The digital gaming market is one of the places growth investors want to invest in. Indeed, this segment is one which is growing at a rapid pace. For companies such as Super Group and Sports Entertainment Acquisition Corp (NYSE:SEAH), the hope is that investors will catch on to this special-purpose acquisition company (SPAC) merger deal.
Indeed, the Super Group/Sports Entertainment SPAC merger is set to be one of the biggest SPAC deals in the digital gaming space this year. Super Group is set to have a $4.75 billion pre-money valuation. Going public allows investors to get a piece of the action.
Given the global nature of Super Group’s business, and the quality portfolio of the company’s brands, this deal is garnering a lot of attention today. And rightfully so.
In advance of this upcoming merger, I had a chance to sit down with both Neal Menashe, CEO of Super Group and Eric Grubman, Chairman of Sports Entertainment Acquisition Corp. These gentlemen discussed the business combination and where they see Super Group headed from here.
Chris MacDonald, Contributor, InvestorPlace: In a few sentences, could you give me the pitch on what Super Group is all about, and maybe walk us through a couple of your businesses so investors can get a clear picture of what it is supergroup offers?
Neal Menashe, CEO, Super Group: So first, Super Group is a very special company. We are the holding company of online global sports betting and gaming businesses, comprising two distinct parts that way. Betway is our single sports brand across the world. And it’s got brands, sponsorship partnerships, it’s profitable, high-growth.
And we’ve got Spin, which is our multi brand casino offering. So what our idea is just basically to create first class entertainment to the online worldwide betting and gaming community.
We’re all about our data, we’re all about our sponsorships. We’re all about every country — every country is a market for us. And then it’s all about how many markets we can be opening. We do this with over three and a half thousand people across all the businesses, and they’re dedicated people.
We’re licensed in 23 jurisdictions, and we’ve got more than that outside the U.S. We’ve recently acquired Digital Gaming Corporation, which is a company that has the Betway brand, and it’s live in a few markets already, with more and more to follow. So, Super Group is a worldwide business. In America, each state is a market, and then it’s got the rest of the world. Our idea is we do this with a single brand — Betway — which is quite unique among top competitors because this brand is open, across the globe. And that’s how we get this global reach.
InvestorPlace: You mentioned your digital gaming Corp acquisition. Just reading up on the company, it looks like that’s part of the SPAC merger. The gaming brands that will be put together as part of this deal look pretty impressive. So, how is the merger progressing, and do you have a definitive date? Are there any other details you can give us on the merger?
Eric Grubman, Chairman, Sports Entertainment Acquisition Corp: The merger process is progressing fine. We are on track from a general timing perspective. From everything I see, the Company continues to perform along the lines of expectations. As we outlined a few months ago, Supergroup has a broad footprint around the world. It measures its performance along traditional lines; such as number of active customers, NGR and EBITDA. We will be providing updates soon in coordination with required filings with the SEC.
Just rewind the clock back to the day we announced the deal. We expected to complete an audit in late July. Then, within two to four weeks after that, we expected to have initial filings with the SEC, and to be in that process and to close it sometime around the end of the third beginning of the fourth quarter. So here we are now three months, and we are on target. In other words, we don’t see any reason to change our timing.
The thing we can’t control. We’ve allowed for some back and forth between company and the SEC in our time schedule. We can’t control that. And so to that extent, it’s unlikely to go in less time. But to the extent the SEC find something specific with us, or more generally with facts as you’ve seen in the past few months, we will be subject to that but putting those the vagaries of the SEC aside, we’re on track.
InvestorPlace: What’s interesting is just seeing all these SPAC deals going through right now. How did you come to the realization that the SPAC was the best model for the company, and was there a direct listing or a traditional IPO model put forward? What kind of synergies are there with with the two companies?
Super Group: We had an advisor in London both of us knew. He helped us with just assessing the Super Group deal. And once he looked at it he basically said to us, I’ve got the perfect person that you have to meet. I said there’s nothing wrong in meeting everyone. The next thing I know, Eric and Phil Collins were on the board, and we just started testing stuff. We told them a bit about our business, and the connection that chemistry worked straightaway.
And for us, it’s about taking a profitable business to the next level. This is a business that has been private for a very long time. Once we met Eric and John, we said to ourselves these are great assets, obviously being in finance and and sports. And effectively, they could join us and make our team better. That’s why Eric’s joining as our chairman, and John’s welcome to join the board.
So, together with us in operations and everyone together, we can effectively take this business to even greater heights. When they met us, they found that we got this great platform that can allow this global expansion. We’ve been doing this in private, but these businesses have now all being regulated across the globe, and there’s lots of opportunities. Because we were private, no one was even realizing our size, so we’ll effectively missing opportunities. Whereas now, when in the public domain, these opportunities come to you. So it wasn’t that we were looking to do this but when you meet the right people, find the right chemistry, and the timing’s right, all our shareholders decided this is the way to go.
Sports Entertainment Acquisition Corp: From my perspective, I’ve seen some of the things that you’ve referred to, people give lots of reasons why … SPACs are vital and different from direct listing or IPO. Some of those reasons are real and logical and some of them are completely made up in self serving.
Let’s look at it … generically. Sometimes, a company isn’t ready to go public in a regular way or direct listing in a regular way. It might be earlier stage, and therefore the stock market has been used to do some venture capital investing, if you will, that in different markets was probably not ready to be public. Do you have your own scorecard as to how most of those have worked out?
There are other scenarios that people paint again generically, where something in the stack, other than cash, is attractive. That could be a variety of things. And we don’t need to go through them, they’re pretty obvious and pretty logical. Those are good reasons, in my view, why a company will choose a SPAC versus an IPO or direct listing.
So now let’s look at it, specifically from the Super Group standpoint. I’ve obviously gotten to know Neil and Richard and the major shareholders and a bunch of other executives pretty well and they’re all terrific. The company could have gone public, full stop. The company did not need a tremendous amount of cash. The company wanted to be listed … want it to be listed in America and wanted to do it in a certain timeframe. To do that, they would have had to complete the reorganization steps which they would do for us back or they do for an IPO. Get underwriters, which they do for either one, complete an audit to U.S. standards, which they’d have to do in either case, do their filings and raise the money. They would also have to get whatever directors, they didn’t already have, and they’d have to get the directors that not only added the value they wanted to the company, but those that met the standards of the U.S. listing with respect to independence and experience and so forth and so on, that you can put your own assessment as to how hard that is or how long it takes.
Also with respect to Super Group here is this global powerful big company, dominated by non-U.S. experience, and the U.S. is an opening market that shows great promise. They’re negotiating the DGC deal, and they are sports leading, if you will, from the standpoint of America. So, it would also be in the company’s best interest in connection with an IPO to get people who know the sports industry, are reasonably well connected in the sports industry, have experienced in public companies have experienced being directors, and so forth and so on. And so, I don’t mean to sound overconfident or self serving.
We were lucky to get the call, we’re not the only people at this SPAC who meet those broad tests but that’s why Super Group is doing what it’s doing, because they can get all those things done in a SPAC transaction, and they’d have to do a whole series of them in an IPO or direct listing.
InvestorPlace: Looking at this SPAC deal, one of the interesting things to me is the Digital Gaming acquisition and how it was rolled in, so it seems like a value-added piece of this puzzle. One of the things that’s come up in some of the reports around that deal are the licensing requirements for for Digital Gaming. So that was one of my questions — how is that progressing, are there any issues that you see with that, or is that pretty straightforward?
Super Group: So Digital Gaming Corporation is a really large in numerous jurisdictions. What has to happen now is Super Group, upon closing of this deal, needs to get licensed. So the company, the directors and all major shareholders, are going through that process right now. Supergroup obviously owns Betway and DGC and has the right to use the Betway brand — that’s already been approved. So now, DGC just carries on as normal.
I think that’s the key. And what’s also key for the policy group is DGC is involved in a few states, and more upcoming. Each state is essentially a country. So this is exactly like how we’ve been doing business in Europe and South America, in Africa and other jurisdictions. It’s just adding to the portfolio of territories or markets that the Betway brand is available and in and then where we can do spend with the casinos and casino brands. They follow suit. So, it’s all part of that strategy, a continuation of that.
Sports Entertainment Acquisition Corp: Yeah, and of course you know with respect to the GCI … we think you’re obviously onto something. The company is not a self promotional tool, it’s not in their DNA. They’ve been very private and they’ve flown under the radar screen and frankly they’ve surprised a lot of people worldwide their competitors, the financial community and they continue to surprise people.
And that’s how they got AGC, with its 10 states. So, if you look at the sort of valuation metrics, we kind of look like the global regular companies in terms of valuation that don’t have DGC that don’t have found FanDuel that don’t have the score that don’t have DraftKings. Super Group has it. But I would submit, it’s not in the valuation.
They haven’t been promotional; we’re not out yet with our registration materials so we really haven’t tried. But if you look at the score media or you look at flutter, and you make some very easy and simplified assumptions as to why their valuations are the way they are. It’s all around their U.S. and or Canada operations. And then you look at Super Group related to obtain or a date or someone like that. That’s who we look like on a valuation basis. So which are we?
InvestorPlace: Where do you see the growth opportunities being the greatest right now? Where is your focus in terms of new markets, whether it’s within the U.S. or around the world, where is your, your energy being spent right now on that front?
Super Group: Think about 2025. Let’s say the online gaming market will be $100 billion. We estimate the U.S. market will be $10 to $15 billion. So if you take the $100 billion market, and Super Group is Probably $1.5-$1.7 billion, I mean, there’s a long way to go.
So yes, the U.S. is a very important part. There are lots of countries all throughout Europe, throughout Africa, South America, North America, all of these markets are in place. There’s not one, there’s a lot of them. We’re in some way opening new ones all the time, and we’ve got the dedicated team and resolve to have dealt with global marketing, which is what the Betway brand is about, with all the sponsorships and then this localized targeting.
This means we can go into these markets in a localized way. They already know because they’ve seen our brand on the NBA, the NHL, cricket, football, all that kind of stuff. So we’re a truly global brand. I think the difference is also that, for example, different countries are open for business at different times, but we’ve got marketing ongoing based on local sports events. So we’ve kind of got the whole world map covered.
And as more of these markets regulate, it makes sense to go into each of them. But the key thing that I want to repeat — Eric always hears me say this — it’s a marathon, not a sprint. We’ve been in these businesses a long time. It’s not about first out the door in terms of who makes the most money. Because if you’re overspending and you’re not getting the right lifetime values, you aren’t going to achieve your return on investment.
So for us, this is a long-term strategic view. We go step-by-step in our approach to gaining market share. This is about many markets, which is very different from many of our competitors that have gone out and bought lots of brands. If you look at Flutter, they’ve got lots of brands. We don’t, we’ve got one.
You have to have software that’s different in different markets to be able to take on these new markets. But what’s key is that all our data analytics and customer retention and marketing sit on top of our data. In this way we’re quite unique. This means any market is available to us, as long as the commercials or that market make sense.
I think that when you have a private business, you’re focused on making money and effectively paying dividends. So, we’re used to making money and reinvesting that money into markets with positive returns. It’s worth it, and we keep tweaking along the way.
InvestorPlace: You touched on the marketing piece of the equation quite a bit. The recent deals Super Group has done with the NHL and the ATP stand out to me as being unique. Could you provide some details on those deals in terms of what you expect as far as returns go?
Super Group: So how these deals work is quite simple. We’ve got lots of football deals done with the Premier League in football, because football is a global sport. So we do that, we’ve done La Liga. And then when it comes to the NBA, for example, we’re marketing at some of the biggest games with the biggest teams.
Now, we would have done those deals whether or not we were open for business in America, or not. And that’s what’s key. It’s because basketball is such a huge sport for betting around the world. Same with ice hockey — it’s based on across the world. So yes, we’re open to these deals because of the global presence they provide.
Another example is maybe people in America don’t watch cricket. But believe me, lots of expats in America do watch cricket. In other markets, cricket is huge. So it all works as part of a global strategy.
InvestorPlace: What’s the ROI on those marketing investments, because there’s a lot of companies that go out there and spend a lot of money on advertising. How are you measuring that?
We’ve built a business that will make over a million dollars profit. We are profitable business. We’re focused on marrying investment with profits and continuing to boost demand via various forms of advertising.
With some investments, we might get an ROI of a few months. Others might take six months or a year to pay off. But it doesn’t matter because if your lifetime values are greater than the cost of acquisition, you make money.
That’s what this business is, and is key here. We’ve built our brands, enhanced the product, kept the right deposit methods. We have the right languages — we’re operating in 265 languages and growing. We keep our call centers open 24/7 to serve our clients. These are all important pieces of the advertising puzzle. Because if you give someone one bad experience, they might never come back.
InvestorPlace: You’re in a global business with so many different pieces and one of the pieces that I was looking at that was interesting to me was the company’s esports business. So I was wondering what you’re working on now? Are there any details you can share on anything exciting coming down that line of business?
Super Group: We’ve been doing esports sponsorship and betting on esports for the past four, five, six years or so. We’re always moving forward in this business. Exactly what we’re doing we can’t disclose for competitive reasons, but we continue to do more.
And you know esports is just another growth area we would be looking at as with any other sport. This is just part and parcel of the business, of taking esports, the teams, the branding and putting that into this marketing machine data analytics product and getting all of these things together.
And of course we’re working with compliance teams in all these different regulated markets. These businesses have gone from unregulated to regulated, and we’ve been able to adapt in those markets and understand what the drop off points are in your customer lifecycle. That is the business.
It’s the same way with companies like Amazon (NASDAQ:AMZN). Every time you shop there they come to know what to be looking for because that’s data flow. They’ve got the algorithms, know that you look at. If you’re buying these headsets, the next time you log in they give you five other options of those headset. It’s all in the data, it’s always has been in the data. To provide an example, let’s say you like roulette. When you come into the casino you shouldn’t have to be offered something other than roulette. I mean, they should be offering you roulette rather than a slot machine.
It’s the same thing. If you spend time on the product to be able to deliver that every market, you win. And you have to be able to do that locally. There are localized themes in those markets.
Sports Entertainment Acquisition Corp: I also just want to again comment, not on any company specifically but on the landscape, because Super Group’s data and analytics, its behavioral sciences, if you will, in its consistent application, and those tools for 20 years, make it so that Super Group basically knows, in any jurisdiction and operates, or is planning on operating, what the lifetime value of a customer is. And as Neal is fond of saying, you can only spend up to the lifetime value of the customer and acquiring and keeping the customer, in order to have a profitable business.
Spending more on acquiring customers than their lifetime value — that’s a losing proposition.
So you will see Super Group pay a licensing fee or for something of that nature for 10 or 15 years. Some of these market access deals cut or 15 years, which it then will amortize over 15 years or whatever the term is consistent with the right accounting procedures, of course, and across its customer base, where it’s applying the benefits of that license. You won’t see Super Group putting up negative NGR, where they’re spending to keep a customer, more money than they’re getting for a customer on any kind of consistent basis, because they brought up the lifetime value proposition.
And so, a company with 20 years of data across hundreds of jurisdictions, has only ever been online, is in a very good position to make very good educated decisions about that customer acquisition ROI. And companies that are that are just spending whatever it takes. That’s a different model. It’s an Uber model that says, there’s only two winners and everyone else is going to lose. And when there’s only one or two standing you can upsell or change the economics to recover all those losses monies. That’s not the sports betting business, that’s not the gaming business to to mature businesses competitive at the start, competitive in the middle, competitive at the end. That’s Super Group.
InvestorPlace: To sum it up, what would be one key takeaway you would want readers to get from the interview?
Super Group: One key takeaway is that if you want a global business that is careful over the long-term and understands gaming from the bottom-up, Super Group is the one that I would [bet] on. This is a marathon and not a sprint. And Super Group provides this global brand across the world and delivers an unbelievable business.
Most importantly, this business is made up of thousands of talented individuals and no business is one person. For us, it’s these talented people, of whom we have in many companies. It’s about riding every day in every market, and not spending money because we need to spend money. We’re out to enhance the ROI.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.