We spoke to CEO Michael Daly to find out why and hear more on his plans to get Catena up to speed. Indeed, the CEO acknowledges Catena has some ground to make up – and he aims to do so especially on the casino side.
Let's talk about your Q2 results; why did your US revenue fall? Was it due to the year-on-year New York comparison like during Q1?
There were a couple of factors for us; some external and some internal. A couple of external factors for us were, yes, we had a very well compelling New York last year, which again, even in the slower quarters, was still good. Ontario, while it was a smaller one, was also a good launch for us. Over the last four years, we've been at a very high growth rate in the Americas, €80-85m ($87-92m) or so from 2019 to now. Each year that percentage gets smaller because we become larger, but also, there's been more competition; the competition has been fierce.
The other side to the decrease is media partnerships; we've been doing NJ.com, which was our first foray into it and it's been difficult for us. In New Jersey, we compete with NJ.com for the top keyword between ourselves. So how much do you put into a media partnership when you're going to pay them – no less than 50-50 revenue split, more so often, 60 or 70 seems to be what the market is demanding right now - in the media partner’s favour? Granted, they bring in more traffic, it makes sense, but if you're already holding top domain strength, yes, they give you more reach. But is it worth moving them to the top position and paying more out of your pocket for it?
We have some ground to make up. I don't discount that we had a poor quarter compared to our peers
That's been a difficult one for us – an easier equation for those competing with us, probably because they weren't in the top one, two, or three. So we have now hit the point where we are seeing some of that, as expected, challenging us, which is why we started to do more media partnerships ourselves because it's fighting fire with fire and we know they work. We just knew they cost more, so it was, at what point do we do it? Could we have done some things differently in Q1 or late Q4? Yes, probably. We could have been more aggressive on certain things, but, again, it's hard to find that balance of, are you going to pay somebody to just keep a position you have? If you haven't felt challenged for it yet?
The place where we stumbled? I think it was a bit on the casino side. Most of the players have been working on sports betting; but we're seeing a push on the casino side now. We expect to compete with them on that.
What part do media partnerships play in US growth?
What we didn't expect is some of the media partners – even though they're sport oriented, because nobody's really doing casinos – Google is giving them some great value when they put up casino content on those sites. Let's say the Southern part of the US was all of a sudden ranking against us for number one competition in Michigan, which is a completely opposite side of the country that we didn't expect. We know how to combat it, but again we stumbled on it because it was something that caught us off guard. And so now we had to fight it again.
How do you fight it? First, we know how to be strong in our own domains, which is primarily our first responsibility; secondly, we can add media partnerships, enhance those and use those in ways even we may not have envisioned. And then maybe some M&A after that, but I'd rather make sure we have our starting source right with our team to know what we're doing before we just go and buy and try something.
What is the current state of the US gaming market?
They also now have Fanatics, a push hard by bet365 and the ESPN Bet deal, which means more operators now versus just FanDuel and DraftKings who have been the biggest share of the market; and they don't have to do as much affiliation if they think they have won the game. Now the game is afoot again, that's a little good thing for us.
So there's that balance and then our company in the first quarter of the year, we had some other things to evaluate. We had Carnegie going on, looking at whether we should be looking at any other sort of structure or divestments. So if you're doing that, it also makes it hard to do some partnerships with third parties, media companies, etc, because it gives them uncertainty and it gives us uncertainty on exactly how that's going to play out and if that's going to be valuable.
We have some ground to make up. I don't discount that we had a poor quarter compared to our peers again; some of them came later into the game, so they're going to have a faster growth acceleration, but it doesn't mean we shouldn't be growing. So we're going to bring to bear those same tools that they're using to grow that nice way.
You said in your Q2 report that one of the company’s goals for 2025 was to increase the US revenue to $125m. How do you plan to do this?
Being pessimistic, we don't expect a lot of states in 2024 beyond North Carolina, which should be important and in Vermont, which is unfortunately not that important. But we expect in that market equilibrium that we will have some new operating partners as well in their first year. So that gives a push by them to gain market share.
We expect to capitalise on that with our organic teams and with some media partnerships placed across the US, maybe into Canada, to amplify the business across the current markets. You then have 2025 when Iowa had been expecting, when we did that analysis, for a number of states to come in by 2025 with sports betting and or casino; at least one of those large ones probably has to go for that to make it, whether that be New York or an Indiana, Illinois sort of mix.
Granted, they (media partnerships) bring in more traffic, it makes sense, but if you're already holding top domain strength, yes, they give you more reach. But is it worth moving them to the top position and paying more out of your pocket for it?
There’s a lot at play. It is an aggressive goal, but why should we set non-aggressive goals? Again, we'll be challenged to make it, but it is going to be a run right to the end of that one, I expect. Because a fair bit does end up in 2025, unless we see different dynamics in 2024 on state launches; which obviously will boost up both us, but also those new operators in ESPN or Fanatics will greatly benefit from new launches because when they come out, they'll come out swinging really hard in those new states. That's really good for the affiliates.
Why did Catena’s adjusted EBITDA including discontinued operations hit a four-year low this year?
Some of that plays into the accounting treatments of discontinued and continued operations and what in Q1 was probably overweighted. Anyway, there's some accounting in there, as I have it from our accounting team, when some of that shifted back, essentially. But it is also part of the investment: media partnerships, getting those up and going, getting set up to get a team going for sporting news, which was coming and some others; that's investment in organisation and team members and site work, etc. and that is all costs. Then we're paying out.
As we start some of these deals, there's the initial outflow of payments to them, which are minimum guarantees on a quarterly basis, whether that is a high quarter or a low quarter. Again, working with trying to get some of these in the future to be more cyclic in the way those payments work. But that's not of interest to the media partners today who are mostly looking for a guaranteed stream of revenue over the quarters which everybody would love to have.
They can demand that for their traffic, so there's some of that. Influencers work, which also goes out in our direct costs and paid media, both the cost of that which goes out in direct, but also, we've been building our own teams and structure to improve that. So a number of those factors play into higher costs. I think you'll see that balance out better in the coming quarters.
How do you plan on changing your net debt to net profit?
We're notionally there with the inflow of capital or cash we have coming from the UK and Australian sale, which will come in over the next few months, and the AskGambler sale that comes in over the next two years. So between that cash flow and the like over the next couple of quarters, we expect by the end of the year, that's absolutely there.
New operators in ESPN or Fanatics will greatly benefit from new launches because when they come out, they'll come out swinging really hard in those new states. That's really good for the affiliates
It's sort of a reverse earn-out; so we have money coming in from those that are guaranteed. They’re forward-looking payments, but they're guaranteed payments. It is purely a payment due in the future. Basically, it's an account receivable.
Why have you started differentiating the continued and discontinued operations in your accounts?
Though it causes more confusion in some ways, the intent of it is to try and create an understanding for our investors and ourselves, our Board, to understand what is the real business doing? The one that's going on with us long term and what does that growth rate look like? What is that going to be when it grows up and the rest falls away?
Because discontinued means it's not going to be there forever. So it's time to start saying, this is who we are. Even though we're still this, this falls off, so let's make sure we're as clear as possible. And so we've said, there's some divestments happening, there's some streamlining, there's some other things that need to be made clear.
Unfortunately, it makes it less clear because I'd love to have done it all in one sweeping activity: AskGamblers, UK/ Australia sale, the streamlining related to that, that wasn't functionally possible; so thus it means that discontinued operations becomes muddier for a bit until it becomes clear in some ways, because we keep adding some things in there.
(*A note to add that it's also an accounting standard IFRS five. That's why it's divided like that. It's not something Catena decided to do; it’s something it has to do by its accountants.)
What are Catena's goals for the next quarter? What can we expect from Q3?
To push on our media partnerships for the start of the NFL season and the casino business to be improved upon. To work our paid media up so that that becomes a more significant number within our portfolio as well. We want to have the absolute strongest NFL launch we can with the new states of Massachusetts and Ohio, which have their first NFL start of the season, as well as the launch of Kentucky.
And also just in the background noise of that is the continued work on improving our APAC business, which has some work to be done and which we can be a good casino contributor once it's revised a bit more. It's been making progress, but it needs more progress and more attention.
I guess some of that is more attention to the operations from the team because we're through some of these divestments and streamlining things, which as much as we try not to make them a distraction, they are part of the business. When you ask a team to review redundant roles, etc, it does take you off looking at cost versus revenue growth and that's a balance; but the idea is to get operationally very focused on the growth portion for now.
