This week we finally have an interesting IPO (of sorts) with GAN Limited (GAN on the NASDAQ). Since they are listed in London on the AIM market some capital markets services are treating this more like a secondary offering. However there’s a roadshow, underwriters and a book-building process so we’re treating it like an IPO.

It’s a small deal at ~$50M for a market cap of ~$225M at the $7.50 mid-point of the range. Because it’s a smaller company the underwriter group is also small with B. Riley running the books and small-cap shops Macquarie and Craig-Halllum on as co-managers.

The IPO comes in the wake of the very successful SPAC-IPO of DraftKings (DKNG). We’ve covered that over at our SPAC IPO Advisory site (still free) if you want to read up on that one here: DraftKings IPO.

GAN is probably part of the reason the DraftKings transaction includes an important technology acquisition in the form of SBT out of the UK. Without that DraftKings would have lacked a key component of the online gambling and sports betting solution set.

The Business

GAN provides the software for anyone who want so set up their own online gambling and/or sports betting business. Their customers are mostly state governments and casinos. It’s also important to note that they have a partnership with FanDuel to be their “online sports betting” (OSB) partner in certain markets including New Jersey, Pennsylvania and Indiana. In addition they are also FanDuel’s “iGaming integration partner” in all states through 2022.

Even though there is some overlap the ideal customer for GAN is a state that is ready to offer online sports betting and online gambling in their state. It’s too hard for them to do it on their own so they need a vendor-partner. This a familiar approach for them since this is how most state lotteries got implemented.

GAN provides a tailored solution to the state in exchange for some software/services revenues to get the system running and then an ongoing “take rate” which is described as a “mid-single digit” revenue share. Revenue sharing is 65% of total revenue today and the company expects it to reach 80% as they continue to grow.

There is some “built in” growth as more states come online. Four states already in the process include Michigan, Ohio and Illinois. Many states are going in this

direction and with major budget deficits looming even larger thanks to COVID they have a greater sense of urgency to develop new

revenue streams.

Investors are clamoring to have exposure to this market as evidenced by recent success of DraftKings which has nearly doubled in the last month or so to reach $6.5B which his closing in on 10x projected 2021 revenues.

There’s quite a bit of front-end and back-end technology involved in delivering these systems. On the back-end this includes integration, regulatory reporting, ensuring location rules are enforced, account services and payments. Front-end functions include the “funnel” to channel prospects into conversion along with a library of gaming content and lots of analytics to encourage additional platform use.

One interesting point about the diagram above is that GAN doesn’t spend anything on the consumer marketing part of the business. That is up to the operator. GAN supplies the tools but the operators must make the investment. Then GAN stands to benefit as their penetration and engagement drives more betting.

An Extra Boost from Casinos

Before COVID casinos thrived by getting clients inside. Free drinks, no daylight, and cheap buffets brought people in. Higher end places like the new Encore in Boston feature upscale restaurants and club often studded with B-list celebrities.

Thanks to the closures their eyes have been opened to the attractiveness of offering their in-casino clients and at-home gambling option in the states where this is legal. This certainly expands the near and medium-term opportunity with casinos who all want to be online going forward.

However they rely on their local client base and proprietary loyalty programs to keep customers coming back. That makes it important for them to offer an online gambling experience that is an *extension of their casino* rather than a separate stand-alone offering. GAN boasts of an advantage here in that they have been one of the leading implementers of the existing loyalty programs and have received some IP protection around their methods.

Even if that’s 50% marketing it’s enough to give them a strong position in this market as they also have mandates from any states in which these casinos operation.

Italy is a market that GAN has been in Italy since 2008 and has had excellent success there. Today it’s a “cash cow” the represents 15% of trailing revenue. Their experience there certainly anchors their long-term experience and credibility with casino operators.

Puzzling Guidance and Valuation

In conjunction with their offering management gave some guidance for the current year which is conservative enough to raise eyebrows. For the year they are guiding to $37M to $39M in total revenues. In 2019 revenues doubled to $30M so doing $38M this year would be a dramatic deceleration in growth.

In rather stark contrast to this near-term guidance is the statement that they expect “10x growth over the next few years.”

We’re not publishing a full model on GAN at this point. As more historical details emerge and we seem some quarterly reports in the US we will have what we need to build out a more detailed model.

Here are the numbers we’re using to evaluate the IPO and decide how much exposure to have. Looking out a couple of years it’s hard not to see GAN as at least a $100M revenue business. Gross margins are already above 60% (ex-patent licensing) and are trending higher. The company has already proven they can generate attractive margins so their 30% AJEBITA (operating margin).

At a $225M market cap that’s 2x future sales and only 7.5x future operating earnings. Of course you’d discount that figure given that it’s either 2022 or 2023. But the valuation is pretty low.

For fun let’s consider DraftKings. If we give them a generous figure of $1B in revenue and 30% AJEBITDA margins in the same time period that puts them at 6.5x sales and 22x future operating earnings.


Their relationship with FanDuel accounted for 33% of revenue last year. Management expects that figure to decline going forward but it still represents some real concentration.

GAN is still a pretty small company and some states or casinos might be concerned about their stability. If one considers that FanDuel and Italy accounted for over 50% of the $30M in revenues last year that makes it a pretty small business.

The recent deal with WinStar Casino seems odd. Management didn’t talk about it on the roadshow. It seems that GAN has done a deal where WinStar patrons get redirected online to a GAN site called And GAN will pay WinStar a 3% revenue share. This seems backwards based on the model.

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