In the words of CEO John Levy, theScore (SCR) is "the most popular, least-known brand in the U.S. But in six months, a year, or 18 months from now, that isn’t going to be the case.” This small-cap gambling company has yet to attract the attention they deserve, but the groundwork has been laid. Their recent pivot into online sports betting looks promising given their access to millions of sports fans across their sports media app and social media presence.
It was around 2015 when I first encountered theScore's sports media app. I was getting increasingly frustrated with the poorly designed ESPN mobile app, so I did what many millennials would do in this situation. I searched for alternative solutions. One of the suggestions I came across was theScore, so I gave it a shot. After downloading the app, I never looked back. The user-friendly app was a much smoother experience. Anytime I needed information on scores, schedules, or standings across professional sports, I would visit theScore. As you can imagine, this was quite often.
Fast forward to November 2020, and I saw some random tweets about a Canadian sports betting company trading on the OTC market. I put a small, speculative starter position into the random stock and forgot about it. A few months later, I noticed the significant gains. After doing some research, I saw there was some progress on single-game sports betting becoming legalized in Canada. It was at this point that I connected the dots to realize the small Canadian sports betting company was the same one responsible for that app on my phone. This is what precipitated my deep dive into Score Media and Gaming Inc.
Score Media and Gaming “creates mobile-first sports experiences, connecting fans to what they love through an addictive combination of real-time news, scores, fantasy information and alerts while creating and curating content that is mobile optimized, comprehensive, customizable and seamlessly shareable”. That’s a marketing-friendly way of saying they have mobile apps and websites that track professional sports news and information. Their mobile segments are divided into three buckets: theScore, theScore Bet, and theScore eSports; however, they are all connected under one brand. The recent addition of theScore Bet is the foundation for my bull thesis.
Statista predicts U.S. sports betting revenue will reach 8 billion dollars in 2025. Total addressable markets (TAM) often get exaggerated in slide decks, so I wanted to estimate this figure myself. After looking at the latest regulatory predictions on Action Network and applying my own assumptions, I was able to come to my own estimate of 5.34 billion dollars. Assuming 90 percent of the Statista figure was online revenue, I averaged the two projections to come to a U.S. TAM of 6.27 billion dollars in 2025. This is a large market, but how does theScore fit into the equation?
theScore averaged 3 million monthly active users (MAU) in Q4 2020. For reference, DraftKings (DKNG) averaged 1.5 million paying users over that same time period. What’s even more impressive is that theScore’s metrics were normally 25 percent higher, but saw a decline due to COVID shortening sports seasons. Of those 3 million users, 53 percent of U.S. and 63 percent of Canadian users are between ages 18 to 44. This age range has the largest participation in sports gambling. theScore’s social reach across Facebook, Twitter, and Instagram averages 100 million users per quarter. One of the most important figures in their annual information form might be that users opened the app about 100 times per month on average during 2019. The 2020 figures were impacted by COVID. Overall, their goal is to retain customers by connecting content, community, and ecommerce.
With theScore app already on more than 3 million users’ phones, they have an extremely low CAC compared to their competitors. Any avid sports fan can tell you that DraftKings, FanDuel (OTCPK:PDYPF), and most of the top competitors spend a ton on advertising. How durable is their moat if they need to continuously spend on marketing to maintain customer loyalty? The more natural entry point for sports betters is to gamble while watching a game on television or while checking sports scores and news on their phone. DraftKings and FanDuel have neither of those funnels. Penn National Gaming (PENN) went so far as to acquire a media company, Barstool, as part of their customer acquisition strategy and have had tremendous success so far. theScore is already a sports media and news company. However, that is theScore’s original news and media app so what about the new one?
Because the original theScore app does not include a sportsbook, any developer would question how quickly they can develop a sports betting app. Well, they have had theScore Bet up and running since 2019 and it is currently active in 4 states (IA, CO, NJ, IN) with the right to obtain market access in additional states through their partnership with Penn National and Caesars (NASDAQ:CZR). The app looks virtually identical to the original theScore app. theScore Bet is integrated into the original app using a proprietary tool called Fuse. This integration allows users to build a betting ticket on the sports media app and have it transferred to the betting app via a click of a button. This means that they have a built in nudge just waiting to be exploited across all of their users once they have rights to earn gambling revenue in that respective jurisdiction. This seamless integration is something that only a technology company could pull off.
In addition to the market access to new states, the partnership with Penn National has incentivized Barstool social media accounts to promote theScore. I have seen dozens of tweets coming from these popular accounts promoting theScore, as well as Penn National. While these accounts primarily target U.S. users, theScore already has a strong presence in Canada due to their previous ownership of a sports television network. Selling the network in 2012 is evidence of their ability to be early adapters in the presence of shifting consumer behavior. In this case it was the emerging shift of user attention to mobile.
With respect to sports gambling getting legalized in Canada, there is strong bipartisan support for the latest C-218 bill in their legislature. John Levy is actively engaged in this process representing the leading mobile sports media brand in Canada.
Below I attempt a top-down approach on projecting revenue for the 2025 sports gambling industry followed by some more targeted numbers for theScore. The market share figures are primarily subjective assignments loosely based on the current leading market share holders. My assumptions are that theScore’s easy access to over 3 million users will allow them to reach a 5 percent market share in the U.S. and a 10 percent market share in Canada. If they can convert 30 percent of their MAU in the key demographic age range, that equates to roughly half of DraftKings' current MAU.
4 M users (pre-COVID) * 60% (18-44 age) * 30% (conversion rate) = 720,000 users
Source: Author's subjective assignments for market share. TAM is an average of Statista's estimate and the Author's projections.
|Company||Market Cap ($MM)||Annual Revenue ($MM)||EV/Sales||Share Price ($)|
|Company||Market Cap ($MM)||Annual Sports Betting Revenue ($MM)||EV/Sales||Share Price ($)|
Source: Author projected sports betting revenue using assumptions detailed below and assumed a 30 EV/Sales ratio to calculate future market cap.
With a 5 percent market share in the U.S. and a 10 percent market share in Canada, theScore would be projected to reach 401 million dollars of annual revenue for 2025. This would be an 1837 percent increase over their current annual revenue of 20.7 million dollars, or a CAGR of 110 percent. Assuming an EV/Sales ratio of 30 and no additional outstanding shares issued, their share price would increase from 27.99 dollars to 230.57 dollars. That would be a 724 percent increase in share price. If we extend out projections, Goldman Sachs sees the online sports betting market hitting 40 billion dollars by 2033. The bull case above might be considered conservative in the eyes of some.
Most analysts would point to a bear case of strong competition, a low moat environment, a race to the bottom via a price war, and the uncertainty surrounding government legislation. I agree with the sentiment surrounding these concerns. However, I think the biggest risk is not whether or not the government legalizes sports gambling, but rather the details of the legalization. Governments are always seeking new sources for revenue and COVID-19 only increased that demand, but that does not guarantee that a government will enact a market-friendly proposal. Andrew Cuomo wants a lottery-run sports betting system, similar to DC’s, for New York. These anti-capitalistic policies or other restrictions could prevent opportunities for theScore to enter new markets. While GambetDC has proved extremely unsuccessful, this might not deter Cuomo in pursuit of a similar strategy. In Canada, they could legalize single-game sports betting, but the Ontario province has the power to enact their own legislation that could restrict the market.
My second biggest concern is their lack of experience in managing a sportsbook. Currently, they are a client of Bet.Works to handle the sportsbook. Any regular sports gambler will quickly notice the lack of options, prop bets, and other unique bets on theScore Bet. The lack of options could hurt them until they manage to transition the sportsbook in-house. Fortunately, John Levy has publicly stated that they are working on improving their options.
We can modify our assumptions to prepare for a bear case scenario. Let’s assume the more conservative estimate of the 2025 U.S. market at $5.34 billion, a reduced probability of Canada legalizing sports betting (reduced from 75 to 25 percent), and theScore only achieves 1 percent market share in the U.S. and a 5 percent market share in Canada. This would still project SCR to reach an annual revenue of $67.96 million and a share price of $39.09 in 2025. That would only be a 40 percent increase in share price relative to today’s valuation.
|Company||Market Cap ($MM)||Annual Revenue ($MM)||EV/Sales||Share Price ($)|
For projecting sports betting revenue, I used monthly revenue figures reported across New Jersey, Pennsylvania, Colorado, and Illinois. Anywhere online revenue was not specified, I assumed 90 percent. I calculated the average monthly revenue per capita during the months where there was some stability in the revenue figures (4-13 months depending on the state). The subjective selection of these months could appear to be inflated. The average monthly revenue per capita was 2.58 dollars across these four states.
|State||Population (Millions)||Avg Monthly Revenue ($MM)||Avg Rev/Capita ($)|
Source: United States Census Bureau for population. State revenue figures were reported across different sources for each state (New Jersey, Pennsylvania, Colorado, Illinois). Assumed 90 percent revenue was online.
The average revenue per capita calculation was used to calculate projected sports betting revenue in each state, assuming mobile sportsbooks are legal. In order to factor in various legislative outcomes, I leaned heavily on the Action Network for their commentary. I weighted future revenue based on an assigned probability of passing market-friendly legislation, including a delay of one year for companies to start. For example, I assumed Florida has a 50 percent probability of passing market-friendly legislation in 2022, so I included 50 percent of expected revenue across 2023, 2024, and 2025 (see below table). As for Canada, I assumed 75 percent because bill C-218 has been moving along smoothly in their legislature and there seems to be strong bipartisan support.
Example: Calculating 2025 sports betting revenue for Florida
50% probability * 2.58 rev/capita * 21.5 M population * 12 months = $332M
|States/Regions Included||2025 Probability/Weight Assigned|
|AK, AL, AR, CA, HI, ID, KS, MN, MS, MT, NE, NM, OK, SC, UT, WA, WI||0%|
|CT, FL, GA, KY, ME, MO, NC, ND, NY, OH, SD, VT, WY||50%|
|Canada, MA, TX||75%|
|CO, IA, IL, IN, LA, MD, MI, NJ, NV, OR, PA, TN, VA||100%|
Source: Probability assignments were subjective to the Author's discretion; however, they were strongly influenced by political commentary from the Action Network and the progress of legislation in Canada. Assumption for DC is a 10% probability of a change to a market-friendly environment.
My revenue projections assumed no growth in population nor any change in revenue per capita across the years. The revenue projections only included online sports gambling. This ignores other sources of revenue for companies, such as advertising, online poker or casino games, or expanding into markets outside of North America. The assumption of 90 percent sports gambling revenue as online is somewhat aggressive. At the same time, COVID-19 likely caused revenue to underperform since many sporting events were canceled. Another unaccounted factor is cross-border betting which could overestimate or underestimate projections. After totaling the projections, my estimate of 5.34 billion dollars of revenue was 50 percent lower than Statista's 2025 forecast. However, much of that could be explained by my focus on online revenue and theirs did not. Therefore, I averaged 90 percent of their forecast with my own to estimate U.S. TAM. For Canada, I relied solely on my own projection.
All of the industry market shares assigned to competitors are loosely based on current leaders and emerging entrants. These are highly subjective estimates, but the primary focus of the article is the market share assumptions for theScore.
Many of the calculations might appear slightly off due to rounding. EV/Sales calculations are slightly off because I did not include debt or cash in these calculations.
All projections ignored the possibility of significant macro-economic events.
theScore is uniquely positioned in the sports betting industry with its popular sports media app in the hands of more than 3 million sports fans across North America. Utilizing their Fuse technology, they can nudge millions of users residing in legal jurisdictions into placing bets without spending a dime on advertising. The partnership with Penn National ensures additional social media advertising through their influencer network, as well as access to additional U.S. markets. Their experience with designing mobile apps and propensity to adapt to emerging trends, such as mobile apps, eSports, and NFTs, gives me confidence in their technical and business leadership. I believe that checking scores and media through theScore app will be the most natural entry point for sports gamblers to place bets.
Looking at the bear case scenario in 2025, I see limited to no downside in their current valuation of 1,460 million dollars. After calculating a reasonable bull case scenario, I see theScore as a very attractive, asymmetric investment opportunity that capitalizes on investors' fear of uncertainty in legislation. The bull case scenario becomes even more attractive because it excludes any other potential future revenue streams, such as ad-revenue, markets outside of North America, or online poker and casino games. I will continue to add to my position in this Nasdaq-listed company until the risk/reward isn't quite as favorable.
Disclosure: I am long SCR, PENN, DKNG, and FUBO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: The commentary on this website reflects my personal opinions, viewpoints, analyses, and information I have consolidated from a variety of sources. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security, portfolio strategy, or related performance data is not a recommendation to buy or sell that security or make significant changes to your portfolio.
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