TheScore, valued at $1 billion, is playing underdog in U.S. sports gambling and public markets

Key Points
  • Canada-based gaming and media company theScore is worth $1 billion and wants to gain market share in U.S. online sports betting.
Score media and Gaming rings the opening bell at the Nasdaq on March 16th, 2021.
The Nasdaq

Build it slow.

That's how media company theScore wants to establish its gambling asset as the Canada-based company is now fully active on the U.S sports betting and public markets landscape.

"That's how we built our success with our TV network in Canada, and that's how we built our success with the app," said John Levy, the company's CEO.

TheScore is a sports gaming and media company that is betting its mobile app user base will be critical in its growth plan to carve out its sports betting business. Levy knows it'll be a challenge, as theScore trails top firms like FanDuel and Barstool Sports. But he's welcoming the competition.

"It's all about who wins in the marketplace and who's has got the best product and who's got the best ideas," Levy said.

The underdog role

Levy, 65, spoke about his company when discussing theScore with CNBC last September. He envisioned the day when Canada will expand its sports gambling and also embraced theScore's longshot status in the sector altogether.

"We're an underdog," Levy said. "We're the most popular, least-known brand in the U.S. But in six months, a year, or 18 months from now, that isn't going to be the case."

TheScore transitioned into its role as a digital-based outlet in 2012 when Levy sold theScore's broadcast business to Rogers Communications for $167 million. He said then that unloading the network would allow theScore to "focus 100% on our digital products" and grow the mobile app.

The Score is listed on the Toronto Stock Exchange and this year launched in the U.S. on the Nasdaq under the ticker "SCR" after its IPO raised $183.6 million. The firm currently has a market capitalization of $1.3 billion.

Its mobile app has roughly 3.9 million monthly users and delivers live scores, stats and news to users. TheScore makes money from sponsorship and digital ads and from the app, and launched its theScore Bet app for mobile wagers in 2019. It's trying to grow awareness around the betting app Levy labeled as "undervalued" while competitors spend millions on brand building.

"They don't know us in the media or the betting business as of yet. And nobody knows us in the financial markets yet," said Levy. "But those who do are going to be rewarded tremendously."

Score media and Gaming rings the opening bell at the Nasdaq on March 16th, 2021.
The Nasdaq

The Score's strategy

The company declined to discuss theScore Bet users, but the app is live in four U.S states, including New Jersey and Colorado. Levy said the company would take "a gradual approach to building the user base, giving people what they want and going after longevity of what this business is going to propose."

But again, theScore is behind on the U.S. scene. Firms like the Penn National-backed Barstool Sports app are ahead in the space and available in states including Pennsylvania and Illinois. Penn National Gaming CEO Jay Snowden told CNBC's "Squawk Box" that additional states including Indiana and New Jersey will launch in the next few months. New York is also in sight.

Others, including Fox Corp.'s Fox Bet and MGM's BetMGM app, have also gained traction in U.S. mobile sports gambling. TheScore needs to compete against those bigger firms and endure the politics of getting more U.S. states to grant the company a gambling license.

It has help coming from Canada, though. A bill (C-218) to legalize single-event sports wagering is approaching the final stages, with Prime Minister Justin Trudeau in favor of the legislation. TheScore believes its home market has the potential to grow to $5.4 billion and estimates the Ontario market alone could reach $2.1 billion by 2025.

Canadians place over $7 billion in illegal wagers as sporting gambling in the country is mainly limited to horse racing, according to Bloomberg.

Gaming stocks have 'underperformed' over the past 2-3 months: Macquarie
Gaming stocks have 'underperformed' over the past 2-3 months: Macquarie

TheScore says it achieved an all-time record quarter for its media revenue, generating $10.6 million in the first quarter of 2021. As for its stock, Chad Beynon, an analyst at Macquarie Securities, labeled it outperform. He said theScore plans to own its sportsbook tech and that could help with long-term revenue growth.

"We believe this is important, particularly for a company like [theScore], which is able to curate the content, offer unique bets and deliver on in-play betting, which only accounts for 15% of the U.S. current market vs 75% in the UK," wrote Beynon. "In addition, this strategy would also result in lower platform fees (15% of revenue), which should allow for faster margin ramp."

Chris Lencheski, chairman of private equity consulting company Phoenicia, said he likes theScore's position, especially if Canada comes online. Lencheski acknowledged gambling companies are spending millions on branding as they fight for future market share, but added, "I like the fact [theScore] hasn't put a big obligation in front of them only because they felt the outside pressure to look like something else.

"Often times [companies] say, 'We'll look just like another company, and we'll do it bigger and spend more money," he added, using Quibi as an example. "How many billions of dollars did they throw into that thing? And it was done before it started. TheScore has got themselves a nice niche."

John Levy, CEO of Score Media and Gaming Rings the Opening Bell at the Nasdaq on March 16th, 2021.
The Nasdaq

Having some lunch

But eventually, theScore will need to decide what it wants to be in the sports gambling space and how it will grow. 

Properties like BetMGM will have the advantage of its hotel properties to lure and keep online gamblers. Meanwhile, digital firms like FanDuel and PointsBet are aligning with sports teams to grow their brand and entice users. And Caesars, which purchased William Hill for $3.7 billion, is pushing its brand, too.

But Lencheski said firms that grow their niche by offering speed around user experience and accurate betting odds would be among the top players. He said peer-to-peer sports gambling could excel, and firms like theScore could benefit from its user base.

But Lencheski warned the dollar average to acquire a new customer, and the handle that customer brings will begin to weigh on firms with little capital. He projected mergers and acquisitions among sports gambling companies would occur over the next 24 to 48 months.

"When it's less expensive to consolidate and win, then it will be to spend," Lencheski said. "In other words, when it costs more money to go get the next one customer than it would be to participate in someone else's offer."

TheScore has already been mentioned among early candidates for a potential acquisition. The company told CNBC it doesn't comment on rumors or speculation when asked about acquisition rumors.

Again, Levy said months ago this was the plan: to grow slowly. But theScore is now on the clock, and it's playing the sports betting game as the underdog.

"We're thinking about becoming one of the leaders in the industry and positioning ourselves to do that," Levy said. "We love being the underdog because they don't see us coming. We're going to crush them. We'll nibble away at them first, and then we're going to eat their lunch."

Penn National Gaming CEO on the company's plans for growth
Penn National Gaming CEO on the company's plans for growth

Disclosure: CNBC parent Comcast and NBC Sports are investors in FanDuel.