Even the fondest of Pointsbet (ASX: PBH) shareholders can’t remember the last time the Company actively promoted their Australian business to shareholders, rather focusing solely on their US expansion where the bookmaker has been a pioneer in the regulatory battlefield, unlocking access to each individual State in a slow and expensive process. As a reward for the ambitions, undertaking the submissions process through each State, PointsBet are leaders in the country where a 2018 Supreme Court ruling paved the way for each State to legalise sports betting as a means of tax revenue. Pointsbet has since been on a cash burn rampage in the US following their IPO in 2019, with Ohio the latest State unlocked by the bookmaker which launched its online sports betting operations this week. It marked the 14th State that Pointsbet now has online sports betting operations in the US following New Jersey, Iowa, Indiana, Illinois, Colorado, Michigan, West Virginia, Virginia, New York, Pennsylvania, Kansas, Louisiana and Maryland. PointsBet USA CEO Johnny Aitken said, “We look forward to delivering The Buckeye State with new ways to enjoy their favorite sports through our market-leading app and expansive suite of Lightning Bet markets, especially with the NFL Playoffs and CFP National Championship commencing in just a few short weeks.” But while Pointsbet is steamrolling its way across the United States, the Company was originally founded in Australia where it has more than 231,000 active clients. This number was only recently surpassed in the US where PointsBet has more than 272,000 active clients and the market is substantially larger. That latter number does not include the 600k+ Americans that are signed up to the NBC Predictor App that NBC (shareholders of Pointsbet) uses to generate leads for Pointsbet in preparation for legislative approvals in respective States. Through the app, users can sign up for free and win prizes by correctly predicting sports results. With the marketing initiatives undertaken by PointsBet in the US to build its customer base while seeking approvals in each target State, the cost of running their US operations have been their largest expense, resulting in net losses of $41m, $187m and $267m over the past three financial years. The Company has been successful in recapitalsing via its shareholders but given the core focus has been on US growth, insiders have long been anticipating the divestment of their Australian wagering operations. An approach was made in 2022 by a Rupert Murdoch-led consortium for the Australian business valued at $220m at the time. This was rejected with the consortium going on to launch Betr on their own under the leadership of industry mogul Matt Tripp. Now with Pointsbet’s cash burn struggles continuing and Betr successfully launching prior to the 2022 Spring Racing Carnival, Tripp, Murdoch and Co are back in discussion with Pointsbet again in an attempt to secure the Australian business and client database. The discussions have been confirmed by Pointsbet to the ASX and labelled “preliminary and incomplete in nature”. As of 30 September 2022, Pointsbet had $475 million in cash on hand which was down on the $669 million held 12 months prior. At its current trajectory, divesting the Australian business looks the most appealing means to strengthen the balance sheet where shareholders have watched the PBH share price tumble from a 52-week high of $7.17 to now be trading around $1.60. Such a sale would follow the modus operandi of Tripp whose ability to consolidate, grow, sell and rebuild has no limits based on his history. As the mastermind of Australia’s online sports wagering industry, Tripp grew Sportsbet to be the country’s largest online bookmaker and selling it to global giant Paddy Power in 2009, before establishing BetEasy in 2014 and selling it to Crown Resorts in 2015 while staying on to then sell it again to rival global giant The Stars Group in 2018. BetEasy was then disbanded in 2020 following its merger with none other than… SportsBet, with Tripp’s non-compete clauses holding him on the sidelines until the launch of Betr in 2023 where he has quickly gotten back into the consolidation game.
PBH Price at posting:
$1.58 Sentiment: Hold Disclosure: Held
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