Banking On RSNs Might Be Bad Business For BallyBet

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Bally’s big plan to use branded regional sports networks as a major pipeline for BallyBet customers may have been a bad bet after all.

Recent results from Diamond Sports Group, the unconsolidated subsidiary of Sinclair that owns the 19 Bally’s Sports-branded RSNs, show subscribers are dropping faster than anticipated. There are also concerns over whether the debt taken on for those RSNs is sustainable, with the NY Post reporting in September that multiple leagues may be ready to buy those networks.

A spokesperson for BallyBet did not respond to requests for comment.

BallyBet pipeline sees customers leaving

Diamond Sports reported an 11% drop in distribution revenue to $565 million for the third quarter. Distribution revenue is the fees received for distribution of the Bally RSNs based on a monthly rate per subscriber.

Diamond attributed the segment’s revenue drop to “elevated subscriber erosion.” Revenue for the fourth quarter should be down compared to the third quarter because of subscriber erosion as well, the filing stated:

“Our Bally RSNs have been negatively impacted by elevated levels of subscriber erosion which we believe was influenced in part by shifting consumer behaviors resulting from media fragmentation, the current economic environment, and related uncertainties. These factors are expected to have a negative impact on future projected revenues and margins of our Bally RSNs.”

– Q3 Diamond Sports earnings report

An impairment analysis done during the quarter led to a $1.046 billion non-cash charge for the quarter. Diamond Sports has $8.674 million in debt, though just $39 million is due within the next 12 months. Compare that to its working capital of $827 million, including $585 million of cash on hand and a $228 million revolver.

Bally’s saw RSN deal as revolutionary

Bally’s Chairman Soo Kim sounded bullish on the impact of the RSNs when the deal was announced in November 2020:

“This arrangement represents an opportunity to revolutionize the U.S. sports betting, gaming and media industries. Sinclair, with its broad holdings of stations, channels and RSNs, provides immediate, national brand recognition that will support the development of Bally’s player database for both our traditional casinos as well as our future online offerings, and ultimately deliver significant shareholder value.”

CEO Lee Fenton did not offer specifics when asked about the RSNs on Bally’s third-quarter conference call but noted it remains “part of our plan:”

“So, [the Sinclair deal] continues to form part of our plan, and we think we get tremendous best-of-branding benefit from it. The reality is, I said earlier, we haven’t gone as quick as we would’ve liked on our own sports product, and we need to have that in a position that we’re excited about to really take full advantage.”

Little market share so far

Bally’s is live in six states, but only three of those break down handle share by operator:

Virginia is the only one of the three states where a Bally’s RSN does not have a presence.

BallyBet now eyeing iGaming

Despite Fenton mentioning the tremendous benefit of the RSNs, he made it clear the brand is shifting to an iGaming-first strategy. That has been a common theme recently for smaller sportsbooks struggling to compete with the US sports betting leaders like BetMGM, DraftKings and FanDuel.

“As I said, iGaming States are our priority, and we will focus resources in markets, including Pennsylvania, Ontario, as well as States that we believe will regulate our gaming in 2023. Our progress on sports has taken longer than we expected, and we will not support the sports-only markets with marketing dollars until we are comfortable that we’ve got the user experience and the technology where we want it.”

– ceo lee fenton on third-quarter call

Fenton said Bally’s operations in New Jersey are shaping its blueprint for future states. The company has added more iGaming options that it markets to its database of Bally’s AC customers. That led to a 3.5% iGaming market share for the third quarter with a cost per acquisition “significantly below our peers.”

Bally’s focus on iGaming is not new, of course. The company spent $2.8 billion to buy Gamesys in March 2021 to help overhaul its online platforms and presence.