F1 Signs $100 Million Sponsorship and Data Rights Pact, To Develop In-Race Betting Platform

F1

Formula One has announced a 5-year $100 million+ sponsorship and data rights deal with Interregional Sports Group (ISG) that will enable the development of a live in-race betting platform. The deal gives the sports marketing agency the ability “to sublicense betting partnership rights around the world”; rights packages said to include regionalized on-screen promotion, trackside signage and exposure across F1’s digital and social properties – where the promotion of sports gambling is legal (i.e. not all 21 race locations). Sponsors will not be permitted to offer odds within ads that run during grands prix. ISG will use Sportradar to create betting markets and provide its “integrity” monitoring services.

Howie Long-Short: The $100 million figure makes “the cost of acquisition per player very high”, leading some to believe ISG is using F1 as an entree to sports bettors hoping they’ll gamble on other sports. They’d better, the $100 million fee ISG will pay up front is more than the company’s annual revenue.

F1 teams are expected to split $921 million in ’18 prize money, which would be $45 million less than they received in ’16; despite an increase in the number of races. That’s because F1 teams split 68% of the circuit’s underlying profits and costs have increased significantly (think: rebranding, new headquarters, eSports) since the Liberty Media acquisition. The $921 million figure may represent a best-case scenario. F1 is facing the difficult decision to re-brand againcompensate 3M or engage in a costly legal battle with the manufacturing company over its new logo; though, that decision may not be made anytime soon. The European Union Intellectual Property Office (at the request of both sides) recently delayed the start of the adversarial part of the negotiations by 22 months (a “cooling off” period).

Rising costs (+$27 million) and declining revenues (-$31 million to $585 million) drove F1 operating income down a staggering -69% (to just $14 million) during the most recent quarter. FWONK shares closed at $37.59 on Thursday, up nearly 10% from when the company reported in early August.

Fan Marino: The deal comes at a time when the involvement of gaming companies in sports (around world, not U.S.) is being scrutinized more than ever before. Italy and Australia have already implemented bans/restrictions on betting advertisements during live sporting events and there is now talk similar bylaws could be set in the U.K., F1’s most lucrative broadcast market.

On Wednesday, Tom Watson, Deputy Leader of the Labour Party, called for a ban on all gambling advertisements during live sporting events, to address what he’s tabbed “a public health emergency” (gambling ads rose an estimated 600% between ’07 and ‘13). Watson’s plan also calls for a tax on gaming operators (1% of gross gambling yield), money that would be used to offset a portion of the recovery efforts and a prohibition on the use of credit cards to pay down bets.

One U.K. gaming operator, Sky Bet (TSG), is on record supporting the levy, but vehemently opposes a “blanket ban” on advertising and credit card payments saying those initiatives could push gaming companies to drop their license in the UK (as in theory, it would become a less appealing market); leaving gamblers vulnerable to “disreputable operators.” Good luck selling that, the odds of Sky Bet closing its U.K. division are infinitely long.

Did you know? 60% of clubs within England’s top 2 divisions (9/20 in EPL, 17/24 in Championship) have a gaming company represented on their kit. The Labour Party previously called for all to put an end to those sponsorship agreements, threatening legislative action should they fail to comply.

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SCOTUS Strikes Down PASPA in Historic Ruling, Legalized Sports Betting to Spread Nationwide

Scotus

In a historic announcement, the SCOTUS ruled (6-3) to strike down PASPA; the national law preventing individual states (save Nevada) from offering betting on the outcome of a single sporting event. Justice Samuel Alito wrote, “Congress can regulate sports directly, but if it elects not to do so, each state is free to act on its own. Our job is to interpret the law Congress has enacted and decide whether it is consistent with the Constitution. PASPA is not.” The ruling effectively places the decision to authorize sports betting in the hands of the individual states. Several have already passed legislation (NJ + PA, CT, WV & MS), with upwards of 27 others expected to offer wagering on sporting events within 5 years. It’s important to note that federal law prohibits wagering across state lines, so gamblers will have to be physically located in a state that has passed sports betting regulation to legally place a bet on a game; even with online and mobile betting available elsewhere in the country.

Howie Long-Short: A fall ’17 study by Eilers & Krejcik estimated that if sports betting were to be legalized on a nationwide basis, it would generate $7.1 billion annually in new revenue at casinos & racetracks. That figure grows to $16 billion per year, when you count the revenue generated from gaming websites and mobile apps; so, it’s easy to understand the enthusiasm surrounding the announcement. Interestingly, English bookmakers William Hill (WIMHY, +14.39% to $17.73) and Paddy Power Betfair (PDYPY, +12.56% to $55.20) were Monday’s biggest winners; though, Scientific Games Corp. (SGMS, +11.15%), Stars Group, Inc. (TSG, +8.97%), Caesars Entertainment Corporation (CZR, +5.46%), Churchill Downs, Inc. (CHDN, +4.87%), Penn National Gaming (PENN, +4.68%), Boyd Gaming (BYD, +3.06%), Pinnacle Entertainment (PNK, +1.88%) and MGM Resorts International (MGM, +1.64%) all finished up on the day as well.

We’re not surprised that William Hill (WIMHY) had the biggest pop among the companies listed above, as we told you on April 24th that no European gaming company was better positioned to capitalize on legalized sports betting, in the United States, than they are. Back in ’13, the company bought the rights to run the sportsbook (and split profits 50/50) at Monmouth Park (NJ), if ever permitted by law, for $1 million; a remarkably shrewd investment considering the minimal capital investment required and the potential payoff they’ll now realize (+/-$750 million/year in sports betting revenue). The company has since announced plans to add a 2nd $5 million sportsbook on the premises. WIMHY will be the first sports book in NJ to accept bets, with Monmouth Park expecting to open its doors within 2 weeks; though residents in Mississippi, Delaware and West Virginia can all expect to be able to place bets at their local casinos by the first Sunday of the NFL season.

Fan Marino: MLB put out a statement saying the decision would have “profound effects” on the sport, but no one is more bullish on legalized sports betting than Dallas Mavericks owner Mark Cuban. Cuban believes that “everybody who owns a top-four professional sports team just basically saw the value of their team double at least.”

I asked SportsHandle.com Editor-in-Chief Brett Smiley for his thoughts on Cuban’s remarks?

Brett: Cuban’s guesstimate strikes me as a bit of an exaggeration, but there’s wide recognition amongst the leagues and owners that legal sports betting will increase ratings, increase revenue and create more opportunities. Sports bettors are more engaged and for longer periods of time. There will be other opportunities to sell data, partnerships, sponsorships and so forth.

It sounds like an exaggeration to me too, but if $300 billion were to be wagered annually and the leagues got their 1% “integrity fee” on a nationwide level (highly unlikely); they would be splitting $3 billion annually. Divvy up that newfound revenue between +/- 120 pro sports franchises and you’re adding $25 million in profit to each team’s bottom line. The Mavericks only generated $21 million in operating income last season. Sure, that’s a bunch of “ifs”, but once you add in all the other revenue streams that Brett referenced, Cuban may not end up being too far off.

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Stars Group Pivots from Poker to Sports Betting, Buys SBG for $4.7 Billion

Stars Group

Stars Group, Inc. (TSG) has acquired Sky Betting & Gaming (SBG) from CVC Capital Partners and Sky, Plc (SKYAY) for $4.7 billion in cash and stock options, as the company pivots from online poker cardroom to sports betting operator. SBG has an established gaming presence in the U.K. (3rd largest operator) and recently expanded operations in to Italy and Germany. While SCOTUS’ pending decision on PAPSA’s constitutionality offers potential upside for TSG shareholders, CEO Rafi Ashkenazi clearly stated, “the trigger for this deal was not the U.S.”; before adding that should sports betting be legalized in the country, the company would be “very strongly positioned to capture significant market share.” TSG shares climbed 14% on the news, closing Monday at $33.45; just below their all-time high ($33.50).

Howie Long-Short: Ashkenazi has been aggressively looking to reduce TSG’s reliance on a stagnating poker business (2/3 of ’17 revenue, $2.36 billion, +7% YoY) and recently increased the company’s stake (to 80%) in Australian sports betting and gaming company, CrownBet Holdings (which acquired the Australian arm of William Hill). That’s a wise decision. In 2017, 50% of all casino winnings ($49.8 billion) came from sports betting and 26% originated from casino games, while just 6% came from poker.

Much like the DFS companies, TSG owns a valuable database of U.S. gamblers from poker’s mid-to-late aughts heyday. Combine that information with SBG’s strengths in marketing (was U.K.’s 8th largest operator in ’11, now 3rd) and technology (80% of revenue comes from mobile apps), and it becomes a particularly sensible acquisition for TSG.

Fan Marino: No European gaming company is better positioned to capitalize on legalized sports betting in the United States (particularly if SCOTUS’ decision is limited to New Jersey, for the time being), then William Hill (WIMHY). Back in ’13, the company bought the rights to run a sportsbook (and split profits 50/50) at Monmouth Park (NJ), if ever permitted by law for $1 million. It’s been a long 5 years, but a decision could come down as early as today. Should that happen, WIMHY will be taking bets at Monmouth within weeks. The company also plans to add a 2nd $5 million sportsbook on the premises.

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POKERSTARS DRIVING OFF SHARKS; TRYING TO WIN BACK NOVICE PLAYERS

PokerStars, the largest online poker website has said that card sharks have driven out the novice bettors that generate the vast majority of the sites revenue. As a result, The Stars Group (TSG), which bought the website for $4.9 billion back in 2014, has seen revenue growth from the game flatten. In an effort to drive off the sharks, PokerStars has ended many off the perks/incentives, including a loyalty program, that rewarded the degenerate gambler. Instead, the company has reallocated tournament money and given perks to less frequent bettors, in an effort to bring back the casual poker player. It should be noted that shares are up 41% since CEO Rafi Ashkenazi was hired last year.

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Poker Site Wants Card Sharks to Fold So the Rest of Us Can Win

Howie Long-Short: Poker is no longer a growth business for TSG, unless they can enter new markets. I’m more interested in scuttlebutt on Baazov’s massive insider trading trial

Fan Marino: Sharks preying on beginner minnows? Fans of daily fantasy sports know that story well.