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DAZN Group Pivot has Co. on Path to Profitability
DAZN Group Pivot has Co. on Path to Profitability
January 23, 2023
DAZN Group Pivot has Co. on Path to Profitability
It recently came to light that DAZN Group losses rose 79% to $2.3 billion in 2021. However, a closer look at the global sports subscription streaming business' consolidated annual report and financial statements from that year, along with some additional context from chief financial officer Darren Waterman, suggests the total loss figure is not an accurate representation of where the company was trading at the time–and even less reflective of where it stands today.
DAZN Group contends it is on pace to reach profitability by the end of 2023. “We now have enough bull markets to be able to cover the cost of the global platform,” Waterman said.
DAZN Group is privately held. However, as a London-based business it is required to submit basic financial information –including profits/losses and revenue figures– to Companies House, the executive agency of the British Government, annually.
2021 was not as bad a year for DAZN Group as the loss figure would suggest.
The $2.3 billion total includes $934.7 million in financing costs attributable to a high interest loan the company took out in 2020, from primary stakeholder Access Industries, to help it get through the sports hiatus. The paper and interest that accumulated was converted into equity as part of a broader corporate recapitalization effort at the end of '21. It was not a cash loss. DAZN Group is debt-free today.
The company also made key investments in both content and technology that contributed to the $1.36 billion operating loss. “We’re building a global platform and you [have to invest] to grow a big business,” Waterman said.
DAZN Group revamped its underlying tech stack and acquired Texel during the '21 calendar year. The video streaming innovation company has since been rebranded as DAZN X.
It also 'super-sized' product offerings in Germany and Italy acquiring the domestic broadcast rights to Bundesliga and Serie A.
Neither market is profitable today, but the company expects both to exit 2023 with profitable run rates. In fact, DAZN Group projects all of its core markets will. That list includes Germany, Italy, Spain, Japan, Canada, and the U.S.
The profits generated in DAZN Group’s core markets are expected to cover the large, central operating costs that currently keep the company operating in the red. “The goal is to get there by the end of the year and then be profitable in ‘24,” Waterman said.
Revenues are on an upward trajectory. DAZN Group's top line rose 79% to $1.6 billion in ‘21 and the company plans to report revenues increased another 70% to $2.3 billion in ’22. Last year’s figure accounts for swings in FX rates.
DAZN Group has managed to drive revenues up and to the right by optimizing advertising sales and raising subscription pricing. It nearly doubled the cost of its sports streaming service in Germany and Italy.
“DAZN made an initial bet on volume and the reality is, there [are] a finite number of people within each market who are prepared to pay for live sport and within that cohort there is a high willingness to pay,” Waterman said.
The company also introduced more tiered pricing options in an attempt to maximize penetration and potential subscribers within individual markets. It recently announced a
with Amazon Prime for the same reason.
All were wise decisions, as was its choice to focus on premium domestic league rights acquisitions in core markets. “To get big in a local market, you have to have the content that matters in that local market,” Waterman said.
DAZN’s global proposition, which is largely comprised of combat sports and emerging sports properties, was never going to drive critical mass.
The company's strategic pivot is tacit acknowledgment its original vision, to build a global sports network, was flawed. Sport is predominantly a national phenomenon and operating in countries around the world does not provide meaningful cost savings on rights, production or management.
Waterman said DAZN Group will reach profitability while operating at sub-scale from both a geographic and products and services perspective. Nearly all of the revenue it generates today is either subscription or advertising based.
The company is working to introduce complimentary products and services, like sports betting, merchandise and ticket sales, that can help to provide the immersive viewing experience it envisions for the future and grow its monetization opportunities.
DAZN Bet launched in Italy, Spain and the U.K. in 2022 as a standalone product. There are plans to deliver a more integrated experience for its streaming customers in Q4. ’23 forecasts are exclusive of any new products or services that may end up generating revenue.
DAZN Group has been vocal about its intent to go public once the global capital markets settle down. CEO Shey Segev recently
it “makes sense for this to become a public company,” and that he could foresee an IPO within two to three years.
Reaching profitability should make DAZN Group more attractive to public market investors. But it is not clear the company should be publicly traded. DAZN Group does not own any I.P., it leases the rights it controls. That means it is always at risk of losing those rights and the subscribers they attract.
DAZN Group acknowledges the threat. But Waterman said rights cycles are getting longer and that the company is building a product designed to make it a destination platform for sports fans. “As you prove that business model, you’ll attract more rights holders.”
In the event an IPO turns out not to be a viable option, the cash flow positive business could decide to self-fund future growth–albeit likely at a slower pace. “The difference between going public and not going public is really a question of how much capital you’ve got in the bank and how quickly that’s going to allow you to grow,” Waterman said.
Seeking additional private investment would also be a possibility.