How a digital-media company built a sports-betting operation from scratch to break into the emerging US market
- Of all the media companies pouncing on the emerging legal sports-betting industry in the US, Canadian sports-media company, TheScore, has been among the most aggressive.
- TheScore created and launched it own sports-betting app in New Jersey last fall, instead of investing in or partnering with established betting companies the way rivals Fox and CBS have.
- Its CEO John Levy broke down for Business Insider precisely how the little-known Canadian media outfit is leveraging sport betting to make a name for itself in US market.
- He also talked about how the company plans to make money from sports betting.
In 2018, after the US Supreme Court struck down a federal ban on sports betting, digital-media company TheScore seized on the opportunity to propel its little-known brand through the emerging legal sports-gambling industry.
The sports news and information company took one of the most aggressive approaches to sports betting of any media company. It poured millions into becoming a mobile-betting operator. And, rather than invest in or partner with existing gaming companies, like Fox and CBS have, theScore created its own platform, licensing some of the tech and building the rest so that it could be integrated into existing media app.
TheScore hoped the investment would make the company, based in a Canada, a US name in sports, and diversify the digital-media company's revenue beyond advertising.
"We had a real decision to make: do we do what we did in the old poker days and in the DFS days, which is just take all this silly money that all those guys were spending on advertising?" John Levy, cofounder and CEO of TheScore, told Business Insider of the company's thinking at the time. "Or do we ... take the bull by the horns and actually be the sports-betting operator?"
TheScore Bet, the betting platform, launched in the US state of New Jersey in September, ahead of the NFL season. It's slated to roll out in states like Indiana and Colorado later this year.
Levy broke down for Business Insider precisely how the digital-media company built the sports-betting platform, and how it plans to make money from it.
"Nobody knows us except the people who use us," Levy said. "The opening up of betting all across the US will be a catalyst for us to extend our brand."
Walking away from a possible windfall of ad revenue
Levy said TheScore plunged into sports betting after its own internal analysis showed that roughly half of its mobile-app users - averaging 4.3 million monthly active users as of November 2019 - were actively betting on sports.
Most of TheScore's user base was also in the US, where more states were legalizing sports gambling. The US makes up 60% to 65% of TheScore's business, Levy said.
Levy saw an opportunity to build a betting platform that could tie into TheScore's sports-media app, fueling that media business and vice versa.
While margins on sports betting are thin, TheScore thought its media business could help it acquire gamblers at a fraction of the cost rivals like FanDuel and DraftKings were spending to acquire customers. The betting business could, in turn, boost users and engagement for the media app.
"We're getting at this sort of symbiotic relationship between the two apps that we think could be the breakthrough that really gets our brand front and center in the US market," Levy said.
Shares of TheScore, which trades publicly in Canada, have risen steadily since the US Supreme Court overturned PASPA, the federal ban on sports betting, in May 2018. The stock, which has a market capitalization of $229 million was trading at $0.63 on Wednesday, a 386% lift from two years earlier.
But getting into the business of taking sports bets also meant losing out on the potential ad revenue that could come from gaming companies trying to reach sports fans.
Levy said he didn't know how much TheScore could've made from sports-betting advertising. But he said the company used to bring in millions per year from daily-fantasy-sports advertisers, and that sports-betting advertisers might've spent more.
"It would not have been an insignificant amount, but we walked away from that because that's short lived," Levy said. "We're not in the business of just building shiny objects ... We're in the business of trying to do things differently and, we also thought that there was an opportunity to build a better product and better betting product than what was out there."
Building the betting app
Building the sports-betting business was pricey, laborious, and time consuming.
Getting regulatory approval to take bets, alone, was "tedious" and "very costly," Levy said. Every state has different processes. Some required TheScore's top executives and directors to provide as much as six years of their personal financial information, among other details. The company had to hire lawyers and accountants to handle it all.
"Probably one of the reasons that a lot of the other media companies don't want to get involved is because they don't want to go through this scrutiny," Levy said. "They're trying to generate business, but they don't want the hassle of having to go through the whole process."
TheScore had to strike deals with the casino and gaming companies that hold the licenses to operate online-betting platforms in each state. It secured access to New Jersey in December 2018 through a deal with Darby Development LLC, the operator of Monmouth Park Racetrack. It also inked in July a 20-year a deal with casino company Penn National Gaming, which recently took a stake in Barstool Sports, to access 10 other markets. And it got access to the Colorado through a deal with Jacobs Entertainment in January.
TheScore also created the betting platform itself. It licensed the underlying technology from gaming supplier Bet.Works, which also helped TheScore make connections in the industry. And it built the user interface itself so it could be tied into its media app.
To pull it off, TheScore more than doubled its product-development team from 40 full-time employees in May 2018 to 90, the company said. That team was dedicated to building TheScore Bet for roughly six months, Levy said. The company's overall headcount swelled to 210 employees as of August, up from 192 a year earlier.
All of this came with rising costs. Last fiscal year, TheScore posted a roughly $6 million increase in staff, product development, and other operational expenses that were largely tied to the betting platform, Business Insider found by analyzing company filings.
The company also attributed about $4.9 million in sales and marketing, and tech and operational costs mainly to TheScore Bet app, during its most recent quarter ending November 2019.
Levy said the effort and cost were worth it. The way TheScore's media and betting apps feed into and promote one another set the betting platform apart, he said.
TheScore Bet's registered users in the state of New Jersey can build bets within the company's media app while perusing sports stats, news, and analysis, before placing them on the betting app, for instance. The media app also has a Bet Mode that surfaces more gambling-related data and content for users.
"That's really where the special sauce is in the context of the user experience and what we're going to be able to offer," Levy said.
Sports betting as a business is a gamble. The key to profiting from it, Levy said, is to hold onto 5% to 9% of all the money that's being wagered through a platform.
"The whole sports-betting business, without being specific to us, is based upon trying to achieve a hold of somewhere between 5% to 9%," Levy said, adding that threshold can vary and will likely change over time as the US audience for sports betting grows. "When you put that against the billions and billions of dollars that are wagered, it's a very exciting business and that's why you see everybody trying to get into it."
During the first quarter TheScore Bet was live, TheScore didn't hit that marker. It generated $8.8 million in handle, or money wagered, and held onto $242,000 in gross-gaming revenue, or about 2.8%, after paying out winners. After promotions and unsettled bets, TheScore closed the quarter with negative $26,000 in net gaming revenue.
The company told investors on its latest earnings call that it expects its share of gross-gaming revenue to grow over time as it takes in a larger volume of bets and rolls out in more states. Taking on more bets could help balance out big payouts to high rollers, who also tend to be early adopters of betting platforms. TheScore also hopes the cross-promotional strategy with its media app will boost the amount of betting per user, and make it less reliant on the promotions that can eat away at net gaming revenue.
The company, which makes most of its money from advertising, also brought in about $300,000 less in overall revenue, for a total of $9.2 million, partly because it limited some ad inventory in New Jersey and surrounding areas where it was was promoting TheScore Bet.
But Levy said there were encouraging signs. TheScore's thesis that its media business would fuel the betting arm appears to be proving true. About 75% of users who placed bets during the quarter on the betting app in New Jersey came from the company's media app, Levy said.
Engagement also increased on the media app. Average monthly sessions within TheScore's media app rose 11% year-over-year during the first quarter, the company reported. Users opened the app more than three times per day on average.
Levy said TheScore Bet's customer acquisition costs were likely "not even close to half" of what its competitors are paying, but declined to share specific numbers. DraftKings, which recently announced plans to go public, reported in December that it paid, on average, $406 per new customer acquired in New Jersey during the first half of 2019, by comparison.
Nikhil Thadani, equity analyst at Mackie Research Capital, which has a "buy" rating on TheScore, told Business Insider it's too early to estimate how much revenue TheScore could generate from sports betting. He expects the betting business to help boost average revenue per user.
Thadani will be closely watching the volume of bets theScore Bet brings in, how quickly it launches in other states, and how it impacts engagement and revenue per user, to see if the platform is paying off.
"This is the catalyst that John has been waiting for for a number of years," Thadani said. "They've done a good job proving they can build and launch this thing. Now the question is how many more states can they launch in ... and how does that translate into revenue and cash flow?"
TheScore Bet is slated to launch in Indiana and Colorado this year, pending regulatory approvals. Levy said his goal is to rival market leaders FanDuel and DraftKings in the coming years.
"I want to be one of the top," Levy said. "FanDuel and DraftKings are on top now and I'm hoping over the next number of years that our market share will be at least as good as theirs."
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