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Esports betting operator Rivalry is set to receive up to C$10m in strategic financing via a non-brokered private placement of some 6.7 million subordinate shares in the company.

The funding will be led by global low-margin bookmaker Pinnacle, alongside technology and payments stakeholders, and is intended to allow Rivalry to accelerate its operational objectives and pursue strategic growth opportunities.

The company announced the funding today (26 April) alongside the release of its full-year 2022 and preliminary Q1 2023 financial results.


Topline numbers

In 2022 the business generated C$26.6m in revenue, up 140% year-on-year, from betting handle totalling C$232.8m an increase of 198% over 2021.

Gross profit came to C$9.8m, up more than fourfold from just C$2.2m in 2021.

Still, the business declared a net loss of C$31.1m for the year, including share-based compensation expenses of C$8.2m, compared to a C$24.3m net loss in 2021.

As of 31 December 2022, the business held C$16.4m in cash and no debt.

As for Q1 2023, preliminary results suggest that betting handle for the quarter totalled C$120.2m, an almost threefold increase from the C$40.2m wagered with the operator in Q1 2022.

Revenue for the quarter came to C$12m, up 151% year-on-year, while gross profit came to C$5.4m, compared to just C$0.7m in the prior-year period.

Net loss for the quarter was C$3.5m, down from a C$6.6m loss in the prior year.

The business said it achieved those results alongside a 10% year-on-year reduction in marketing spend.

News nugget

The firm’s new financing is undoubtedly the biggest news of the day.

The capital injection builds on an existing relationship between Rivalry and Pinnacle, which sees the former leverage Pinnacle’s “market-leading esports and risk management solution to provide a best-in-class offering for our users,” according to Rivalry CEO Steven Salz.

“Pinnacle’s commitment in our financing round adds a valuable layer of expertise to our organisation and credibility in our distinct market approach, and we look forward to expanding our relationship with them in this next chapter of the company,” Salz added.

Pinnacle CEO Paris Smith said: “As a leader and innovator in online betting, Pinnacle is constantly looking for like-minded partners to help further grow the industry and our global footprint.

“That is what led us to Rivalry, and it is impressive how in a short period of time, they have carved out a powerfully unique position in the field of online betting. 

“The company’s long-time focus on product innovation, brand equity, and next generation consumers is disrupting traditional ways of thinking in the industry and blazing a trail for industry economics that were previously not thought possible.”

The private placement financing will see Rivalry issue 6,666,666 subordinate voting shares in the capital of the company at a price of C$1.50 per share.

It is expected to close in one or more tranches beginning on or around 5 May, subject to receipt of the necessary corporate and regulatory approvals including from the TSX Venture Exchange.

In other news, Rivalry included a list of its operational highlights from 2022 and Q1 2023 in its annual report.

Those included entering the Ontario and Australian markets in April and May respectively, entering the casino sector with its first third-party game, and the launch of its proprietary Casino.exe platform in Q3 2022. 

The operator also registered more than 1.5 million customers by the end of Q1 2023, and maintained a brand-leading position among millennials and Gen-Z customers, who accounted for 97% of its active users in 2022.

Best quote

“Ultimately, this is a race to the bottom with the erosion of margin profiles and any inherent operating leverage going with it. In this environment, product and brand has remained stagnant, where outside of marginally better bonuses, customers see an uninventive experience with little difference between one sports betting product to the next.”

– Rivalry CEO Steven Salz criticises the bonus-driven marketing strategies of other operators in the market.

Best question

The best question on today’s earnings call came from Brian Kinstlinger, head of technology research at Alliance Global Partners.

He asked CEO Salz how Pinnacle can act as a strategic partner and help elevate Rivalry’s business, rather than acting as a competitor.

Salz responded that there is a “natural tension” in leveraging Pinnacle’s esports offering for its own product, as both operators are active in some of the same global markets.

He added, however, that: “We don’t really have an issue with it for the same reason we don’t have an issue with anyone else we compete with, because of how we approach the market and the demographic we go after, and the approach we have has been super successful in that regard.”

With reference to Pinnacle’s investment in Rivalry, Salz added: “We prefer people that have skin in the game, it creates a lot more alignment. That skin in the game in terms of oddsmaking makes the product and risk management so robust, and that’s been really good for us.

“They support us in a really good way with producing bespoke markets for events that we run, that are tied to really unique marketing that we do. Them investing in Rivalry and having that further alignment just brings that whole piece even closer together.”

Current trading and outlook

In 2023, Rivalry said it expects to drive continued growth by expanding its esports offering to deepen its core product, attract new customers, and establish the most comprehensive esports offering globally.

It will also continue to evolve its Casino.exe platform and release additional proprietary and third-party games, as well as launching a mobile app in its regulated markets.

The firm also intends to expand into new geographies to increase its total addressable market and customer base while aiming to grow its investor base through proactive capital markets outreach.

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