Famously, at the height of the euro crisis in the summer of 2012, then head of the European Central Bank Mario Draghi issued a clarion call to the world’s investment community: The bank would do “whatever it takes” to ensure the stability of the single currency.
Chief executive of GVC Kenny Alexander will surely have been aware of the provenance of the phrase when he issued those same words yesterday when GVC and MGM announced the second round of investment in their ROAR Digital joint venture.
Now the question is whether his utterances will have the same successful outcome.
GVC Sets Sights on the US Market
In announcing a further joint investment of $250m, the GVC head honcho – and surely he has earned such a sobriquet by now – went on a conference call with analysts to say that the US was now GVC’s most important target market for growth.
“I’ve always said, this (ROAR Digital) could potentially be one of the best deals we have done in terms of value creation and I remain convinced the US market opportunity is huge,” he told those listening.
“We have an aspiration to be a market leader and it is quite clear the way the market is opening up, with the amount of investment need, that we needed to up our investment… People will look at the ammunition that DraftKings and FanDuel have and ask whether we have enough to be the market leader; the answer is possibly, and if not, we will put more money in.”
Turn on the Taps
Those who know Alexander will attest he is not one to hide his light under a bushel and his utterances on the call yesterday were, as one industry insider put it, “a typically ballsy showing.”
There was more than a hint that the valuation being placed on DraftKings this summer has galvanized Alexander’s thinking. Having suggested the US opportunity was a “no-brainer” he made mention the valuation of the Boston-based rival.
“If you take the DraftKings valuation, let’s cut to the chase quite frankly, look at that valuation,” he said. “We are a competitor to DraftKings; we expect to over a five-year view beat DraftKings.”
The DraftKings comparison is intriguing. As was pointed out by analysts at Jefferies. DraftKings shares have soared over the summer – partly due to the trader bros – such that the company now boasts an enterprise value of circa $12.4bn.
In comparison, a sum-of-the-parts valuation of GVC presently ascribes zero value to the US JV at present. “Some may ask, ‘Given the DraftKings valuation, why not list the JV in the USA?’,” commented Jefferies analyst James Wheatcroft.
Gonna Need a Bigger Boat
Perceptions of ROAR Digital’s value are surely set to change. As the news release pointed out, the company now has access to 19 gaming states representing circa 50% of the US population and in New Jersey, BetMGM increased its online gaming market share to 18% in Q2 2020.
Its potential customer reach is also impressive; MGM’s M Life rewards program has around 34m members, the Yahoo Sports deal brings with it 64m monthly active users and it also has a partnership in place with Buffalo Wild Wings.
None of this is new, of course, but clearly something has clicked within GVC over the early summer period. More than once Alexander talked about the “kid gloves coming off” with regard to the US opportunity. As he said at one point, if anyone had previously underestimated the potential in the US, then it was an opinion that was no longer credible
“The prize is bigger than we thought,” he said, “Things have developed, markets have opened up, we have seen more investment, we have seen the valuation people put on market leaders, and the only way to become the market leader and create shareholder value is by going head-to-head with the operators and grabbing market share.”
Can GVC Catch Up with a Marketing Push?
That head-to-head fight will manifest itself in marketing. Analysts at Berenberg noted that the extra money means ROAR now has $370m of “investable capital” – that is, money burning a hole in its pocket. It will be used “primarily”, according to the Berenberg team, in marketing, ready as and when US sport returns.
On this subject, Alexander was also bullish suggesting the experience from Europe of sports’ return, albeit behind closed doors, was a positive for the bookies.
“NFL will start late and it will be behind closed doors but in terms of generating volumes, I don’t think that will affect us,” he said. “The other sports will follow shortly and behind closed doors for some period of time. What we are seeing in Europe, is that along as the sports are on, people are going to bet at pretty much comparable volumes.”