Partnership

Jun 24, 2021

Good day, and welcome to the 888 Holdings Plc Conference Call. At this time, I'd like to turn the conference over to Ittai Pazna. Please go ahead, sir. Thank you, and good afternoon to those in Europe and good morning to our friends in America. Thank you for joining us in this exciting day for 888 as we announce a strategic partnership with the fantastic brand Sports Illustrated. This partnership aims to accelerate our rollout into the U. S. Sports betting and iGaming market. I'm Ittai Pazner, CEO of 88, and I'm joined here today by Our CFO, Yariv Dafna and Yaniv Sherman, our SVP, Head of U. S. On today's call, I'll give you an overview of the rationale Behind the strategic partnership and where this places 888 in the U. S. Market, Yariv will provide the details on the agreement, and Sharman We'll go into detail on the strategic partnership and our plans in the U. S. Following this, we'll open up for some questions and answers. Turning to Slide 2. Before I go into the details behind this partnership, I want to step back for a second and give an overview of 888. We are a global leader in the online betting and gaming market. Our unique proprietary technology powers our B2C and B2B products. Our global platform provides the foundation for an excellent product experience for our customers And gives 888 access to data and decision making tools to enhance our returns. We have a full end to end product suite across sports, casino, poker and bingo. And you can see The makeup of their contribution to revenue in the pie chart on the screen. 888 is licensed in 16 jurisdictions worldwide, And we are focused on driving growth in regulated markets, giving us broad global diversification. Our products are developed in house, which gives us the ability to tailor the experience using our sophisticated algorithms In AI, to provide the best and most relevant content to the customer at the right time and on the right device. Another key component of our business and technology is our SAFER gaming framework. We apply Our same expertise in technology and product development to implement measures and intuitive safer gambling tools To ensure our customers enjoy a safe and entertaining gaming experience. Moving on to Slide 3. This is a snapshot of 888 in the U. S. Today and where we are heading. On the sports betting side, We currently offer our product directly to consumers in New Jersey. We aim to launch the SI Sportsbook in Colorado first, Followed by New Jersey, Indiana and Iowa. The combined market of these 4 states is estimated at $1,200,000,000 We are actively pursuing additional market access deals and plan to expand into 2 to 4 additional states per year. The priority states that we are targeting would give us a total addressable market of $4,400,000,000 In addition to driving growth in sports betting, we are also very well positioned in iGaming, where we will continue to offer 88 branded Casino and Coke are direct to consumers as well as offering SI branded gaming in any relevant states. In addition to our B2C business in iGaming, we also operate a B2D business where we power the poker and casino products Our Caesars partnership, which has been extended last year for another 5 years, Gives us a unique opportunity to create an interstate poker network, currently active across 3 states, We expect to launch the World Series of Poker in Pennsylvania imminently, subject to regulatory approvals and then into Michigan shortly after. Moving on to Slide 4. I'm delighted to announce our exciting strategic partnership with the Authentic Brands Group, owners of Sports Illustrated, which will turbocharge our business in the U. S. Sports Illustrated is an American icon with unique heritage. It has been one of the most impactful names in sports media for nearly 70 years and is very much a household brand. This partnership reinforces 888's growth plan and complements our platform, which is now better placed for growth. Since online sports betting regulated, we have been actively pursuing potential media partnerships and brands in the U. S. Market. Sports Illustrated has been on the top of our list, and I'm absolutely delighted that we have formed this partnership with the SI brand and ABG. Turning to the next slide, Slide 5. We'll outline the main attractions Of this partnership. So firstly, SI has a huge audience with over 30,000,000 monthly unique users On its digital platforms, it has a range of high quality entertaining content through a wide variety of channels That keeps customers engaged. SI gives us household brand awareness in the relevant target audience group and a wide reach. This will enable us to acquire more customers and at a lower cost per acquisition. 2nd, This is a truly powerful sports brand. We will support which will support market share gains, helping us to improve our lifetime value Through integration with SI unique and relevant sports content. 3rd, this partnership brings together A unique and diverse range of assets for the U. S. Market, 888 brings its world class technology, Products and online marketing expertise and can now leverage the SI brand. ABG owns the SI brand, And this is also gives us access to a wide range of ABG assets and distribution channels. 4th, We are aligned from a commercial perspective. This is a joint venture structure where ABG will own part of this business And can increase its equity stake over time. We share a common vision of providing customers with an excellent sports betting and gaming Experience. Partnering with like to like minded, motivated and committed partner is immensely important for 888. Both parties will be working very hard to drive traffic and create engaging sports content to drive repeat users To the SI Sportsbook. And finally, this is an exclusive deal with Sports Illustrated and SI Sports book to be integrated into a seamless customer experience across sports content and betting. I'll now hand over to our CFO, Yarib Daphna, to outline the structure of the JV agreement. Thanks, Ittai. Hello, everyone, and thank you for joining us today. As Ittai said, this is a really exciting partnership for 888 and SI And provides us with a strong platform to accelerate our growth in the key U. S. Market. Over Slide 6, I will review some of the key terms of the agreement. The partnership was built to incentivize both APG and ATA to over perform, providing us both with the roots To a significant upside. This is a long term agreement of up to 20 years where ABG will initially own 4.99 percent of the equity in the new joint venture. For 4.5 years, ABG has the option to acquire an additional 5% stock for EUR 15,000,000 and then for additional 2 years, It has a further option to acquire another 5% stack for €25,000,000 This investment would value the business at €300,000,000 €500,000,000 respectively. Through performance related warrants, ABG will be able potentially To increase its total ownership to nearly 20% of the joint venture after 7 years. What all of this means that we have a partner who is strongly incentivized to support our joint success using the full power of the SI brand and ABG asset To drive sport consumer to engage our betting and gaming platforms. Finally, this is an exclusive deal With Sport Illustrated and SI Sportbook to be fully integrated, giving a seamless customer experience. 888 is committed to investing in the U. S. In 2021 and beyond, we plan to significantly increase our investment in this market As we scale up our proprietary spot betting platform for rollout into additional states. I will now hand over to Yaniv Schirmann, who will give you more insight into the strategic partnership. Thanks, Yairiv. Good morning and good afternoon to everyone. We're on Slide 7, when we show the combination of the 888 and the Sports Illustrated assets Presents a combination that will enable us to turbocharge our U. S. Business, as Ittai commented. The SI Sportsbook will be powered by a proprietary tech stack, Which represents over 20 years of digital excellence. We're finalizing the deployment of our new platform in the U. S, Which aims to provide SI Sportsbook with an agile, cost effective and scalable tech solution in the years to come. 888 brings our latest product into the U. S. Market with our in house sports book, casino and poker products. In the markets where our products have been launched, We've received positive feedback and these products will be tailored for the U. S. Consumer. We're an online gaming business by DNA. We bring vast operational know how and expertise to this partnership with our data driven analytical approach to investment Underpinning our plans for the U. S. Market. The partnership will benefit from our existing and future market access. We've already expanded our market access footprint with 3 more states, Colorado, Indiana and Iowa, and we're actively engaged in multiple negotiations further enhance our access in additional states to capitalize on this unique combination in the near and long term. And finally, brand is critical in the U. S. As we all know. And with SI, we have an excellent brand that can provide reach to millions of customers. I will now I'll go into more details in the following slides. Turning to Slide 8, The Authentix brand group is an entertainment powerhouse. It's home for over 30 premium media, entertainment and lifestyle brands. And at their core, ABG are about storytelling. Over 60,000,000 monthly active visitors engage with ABG through a proprietary network of content creators across its various assets and channels. Consumer experience around sport and gaming. On Slide 9, Sports Illustrated is one of the most trusted brands in sport And I'd like to spend a few minutes highlighting the power of the SI brand through this video that ABG was kind enough to create for us. As you have seen from the video, Sports Illustrated has a truly unique iconic American brand stance. On Slide 10, you can see some of its power. Si.com has over 30,000,000 unique monthly visitors and over 12,000,000 loyal Sports Illustrated readers annually on both the digital and print Assets. This gives day to day access to millions of customers who will be seeing SI Sportsbook promotions and betting opportunities As a way to gain more market share in the U. S. Market. Turning to Slide 11, the SI brand is a powerful and growing digital and social destination, Which is one of the key components that makes us really excited about this partnership. Alongside their 30 monthly unique visitors to si.com, The brand generates over 4,000,000,000 impressions every year. The various SI handles and social accounts of just under 18,000,000 followers We'll be looking to tap into this SI outreach and data to present a personalized betting experience, presenting consumers with offers relevant to their sports interest. Over 2,000,000,000 views of social media videos annually, giving us both a distribution and fan engagement channel, We can integrate the 888 products and marketing into. We will be building an integrated sports product experience that will also include a Unified Marketing and Media team. This team will be producing high quality, betting focused sports content in various formats I will complement the vast portfolio that SI offers across all channels. Sports betting and engagement through sports betting content will support SI In the process of digitalizing its brand and making it even more relevant to younger audiences. Turning to Slide 12, Beyond Sports Illustrated's reach and high awareness, it also covers a very wide audience. While it is skewed towards men, It over indexes with women, which represent over 23% of SI consumers. It's agnostic by construction, Meaning it is not tied to a specific sport and covers a full range of American sports. SI Consumers also cover a broad age group With higher than average disposable income. In Slide 13, here we have more data demonstrating the potential. Compared to the average consumer, an SI consumer is 76% more likely to have placed the bet at least 8 times over the last year. SI consumers are also over 200% more likely to visit sports betting website at least twice per month. This paints a clear picture of the SI consumer, which shows high interest in betting and gaming as part of their leisure activities, He's likely to be playing on competitor sites today, giving us a clear route to growing our user base and market share. Before handing back to Ittai to conclude, I'd like to take this opportunity and thank our partners at ABG and Sports Illustrated for their commitment in getting this marquee deal done. We're looking forward to a long term partnership that will bring the SI Sportsbook to the forefront of the U. S. Online sports and iGaming market. Over to you, Ittai. Thanks, Yaniv. And turning to Slide 14. So for nation of SI through this strategic partnership significantly strengthens our position in the U. S. Through our existing B2C In B2B operations, we already have a leading technology, online operating and marketing expertise. This partnership presents an exciting opportunity To engage with millions of sports and gaming fans across the U. S, this combination of assets will result in a reduced cost per acquisition, Extended player lifetime value and a superior return on our investment. Turning to the next Slide 15. To conclude, we're really excited about the strategic partnership and about 888's future in the U. S. Over the next few years, we see a market opportunity of around $10,000,000,000 across sports betting and iGaming in the states that we are prioritizing. And on the long term, market estimates see the total U. S. And Canadian markets getting up to multiple times that amount. This partnership integrates our leading sports book with SI's renowned brand that has huge potential. In iGaming, we have a powerful series of brands to distribute our leading products through both SI and our B2B businesses, I'm confident with this exciting new partnership coupled with our existing partnerships and offering, 888's U. S. Growth strategy will accelerate. I'll now hand over to the moderator for Q and A. Thank sir. We'll now take the first question from Simon Davies at Deutsche Bank. Please go ahead. Yes. Hi. A few from me, if I may. Firstly, can you talk a bit about your aspirations in terms of market positioning or market share in the states that you launch into? And I think with obviously, Historically, you haven't had the brand support with this new brand. Do you see yourself as a top 5 operator in all the Sports Markets, you enter. Secondly, you talked about an option to take the business into Canada. Is that on the same terms as the U. S. Deal? And is there any equity connected to that? And lastly, Just in terms of the warrants, what are the performance targets for those warrants? Are they stretch targets, I. E, do you expect to pay them out? And can you just Give us a feel for the timing of the 5% options when those can be taken up. Yes. Thanks, Simon. So we'll tackle those 1 by 1, me and the rest of the team here. So first of all, I'll start with the aspirations of market share. And our aspiration, we believe That with this partnership, we can achieve up to 5% market share in sports betting In the markets that we target, we actually believe that we can achieve this much faster and in a much more effective way Then we could have solely due to the power of the SI brand, due to the very strong Emotional connection that we found through research that American customers have with the SI Brand and a very high correlation between SI customers or readers and their sports betting. So the aspiration is around the 5%, that's in many of the European countries that we operate in, That's, I would say, on average, where we trade between sports betting and gaming, gaming slightly higher, sports betting Slightly lower, but that's more or less average, and that's what we're targeting in the U. S. With the SI brand. So that's the first one. The second question was Canada, and I'll let Sherman expand on Canada quickly, and then Yariv Can I answer the question about the warrants and the percentages? Yes. So in Canada, We've been obviously been monitoring the developments in the market for quite some time. And when we negotiated the deal, we wanted to build in optionality Into the structure, we weren't prescriptive about the deal terms. They may be similar or identical, but this something we need to craft based on the actual legislation now that the market develops. We see that Natural Esports Illustrated's footprint Extend north of the border, but this is something that we'll definitely now look that now that the Federal bill or the criminal code was changed in Canada, so it becomes more pragmatic. But we're definitely we will be tending to that In the near term. Yes. Hi, Simon. Just with regard to the options, so basically ABG got 2 set of options. The first one is to buy 5% within their 1st 4.5 years, And they can buy 5% for €15,000,000 Then they have another option to buy additional 5% for €25,000,000 And this option can be exercised at any time in the 1st 6.5 years. If they These two options, they will have a warrant based on performance after 7 years that can give them potentially additional 5%. So After 7 years, they potentially could be a holder of 19.99 percent of the business. Are they stretch target? Excuse me? Sorry, I was just asking, are the targets for the warrants, are they stretch It's an over performance target, yes. Perfect. Thank you. We'd now like to turn it over to the webcast question. Our first question comes from David Brone from Goodbody. Will you be making any changes to your market share targets on the back of today's announcement? Yes. David, thanks for the question. I just spoke about the market share Targets in the U. S, which are around the 5% markets and market share For sports betting in the markets that we will target, obviously, in the markets that will have iGaming available, We will also reach market share through iGaming in those markets, but currently our plan It's around the 5% in those markets. Our next question is from Berdy Barrett from Stifel. Could I confirm understanding? Will you be rebranding B2C sites, e. G, New Jersey. You indicated there will be a significant increase in investment this year and next. Could you be more specific? Does the investment profile look different to that currently factored into consensus? Do you believe this partnership improves the potential to secure access deals? Yes. Okay. So I'll take a couple of those. So first of all, from a branding perspective, Bernie, We're planning all of this B2C sports betting activity in the U. S. Will be Through SI, so we will roll the SI brand, SI Sportsbook brand in every market where we will achieve Market access for sports betting, including New Jersey and the other three markets that we currently have, which are Colorado, Indiana and Iowa and in additional markets that we're currently pursuing to get licenses. In addition, we have the legacy B2C gaming brands that are in the U. S. And they are excluded From the market that from the deal, this is 88 Casino and 88 Poker, and they exist currently only in New Jersey. And finally, on the B2B side, we have the deal with Caesars, which is currently WSOP and Harrah's Casino, and that's obviously separated from this deal as well. So the deal is Focused around sports betting, exclusive to sports betting and in every market that will allow us to operate iGaming. With SI, we will operate iGaming as well under the SI brand. So that's on the branding. And in terms of the market We do believe that this will help us to achieve more market access deals for a few reasons. First of all, Market access deals are achieved with local partners. Local partners prefer to work with brands that they feel have a higher chance of Success and scaling their business, and we feel that with this combination of 888's core competencies, technology, marketing know how And SI brand, which is a household name brand, we have a higher chance of reaching larger market shares, Increasing the revenue and obviously giving a bigger share not a bigger share, but a bigger revenue Inflow for the partner, the market access partner. And the second thing again is in these processes, The SI brand carries a lot of weight in different Places in the U. S, and we feel that while associating ourselves with such a brand, that increases our chances To getting market access deals in several markets in the U. S. The final part was around the investment, and I'll let Joreve Take that one. Yes. So Brady, in terms of the investment in 2021, we don't see any change to our forecast Right now, after the announcement of the first half result, we might give more guidance for the future. But in general, I would say that in terms of the level of investment, it's not necessarily different from what we were planning On our own plan, even without the branding, the branding is about Actually reducing the CPA and have a shortcut for gaining market share. Any other question? No more questions from the webcast. Okay. So I'd like to thank you. I'd like to turn the call back to Ittai. Yes. I'd like to thank everyone for joining this call today. And as we mentioned, we're extremely excited about this Opportunity to supercharge and boost our U. S. Business, and I'd like to again to thank The team at ABG for working closely with us on the deal up till now, and we still have a lot to do together, And we're extremely excited about this opportunity. Thank you very much, everyone. Thank you.