The US market was long viewed as the white whale of the sportsbetting industry, but five years on from a landmark 2018 Supreme Court ruling which turned fiction into reality, those chasing the big win have copped the biggest losses. Ironic, huh? 

For Australian sportsbetting company PointsBet (ASX: PBH), today’s sale of their US operations which secured regulatory approval to accept bets in 14 US States, is a stark reality of the safety disclaimers that close their television commercials. 

In 2022, the desensitised “Gamble Responsibly” disclaimers were replaced with “Chances are you’re about to lose”, “Imagine what you could be buying instead” and “You win some. You lose more”, among others. It was a message to customers. But perhaps, it’s one more apt for PointsBet shareholders. 

Following the US Supreme Court ruling that legalised sportsbetting across the country, it wasn’t a matter of bookmakers just entering the market, and accepting bets. Instead, PointsBet and the like have had to jump through regulatory hoops in each individual State, seeking a licence to do so. The process enabled States to increase their revenue from wagering taxes, while also giving each State control over the regulation and reporting of bookmakers in their State. 

PointsBet completed this ‘hoop-jumping’ in 14 States, either on their own or by partnering with casinos and racetracks, seeking to then accept online bets from the State’s residents, open retail betting stores/kiosks in the State, or both. 

The cost? A $41.9 million net loss in 2019, a $41.5 million in 2020, a $187.1 million loss in 2021 and finally a $267.7 million loss in 2022. 

The proverbial cash burn was real, and on full show for shareholders of a Company constantly chasing their losses, with news of regulatory approvals that would require substantial marketing efforts to acquire US customers. 

Even once those customers were acquired at high advertising costs, there was no guarantee that would remain once their promotional signup bets were consumed – a common practice amongst punters that maximise their signup bonuses and then bet elsewhere. 

It’s why PointsBet continuously touted its rising US-based customers, but glossed over its struggling US turnover which in March 2023 reported $819.2m which was 22% less than the bets accepted in the December quarter and equal to the previous March quarter, despite chewing through massive advertising spends which contributed to their $267.7 million loss in FY22. 

With the sale of the US business to Fanatics Betting and Gaming for $222 million in cash, PointsBet will focus on its Australian business while pursuing the smaller market in Canada where it also operates online casinos, and licences its technology. 

The Australian business, too, was subject to acquisition activity after twice engaging with Betr, led by sports betting guru Matt Tripp, before those talks broke down and Betr pursued its own growth which has since stagnated amid compliance issues. Such attention from Australian regulators has resulted in major changes at Betr, including the planned exit of NewsCorp from the venture as Australia’s sports betting industry has fallen substantially from its pandemic boom. Wagering data confirmed, after-the-fact, a substantial amount of turnover was funded from the $20k superannuation hardship withdrawals offered during the pandemic. 

Without being able to draw from super to fund those exercises, Australians have been further hit by rising interest rates that have flowed down to decreases in discretionary spending. In many cases, punters have had to draw back their deposits. 

Such is the market now, that consolidation looks almost certain with smaller bookmakers likely to struggle with higher taxation, including rises in Point-of-Consumption (POC) taxes across horse racing products nationwide. Streamlining of operations is therefore likely to produce operating synergies via mergers and the folks at PointsBet have long been friendly with Tripp who could be ready to move on from the Betr fiasco. 

Given PointsBet’s public listing was largely tied to capital for US expansion, the prospect of delisting from the ASX via M&A activity looks beneficial for PointsBet which will issue a special $1.07 – $1.10 dividend to shareholders. It will include dispersal of cash reserves allocated to US growth with the Company reporting $301m on hand as of 31 March 2023. 

PointsBet’s Australian business still holds value but is likely to be viewed as more valuable without being an ASX-listed company. For shareholders that participated at their $2 IPO Offer Price in 2019 that didn’t get out at the $15 highs in 2021, those “Chances are you’re about to lose” disclaimers plastered throughout football broadcasts are going to hurt that little bit more.