Deal analysis: The Action Network
Company coverage piece on how the "ESPN of sports betting" achieved an acquisition premium within its asset class...
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The sports betting M&A market is piping hot. As legalization proliferates across states, the US represents the land of opportunity in the sports betting ecosystem. The addressable market size in the US, measured by gross gaming revenue (GGR), is forecasted to exceed $12B by 2025. As covered in my earlier piece titled Sports betting media unicorns, the resulting effect has been a customer acquisition gold rush amongst sportsbook operators. In order to capture and maintain market share in a nascent environment, operators, affiliate marketing companies and data providers are strategically acquiring assets that can provide efficiencies in both customer acquisition and retention. Considering how early we are in the US sports betting lifecycle, most of the transactions we’ve seen thus far have been top-of-funnel focused given how vital first-mover advantage is in a land grab. Additionally, identifying product experiences that drive loyalty and retention over the long-term takes more time and consideration due to the rapidly shifting preferences of digitally-native consumers. Here’s a look at the flurry of recent deals and their respective multiples (if available):
Two weeks ago, Better Collective, a leading affiliate marketing company out of Denmark, announced the strategic acquisition of The Action Network (“Action”), representing the largest affiliate-based deal in the past year. Given the outlier multiple (16x) that Action received relative to other precedent affiliate-based transactions (“the comp set”), I did a deep dive to analyze how the company generated a perception of scarcity within an ever-expanding class of assets, resulting in the observed acquisition premium.
Founded in 2017, Action is uniquely positioned in the US market as the premium sports content and product destination for US sports bettors. Action quickly became the “ESPN for sports betting” long before major media networks shed their betting taboo and crossed over into the space. The company’s web and native application platform provide an enhanced experience for users through original sports news content, premium insights, deep menus of odds and proprietary betting tools and data. Action’s revenue model is twofold, split between affiliate revenue and subscription revenue. As you can probably guess by the nature of the company’s exit, the affiliate business generates a larger portion (70%) of total revenues1. Despite the lack of revenue generation parity across streams, both meaningfully contributed to the aforementioned acquisition premium in a synergistic way that’s worth exploring.
Action’s Affiliate Business
Note: The following analysis examines individual affiliates and not major affiliate marketing companies, like Catena and Better Collective, who consolidate individual affiliate assets into performance portfolios.
Sportsbook affiliate partners are a vital part of the sports betting ecosystem, helping operators boost traffic and increase first-time depositors (FTDs). Currently, affiliates and operators in the US work off a CPA structure in which affiliates are compensated anywhere between $150-$350 for each FTD they generate for a respective operator. Building an efficient mouse trap is key for affiliates as their revenue depends on their ability to drive fan behavior. This is achieved through 4 core approaches - education, original content, betting intelligence and social media. Since typical affiliates are relatively lean in operation, most choose one approach and focus on executing that one approach very well. Before examining how Action’s strategy differs from most affiliates, let’s first break-down each affiliate approach to better understand the landscape.
1️⃣ Educational-based affiliates are technically primitive, domain optimized sites focused on the very top of the funnel. These sites break down recent legalization developments and review available sportsbook options in a respective state through web-based, short-form content. Most educational-based sites don’t produce league- or game-level coverage. Instead, their main goal is to provide as much high-level background information as possible to prospective bettors who are dipping their toes into the space for the first time. An example of this can be seen at njgamblingsites.com.
2️⃣ Original content-based affiliates focus on all stages of the user acquisition funnel by fusing together legalization and sportsbook review content with contextually-relevant league- and game-level coverage. The latter typically comes in the form of breaking news, storylines and actionable plays for upcoming games (e.g., prop bet recommendations). In terms of usability, original content-based affiliates typically implement a more modern website UI/UX relative to educational-based sites. An example of this can be seen at The Lines.
It’s important to note that both educational- and original content-based affiliates are highly dependent on SEO performance. Additionally, given the lack of evergreen content relative to original content-based sites, educational-based sites also place significant value on domain acquisition.
3️⃣ Betting intelligence-based affiliates focus on prospective bettors with existing knowledge of the space that are seeking insights and tools to drive conviction. These insights and tools are incorporated within a native app or progressive website and include features such as bet tracking, odds calculators, odds comparison, granular historical data or social feeds. The ability to provide contextually-relevant data and performance tracking for the average sports bettor is vital, creating down-funnel users for operators to market to within an app. Examples include BetQL, Betsperts and Vig It.
4️⃣ Lastly, social media-based affiliates leverage large followings and influence to drive traffic to operators. Platforms like Barstool and WAVE.tv distribute culture-infused sports content coupled with affiliate promos across their millions of followers and billions of impressions. Alternatively, some operators take a decentralized approach by working with a combination of famous influencers and micro-influencers to canvas a certain demographic. Examples of this include FanDuel’s relationship with talents like Pat McAfee and Megan Nunez (@MeganMakinMoney).
Ok that was a lot, but necessary to contextualize the affiliate landscape and to set the stage for examining how Action differentiates themselves from the pack. Action had the goal of becoming the most comprehensive sports betting media platform from the very start, evidenced by their decision to raise venture capital to catalyze their vision instead of bootstrapping like a majority of educational- and original content-based sites. It’s also important to note that the company launched pre-PASPA, demonstrating the executive team’s foresight on the US sports betting opportunity. Since that point, Action has built and implemented a strategy that encompasses all 4 affiliate approaches, combining its leadership position across multiple modalities to create a juggernaut of a media asset. Let’s examine Action’s success within each approach, compared to the comp set.
1️⃣ Education + 2️⃣ Original Content
Starting at the very top of the funnel, Action checks all the boxes in terms of reviewing sportsbook apps, covering legalization-related news and providing a Sports Betting Education 101 resource. Additionally, the company has achieved a brand-centric leadership position when it comes to daily game coverage, game picks and data integrity. Anecdotally, I’ve observed my own sports app preference switch from ESPN to The Action Network - even when I am seeking non-sports betting news. As stated earlier, the key for educational- and original content-based affiliate assets is optimizing SEO performance, and Action dominates the rankings for the most important sports betting keywords. This is a testament to the quality of its content. The chart below displays select keywords that Action holds the #1 ranking position for. In other words, Action, or a subdirectory within the Action domain, will be the top result listed when a user searches for these particular keywords on Google. These include some of the most novice yet high-intent searches (e.g., “how to bet on sports”), representative of searches by first-time bettors and prospective FTDs.
Additionally, I used SEO platform Moz to generate the top sports betting-related search keywords based on its dynamic database. The result was a basket of 145 keywords of which Action ranked in the top-10 for 96 of them. Here’s how the company compared against the comp set:
Lastly, here’s how Action stacks up in terms of domain authority, which is a search engine ranking score that predicts how likely a website is to rank on search engine result pages:
It’s clear that Action’s focus on providing a digital-first UX coupled with objectivity and transparency across their sportsbook reviews and game analyses has built up significant credibility with consumers. This is not always the case with traditional affiliates, who are often viewed as operating with a “conversion at all costs” mindset. Kudos to the Action media team for achieving the right mix of content, evidenced by its SEO leadership and its social following, which we’ll explore shortly.
3️⃣ Betting Intelligence
While Action’s premium insights and proprietary tools generate solid subscription revenue, the golden ticket lies within the first-party data generated through its bet tracking feature. Action’s CEO Patrick Keane recently disclosed that, “half a million people have tracked nearly 150 million bets over the course of Action’s lifetime.”
To clarify, The Action Network is not in the business of processing real-money bets. Action operates in the information layer; therefore, it is not subject to needing a license to operate within each state. In other words, the company benefits from bettors across all 50 states being able to utilize its product for their betting intelligence and bet tracking needs. Now consider the fact that only 27% of the US population currently has access to legal mobile sports betting in their state. This means that there’s still a significant number of state launches expected to occur over the next 3-5 years, including the top-4 states in terms of GDP production (CA, TX, NY (mobile), FL). The Action Network is perfectly positioned for these launches to occur, sitting on a trove of rich, user-level data for each one of their users who reside in non-legalized states and who currently use the app to track their bets placed on offshore betting platforms, with bookies or for simulated practice. From the bet tracking feature alone, Action has user-level data on bet frequency, team or league preference, bet type (e.g., parlays, props) preference, average bet size and bet performance. This first-party affiliate targeting data will be incredibly valuable as each additional state goes live and was undoubtedly a significant contributor to the outlier multiple that the company achieved. While other apps, such as BetQL, Betsperts and VigIt, also offer bet tracking features that collect user-level data, Action’s first-mover advantage afforded their bet tracking tool the time and feedback required to become best-in-class and to reach critical mass.
The graph below depicts the performance and stability of Action’s App Store ranking relative to other betting intelligence apps and the comp set (if applicable). While not the sole determinant of an app’s ranking, the amount of downloads an app gets is still a key factor in the ranking, providing a solid proxy for assessing scale.
4️⃣ Social Media
Action’s social media presence first came to life after the company decided to double down on its brand awareness strategy by poaching Darren Rovell from ESPN in November 2018 to serve as Senior Executive Producer, six months after the PASPA repeal. At the time, Action’s CEO Patrick Keane stated that, “Darren’s largely responsible for taking the business of sports into the mainstream and we want him to do the same for sports betting. He’s a tireless promoter of all things.” Despite some of the trolls along the way, Rovell has successfully created a brand-centric presence for Action Network on Twitter where most of the sports betting demographic lives. In the social media game of eyeballs and attention, Rovell’s following size is competitive with the likes of Big Cat, Dave Portnoy and Pat McAfee. Compared to the comp set, it’s not even close.
Action’s outperformance within each affiliate approach relative to the comp set is impressive, affording Better Collective a high-quality affiliate marketing asset and a new weapon to help monetize the US sports betting opportunity. It’s also the best case scenario for Action. It was reported that multiple suitors were in play to acquire the company, including operators such as DraftKings and FanDuel. The benefit of being rolled up into an affiliate portfolio instead of an operator is that Action can remain sportsbook agnostic, maximizing its revenue opportunities and its optionality for users (i.e., better UX).
Action’s Subscription Business
Before Action achieved the scale necessary to operate a flourishing affiliate business, it depended on its premium insights and proprietary tools to drive subscription revenue from data-hungry consumers. Comprising 30% of total revenues today, Action’s subscription business plays a pivotal role in providing data integrity across its brand, diversifying its revenue streams and creating synergies for its affiliate business.
Sports fans are craving data-driven betting content more than ever. Serving interactive data and insights to reinforce the storyline surrounding a game is essential to any modern sports betting app experience. Action’s comprehensive platform functions like a Bloomberg Terminal for sports bettors. The platform offers everything from beginner friendly insights on its mobile app to rigorous web-based backtesting engines built for the sharp crowd. Action’s premium insights also help bolster its content by giving its writers the ability to infuse proprietary data into game coverage pieces. This comes full circle as writers cross-promote the premium features that generate that data.
While B2C subscription revenue tied to a cyclical sports calendar isn’t as stable as say B2B SaaS, Action’s leadership position in offering user friendly, premium betting insights and proprietary tools coupled with its app’s outsized market share provide a relatively more stable revenue stream to diversify against its affiliate operations. Aside from BetQL, the rest of the comp set lacks this aspect.
As covered earlier, Action’s freemium and premium users provide meaningful synergies to its affiliate business. The more a user conducts granular team/player analysis or utilizes features that track their historical betting performance, the more valuable that first-party data becomes for upcoming state rollouts.
Final Thoughts
After dissecting Action’s business strategy, it’s easy to see how differentiated its dual business model is relative to traditional affiliate peers. Action’s ability to achieve prominent leadership positions across all 4 affiliate approaches combined with its outsized market share in the premium insights and tools space is a testament to its leadership team and their comprehensive vision to create the “ESPN of sports betting.” The perfect combination of skyrocketing demand for media assets and Action’s proven performance set the stage for the acquisition premium that the company received. I’m excited to see the where things go from here with the help of Bettor Collective’s resources and reach.
https://www.legalsportsreport.com/51297/better-collective-action-network-acquisition/