FuboTV Inc. is learning the hard way that it takes a lot of cash to compete with the major legal sports betting operators.
Despite posting Q2 revenues of $216.1 million in 2022 — an impressive year-over-year gain of 65% from the same period last year — FuboTV saw net losses rise to $116.3 million for the second quarter, compared to the $94.9 million loss it sustained over the same period in 2021.
Citing rising capital costs in an inflationary economic environment, the streaming company announced that it is actively searching for a partner to help grow its lagging sportsbook division.
In a letter to shareholders that accompanied the release of Q2 earnings, FuboTV reported that it was conducting a "strategic review" of its Fubo Sportsbook.
"We continue to believe that an integrated wagering platform, offering both live video and a sportsbook, will result in the best viewing and gaming experience for consumers. However, as we have evaluated how best to scale these capabilities in today’s market, we have concluded that we will no longer pursue this opportunity on our own. Accordingly, our interactive wagering business is under strategic review," the letter reads.
"While our disciplined sportsbook progress continues, in light of the rapidly-evolving macro-economic environment, we believe it is important to be even more capital efficient than originally scoped," the letter added. "We are taking steps to de-risk our business and have made the decision to no longer go down the wagering path independently."
In the Q2 earnings conference call that followed the release of the shareholder letter, FuboTV CEO David Gandler explained that the once-favorable economic environment that led it to launch its sportsbook last year no longer existed.
"We decided to enter the wagering business in early 2021," Gandler said. "At a time when the business climate and efficient cost of capital provided the runway to develop new business clients with longer profitability time horizons. Now, with a recession and inflation hitting 40-year highs, that no longer holds true."
Implicit in his comments is the calculation that rising borrowing costs limit the company's ability to fund the kind of massive marketing campaign needed for Fubo Sportsbook to gain market share. Those costs are unsustainable for FuboTV in the face of a recessionary environment in which "reducing our cash burn" has become a critical concern for Gandler.
Fubo Sportsbook's attempt to gain traction in the U.S. online betting industry has floundered in an era that is seeing major sportsbooks consolidating their market share while squeezing out its micro-competitors.
FuboTV's sportsbook faces impossible odds
In figures released in its July 2022 US Sports Betting Market Monitor, Eilers & Krejcik Gaming reported that FanDuel remained the biggest industry player with a whopping 46.6% share of U.S. gross gaming revenues. DraftKings follows in second place at 20.2% while BetMGM (14.1%) and Caesars (7.5%) trail in third and fourth place, respectively.
The only other sportsbook brands which enjoy a nationwide GGR share greater than 1% are:
Altogether, these seven sportsbooks account for a 96.7% chunk of U.S. GGR, which leaves micro-players like FuboTV struggling to justify their continued participation under such market conditions.
Fubo Sportsbook - Potential acquisition target
Still, Gandler tried to strike an optimistic note by suggesting that his company's wagering arm might be an appealing property — some analysts would say target — for potential entrants (or big fish looking for small fry) looking to acquire a tiny piece of the online sports betting pie.
"We have some value to offer a partner who’s looking to quickly get into the business and, at the same time, not have to worry about spending a lot of money marketing to consumers, given the number of customers we have, as well as the number of trials that are coming in on a regular basis," he said.
Fubo Sportsbook launched late in 2021 and is currently live within just Arizona and Iowa — and its presence in those states remains insignificant. In May, Fubo Sportsbook's handle in Arizona was under a half-million dollars, representing 0.1% of the market. Meanwhile, it only took in bets totaling $125,000 in Iowa — which works out to a meager 0.09% of total handle in the Hawkeye State.
Fubo Sportsbook does, however, have a license application pending in New Jersey, one of the top markets in the U.S., and is hoping to launch there in September. It also has access rights in Mississippi, Louisiana, Missouri, Ohio, Pennsylvania, Indiana, and Texas, which reduces regulatory delays for potential partners/buyers.
Gandler also revealed that Fubo Sportsbook was planning to launch in a fourth state later this year (one analyst speculated during the conference call that it would be Indiana).
One of the disappointing aspects of FuboTV's decision to put its sportsbook operations on hold is that it entered the online wagering market with a highly innovative approach to changing the way people bet on games. Fubo Sportsbook was designed as a pioneering venture into betting interactivity through its industry-first integration of an owned-and-operated sports wagering platform with its live TV streaming experience.
The "Watching Now" feature would allow bettors to study the odds and bet on games they would be watching on FuboTV. But the future of this interactive technology, like the sportsbook itself, lingers in doubt until FuboTV finds a partner or buyer willing to infuse some capital into its operations.
"We will slow roll until we find the right partner," said Gandler. "But you know, we’re having conversations. I would say we’re pretty early on."
Sportsbook stagnation belies upbeat streaming results
The prospect of jettisoning or partnering its sportsbook may have served to obscure some otherwise positive results turned in by FuboTV.
"In the second quarter, FuboTV achieved strong growth in subscribers and revenue, with North American subscriber growth of 41% year-over-year and total revenue growth of 65% year-over-year. In addition, ad revenue grew 32% year-over-year," said Gandler.
It was left to FuboTV executive chairman, Edgar Bronfman Jr., former CEO of Warner Music Group, to buoy shareholder spirits by emphasizing the core strengths of the company.
"We remain steadfast in the aggregated streaming model and FuboTV’s mission to build the world’s leading global live TV streaming platform with the greatest breadth of premium content and interactivity."