Thus far, MultiChoice has lost R1.3 billion (~$108 million) in acquiring a 49% stake in Nigerian sports betting company KingMakers in three years. Can the company manage to turn its gamble on KingMakers around?

In September 2020, pan-African broadcaster MultiChoice acquired a 20% stake in Nigerian online sports betting company KingMakers, then BetKing, for R1.9 billion (~$112 million). In 2021, MultiChoice increased its stake to 49% for $281.5 million, bringing the total value of its KingMakers shareholding to R5.9 billion (~$393.5 million).

In its latest financial results, MultiChoice stated that naira devaluation in Nigeria and the expansion cost had caused a R2 billion (~$108 million) write-down in its KingMakers investment. MultiChoice’s R5.9 billion ($318 million) stake in the betting company is now worth R4.6 billion ($248 million). 

“Considering the fact that the 49% (51.23% effective interest) stake cost them around R6 billion (~$393.5 million), it seems in the interests of MultiChoice to try and save the business rather than having to face the prospect of having to further impair the asset or potentially even sell it at a significant loss,” independent financial markets analyst Jimmy Moyaha told TechCabal. 

MultiChoice is already burning cash in most of its verticals. In its FY 2023 annual results, the company withheld dividends from shareholders to fund Showmax. Funding another bet in KingMakers, which does have growing revenues but also crippling losses, might worry shareholders in the future.

How did MultiChoice get here?

On paper, the KingMakers deal seemed poised for success. MultiChoice planned to leverage its extensive sports coverage to boost the betting business. The model had worked well internationally, with sports broadcasters like Sky, Fox, and most recently, ESPN, having successfully entered the sports betting business. According to internal data cited by KingMakers, 77% of DStv subscribers are active betters or engage in match predictions, providing an extensive customer base for a betting product.

Additionally, sports betting has grown tremendously in Africa over the last half a decade. According to a report [pdf] by KPMG, Africa’s gambling market was predicted to reach a value of $37 billion by 2022, with sports betting accounting for most of that growth. The majority of Africa’s Gross Gaming Revenue (GRR) is sports betting, is expected to rise by 17% by 2027, with online betting revenues growing from $2.9 billion to $5.5 billion. MultiChoice itself had alluded to the sports betting industry’s impressive growth projections as one of the driving seasons for the acquisition.

“The global sports betting market is experiencing a growth surge. Africa comprises only 2% of global sports betting revenue and is poised for significant momentum as it plays catch-up,” the company had said at the time of the acquisition.

But as MultiChoice would soon find out, growth projections and cumulative annual growth rates do not always mean much when operating in Africa. At the time of the acquisition, MultiChoice said that KingMakers’s ability to expand beyond Nigeria was one of the rationales for purchasing the stake. That has not gone well so far for unclear reasons. The company has had to pull the plug on expansion plans to Kenya and Ethiopia despite adding the experienced Ronnie Whelan as its new chief operating officer.

Despite seeing growth in topline revenue since the MultiChoice transaction, that growth has come at a staggering expense to the company’s bottom line. For example, between 2022 and 2023, Kingmakers revenue jumped from $131 million to $198 million. However, its losses followed the same trajectory, increasing from $19 million in 2022 to $28 million in 2023 due to “investment to further scale the business and cash extraction losses out of Nigeria.”

According to Moyaha, further losses would put Multichoice and its shareholders in a precarious position. “[Despite the revenues], MultiChoice has already had to raise an impairment of R2 billion on this investment. This impairment was a significant contributor to the group swinging into loss for the year. If the [Kingmakers] isn’t turned around and requires further impairments, MultiChoice could have to write down 18.7% of its non-current assets as per their FY 2023 financials,” he said.

Regarding share price, according to Moyaha, shareholders are unlikely to be happy that KingMakers has already had the biggest negative impact on the group’s cash flows from investing activities.

What’s next?

Despite the headache that the KingMakers investment has caused for both Multichoice’s management and shareholders, according to Mpumi Ndiweni, CEO of advisory and investing firm Colmin Group, it can still be salvaged. “[KingMakers] would most likely focus on consolidation, so it gets out of the red, but MultiChoice needs an inflection point and may want to pump in more resources to achieve that. Let’s hope Multichoice has not missed its inflection point for the investment to lift it, given the African betting long play. Its share price has fallen about 50% this year alone,” Ndiweni told TechCabal.

Although KingMakers would leverage MultiChoice’s customer base to differentiate itself from the competition, it still operates independently. However, according to Moyaha, to turn the company’s fortunes around, Multichoice might have to play an active role in the operations of Kingmakers. “Even though MultiChoice holds an effective interest of 51.23% from its 49% stake in KingMakers, the group considers this an associate rather than a subsidiary. This means that while Multichoice does have a significant level of influence in the business, it ultimately does not have control. This may be something they would need to change if they do not agree with the new strategy or find themselves having to invest more in the business,” he said.

Sven Forrsman, head of equity sales at Kela Securities, reiterates the need for better management at KingMakers. “The loss in the Kingmakers deal is significant and is probably caused by too much spending on marketing in their expansion efforts. Betting [companies] have shown that there is no J Curve and don’t gain as much traction in a competitive space. Although MultiChoice does need to diversify its business, I don’t think sports betting, although [growing significantly], is the answer,” Forrsman told TechCabal.

The fate of the KingMakers investment will solely depend on how MultiChoice addresses its operational challenges. Sports betting has always been a good cash generator for companies that have chosen to play in this area, provided the companies have maintained consistent client levels.

“MultiChoice would not need to reinvent the wheel to take advantage of the market potential, especially given their overall presence on the continent. They would however need to remain cognisant of their competitors in the space. The key here would be that they would have to make a more compelling case than simply brand recognition to enter a somewhat saturated market,” concluded Moyaha.

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