Better Collective: Betting and Regulatory Tailwind
Redeye Research Note 2021/01/18
Several sports betting focused companies have reported impressive trading updates for the fourth quarter of 2020. The development is driven by strong betting margins and high player activity. We expect that these positive effects will impact Better Collective, as a substantial share of the company´s revenues comes from sports betting and rev-share agreements.
However, the strong sports betting margin is short-termed, but we see a positive regulatory development that will have a long-term impact. The strong development for sports betting in several US states has boosted tax revenues for the states. The additional tax revenues are much needed as COVID-19 has had a devastating impact on tax revenues and has resulted in huge budget deficits for the states.
The states that have legalized online sports betting have also attracted sports bettors from adjacent states, which for example, is seen in New Jersey where a large share of the sports bettors are New York residents. As a result, unregulated states have looked with envy and frustration at those states that have legalized online sports betting. Therefore, we have seen an intense activity to legalized sports betting in many states during 2020, and this activity has only increased. The latest news is that New York is now looking into legalizing online sports betting after previously being firm on not legalizing it. With its population of close to 20 million, New York is the fourth largest state in the US.
We expect to see more states to make sudden turns towards legalizing online sports betting during 2021. So, even if it currently looks like we only will have 3-5 new states legalizing sports betting in 2021, we will not be surprised if we will end up having 5-10 states when we summarise 2021. Nevertheless, it should be noted that it takes some time for Better Collective to start to generate revenues in new states as several operators need to be live for the company to operate efficiently.
On top of the strong development for sports betting, we assess that the legalization of online casino might meet less resistance after the land-based casino lobbyist Sheldon Adelson died last week. Sheldon Adelson, the land-based casino billionaire mogul, was lobbying against the online casino and said to be an important factor behind the slow development of legalizing online casino in many states. Hence, we expect that Better Collective´s latest acquisition of Atemi Group will benefit from this development.
Furthermore, it becomes more and more likely that the Dutch market will open during 2021. The Dutch market is an exciting growth opportunity for Better Collective, as the company does not have any revenues from the Dutch market today.
Conclusion and estimate changes
We expect slightly stronger revenues than our previous estimates for the fourth quarter of 2020 due to strong betting margins. However, the main impact is the faster legislation of online gambling in the US to improve tax revenues. Hence, we increase our growth expectations for Better Collective in 2021 and the years beyond. As a result, we raise our fair value range to SEK 115-310 (95-300) with a Base case of SEK 215 (190) per share.