Media giant NBCU doubles down on PointsBet’s US expansion

Global content powerhouse NBCUniversal (NBCU) and Australian bookie PointsBet (ASX: PBH) are continuing their success story with a two-year extension to their existing five-year, US$500m partnership.

The original five-year deal – struck in 2020 – required PointsBet to spend US$90m per year on advertising across all NBC-owned networks, but today has been revised to US$58m in an effort to reduce expenditure and look towards profit.

The amended contract to correct the path of its US venture has set out a list of requirements ensuring a successful execution that benefits both parties.

The glue holding the partnership together solely relies on PointsBet requirement to evaluate and reduce its current ad spending, as the huge NCBU vested interest in the venture means their entitlement to the option of taking up a 25% equity stake in PBH becomes much more juicy – which was established in the original contract where NCBU currently has a 4.9% stake.

In the case NCBU doesn’t exercise its option to a larger stake anytime during the five-year agreement, instead the bookie has agreed to payout A$105m, a lump sum of the original Option Premium Value.

Taking a punt on PointsBet’s success, NBC knows the bookmaker will have no choice but to hone in advertising spend if they expect to stay alive in the US wagering battleground.

With PointsBet benefitting from the spending reduction, this also provides the major benefit as it comes at a perfect time for the bookmaker as developments in the US continue to disappoint with cash burn totalling A$44.9m spent on operating activities, not impressive but a slight reduction from A$58.7 total spent during the same period last year.

Striving to achieve profitability in any of the existing 14 active states, the revised deal will allow PointsBet to take advantage of NBCUniversal’s media outlets to access more parts of the US, including key areas such as Boston, Chicago, New York, Philadelphia and Washington D.C. – all cities that permit mobile sports wagering or are currently in the works (as is the case of Boston).

To help PointsBet cut its ad spend, there will likely be a focus shift to NBCUs regional sports networks (RSNs), who broadcast three different sports (NBA, NHL and MLB) in each of the aforementioned cities across 12 months.

The revised agreement between PointsBet and NBCUniversal is a win-win. PBH will benefit from the reduction in advertising spend, while NBCU has a longer commitment and the potential to gain an equity stake of up to 25% whenever over the course of the five-year partnership.

Over the quarter ending 31 December 2022, PointsBet reported net winnings from customer bets of A$103.4m, while cash burn peaked at a reported A$75.7m due to ad spend and lower profit margins from racing and sports bets. Despite the positive news, PBH shares slumped 17.4%, closing the day at $1.40 following the release of the announcement.