Investors have bought shares in Kambi despite the fact the sportsbook supplier’s biggest client, Kindred Group, said it was planning to build a proprietary sports betting platform.

Kambi’s share price fell by 17% in the immediate aftermath of Nasdaq Stockholm opening today (9 February) on the back of news.

However, as more details emerged, the share price rebounded dramatically, eventually climbing to 9% higher than yesterday’s closing price of SEK217 per share at the time of writing (SEK238).

To provide some context, Kindred Group intends to migrate away from the Kambi full-solution platform in 2026 after expanding its proprietary horseracing software into an in-house sportsbook.

The two companies have a long history together. After both being founded by Anders Ström as part of Unibet Group in 1997, Kambi was spun out as a separate business in 2014.

It has grown into one of the most successful B2B sportsbook suppliers in the global gambling industry and retained Kindred Group as a key client. The pair will continue to work together until at least 2026, having signed a three-year extension to their agreement just yesterday.

Kambi CEO Kristian Nylén said: “Kambi and Kindred continue to enjoy a fantastic relationship and I’m delighted this agreement sees both parties to commit until 2026.

“Kambi prides itself on being the key enabler for visionary operators in regulated markets across the world, and we look forward to supporting Kindred with our modularised sportsbook technology and services over the next five years.”

Kambi investors have failed to see the upside, however. It does lock the business into an agreement with its highest revenue client for years to come, but in wider strategic terms, it will likely be viewed as another major commercial partner lost for Kambi.

The supplier has already seen US operator DraftKings leave its technology in favour of in-house provider SBTech in recent years, while Penn National Gaming, another huge US client, looks set to leave the Kambi platform over the next 12 to 18 months.

Penn will eventually migrate onto an in-house trading and player account management (PAM) platform, which is currently being built by theScore. Penn said that transition will likely begin in Q3 of this year, before its Barstool Sportsbook brand makes the move in 2023.

Discussing PNG’s decision in October, Kambi CEO Nylén said: “It is one thing to see operators moving to technology that is there and is proven, but to announce they are moving away to something that is not built is something that is frustrating.”

One positive for Kambi is that it is now free of a ‘poison pill’ after meeting specific conditions required to prepay, at its own discretion, a convertible bond worth €7.5m previously issued to a subsidiary of Kindred as part of the supplier’s 2014 spin-off.

Kambi now has the option to repay the full loan amount and exit the bond agreement at any time, meaning it will no longer be required to seek consent from Kindred for certain events.

The agreement, secured as part of the contract extension, will also eliminate the prospect of Kindred converting the bond into shares, which would have given the operator a controlling influence over Kambi.

This move should give Kambi and its shareholders complete control over the company’s future strategic direction and could also make it a realistic target for M&A, which has led to speculation from some investors on Twitter.

So $KAMBI called the bond and forced Kindred to a 3 year extension despite 2 years still remaining on the existing contract. Calling an extension 2 years ahead makes no sense for Kindred. So the deal was undoubtedly initiated by KAMBI and a bidder has likely emerged. (1/5)

— Mathias Svensson (@Shrimpscore) February 9, 2022

The extended sportsbook contract also provides Kambi with a baseline revenue guarantee, with Kindred committed to a minimum contribution of €55m across 2024 to 2026.

“The financial security and change of control protection granted by this new agreement, as well as the control we have gained over the convertible bond, places Kambi in a strong position as we enter our next chapter of global growth,” added Nylén.

Kindred said turning its proprietary Kindred Racing Platform (KRP) into a complete in-house sportsbook would enable it to take greater control of the product and improve operational efficiency.

Kindred’s total sportsbook headcount currently consists of around 200 employees. It has pledged to double that number until the proprietary platform is rolled out in select markets.

“Our award-winning Kindred Racing Platform, developed over the past eight years, is consistently performing above expectations, and has seen significant above market growth since it was launched,” said Kindred Group CEO Henrik Tjärnström.

“We are excited to have taken this step and to develop it into a full sportsbook, while also securing a continued collaboration with our long-term and valued partner Kambi for the coming five years,” he added.

Kindred’s share price has also fallen by more than 5% in early trading on Nasdaq Stockholm, although the operator has reported its Q4 2021 financial results today.

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