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Earlier this month, FuboTV became the latest media company to throw its hat into the sports betting ring.
The sports streaming service acquired Vigtory Sportsbook for an undisclosed sum and plans to launch a sportsbook later this year.
Fubo stock is up some 35% since the deal, suggesting investors are enamored with the sports betting story. But should they be?
FuboTV passing up advertising money
The company is, without doubt, taking a huge risk.
FuboTV could easily sit back and do lucrative marketing deals with existing operators like FanDuel and DraftKings. In fact the company did an exclusive deal with FanDuel back in 2019 that included media buying. But it seems unlikely FanDuel would keep spending money with Fubo as it becomes a direct competitor.
Instead, Fubo faces the huge lift involved with running its own sportsbook. That means getting licenses and market access in every state rather than letting someone else do it and taking their ad dollars.
That's a lengthy and costly process. There's a reason why companies like ESPN are sticking to advertising deals rather than launching a sportsbook.
And remember: Vigtory currently has access only in Iowa and has not yet taken a single bet. As previously discussed, it is not enough for a media company to have sports-mad viewers. It still needs a world-class betting product or that audience will simply bet elsewhere.
Warning sign?
One potential comparison here is TheScore, which also forwent easy ad money to launch its own book. To date, the company has faced something of an uphill battle.
It posted a $9.3 million EBITDA loss for the last three months of 2020, thanks largely to the cost of setting up gaming operations. It has also posted a negative net gaming revenue for five consecutive quarters.
And that's despite the betting app itself ranking sixth out of 16 sportsbook apps in NJ, according to an Eilers & Krejcik review. In other words, it's not enough to have an engaged audience and a good app.
You also need expertise in everything else that goes into running a sportsbook, like digital marketing, CRM and trading. And even if you do all that well, you need deep pockets to fund several years of losses. Market leader FanDuel expects to lose around $200 million in EBITDA in 2020, despite revenues that could near $1 billion.
Sports betting is a hot sector
Sports betting is a hot sector
So why did Fubo take the risk? The answer is possibly in the upside.
For starters, the stock is up significantly from the time of the announcement (although highly volatile.) That's around $700 million in value added for an acquisition that cost a fractions of that.
If nothing else, it puts Fubo in the sports betting category of the market, where optimism – and multiples – are running high. It also buys management time as they try to tackle negative profit margins.
'The valuations around sports betting operators are so huge, why not take a punt on being one?' said Andy Clerkson, an advisor for Fox Bet and partner at gambling PR firm Red Knot Communications. 'You could be a super-affiliate worth hundreds of millions. Or you could try and be an operator worth billions.'
FuboTV has unique assets
While Fubo may face an uphill battle in competing with the FanDuels of the world, it does have some advantages.
'Owning the entire ecosystem is extremely valuable,' Clerkson said. 'Having a single sign-in for streaming and betting, then having the data analytics on all those players for offering bets, that could be very powerful.'
Whether that's feasible is another matter. TheScore for example has a separate app for gambling so its live scores app does not need to go through regulator testing. You can make that journey as seamless as possible, but its still a journey.
Indeed, the act of added betting into an existing stream is also more complex than it looks on first blush. Most rights holders currently charge separately for the betting streams that go to operators. As a result it seems Fubo would have to cough up for an entirely new set of streams if it wanted to offer betting on them
Its understood some of the biggest operators in Europe spend up to $15 million a year on streaming fees annually. That's a big new a cost for Fubo.
What could be next
So theer;s details to be figured out. But the optimism around US sports betting isn't disappearing any time soon. Big markets like Virginiaand Michiganare online. And there's movement in places like Texasand New York in 2021 too.
'This industry has a lot of growth ahead of it,' Clerkson said. 'So why not take a risk now?'
Fubo's sports betting plan is perhaps best described as a future for next year's Super Bowl: the odds of hitting might be relatively small, but the payoff could be massive.
Either way, we won't find out the result for a good while yet.
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