888 Holdings last month posted 90% growth in its US business in H1. And the company doubled down on the market going forward with CEO Itai Pazner calling it the company’s best growth opportunity.
The company will also launch new products for sportsbook, poker and bingo – the same products that have driven rapid growth in the rest of the world.
Following the results, LSR sat down with 888’s US chief Yaniv Sherman to discuss media partnerships and how to handicap the US sports betting race.
LSR: 888 has a reputation for knowing what price it will pay in M&A or partnerships and not budging. Is that why you haven’t announced any major US partnerships yet?
Sherman: The media deals we’ve seen are very expensive from our view. And you need to have 10+% share in every market you’re in to justify that spend.
Companies are trading at enormous multiples and people are getting money on the balance sheet. But that raises marketing prices and cash burn rate. To strike a 5-10 year deal for TV without the other side assuming some risk is very dangerous in our view.
Everyone is quoting the SkyBet model, but none of this is SkyBet. That was homegrown.
So far we’ve seen souped-up affiliate deals with one side assuming risk. Long-term, that’s not a real partnership. We’re looking for commitment from a partner. Penn bought Barstool – that’s the level of commitment you need to put on the table.
LSR: So you’re looking for the next Barstool?
Sherman: We’re looking for something that covers brand and distribution. Very few assets tick all the boxes. And the ones that do don’t want to commit fully. ESPN is probably the holy grail.
Below that, there’s a host of brands, both digital and traditional, that we are looking at. But we want someone who can run at our pace.
I tip my cap to Barstool for not stopping, committing to sports betting and pushing it through. They don’t have the same brand awareness as ESPN but their connection to their target demo is high. And their initial results helped me hone in on what I’m looking for: commitment over perceived value.
LSR: Any ideas who might fit that bill?
Sherman: We have options. There’s things like Fansided, Bleacher Report, SBNation, The Athletic, DAZN, to name but a few. Or even leagues themselves like UFC.
We’ve spoken to everyone, but our advantage here is that we’ve been around the block, we know the market and don’t need to do a deal.
LSR: If ESPN is the holy grail, do you ever see them getting more involved than the affiliate deals they’ve done currently?
Sherman: I do see them getting involved at some point. Maybe in the second or third wave after you get big states opening up like New York, California, Texas and Florida.
When it’s a national opportunity, then it becomes interesting for a company the size of Disney. Then it becomes worth spinning off a separate business or getting licensed.
LSR: If FanDuel and DraftKings stay one and two in sports betting, who can take third (excluding 888?)
Sherman: I would go for Penn. They are doing it themselves. They have to work out some kinks and they have some risk, but they have the building blocks to be the number three player in the market.
They will need to address their core tech stack at some point, as we know how important product is in the long-term.
LSR: Is product where you see 888 having an edge in this market?
Sherman: So how do we get to tier two in this market. Part one is a technology. Part two is a partnership.
We are bringing our new sports, bingo and poker platform to the US in 2021 next year. I fail to see anyone with technology at that level, with everything knitted together. We have the chance to bring something completely new to the market.
LSR: 888 CEO Itai Pazner told investors he was optimistic about more online casino legislation, but we haven’t seen that manifest yet. Where does that optimism come from?
Sherman: COVID pushed everything forward 10 years in 20 weeks. All the land-based casino chains now have an online agenda, because if you don’t you are more susceptible to lockdowns.
So we’re seeing conversations between those companies and regulators that were taboo a year ago. Now there’s discussion. It may not get across the line, but the conversation is following along with sports betting.
I think the new Raiders and SoFi stadiums in Vegas and LA are metaphors for the casinos during the pandemic. They spent $7 billion building that and it’s empty. For a casino operator, you can’t spend $1.5 billion on a new casino and have it empty.
So when you build it, you have to build an online presence too. Take a page out of Rush Street and Golden Nugget’s book.