Strong Sell Opinion Limited - | NYSE: GENI "Mr. Irrelevant It Doesn't Take A Genius"
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Genius Sports | NYSE: GENI
Limited
Strong Sell Opinion
“Mr. Irrelevant… It Doesn’t Take A
Genius”
Full Legal Disclaimer
This research presentation expresses our research opinions. You should assume that as of the publication date of any presentation, report or letter, Spruce Point Capital
Management LLC (“SPCM”) (possibly along with or through our members, partners, affiliates, employees, and/or consultants) along with our subscribers and clients has a
short position in all stocks (and are long/short combinations of puts and calls on the stock) covered herein, including without limitation Genius Sports Group Limited (“GENI”)
and therefore stand to realize significant gains in the event that the price declines. Following publication of any presentation, report or letter, we intend to continue
transacting in the securities covered therein, and we may be long, short, or neutral at any time hereafter regardless of our initial recommendation. All expressions of opinion
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This research presentation expresses our research opinions, which we have based upon interpretation of certain facts and observations, all of which are based upon publicly
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2
Table of Contents
1 Executive Summary
2 Revenue Growth Concerns
3 High Cost For Data Rights
4 Worrisome Value-In-Kind “Barter” Revenue
5 Valuation Analysis: 60% - 80% Downside Risk
3
Spruce Point’s Activist Success Exposing
Companies Hyped As Technology Disruptors
Spruce Point has a strong track record of exposing highly promoted technology disruptors before the sell-side and
investors could figure out the business has inflected negatively.
iRobot / IRBT Echo Global / ECHO BazaarVoice / BV
Report Oct 2012 May 2015 / June 2017 Sept 2016 May 2012
Enterprise $700 million $2.5 billion $1.1 billion $1.2 billion
Value
Company Leading cloud software solution and Innovative robotics company capable Innovative technology disruptor in the Disruptive provider of social
Promotion / internet vertical destination for group of leveraging its success in robotics third-party logistics space, hyping commerce solutions that help clients
Situation activities vacuums into other product multiple iterations of its ETM and capture, display and analyze online
Overview categories such as telehealth, and Optimizer technology, while quietly word-of-mouth, including consumer-
lawn mower robots churning through five CTOs generated ratings and reviews
Our Criticism Active attempted an IPO years earlier and Failures to innovate and repeated Management has a history of Our research revealed that BV’s
failed. Instead it embarked on an promises to diversify into other associating itself with companies that solution was nothing more than a
ambitious acquisition spree resulting in a categories. Company is more a were touted as technology disruptors, money losing, rapidly commoditized
structurally worse business more akin to a promotional vehicle for insiders to but which ultimately fizzled out and had service that would not scale. Its IPO
business process outsourcer. The consistently sell stock at inflated no lasting endurance. Notably: Groupon prospectus was littered with social
company appears to be hemorrhaging multiples, while masking pressure and Innerworkings, both which had media buzz words at a time when
money, while navigating a cash crunch, through related distributor earnings restatements Facebook was being taken public,
and gaming its accounting to mask an acquisitions and $25 analyst price targets would
increasingly fragile financial profile prove unrealistic
Successful Shortly after the report on the next iRobot’s home vacuum market share In Q2’17 ECHO cut its FY17 revenue BV’s CFO and CEO eventually
Outcome earning call, management introduced has been significantly eroded by new outlook and suspended longer-term resigned and its share price fizzled to
longer-term guidance which was entrants, forcing significant price guidance given changes in its end low single digits before ultimately
significantly below street estimates, compression. Its telehealth robots market and failure to hit synergy targets being acquired for just $5.50/sh, 54%
causing the share price to collapse over have failed to deliver any upside, with Command. ECHO sell-side brokers below its $12 IPO price and 70%
30%. The Chairman and CEO resigned and while it finally just launched a lawn downgraded their recommendations below our initiation price
an interim CEO was eventually brought in mower vacuum in Feb 2019, yet has from Buy to Hold. ECHO’s shares fell to a
to sell the business, which was eventually not been able to articulate the price 52 week low of $13, or nearly 50%
sold to Vista Equity in Sept 2013 or distribution strategy into the U.S.
The Active Network report was written by Prescience Point Capital Management, co-authored by Spruce Point founder Ben Axler. The recommendations shown above are not intended to be exhaustive. A full list of
all recommendations made over the past twelve months can be found on our website 4
Spruce Point’s Recent Success In The Technology
Services Sector
Company:
Exchange: Ticker Nasdaq: VRNT Nasdaq: FSCT
Report Date May 2019 May 2020
• Forescout is an IT solution provider for device
visibility and controls solutions
• Aggressive spending on low quality M&A obfuscates • Forescout agreed to be acquired by Advent Int’l for
true organic growth $33/share in a $1.8bn deal
• Run by a CEO who was investigated, and found to • After a forensic review of the proxy statement and
Spruce Point’s carry out aggressive business practices channel checks, Spruce Point believed that
Criticisms • Aggressive accounting and financial presentation of Forescout’s financial projections were overly
cloud sales optimistic
• Shares up 45% YTD but have 60-70% downside risk • We wrote a letter to Advent, arguing it had grounds
to revise its offer price or terminate the transaction
• We argued FSCT shares should be valued between
$17- $22 regardless
• On May 18, 2020 Forescout provided an update that
• Months following our criticism, Verint issued on May 15th Advent would not proceed to complete
disappointing results, and its share price declined by the deal
Successful 30% • On May 20th, Forescout commenced litigation
Outcome • Verint announced it would separate into two public against Advent and shares hit a low of $18.10
companies, raise strategic capital, buyback stock • On July 15th, the parties agree on a revised
and add two new directors $29/share price, or 12.1% below the initial deal
price
The recommendations shown above are not intended to be exhaustive. A full list of all recommendations made over the past twelve months can be found on our website 5
Executive Summary
55 Million Reasons To Sell In The Near-Term;
60% - 80% Downside To $3.25-$6.50 Per Share
Genius Sports (“GENI” or “the Company”), a provider of live sports data from its partnerships with sports leagues to sportsbook customers, has
recently gone public through an acquisition by DMY Technology Group (DMYD), a special purpose acquisition company (SPAC). While the
market’s current view of Genius reflects the growth of the sports betting industry, in reality, our view is that Genius is just another intermediary
that provides similar data to its competitors and will likely fail to capitalize on the wider industry growth. Spruce Point has conducted an in-depth
analysis of Genius including speaking with various industry experts and analyzing partner contracts. A sports data providers’ competitive
advantage is its key exclusive rights (NFL & Premier League for Genius), which Genius is paying considerable fees for. In the case of the NFL
rights, a Sportradar executive explains that Sportradar was unable to justify the price Genius is paying the NFL. We find exclusive rights are only
valuable for live/in-game betting and less so for the majority of wagers placed on the final result of matches. Our research suggests Genius’
business is under pressure and struggling to achieve its high growth targets after the initial one-time boosts from purchasing the exclusive
rights. Genius’ bull thesis revolves around a stated 5% revenue share rate of gross gaming revenue (GGR). Our research shows this figure is
more than double the current market rate and typically only applies for exclusive data rights. We have significant concerns regarding the
Company’s “noncash” revenues, a result of contra/barter deals with sports league partners where services are provided “at no cost” in return
for rights to league data, that may result in inflated revenue and may lead to future financial reporting issues. In addition, we believe investors
may be misguided by potential “fake news” around growth opportunities, including betting revenue from NCAA events where Genius does not
own the betting rights. We believe Genius’ shares have significant long-term downside to our price target range of $3.25 - $6.50 per share, a
discount below the $10 acquisition price where its previous private equity sponsor sold shares in its IPO. In the near term, we believe there could
be up to 55m shares of GENI that could be sold. We estimate 35m insider shares become unlocked next week after a 60-day period following the
June 9th equity offering, 11.2m NFL warrants are exercisable through next week, and 9.2m public warrants can be exercised on August 18th .
We believe Genius Sports, an overhyped revenue growth story assumed to benefit from the broader sports betting market, is facing competitive
pressure and is unlikely to achieve its stated 25%+ growth targets
Despite lower revenue growth by competitors in 2020, Genius reported revenue growth of 30% for 2020
• We believe this growth is likely a result of a one-time benefit driven by the new Premier League partnership
Genius’ competitive advantage and main driver of 2020 revenue growth is its exclusive Premier League rights which are expensive at a cost of ~$14m/yr
• Genius is facing an anti-competitive lawsuit from Sportradar relating to The Premier League contract, a risk to Genius’ major source of revenue
Genius purchased the NFL rights for ~$120 million per year including equity
• Based on our research, Genius likely overpaid for the rights as competitor Sportradar did not find the price economical
Our research shows a significant disconnect between management’s guidance and reality
• $60bn Total Addressable Market includes pre-match betting (we estimate ~30%) where it is hard to charge revenue share as there is no value in
exclusive data
• We believe revenue shares are typically in the range of 1.5%-2%, for tier 1 exclusive deals
• Growing competitive pressures from sports leagues and sportsbooks will likely pressure margins
Disintermediation Risk: a customer told us they plan to directly approach sports leagues to “break the model” and eliminate the middleman
• “This is definitely a possibility. Another guy and I within the company have already been tasked to go direct, to approach the actual source of the data
and see if we can do direct deals.” “You can get more from us and our competitors and we can pay less because there is no middleman to be paid...”
“Its all doable, its not even near impossible.” 760% - 80% Downside To $3.25-$6.50 Per Share
Genius is not a “bet on every horse”, it’s a bet on being able to secure exclusive, yet expensive, sports league rights
We believe the value of U.S. sports league data rights will be high enough that they will be unprofitable for data providers as the economics are
captured by the leagues. The price of the NFL rights will likely put significant pressure on Genius’ bottom-line for the next few years
• Genius’ NCAA rights are for media and not betting purposes, and it is unlikely the NCAA will venture into sports betting to protect its athletes
• Competitor Sportradar has high profile investors including multiple NBA Owners (Michael Jordan, Mark Cuban, Ted Leonsis)
While investors may draw comparisons between Genius and high flying DraftKings (DKNG), DraftKings and other consumer focused brands appear
better positioned to benefit from industry growth including the opening of sports betting in the United States
• We believe Genius lacks a competitive edge, is required to pay large sums for exclusive U.S. data and faces competition
• While DKNG grew revenue 90% in 2020 and expects 2021 growth of 63-79%, this is likely a result of investment in operating expenses, an
investment GENI is unlikely willing to make. DKNG experienced monthly paying user growth of 114% in Q1’21
Genius compares itself to “Online Gaming” peers, however, we believe these consumer-focused companies are not direct peers to Genius
• Genius’ key revenue driver is sportsbooks customer growth while online gaming peers will benefit directly from the growth of dollars waged. It is
unlikely sportsbooks will be willing to concede meaningful economics to data providers, especially for non-exclusive data
• We believe these peers are better positioned to capitalize on the opening of sports betting in the United States
Revenue attributed to “noncash consideration”, a result of value-in-kind / contra deals (i.e. barter transactions), raises significant concerns
regarding Genius’ revenue recognition and reported / forecasted growth
Red Flag: industry experts have told us 11% of revenues from leagues seems high; Sportradar’s revenue from leagues is at most 5%
As part of contra deals, Genius exchanges its services (e.g. software) for the rights to leagues’ data and sells the data to sportsbook customers
• Genius likely records the assigned values of these provided services as revenue
Our biggest concern is management’s ability to potentially manipulate the “fair value” assigned to these services, inflating revenue and growth
• Red Flag: from our conversation with a former Genius Sports Manager, it is unlikely that the sports league partners have the means to pay the
assigned values of Genius’ services stated in the partnership contracts
We believe Genius shares are a poor risk / reward with unrealistic growth assumptions
Genius’ recent share price performance has been the result of investors flocking to companies with sports betting exposure
• It is highly unlikely Genius will ever live up to the baked in expectations that justify its current valuation
Genius has become extremely expensive on a revenue multiple basis since its merger with DMYD
• At the time of the deal, with revenue growth guidance of 25%+, Genius may have appeared cheap at 7.4x 2021E and 5.9x 2022E revenues
• Genius’ private equity owner decided to sell at what appeared to be a discount to market for unexplained reasons
GENI now trades over 13x 2021E revenues
• We believe these are unsustainable levels as it appears growth has slowed after the initial benefit from the Premier League
• Current share price reflects multiples of “online gaming” peers whose revenue growth is higher with a different customer base
Spruce Point believes Genius’ shares have significant downside to our price target range of $3.25 - $6.50 per share, below the $10 acquisition price
where its previous private equity sponsor sold shares in its IPO
8Well-Timed News Ahead Of Lock-Up
Spruce Point’s view on Genius’ August 5th, 2021 press release announcing a “transformational” NFL deal:
Investors should have EXPECTED this news was coming given the
existing relationship between Genius and DraftKings.
Why else would Genius purchase the NFL rights if its customers
were not interested?
There is no evidence previous partnerships with DraftKings have
helped Genius generate positive cash flow or earnings and the
economics of this deal were not provided.
Spruce Point believes this news came at an opportune time for
the Company, days ahead of the beginning of its lock-up.
DraftKings’ stock has hardly moved on the news, signaling that
this is largely irrelevant to DraftKings
9Near-Term Risks Out Way Positive Catalysts
With recent catalysts, including promoting the partnership with DraftKings for the NFL deal, now behind Genius, we
believe going forward, there are more downward risks than positive catalysts.
Positive Catalysts Negative Catalysts and Risks
Recent hype around SPAC merger 60-day lock-up from June 9, 2021 capital raise
completed allows selling second week of August
9.2 million public warrants become exercisable
Investors interest in sports betting exposure August 18, 2021 at $11.50 and are in-the-
money
Promoting a partnership with the
11.2 million vested NFL warrants are
DraftKings (an existing customer) for the
exercisable within 60 days (Aug 7th)
NFL deal
Potential need to raise additional equity
Risk NFL deal does not materialize as
expected
Unlikely to add new Tier-1 league rights and
risk of being unable to renew key partnerships
Integration risk of Second Spectrum and Fan
Hub
High valuation means expectations are high
At least one broker, Goldman Sachs, recently
trimmed its price target 10Questions For Management
Spruce Point believes Genius’ revenue recognition practices and lack of financial disclosures leaves investors with
many unanswered questions.
Mark Locke “We work with a vast number of sports to collect the underlying data that’s required for sportsbooks
CEO
Genius Sports through contra-relationships or swapping our software with those sportsbooks.”
Source: M&A call
Value-In-Kind Revenue
Are your revenues from contra deals (or any form of value-in-kind) included in your financial projections?
• What percentage of your 2020 revenues are explicitly VIK or contra deals, provided “at no cost to the partner”?
• What amount of the forecasted $45 million y-o-y growth in 2021E will be attributed to VIK revenues?
What percentage of sports league partners pay any cash revenue to Genius?
Customer Growth
What is the total TAM of legal sportsbook customers and how penetrated is Genius already?
How many new sportsbook customers have you signed in the last 12 months and what are the associated revenues?
What U.S. sports leagues do Genius hold exclusive rights for? How many sportsbooks is this data being sold to?
• How many clients in the United States is Genius currently selling NBA data to?
Does Genius have the rights to official betting data for NCAA events?
• Does Genius sell or market any NCAA data to current or prospective sportsbook customers?
Business Model
Genius claims it has a competitive moat around data supply. As the cost to acquire official data rights continues to become
more competitive, how will Genius achieve profitability?
How will small sports leagues ever be able to afford the cost of high-tech solutions required for Genius’ data collection?
11Data Rights Value Chain
In the value chain, Genius in the middleman between leagues and sportsbook. Genius purchases exclusive rights
from leagues and often provides software at no cost. Genius’ sportsbook customers use the data feed provided by
Genius for their end market betting and media products.
Provide data rights Provide data
Sports Payments for rights Sportsbooks
Leagues Payment for data
Provide software (“VIK”)
Data Provider Competitors
Source: Genius Investor Presentations, Spruce Point research
12Concerns With Craig-Hallum Report
Based on our research, we find many inconsistencies with Craig-Hallum’s report.
On January 20th,
2021, boutique sell-side research firm Craig-Hallum initiated coverage on Genius with a price target
of $25 per share. That day Genius’ share price (at the time trading as DMYD) increased over 20%.
Craig-Hallum Claim Spruce Point Reality
– “Attractive ✘ Revenue growth has a one-time benefit from acquisition of new data rights (i.e. Premier League in
fundamentals: strong 2019)
Fundamentals
revenue growth & ✘ Profitable only on an “Adjusted” basis
profitable” ✘ Will need to continue buying expensive rights to achieve targeted growth
– “We believe” market ✘ Experts have told us Genius market share is around 10-15%
Market Share share is close to 30% ✘ An expert told us Sportradar's revenues are ~€400m (~$480m). Considering just Sportradar
– Sportradar ~40% (excluding IMG & Stats), this implies Genius’ $145m of revenue is at best ~24% market share
Positioning / – Well positioned ✘ No competitive advantage against sports leagues except being the highest bidder
Partnerships – Key league partnerships ✘ Value of exclusive data is for live/in-game betting which is a relatively small portion of total wagers
✘ We believe a large percentage of these rights have little to no value (Drone Racing League, Premier
– Exclusive data for 110k+
Exclusive Rights Lacrosse League, Beach Soccer, etc.)
events
✘ Many of these rights were likely acquired by VIK/contra agreements
– NCAA (no betting); NBA ✘ NCAA media partnership (no betting) offers no upside for gaming revenue share
U.S. Rights (non-exclusive); ✘ NBA rights are not exclusive providing no competitive advantage
– Recent NFL rights ✘ Overpaid for NFL rights and will likely struggle to profit from deal based on experts’ comments
– $50bn market by 2025 ✘ Despite being an overly aggressive estimate for legal sports betting, much of the growth is expected
Sports Betting – Well positioned to to come from the United States
Market capture U.S. betting ✘ Genius likely only receives revenue share for betting based on exclusive rights (live data)
market growth ✘ Much of this U.S. growth is from media, not betting (i.e. NCAA)
– 11% of revenue…
Sports League ✘ For exclusive rights, Genius pays the league
Leagues pay for the data
Revenue ✘ For other rights, Genius provides services in exchange for data rights, resulting in noncash revenues
Genius collects
Streaming – Large upside with
✘ Currently a very small part of Genius’ business (~1% of revenue) and has struggled to secure rights
Potential streaming
Source: Craig Hallum research report (1/20/2021), Spruce Point research 13We Believe Genius Overpaid For The NFL Deal
While Genius has recently promoted its relationship with the NFL as a “strategic partnership”, Spruce Point views it
as solely a rights deal where Genius purchased the rights to the NFL’s betting data. It is rumored Genius paid over
$120 million in a combination of cash and equity to the NFL.(1,2) According to ESPN, Sportradar was paying the NFL
$20 million annually. This means Genius’ $120 million fee is 6x the previous deal. Based on information presented in a
Tegus interview by a Strategy Director at Sportradar, they did not feel the price the NFL was asking for its rights was
“economically viable.”
“And obviously, the NFL situation over the course of the last couple of weeks is partly a function of that. And what was
based on an assessment in terms of, okay, what is the value of that official status in terms of the exclusive access that
we'll give you. And we took the view that against what the NFL were charging for that access. We didn't think it was
commercially viable. We didn't think there's sufficient value just because of the nature of the NFL game that the
incremental revenue upside didn't justify the additional investment it would have required us to make to get that official
data stages. But I think aside from that, there's no doubt, I think Tier 1 league than official states or at least status and
status doesn't have to be official for you to get this access necessarily, but status that will facilitate technical access and
then allow you to compete in the increasingly important question of latency is going to be crucial.”
“A lot of the infrastructure is already there because, of course, we had official status for a considerable period. So there
was no issue certainly over what it would take. It was just a question of the number that the NFL decided to attach to
Strategy
Director it. And obviously, the bar have been lifted on the media rights deal, they get confident, of course, and it's entirely that
prerogative, and probably they wanted, for sure. We just couldn't see economically away of that working.”
Sportradar
“At that level of investment that we're talking about, whether that can actually be profitably commercialized, and that's a big
question on mind still. So you might see an adjustment. I think probably in a couple of years it will still be here. There'll be
some news around, okay, for everybody. And so I think this next compassing to be interesting in a period to decide,
okay, where realistically, where does this market even in the U.S. with powerful, important inflation leagues.”
“So the market still allows, of course, lots of other operators to collect, ingest, data and lots of other different ways where
latency isn't so much of an issue. So we still offer NFL markets. We collect the data in different ways. We put people
in ground still. They don't actually recognize the access. It just means that we were a bit slower and the feeds can be slight
less quality. So they're built in a product advantage that Genius can now begin to exploit. But it doesn't preclude the
relationship with the NFLs or for other operators, of which, of course, we're the largest. So that's the first thing to
say.”
(1) ESPN
(2) BettingUSA.com
Source: Tegus 14Questionable VIK Revenue Values
Spruce Point questions the values assigned by Genius to its VIK revenue contracts. We believe these values may be
significantly above “fair value”. We believe these VIK revenue contracts allow management the flexibility to potentially
manipulate its reported revenue.
“The contract prices we have seen quoted are $50 or $90 thousand. Can these leagues afford
Spruce Point
this?”
Former “No, to be honest, if I looked up countries within each region, America, Africa, Asia, $90 thousand
Genius
Sports
would be a lot for them to pay each year. They have different priorities about development and
Manager digitization is not their core business.”
We believe it is unlikely Genius’ partner
leagues would pay the assigned values for
these services (e.g. software, integrity
services) which are currently being offered by
Genius to the leagues for free
Source: Partner Services Agreement (Contract 2)
15Revenue Growth Concerns
Aggressive Revenue Growth Targets
Genius’ comments and investor materials have sold investors on continued ~25%+ growth.
Mark Locke – CEO Genius Sports Niccolo de Masi – CEO DMYD
“Europe is our core, where we’re strongest. Even there we’re seeing strong, consistent growth.
We’ve had over 250% increase over the past four years and even during COVID the business is
“You can see in our prospectus or
other our PIPE roadshow
performing quite well, with over 25% growth.” document filed with the SEC that
—Interview with Sportico (October 27th, 2020) we were growing even
25% year-on-year in the middle
“In 2020, we will grow 25% despite the COVID disruption to global sport, really helping to of COVID in Q2 when there
demonstrate our mission-critical nature of our relationships with our sportsbooks.” weren’t a lot of sports in the US
“So looking at 2021 and 2022, you can see that its continued growth powered by those levers that operating and that speaks to the
we’ve already discussed, with a CAGR of 29% over the course of the next couple of years.” breadth of our rights offering, as
—M&A Call (October 28th, 2020) well as how integral we are to
sportsbook operators.”
“As a business, we’ve grown 25% in spite of COVID, top-line growth.” —Interview with Benzinga
—Jefferies Conference (December 3rd, 2020) (December 23rd, 2020)
Source: Genius Sports Investor Presentation 17How Is Genius Growing At 25%?
While Genius has reported strong growth during the COVID-19 pandemic, Spruce Point finds competitors’ revenue
growth is significantly lower than Genius’. When speaking with an industry expert and former employee of Genius’
closest competitor Sportradar, they stated the business had limited growth in 2020 compared to 2019.
How is Genius’ growth outpacing competitors by such a wide margin?
We believe there has been a one-time boast in 2020 from the addition of the Premier League in Q4 2019.
Competitors’ Estimated Revenue Growth Sportradar
“Now, in times of Corona, you found out that live sports being
shut down suddenly became an issue. No one had thought
about it before, but if there are no live events, there's no
betting data. That's why Sportradar in 2020 roughly has the
same numbers as 2019. So that was a year of no growth. That
“Not going to
is because there were two to three months with no live
have any
growth”
sports.”
—Former Sportradar employee (12/28/2020)
Source: Spruce Point research
Entain (formerly GVC Holdings) Kambi
“As to how this impacted Kambi’s year-to-date performance,
revenue for the nine months to the end of September was
€70.7m, an increase of 7.8% on the same point last year.”
Note: Entain’s total Source: iGamingBusiness.com
revenue includes
Gaming which Genius
does not compete in
Source: GVC filings
18No True Profitability As Revenue & Adjusted
EBITDA Grows
Despite reported revenue growth, Genius continues to report large operating losses. We believe the improvement in
2020 adjusted EBITDA was a result of gross profit growth following the addition of the Premier League rights.
Additional benefits to EBITDA came from cuts to research & development expense (R&D) which should raise
questions as Genius needs to continue innovating to stay ahead of the curve.
Historical
$ in millions Annual Interim Annual Interim Annual Interim
9 Months End 9 Months End Q4 FY Q1
FY 2018(1) Q4 2019 FY 2019
9/30/2019 9/30/2020 2020 2020 2021
Revenue $87.6 $77.8 $36.8 $114.6 $102.7 $47.0 $149.7 $53.7
Operating Loss ($17.2) ($25.8) ($10.4) ($36.2) ($14.0) ($7.1) ($21.0) ($3.1)
Adjusted EBITDA $0.3 ($5.0) ($1.2) ($6.2) $13.5 $4.0 $17.5 $9.3
Adjusted EBITDA Margin 0.4% (6.4%) (3.3%) (5.4%) 13.1% 8.6% 11.7% 17.2%
(1) Sum of Predecessor and Successor financials
Source: Company financials, Spruce Point analysis
19Multiple Signals Of Financial Strain
We observe multiple classic signs of financial strain within Genius’ financials. From a working capital perspective, as
a percentage of revenue, accounts receivable have increased ~5% and deferred revenue has more than doubled. As of
Q1 2021, Genius no longer discloses the noncash consideration included in the Company’s revenue.
Annual Interim
$ in millions
FY 2018(1) FY 2019 FY 2020 Q1 2021
Revenue $87.6 $114.6 $149.7 $53.7
Noncash Consideration ($3.3) ($7.9) ($10.4) ($3.1)
Cash Revenue $84.3 $106.7 $139.3 $50.6
Accounts Receivable $10.2 $18.4 $24.8 $23.2
% of Revenue 12% 16% 17% 11%
% of Cash Revenue 12% 17% 18% 15%(2)
Deferred Revenue $6.8 $16.0 $26.0 $24.8
% of Revenue 8% 14% 17% 12%
% of Cash Revenue 8% 15% 19% 16%(2)
2018 - 2020
(1) Sum of Predecessor and Successor financials
(2) Based on LTM cash revenue
Source: Company financials, Spruce Point analysis
20Working Capital Worse Than Peers
Spruce Point finds Genius’ working capital (current assets – current liabilities) to be significantly worse than its peers.
We attribute this to Genius’ inferior distributor business model in which Genius is at the mercy of its data suppliers
and end market sportsbooks.
Annual LTM
As a % of revenue
FY 2018(1) FY 2019 FY 2020 LTM Q1 2021
Working Capital
Genius Sports 19.0% (13.9%) (16.0%) (14.6%)
DraftKings n/a 1.9% 266.9% 306.9%
Golden Nugget n/a (12.4%) 66.3% 130.9%
Rush Street Interactive n/a (13.9%) (38.2%) 99.2%
PointsBet 17.8% 223.3% 159.2% 291.9%
Note: Based on companies' fiscal year ends
(1) Sum of Predecessor and Successor financials for Genius Sports
Source: Company financials, Spruce Point analysis
21Genius Shows Financial Strain Compared To
Online Gaming Peers
We compared Genius’ accounts receivable and deferred revenue as a percentage of revenue to its stated online
gaming peers. We found Genius to be an outlier with significantly higher figures for both metrics.
Annual LTM
As a % of revenue
FY 2018(1) FY 2019 FY 2020 LTM Q1 2021
Accounts Receivable
Genius Sports 11.7% 16.0% 16.5% 13.8%
DraftKings n/a 3.1% 7.2% 5.8%
Golden Nugget n/a 8.8% 7.0% 9.8%
Rush Street Interactive n/a 7.8% 10.6% 9.4%
PointsBet 1.3% 1.9% 0.4% 0.2%
Deferred Revenue
Genius Sports 7.8% 14.0% 17.4% 14.8%
DraftKings n/a 0.0% 0.0% 0.0%
Golden Nugget n/a 12.1% 10.0% 8.3%
Rush Street Interactive n/a 8.4% 2.8% 4.0%
PointsBet 1.0% 1.0% 0.4% 0.1%
Note: Based on companies' fiscal year ends
(1) Sum of Predecessor and Successor financials for Genius Sports
Source: Company financials, Spruce Point analysis
22Disconnect Between Guidance & Reality
Based on our research, Spruce Point believes there is a disconnect between Genius’ guidance / Wall Street’s
consensus compared to reality.
Genius’ Long-Term
Spruce Point Reality
Opportunity?
– $60bn includes pre-match betting where it is difficult to charge revenue share as data is readily
available to all providers and sportsbooks (we estimate only ~70% is live betting)
– Likely includes a large illegal sports betting market which does not pay revenue share
– Not all sportsbooks use Genius; if so then the market would be fully penetrated
– Competitive data providers have or will likely offer exclusive partnerships and bundled offerings
– Experts have told us Genius is currently in the range 10% - 15% of the market
– 40% is higher than sell-side analysts’ overly optimistic projections
– Our research shows this is in the range of 1-2%
– Higher revenue share rates occur when data providers fully trade for the sportsbook; currently
a tiny percentage of the business and unlikely to increase
– Highly unlikely as any margin has to come at the expense of sports leagues or sportsbooks
– Data is not free and at some point there will be a ceiling that data providers can charge
Source: Genius Investor Presentation, Spruce Point research
23Disconnect By The Numbers
Adjusting management’s and Craig-Hallum’s long-term guidance for realistic expectations paints a completely
different picture for Genius’ future financial profile. Based on our market research and conversations with industry
experts, we believe long-term revenue and EBITDA will be 80-90% below current expectations.
Market Expectations Spruce Point Reality Case
Craig-Hallum Spruce Point Spruce Point
$ in millions Genius(1) Rationale
Base Case(2) Low Case High Case
~30% is live betting where revenue share will
Global Sports Betting GGR (A) $60,000 $76,000 $42,000 $53,200
not be collected
Currently ~10-15%, we give Genius the benefit
Genius Market Share (B) 40% 30% 25% 30%
of capturing additional share
GGR From Genius Data (A*B=C) $24,000 $22,800 $10,500 $15,960 --
Disconnect between current reality; limited
Revenue Share % (D) 5.0% 4.5% 2.0% 2.5%
bargaining power to expand revenue share %
Genius Revenue (C*D=E) $1,200 $1,026 $210 $399 --
Additional market share will come at the
EBITDA Margin Target (F) 40% 40% 25% 40%
expense of margin as cost for rights increase
EBITDA (E*F) $480 $410 $53 $160 --
(1) Genius Investor Presentation
(2) January 20, 2021 report
Note: GGR = gross gaming revenue
Source: Company financials, Spruce Point research
24Concerns With Craig-Hallum Report
Based on our research, we find many inconsistencies with Craig-Hallum’s report.
On January 20th,
2021, boutique sell-side research firm Craig-Hallum initiated coverage on Genius with a price target
of $25 per share. That day Genius’ share price (at the time trading as DMYD) increased over 20%.
Craig-Hallum Claim Spruce Point Reality
– “Attractive ✘ Revenue growth has a one-time benefit from acquisition of new data rights (i.e. Premier League in
fundamentals: strong 2019)
Fundamentals
revenue growth & ✘ Profitable only on an “Adjusted” basis
profitable” ✘ Will need to continue buying expensive rights to achieve targeted growth
– “We believe” market ✘ Experts have told us Genius market share is around 10-15%
Market Share share is close to 30% ✘ An expert told us Sportradar's revenues are ~€400m (~$480m). Considering just Sportradar
– Sportradar ~40% (excluding IMG & Stats), this implies Genius’ $145m of revenue is at best ~24% market share
Positioning / – Well positioned ✘ No competitive advantage against sports leagues except being the highest bidder
Partnerships – Key league partnerships ✘ Value of exclusive data is for live/in-game betting which is a relatively small portion of total wagers
✘ We believe a large percentage of these rights have little to no value (Drone Racing League, Premier
– Exclusive data for 110k+
Exclusive Rights Lacrosse League, Beach Soccer, etc.)
events
✘ Many of these rights were likely acquired by VIK/contra agreements
– NCAA (no betting); NBA ✘ NCAA media partnership (no betting) offers no upside for gaming revenue share
U.S. Rights (non-exclusive); ✘ NBA rights are not exclusive providing no competitive advantage
– Recent NFL rights ✘ Overpaid for NFL rights and will likely struggle to profit from deal based on experts’ comments
– $50bn market by 2025 ✘ Despite being an overly aggressive estimate for legal sports betting, much of the growth is expected
Sports Betting – Well positioned to to come from the United States
Market capture U.S. betting ✘ Genius likely only receives revenue share for betting based on exclusive rights (live data)
market growth ✘ Much of this U.S. growth is from media, not betting (i.e. NCAA)
– 11% of revenue…
Sports League ✘ For exclusive rights, Genius pays the league
Leagues pay for the data
Revenue ✘ For other rights, Genius provides services in exchange for data rights, resulting in noncash revenues
Genius collects
Streaming – Large upside with
✘ Currently a very small part of Genius’ business (~1% of revenue) and has struggled to secure rights
Potential streaming
Source: Craig Hallum research report (1/20/2021), Spruce Point research 25Optimistic Estimates For Revenue Share
The bull case is dependent on capturing a significant revenue share rate of the growing global betting market. We
have found that not all sportsbook customers are on a revenue share plan, and those that do, are on a smaller
percentage than portrayed for leagues with significant dollars waged (1-2% vs. 5%). Based on our conversations,
sportsbooks will only agree to any revenue share with exclusive data, therefore limiting the potential upside. It is
highly unlikely sportsbooks, who control the valuable relationships with bettors, will be willing to concede meaningful
economics. The larger share of economics Genius and data providers demand, the more incentive for sportsbooks to
go directly to sports leagues.
“With regards to what bookmakers spend with data providers, here is what a sportsbook will pay as a revenue share.
The only way to reach 5% of GGR is for Genius to fully trade for the sportsbook (this is called outsourced trading
services and is a tiny part of GSG’s business). My sportsbook and every other one would never outsource their
trading to Genius and not pay 5% of GGR.”
“Sportsbooks don’t pay a revenue share unless it’s exclusive and valuable content. The English Premier League
Betting (EPL) is, but Genius’ sportsbooks don’t pay a revenue share for 110,000 bundled matches with said EPL. They pay
Industry revenue share in exclusive one-offs (e.g. NCAA data). There are minimum fees per month as Genius alludes to but this
Expert is not always revenue share.”
“A data provider can charge 6% for a low tier exclusive esports game but only 1.5% for Premier League. The better
the league, the higher the share but there is a cap of 2% for big sports. For small sports where a data provider has
complete exclusivity, not televised and no one else can ever get in the stadium, you can get 6%. The total dollars of
GGR on these are so low. Genius has increased their fixtures for such low tier esports. Many sports have no GGR
attached anyway as there are competitor providers who charge a flat fee per month.
Revenue share rates fluctuate by league
For larger leagues representing a higher percentage of total dollars waged, the revenue share is less than 2%
Leagues with 5% revenue shares represent a much smaller share of total dollars waged
26Current Competitive Advantage &
Risk Of Disintermediation
Based on our conversations with sportsbook customers and industry experts, Genius’ differentiating factor is its
exclusive soccer rights in Europe. We believe there is a significant risk that the current data distribution model will be
disrupted as the industry grows and sportsbooks approach the leagues directly. Why would sports leagues (NBA,
NFL, Premier League) who control the access to data or sportsbooks who control the customers want to lose
economics to a middleman such as Genius?
A customer told us it’s likely they will try to disrupt Genius’ model by
Genius’ value proposition is exclusive deals
directly approaching sports leagues
“You have Genius, Sportradar, Stats Perform, IMG and they all “We have a few strategic work streams because as price has been
kind of play in a similar space in terms of data and streaming. going up with these data providers, it has been more of a
Currently if I look at Genius in terms of what is their big strategy to go directly and we have been having success in
differentiation to us is they are the exclusive provider of certain areas.”
Championship soccer in the UK.”
—Sportsbook Customer “This is definitely a possibility. Another guy and I within the
company have already been tasked to go direct, to approach the
“Yes, the exclusivity would be the key bit. If I was to look at actual source of the data and see if we can do direct deals. We
others like IMG they are our sole ATP tennis provider. If you look
are approaching them to see if we can try to break the model.
at Stats Perform, they are leading the way with the MLB, NBA,
You can get more from us and our competitors and we can pay
NFL, NHL, and all of these American sports. Its different for
less because there is no middleman to be paid. Its kind of a win-
different providers, hence why we use them all.”
win situation.”
—Sportsbook Customer
“There are challenges in terms of putting it all together but it is
“For the NFL, it’s not exclusive but official rights from [Genius all doable, its not even near impossible.”
competitor], so we definitely don’t pay as much since the income
is sprinkled around to different providers.
—Sportsbook Customer
—Sportsbook Customer
27Comparing Genius To DraftKings
Since its merger with a SPAC in December 2019, DraftKings (DKNG) has been a story stock fueled by the hype and
momentum of sports betting. We believe it is inappropriate for investors to compare Genius to DraftKings. According
to Genius’ investor presentation(1), DraftKings has one of the highest revenue multiples and industry leading revenue
growth forecasts. Our research shows DraftKings’ growth in paying users and operating expenses stands out relative
to Genius.
DKNG’s growth is
accelerating and
outpacing Genius’
which is growing
off a significantly
smaller base
Source: DraftKings Q1 2021 press release
DraftKings Genius Sports
Exposure to United DraftKings is assumed to be a leading beneficiary of the Offers limited exclusive U.S. data to sportsbooks at a
States Market opening of sports betting in the United States high cost to acquire
User / Customer 29% growth in 2020 monthly unique payers (44% in Q4)(2) Customer growth dependent on exclusive rights (i.e.
Growth 114% y-o-y growth in monthly unique payers for Q1 2021(3) Premier League) and growth appears to be slowing
Investment Fuels Operating expenses grew 3x y-o-y fueling DraftKings’ 90%
FY 2020 operating expenses down Y-o-Y
Growth revenue growth and projected 63%-79% growth for 2021(4)
(1) Genius Sports Investor Presentation (slide 26)
(2) DraftKings Q4 2020 press release
(3) DraftKings Q1 2021 press release
(4) Y-o-Y from FY2020 to FY2021
Source: Company filings, Spruce Point analysis 28Incremental Growth Is Destructive To Margins
While Genius raised its FY2021 revenue guidance, it lowered its projected adjusted EBITDA as a result of low margin
incremental revenue and increased investment required to achieve this growth. Spruce Point believes while Genius
may continue to grow revenues, increased investments and competition will result in little incremental profitability.
We believe Genius’ long-term 40% EBITDA margin target is unrealistic, and its platform will not achieve its anticipated
profitability at scale. Based on the FY2021 incremental revenue projections, the midpoint of Genius’ incremental
margin is below the Company’s original 2021 projection.
$ in millions Low End High End Midpoint
Prior FY2021 Revenue Estimate (A) $190 $190 $190
+ Underlying Business (B) $50 $55 $52.5
+ Acquisitions (C) $10 $15 $12.5
Current FY2021 Revenue Estimate $250 $260 $255
Prior FY2021 Adj. EBITDA Estimate (D) $35 $35 $35
+ Underlying Business (E) $0 $10 $5
+ Acquisitions (F) $0 $2 $1
- Listing Costs ($10) ($10) ($10)
+ Investments ($15) ($15) ($15)
Current FY2021 Adj. EBITDA Estimate $10 $22 $16
Long-Term Target EBITDA 40.0% 40.0% 40.0%
Prior EBITDA Margin Estimate (D/A) 18.4% 18.4% 18.4% The midpoint of Genius’
incremental margin is
Underlying Business Incremental Margin (E/B) 0.0% 18.2% 9.5%
approximately half its
Total Incremental Margin (E+F)/(B+C) 0.0% 17.1% 9.2% prior figure
Source: GENI Q1 2021 earnings presentation 29Second Spectrum Acquisition
In May 2021, Genius announced the acquisition of Second Spectrum, a data tracking provider for multiple sports
leagues. Genius paid $200 million in a combination of cash and stock for the deal. Spruce Point views the acquisition
of Second Spectrum as part of Genius’ effort to stay ahead of the curve. Given constantly changing new technology,
we are concerned by the Company’s low research and development expense as we believe Genius will have to
continue reinvesting in new technology to remain competitive. Sportradar has made several acquisitions as the two
data providers compete for an edge in the market.
Sportico Sportico
“As data becomes increasingly important to “Sportradar is working on acquiring an undisclosed business in a deal valued as much as
$475 million, according to details revealed as the company takes on new debt to finance the
power sportsbooks and live broadcasts, providers
transaction. The potential fundraising and purchase could also be part of any potential
like Genius Sports are in an arms race to acquire
Sportradar plans to go public. The Switzerland-based sports data and content service is
faster, more reliable, proprietary feeds. Buying
raising nearly $500 million through a senior secured term loan, requiring it to reveal some
Second Spectrum, which specializes in turning
financial details to major ratings services in order to establish a debt rating required by
video into data, will give Genius both new
institutional investors. “While we do not know who the target is, we understand that there
technology capabilities and a complementary
are significant revenue synergies with the target and is of considerable size, with an
client base.”
estimated annual EBITDA of €20 million-€25 million,” S&P Ratings stated in a note today.”
Source: Sportico (May 6, 2021) Source: Sportico (October 14, 2020)
Sportradar
“Sportradar, the world’s leading provider of sports data intelligence and sport entertainment solutions, today announces that it has entered into a
definitive agreement to acquire Synergy Sports, pioneers in automated sports technology solutions and the market leader in data and video analytics
in the U.S. College and Professional sports space. The acquisition complements and extends Sportradar’s 360-degree product suite, as well as
supports the company’s drive to deepen & broaden its relationships with key sports organizations globally.” -- March 22, 2021
“Sportradar, a leading global provider of sports data intelligence and sport entertainment solutions, today announced that it has entered into a
definitive agreement to acquire InteractSport, a sports data and technology company with partnerships across a range of leading sporting
organizations with a particular depth and expertise in cricket. -- May 11th, 2021
Source: Sportico (March 22, May 11)
30High Cost For Data Rights
We Believe Genius Overpaid For The NFL Deal
While Genius has recently promoted its relationship with the NFL as a “strategic partnership”, Spruce Point views it
as solely a rights deal where Genius purchased the rights to the NFL’s betting data. It is rumored Genius paid over
$120 million in a combination of cash and equity to the NFL.(1,2) According to ESPN, Sportradar was paying the NFL
$20 million annually. This means Genius’ $120 million fee is 6x the previous deal. Based on information presented in a
Tegus interview by a Strategy Director at Sportradar, they did not feel the price the NFL was asking for its rights was
“economically viable.”
“And obviously, the NFL situation over the course of the last couple of weeks is partly a function of that. And what was
based on an assessment in terms of, okay, what is the value of that official status in terms of the exclusive access that
we'll give you. And we took the view that against what the NFL were charging for that access. We didn't think it was
commercially viable. We didn't think there's sufficient value just because of the nature of the NFL game that the
incremental revenue upside didn't justify the additional investment it would have required us to make to get that official
data stages. But I think aside from that, there's no doubt, I think Tier 1 league than official states or at least status and
status doesn't have to be official for you to get this access necessarily, but status that will facilitate technical access and
then allow you to compete in the increasingly important question of latency is going to be crucial.”
“A lot of the infrastructure is already there because, of course, we had official status for a considerable period. So there
was no issue certainly over what it would take. It was just a question of the number that the NFL decided to attach to
Strategy
Director it. And obviously, the bar have been lifted on the media rights deal, they get confident, of course, and it's entirely that
prerogative, and probably they wanted, for sure. We just couldn't see economically away of that working.”
Sportradar
“At that level of investment that we're talking about, whether that can actually be profitably commercialized, and that's a big
question on mind still. So you might see an adjustment. I think probably in a couple of years it will still be here. There'll be
some news around, okay, for everybody. And so I think this next compassing to be interesting in a period to decide,
okay, where realistically, where does this market even in the U.S. with powerful, important inflation leagues.”
“So the market still allows, of course, lots of other operators to collect, ingest, data and lots of other different ways where
latency isn't so much of an issue. So we still offer NFL markets. We collect the data in different ways. We put people
in ground still. They don't actually recognize the access. It just means that we were a bit slower and the feeds can be slight
less quality. So they're built in a product advantage that Genius can now begin to exploit. But it doesn't preclude the
relationship with the NFLs or for other operators, of which, of course, we're the largest. So that's the first thing to
say.”
(1) ESPN
(2) BettingUSA.com
Source: Tegus 32NFL Deal Does Not Guarantee Success
Based on our conversations with several experts, the true value of live data is for live/in-game betting. Once the data
is available to the masses, its exclusivity loses its value to the distributor. Based on the June 2021 BettingUSA.com
article, the combination of the start-stop nature of NFL games and majority of betting placed on the final outcome, the
value of live data may turn out to be less valuable than originally expected. Industry expert Matt Para raises concerns
about Genius’ deal with the NFL. He believes the deal is overvalued and can run into challenges including a lack of
profitability for Genius. Based on CEO Locke’s choice of words on the Q1 2021 earnings call, we are concerned by his
lack of conviction to achieve profitability on the NFL deal.
BettingUSA.com Industry Expert Opinion
start-stop nature of NFL games means that the latency issues
“The
that arise from data providers offering a feed from television
“I do believe the data is being over-valued, and the NFL is not familiar
coverage don’t come into play as they might do in other sports. And with the challenges of running a profitable sports betting business.”
for all the promise within the new deal of the next generation of data – “This current deal between Genius Sports and the NFL sets a bad
possibly coming from player tracking data – that isn’t here yet. precedent and (has) created incredibly challenging economics from
Moreover, the notion next-generation stats will generate a whole new which operators have to try and navigate.”
type of in-play betting is even more unproven. The fact remains that
most betting on a match, even in-play, is on the final result. Thus, the “It is only the operators that are not concerned with profitability that
case in favor of new types of in-play bets is, as yet, only the stuff of can really stomach it.”
start-up pitch decks.” — Matt Para, sports betting consultant (BettingUSA.com article)
— BettingUSA.com (June 14, 2021)
Source: BettingUSA.com (June 14, 2021)
Ryan Sigdahl “And then on the guide, and you can talk directionally, I know it's hard to kind of bifurcate the two out. But are you able
to talk, so EBITDA on the underlying business raised x the NFL, and then the inclusion of the NFL? I guess what I'm
Craig Hallum
asking is, is the NFL expected to be positive contributor this year?”
Mark Locke
“Yeah. Hi, Ryan. Well, as you know, first of all, that's not how we go to market. And secondly, obviously, for
commercial sensitivity reasons, I am not going to give too much details on the NFL. What I can say to you, is that on a
CEO cash basis we anticipate the NFL to be breakeven in 2021, and cash generating thereafter. And indeed, on of
course, the life of the contract we anticipated to be profitable.”
Source: GENI earnings call (Q1 2021) 33You can also read
