Despite global markets being on edge amid interest rate rises, sportsbetting company PointsBet (ASX: PBH) has strengthened its balance sheet with a $94 million investment from Sports Investments Corp (SIG Sports) which will see the bookmaker accelerate its quantitative analytics capabilities.
The $94.16 million investment comes in the form of a Private Placement to SIG Sports which is a member of the Susquehanna International Group of Companies (SIG). Headquartered in Pennsylvania, USA, SIG is one of the world’s largest financial trading firms in the world where its divisions cover derivatives market making, institutional brokerage, private equity, sports analytics and structured capital.
While trading of derivatives on traditional financial markets, such as stock exchanges, has been a big money maker for institutions like SIG for decades, the rise in online sportsbetting has created similar markets. In most instances, these trading firms utilise quantitative analytics and live betting to create arbitrage trading opportunities – in most instances where the operators know virtually nothing about the sport being wagered.
“After several years of thoroughly evaluating the North American sports betting market for the right partner, SIG Sports is pleased to have made what we consider to be a long-term investment in PointsBet,” said SIG Co-founder and Managing Director, Jeff Yass.
“We have been following their journey for some time and have developed a very positive view of the overall business operations and the capability of the PointsBet leadership team.
“We believe PointsBet has great potential for future growth and success in the North American sports betting market and SIG has both the analytics and capital to help realize that potential.”
To secure the funds from SIG Sports, PointsBet has issued New Shares at an Issue Price of $2.43 per share which represents a 15% premium compared to the 5-day volume weighted average price (VWAP) to 17 June 2022. While most ASX Placements take place by offering discounts to the VWAP, the premium is still a substantial discount based on the volume of 38,750,000 shares being issued. To have purchased that volume on-market, SIG would likely have pushed PBH shares substantially higher than the Issue Price.
With the strategic investment, SIG Sports becomes the largest shareholder of PointsBet with a 12.8% stake which verges towards potential takeover territory.
As part of the investment, PointsBet has confirmed its intention to accelerate its quantitative modelling capabilities via an exploratory agreement with Nellie Analytics, a member of SIG.
As part of the 9-month exploratory agreement at nil cost, Nellie Analytics will provide PointsBet with sports analytics and quantitative modelling services. The collaboration will provide backend access to Nellie which will aim to expand to a Definitive Agreement via long-dated Options where further commercial growth from PointsBet’s modelling will have major upside for Nellie in exchange for their highly sophisticated risk management and trading algorithms.
These algorithms are primarily applied to in-play betting of sports in the North American market.
“Excellence in technology and trading is at the forefront of everything we do at PointsBet. In Nellie Analytics we have found another like-minded team of technologists, whose services we believe can accelerate our product led strategy and thus our right to win in the USA, Canada and Australia,” said PointsBet CEO, Sam Swanell.
“In practical terms, the partnership will enable PointsBet to have more accurate lines and sharper risk management. This will flow through to our customers in the form of higher wagering limits, less price suspension, faster bet placements and improved value for bettors.”
Nellie Analytics, based in Dublin Ireland, with a team of approximately 30 technologists, has built cutting-edge quantitative models and technology to trade and make markets for professional sports using trading acumen, advanced statistical forecasting models, and quantitative research.
As of 31 March 2022, PointsBet had $475 million of cash on hand, of which only $50.2m was held in customer betting accounts. Even with this large cash balance, which does not include the $94.1m secured from SIG sports, PointsBet is trading with a market cap of just $570m.
Its Australian-based business alone has 232k active customers while its US business has 249k and is rapidly growing.
The investment from SIG Sports comes just one week after PointsBet rejected a $220 million offer from a Rupert Murdoch-led consortium for their Australian business as part of NewsCorps plans to launch their new sportsbetting business.
Alfred Chan is an Analyst at Emerald Financial, specialising in ASX-listed small cap companies.
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