Analysis: Latest PointsBet Acquisition Shows US Market Moving To New Phase

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In terms of size alone, the PointsBet $43 million acquisition of Banach Technology will not turn too many heads. 

However, the deal for the trading technology firm could mark an important inflection point as US sportsbook operators increasingly turn their focus to product.

As PointsBet CEO Sam Swannell put it:

“Excellence in product will be the ultimate determinant of success in the US sports betting market.”

Long-term play for PointsBet

So just how does the acquisition help PointsBet?

Banach has around 40 staff members in Europe running quant trading models and products. Those models cover the four major US sports and international soccer. Crucially, they include:

“I believe this acquisition will position PointsBet as the US leader of in-play sports wagering,” Swannell said.

Why make a purchase?

The operator already owns its own technology but much of its in-play product comes from third parties.

With the Banach tech, PointsBet aims to offer:

Meaningful return on investment

So is that worth $43 million? It seems a hefty price tag for a business that generated less than $500,000 in EBITDA in 2019. And even those earnings will be cut off once current B2B contracts expire.

In other words, it’s $43 million for a team of quants and their intellectual property.

But that might still be a steal, according to Ian Marmion, the executive who hired Banach to provide overhaul in-play betting at BetStars.

Why Banach fits right now for PointsBet

Marmion said Banach would be an “incredible addition” to the PointsBet business.

“The more you speak to them, the more you realise how bright they are,” Marmion said. “I always thought the whole US in-play product hadn’t seen investment the same way soccer had. They shared that view and had a vision to fix that. They get the industry, they are bettors themselves.

“It seems a huge price tag but the numbers don’t seem to mean anything in US sports betting at the minute. Those guys would be a significant addition to any business.”

Can Banach deliver for PointsBet?

Indeed, the $43 million price tag might be a steal if if Banach can deliver what PointsBet envisages.

In an investor call following the deal, the operator said 75% of bets in the US would be in-play within the next three years. That is an aggressive estimate compared to some others.

As a result, even a small improvement in margin offered a “meaningful ROI,” PointsBet said.

“In-play clients are more valuable than the traditional pre-match bettor,” Swannell told analysts. “They have more play days, more betting sessions, and ultimately more turnover and revenue.”

Time to get to work then

Of course, there is a potential timer on success. Key Banach execs have a 36-month lockup on the PointsBet options they received from the deal.

But in the short term, PointsBet has a chance to differentiate itself with product.

It’s a smart deal because they can jump ahead on live betting,” said Jeevan Jeyaratnam, head of compilation at Abelson Odds. “This stuff is new in the US and PointsBet are paying to basically have a team on-demand.”

Jeyartnam also pointed out that Banach is a nice fit with PointsBet specifically.

Consider an in-play Tom Brady passing yards prop. Banach might build the model that adjusts that line as the game progresses, based on game state and time decay. However, that model still needs to be told what the line should be before the game. 

That’s where PointsBet and its existing expertise comes in.

“Banach is not a data analysis house,” Jeyartnam said. “They build the models while PointsBet have a good handle on the player inputs.”

The template is proven

For proof of concept, look no further than Bet365, the market leader in Europe. The company is renowned for its in-play product and in-house technology.

However, the UK-based giant does not have quite the same reputation for US sports, potentially leaving a gap in the market. As for the US, Swannell acknowledged FanDuel as the in-play leader.

However, he pointed out that much of the Flutter technology underpinning FanDuel actually was built by Banach.

“Flutter is the closest comparison [to what we are trying to deliver,]” Swannell said. “And a lot of that success comes down to the impact this group of individuals [Banach] had on the Flutter business a few years ago.”

In-play competition is heating up

Of course, PointsBet is far from the only company focusing on product and live betting. DraftKings has promised innovation in this area once it moves to its own platform at the end of Q3. 

Flutter is also moving entirely onto its own platform this year. BetMGM has made strides on product, according to a recent Eilers & Krejcik analysis.

The first phase of US sports betting arguably was won by those with the best customer databases and the biggest marketing budgets. But as the market matures, the winners and losers will be judged increasingly on their product.