Sportradar Group AG

Moat: 2/5

Understandability: 3/5

Balance Sheet Health: 4/5

Sportradar Group AG is a global sports technology company providing sports data, content, and audio-visual services to the betting, media, and sports industries.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview and Moat Analysis

Sportradar operates at the intersection of sports, technology, and media, providing crucial data-driven solutions. The company essentially collects, processes, and distributes sports data (live scores, player stats, odds, etc.), and offers audio-visual streaming of sports events.

Their clients, which are mainly sports leagues, bookmakers, and media companies. The core of Sportradar’s operations lies in securing the rights to this data and selling it to companies that operate in the sports betting and media sectors.

  • Revenue Distribution: * Betting: The largest source of revenue, encompassing services for pre-match and live betting, betting and gaming solutions, and risk management. These services constitute ~67% of total revenue in 2022 and 73% in 2021. * Audiovisual (AV): Provides streaming rights, production, and distribution services for sports events. 2022 Revenue from the AV sector constituted 22% of total revenue. * Sports Media and Other: In this segment the company includes media solutions, sports data, digital sports experience and integrity services. Revenues from this segment constituted about 11% of total revenue in 2022.

  • Industry Trends:
  • The sports betting market is experiencing rapid global growth, especially in North America where betting laws are being increasingly liberalized.
  • Increased digitization and online platforms are pushing the need for high-quality data and content.
  • There’s a growing demand for sophisticated sports analysis and betting strategies.

  • The global sports betting market is expected to grow to around $140 billion in 2023, and further to $196 billion by 2027.

  • Competitive Landscape:
  • Sportradar competes with several types of providers:
    • other data providers such as Genius Sports and Stats Perform;
    • some sports leagues, many of which control their own data;
    • and potentially, major media and entertainment companies that try to build their own capabilities to stream and monetize sports content, including live and highlight content.. There are also internal business teams in betting and media companies that are capable of collecting some aspects of data themselves. However, no competitor has a data offering as extensive and comprehensive as what Sportradar offers.

The competitive landscape in this industry can be seen as fairly fragmented, with small and mid-sized companies in this field, yet the largest players have significant reach, due to the importance of relationships and access to sports rights and leagues.

  • What Makes Sportradar Different?
    • Established Relationships: Sportradar has long-standing relationships with various sports leagues and federations, allowing the company to get access to data before other competitors, and in some cases, exclusively,
    • Extensive Global Reach: They operate in many markets all over the world, with employees and offices located in key regions globally. This allows the company to build relationships and distribute their content to companies in a wide geographical area.
    • Breadth of Data and Services: They handle almost everything from real-time data feeds to virtual sports solutions, media content, and live game streams, making them a ‘one-stop-shop’ for many customers.
    • Proprietary Technology: The company has developed a range of proprietary technology solutions, such as AI-driven data analysis tools, that make them more efficient in collecting data and allow to offer additional benefits for their customer base.
  • Moat Rating: 2 / 5 While Sportradar has some advantages, its moat is not as wide as some established companies. The company has a good market position, and it is hard to replicate its network and relationships. However, competitors are quickly catching up and new types of competitors are likely to appear, so Sportradar must continuously innovate and try to protect its relationships. Therefore, the moat is rated as a narrow moat.
  • They lack pricing power as their contracts have limited flexibility when it comes to pricing increases, and their customers are quite large and sophisticated.

Risks to the Moat and Business Resilience

While Sportradar has good growth prospects, there are risks that could cause disruption in its moat. These include:

  1. Regulatory Changes: The sports betting market and particularly online sports betting is heavily regulated and this is ever-changing. New laws or regulations are being implemented all the time, making it challenging to predict what might be the new playing field, and increasing compliance costs and adding complexity to the business. In particular, the regulatory oversight in some regions, such as Latin America or the United States, is still very much in the development phase, and it is likely that the changes in laws and regulations will have impact on the company’s profitability and prospects.

  2. Intensifying Competition: Existing data providers are investing heavily in their technology and data offerings, and new players have the ability to enter this fragmented space. In addition, larger players, like some tech giants (Amazon, etc) that can benefit from the network effect are not out of the picture, and could potentially enter the fray.

  3. Technological Innovation: If new data or content collection technologies emerge, they may erode Sportradar’s current competitive advantage. If competitors offer similar and more reliable data collection faster and cheaper, and Sportradar struggles to keep up, then their business could lose clients and be severely damaged.
  4. Loss of Key Relationships: Since the company’s business is reliant on relationships with leagues and federations, if they were to lose a key partner, it would hurt the business.
  5. M&A risk: In recent years the company has grown through various acquisitions. Integration of this acquired businesses, as well as potentially overpaying for them, remains a constant risk.

Despite these risks, Sportradar also possesses substantial resilience, including:

  • High Customer Retention: In its target markets, the company has high retention rates, showing its business stability.
  • Established infrastructure: Due to being one of the first in the industry, the company has build a global network of data and relationships, with significant know-how of the industry.

Financial Analysis

Sportradar’s financials show strong growth, driven by the growth in the global sports betting market.

Most notable is the fast growth in the United States, the main driver of the company’s 2022 revenue increase.

  • Revenue:
    • Revenue has shown strong growth historically, from €404 million in 2019 to €560 million in 2021, and over €700 million in 2022. In 2022, the year-over-year growth rate was a substantial 29%, while also including the impact of war in Ukraine.
    • The company has indicated an impressive growth forecast, stating that the top end of revenue guidance for FY2023 shows a 29% increase over FY2022 revenues, and expects revenue to grow to almost €1.4B in 2025.
  • Profitability and Margins:
  • Gross profit margins are relatively high, at nearly 70%, yet have decreased slightly from 2021. This indicates a relatively high competitive environment. * EBITDA has been increasing steadily in the last years, from €88.3 million in 2019 to €130 million in 2022.
  • Profit margins are relatively lower compared to some other software companies, which is understandable since the company operates in a relatively price-sensitive market, and needs to maintain cost structure and price competitiveness to sustain growth.
  • Cash Flows
    • The company has had positive operating cash flows in all of the past few years.
    • The company has spent aggressively on acquisitions in 2022 and in the year before.
  • Capital Structure:
    • The company has moderate debt, and the debt to equity ratio is relatively constant.
    • Current ratios are above 1 for the past years, which shows short-term liquidity to meet current debt obligations.
  • Recent Earnings Calls:
    • In their Q4 2022 Earnings Call, management indicated that the US continues to show strong results in terms of performance.
    • Management notes significant market expansion in the US with the addition of 12 new states approving sports betting.
    • In the same Earnings Call, management announced that the company will now focus on long-term contracts.

Understandability: 3 / 5

Sportradar’s business model is relatively straightforward to understand – they provide data, content, and media solutions to companies in the sports industry. However, their revenue breakdown can be slightly complex, especially in separating the various aspects of their business, such as betting, AV, and the different sub-types of data and streaming products. However, for most people with experience in investing, the industry itself is easily understood.

Balance Sheet Health: 4 / 5

Sportradar has good financial health. It has:

  • a positive equity,
  • low leverage,
  • high current ratio
  • and good cash flows. The main point of caution here could be the high level of acquisitions, which carry some integration risk and a chance of overspending.

Conclusion

Sportradar Group AG is a relatively fast growing company, operating at the intersection of sports, data, and technology. It has a relatively narrow moat due to increasing competition, but it is well-positioned to continue growth due to its existing infrastructure and partnerships. The biggest risks, aside from regulation, are potentially new technologies rendering the business obsolete, and losing key partners or relationships. Overall, SRAD is a pretty good company, with good financials, but with a need to keep innovating to stay on top.