The price – and worth – of data rights

Surfing the wave of interest in US sports-betting-related SPAC floats, betting-data supplier Genius Sports looks set to ride all the way to the lower reaches of the NYSE in the coming days on the back of a deal with the blank check company dMY Technology.

In doing so it will further demonstrate the enthusiasm among US investors in all things sports-betting, a trend which shows no sign of abating any time soon. But of more interest is the insight to be gained into the data rights market as detailed in the prospectus for the deal which was published in mid-January.

In a press release accompanying the publication of the document, Genius Sports talks about being a “true partner to sports leagues, sportsbooks and media groups worldwide.” Central to this is the deal with English and Scottish football league data rights owner Football DataCo (FDC).

The subject of an ongoing legal action brought by Sportradar, it has been widely assumed the deal which came into force at the beginning of the 2019/20 season represented a huge increase financially on the previous arrangement with STATS Perform.

Now, we have confirmation from the Genius Sports prospectus of how much is now being paid for data rights to English and Scottish league competitions. Data rights costs in 2018 came in at $9.1m but soared by 160% to $23.8m in 2019, an increase which the prospectus says was due “primarily” by the FDC deal.

The numbers indicate that Genius Group is laying out $10m-plus a year for the rights which sources suggest is a big increase on previous levels. It is also an ongoing financial commitment. The cost of current data rights deals – i.e. without any further data rights being added – is forecast to hit $30.5m in the last year of the FDC deal in 2023.

Confirmation of the hefty price-tag demanded by FDC comes later in the prospectus where it states that previous owners Apax provided Genius Sports via affiliated investment funds with a £30m letter of guarantee which was given to FDC as part of a “commitment letter.”

End user
The price for these escalating data rights is ultimately paid by Genius Sports’ clients. In a customer case study in the prospectus it says it achieved 36% growth in FDC betting data revenues after the first season of the deal while the number of clients for the official data grew from 17 to 80.

This increase is reflected in group revenues. From $87.6m in 2018, revenues rose 31% in 2019 to $114.6m. According to a presentation which accompanied the news of the float, they are forecast to rise a further 27% in 2020 to $145m and another 31% to $190m this coming year.

However, costs are rising in lockstep. Yes, that presentation forecasts adjusted EBITDA to hit $14m this year and $35m the year after. But to get to the adjusted EBITDA figure Genius Sports reverses the interest, tax and depreciation and amortisation elements – worth a combined $26m-plus. Not for nothing does the prospectus admit its definition of adjusted EBITDA isn’t “in accordance” with official UK or US accounting measures.

This is EBITDA not so much adjusted as filleted. In reality, pre-tax losses for the nine months to September 2020 came in at $20m while losses from operations were $14m. No wonder the prospectus warns that Genius Sports has a “history of losses and may not be able to achieve or sustain profitability in the future.”

Indeed, the company forecasts operational costs to increase in the years to come. “We also expect our operating expenses to increase in the future as we continue to invest for our future growth, which will negatively affect our results of operations if our total revenue does not increase.”

The increase in the cost of the rights to official English and Scottish football data is being paid by the global sports-betting operators who will no doubt be wondering where the inflation baked into Genius Sports’ prospects will lead them.

The question boils down to whether this is a one-way ratchet and a lot depends on what happens next. The whole data rights market is much more than Genius Sports and as it admits in the prospectus: “Increased competition amongst sports-data providers for data-collection rights granted by sports organisations could lead to an increase in the cost of those rights which we may be unable to pass on to our customers.”

Balancing act
All this is happening at a time of flux in the wider relationship between sports and the betting companies. In the UK, the Gambling Act review could well introduce a ban on gambling-related advertising and marketing spend, severely disrupting the current ecosystem of money following from bookies to teams and leagues.

Moreover, the UK might not be alone in going down this path. At which point, when the cost of data becomes a more important line item in the average bookmakers’ P&L, rights inflation and other arguments over data might be seen in a different light.

The global betting industry has consistently proven itself to be adaptable when it comes to costs and there is no reason to suspect that habit won’t continue. In this sense, it might be Genius Sports have kicked off a data price war without really knowing what the result of that might be either for the betting sector or the sports themselves.

Scott Longley has been a journalist since the early 2000s, covering personal finance, sport and gambling. He has worked for a number of publications including Investment Week, Bloomberg Money, Football First, eGaming Review and Gambling Compliance. Scott now runs his own editorial consultancy, Clear Concise Media, and writes for a number of online and print titles.