Shares in recently listed bookmaker BlueBet Holdings Ltd (ASX: BBT) took a 21% dive yesterday after providing an update on its Virginia Licence.
Since listing on the ASX in July at an offer price of $1.14 each, BlueBet’s shares have rallied to a high of just over $3 per share a couple of weeks ago.
BBT share price
BlueBet background
BlueBet is an Australian bookmaker founded in 2015 by Michael Sullivan, former CEO of Sportingbet until it was acquired by William Hill PLC.
Today, the business has a profitable Australian wagering operation that represents around 1.5% of the total Australian market.
However, the golden opportunity for BlueBet is its expansion in the US. Following a change in legislation, US states are now opening up to allow sports wagering for popular sports such as football and baseball.
Virginia licence
In BlueBet’s prospectus, it outlined five US states that it’s prioritising to establish its initial international footprint, which were Iowa, Colorado, Maryland, Tennessee and Virginia.
On Monday, BlueBet announced it had withdrawn its application for a sports betting permit on advice from the regulator, Virginia Lottery.
From 18 licence applications, only five were available to be handed out.
The regulator told BlueBet that at this stage, it would only be granting licences to operators that had experience in other US states and had equity interest owned by minority individuals or minority-owned businesses.
However, it seems as though BlueBet will still have the opportunity to apply for the licence again in the future.
The regulator told BlueBet it was “not deemed ineligible for a permit and the withdrawal of our application at this stage will not prevent BlueBet from applying again in the future.”
The launch into the state of Iowa has been successful to date, so BlueBet is currently focusing on the remaining three states of Colorado, Maryland, and Tennessee.
From the $80 million raised from the IPO, $30 million will go towards paying out existing shareholders including the CEO and the management team. $10 million in marketing will be put towards the Australian operations, and another $30 million will fund the US launch and the initial licences to be acquired.
Time to take a punt on BlueBet?
The withdrawal of BlueBet’s Virginia licence might not be game over at this stage, but it highlights some of the complexities involved in the industry.
Indeed, there are some nice structural tailwinds resulting from the US deregulation and online betting adoption. However, there is always an element of execution risk, whether it be from ongoing regulatory issues or an increased level of competition within the industry.
Personally, I’d be wanting to see some more evidence of execution (US cash flow) before I could consider it investable.
