The Future Economics of Fandom - Exclusive with Genius Sports CEO Mark Locke

0:03You're now listening to the Sports Pro Podcast Show.

0:11So Mark, great to have you with us today on the Sports Pro Podcast. I was curious, coming in here because I, you know, looking at your profile and have followed the genius sports journey for a while. You're listed on the New York Stock Exchange, yet headquarters are out of London from what I understand. You have people across the world. Where's home for you these days is it new york is it london is it somewhere else it feels like it's on a plane most of the time to be honest um look we uh we're headquartered out of london um but increasingly our focus has been uh the us a lot of the partnerships that we've done recently especially with the nfl and they've taken an ownership stake in us that's become a much bigger focus for the business so a lot of our new hires have been over there so really the the leadership is split between london new york's a little bit in switzerland and um you know a few a few various locations in eastern Europe and South America.

0:59So big question for you here, London or New York, which one's your favorite? Unfortunately, I have to say London. It's my home. It's not been great to watch what's happened to it recently. I mean, I'm not going to shy away from that, but I still think it's the greatest city in the world. So taking a step back and looking at the genius business, seems that you've been on a growth trajectory the last few years, especially, and have added very string to the bow of the business just how would you describe the business as it stands today yeah so i mean genius has been through an amazing transformation i mean we started it you know 25 26 years ago and um you know we're still growing strong it's the last few years have in some ways been the most transformative i mean we were a private company right up until about 2017 when we got bought by private equity firm which was our sort of first foray into um i i guess having investors.

1:55It was a good training ground for us and it allowed us to sort of take that first leap of growth. And then when we listed in 2021 on the New York Stock Exchange, that was another big step. And I think what we've become is the business that we always signaled that we've become, which is really a high quality, highly focused technology company that serves sport. And often people think of our history because we come from the betting space as being more of a betting company. But actually what we do is deploy sport into technology and we see betting is just one of the many revenue streams that sports can use to generate money.

2:31So looking at some of the latest numbers that have been generated to give people a bit of context on the scale at the end of the financial year last year, around 670 million of total revenue of that 470 comes from betting, media is 144 and then sports tech more generally 53 and a half million to give it a bit of context on the scale how have those numbers changed obviously you come from betting routes betting is still the majority but are the other areas really coming alongside of it and growing at a different pace to the business or they're both growing pretty much in tandem yeah it's a really good question i mean the business has always been defined in sort of three units we've got betting like you say media and then sports tech what we've recently done is and sports tech is an enabler for the the media business and for the betting business.

3:17And so we've merged that into both of those sectors. So we now really only report in the two sectors, which is sports betting and media. In terms of growth rates, we've been pretty fortunate. The growth rates have been very strong, mid-20s, percent growth. And the way the business evolved now, especially with our recent acquisition of Legend, has meant that the business is becoming much more 60-40 betting to media and actually we see that um flipping um in the not too distant future and focusing more on the media growth so when you talk about media media can mean a lot of different things what are you doing to serve or what is in that media component what's the main aspects of it anyway what what we're really focused on is monetizing sports fans that's our goal we want to make sport better and we want to monetize sports fans um when you look at betting betting is one way of monetizing sports fans, advertising is another.

4:13It just happens to be that the advertising market is very, very large. You've got a global reach of consumers and then you just divide it by those who like sports. So that's quite a big number of people. So our focus is to grow that business reasonably aggressive. But again, the goal is about monetization of that sports fan. So you're serving all different aspects of the ecosystem today. Brands becoming a bigger component of that client-based, lots of rights owners, media. Could you, and monetization at the core of all that, but what are some of the services within that? So what are you actually doing for, say, a media outlet, a major broadcaster platform?

4:52What's the relationship there? What are you actually enabling doing for? Yeah, so I think the place to start is what do brands and what do agencies need or want these days? What they want to do, and, you know, there's been a huge focus at the CanLion event recently, is brands and agencies, they want to be able to talk to sports fans. And they want to talk to sports fans in the moment where those sports fans are most likely to engage with them and remember them. And so our business in that respect has evolved a lot. What we've done is we've taken data that we've always used to power the sports betting industry and to supply the actual leagues and the teams themselves we're now taking that data and we're using it to help those brands help those agencies contact those sports fans often in real time most of the time frankly in real time with messages that are hyper relevant to them and that generate really good returns for the advertisers and the brands so that sounds on the brand side and then from the media side as well giving them also access to data and insights that they can present in their broadcasting obviously you've applied Second Spectrum as well, which was one of the pioneers in that space as well.

6:07Just talk about how you're seeing that part of the business, the strength of the data product and proposition. How is that going? Is it still expanding as well, or is it more on that actually accessing the fan is more the priority? Yeah, so it's a really good question, and I think often misunderstood about our business. If you take it back to first principles, what are we trying to do? We're trying to work with leagues and to supply them with technology that allows us to collect data. And that data can be collected in lots of different ways. For sports betting, historically, we've always collected it by sending people to games.

6:42That collection methodology has evolved a lot. When it comes to the advertising piece, we're using that same data to drive advertising. And when it comes to the second spectrum piece, which, you know, we've now evolved a lot, we call it Genius IQ, which is frankly a set of cameras that we deploy around stadiums that allows us to collect video and data in an automated way that tells you exactly what's going on in the sports event. That is just more data. We see in a really simple form. We collect lots of data through lots of different methodologies and we monetize it in lots of different ways across, you know, not only sports betting, not only media and advertising, not only broadcast, but other ways such as ticketing, sales and all of the other ancillary ways that sports fans spend money with sports leagues.

7:30So you've been growing that relationship with brands who are trying to get direct to the fan. They seem to be leaning into sports in more ways than ever now because of, I guess, the plethora of content that exists and they're trying to find cut through. How have you found the appetite for brands to lean into working with yourselves? Is that being an easy direction? Because many people see that the brand and advertising market is a very slow moving industry in terms of how it's evolved. People have wanted it to move a little bit faster, particularly from sports side. How do you find Dynamic working more closely with them?

8:01Yeah, I mean, it's a really interesting space for us because I think the perception is that a lot of the brands and the agencies have been historically smooth. And maybe that's been the case. We weren't particularly involved with them previously. Our experience is slightly different. We're actually finding they're embracing this technology really quite quickly. We rolled out a lot of our new advertising technologies, things like the Moment Engine, which is a set of data that allows you to know exactly what's going on and make buying decisions in real time. We rolled that technology out. We've now integrated that into 90 % of SSPs out there.

8:36We've done that very, very quickly because the agencies and the brands are very keen to work with us. And that's because they are, I think, evolving their businesses very fast. They're trying to find ways and to continue to be very relevant to their customers. And I think that they're realizing, well, you know, they they've now found a way using our data sets and our products to generate much better ROIs for those customers in real time. So we've actually found that experience to be very, you know, very good when it comes to the brands as well. That's quite interesting because a lot of the brands are very focused on making sure their messages are being hit with the consumers at the right time.

9:20So a really interesting example is, you know, if you think about takeaway food, when a team is losing a sports event, you're more, you know, the consumer is 25 % more likely to order a takeaway. Things like that allow you to really directly see the value of the data driving buying decisions for the customer. Interesting. Now, you've extended the business by the acquisition recently with Legend. from what was reported a mix of stocks and share sorry money and uh stocks went into that uh investment reportedly 1.2 billion was the number that i think was reported including the stock side of things um what was the intent there why simply put why why legend sure so we we bought legend we we paid 800 in cat 800 cash 100 in stock with 300 and earn out and so uh you know we we very very happy with the deal six times just over six times we paid for the business The intention, again, it sort of comes back to my previous point, is around data.

10:24What Legend have is a very, very high quality piece of technology that allows them to collect enormous amounts of data in real time that know what customer's intent is. And if you use Instagram, Instagram knows immediately what you're interested in, what you're going to do and where you're going to do it. And this is what Legend does. It just happens to do it in sports and casino. So for us, we bought that engine. What we also bought was a large number of destination sites. So as the world is evolving, as AI is growing and some businesses are being disrupted, what we've actually done is bought the destination sites, the AI reference.

11:02So as AI grows, which we see as a huge growth opportunity for us and for Legend, those AI engines, those LLMs are actually accessing data that we own and control through these destination sites. So they're becoming a big source of traffic for us. Those destination sites are places where sports fans and people who want to play casino games go to engage with sports betting or engage with casino. The dwell time on that or the amount of time that they spend on those sites is roughly about nine and a half minutes now. In America, we've got about 118 million unique users using these sites. And we've got a vast plethora of places that we can actually direct people for advertising monetization.

11:44So the combination of the data that we're getting from their engine, the distribution of the network on the site and the users give us a very, very powerful place to acquire, drive and push our media business. So it sounds like that you've almost found a way to have a more direct relationship driving the brands and partners to different destinations you guys own. Does that create any sort of challenges with your existing client base? I'm guessing there must be some companies that have a similar dynamic in terms of offering advertising space and connecting with fans that you're going to have to navigate or is that they sit slightly separate?

12:17Yeah, it's a good question. What we've always said is we don't need to own the fan. What we want to do is we want to own the revenue pathways to that fan. So a lot of the sports books, a lot of the casino players, you know, they spend a huge amount of time and money, frankly, with Legend, with our media business, to acquire new customers. We don't want to acquire new customers. That's not our goal for ourselves. What we want to do is help those sports books, help those casinos acquire customers for them. And then what we do in the revenue model that sits behind Legend is to take a commission on every single bet, every single wager, every single casino game play that any of those customers that we send to those end operators make.

12:59So in lots of ways, the business model that Legend runs is very much like a booking.com. You know, we have destination sites, you come to us, we distill information, we engage that person, they might engage in forums, in some of the journalists in the house, some of the products, some of the games that we have, and then we send them to the customer. So we see those customers in that way. We see them as customers. We don't see them as competitors. And that dynamic of friction, which I think is what you're referring to, isn't really present in our business. It's a very symbiotic business. So the announcement happened fairly recently.

13:34Obviously, now the wheels started getting motion of actually bringing all those worlds together, those businesses together. The reaction to the acquisition was quite mixed from the stock market. I think there was a dip in the initial price of the shares at the time. What was your reaction, I guess, to the reaction of that? I guess it's a bit of an unpredictable world sometimes. How did you find that? Was it a surprise? Look, I think you've just been kind with the way that you phrased it. I mean, it was, you know, it was a very big sell off the day that we announced the deal. I think we were down 28 percent in the day and then continue to continue to go south for a while.

14:11I think, you know, there's there are a number of reasons that you can make excuses around, you know, a bad day, Iran, war, you know, credit market implosion, all of those things. And, you know, of course, all of them had had a had an effect. But the reality is, I think legend has been very misunderstood. I think what's happened recently, and again, with our investor base who have really dug in and started to understand what we've done, what we've bought, why we've bought it and how it's going to work, what you've seen and you've seen in the stock, the stock has come back quite aggressively. And it's because people are starting to understand what's happening.

14:47I think also, you know, the Cetrini report, which, you know, created this huge, you know, sell off in software stocks and, you know, the, you know, the death of all company because of AI. You know, I think people have now had time to process it and really understand it. And the way that I always try and simplify and explain it is that if you own the data and if you own, especially if you own the data and the distribution, but even if you just own the distribution, if you own either of those two things, AI is a massive positive, hugely beneficial. If you just process other people's data and you don't own the distribution or you don't own that network effect, you are at real risk of AI disruption.

15:35I think that people are starting to understand that our business is going to be very well benefited by AI and people are starting to see a lot clearer as a net benefit to the business. So I think, you know, we're starting to see the stock come back and I'm sure we'll talk about it later today. But prediction markets was the other overhang on our stock. So I'm sure we'll come on to that. So as the CEO of a company, I cover and focus a lot on what's happening in sports. And actually, there's not that many companies that are listed in public businesses, with yours being one of them. Typically, you see a lot of energy and reaction to things that are happening at a league level and at a team level in sports.

16:15But in the majority of the sports industry is privately owned in a lot of aspects. So when something like this happens and you have that reaction, what does happen as a CEO? Do you have to go into damage limitation? Do you have to go into education? Do you have a no shit moment and then just try and work out where to go from here? Does it matter? Do you have to stay focused just on your path? Because ultimately, the stock price is not always a reflection of the performance of the business. How do you see that? Sure. I mean, for me, it becomes quite simplistic. Our job is to make the best decision we possibly can for the business and the shareholders.

16:51Ultimately, I work for the shareholders.

16:56And doing a deal like Legend is without question the best decision for the shareholders and for the business. And so when the stock price falls, you know, my reaction is very much a little frustration that people don't get it. But, you know, I've never really questioned the decision. I mean, you know, we were absolutely certain of the decision before we spent the money. And I was certain of the decision when we spent the money. And even if people didn't agree with the decision, I was still certain of it and I still am certain of it. So I'm not that none of that really affects the strategy. The thing I focus on a little bit more is, you know, we have a responsibility to our shareholders and, you know, it's real money and it's real time.

17:36And so we've got to educate. So time is spent educating and it's just a responsibility that we have and we should do. I have a responsibility to my employees because they're ultimately a lot of them are shareholders. A lot of their net worth is tied up in this. And, you know, the stock price, you know, when you pay people in stock, you know, you've got to have an eye on, you know, what that stock price is and the level of responsibility. Because that's your kid's school fees or that's your, you know, your house deposit or whatever it is. That's important. So we do have a responsibility to focus on driving that stock price up.

18:10And the best way that we can do that is partly through education, but ultimately just through proving ourselves right through delivering the numbers. And ultimately, that's what we're doing. So let's move it on to another pretty major partnership or involvement, which is the NFL. That was your real, you mentioned that they are a shareholder and have equity stake in the business. What exactly are you doing for the NFL? From what I've seen, you're obviously producing, delivering something like 98 % of the data to all betting companies, I believe, in the US. But I know it's a lot more than that. So just talk us through what you're doing for the NFL exactly.

18:47Sure. So, I mean, NFL have been an incredible partner. We started working with them, I think, in 2021. And we've been fortunate and we've renewed that deal a couple of times. In fact, both times, one of the things I guess I'm most proud of is that the NFL have renewed with us without going to tender. So we, you know, and I think that's pretty unheard of in that world. And it's because we, you know, we take that partnership very seriously and we look to supply them with lots and lots of different services across different areas. And when I talk about supplying the NFL, you've got to think of the NFL as the NFL ecosystem.

19:23So it's working with teams. It's working with owners. It's working with advertisers. It's working, you know, not only with the league body itself. So, yes, our services involve taking data, distributing it to sportsbooks. But other areas that we're focusing on is distribution of, you know, like data capture in certain, you know, aspects that we're testing. We're looking at helping local advertisers do a better job of helping their teams drive sponsorship dollars. We're basically integrated into, you know, a large part of that NFL ecosystem. him and ultimately you know i always say like you know roger goodell runs a huge business um you know uh and you know we pay them a a rights fee and it's very substantial for us um and substantial for the industry that we're in however you know frankly it's a sort of drop in the ocean when you think about um you know the size of the nfl and the importance of the nfl and so so why do the NFL engage with us?

20:25And I think one of the reasons, you know, and the thing that we focus a lot on is because, you know, the NFL aren't a technology company, you know, unbelievable business, one of the best run businesses, you know, we've ever seen, but they're not a technology business and increasingly leagues globally, and we're seeing this across all of our partnerships, really, they need technology partners. They need those guys who are going to innovate and drive that growth because ultimately their long-term success is going somehow to be dependent on the adoption and the delivery of technology as we've seen in things like the premier league with you know simple stuff like the semi-automated offside tracking and if you've seen that recently all of those services evolve the way that a game is played evolve the way it is governed and increased distribution and all of those things are super important so it's a very complex profound relationship that you have in place, obviously.

21:20The decision, though, to give them a stake in the business must be a big decision to make. It's not something you can do lightly. What sort of went into that decision to take that extra step and was it worth it? I mean, 100 % worth it. I mean, the NFL, I mean, you know, they are the biggest sport in the world. And, you know, they're just a phenomenal partner as well, you know, the way they operate. The decision is never taken lightly, but it was quite an easy decision for us. They have such a draw in American culture and frankly, their global ambitions, as you've seen with the games in Germany and coming up in France and Spain, their focus is so much on the growth and so much on the delivery of technology.

22:10There is no better partner to have to try that technology out, to distribute, to work with their partners. So from our point of view, it was a natural thing to have them as a shareholder. So obviously there's a commitment, the rights fee, the equity that goes into a deal like that. Then you've got to make that work for the business. And you've talked about all the different touch points, the way you can bring those brands to life. When you're looking at that at the time, all the number crunching goes on when you look at these deals to equate to what you're going to achieve. was it a matter of you thought there would be a halo effect by working with the nfl and you had to take a bit of a bet in doing this type of deal you know building out the opportunity because obviously there's competitive for the rights of these types of things uh or did you really see that there was going to be a direct roi by doing this deal off the bat because obviously yes that's i mean that's a super question um and the answer is sort of yes to both um yes of course there's a great halo effect and we we we experience it every day and and have since the beginning of the deal um the there's a credentializing point as well in terms of um you know the other side investors and the fact that we're a public company uh and what that carries with other leagues globally but the the interesting thing is when you're looking at the roi you know it's one of the things that i think has always been very misunderstood is is how rights payments are um viewed in terms of the profitability of them so the number of times since we've done the nfl's the other i've been asked the question is it profitable um and i've tried to explain it's a very it's an impossible thing for me to answer i mean if i had if i had a dollar for every every every every time we'd have bought legend with that.

23:56But I think that the thing that people need to understand about our business is our business works because it's an ecosystem. If you were to look at, you know, the NFL and try and derive, you know, the volume of bets taken on it and the, you know, profitability of those individual bets, you would get one answer. And that answer is very, very different than if you look at the NFL and you say, well, hold on a second, it allows us to have these relationships, sell these products in, you know, add additional services here, build our relationships here, continue to grow the business, continue to add services.

24:32If you look at it like that, it's, you know, hyper profitable as a, as a deal. So you, you've, you've got to, you know, the, the beauty about the business is the moat that we have is, as I said earlier, is, is really very significant. And when you have a partnership like the NFL, you get really to exploit that and, drive that growth of that moat because you've got so many different touch points with other leagues and other teams and other sports books and other advertisers that benefit from that relationship we have with the NFL. I mean, when I saw the deal announced initially, I thought, obviously, a very significant moment for both for you and for the NFL, particularly to take that step into the equity space, because obviously the risk come with that is if the relationship doesn't go well or they could step away and then you've left with giving away equity.

25:17But clearly, they've uh they're committed to continue working with you yeah i mean they're they as i can't i can't speak highly of them enough i mean they're a fantastic partner and um you know they're they're you know delightful to work with they're i mean they're very tough but it's kind of what you want you know you want a partner to drive you and you know you want you want that relationship so um yeah we feel very good about it i want to talk more widely now about the industry i want to talk about the fact that there is a big focus now on um from the investment world especially coming into sports, it still only feels like it's picking up momentum and now coming in the different directions, just from the team side to new leagues to now the sort of service companies, the tech companies into the space.

25:58They all seem to be under this thesis that the relation with fans are under-monetized and that is the opportunity that they're hoping to capitalize, to ride that wave. How do you see that dynamic and are fans under-monetized fundamentally overall now in that sense? Yeah, it's a super interesting term, under-monetized.

26:19I think the fundamental shift that is going on at the moment, and I actually don't think people are focused on it particularly, is that there is a change in the way that sport is funded. so historically it was all about broadcast rights and when i talk about sport you know everyone thinks about the nfl or the epl or the nba or you know those leagues they'll be fine but that's the pinnacle there are hundreds and hundreds of other leagues and um you know where you from you i'm australian you're an aussie okay great so were you a soccer fan a football fan or not i i grew i grew into it more particularly when the actually when they started to qualify for the World Cup after missing out for 24 years.

27:09That's where I started to get into football. But before then, I was mainly the other Aussie sports, rugby league and cricket. Yeah, well, great sports. But if you grew up like I did, you know, watching, you know, football or soccer or football, as we call it, the greatest leagues in the world, you know, you had English Premier League, but then you have France, you had Serie A, you had La Liga. And what's so interesting is those leagues almost felt like they were untouchable. They would always hold huge amounts of inherent value. But actually what's happened recently is those leagues have come under massive, massive pressure with broadcast changes.

27:47So if you look at something like French League, OK, I think three years ago, you probably know numbers better than me. It had a billion dollars of rights fees. Two years ago, that was cut to 450. Last year, I think it was about 175. now what that does is that changes the way that sport is funded it changes the way that they make money the teams or the it's it's an absolutely seismic fundamental and incredibly fast shift and that's not only french league you know you look at belgian pro league you look at potentially what's happening the syria you look at all of these different leagues they're all coming under enormous pressure from this sort of falling rights fee market now that dynamic is super important And it's super important because what it does is it forces the leagues and teams and the owners to look at other ways of monetizing or generating revenue.