In Better Collective’s Q3 results announcement, chief financial officer Fleming Pedersen said it was hard to detect a negative impact from macroeconomic conditions on the affiliate’s business.

“The general business cycle still has had no noticeable impact on our business; even so, estimating whether we could have grown even faster is near impossible,” he said. “Sports wagering remains at all-time-high levels, and thanks to our persistent efforts and timely business insights, we can stay on top of any developments. 

However, predicting that there could be an impact in the future, he said that Better Collective would slot down its investment in the US in order to pursue a “prudent” and “pragmatic” approach to costs. The business had previously spent a large amount on growing in the US, with acquisitions such as that of The Action Network and RotoGrinders.

“With the current macroeconomic instabilities, we expect to stay resilient but not immune and therefore we use this chance to take a more prudent look at our total cost base. 

“Consequently, we expect the cost base growth to slow down going forward, especially in the US. The past few years, our US investments have intensified. Going forward, focus will be on scalability to be progressed by a pragmatic cost focus and from our operational leverage as we continue our growth.”

In its Q3 results, Better Collective revealed that revenue was up 31.4% to €59.7m.

Breaking revenue down geographically, it was the Europe and rest-of-world segment – representing everything outside of the US – that was responsible for most of the growth, with operations here bringing in €42.9m, up from €31.0m the year before.

In the US, meanwhile, revenue also grew, by 16.7% to €16.8m.

The rise of US revenue share

Revenue-share deals became the largest portion of Better Collective’s overall revenue, bringing in €25.0m, up 73.6% year-on-year.

Better Collective chief executive Jesper Søgaard
Better Collective chief executive Jesper Søgaard

On the other hand, cost-per-acquisition deals remained flat bringing in €23.4m, almost exactly equal to the total a year earlier.

Subscription revenue grew to €4.0m while other revenue grew by 72.1% to €7.4m.

Chief executive Jesper Søgaard said the rise of US revenue-share had already proven many doubters wrong.

“The ongoing move from CPA to revenue share in the US is looking highly promising,” he said. “Last year, few deemed it doable to operate on revenue share in the US.

“I see the shift we are currently undergoing in the US as similar to tech companies moving from license-based to operating a Software-asa-Service (SaaS) model. At Better Collective we have always favored revenue share agreements as we consistently invest for the long-term. This also means our products are already built to cater to these types of agreements.”

Given that revenue-share deals pay out over a longer timescale compared to the upfront cost-per-acquisition model, Søgaard said the pivot impacted Better Collective’s bottom line in Q3.

“Last quarter, the move to revenue share was estimated to have a full year impact on US profitability of more than €5m,” he said. “As contract closings have continued in Q3 we now estimate for the full year impact to be more than €10m. These agreements will be transformational for Better Collective as they will secure more stable future revenue while also strengthening our relationship with the sportsbooks. Personally, I am exceedingly excited to follow this development while at the same time pleased that we are able to maintain our short-term targets.”

Costs grow quickly for Better Collective

However, costs grew more quickly than revenue. The business paid €21.7m in direct revenue costs, up by 39.1%, as well as €17.3m in staff costs, up 46.6%. Depreciation grew to €623,000 and other external expenses were up by 44.7% to €6.1m.

Better Collective said that reasons for the higher costs included integration of FIFA Ultimate Team brand Futbin, more spending on paid media in order to drive more traffic and a higher number of media partnerships.

As a result, Better Collective reported an operating profit before amortisation and special items of €13.9m, up by 6.1%.

After €3.7m in amortisation and impairment, Better Collective was left with an operating profit before special items of €10.3m, down by 8.0% year-on-year.

The business incurred €621,000 in special costs, but in Q3 of 2021 these costs came to €11.6m. These expenses were mainly due to earn-out costs related to the acquisition of the Action Network.

As a result, the business made a €9.6m operating profit, compared to a €362,000 operating loss a year prior.

After financial items and taxes, Better Collective reported a profit of €6.9m, which compared to a €3.5m loss in Q3 of 2021.

Original article: https://igamingbusiness.com/finance/better-collective-to-slow-us-investment-with-prudent-approach-to-costs/

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