on Tuesday.
Recent news flow around enhanced distribution deals with European gaming giants Bet365 and Betway-owner Super Group have done nothing to arrest the slide.
From the price on the day of the float, the shares are down over 70% and the value of the firm has suffered accordingly. As of today, the company is worth less than $1.3 billion.
Partly this decline is about the sector overall. But some of this is down to Genius itself and the evidence from the third quarter numbers where despite revenues rising 70% to $69.1m, the cost of the NFL deal saw adjusted EBITDA falling to a loss of $392,000.
So why is this a problem for the NFL?
As part of its deal with Genius Sports, the NFL received a substantial element of the fee for the data exclusivity in share warrants.
A recent note from the analysts at UBS suggested that while the total value of the genius deal to the NFL was $720m, about $350m of that comes in the form of share warrants.
Using the 69.5% fall in the share price since float, it means the potential value of the NFL’s stake in the business including three warrants yet to be issued now stands at ~$104m. Within the cash element unaffected, it means the total value of the deal now stands at ~$470m.
The shine has certainly been taken off what looked like a good deal at the time.
The longer term picture
The question then turns to whether Genius Sports can turn its share price around and how that might happen.
A recent initiation note on Genius Sports from the analysts at Credit Suisse used the dreaded (in these quarters) flywheel analogy. They suggested the NFL deal will lead to increased market share for Genius through a combination of the sport’s body’s requirement to use official data and the opportunity for Genius to win incremental business through the programmatic advertising channel.
These echo the hopes of Goldman Sachs who said the NFL deal could broaden the company’s reach and “allow them to cross-sell additional services such as outsourced marketing (in the media segment) and AV/streaming services.”
What can be said is that Genius has seen the benefit of the exclusivity on NFL data with a series of supplier deals with all the major operators in the U.S.
But a UBS note from later last year said that translating those contracts to profitability is now in question. Pointing out that shares offered to a sports league “are a real expense. The UBS team suggest that Genius’ definition of adjusted EBITDA doesn’t fully encompass the cost of sports rights.
Spreading the full ~$350 million of stock-based sports rights expense across the six-year lifetime of the deal means the UBS estimates for adjusted EBITDA in 2023, for instance, fall to $12 million from an estimated $70 million.
Bottom line
Genius Sports addressed some of these questions when it conducted its meeting with investors Thursday, but the wider issue of the value and worth of official data are yet to be addressed fully by the sector as a whole.
