It’s been a busy time on the technology front of the burgeoning North American sports betting and iGaming industries.
Penn National closed on its acquisition of Score Media and Gaming, giving it both its own technology platform and immediate entry into the about-to-launch Canadian sports betting markets.
GAN held its first investor day presenting its story as a now end-to-end provider of both technology and bookmaking services. It punctuated that statement with the announcement that it’s signed on Red Rock Resorts for its online and land-based sports betting technology.
The biggest news was Aristocrat’s blockbuster announcement that it’s buying Playtech, thus giving it the technology needed to enter the North American sports betting supplier market.
And so, along with operators like DraftKings and Caesars that have their own technology, and Kambi, the biggest independent technology provider, the field of platform providers for North American sports betting and iGaming appears pretty much set.
One argument against the independent providers is that operators over time will develop their own platforms. The impact of that kind of trend was starkly illustrated when Penn National announced the acquisition of Score and its platform. The stock of PENN’s platform provider, Kambi, dropped like a rock.
But that might not be so much of a threat. GAN CEO Dermot Smurfit gave a very convincing explanation of how the cost and complexity of building and continually updating technology platforms is simply too great for most operators to go it alone.
Indeed, there are literally hundreds of existing and prospective iGaming and sports betting operators that are too small to make the investments in engineering that a competitive platform requires.
In this target-rich North American industry, two of the most interesting companies are GAN and now, Aristocrat.
Much analyst attention to the Playtech acquisition has focused on the price at 11.4 times trailing EBITDA. Further, because Aristocrat will no doubt pull out of Playtech’s gray markets, EBITDA will further decline and the price will be more like 15 times, some say.
Of course, Aristocrat will lower that through cost savings and perhaps selling off some parts of Playtech.
But the heart of the deal is strategic, and in that regard, it should be a major positive.
Aristocrat has two attributes that it will put into play: 1.) financial heft and 2.) existing relationships with operators.
Financial size and strength means Aristocrat can play at the highest level of technology development and support. No company will have an advantage over it.
Also, Aristocrat has relationships with every casino owner that buys or leases its slot machines, and is especially well connected in Indian Country, where no operator will have its own platform.
A small company with big ambitions, GAN has more risk and more reward. Because it has little analyst following, investors may be unfamiliar with GAN or aren’t aware of how comprehensive a company with experienced C-suite management it has become.
Today, GAN not only offers B2B software to gaming operators but is a full-service sports betting provider on land and online. It has a thriving B2C business in Latin America, which is growing rapidly into a major market.
GAN also has its share of high-profile software clients like Wynn and Churchill Downs.
CEO Smurfit is most excited about the contract signed with Red Rock Resorts, which includes on-land kiosks and other sports betting products created by Coolbet, the B2C company that GAN bought early this year and that already provides most of its revenues.
GAN projects revenues of up to $250 million in 2023 and $500 million to $600 million in 2026. Even if the debt-free company just partly achieves those numbers coupled with normalized EBITDA margins of 30 to 35 percent, back-of-the-envelope calculations get a considerably higher stock price.
