The High Price Sportsbooks Will Pay For NFL Data

A recent note from the gaming sector analysts at Goldman Sachs should give US sports betting operators some pause for thought.

Looking at the prospects for recently floated sports data and related services supplier Genius Sports, Goldman’s team boasted the company as a “best-in-class provider of picks-and-shovels” to the sports-betting sector.

But those picks-and-shovels don’t come cheap. In this instance, the basic materials involved in this gold rush analogy are data rights, specifically the recent exclusive deal for data with the NFL.

“Genius’ portfolio of official data rights provides them with bargaining power when negotiating contracts with their sportsbook customers,” wrote the GS team.

“The recent NFL deal could broaden the company’s reach and allow them to cross-sell additional services such as outsourced marketing (in the media segment) and AV/streaming services.”

The Implications for Sportsbooks

Now the concerning part for NFL betting sites: the sector still doesn’t know officially how much those NFL rights cost, though there are rumors that it could be as much as $120m a year plus an equity component.

Genius Sports has remained tight-lipped. During the recent first-quarter results statement, the company only said that the cost of the NFL deal would be notified to investors once the contract kicks in in the third quarter.

What the results did reveal, however, is that it has issued 11.25m warrants (i.e., shares) to the value of $170m due to the NFL as part of the cash plus equity deal.

Genius Sports did add $65m of extra revenue to their 2021 revenue guidance – at least $50m derived from predicted future NFL sales. But at what cost? Again, they don’t say. But at around $120m, that doesn’t seem to be good business.

And as Goldman’s analysts confirmed in their note this week, the $170m represents only half of the warrants that will be handed over during the four-year deal (The NFL then has an option on another two years).

That works out to $340m in equity as part of the deal, which leaves the cash component to be revealed. That is expected to be at least $60m per year for a total of $700m minimum guarantee for the NFL. But one can only know the cash component when Genius Sports addresses these costs.

Golden Shovels

That is some price to pay for NFL sports betting data.

Genius Sports will point out that the exclusive rights to sell advertising on NFL.com come with the package. But that upside is somewhat as yet unquantifiable.

The sports betting data costs, though, are for the here and now. No wonder Goldman Sachs put in as one of their valuation risks that pricing power will be critical with the potential for customers to request less in terms of service.

With the price of NFL data rights having effectively risen five or six times based on the reported $20m per year being paid previously for these rights, the price which operators will have to pay for access will likely rise in lockstep.

And yet, when it comes specifically to the NFL, there will be alternative (and cheaper) options available because all games are broadcast live.

Official data has become something of a lightning rod across the landscape of regulated sports betting and has been instituted as a pre-requisite in some US states, including Tennessee.

Three operators – DraftKings, FanDuel, and Caesars Entertainment – have also signed up to a ‘tri-exclusive’ sponsorship deal with the NFL, which means they are bound to have to take the official data. For that, they will get the honor of being able to use official NFL signage.

For the rest of the sector, the official data argument looks far less appealing.

In states where the official mandate is not in place, operators will likely feel less inclined to pay for official data when a perfectly serviceable open-source option is available elsewhere.

“At the end of the day, what does official data represent in terms of tangible value from an operator’s point of view?” asks Matt Para, a sport-betting industry consultant with 10MB in Florida who has worked previously with Hard Rock.

The start-stop nature of NFL games means that the latency issues that arise from data providers offering a feed from television coverage don’t come into play as they might do in other sports. And for all the promise within the new deal of the next generation of data – possibly coming from player tracking data – that isn’t here yet.

Moreover, the notion next-generation stats will generate a whole new type of in-play betting is even more unproven. The fact remains that most betting on a match, even in-play, is on the final result. Thus, the case in favor of new types of in-play bets is, as yet, only the stuff of start-up pitch decks.

Loss leader

“I do believe the data is being over-valued, and the NFL is not familiar with the challenges of running a profitable sports betting business,” says Para.

“This current deal between Genius Sports and the NFL sets a bad precedent and (has) created incredibly challenging economics from which operators have to try and navigate,” he adds.

It raises the almost impossible-to-credit idea that the NFL might become a loss-leader for those who opt to stay in the official loop. Or as Para says: “It is only the operators that are not concerned with profitability that can really stomach it.”

And that, by rights, could be a very select group. Very select indeed, leaving the remainder of the sector thinking even more seriously about unofficial options.