Sportradar Group AG (SRAD) Earnings Call Transcript & Summary

So if I'm looking now to historical data, wow, we have 132 years of Major League baseball matches. I didn't know in the beginning that it's such a long history. So we have that. All -- it's validated. It's stored in our repository. Historical wise, we have that for more than 90 sports, to be exact, it's 92 sports. We cover currently 43 sports live. We cover 1 million live matches every year. That's a number where we are by far, far, far the biggest player in the market. Of course, we store this information. We use it for algorithms. We use it for learning and teaching. So the repository we are sitting on is quite enormous. The reach which we have is by far the biggest in the industry. I'm not happy that we are not faster in driving other things, which I would say makes a lot of sense. I would say we are the company which can define a sports ML language. How do we define how data for sport is exchanged in the -- one of the projects which we have in mind, that we set the standards because we are sitting on the biggest data pool. And we totally get it. We can't be the only one. There are many, many providers in there. Why not give them an open exchange how to ingest that information? We know what to do with this in the sports betting space, and we proved it. In this quarter, we proved it with a 28% top line revenue growth and 29% adjusted EBITDA margin. So we know what to do with it. But this is the fascinating thing. And to the sport data, we have now the fan information with the FanID. And of course, we have the liquidity information. Looking to the liquidity and to our run rate in this year...

And by liquid -- just for the audience in terms of when you talk about liquidity I mean in terms of...

That's the betting tickets. So that's the ticket, that's the stake. That's the ID from the player, and that's the ID from the teams playing against each other. It's anonymized. But that gives you so much information because you pick the brain of the clients from our clients, "Why are they exactly in this second betting this kind of amount on it?" So if I combine all this information in the platform to analyze it, that gives enormous opportunity for future products.

You noted a bit on financial performance. And you've obviously been consistently 20% grower top line since the IPO. You've once again guided to 20% plus growth in 2024. Maybe talk a little bit about growth of the core products versus new enhancements and how you think about the complexion of that growth over time.

If I'm looking to this year, David, we lately had the quarterlies and we said that we are raising our outlook from a 20% growth, top and bottom, to a 21% growth. And we are very optimistic to reach and outperform this looking to our forecast. Why can we do this? We managed the step-up 6 months ago, which was quite tough. So we took 10% of the costs from a people perspective out of the business. We managed this. And we had a step-up of 500 basis points on the sport rights. Why have we had the step-up? We choose to go with the NBA, we choose to go with the ATP because we had the total trust that we can monetize on those 2 properties by using the deep data and the technology which we can deploy. And that was proved to be right. So looking now to the first quarter, we see 28% top line growth, 29% bottom line. So I think that proves itself that we know what we are doing and that we managed the step up. Looking now to the big contracts which we started -- and you know this from a financial accounting perspective, you have to amortize this linear. So if I have a deal for 5 years, it's split in equal pieces for the 5 years, and we have to write it off and activate it on our balance sheet. Meaning, I know that every year we can get a step-up because we get more clients on it, we have price increases. So at the end of the deal, the revenue and the income from it is bigger. And we get it in the products, which I told you before. So that means on the second half, it's always better. The big deals which we have, they started now. And now we can already deliver the 20% top and bottom line. So we see operational leverage in the business model. We demonstrated this. And we stay very disciplined now with our costs. You will not see us to do crazy actions here. You will see us to grow the costs in the single-digit number. And with the growing revenue and the mechanic of the bigger deals, we are pretty optimistic for the next foreseeable future. It's always difficult in a digital business model to predict 5 years or more. But what we can see makes us very optimistic in our core market.

Maybe in thinking about just your last quarter, maybe talk a bit more about the U.S. in particular. I mean you had something over 65% revenue growth in the U.S. in last quarter, well over 30% last year. Maybe just what you're seeing in the U.S. and your expectations for the U.S. market over the next several years.

So over the next several years, we think that is a 25% annual growth market. There is still to be decided when is California, the lovely state you're coming for -- or going online, when does that happen? But if we are looking toward a prediction, our assumption is at the moment 25% growth on an annual basis. That's what we see. It might go a little bit quicker, it might go a little bit slower, but it's not avoidable. So that's where we see the market growth. We have to leverage this. We did this in this quarter. You mentioned 65%. Wow, that's really -- that shows how powerful this engine is. We are sitting on 3 of 4 leagues here in the U.S. The coverage is 100% there. So we have very strong partners and very strong multipliers with this. And the exciting thing in the States is the conversion from pre-match into live betting. All the tools -- and I mentioned emBET as a tool. I can mention 4Sight as a tool, where we enrich tennis, for example, with this deeper data pattern that you see the ball speed, you see the acceleration of the players, you see his fitness condition directly in the feed. So having this stimulates, of course, live betting. That's what we want to do. Looking into the shift, if we shift the pre-match more into the live, 1% point shift is EUR 1.4 million plus on our P&L. There is a little cost with cloud computing in there. So it's not EUR 1.4 million fully. But let's say it's close to this. So this together shows strong growing market opportunity and high profitability simply by those patterns. So that's how we see the U.S.

Just something there that's interesting to me. As you think about comparing maybe European better experience versus in the U.S. just where we are in terms of the product offering here in the States for your typical U.S. better versus someone in Europe, like where do we stand just in terms of technology and actual use of the product?

Around the globe, there are, of course, many more sophisticated developed markets than the U.S. simply because it is already since 20 years in many of those core markets, and there is 20 years of marketing. If you look now to England, you can say it's more than 100 years there. So we see that those markets found their way. That's the same what we see here in the U.S. There is a bit more testing, how can we deploy technology, how can we use technology. And that's what I love here in the country. So that passion for technology and getting it to work and optimizing and asking constantly the questions, can we be more efficient, can we do that different, that's I think, what we see currently in the U.S. player markets and those things. That was a good sample for it, where we have a lot of development. I'm a personal -- a big believer that players are getting more and more important. It's not the teams, even if the teams might not want to hear this, it's the players. So having something which is related to the player, always with the consideration it should not be a player -- a single player should not be able to manipulate this from a betting perspective, that's an exciting territory. But adaptation of live betting is something where I'm totally certain it will happen, because life is so much more emotional. You watch the match. In that moment, you want to bet on a touchdown. You want to bet on a point. And these are things where it's not avoidable that we see more betting activity live. And everybody agrees to this. It's only the question how quick does that adaptation go. And that's an international trend, which we see everywhere.

Maybe just talking about international trends, you obviously have a very global business, what are some of the markets that you think are particularly interesting from a growth perspective over the next 5 years?

I'm very excited about Brazil. I was there 3 weeks ago. That's always the same: when I see opportunities, I want to understand it, boots on the ground. I want to speak with the people. I want to speak with the team. I want to understand the mechanics. That was quite a trip. Sao Paulo is a city of 33 million people. I met the mayor. He said officially we are 23 million. But add the 10 million more. So the city is growing. It's a mega city, and the people they have such a passion for sport. Of course, it's soccer where they have the biggest passion. And sport is looking for ways how to monetize their sport better. By the way, that's the same when I was speaking with the commissioner of the NBA 6 years ago, "What should we do with sports betting?" And he asked me that question. I said, "Probably you need to be the lobbyist for this. You need to be" -- "you need to promote it," And he did that. And the rest is history. So I see in Brazil something similar. I see that the federal government has licensed now sports betting. It's still not implemented. So we are very early innings. And here it is now about being a partner to the government, helping them how they best regulate it, being a partner for sport, which is the most important. Sport needs to have a profit for this. You're going to need to engage with sport. You need to speak with them. And then understanding what are the conditions of this market. It's a big retail market. It's a country of 220 million people. It's quite sizable. And many of those people still paying in cash on the street. So there is a huge retail in there. It needs a different infrastructure than most of the places here in the U.S. And you can only understand this by being boots on the ground. Now is the time to set really the right setup for the company and liaising with the partners to engage on this. The only downside for me is you're going to need to have a Portuguese language. And that's something where we need local leadership. And we are exactly doing this to monetize on the opportunity. I'm very excited about Brazil, as you hear. It's at the moment EUR 2 billion GGR. And now we are getting into regulation. We predict that is EUR 5 billion to EUR 7 billion in 3 to 5 years' time. So it's still a bit rough to predict this because it's very early days. To give you a proportion, EUR 5 billion to EUR 7 billion GGR comparing it to the EUR 10 billion to EUR 11 billion what we have at the moment in the U.S., that gives you a feeling about the size of opportunity. So it's the right time to be there. It's the right time to engage and do this. Other markets. I think India is still a big, big topic, a country about 1.4 billion people. We see early signs of adaptation. I'm personally very fascinated about Japan, a huge, huge and very strong economy, very passionate about sport. We have sports betting only regulated in a very basic way and in a monopoly. So -- and we know there are many of the mega companies in this world in Japan which are keen and eager to explore sports betting in a fully regulated market environment, to give you 3 examples. I can go on more, but these are markets where -- I try to follow very closely. This is where we see growth. And now to close the loop, we see in the next 10 years the growth in sports betting globally between 10% to 12%. We want to grow 20%. For this, we need to outperform the market. We need to have the right products in the market. And I think we demonstrated on scale in the last years that we are able to do this.

Maybe as you think longer term, what's kind of North Star on a longer-term EBITDA margin?

We will show definitely leverage. So that's something which is clear. We have this operational leverage. We demonstrated it now. And we will double and triple down on this. Looking to the stage of maturity in our traditional model, which is more than 80% sports betting, we see 25% to 30% as a realistic margin. If we are able -- let's look 5 years plus to establish a platform, that might get higher, but that's too early to talk about it.

Great. Well, with that, maybe we'll turn to any questions from the audience.

The audience is still sleepy. It's early in the morning. You gave me the early morning slot.

I did give you the first slot.

Could you talk a little bit about the stickiness of the contracts with the leagues? And what they're looking for from you in order to retain those contracts over time? And how you defend against competitors with that?

Now looking to leagues -- and we said that a couple of times in our announcements, we're pretty happy with what we have signed up. So we don't see that we need to sign up major new and big deals. We have the portfolio which we take to market. And the prediction which we gave you with a 20% plus top and bottom line, now 21%, is with this portfolio. And the outlook in the future is with this portfolio. So we think we have a pretty stable and significant portfolio to execute on our business plan. Looking to the duration, it plays in our favor that big contracts are in the very early innings. The NBA renewal is 7 years. So give and take, we are 6.5 years in there. Looking to the ATP, it's 5 years. Give and take, we are 0.5 year -- 3 months in there. So -- and we managed on these 2 properties to show already the revenue from a top line perspective on a growth trajectory significantly higher than the market expected. NHL is, I think, still 8 years or 7.5 years where we have them locked in. So I can go now through every contract. If you ask me an individual contract, which is interesting for you, I'm happy to go on this. But the general picture is we are more on the beginning of the big contracts than in the middle or at the end. Given now purely how we have to amortize, that we have to do it flatly -- and I had long discussions with our auditor about this -- that plays in our favor from a profitability perspective in the future.

Carson, real quick, can you comment a little bit on the noise we hear a lot about the potential for disintermediation of your product set from the operators? There's a lot of talk...

Can you repeat it what...

Sorry. Disintermediation of the product set from the operators. We hear a lot of noise about that.

Look, I'm doing this now since quite a while this business. And I think this noise specifically comes from the United States. Looking on what we can measure is we have now more than 100 clients on managed training services. If I'm looking to Brazil, all the big players, the regional players are using our management to run their business. So we are not selling only the data. We are selling the products in there. So if I'm looking globally and if I'm looking only to numbers, the statement is: the one who is sitting on the content with the lowest latency and the one who is sitting on the user information and the liquidity information will be able to manage and establish a better product with higher profitability. So over the time, I'm totally sure you will see this pattern. So it's only about, can be prove that we provide a product and the service to our clients which is doing the business better than they can do it by themselves? And I think we've proved this. So -- and the rest is noise in my mind. And only for the record, we had a private bet here with the gentleman. He said 6 was, yesterday at this time, the level of participants. We are significantly better, David. Only that you know you lost that bet.

And only one JPMorgan person. So we feel very good about that. I don't think we have any questions in the queue. If there is no one else in the audience, thank you all for joining.

Thank you very much.