Genius Sports Limited (GENI) Earnings Call Transcript & Summary

All right. Let's get started with the next session. It's my pleasure to have Mark Locke, Co-Founder and CEO of Genius Sports. Thanks for being at the conference again this year.

Thanks for having me.

So maybe just to level set for those less familiar with the story, just introduce the audience to the business that you've built, how Genius fits into the broader sports ecosystem.

Sure. Okay. So for those of you who don't know, Genius is a technology company. So we're a software business, we're based out of the U.K., sort of have various different satellite offices globally. Our focus is really around data capture, data collection, data processing and then the distribution of that data to lots of different parties who use it for different means. And the sort of most -- the one that most people are most familiar with is the use of the data in the betting space. So we will collect event data from grounds, from sports such as the NFL to U.K. football, all the way through to handball and volleyball. And we'll collect the live data and we'll package that up and we'll send that to sportsbooks in order for those sportsbooks to offer live events. And to give you an idea, we're probably doing a bit north of 300,000 live events a year and enabling all those sportsbooks to offer products. On top of that, we will often marry that data with our own pricing technology, our own trading services, and we will offer the sportsbooks the ability for us to create the lines, offer the prices and offer sort of not only the basic products they have, but much wider sets of products as well. In terms of scale, we provide pretty much every bookmaker you've -- or sportsbook you've ever heard of in the legal regulated market. So it would be a surprise to me if there was one we didn't, and we've been doing it for quite a few years. The other sort of 2 areas of our business are -- we've got a media business that's growing pretty rapidly, which is really around putting sports fans in front of content and advertising that is relevant to them. So we work with brands. We work with, again, with the sportsbooks. We take data that we have, data on the games that are going on. And in moments of high emotion, we'll be able to offer an advert to a sports fan. So for an example for that is you may be watching a stream, WNBA game for example, and a basket scored, we'll know that basket is being scored. We'll know who's watching that game at that moment, and we'll be able to put an advert around that -- augmented on the screen and sort of drive growth for anyone from a bookmaker all the way through to Peloton. So that's that part of the business. And then the final part of the business is really around a computer vision machine learning AI business that we bought a few years ago. And what we've really done is we've taught it to understand sport. So we've trained our computers to understand sports games, and we have various applications of that now. So we collect that, we recreate the events, and we'll offer that to people like U.K. football for automated offside. There's a product called semi-automated offside tracking, which we've been working with U.K. football on, which automatically identifies when there are offsides. But also, on top of that, we'll be providing things like a product called Performance Center, which is where we're able to help people understand how their players are performing. So overall, we've got a very wide product set, but really, the focus has been around using data and the various different methods that we have to collect that data to drive the business.

Cool. Well, let's talk about that data rights portfolio. You've been very busy over the past few months. You recently announced an extension and extension of the NFL partnership. Talk about that updated deal in terms of what was incremental that is driving a stickier, more deeper relationship with the NFL and how the data rights increases compared to what your internal expectations were for that inflation for the incremental year?

Sure. So I mean, again, a little bit of history, we've been working with the NFL since 2021. And increasingly, we're finding leagues are much more focused on wanting partnerships not only where you're writing the check and just having sports data, but actually where you're providing incremental value. So we did a deal with them in 2021, laid out a vision of technology that we could help them with including taking and distributing their -- a lot of their live video to sportsbooks. And we've kind of leveraged that partnership, and we've worked with them closely to the point in which they waived a termination right that they had after, I think, 4 years and increased the length of the deal, having just renewed it, which will run all the way through to 2030. I'll also add that the NFL own about 8% of our business as well. So we're very closely tied to them. The relationship has really grown a lot. We started off really focusing on the sports data and the distribution of that to sportsbooks. And then we've added in a product called BetVision, which is I highly recommend any of you sports fans to go and have a look at where you can go and watch pretty much any NFL game that's being played live. And we integrate that with into sportsbooks platforms. So if you've gone to a FanDuel or DraftKings, you'll be able to log in and actually watch those games with integrated betting as well. And then as the relationship grew, we've helped them expand overseas, but the bigger change and the main focus has been really around this additional marketing services. So we take a lot of their own content. We take a lot of their own websites. We take a lot of their own -- their streaming platform, and we monetize that through the advertising platform that I mentioned in my monologue at the beginning.

Cool. The other 2 that I wanted to talk about, you recently won the exclusive rights for the European Leagues Association, Serie A from other players in the space. So what do you think drove from those leagues perspective to switching partners to GENI from a technology or product perspective? And how did the prices paid for these rights compared to what the prior partners were paying do you think.

Yes. So it's a really interesting deal for both of them, and they're actually quite similar. So both deals were held by other parties in the sector. And what we're seeing is we're seeing part of the industry consolidating quite rapidly, IMG and Stats Perform is less prevalent in a lot of these deals now. So we're seeing a very strong move in this sort of consolidation that we're seeing. The rights became available. And again, the advantage that we have that nobody else has is we've got a complete platform that does everything in that sport can require end-to-end. So as I said, from offering things like semi-automated offsides through to managing their marketing through to offering their products to sportsbooks, we're unrivaled in our ability to offer that product set. And what that means is that the sports, when they're looking at bringing a new partner in, the focus is less on the monetary rights on the individual deal, which is historically what it was, and there was all those frenzy for deals years ago. It's now much more about how can we provide and deliver technology across the whole breadth of their business in a way that really adds value to them. I mean you think about the sports, they've got multiple different suppliers. And a lot of those suppliers have been there a long time, often with old technologies. Those technologies aren't as capable of some of the new stuff that we're putting out there. And so the opportunity to consolidate those deals for those sports leagues is very attractive. And as a result of that, we get very attractive deals. Rights fees are a fraction of what they were offered before in the market, I'm sure you know the numbers. So we're seeing very, very attractive reductions in the cost of our rights in a lot of the deals that we're doing because we've got the ability to leverage our technology on a wide basis.

And I think most would categorize this as an increasingly duopoly industry with you and Sportradar. You talked about how yourself and them are, I think, winning deals from a technology perspective from the long tail of players. Just talk about the competitive environment more broadly, the rationality for some of these deals, not just against what you're winning from the long tail but you versus Sportradar as well.

Yes. I mean, look, Sportradar has got a great business. I think our focuses are different. As I said, our business has always been about partnering with sports leagues and federations. It's something that we've got a very long history of doing. And our investments over the last -- our material investments, I guess, over the last sort of 3 to 5 years have been around delivering this new generation of tracking and data collection technology, we call it Dragon. And what that technology does is, again, it's completely unique, but we've talked -- we -- what we do is we have a lot of iPhones that we network together. They're not wired together. They're networked together. It doesn't sound very complicated, but actually, it's incredibly hard to do. And what we do is we put those into stadiums, into sports stadium. So we've done it all the way through U.K. football. We're doing it in part in the NFL. We're doing it all the way through European soccer. Now those cameras allow us to collect pretty much every angle of what's going on in the game. And the reason that those cameras are used is because you have very high-quality lenses and very high processing power on an iPhone. The fact that they self-calibrate is hard, the fact that you need to get them to talk to each other in real time is hard. And once those cameras are put into a stadium, we're able to put an output where we've effectively converted video into data. So the data that comes out of the game can be then used for lots of different purposes. We will auto event it. So we will know what's going on. We will recognize offside. And ultimately, what we then do is we then put it through another graphics engine and turn it back into video. But that video is then interactive. It's completely digital, at which point that video can become an advertising platform for us. We can change the color of a shirt or the advertising logo on it. You can change the angles you're seeing, you can play with that event. And that's what's capturing these sports imagination. That's what the broadcasters are getting so excited about because they're seeing what looks like video or what feels like video, but it's completely in there and they use us control. And that's a very, very exciting opportunity that we've got. And our focus over the last few years has been investing in that. We've invested huge amounts of money in it, and those returns are now coming through. We're seeing them with lower rights fees. We see what we're winning more deals. But more importantly, we're also rolling this technology out. I mean, at the moment, the EPFL deal we just signed was dependent on that. Again, we're rolling it out to 450 stadiums in Europe. And the other thing that it allows us to do is not only create all the monetization opportunities where we can go and sell certainly automated offside tracking, we can sell performance and we sell all of that stuff. But also, we're capturing every event that happens in that ground. So the number of events that we're capturing, the amount of data that we're processing and how we're doing that with effectively no human interaction means it's very, very -- has a very, very positive effect on our margin because we no longer need people to collect it. We no longer need these huge networks of 7,000 or 8,000 statisticians that we have. It's all being done automatically. So this is a sort of very transformative moment in the way that this sort of market evolves and it works, and we're very happy with it.

So let's move to the sportsbook side of the equation from a relationship standpoint. Maybe just level set and talk about the different monetization models with your sportsbook partners. And you just announced this morning Hard Rock, right?

Yes.

So maybe just talk about the monetization path from here as you think about increased adoption of more markets, more product attach rates and like-for-like pricing increases, just how you see that playing out and evolving?

Yes. So as I said, the business model is to provide the data to the sportsbook partners that we have. And we work -- there's sort of 2 main business models that we run. One is a profit share or a revenue share or GGR however you want to frame that. The others in certain areas, we'll also operate fixed fee offerings where we provide the services on a per game basis. But more common is the revenue share model. So as the market grows, we take share on that. The product sets are evolving quite rapidly. As I said, historically, it was really only the data. Now increasingly, we're selling BetVision, which is the product that we've -- in fact, we announced that this morning with Hard Rock, as you said. And what we're doing there is -- and Hard Rock have taken effectively our player and into that player, we've integrated the NFL streams, but also about 32,000 other games as well. And within that, that then becomes the interface for the sports fan to engage with that game and engage with Hard Rock on these events. And so what they're doing there is they're going in, they'll be placing bets. They'll be watching the game, they'll be seeing adverts. There'll be -- it's a full user experience. And that's obviously quite a good position for a sports fan to have everything in one place so they can watch and they can engage with the game. They can control it in the way that we talked about a minute ago with the different sort of options that the fact that we have the data coming from Dragon in some places will allow us to. And it will give us a real ability to talk to those individual customers. So the evolution of this business has been very much focused around the rollout and the delivery of BetVision. And we're seeing a lot of success. I mean most -- almost all the deals that we're doing now have BetVision included in them.

Okay. And in addition to the growth and adoption of sports betting globally more broadly as a tailwind given the different take rate or commission that you get on in-play betting versus prematch, that mix shift, especially in the U.S. is a pretty big driver. So just talk about the benefits of a shift towards in-play betting for you guys and what the runway is from here, especially in the U.S., which is lower versus [indiscernible].

Yes. The opportunity is absolutely massive. So I mean, if you look at Europe, you look at the U.K., for example, somewhere between 60% and 80% of all bets are made in play. And on top of that, the margins on them are much higher. In the U.S., you choose your number, but call it 30%, 35% of those bets that are made in play. And in-play it really means betting during the game for those who aren't so familiar, it's betting on every -- all the events within the game in sort of real time, which again is why the live data is so important. So in Europe, you're seeing much higher margins and you're seeing a much higher percentage of all bets being made in play. And in the U.S., because ultimately, it doesn't feel like it sometimes, but it's still relatively new, those numbers are much lower, and we're seeing much more increase. From our point of view, we also get paid roughly 3x the amount because the data is more valuable on those in-play games. So we have a compounding effect in our deals with the sportsbooks whereas you move to in-play betting, not only do the margins go up but you also have -- we also get paid roughly 3x the price on them. So it's a much more profitable outcome for us to do that. And that's been a big focus for us. And it's -- again, it's good for us. It's good for the consumer. It's good for the sports because the sports remain engaged. The sports fans are constantly looking and engaging with the game. And ultimately, it's more profitable...

Okay. And we touched on it earlier, but the BetVision product, I think, is helping drive that in-play adoption. So just talk about that product more and kind of what that growth curve has looked like from an adoption standpoint of BetVision.

Yes. So I mean the interesting number here is, as I think I mentioned before, sort of 35% of the in-play bets in the U.S. are made in-play. But actually, when you look at BetVision, it's 72%. So when you're looking at how much people want to watch a game and engage with it in that platform, in that interface, it's materially higher when they're able to do it in that fashion. So again, our focus as a business has been about engaging the sportsbooks, our partners and looking at rolling that product out on a very wide range basis and including other games in it. So we started with the NFL because obviously, that's -- they're a key partner of ours, and it's obviously one of the most attractive sports, but also rolling that with soccer, with basketball. All of those things are working extremely well. And again, the Hard Rock is just another really good example of what a powerful move that is.

And when you think about the growth curve from here for -- or adoption for BetVision, what -- how would you rank order the contribution going forward when you think about onboarding more sports into that product, which you've been doing as you've expanded beyond the NFL, offering those sports in international markets where maybe the access to streaming of those specific sports is less available versus just broader adoption of BetVision from sportsbooks more broadly who may not have it integrated yet?

Yes. So the adoption of BetVision by sportsbooks is something that is generally now part of the deals that we do with those sportsbooks. So as we renew our contracts for the provision of data, the provision of lines or odds, we will also include in that the provision of BetVision as well. So that's -- the 2 are synonymous in lots of ways as we roll that out. The addition of sports has been -- it's interesting because we had a sort of bit of a dilemma. When we roll -- when we started BetVision, we started with the NFL, which obviously, in terms of volume, it's only 270-odd games a year. It's not a high-volume game compared to soccer where we're trading 90,000 games. So the evolution of the product was get it out there, make sure it's working, make sure there's adoption, make sure people like it and they're using it and we know what we're doing, do a good job for the NFL and then roll it out to the other sports. And that's what we're seeing now. So again, I think the 32,000 games that we're now going to be putting through Hard Rock consists of other sports. And the reason it's hard to roll them out is that the BetVision product is not just a streaming player. It's not just taking a video feed and putting it in. It's actually so much more than that. You have to teach that -- we've had to teach the computers to understand the game of football. We've had to teach them to recognize players. We've had to teach them to how the plays work in order to be able to integrate and augment those video streams. And that product, obviously, each of those sports takes a little bit of training, a little bit of time and a little bit of learning. And that's really where we're kind of getting to the end of some of that development cycle. We got to the end of it for football -- sorry, NFL or American football. We've got there now with soccer and basketball. So this is an opportunity for us to really start to scale that and marry that with a lot of the new deals we're doing with sportsbooks.

Are there additional sports that aren't currently offered through BetVision that you think lend itself well to an in-play betting type of product, right? I mean, obviously, sports that have less downtime are tougher to drive in-play betting. I'm just curious kind of when you think about the incremental sports that you're most excited about offering through the BetVision product.

Yes. I mean we really think volume sports like -- so I mean, NFL because it's such an important player. But then soccer, huge volumes, probably the biggest betting sport in the world; basketball, again, huge volumes of games. And our focus has really been on those 3 areas. So football -- sorry, soccer, American football and basketball. As time goes on, we are developing handball and volleyball and other ways of doing it. But really, to be honest with you, if we just nail every game of soccer, basketball and American football that's played, we'll have the vast majority of what we need.

Okay. Let's shift gears a little bit here and talk about the media segment and FanHub.

Sure.

Maybe just from a high level, what are some of the offerings within that, that you're most excited about and how you think about the multiyear growth algorithm for the media segment?

Yes. I mean what I'm most excited about, and this is the thing that's coming through, and you'll have seen it recently with the announcement we had with PMG that is bringing non-sports betting brands into our advertising business. So historically, our media business was built with sportsbooks and sportsbook partners, sports brands. And now increasingly, it's the big global brands. It's Coca-Cola, it's Peloton, it's Gatorade. It's the big players who have got distinct and explicit strategy, which is they need to connect with sports fans for whatever reason they have. And we're now seeing that with the technologies that we've developed, we've got a self-serve platform. We're now starting to roll out into the agencies as well as into the actual marketing departments. We're able to provide marketers with the direct ability to buy sports audience. And the most exciting thing is we're doing it across multiple different channels. So we're doing it connected TV, obviously, online, mobile, TV, ultimately in stadium as well. So that, that evolution of that product is really exciting because we've got the ability to access any of the big global brands who want to talk to a sports fan and put them in front of people that we know are absolutely sports fanatics at the moment that is the most high emotion for them when a goal scored, when the game is about to start, when something has happened on the pitch that is relevant to that fan. And we can do that in a very, very direct fashion. And that's -- and as I said, that's something that we've sort of espoused for a while. I probably sort of talked about it last year when we were here. But now we are actually seeing real traction, real revenues. You may have seen our last quarter guidance. We increased our guidance modestly, I think, last quarter. And a lot of that's coming because the media business is getting real traction, and we're starting to see some really strong growth from that, which is good and exciting.

And when you think about the opportunity from here, you talked about non-sportsbook advertisers or sports adjacent advertisers, which I think makes a ton of sense. Is there still runway with your sportsbook partners as well from a media segment perspective? And then are there -- separately, you talked about self-serve and channel mix, are there other maybe like product unlocks as well to come that might help drive further adoption of wallet share?

Yes. Look, if you look at the sportsbooks, very simply you kind of tend to split into 2 goals. It's either acquisition of new customers or it's retention and remarketing to those customers. And our product does both those things. And you'll have sort of shifting sands a little bit as when a new state comes on board, it will be more the focus on that. And then when it's back to profitability, you'll want to reengage. So the sportsbooks will always be customers. And I think it's fair to say most of the deals we end up doing with the sportsbooks include marketing. So it's -- well, they're just natural bedfellows. The sports -- sorry, the brands who want to talk to sports fans, though, is where the sort of stellar growth can really come from. I mean you look at the size of some of the brand budgets for the guys who are looking to target sports fans. Increasingly, you look at the noise that comes from the agencies, you look at the noise that comes from some of the tech players in the space. They're all saying they want to access sports audience. But there aren't very many companies who actually have the ability to do that. We've got the first-party data. We've got the actual data on the sport. We've got the distribution to those websites or connected TV or whatever medium it is. And we're able to marry those 2 things together in a really compelling way. And the best thing about it is it's performance-driven. We have to deliver. And one of the reasons that we're seeing such good growth there and the reason that the adoption is working so well is because people are actually getting really good results. They're not just wasting money and hoping it's delivering. We're beating targets that we set and giving real visibility on it. So it's -- I think we're in a fairly unique position to be able to deliver this, and I'm super, super excited about it.

You touched on it at the very beginning in terms of the expanded partnership with the NFL. It does have a component of it that is related to FanHub in this media segment. How meaningful could that be? And what does that specifically look like mechanically of what that incremental relationship with the NFL looks like as it relates to FanHub?

Yes. So the -- what -- if you're an agency or a major brand, what you're looking for is reach and depth, and it's quite hard to find inventory. So it's a piece of the puzzle. It's a very important piece of the puzzle because it gives you something at a specific time. The goal for us is to really expand our first-party data, expand where we're able to distribute in order to fulfill. At the moment, we sold out of our inventory 5 minutes into launching the new product. So our focus as a business now is making sure that we're creating new inventory, which, again, through things like BetVision, which is where we're owning and controlling the sort of interface that we were talking about, that's advertising inventory for us. We can use that to drive growth, drive partners. And so for us, it's about driving that inventory up, so -- which I think is quite a nice problem to have at the moment.

Okay. Another big topic in the sports betting space is prediction markets or futures contracts. I'm curious just to get your world view on the potential competitive impact from these prediction markets to your regulated sportsbook partners from the futures contracts as it relates to the sporting events.

Yes. I mean, look, I think there's a big opportunity subject to regulation, right? That's -- I mean for those who know us, we're very cautious from a regulatory point of view. So -- but the opportunity is very significant. But again, the regulatory environment has to become -- has to be very clear there. So I think from our point of view, we see the addition of players into the market, they all require the same data. They all need the data. They need the relationships. They need the access to the leagues. And again, that there just further revenue opportunities. So we are watching the space pretty carefully. We're, again, watching how the regulatory space evolves in that area as well. But we can definitely see a scenario where that is a materially attractive sort of growth opportunity for us.

In terms of partnering with those companies.

Yes. Again, as I said, subject to how regulation shakes out. In the end, if you want to be a player and you want to offer a sports betting product, it's quite hard to do that, for example, in America without the NFL. And again, we have that product set. So it's a big opportunity for us. But again, we have to be mindful of the environment.

Okay. Maybe just in the last few minutes here, just talk about the capital allocation priorities between investing back into the business. You're starting to scale free cash flow over time. So between investing, M&A, what areas of M&A you might look for and then returning capital to shareholders over time as well?

Yes, it's a really good question. I mean, look, we -- last year, we developed that -- we generated $82 million of free cash flow, which we decided to reinvest in the business. And again, as I said earlier, you're really seeing results of that now coming through in the deals that we're doing and the shape of the of the business. So we're feeling very good about our investment pace. I'm pretty happy with how much money we invest in the business, and I'm pretty happy with the ROI we're getting from that. We are obviously looking at businesses. It's no surprise to anyone. I mean I think to be honest with you, I think we looked at about 60 businesses in the last sort of 6 to 9 months from an acquisition point of view. And it's -- but there's nothing particularly that's like driving us. One of the good things about us is we've invested so much historically and so much organically in our growth. We have a lot of what we need. So to move the needle for us, the business has got to be accretive, cash generative. It's got to not disrupt our margin. We've got to be -- it's got to be -- there's a pretty high bar for M&A deals for us. So we will continue to look at what's available on the market. But again, we're not screaming out for any particular technology. The growth rate at the moment, 26% is pretty good on an organic basis. So we're feeling pretty good about the business. If something becomes available that meets the criteria, then, of course, we're very well positioned to do it, but we're not going to be sort of doing M&A deals just for the sake of it.

And I mean you have the -- you're in a position now where you have most of your league relationships locked up for a pretty long time. And so the kind of incremental margin path from here should be pretty healthy. The flow-through to free cash flow should be pretty healthy. Those will come up for renewal at some point. So how do you think about like the balancing of what we're going to allocate towards returning capital to shareholders over time versus ensuring that you have enough capital to invest in the business and/or for future deals when they come up for renewal?

Yes. I mean, look, those deals are quite a long way away now I mean -- so we've got the benefit of a fair bit of time. I think 2030 is kind of the magic number. So the business on an organic basis has got a really clear growth trajectory. As you know, we've been pretty good at hitting and beating our numbers for the last 16, 17 quarters. So I think we've probably bought enough credibility to say that we've got good visibility of the future and we know how the business is going to grow. So at the moment, we're focused on looking for the right M&A opportunities, as I said, looking at continuing to be prudent but investing at the right level in the business, rolling out the product stack that we've got and making sure that, that's getting good adoption. And I think the relationships that we have with those leagues when it comes to renewal in 4, 5 years' time, the business will continue to have made those investments in those partnerships, and we should be very well placed to continue to do what we've always done and renew those deals and service our partners.

Perfect. Well, I think we're at time. Please, everyone, join me in thanking Mark and the team from Genius for being at the conference.

Thanks very much.