Can Score Media compete with DraftKings?

After an up and down first half of the year, Score Media and Gaming (Score Media and Gaming Stock Quote, Chart, News, Analysts, Financials TSX:SCR) has bounced back recently and has been particularly on fire this week as investors place their bets on the future of sports wagering both in Canada. But is Score Media still a good pick after the recent rise? Portfolio manager James Telfser of Aventine Investment Counsel says the stock should get a boost on the passing on legislation in Canadian Parliament, something he says is more a question of when than if.

“I do believe it will pass,” said Telfser. “I’m not in the weeds on it to be able to give an opinion there but I do think that the legalization of sports gambling … is all opening up.”

“It’s opening up everywhere and it’s just a matter of time before it does,” Telfser said.

Private member’s Bill C-218, which would legalize single sports match betting in Canada, passed easily through the House of Commons in April and was more recently vetted by the Senate’s Banking, Trade and Commerce Committee. The bill dodged a bullet this week when a proposed amendment — one which if approved would require sending legislation back to the House of Commons for another vote — wasn’t accepted by the Banking Committee. With the summer break in Parliament looming, the bill only has a third reading in the Senate remaining, making it likely but not a shoo-in to be passed into law before summer break.

The news seems to have lifted Score Media, which is now up over 15 per cent for the week.

Well-known for its mobile sports news and stats platform, Score Media is aiming to parlay some of its customer loyalty (with over four million average monthly active users) into a bona fide online betting powerhouse, with the company having launched first in 2019 in New Jersey’s now-open online sports betting arena and then in Indiana, Colorado and Iowa.

Score Media’s move into Canada is dependent on Bill C-218, but the payoff could be big: the company clocks the online gaming sector at between US$3.8 and US$5.4 billion in annual revenue, based on extrapolating data from online gaming markets in the US and elsewhere.

Bill C-218 now has lots of backers in its corner, too, with pro sports leagues in the NHL and CFL along with media and telecom big wig Rogers Communications all now voicing their encouragement that the bill becomes law and the wealth of dollars currently changing hands through the black market and offshore betting will find its way into the pockets of pro sports’ producers and distributors.

On the passing of the bill through the House of Commons in April, Score Media founder and CEO John Levy said in a press release, “We are increasingly encouraged by the widespread industry and strong cross-party support that Bill C-218 has garnered. Now that Bill C-218 has been passed by the House, we look forward to the Senate swiftly carrying the ball over the goal line.”

But as far as Score Media’s longer-term prospects go, Telfser is a little less confident, as with the flood of interest in legal online gambling in Canada and the US comes a horde of competition.

“We like names like DraftKings and are looking at names like Penn National in the US, which are larger and have a little bit more opportunities to get to compete there, because there is going to be a lot of competition in the space,” Telfser said.

The scale of DraftKings in particular will represent a massive challenge to SCR. That company recently announced 2021 guidance to as much as $1.15 billion, which would represent growth of as much as 79 per cent, year-over-year.

Can the Canadian company compete on that level? Telfser is unsure. “[Passing Bill C-218] probably creates a short-term spike in [Score Media], but there’s going to be a lot of fighting for market share in that space,” he said.

“We do think it’s a very exciting market to be involved in over the long term. We don’t hold any of these positions in our funds or for our clients [but] we are following it because we do think at some point here it’s going to be really interesting to see where this goes,” Telfser said.

Score Media and Gaming last reported its financials in April where its fiscal second quarter (ended February 28, 2021) featured revenue of $5.6 million versus $6.7 million a year earlier and a net loss of $17.6 million compared to a net loss of $10.5 million a year earlier.

The company registered a record for gaming handle at $81.6 million for the fiscal Q2, with New Jersey’s handle almost tripling year-over-year.

“The strong second quarter results highlight theScore’s ongoing momentum and our users’ active, growing engagement with our mobile offerings,” said Levy in an April 13 press release.

“We also recorded our highest-ever second quarter media revenue, with 17 per cent year-over-year growth driven by our compelling content as well as our outstanding North American reach and audience engagement,” he said.