U.S.

DIGITAL
GAMBLING
2023 Halftime Report:
Back in the Game as
Sentiment Rises
Introduction
It has already been an active year in the U.S. digital gambling sector. Following the publication of our February 2023
industry primer, “Preseason Is Over and the Regular Season Is Only Beginning,” we are back with updated and
refreshed thoughts on key themes that are shaping the industry. Having been deeply involved in the gaming industry
for 25 years and seeing the evolution of the land-based casino industry, and now the digital transformation of the
sector from bricks to clicks, we believe change and innovation are occurring at a compelling pace.

Many of the key themes discussed earlier this year are already unfolding, including sector consolidation, more
mature operations with a drive to profitability, rationalized and disciplined marketing, and continued innovation
of OSB and iGaming products. Given the unique state-by-state regulatory framework, the velocity at which online
casinos, sports, and other products are approved will remain lumpy. However, the industry is seeing gradual
progress, and we argue that the history of gaming (given lobbying interests as well as state desires for tax revenue
and consumer acceptance) will lead to more expansion, not contraction. Even some products like DFS and
sweepstakes gaming could easily become more mainstream and accepted, not dissimilar to how HHR and Class II
gaming evolved in the bricks world.

Please join us for the conversation as we tackle the key themes that are coming up in our daily conversations with
industry CEOs and founders, capital providers, lobbyists, and regulators. We continue to remain optimistic about the
industry and see 2023 continuing to be a defining year, particularly in advance of the upcoming NFL season. Football
is big business, and this is going to be a pivotal period for sector sentiment and the ability of many key players to
gain ground, raise additional funding, or consider their options. Here at Houlihan Lokey, we stand ready to assist our
clients in evaluating mergers and acquisitions, raising capital, restructuring their businesses, engaging in complex
valuation activities, IPO readiness, and other unique specializations.

1
 Leading Independent, Global Advisory Firm

Houlihan Lokey is the trusted advisor to more top decision-

makers than any other independent global investment bank.

2,500+ 36 $6.5B $1.8B ~25% NO

(1)
EMPLOYEES LOCATIONS MARKET CAP ANNUAL EMPLOYEE- DEBT
(2)
REVENUE OWNED

Corporate Finance Financial Restructuring

• No. 1 Global M&A Advisor Under $1 Billion • No. 1 Global Restructuring Advisor

• Approximately $25 Billion in Capital Raised • $3.0 Trillion of Aggregate Transaction Value
Over the Past Two Years Completed
Source: Refinitiv. Excludes accounting firms and brokers.

2022 Investment Banking Rankings 2022 Global Distressed Debt &

Global Transactions Under $1 Billion Bankruptcy Restructuring Rankings
Investment Bank Deals Investment Bank Deals

1 Houlihan Lokey 381 1 Houlihan Lokey 58

Source: Refinitiv.

2 Rothschild 369 2 PJT Partners 30

3 JP Morgan 217 3 Lazard 29

Financial and Valuation Advisory Financial Sponsors Coverage

• No. 1 Global M&A Fairness Opinion Advisor • No. 1 Global M&A Advisor to Private Equity
Over the Past 25 Years Firms
• 1,000+ Annual Valuation Engagements • 1,000+ Sponsors Covered Globally
Source: Refinitiv. Announced or completed transactions.

1998 to 2022 Global M&A Fairness 2022 Most Active Global Investment
Advisory Rankings Banks to Private Equity
Investment Bank Deals Investment Bank Deals

1 Houlihan Lokey 1,232 1 Houlihan Lokey 242

Source: PitchBook.

2 JP Morgan 1,030 2 Lincoln International 192

3 Duff & Phelps, A Kroll Business 938 3 Deloitte 190

(1) As of June 30, 2023.

(2) LTM ended June 30, 2023.

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No. 1 M&A Advisor
Global Technology Transactions
2022 Investment Banking
Rankings—All Global
Technology Transactions
Investment Bank Deals

1 Houlihan Lokey 116

2 Goldman Sachs 106
3 Morgan Stanley 79
4 Rothschild 76
5 JP Morgan 75

Source: Refinitiv. Excludes accounting firms and brokers.

LEADING GLOBAL INDEPENDENT INVESTMENT BANK

Americas Europe and Middle East Asia-Pacific

Atlanta Miami Amsterdam Milan Beijing Nagoya

Baltimore Minneapolis Antwerp Munich Fukuoka Shanghai

Boston New York Dubai Paris Gurugram Singapore

Chicago San Francisco Frankfurt Stockholm Hong Kong SAR Sydney

Dallas São Paulo London Tel Aviv Mumbai Tokyo

Houston Washington, D.C. Madrid Zurich

Los Angeles Manchester

Bold Denotes Local Technology Team

13 220+ 40+ 116

LOCATIONS TECHNOLOGY MANAGING TECHNOLOGY DEALS IN CY ‘22
WORLDWIDE BANKERS DIRECTORS
Industry-Leading Gaming Practice

*Selected transactions were executed by Houlihan Lokey professionals while at other firms acquired by Houlihan Lokey or by professionals from a Houlihan Lokey joint venture company.
Tombstones included herein represent transactions closed from 2006 forward.

4
M&A and Capital Markets Update
Consolidation Is Underway, a Painful Albeit Necessary Step in the Evolution of the Sector
When we authored our sector primer in early 2023, we described the year as a “reset” given several factors, including
access to capital and the notable reduction in sector valuations. The OSB and online gaming industries, in our view,
have candidly experienced the same sharp corrections that other high-flying verticals like crypto, eVTOLs, and growth
tech verticals experienced. The difference, in our view, is that near-term TAM and trends are very much real and still
showing considerable growth.

Given the regulated nature of the sector and our view that wagering, sports, casino, and media are very much part
of the culture, the sector outlook remains very bright. One can only begin to guess when Jetsons-style electric
helicopters will be ferrying us to work. Within the digital gaming ecosystem, there have already been several notable
and smaller transactions, some of the highlights including NeoGames’ acquisition by Aristocrat ($1.8 billion), Entain’s
acquisition of Angstrom (U.K.-managed trading services company), and the ongoing saga around the disposition of
PointsBet’s U.S. subsidiary to Fanatics for $225 million that has now seen DraftKings come in with a topping offer.

We believe the acquisition of technological capabilities will remain important to operators, with Betr’s purchase of
the Chameleon platform from FansUnite being just one example of this trend. We will be closely following the path
of various players exploring the maximization of shareholder value and/or potential breakups where the sum of
the parts is worth more than the market is currently reflecting. There are plenty of instances to follow in the current
marketplace, whether it be GAN’s announcement of strategic alternatives (May 2023) or IGT’s announcement that it
would review strategic alternatives for its Global Gaming and PlayDigital units (June 2023), which could essentially
return the company to what we called “GTECH” core lottery roots.

Overall, we are encouraged by the initial green shoots around sector consolidation. To be clear, we think consolidation
is going to occur over several years, and if you don’t transact this year or the next, it doesn’t mean you have missed
your window. For deal flow to accelerate in earnest, particularly for chunkier transactions, or more importantly, those
that need capital market support, the overall financing climate will need to get healthier. Right now, we believe most
traditional bank lenders are tapped out given risk aversion, ESG concerns, and fears around consumer exposure.
Unless deals can make sense at lower leverage levels or pencil out under dramatically higher costs of capital (direct
lenders), most deals that take place will be driven by those that aren’t price sensitive or have unlimited access to
capital (e.g., Aristocrat/NeoGames or Churchill Downs/Exacta Systems). Clearly as well, businesses that are cash-
generative, EBITDA-positive, and have meaningful revenue are harder to monetize vs. those that are technology
plays, have more limited revenues, and are burning/or close to break even.

5
Relevant B2B M&A Transactions
Target EV EV/LTM
Date Target Target Description Acquirer ($M) EV/Revenue EBITDA

Developer of online lotteries and games allowing lottery operators to

May-23 $1,215 6.0x 18.4x(1)
distribute lottery products via online sales channels

Assets of provider of integrated electronic bingo gaming tablets, video

Apr-23 $59 6.5x N/A
Assets
gaming content, instant win games, and systems

Developer of electronic gaming systems designed to provide historic horse

Dec-22 $250 N/A N/A
racing systems and wagering terminals

Provider of digital B2B platform and services designed for the iGaming
Sep-22 $78 10.3x 27.9x
industry

Developer of an online gaming software. The company's platform offers a

Jun-22 $342 10.4x 13.7x
variety of casino games for mobile, tablet, and desktop devices

Developer and supplier of electronic table gaming machines for casino

Jun-22 N/A N/A N/A
operators

May-22 Developer and supplier of games and gaming content Target

N/A EV N/A EV/LTM
N/A
Date Target Target Description Acquirer ($M) EV/Revenue EBITDA

Apr-22 Developer of online and mobile casino gaming products and content $170 5.5x 20.2x

Developer and operator of online gaming platform for real money and social
Mar-22 $170 N/A 34.0x
gaming

Provider of iGaming platform that offers solutions for casino, sports, and
Jan-22 $360 1.8x 10.9x
bingo operators

EV/Revenue Summary EV/EBITDA Summary

Mean 6.7x Mean 20.8x
Median 6.3x Median 19.3x

Sources: S&P Capital IQ, PitchBook, other public disclosures.

Note: N/A indicates not publicly available.
(1) On May 14, 2023, Aristocrat Leisure announced its intent to acquire NeoGames. Multiple reflects EBITDA as reported (LTM March 2023).

6
Relevant B2C M&A Transactions (cont.)
Target EV EV/LTM
Date Target Target Description Acquirer ($M) EV/Revenue EBITDA

Jun-23 Operator of a sports betting company with locations in Poland and Europe $870 6.4x 19.0x

Assets of developer of online gaming software focused on delivering digital

May-23 $30(2) 3.1x 11.3x
gambling products to players globally
Assets(1)

Developer of a cloud-based wagering platform that offers its clients sports

May-23 $150 1.5x N/A
and racing wagering products

Operator of an online casino and sportsbook brands company intended to

Feb-23 Undisclosed $10 N/A N/A
serve the online gaming industry in Malta

Operator of an online sports betting and casino platform based in Balvano,

Nov-22 $374 N/A 10.0x
Italy

Operator of a sports betting and gaming group intended to bring moments

Aug-22 $919 N/A N/A
of excitement to the lives of betting enthusiasts

Developer of a scalable cloud-based wagering platform through which it

Jun-22 $65(3) EV
Target N/A N/A
EV/LTM
offers its clients sports and racing wagering products
Date Target Target Description Acquirer ($M) EV/Revenue EBITDA

Operator of an online casino and sports betting platform located in

Jun-22 $886 N/A N/A
Amsterdam, Netherlands

May-22 Operator of a mobile gaming company in Malta, Sweden, and internationally $630 1.5x 15.1x

Developer of an online betting platform, gaming products, and services for

Feb-22 $235 4.0x 16.7x
gambling companies

Operator of an e-sports platform globally across the most popular video

Jan-22 $1,050 7.3x N/A
games

EV/Revenue Summary EV/EBITDA Summary

Mean 4.1x Mean 14.4x
Median 3.6x Median 15.1x

Sources: S&P Capital IQ, PitchBook, other public disclosures. Note: N/A indicates not publicly available.
(1) Refers to sale of Latvian assets on June 13, 2023. (2) Includes earnout of $4.6M. (3) Represents transaction value for a 12.8% stake.

7
Native American Tribes Could Start to Play a Bigger
Role in Digital Gaming Sector M&A and Investment
When traditional investors—let alone the mainstream public—evaluate the gaming industry, they often
underappreciate the heft of the Native American gaming business. According to industry data, in 2022, 246 tribal
governments operating 504 facilities in 29 states generated approximately $43 billion in gaming revenue. This is
an astounding sum in our view as major markets (such as California, Oklahoma, North Carolina, Washington State,
Connecticut, and now Texas) drive a big portion of this pie. As we noted in our last report, how tribes address the
digital gaming transformation will be important to follow in the coming years, as we expect a very measured and
methodical approach to the business.

Politics will always drive the pace of change, and tribal governments have their complexities. However, we see
strong signs from groups such as the Seminole Tribe (Florida), the San Manuel Tribe (California), the Chickasaw
Tribe (Oklahoma), the Cherokee Tribe (North Carolina), and the Mohegan Tribe (Connecticut), as they make strategic
digital investments and are increasingly in the conversation around the sector among other groups. In our day-to-day
conversations, we see tribes increasingly ramping up the learning curve and figuring out where they want to invest,
how to grow their brands online, and how to take advantage of their ability to be more dynamic around regulation.
From an M&A perspective, not dissimilar to commercial gaming where tribes are one of the first calls made when
brick-and-mortar assets are being shopped, these groups will end up competing for and essentially supplanting
traditional buyers, given their deep pockets and limited need to tap the capital markets.

8
Source: IndianGaming.com.
Fallout From SVB Easing and Some Early Signs That
Earlier-Stage VC Is Returning
Unfortunately, the environment to raise capital in the gaming sector (and most tech sectors) remains challenging in
the wake of SVB, a world of still rising interest rates, and risk aversion. Clearly, the go-go days of 2020 and 2021 are in
the rear-view mirror and will not likely feel the same until the next bubble builds. Every day, we speak with CEOs and/
or founders, and earlier-stage capital-raising is hand-to-hand combat based on our discussions. However, we believe
there are encouraging signs from some modest to chunkier raises with Betty Gaming ($5 million seed in February
2023), ProphetExchange ($10 million in April 2023 from existing investors), and Betr ($35 million A round in June
2023) as solid examples of momentum around earlier-stage businesses. The common themes for these groups
include promising early trends around their initial operations, unique product offerings (e.g., exchange betting,
female/casual market iGaming, micro-betting), seasoned founders (Betty and Betr), and differentiated products.

Based on our daily conversations, there are other established groups that were able to raise in 2021 and 2022 that
will likely come back to the market, taking some capital from new investors as well as existing investors who want
to help groups keep businesses up and running before longer-term options are explored. We are impressed by the
momentum that several more dedicated gaming/sports/entertainment-focused venture capital firms are showing in
fundraising, the development of diverse portfolios, and the stamp they are putting on the industry in their work with
founders. These groups are well known and typically write $1 million to $10 million checks within the industry. It will
be interesting to see how these groups are able to springboard into new fund vehicles, scale their assets, and signal
to more traditional and diversified tech VCs that digital gaming is a more substantial asset class supportive of larger
checks and broader institutional capital acceptance, particularly around regulation and licensing perceptions. We do
see sports and entertainment investor groups and/or strategics increasingly being willing to invest in earlier-stage
growth companies, particularly if there are revenues attached to these businesses and broader top-line momentum.

Gaming VC Deal Activity 2020—Present ($M)

Graph excludes gaming venture capital investments with undisclosed amount of funding.
$63. 0

63 $4,850

$63. 0

63 $4,850

$58. 0

$58. 0

$53. 0

$53. 0

$3,850

$3,850
$48. 0

$48. 0

$43. 0

$43. 0

$38. 0

$2,850

$38. 0

$2,850

33
$33. 0

33 $2,163
$33. 0

$28. 0

$2,163
$28. 0

$1,850

21
$23. 0

$1,850

21
$23. 0

$18. 0

$18. 0

14
14
$13. 0

$13. 0
$850

$474
$850

$446
$8.0

$8.0

$474 $446

$42
$3.0

$42
$3.0

2020 2021 2022 YTD 2023

-$2.0 -$150

2020 2021 2022 YTD 2023

-$2.0 -$150

Total Financing Value Number of Transactions

Total Financing Value Number of Transactions
9
Source: PitchBook as of 7/5/2023.
Note: Includes deals where valuations are not publicly available.
Gaming Venture Fundraising

Date Target Investor(s) Description Deal Size ($M) Post Valuation ($M)

Developer of a social betting platform designed for users to place

May-23 1.3 6.9
bets against one another
Jonathon Clark

Operator of a predictive gaming engine intended to offer real-time

May-23 5.0 30.0
micro-betting experiences in live sports

Zhejiang Runge Operator and provider of an internet-based sports betting

Apr-23 Equity Investment 1.5 14.5
platform

Operator of a hospitality and casino management company based

Apr-23 1.9 16.5
in Las Vegas.

Developer of a social media platform designed to offer sports

Dec-22 5.0 45.0
gambling advice

Operator of an online racing and sports bookmaker platform

Oct-22 21.7 108.3
designed to provide evolutionary entertainment to punters

Provider of consumer sports betting application designed for

Oct-22 bettors to research, analyze, and execute picks on any of the major 5.5 24.3
United States sportsbooks in one place

Developer of an online betting platform designed for gamers who

Oct-22 3.0 10.0
want to earn money with gaming skills

Operator of a gaming company intended to help mitigate risks in

Oct-22 1.0 20.0
Date Target Investor(s) sports betting Description Deal Size ($M) Post Valuation ($M)

Developer of sports, entertainment, finance, and online betting

Sep-22 platform designed to give fans a new way to cash in on their 11.0 236.0
sports knowledge and passion

Operator of predictive analytics sports media platform intended to

Jul-22 5.0 22.5
offer engaging products for sports fans and bettors

Operator of a sports betting platform designed to connect fans

Apr-22 3.5 10.5
with live actions through betting

Operator of a decentralized platform intended to offer live

Apr-22 7.6 47.6
prediction and betting services

Developer of lottery gaming application intended to ensure the

Mar-22 3.3 17.7
taxes resulting from the prize

10
Source: PitchBook.
U.S. Growth Equity and Later-Stage VC Market

Growth Equity and Later-Stage VC Deal Activity (Q2-21 – Q2-23)(1) (in $B)

$83B $86B
$81B
$72B
1,708
2,152 1,586
1,541 1,543
1,736 1,788 1,814 $60B 1,348
$40B
$37B $37B $34B

Q2-21 Q3-21 Q4-21 Q1-22 Q2-22 Q3-22 Q4-22 Q1-23 Q2-23

Capital Invested Deal Count

Growth Equity Deals by Size (Q2-23)(1) Later Stage VC Deals by Size (Q2-23)(1)

500M - 999M Under 1M

100M - 499M
1% 1B+ 15%
14%
0% 25M+
1M - 4.9M
22%
25%

0 - 24M
47%
25M - 99M
38% 5M - 9.9M 10M - 24.9M
15% 23%

State of the Industry and Key Themes

Are You Ready for Some Football? NFL/NCAA Seasons Are Critical for the Industry
Eventually, we will see a time in the U.S. sports betting market where football (both NFL and NCAA) doesn’t represent
a disproportionate amount of wagering activity and overall consumer interest. In the future, as the novelty effect of
legal sports betting passes and players settle into more predictable behavior, in addition to rising tides around betting
on soccer, golf, e-sports, pickleball, drone racing, and other categories evolving, the seasonality that currently drives
the industry will lessen. Nevertheless, even though more “mature” markets such as Michigan, Pennsylvania, and New
Jersey are showing more stable growth, many immature markets that went live in 2021 and 2022 are still evolving,
demonstrating that the industry is still in its infancy.

As a result of the reliance on American football wagering as a litmus test for the health of the business, we believe
the upcoming season is mission-critical for the industry. Given frequent conversations with major players in the
industry, those that have been able to shore up their balance sheets have been raising incremental funds, preparing

11
to both engage and retain customers as cost-effectively as possible and getting ready to hit the ground running to
raise additional capital if both sector- and company-level results are strong. While there has been a shakeout in the
VC world post-SVB, there are still many pockets of capital interested in the sector given the intersection of gaming
with media, payments, and sports. The same, in our view, applies to other institutional capital, including private equity
if there is a story of profitability, providing essential B2B infrastructure for the industry (including iGaming), and the
ability to be omnichannel (including media).

During the NFL offseason, there were a number of negative stories about players betting on sports. To be clear,
we are not dismissive of these headlines as well as other concerns around problem gaming. These are very real
concerns, but what is different here is that we think several of the major players in the industry, whether it be
traditional OSBs, fantasy sports, or other parties, are mindful of the potential blowback and are taking a proactive
approach around self-policing before regulators get involved and scrutiny gets out of hand. Given how much
value is at stake for all parties involved in gaming and sports (particularly team owners whose franchise values are
skyrocketing, partly due to wagering), there is too much to lose, and with more rationalized marketing spending likely
in 2023 and 2024, the industry is getting the message that it doesn’t want to face the same fate as the European
sector did over the years.

Sports Betting Seasonality

Nevada Sports Betting Revenue % of Annual (2004–2019)
19.0%

16.0%

12.0%

10.0%

9.0%

8.0%

6.0%

5.0% 5.0% 5.0%

4.0%

1.0%

Jan Feb Mar April May June July Aug Sept Oct Nov Dec

Sources: PitchBook data as of 6/30/23, U.S. PE Breakdown Q2-23 Report.

Note: Growth equity defined as noncontrol equity investments by a PE firm; later-stage VC defined as Series B to Series Z+ rounds and/or rounds that occurred more than five years
after a company’s founding.
(1) For all U.S. private growth equity and later-stage VC deals from Q2-21 to Q2-23.

12
Seasonality of Sports Betting Engagement Levels
Year-Round Engagement of All Different Types of Sports

Q1 Q2 Q3 Q4

Sources: State gaming revenue filings.

13
Nevada Sports Betting Revenue Breakdown
by Sport (2021)
Sports Parlay Cards
3.0%

Sports Pari-
mutuel
7.0%

Other
Football
11.0%
33.0%

Baseball
14.7%

Basketball
31.7%

Sources: H2 Gambling Capital, state filings.

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Daily Fantasy and Single-Player Fantasy Businesses
Are Here to Stay
We were fans of professional wrestling in our youth, and Ric Flair used to say, “Whether you like it or not, learn to love
it.” The same sentiment, in our view, can be applied to daily fantasy or single-player products, which often yield hearty
discussions in the industry. We believe these contests are here to stay and will only continue to grow as well as gain
momentum. Earlier this year, we discussed this category in detail, as it’s our view that this segment of the marketplace
was underappreciated, worth paying close attention to, and likely to go through significant change, particularly with
some inflecting and the second tier of the market likely to face challenges. To this point, we are seeing encouraging
signs of growth across leading players such as PrizePicks, Underdog, Sleeper, and a few other participants that are
gaining momentum by reinvesting in their products, expanding offerings and features, and being responsive to their
highly engaged passionate customers. More recently, Mojo for instance announced a DFS product that will go live
this fall, more signs that the category will see new entrants.

Reflecting the dynamism of the business, those that might have been early market leaders such as Monkey Knife
Fight, which did not reinvest in its product, have either been shuttered or are reevaluating a path to survival, which
may be precarious given sector valuations and the ability to raise capital. Almost daily, we debate bulls and bears
around the future of this category, and frankly, we don’t see negative regulation as happening quickly or uniformly
across states. Furthermore, while the industry is still young, there are some very intelligent stewards at the helm
of these businesses that see the risks and are readying for any legal/lobbying challenges to come. We see some
hypocrisy from the very same now-incumbent players that opened the door for this sector, and the history of gaming
shows that if there is an opening for new and regulated forms to pop up and gain relevance, they will.

Within this segment, many of the key players are better capitalized than expected, capable of self-funding, and
thinking about how to leverage their large databases, diversify operations, as well as fully harness and leverage
media. We even expect some OSB players that are operating in a handful of states to expand their involvement in
the category in order to accelerate toward profitability or customer scale. Bottom line, we find this segment of the
digital gaming ecosystem highly interesting and “must-see TV” over the next few years. While traditional sports
betting will appeal to the mass market, DFS and SPF products are fun, simple to use, and give customers what they
want, particularly as younger customers care more about individual players (given social media followings on TikTok,
Instagram, etc.) vs. individual teams, which may be more commonplace in traditional OSBs. If you are going to bank
the gaming industry, you must try the product, and we have had ample experience trying the single-player platforms;
we find them fun, easy to use, and very creative in driving trial, repeat play, and attracting different audiences.

Fantasy Sports Services

Estimated Fantasy Sports Players(1) (Millions)

62.5
57.4 59.3
56.8

41.5
35.9
32.0
≈

2010 2011 2014 2015 2016 2017 2022

Sources: Fantasy Sports & Gaming Association, IBIS World.

(1) In the U.S. and Canada, per Fantasy Sports & Gaming Association. Data not collected between 2017 and 2022.

15
Fantasy Sports Services 2023E–2028E Revenue CAGRs

3.7%

1.5% 1.5% 1.5% 1.5%

1.4%

2023 2024 2025 2026 2027 2028

Screenshots of PrizePicks

Sources: Fantasy Sports & Gaming Association, IBIS World, PrizePicks.

16
Screenshot of Boom Screenshot of Sleeper

Sources: Boom, Sleeper.

17
Care to Hedge Your Bets? Exchange Betting Is in Its
Early Days, but There Is a Role for This Segment
To be transparent, we are big fans of exchange betting platforms and power users. Over the coming years, we see
increasing adoption of exchange or liquid betting platforms such as Sporttrade, Prophet Exchange, and Mojo that
give consumers better pricing, instant liquidity, and more of a trading-like experience than traditional OSBs. We credit
Prophet Exchange more recently for some cheeky, yet very intelligent, promotions that entice players wagering
on “boosted” offers on competing sites like DraftKings, FanDuel, and Tipico to effectively hedge their bets on their
platform and lock in arbitrage opportunities. For instance, if a sportsbook is offering Jimmy Butler to score 30+ points
and the Heat to win at odds of 400+, Prophet Exchange will offer the exact same market to bet this event “Not to
Happen.” Using company-provided calculator tools, consumers (most likely retail punters) are able to lock in profits.

The ultimate questions facing this segment are how quickly these platforms can scale given access to capital,
their ability to enter highly competitive markets, gaining enough share for relevancy vs. incumbent players, and the
various intricacies around onboarding market makers, all while figuring out how to make money. There are many
other emerging companies we are tracking that have ambitions to launch soon going after the highest-level sports
VIPs. However, it’s going to be very interesting to see if they can gain a reasonable scale vs. some of their peers, who
are slightly better capitalized and have already lived through the battle scars of ramping required to get to current
business levels. Building consumer brands isn’t easy. The last few years have demonstrated that no matter how great
the technology is, acquiring customers is hard and still expensive.

Looking forward, we see a continued evolution of this category in the near term, which could include different pricing
models for lower volume vs. higher volume bettors, the introduction of markets for incremental sports and different
types of prop bets, and free-to-play offerings in states to build databases and/or even shift to offering DFS to increase
profitability or player scale. We still see a productive future for exchanges and feel there is a large market opportunity,
particularly given the evidence of relevance in the U.K. (for instance, Betfair and Smarkets have very sticky user
bases), particularly for savvy/frequent/sophisticated bettors. Note that while the numbers are still small in the U.S.
(only New Jersey), the KPIs around average-player initial deposit/subsequent redeposit, retention, ability to engage
different player cohorts, and average monthly betting volume per user are all very encouraging.

We see a time in the not-too-distant future when traditional OSBs onboard or acquire their way into the exchange to
offer different products to their user bases (retail vs. sharp bettors). In the coming periods, as liquidity improves and
these nascent players can expand into new markets, we see the pricing model evolving over time, perhaps from a
2% commission today to higher levels. Consumers seem agnostic about paying 5%–10% to traditional OSBs, and
the liquidity/compelling pricing that exchange products offer seems worthy of premium pricing. We believe the lines
are also blurring when it comes to the interest of FinTech companies in the exchange market as well as sophisticated
hedge funds and quant trading platforms that see the parallels between equity trading and sports markets. Over the
next few years, we see more groups entering this market and the aforementioned platforms can be great vehicles to
capitalize on end-market growth.

18
Emerging Opportunities
iLottery, Mobile Historical Horse Racing, Advanced Deposit Wagering, and Mobile Electronic
Pull-Tabs Present Attractive Options for iGaming Deployment

Broadly speaking, many industry participants are frustrated by the lack of momentum around iGaming legalization
(six states) in the U.S. particularly, as sports betting is now legal in markets (33 states, including Massachusetts and
Ohio, which were recently approved). We get it, iGaming is an important piece of the puzzle for gaming companies to
leverage their databases, cross-sell to existing players, lower CAC/improve retention, drive higher margin products,
and broaden the overall appeal of online gaming options. In our experience, gaming expansion and the liberalization
of laws in the industry is a matter of when, not if. We remember when riverboat casinos used to set sail before
dockside gaming, and eventually, land-based gaming fully took hold; we see the same improvements happening in
gaming over time. The same can also be said for historical horseracing (HHR) and Class II (electronic bingo) starting
out as niche products and ultimately proving to be creative solutions that unlocked substantial gaming expansion
across the U.S.

So far, the experience around iLottery (e.g., Neogames) is taking hold, and from an experience perspective that can
mirror online slot products, we still see a path for products like electronic pull-tabs (e.g., Pilot Games in Minnesota
and North Dakota), ADW wagering (e.g., Game Play Network), and mobile HHR to take hold in many jurisdictions.
We are reluctant to call these workaround solutions, as from our experience and insights, some of these end markets
can become substantial. Note that, according to state regulatory data, for instance, the Minnesota electronic pull-tab
market generated net revenue of $1.6 billion in 2022 up from $1.1 billion in 2021. These games are typically found in
bars and taverns, where gamblers play on iPads and other mobile devices.

From our perspective, these gaming options (particularly products that mimic the feel of slot machines) are tools in
the kit to expand gaming and will continue to attract capital, particularly as the pace of traditional iGaming expansion
could be slow, subject to lots of fits and starts, and have contention around taxation and structure, whereas tools like
ADW, mobile HHR, and electronic pull-tabs fit under an existing regulatory framework. We note that ADW wagering
is currently legal in 18 states, covers more than one-third of the U.S. population, and presents a quicker pathway for
iGaming deployment. As a result, in states like Minnesota where electronic pull-tabs helped fund the new Vikings
stadium, these games can be deployed quickly and have a meaningful positive revenue contribution to financial
coffers. We will be closely following the efforts of Game Play Network and their B Spot brand to scale either as a
B-C solution in certain markets or a B-B platform that can be leveraged by larger branded gaming companies to be
deployed into markets still waiting for traditional iGaming products.

19
Screenshots of ADW Platforms
Users play fun mobile games, such as bingo and slot-style games, while betting on live horse races. All winnings are
determined by the results of those races.

20
Sources: Parimax, Game Play Network.
U.S. iGaming TAM Forecast by Legalization Status ($B)

13.5 13.7
13.1
0.9 0.9
0.9
11.6
11.0

7.5

12.6 12.8
12.2
11.6
11.0
4.3

7.5

1.5 4.3

1.5

2020 2021 2022 2023E 2024E 2025E 2026E 2027E

Legalized Expected to Legalize

Peer-to-Peer, Pools, and Other

Socially Driven Platforms Will Be Closely Watched
We continue to find sports platforms that leverage peer-to-peer features and benefit from large social networks as
interesting, particularly to rapidly grow user bases and allow players to bet against each other vs. the house. In our
initial primer, we mentioned Sleeper, Lucra, and Fliff as platforms we were tracking closely and continue to still see
of considerable interest as these groups evolve. Already, there has been some consolidation activity in this vertical
with Yahoo acquiring WAGR, which was a social sports betting platform with operations in Tennessee. We think this
deal was more likely an acquihire; however, it highlights interest from larger platform companies like Yahoo with deep
pockets in this category.

More recently, we have also been closely following the renamed Splash, Inc. (RunYourPool.com and
OfficeFootballPool.com), which has an annual user base exceeding 2.2 million. This group is also preparing to launch
real-money gaming in the near term. Americans wager billions on office pools each year, with $3 billion on March
Madness pools alone, and by capitalizing on DFS rules, platforms like Splash can operate in approximately 29 states,
including California, Texas, and Florida, by allowing players to enter contests (not just season-long) with Splash
essentially capturing a rake from this activity. We see the CAC in this type of business as likely very low and viral in
nature, with the potential for strong initial profitability, which, on a relative basis, compares well with traditional OSBs
that face a high CAC, consumer churn, and other regulatory complexities. It’s still early in our view within this category,
and much could change; however, we see a lot of continued momentum for groups like Splash and others near term.

21
Source: Betfirm.com.
Sweepstakes—Not Your Father’s Ed McMahon
Contest, but a Massive and Growing Category
Earlier in 2023, we started to address the sweepstakes gaming category with a focus on Fliff, which is a leading
and fast-growing, sports-oriented sweepstakes platform. A sweepstakes is a promotion in which a prize is awarded
based on chance rather than skill. It is our understanding that if a prize is awarded based on skill, the promotion is
considered a contest.

While we are likely dating ourselves in recalling the Ed McMahon Publishers Clearinghouse Sweepstakes
commercials of our youth, there has been a long-established law around the rules of engagement in the U.S. for
sweepstakes promotions. In addition, large companies like McDonald’s have long offered sweepstakes games to
customers after purchasing products. We believe sports sweepstakes platforms like Fliff and more iCasino-oriented
platforms like VGW (e.g., LuckyLand and Chumba Casino), as well as Fortune Coins, among others, are big and
rapidly growing businesses that can appeal to a wide audience of players. It is our view that some of these platforms
have hundreds of thousands (if not millions) of players in their databases, making them very relevant vs. options in
real-money OSB or iGaming. In our view, the product offering and assortment of game content on these platforms are
very attractive and not too dissimilar to the gameplay we see on traditional iGaming platforms in the U.S. or Europe.

With that said, similar to well-known social gaming platforms such as Playtika or Zynga, only a small group of avid
users actually monetize, whereas most simply play for fun and collect free coins. As we have throughout our career
around the gaming industry, if you give consumers an option for gaming, they will game, and many really don’t
care how or what the means are to wager and/or enter a contest. We have tried these platforms, and many are fun
and intuitive, highly social (leaderboards, status, and customization), simple to use, have great game content (from
traditional game content suppliers), and offer an entertaining experience, so we can see the appeal. Additionally,
these are very sophisticated marketing platforms, and their ability to attract, retain, and drive consumer engagement
is impressive.

Given the success of sweepstakes platforms, we are not surprised that this category would face some legal
challenges, either due to potential customer pushback or more organized challenges from opposing competitors
in the gaming sector. It is our view that the legality of sweepstakes is likely to come into discussion in the coming
periods; however, given the state-by-state nature of the business and the similarity to arguments around DFS, we
think it’s going to take a long time for this debate to play out.

In June 2023, Fliff faced a class action complaint in the U.S. District Court for the Central District of California from
one of its customers. Upsetting this apple cart may prove very difficult for oppositional groups trying to disrupt Fliff
and other players, particularly given the popularity and long-established case law around these contests. Note that
VGW, which we believe is one of the largest sweepstakes operators, already paid out a class action settlement in late
2022, agreeing to pay $11.75 million to end a class action lawsuit claiming the company violated Kentucky gambling
laws by selling virtual coins in Luckyland and Chumba Casino slots games. Much akin to the increased definition of
laws around DFS, we expect this category to become more mainstream and better understood in the coming years.
22
Sources: Legalsportsreport.com, Bonus.com.
Screenshots of LuckyLand

Screenshots of Fortune Coins

[IMG_2902.PNG]

23
Source: LuckyLand.
Screenshots of Fliff

Trends in Gaming Tech

AI Didn’t Write This Report; However, Its Impact on Sports Betting Could Be Meaningful
Like the rest of us who are beginning to wrap our arms around the impact of AI on business and society, we are
trying to think about the far-reaching ramifications of this burgeoning technology on the gaming industry. In our
regular conversations with industry leaders, we have been increasingly discussing this topic, particularly as ChatGPT,
Bard, Dalle-2, and countless other platforms are rapidly embraced and now mainstream. While very early in our
conversations around this topic, there are a few themes that have popped up.

One group that we see being the first to embrace and/or feel the effects of AI would be the affiliate segment. We
believe affiliates may potentially have to dramatically alter how they approach consumer search (particularly those
that leverage paid search), as they have benefited from a strong understanding of SEO optimization to date, in
addition to leveraging human-generated content, news, and other information as consumers search for online
gaming and sports betting platforms as well as picks. We don’t believe AI means the death of affiliates for sure. We
would argue that they can leverage many of these tools to leverage skilled writers and other journalists with deep
followings to attract users to their sites; however, less value-added writing stock content can be generated by AI.
The affiliate business has been consolidating for a long time, and ultimately, we see the sector potentially further
consolidating—and at a more rapid clip—particularly as smaller players find it harder to compete.

Another area in which we see the opportunity to better leverage AI to reduce labor and/or optimize potential risk
is deploying this technology around odds-making and/or risk-trading (many books have in-house or outsourced
functions, effectively a stock/bond trading floor for sports). While very early in determining how this will play out,

24
some of the industry experts and leaders we speak with have mentioned opportunities to incorporate these tools
going forward.

We see the growth of tools that also leverage AI to better improve the gambling experience. For instance, we have
been closely following Future Anthem out of the U.K., which has been signing a number of marquee clients across
the sector, including Tier 1 operators and B-B providers. We are impressed by Future Anthem’s personalization
platform which uses AI in its “Amplifier AI” product offering. The product personalizes each step of the player’s
journey in real time, leading to increased engagement and retention with personalized recommendations and
bonuses that cater to the individual player.

From a consumer-facing perspective, we have already seen some groups, such as JuiceReel, try to leverage AI to
predict sports betting outcomes with some intriguing early success. We can see some applications of AI around pre-
match betting; however, we are somewhat skeptical about how AI will be deployed around in-game betting. However,
as these models are trained on more data sets and gain experience, we undoubtedly see potential applications as
both retail and, more likely, sophisticated sports bettors/professionals leverage these tools to try and gain some edge
on operators.

Like other businesses across tech, we believe the use of open-source tools could have other far-reaching
ramifications that drive efficiency and allow operators, content developers, and many B2B suppliers to reduce human
engineering overhead. We often hear from startups and earlier-stage companies about how hard it is to find and/
or retain engineering talent as well as manage this cost. If AI is capable of accelerating speed to market, allowing
lower-value tasks to be automated, and can help push out new product features faster, this could drive overall sector
innovation.

While we are overall cautiously optimistic about AI and its implications for gaming, we are mindful that the industry
is highly regulated. We remind investors that the overall pace of innovation is still dictated by how state agencies
and their human-led masters view the potential risks/benefits to consumers. Given our 25 years of involvement in
the casino industry, we have often seen mainstream technologies (e.g., server-based gaming or common financial
payments) take demonstrably longer to be deployed in the industry vs. the mainstream. For instance, the use of credit
cards or other common payment mechanisms at slot machines has had little to no traction to date, and we see the
same reluctance to embrace change or consumer preferences occurring in the digital gaming world.

25
Tools and Analytics for Retail, Recreational Plus, and
Sharps Are in Demand and Evolving
When we harken back to the “early days” of 2019 and 2020 in the U.S. OSB market, we continue to be impressed by
how quickly tools that give gamblers advanced data and insights (beyond touts) are evolving. Just a few years ago,
BetQL, Sportsline, Oddschecker (principally Europe), and Action Network might have been the best sites or apps for
retail gamblers to get information on lines, pricing, data (beyond the usual info on ESPN), and other betting content.

Presently, there are many more constantly evolving platforms that provide players with different pieces of the mosaic,
including wagering analytics (what you are good at betting on and if you are ahead), bet syncing (akin to tracking
your stock market portfolio), data-driven wagering ideas, proprietary writer driven content, and other information.
Some of the key platforms that appeal to mass audiences in this vertical that we are following include BetSperts,
Dimers (Cipher Technology), JuiceReel, Outlier, and Pikkit. As these groups gain scale, we see their business models
improving. In our view, while some of these businesses are structured as more modern takes on affiliates that are
heavily mobile or app-driven, we see a future where they transact via “payment for order flow,” which might be more
akin to traditional stock trading.

Within the wagering analytics genre, as the U.S. OSB market starts to mature and players gain increased comfort and
sophistication, there is a group of players that are becoming professional gamblers. It is easy to be skeptical about the
depth of this market, what the churn may look like, and the potential ethics around it. However, on the flip side, from
our time on the buyside as an institutional money manager, the simple fact is that there are plenty of day traders and/
or smaller hedge funds that play the stock market worldwide daily.

Why might the same not exist in the sports betting market when, at the end of the day, sports betting is very much
akin to short-term option trading? We have had the opportunity to meet many professional gamblers given our
coverage of the sector, and when we speak to them, we often hear that they are using tools like Oddsjam and
Unabated, among others, which we often describe as the “Bloomberg” for sports bettors. These platforms, which are
feature-rich with detailed information and data sets, also provide information on real-time arbitrage opportunities.
They can charge hundreds of dollars per month (if not into much higher levels) across meaningful user bases, leading
to significant top lines with recurring revenue attached. To some degree, we see some risk that books will curtail the
action that professional players can get down on individual platforms. However, in highly competitive markets like
New Jersey where there is robust competition (and exchange offerings), we still see the potential for sophisticated
players to use these tools to grind out meaningful profits.
26
Screenshots of Pikkit

Regulatory Technology and Compliance Tools Are

Vital to Keeping Gaming on Good Footing
We believe the industry should not cover its eyes when it comes to the risks of increased adverse regulation,
accelerating negative media coverage, and potential consumer pushback to the business, given the barrage of
marketing in recent years and fatigue with how pervasive gaming may appear to some. It’s hard to see a world where
gaming can fit into an ESG bucket; however, the industry must do its best to prevent problem gaming, maintain
consumer integrity, and try to make sure it’s as scandal-free as possible. We note that, based on a 2022 Suspicious
Alerts Report written by the International Betting Integrity Association (IBIA), in a study of 650,000 sports events
offered by operators worldwide, 99.95% had no integrity issues, which equates to one betting alert for every 2,700
events.

Despite the above and very low chance of integrity risks (particularly in mainstream sports), there are always going
to be potential negative headlines, most recently those coming out of the NFL regarding season-long suspensions
handed to players for engaging in gambling. To this end, we believe compliance platforms like U.S. Integrity,
geolocation like XPoint, and other technologies like Compliable that help gaming companies monitor consumer
activities, smooth out licensing, help gamblers self-exclude, and provide other useful features are mission-critical
to the future health of the industry. We have spent time with a lot of interesting companies in this vertical, each
delivering their own value add, and ultimately, some questions remain on the potential TAM of the market, how soon
this vertical will consolidate, and possible exit paths. However, given how essential these services are, paired with

27
Source: Pikkit.
Appendix
Categories

• Commercial Casinos
• Class II/III Tribal Casinos
• Slot Manufacturer
• Table Games Manufacturer
• Electronic Table Games
• Sports Betting Operator
• Sports Betting Supplier
• Payments
• Independent Testing Labs
• Daily Fantasy Sports
• Historical Horse Racing
• Video Lottery Terminals (VLTs)
• Cardrooms
• Slot Routes
• Skill Games
• iGaming
• Charitable Gaming
• Pull-Tabs
• Lottery
• iLottery
• Bingo
• Horse Racing/ADW
• Lottery Courier
• Regulatory Technology
• Sports Betting Exchanges
• Real Estate Investment Trusts (REITs)
• Cash Access Services
• Affiliates
• Electronic Pull-Tabs
• KYC
• Social Casino
• Coin-Operated Amusement Machines (COAMs)
• Marketing Kiosks
• Casino Management Systems
• Network Solutions/Cloud Computing
• Mobile Apps

28
B2B and B2C Stock Performance
LTM Stock Performance (%)

Stock Performance S&P 500 B2C B2B

Max 14.5% 64.8% 36.8%
Median 3.9% 28.3% 13.0%
Mean 4.4% 30.3% 15.2%
70%
Min (7.0%) (4.9%) (9.2%)
61.0%

50%

30% 31.8%

14.5%
10%

-10%
Jul-22 Aug-22 Sep-22 Oct-22 Nov-22 Dec-22 Jan-23 Feb-23 Mar-23 Apr-23 May-23 Jun-23 Jul-23

B2B B2C

Scientific Games

Source: S&P Capital IQ as of 7/5/2023.

29
Current Trading—B2B
Market EV/Revenue EV/EBITDA Revenue Growth EBITA Margin
Company HQ Cap ($M) EV ($M) (2023E & 2024E) (2023E & 2024E) (2023E & 2024E) (2023E & 2024E)

12.6x 18.3x 29% 69%

26,084 25,382 15.1x 20% 70%
10.5x
4.0x 11.9x 7% 34%
16,573 16,706 11.2x 5% 34%
3.8x
7.0x Neg. 41%
6,183 11,994 2.8x
2.7x 6.6x 3% 41%

3.3x 8.9x 10% 37%

5,894 9,082 8.0x 6% 39%
Scientific Games 3.1x
3.6x 12.7x 27% 18%
3,790 3,560 16.6x 16% 19%
3.1x
5.4x 7% 14.6% 25% 30.5%
1.4x
2,244 2,478
1.3x 5.0x Neg. 26%

2.3x 5.0x 8% 46%

1,257 1,956 4.7x 5% 47%
2.2x
1.0x 10.5x 16% 15%
895 1,164 6.5x 2% 16%
1.0x
2.8x 22.4x 18% 12%
1,190 1,110 14.1x 17% 17%
2.4x
4.3x 13.3x 51% 32%
886 1,063 12.0x 8% 33%
4.0x

9.9% 32.1%
2.2x 5.0x 8% 44%
203 736 4.8x 3% 45%
2.1x
1.7x 10.4x 10% 16%
548 646 8.9x 7% 18%
1.6x
2.4x 17% 36%
544 494 6.2x 8% 35%
2.2x
2.8x 6.3x 17% 44%
312 374 4.9x 17% 49%
2.4x
3.6x 7.8x 19% 47%
64 102 NM N/A N/A
NM
0.6x 3.8x 15% 16%
74 65 3.0x 14% 18%
0.6x
0.5x 20.2x Neg. 2%
77 65 4.9x 23% 8%
0.4x
2022A Average 2023E Average
EV/Revenue EV/EBITDA Revenue Growth EBITDA Margin
Median 2022A 2.8x 9.9x 19.2% 31.6%
Median 2023E 2.6x 8.0x 12.3% 33.0%

Current Trading—B2C
Market EV/Revenue EV/EBITDA Revenue Growth EBITDA Margin
Company HQ Cap ($M) EV ($M) (2023E & 2024E) (2023E & 2024E) (2023E & 2024E) (2023E & 2024E)

3.2x 18.8x 31% 17%

34,438 39,336
2.9x 15.0x 11% 19%

2.1x 7.3x 4% 29%

3,693 14,054 3% 29%
2.1x 7.0x

2.3x 10.7x 17% 21%

10,117 13,931 7% 23%
2.2x 9.6x

3.8x NM 43% Neg.

12,045 12,261
3.2x NM 21% 4%

7,733 8,775 3.5x 17.4x 4% 13.9% 20% 10.7%

3.3x 15.7x 5% 21%

2.5x 8% 24%
7,422 7,148 5% 24%
2.4x 9.8x

1.1x 5.6x 48% 20%

585 2,459 5% 21%
1.1x 5.0x

1.4x 8.6x 25% 16%

2,317 2,245 10% 19%
1.3x 6.8x

1.3x 5.6x 20% 24%

1,431 1,337 18% 25%
1.1x 4.6x
10.0% 20.7%
0.9x 6.5x 7% 14%
1,396 1,316 7% 15%
0.8x 5.5x

0.8x 5.8x 16% 14%

527 727 7% 15%
0.7x 4.8x

6.2x 12.9x 19% 48%

597 566 17% 49%
5.2x 10.8x

0.7x NM 12% Neg.

465 441 13% 4%
0.6x 14.5x
NM Neg. Neg.
1.6x
4 28 NM Neg. Neg.
NM

2022A Average 2023E Average

EV/Revenue EV/EBITDA Revenue Growth EBITDA Margin
Median 2022A 1.9x 8.6x 16.8% 18.5%
Median 2023E 2.1x 6.9x 7.5% 21.1%

30
Source: S&P Capital IQ as of 7/5/2023.
Notes: Multiples <0.0x or >50.0x considered “NM.” Negative growth rates and margins displayed as “Neg.” N/A indicates not publicly available.
Houlihan Lokey’s Role
The digital gambling landscape will remain dynamic for years to come as the sector continues to evolve. Houlihan
Lokey is well positioned to help investors, executives, and operators navigate this complexity by virtue of its deep
industry experience and platform, including its:

• Business model expertise

• Deep network across the gaming space

• Best-of-breed M&A and financing execution capabilities

• Extensive global knowledge of the relevant M&A and financing market trends

• Hands-on approach with senior-level attention that ensures an optimal outcome for our clients

Please feel free to reach out to any of the Houlihan Lokey contacts listed in this primer for a conversation about how
we can work together. We look forward to hearing from you!

Contacts
Joel Simkins Brian Riley
Managing Director Vice President
New York San Francisco
646.886.8256 415.310.0581
[email protected] [email protected]

31
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