This Gambling Stock is a Great Bet
Around 2015, I was getting increasingly frustrated with the shitty ESPN mobile app. I did what many millenials would do in this situation and searched for alternative solutions. One of the suggestions I came across was theScore so I gave it a shot. After downloading the app, I never looked back. The user-friendly app was a much smoother experience. Anytime I needed information on scores, schedules, or standings across professional sports, I would visit theScore. As you can imagine, this was quite often.
Fast forward to November 2020, and I saw some random tweets about a Canadian sports betting company trading on the OTC market. I put a small, speculative starter position into the random stock and forgot about it. A few months later, I noticed the significant gains. After doing some research, I saw there was some progress on single game sports betting becoming legalized in Canada. It was at this point that I connected the dots to realize the small Canadian sports betting company was the same one responsible for that app on my phone. This is what precipitated my deep dive into the Score Media and Gaming Inc ($SCR).
What is Score Media and Gaming?
Score Media and Gaming “creates mobile-first sports experiences, connecting fans to what they love through an addictive combination of real-time news, scores, fantasy information and alerts while creating and curating content that is mobile optimized, comprehensive, customizable and seamlessly shareable” (Source). That’s a marketing-friendly way of saying they have mobile apps and websites that track professional sports news and information. Their mobile segments are divided into three buckets: theScore, theScore Bet, and theScore eSports; however, they are all connected under one brand. The recent addition of theScore Bet is the foundation for my bull thesis.
The Bull Case
Statista predicts U.S. sports betting revenue will reach 8 billion dollars in 2025. Total addressable markets (TAM) often get exaggerated in slide decks, so I wanted to estimate this figure myself. After looking at the latest regulatory predictions on Action Network and applying my own assumptions*, I was able to come to my own estimate of 5.34 billion dollars. Assuming 90 percent of the Statista figure was online revenue, I averaged the two projections to come to a U.S. TAM of 6.27 billion dollars in 2025. This is a large market, but how does The Score fit into the equation?
The Score averaged 3 million monthly active users in Q4 2020 (Source). For reference, Draftkings averaged 1.5 million paying users over that same time period (Source). What’s even more impressive is that The Score’s metrics were normally 25 percent higher, but saw a decline due to COVID shortening sports seasons. Of those 3 million users, 53 percent of U.S. and 63 percent of Canadian users are between ages 18 to 44 (Source). This age range has the largest participation in sports gambling (Source). The Score’s social reach across Facebook, Twitter, and Instagram averages 100 million users per quarter. One of the most important figures in their annual information form might be that users opened the app about 100 times per month on average during 2019. The 2020 figures were impacted by COVID (Source). Overall, their goal is to retain customers by connecting content, community, and ecommerce.
With theScore app already on more than 3 million users’ phones, they have an extremely low customer acquisition cost (CAC) compared to their competitors. Any avid sports fan can tell you that Draftkings, Fanduel, and most of the top competitors spend a ton on advertising. How durable is their moat if they need to continuously spend marketing to maintain customer loyalty? The more natural entry point for sports betters is to gamble while watching a game on television or while checking sports scores and news on their phone. Draftkings and Fanduel have neither of those funnels. PENN went so far as to acquire a media company, Barstool, as part of their customer acquisition strategy and have had tremendous success so far. The Score is already a sports media and news company. However, that is theScore’s original news and media app so what about the new one?
Because the original theScore app does not include a sportsbook, any developer would question how quickly they can develop a sports betting app. Well, they have had theScore Bet up and running since 2019 and it is currently active in 4 states (IA, CO, NJ, IN) with the right to obtain market access in additional states through their partnership with PENN (Source). The app looks virtually identical to the original theScore app (Source). TheScore Bet is integrated into the original app using a proprietary tool called Fuse (Source). This integration allows users build a betting ticket on the sports media app and have it transfer to the betting app via a click of a button. This means that they have a built in nudge just waiting to be exploited across all of their users once they have rights to earn gambling revenue in that respective jurisdiction. This seamless integration is something that only a technology company could pull off.
In addition to the market access to new states, the partnership with PENN has incentivized Barstool social media accounts to promote theScore. I have seen dozens of tweets coming from these popular accounts promoting theScore ($SCR), as well as, PENN. While these accounts primarily target U.S. users, theScore already has a strong presence in Canada due to their previous ownership of a sports television network. Selling the network in 2012 is evidence of their ability to be early adaptors in the presence of shifting consumer behavior. In this case it was the emerging shift of user attention to mobile.
With respect to sports gambling getting legalized in Canada, there is strong bipartisan support for the latest C-218 bill in their legislature. John Levy, the CEO of The Score, is actively engaged in this process representing the leading mobile sports media brand in Canada.
Below I attempt a top-down approach on projecting revenue for the 2025 sports gambling industry followed by some more targeted numbers for theScore. The market share figures are primarily subjective assignments loosely based on the current leading market share holders. My assumptions are that theScore’s easy access to over 3 million users will allow them to reach a 5 percent market share in the U.S. and a 10 percent market share in Canada. If they can convert 30 percent of their MAU in the key demographic age range, that equates to roughly half of DraftKings’ current MAU.
4 M users (pre-COVID) * 60% (18-44 age) * 30% (conversion rate) = 720,000 users
Projecting 2025 Industry Revenue**
**Revenue only includes sports betting revenue unless specified otherwise.
| Company | US Market Share | US Rev ($MM) | Canada Market Share | Canada Rev ($MM) | Total Rev($MM) |
|---|---|---|---|---|---|
| Barstool/PENN | 20% | $1254 | 10% | $87 | $1342 |
| Draftkings | 12% | $752 | 10% | $87 | $840 |
| FUBO | 11% | $690 | 5% | $44 | $733 |
| Fanduel/PDYPY | 10% | $627 | 5% | $44 | $671 |
| William Hill | 9% | $564 | 5% | $44 | $608 |
| BetMGM | 7% | $439 | 5% | $44 | $483 |
| theScore | 5% | $314 | 10% | $87 | $401 |
| PointsBet | 5% | $314 | 5% | $44 | $357 |
| Other | 21% | $1317 | 45% | $306 | $1623 |
| TOTAL | 100% | $6270 | 100% | $874 | $7144 |
2021 Financials Comparison
| Company | Market Cap ($MM) | Annual Revenue ($MM) | EV/Sales | Share Price ($) |
| DKNG | 26,700 | 615 | 43 | 67.14 |
| SCR | 1,460 | 20.7 | 71 | 27.99 |
2025 Financials Comparison (Bull Case)
| Company | Market Cap ($MM) | Annual Sports Betting Revenue ($MM) | EV/Sales | Share Price ($) |
| DKNG | 25,194.91 | 839.83 | 30 | 63.36 |
| SCR | 12,026.90 | 400.90 | 30 | 230.57 |
With a 5 percent market share in the U.S. and a 10 percent market share in Canada, theScore is projected to reach 401 million dollars of annual revenue for 2025. This would be an 1837 percent increase over their current annual revenue of 20.7 million dollars, or a CAGR of 110 percent. Assuming an EV/Sales ratio of 30 and no additional outstanding shares issued, their share price would increase from 27.99 dollars to 230.57 dollars. That would be a 724 percent increase in share price. If we extend out projections, Goldman Sachs sees the online sports betting market hitting 40 billion dollars by 2033 (Source). The bull case above might be considered conservative in the eyes of some.
Bear Case
Most analysts would point to a bear case of strong competition, a low moat environment, a race to the bottom via a price war, and the uncertainty surrounding government legislation. I agree with the sentiment surrounding these concerns. However, I think the biggest risk is not whether or not the government legalizes sports gambling, but rather the details of the legalization. Governments are always seeking new sources for revenue and COVID only increased that demand, but that does not guarantee that a government will enact a market-friendly proposal. Andrew Cuomo wants a lottery-run sports betting system, similar to DC’s, for New York. These anti-capitalistic policies or other restrictions could prevent opportunities for theScore to enter new markets. While Gambet DC has proved extremely unsuccessful, this might not deter Cuomo in pursuit of a similar strategy. In Canada, they could legalize single game sports betting, but the Ontario province has the power to enact their own legislation that could restrict the market.
My second biggest concern is their lack of experience in managing a sportsbook. Currently, they are a client of Bet.Works to handle the sportsbook. Any regular sports gambler will quickly notice the lack of options, prop bets, and other unique bets on theScore Bet. The lack of options could hurt them until they manage to transition the sportsbook in-house (Source). Fortunately, John Levy has publicly stated that they are working on improving their options.
We can modify our assumptions to prepare for a bear case scenario. Let’s assume the more conservative estimate of the 2025 U.S. market at 5.34 billion dollars, a reduced probability Canada legalizing sports betting (reduced from 75 to 25 percent), and theScore only achieves 1 percent market share in the U.S. and a 5 percent market share in Canada. This would still project SCR to reach an annual revenue of 67.96 million dollars and a share price of 39.09 dollars in 2025. That would only be a 40 percent increase in share price relative to today’s valuation.
2025 Financials Comparison (Bear Case)
| Company | Market Cap ($MM) | Annual Revenue ($MM) | EV/Sales | Share Price ($) |
| SCR | 2,038.86 | 67.96 | 30 | 39.09 |
Methodology Assumptions
*Calculations can be found on my Github repo.
For projecting sports betting revenue, I used monthly revenue figures reported across New Jersey, Pennsylvania, Colorado, and Illinois. Anywhere online revenue was not specified, I assumed 90 percent. I calculated the average monthly revenue per capita during the months where there was some stability in the revenue figures (4-13 months depending on the state). The subjective selection of these months could appear to be inflated. The average monthly revenue per capita was 2.58 dollars across these four states.
Looking towards future legislation in sports gambling, I leaned heavily on the Action Network for their commentary. I weighted future revenue based on an assigned probability of passing market-friendly legislation, including a delay of one year for companies to start. For example, I assumed Florida has a 50 percent probability of passing market-friendly legislation in 2022, so I included 50 percent of expected revenue across 2023, 2024, and 2025 (see below table). As for Canada, I assumed 75 percent because bill C-218 has been moving along smoothly in their legislature and there seems to be strong bipartisan support (Source).
| States/Regions Included | 2025 Probability/Weight Assigned |
| AK, AL, AR, CA, HI, ID, KS, MN, MS, MT, NE, NM, OK, SC, UT, WA, WI | 0% |
| AZ, DC` | 10% |
| CT, FL, GA, KY, ME, MO, NC, ND, NY, OH, SD, VT, WY | 50% |
| Canada, MA, TX | 75% |
| CO, IA, IL, IN, LA, MD, MI, NJ, NV, OR, PA, TN, VA | 100% |
My revenue projections assumed no growth in population nor any growth in revenue per capita across the years. The revenue projections ONLY included online sports gambling. This ignores other sources of revenue for companies, such as advertising, online casino gambling, or expanding into markets outside of North America. The assumption of 90 percent sports gambling revenue as online is somewhat aggressive. At the same time, COVID likely caused revenue to underperform since many sporting events were canceled. Another unaccounted factor is cross-border betting which could overestimate or underestimate projections.
All of the industry market shares assigned to competitors are loosely based on current leaders and emerging entrants. These are highly subjective estimates, but the primary focus of the article is the market share assumptions for The Score.
Many of the calculations might appear slightly off due to rounding. EV/Sales calculations are slightly off because I did not include debt or cash in these calculations.
All projections ignored the possibility of significant macro-economic events.
Conclusion
TheScore is uniquely positioned in the sports betting industry with its popular sports media app in the hands of more than 3 million sports fans across North America. Utilizing their Fuse technology, they can nudge millions of users residing in legal jurisdictions into placing bets without spending a dime on advertising. The partnership with PENN ensures additional social media advertising through their influencer network, as well as, access to additional U.S. markets. Their experience with designing mobile apps and propensity to adapt to emerging trends, such as mobile apps, eSports, and NFTs, gives me confidence in their technical and business leadership. I believe that checking scores and media through theScore app will be the most natural entry point for sports gamblers to place bets.
Looking at the bear case scenario in 2025, I see limited to no downside in their current valuation of 1,460 million dollars. After calculating a reasonable bull case scenario, I see theScore as a very attractive, asymmetric investment opportunity that capitalizes on investors fear of uncertainty in legislation. The bull case scenario becomes even more attractive because it excludes any other potential future revenue streams, such as ad-revenue, markets outside of North America, or online poker and casino games. I will continue to add to my position in this Nasdaq-listed company until it gets noticed by more than just one or two analysts.
Article is reposted on Seeking Alpha.
*Financial projection calculations can be found on my Github repo.
Please note the financial disclosure for this website.
DKNG was used in the financial comparison because it is also an asset-light sports betting company.
Disclaimer: Long \$SCR, \$DKNG, \$PENN, \$FUBO