Sportradar Group AG Q3 FY2021 Earnings Call

Greetings. Welcome to Sportradar Third Quarter 2021 Earnings Conference Call. At this time, all participants will be in listen-only mode. A question-answer-session will follow the formal presentation. Please note this conference is being recorded. At this time, I’ll now turn the conference over to Sandra Lee. Sandra, you may begin.

Thank you. Good morning, everyone, and thank you for joining us for Sportradar’s financial results conference call for the third quarter ending September 30, 2021. On the call today, we have Sportradar’s CEO, Carsten Koerl, and CFO, Alex Gersh. This call, including the Q&A portion, may include forward-looking statements related to the expected future results for our company. Our actual results may differ materially from our projections due to a number of risks and uncertainties, which are described in our earnings release and other SEC filings. Today’s remarks will also include references to certain financial measures not reported in accordance with IFRS. Additional information, including reconciliation of these non-IFRS financial measures, is provided in our earnings release. This conference call will be available for replay via webcast at Sportradar’s Investor Relations website at investors.sportradar.com. Carsten will begin with an overview of Sportradar, followed by our most recent highlights. Alex will then take you through a review of the financials before we proceed to Q&A. With that, I’ll now turn the call over to Carsten.

Thank you, Sandra. Good morning to everyone. And thank you for joining our first earnings call as a public company. As some of you may be new to our story, I would like to provide a brief overview of who we are, what we do, and the massive growth opportunities we see in front of us. Please note that this brief overview will make today’s call a little longer than what we typically go for. I’ll provide you an overview of our recent progress, performance, and finally I will turn the call to our CFO, Alex, for the financial review of the quarter and expectations for the remainder of 2021. Sportradar is a leading technology platform enabling next-generation engagement in sports and the number one provider for B2B solutions to the global sports betting industry based and measured by revenue. We provide mission-critical software, data, and content via subscriptions and revenue share arrangements to sports leagues, betting operators, and media companies. We have been at the forefront of innovation in the sports betting industry, and we continue to be a global leader in understanding, leveraging, and monetizing the power of sports data. Our mission is to enhance sports fan engagement globally through our fully-integrated technology and service platform. Sportradar offers one of the most robust and fully integrated sports data and technology platforms. We serve as a critical data infrastructure and content layer to the sports betting and media industries. On top of that infrastructure layer, we have built one of the most advanced and comprehensive software offerings. Our products simplify our customers’ operations, drive efficiencies, protect integrity, and enrich the fan experience. We have the largest volume of sports data in the world, but what’s so much more important is that we’re continually innovating to use the data to provide valuable insights and develop products that move us higher up the value chain for our customers. Our end-to-end offering, integrated technology, and global footprint make us an important partner for our customers and deeply embedded across the sports ecosystem. For our over 900 sports betting operator customers, we cover more than 750,000 events annually across 83 sports, including live data coverage of 600,000 events across 37 sports. The breadth of our data offering and sports coverage is an important differentiator for Sportradar. We are the number one provider of data to bookmakers. We supply sports data to over 85% of all bookmakers in the United States. Our offerings include pre-match data and odds, live data and odds, trading services, which we call MTS, as well as AV content product. Our full suite of software solutions includes managed platform services, betting entertainment tools, virtual games, and programmatic advertising solutions. We are the only one-stop-shop provider across the value chain in this B2B business. For our over 150 sports league partners, we provide across 900 betting operators and 350 media companies to distribute their data and content globally. We give them greater reach to serve as an intermediary to the highly regulated betting industry. Importantly, we provide integrity services to more than 600 leagues, federations, and law enforcement agencies. These services help ensure a fair playing field for all. What is also critical is that our integrity services give us a deep relationship with sports leagues, who know that they can count on us. For over 350 media customers, including both traditional and digital leaders, we provide products and services to help reach and engage sports fans across all distribution channels. Finally, our newly formed sports solution vertical completes our circle of offerings to meet all of our customer and sports technology needs and demands. This vertical leverages the power of automation through cutting-edge use of computer vision to help the sports organizations to better perform on the field and increase profitability in off-field actions. We are very excited about the recent acquisition of Synergy Sports and InteractSport. Through Synergy, we have a strong presence in the world of coaching and analytics, dominating both professional and college basketball and baseball. Through InteractSport, we have gained an immediate presence in the sport of cricket. We couldn’t be more excited about the sports solutions vertical, and we are focused on aggressively building our team with computer vision experts to create the best-in-class automated video projection and data management solutions. Now, some words about our growth strategy. We are in an exciting transformative time. Advancements in artificial intelligence, machine learning, and computer vision are changing this industry as in many other industries. I started Sportradar more than 20 years ago. I’ve been in the business for far longer and have never experienced a time as exciting as this one. In addition to the digital transformation, the sports and media industry and the betting industry are converging, creating massive total addressable markets. The U.S. is driving the pace of change with a market that is rapidly adopting sports betting. To capture all this opportunity, we’re continually broadening our product portfolio to better serve customers and increase our touch points with end-users across the sports betting value chain. The more knowledge of the end user we are able to collect, the more valuable our insights and platform services become to sports betting companies and, of course, also to media companies. These network effects also enable us to enhance our product portfolio, serving as a key element of our growth strategy. Other elements of our growth strategy are as follows: First, we will capture growth in global markets. We intend to capture significant growth from new and existing markets around the world. We have the infrastructure in place to take advantage of the expected growth in various markets, especially the U.S., where the market was approximately $1 billion in 2019, and is expected to grow to approximately $23 billion at maturity in the next 10 years. Second, we will expand our offerings in B2B products and services. We will continue to increase the adoption of new and existing products to further grow our share of the wallet with customers. We believe that our MTS and ad:s solutions provide customers with significant value, and these products are currently underpenetrated in our existing customer base. We expect uptake of these innovative solutions to be higher as betting companies in the U.S. market become primarily focused on gaining market shares and acquiring new customers. Third, we will cover the entire end-user journey to better serve our customers. We see considerable value in combining our deep knowledge of sports data with increasing amounts of user data collected across our products, such as MTS, Ad:s, AV, and OTT, which allows us to better understand the entire end-user journey. These insights will enable us to cross-reference end-users from betting to entertainment and vice-versa, improve user experience on behalf of our customers, and consequently build better products. We also believe that this knowledge, together with our technical platform and capabilities, will help leagues to access direct customers and sportsmen in the future. Fourth, we will invest in alternative content capabilities and services. We continue to expand our content offerings beyond live sports betting into e-Sports, virtual sports, and gaming. We believe that our betting operators must provide their customers with more variety and flexibility in their content offerings. Alternative content is not dependent on live sports; it is becoming increasingly important, and COVID-19 has accelerated the adoption of new categories of real and virtual sports. Fifth, we see growth in funnel capabilities and offerings. We believe that there is significant opportunity to provide advanced capabilities in the programmatic advertising market for betting operators. Bookmakers are expected to inject vast amounts of capital into this underpenetrated customer acquisition channel as they seek more efficient methods to acquire new customers. We believe that of the global universe of sports fans, approximately 20% are sports bettors. We plan to increase engagement for all sports fans and better serve them by leveraging the data and insights we have on end-user behavior and preferences through Ad:s, one of the most sophisticated forms of digital marketing for sports. We’re incredibly excited about this forward-looking roadmap. And that serves our growth strategy, delivering value to our customers and partners and enabling us to extend our leadership in the market we serve. Now, I’d like to discuss some recent highlights and show you how we are executing on each of the growth pillars and taking advantage of the strong demand environment. Today, the team in Europe worked hard until 3 o’clock in the morning on a milestone deal for Sportradar, which we just announced. I want to thank the team for this extra mile and their efforts. We recently announced an expansive eight-year official deal with the NBA. As their exclusive partner, the league will use our wide-ranging technology capabilities to help grow their market share in the U.S. and abroad. Together with the two years run rate of the existing deal, that gives us a solid deal of 10 years to develop future solutions in all three business verticals: teams, betting, and sports entertainment. Basketball is the largest sport in the U.S. and globally, with approximately 2 billion sports fans worldwide. The opportunities with this partnership with the NBA are truly endless, and we are very excited. To further showcase the momentum of our business, we also won a landmark agreement with UEFA. After a competitive process, UEFA selected Sportradar as their exclusive collector and distributor for data and betting purposes. This is incredibly exciting, given that it’s the first data deal ever for UEFA in betting. Soccer is the most bet-on sport in the world with a handle of €850 billion each year, far exceeding the handle of American sports, such as the NFL, which is €41.87 billion annually. For those who may not be familiar with the terminology, the handle is defined as the amount of money in wagers accepted. Once again, €850 billion is the handle in soccer, while the NFL has €41.87 billion annually. That illustrates how significant soccer is as a sport. We also announced a multi-year extension with the ITF to serve as its official data partner. Second only to soccer, tennis is the second most bet-on sport in the world with a handle of €140 billion. We are proud that we are continuing our 10-year-plus partnership with the ITF. Finally, we secured important deals with the International Cricket Council and the LNB, France’s top basketball league. These are just a few examples of how we are disrupting the market and applying our data-driven approach to the sports universe. We make continual investments to ensure that the data we collect is robust, reliable, and delivered with high speed and low latency. Computer vision is one particularly exciting area for me, given the potential to capture so much data in real-time with precision. In the first quarter, we implemented computer vision for Wimbledon and the U.S. Open matches. I couldn’t be more excited about the potential for this technology. I’ll close my discussion on the data rights deals by addressing our position on exclusive data. We seek exclusive data deals only when the economics make sense. But we also have access to enormous amounts of data that we can monetize, even without exclusive rights. I’m pleased to state that we have not lost a single betting client due to not having exclusive rights to NFL data. We have maintained our position as the preferred supplier for every U.S. betting operator and did not lose any existing contracts. We were also able to extend long-term partnerships with companies like FanDuel. Lastly, we achieved 99% of our planned NFL revenues budget for our U.S. media and betting business. I mentioned earlier our ability to understand the end-user journey as an exciting area of growth. We intend to approach this opportunity through our Ad:s business, which identifies the profile of sports fans, giving us rich insights for our customers who want to target them. This part of the business truly illustrates that the more data we have, the better we can deliver meaningful information to our customers. We are seeing momentum, achieving €7.6 million for our Ad:s business globally in the third quarter, with our U.S. revenue totaling approximately €1.8 million in the same quarter. We launched Ad:s globally in 2019 and only recently began focusing on the U.S. This is just the beginning as betting companies look to aggressively acquire new customers and more advertising comes online in other channels. This quarter, we initiated an important strategic partnership with Adomni, the leading programmatic digital out-of-home advertising planning and buying platform, integrating Sportradar’s sports data suite into their demand-side platform. This allows brand marketers and agencies to implement out-of-home campaigns that include live betting odds and other sports data. Another very exciting area demonstrating the value and expertise we provide our clients is managed trading services, or MTS. Since 2022, MTS has played a major role in the U.S. wagering landscape. Our MTS offering is a sophisticated, turnkey trading, risk, live odds, and liability management solution that helps betting operators boost margins and profits while increasing efficiency and managing risks. Overall, we grew our MTS customers from 158 globally in the third quarter of 2020 to 192 globally this quarter. We have been gaining strong attention this year in the U.S. In the third quarter, we signed a strategic MTS agreement with FansUnite. That will allow the company to provide optimal real-time operations, providing more value to their customers. Like other regions where MTS operates, the U.S. has a bespoke revenue-sharing pricing calculation. Turning to AV services, this area is where we have market leadership and expertise that will be difficult for others to replicate. Our added value expertise helps sports leagues undergo digital transformation, create engaging content, and generate additional revenue experiences. Our AV revenue increased by 13% year-over-year to €29 million in the third quarter, driven by volume growth as we sold more matches and delivered new content. Notably, our adjusted EBITDA in this segment increased by 220% to €9.6 million, and the segment adjusted EBITDA margin improved from 12% to 33% year-over-year, driven by lower costs of certain content. Lastly, I touched on how important global markets are to Sportradar’s growth, particularly in the U.S. We made significant investments to capture the enormous opportunities, and they are paying off. For example, we announced a partnership extension with U.S. market leader FanDuel through 2028, making Sportradar the chosen data and odds supplier for U.S. sports. Sportradar provides FanDuel with access to the most comprehensive suite of betting products in the marketplace, which will play a critical role in aiding FanDuel’s growth within the U.S. sports betting landscape, set to expand significantly over the next several years. In summary, I believe we are exceptionally well-positioned to capture the significant growth opportunities ahead, expanding revenues from our existing customers, acquiring new customers, leveraging the power of data to drive insights and innovation, and broadening and deepening our partner ecosystem. We are also proud of what we have achieved. We acknowledge that this is just a step forward in serving our customers, colleagues, and shareholders. These are exciting transformational times. Operating a business as the market leader, combined with the ability to make strategic investments, as a result of our public listing will unlock dynamic growth opportunities. So, I’m ending my section here and handing over to our CFO, Alex, who will discuss our financial results for the quarter and the guidance for the year. Alex, over to you.

Thank you, Carsten, and good morning, everyone. As Carsten already mentioned, we had a very strong third quarter of 2021 and an excellent nine months for the year. Let me take you through our quarterly results in detail and then provide the full-year guidance for 2021. Our third-quarter group revenue grew by 30% to reach €136.8 million. Now, looking at the segmental revenue detail, our rest-of-the-world betting revenue grew by 24% in the quarter to €78.6 million. This growth was primarily driven by an uptake in our higher value-add offerings, including managed betting services and live odds services, which increased by 63% and 20%, respectively. The increase was the result of increased turnover and volume as well as new customer wins. The second segment, as Carsten mentioned, is rest-of-the-world AV revenue, which grew by 13% to €29 million. This growth was impacted by COVID-related schedule changes that occurred in fiscal 2020. Adjusting for that revenue growth, the increase was driven by volume growth as we were able to sell more matches, primarily soccer and baseball, as well as growth from additional new content sold to existing and new customers. Turning to the United States, we grew by 119% in the quarter to €19.6 million. This was driven by growth in our betting service as the underlying market and turnover grew. We also experienced strong adoption of our ad:s products, as Carsten mentioned, growth in U.S. media, and positive impacts from the acquisition of Synergy Sports. Turning to one of our favorite metrics, our group dollar-based net retention rate stood at 128% at the quarter-end, compared to 114% at the end of Q3 2020, demonstrating continued execution of our upsell and cross-sell strategy and underscoring the quality of the products and services we provide to our customers. Now, a couple of words on the major cost items in our financials. Personnel costs for the quarter were €51.3 million, an increase of €20 million over the prior year’s quarter. This increase happened because we have about 600 more FTEs at the end of Q3 2021 versus Q3 2020, as we continue to invest in technology and products. We also introduced new stock-based compensation, which is reflected in that number, as well as the reversal of temporary COVID cost savings in the third quarter of 2021 versus the third quarter of 2020. Other operating expenses were €25.2 million, an increase of €15.7 million over the prior year. The increase was primarily driven by incurred costs for the IPO, compliance costs relating to operating as a publicly listed business in the U.S., and some M&A costs. Total sports rights costs decreased by €9 million to €28.7 million in the third quarter of 2021, resulting from fewer major sporting events in the third quarter of 2021 compared to the third quarter of 2020, which again relates to the COVID changes that occurred in 2020 to many league schedules. Adjusted EBITDA was €20.9 million, as Carsten mentioned, which is an increase of 21% versus Q3 of 2020. The adjusted EBITDA margin was 15% in the current quarter, a slight decrease compared to Q3 of 2020, however reflecting additional IPO costs of approximately €5.7 million incurred in the third quarter of 2021. Eliminating the impact of those IPO costs would result in an adjusted EBITDA margin of 19%, reflecting our continued ability to achieve operating leverage. A few words on the adjusted EBITDA by segment: Rest-of-the-world betting adjusted EBITDA was €44.7 million, up 36%. Rest-of-the-world betting segment adjusted EBITDA margin improved to 57% versus 52% in the prior year, driven by growth in higher margin services, which we’ve already discussed. Rest-of-the-world AV adjusted EBITDA was €9.6 million, as Carsten stated, up 220%. Rest-of-the-world AV segment adjusted margin improved to 33% versus 12% in the prior year, driven by lower costs of certain content. The United States adjusted EBITDA improved by 24% to negative €6.6 million. The United States segment adjusted EBITDA margin improved from negative 60% in the third quarter of 2020 to negative 34% in the third quarter of 2021, reflecting the scalability of our business and a clear path to profitability while we continue to invest in the U.S. market. A few words about liquidity and cash flow. We ended the quarter with €768.4 million in cash. Total liquidity available for us, including undrawn credit facility, was €878.4 million. As of the end of the third quarter, total debt stood at €436.7 million, resulting in a net cash position of €331.7 million. During the third quarter of 2021, adjusted free cash flow increased by 144% to €32.9 million, leading to an adjusted free cash flow conversion rate of 158%. Now, just a few words on the outlook for the rest of 2021. For the full year of 2021, we currently expect revenue to be in the range of €553 million to €558 million, reflecting annual growth of between 36.6% and 37.1%. For adjusted EBITDA, we expect it to be in the range of €99.5 million to €101.5 million, representing a year-on-year increase of between 29.4% and 32%. With that, we are now happy to open the call for questions. Operator, will you please open up the line for Q&A?

Thank you. Our first question comes from the line of David Karnovsky, JP Morgan.

Hi. Thank you so much. With the NBA, I was hoping you could provide some additional background on the deal. Why do this agreement now when you still had a few years to go with your initiative with the NBA? And then, can you just expand on some of the additional distribution rights you’ve acquired, and do those start immediately or in 2023? Thanks.

Yes. Good question, David. This deal was a long effort, and we have been discussing it for quite some time with our partners. We’re extremely happy that we could announce it today. The U.S. is undoubtedly the biggest growth opportunity in front of us, and we want to focus on creating value; therefore, investments in the United States are our top priority. The NBA is the top betting sport in the United States by pre-match, but more important by live. Live betting is the main trend in the United States, and we see a lot of opportunities to monetize here with our live odds and managed trading services products. This was a main motivation for us. Looking now into the scope, we widened the scope enormously. It includes tracking data; it includes a tracking system. We can now work with our sports solutions vertical on new ways to capture data, how we provide that to teams, and how we create value with the sports fans using this new data and insights. The exciting thing is that the NBA is a strong technology partner. The NBA plans ahead, and the deal is constructed around a strong technology partnership, focusing on U.S. betting, of course, but also internationally. I mentioned the 2 billion sports fans following the NBA globally; that perfectly fits our profile. So, that’s the range—it’s an extended deal, but the scope and the focus is predominantly in the U.S. with betting opportunities.

Okay. And then maybe as a follow-on, Alex, any additional detail you can provide on the equity position for the NBA, and does that go to the lead now or to your…

The deal, as we announced, starts in 2023. That’s when things begin. But obviously, we have a — we have an agreement, and they will become an equity shareholder in Sportradar, which is really exciting for us. This is the kind of shareholder we absolutely want. So, that’s really all the other detail other than what we already discussed in the press release.

Our next question comes from the line of Thomas Allen with Morgan Stanley. Please proceed with your question.

Thanks. Just one other clarification on the NBA deal: in the old deal, you were the exclusive global provider, but you had a co-exclusive in the U.S., and I think China was an exclusive either. Does that continue, or are you exclusive for everything by yourself?

The headline of the press announcement states that we are the exclusive global data provider. I hope that gives you enough clarification. There is an opportunity for us and the NBA to seek market innovation. Some companies need data to create innovative products. That is something that has always been the interest of Sportradar and, of course, of the NBA. So, that is the difference with the existing deal. I hope that clarifies the situation.

Okay, thanks. And this is my follow-up. A lot of the operators talked about a hold impact in the third quarter into the fourth. Respecting that most of your contracts are not tied to revenues, but did you have a negative impact from events going against the operators?

Alex, do you want to take this question, or should I?

Go ahead, Carsten.

Yes then, I will quickly address it. No, the opposite is true. We had very strong MTS growth. MTS is our product where we are closest to the profit of the bookmakers. We enjoyed 71% year-on-year growth in that segment. There are always some ups and downs, but what has happened in the U.S. regarding the hold and profitability was not the trend worldwide. So, overall, we saw strong growth and strong profitability in our MTS product globally.

Perfect. Thank you.

Our next question is from the line of Jason Bazinet with Citi. Please proceed with your question.

I had a simple question. Can you just remind us how many of your leagues have a sort of equity participation in Sportradar today? And how should we think about growth in fully diluted shares outstanding over the long-term? What’s a reasonable growth rate based on the agreements that you do have in place?

As a very general statement, I think you will not see too many equity deals from Sportradar like we did now with the NBA. The NBA is our most important partner; it was our most important partner in terms of scope and size, and also looking to the extent of our partnership. So, that was a very clear step for us to do this, to grow with our partner where we enjoyed a sensational cooperation over the last seven years. We see this as a sweet spot in the growth of the U.S. markets. We have an equity participation with the National Hockey League, on a much smaller scale than the NBA. And you might see some smaller equity deals in the future, but not to the extent and scope like we see it now or saw it with the NBA. We’re super happy about this, but we don’t intend to really widen this too much and dilute the shareholders there. We see value creation for the NBA and for Sportradar. That’s the reason why we did this.

Perfect. If I can just ask one follow up. Maybe I missed it in the release, but do you have the number of fully diluted shares outstanding as of the quarter?

Yes. So, for Sportradar, we have a total of 205,454,977 A shares. Then, we’ve got a total of 903,670,977 participation certificates, which convert into 10 times fewer shares ultimately at some point.

Our next question is from the line of Robin Farley with UBS. Please proceed with your question.

Great. Thanks. Two things. One is, I just wanted to clarify your answer on the NBA data. Is it exclusive in the U.S. for NBA data, but it’s not starting until 2023? In other words, it’s still shared with some others before 2023? I just wanted to clarify that. And then, also just wanted to ask if you could give us a sense of either the number of customers or the percentage of customers still using Sportradar for NFL data, just so we can kind of think about that opportunity, how important that opportunity is there.

Hi, Robin. To the first part, the old deal remains in place for the next two seasons, and there are no changes. There are several providers for the U.S. live data piece. In two years, the new deal kicks in. The mechanics have fundamentally changed with the new deal. As for the NFL, we previously mentioned that we lost not one client in the betting market. We retained 99% of the revenues we projected in media and betting combined, demonstrating that we compensated for the loss of the exclusive data rights with the NFL by capturing data in alternative ways. We’re speaking about a little over 10 operators here that remain with Sportradar.

Yes. And just if I could clarify, when you mention that there is a decision in two years where you— it sounds like you maintain the option to have the NBA data exclusively. Is that— I assume there would be an additional fee or something, if Sportradar chose that option. Is that fair to assume?

No, that’s not an option. Then you misunderstood me. There is a clear regulation between the partners NBA and Sportradar that we want to enable data access for some innovative companies. We keep that open. There is a partnership agreement concerning this, but it means that Sportradar will be the preferred supplier of NBA data to the U.S. marketplace in the next eight years from the 2023 season onward.

The next question comes from the line of Shaun Kelley with Bank of America.

I just wanted to maybe dig into some of the changes in economics you guys saw as a result of some of the deals we saw announced with the NFL kind of back in September. Has any of those relationships that were announced with other operators impacted, let’s call it, the pricing dynamic or the take rate on any other products or deals with leagues? So, have you seen any pricing pressure on things that were sort of not NFL, but might have been tied to or impacted by the NFL agreement that your competitor has out there in the market?

Of course, the market reacts to these developments. The market has been asked to pay a significant premium compared to what they paid in the season before, and this has an impact on the market. Bookmakers are also sensitive to tax rates. We see a really strong growing market in the United States at the moment, which is more driven by capturing market shares. There is a cost sensitivity, but efficiency is not the main priority for the offerings. This is what we see in general. Regarding the NBA and Major League Baseball, they have different distribution models. They have an upfront fee paid to gain access to the official seat, which is different from the NFL and NHL distribution model. We hold exclusive rights for the NHL for the next decade and currently have significant long-term relationships with Major League Baseball.

Great, thanks. And maybe just a quick follow-up, a lot of the sports betting operators in the U.S. are moving to or focused on sort of full tech stack ownership. Just wondering, I think you mentioned that you’re seeing quite good traction with some of your MTS and MPS products. Could you just give us a little color on where that traction is, especially in the United States, with clients or customers? And how does the full stack ownership impact the relationships with some of the bigger operators?

I’m very happy to explore this in more detail, and I hope you will allow me a minute to explain the environment. If we speak about some services that bookmakers are taking in-house, you might be referring to platforms. There are many strong platform providers in the sports market. Our platform provides full services, including payment, user acquisition, and risk management modules. Our MTS service is continuing to grow. From a liquidity perspective, we are now around a run rate of $15 billion in handled bets we aggregate. The more tickets and liquidity you aggregate, the better positioned you are to use AI to compile what we call a fair price. That's not disputed amongst players in the market. The question remains how quickly you can reach a position where your pricing power is big enough to generate alpha with those prices. We're working hard on this, as I alluded in my remarks. The bookmakers will choose to use the services that provide the best efficiency and, ultimately, profitability.

If I can just add, we currently have seven MTS customers in the U.S., right? Yes, they are relatively small, and we would expect to start with the smaller bookmakers. The fact that there are already seven of them seeing the value in the product is very encouraging.

The next question is coming from the line of David Katz with Jefferies.

I wanted to just talk about kind of a more long-term vision here because I think that’s largely what a lot of discussions with clients are about Sportradar. If we look at the deals that have occurred, yours with the NBA, others with Genius, there’s a stake involved and a cost involved. How do you think this evolves over the next 5 to 10 years? Is there a point at which the cost of these exclusive rights either stabilizes or becomes uneconomic? Help us paint a long-term vision for this.

At a very high level, I would be more concerned about a 51% tax rate compared to the costs of official data. The market can decide on this. The U.S. market has chosen to give considerable value to official data, and I think that’s a great decision. I don’t believe every international market will follow the United States' model, but undeniably, there is acceptance of official data along with sports participation, which I think is reasonable. I mentioned earlier that we don’t intend to widen this scope significantly. The NBA represents a very unique deal for us as it is core to our objectives. Our visions align significantly, and they have substantial growth prospects which go beyond data distribution, involving digital fan journeys, direct-to-consumer products, customized services, and connecting with sponsorships, etc. We have a wide array of opportunities surrounding these areas.

Understood. And if I can just follow up—apologies if I missed it. The NBA stake that they are receiving, have you told us how large that is or how to calculate, how we might go about estimating that?

It’s 3% in total and will last over 10 years, with different tranches in between.

Next question is coming from the line of Michael Graham with Canaccord Genuity.

Thank you. I wanted to just ask a high-level question about your AV business. We hear all the time on the betting data side of your business that you are in a unique position, and clearly you have a complex product that is very difficult to replicate, creating a lot of competitive moats for you. I just wonder if you could comment on your AV business and the extent to which you’re able to build competitive moats around your AV business that would make it difficult for others to replicate.

Well, I reported the growth numbers, and Alex reported the growth numbers in AV. This is super strong. From a profitability perspective, we’re gaining scale in the product. It’s all about building a portfolio that’s interesting for specific client groups and regions. There aren’t many fully global betting operators; a few need products that serve regions effectively. Therefore, we must obtain critical rights for regions while fitting them into our operator target profiles. That’s a considerable challenge that we have been addressing for many years. Reaching the point of scalability is now reflected in our numbers. The future of this service relies on leveraging user profiling technology to enrich AV service. If we understand a customer likes a particular sport or team, we can push appropriate content to them. This capacity to detect users enables bookmakers to connect them with what they want.

The next question is from the line of Bernie McTernan with Needham.

I was just wondering if you could detail just how much of the U.S. or global GGR the NBA accounts for. Because in your prepared remarks, I thought you said the NBA was actually bigger than the NFL. If that’s the case, is there any reason to think that the price you paid for the NBA would be lower than the rumored price that Genius paid for the NFL?

I don’t want to compare prices that we are paying with others. We have strong reasons why we do this, and this is always commercially driven. We aim to create profits for our shareholders. The breakdown for this year from the leagues and the split on the NGR in the United States I can share: for pre-matches, the NBA represents 21%, the NFL is at 19%, and MLB is at 17%, while the NHL accounts for 4%, and others, including NCWA, contribute to the rest. From an in-play revenue perspective, the NBA holds 25%, while the NFL is at 14%. These figures suggest that the NBA is notably a favored option for in-play betting. We believe that in-play betting will gain considerable market share moving forward. This trend has already been seen in international markets, especially in Europe. Soccer is the most significant global sport, with an €850 billion handle compared to the €41.8 billion for the NFL for the previous year.

No, that’s great. I appreciate all the color. I’d just like to follow up: I’m interested in how competitive the bidding process was for the NBA. I assume you and Genius went hard at it, but was there a sense that there were others involved as well? A big question that we get is what Endeavor and OpenBet are going to try to do and if they can be a greater competitor in the space. So, really, whether it was a two-player bid for the NBA or if there was a much broader range of bidders for the asset?

All I can say is it was a very intensive process. I, for myself, with the European team here, have been working on this until 3:30 in the morning, and I’m very happy that we received robust support from our U.S. team, but it was a night shift for America too. It was a hard-fought process. I don’t intend to provide details on how that was on the competitor’s side, but we are very proud and excited to have secured this partnership and long-term deal with the NBA, which was a key target for us this year.

Thank you. At this time, we’ve reached the end of the question-and-answer session. I’ll now turn the call over to Carsten Koerl for closing remarks.

Well, thank you very much. Thank you all for your participation. We are very pleased with this quarter’s performance, and we are excited about the opportunities ahead. We have a high-performing company, and we will continue to focus on maximizing shareholder value. I’d like to thank many Sportradar colleagues working around the world for their exceptional efforts and our customers and partners with whom we work seamlessly to deliver value to the market. Thank you for joining us on the call today, and I wish you all a great day. Thank you very much.

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.