Can Roar Digital and its BetMGM brand realistically become the market leader?

This week’s news that MGM and GVC have committed to injecting a second round of funding into their JV, Roar Digital, taking the total investment from $200m to $450m, wasn’t really any shock as the US market continues to heat up.

Indeed, the major players have been sourcing the financial firepower to fund their US expansion plans, with FanDuel and Fox Bet’s parent company, Flutter Entertainment, raising almost $1bn through a share placing. William Hill raised almost $300m to fuel its American ambitions, while DraftKings – worth almost $12bn after going public – generated more than $600m through its own share placement.

Yet, what was most striking about the investor call was GVC management’s unwavering confidence that Roar and its BetMGM online sportsbook can eventually become the market leader in the US. Indeed, GVC CEO Kenny Alexander insisted that this and further investment down the road puts Roar, which now has $370m of investable capital, in a position to go “toe-to-toe” with rivals and that there would be “no excuses” in the coming years if the company wasn’t top of the pile.

“We have put this investment in here as a sign that the kid gloves are coming off and our aspiration to become the market leader is real,” he stated. The forthright Scot also waxed lyrical about the JV being “undoubtedly the biggest catalyst for the creator of shareholder value” and that the US was now an even greater prize than when the JV with MGM was inked in 2018 and both sides each invested $100m in capital.

$MGM-$GVC pour another $250mm into ROAR. $FLTR recently raises £812mm, much of which will be plowed into U.S. expansion. $DKNG has easy access to capital. Perhaps the U.S. online #sportsbetting market will eventually be won by product. For now, though, it will be won by money.

— Chris Krafcik (@ckrafcik) July 8, 2020

Since its launch two years ago, the in-house-built BetMGM product hasn’t exactly been pulling up trees, though. Roar has also been conspicuously cautious compared to some of its free-spending rivals when it comes to marketing, although much of the increased investment will be used to raise the profile of BetMGM and acquire customers ahead of the football season.

In fact, management aims to take a 10% market share in New Jersey’s online sports betting market by the end of the year. That’s possible, although Eilers & Krejcik Gaming estimates the firm to be currently fifth in the pecking order with less than 5% of the market based on GGR. The Garden State, which boasts 16 online sportsbooks, continues to be dominated by the duopoly of FanDuel and DraftKings with their combined market share of almost 75%.

GVC CFO Rob Wood pointed out, quite rightly, that you would expect the pair’s market share to fall as rivals rise, adding that it will “take several years” for the market leader to be decided and that the leader’s share would “start with a 2” in percentage terms. He also expressed Roar’s desire to become “a dominant player” in the igaming space after capturing an 18% share in New Jersey (GGR rose 210% year on year in Q2). In fact, BetMGM is on track to generate $130m in net revenue this year in New Jersey, although this is mainly from online gaming in New Jersey due to the impact of coronavirus.

Ingredients for success

Key to Roar’s fortunes are going to be its proprietary tech stack and customer-facing platforms, combined with marketing and the MGM brand – a household name stateside. It is also set to increase the Roar headcount from 200 to 300 by the end of 2020, which would be a 10-fold increase compared to when the JV first launched. On top of this, Roar will leverage MGM’s M life loyalty program, which boasts 34 million members, for customer acquisition, and through its partnership with Yahoo Sports market BetMGM to its 64 million MAUs.

Roar is currently active in seven states and expects to go live in another four by the end of the year. It has secured access to a total of 19 states and that means a combined reach of around half the total US population. This puts MGM and GVC in a pretty strong and enviable position indeed, but whether it is enough to eventually usurp the likes of DraftKings and FanDuel is far from clear at this stage.

Gambling Twitter has baulked at Roar’s market-share projections for BetMGM in New Jersey, however the tone of Alexander and Wood’s comments yesterday suggest now is the time to firmly plant their foot on the gas pedal. And both MGM and GVC have the balance sheets and capitalisation to back up Alexander’s claims of “doing whatever it takes” to compete at the top.

In fact, Richard Stuber from Numis wrote in a note yesterday that the desire to become the market leader was a change in strategy versus its previous message, which had a greater focus on profitability than market share. Stuber said this probably reflected the market valuation of DraftKings on 14x FY2021 revenue and management’s acknowledgement that “there is nowhere better to invest” than in this JV to drive shareholder value.

Roar sees the US opportunity as a marathon rather than a sprint. However, moves by Flutter, DraftKings and William Hill to raise the capital has persuaded GVC and MGM to up their pace at this decisive time as sports start to return and with almost 20 states live. “The stakes are getting that higher; other people have got ammunition in order to really go to grab market share,” Alexander said. “Now is the time to inject more capital to set MGM firmly on the path to market leadership.”

It seems the tussle for supremacy in what is still a nascent US market is entering its next phase. GVC and MGM, although fairly slow starters thus far in the land-grab, certainly aren’t going to settle for crumbs – they want a meaty slice of the gambling pie. But then again so does Flutter, DraftKings, William Hill and all the other domestic and European brands looking to capitalise on the biggest greenfield opportunity the industry has ever seen.