Rivalry Corp.

Good morning. My name is Anas, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Rivalry Corp. Fourth Quarter and Fiscal Year 2021 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by one. Thank you. I would now like to introduce Mr. Jeff Cotis-Potey, Investor Relations for Rivalry Corp. Please go ahead, Mr. Cotis-Potey.

Thank you, Anas, and good morning, everyone. Our speakers on today's call will be Stephen Solves, co-founder and chief executive officer of Rivalry Corp., and Kate Okori, chief financial officer. Before we begin, I would like to remind listeners that certain statements made during this conference call presentation may constitute forward-looking information and forward-looking statements within the meaning of applicable securities laws. These statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of Rivalry Corp. and its subsidiary entities or the industry in which it operates to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. When used in this conference call presentation, such statements use words such as may, will, expect, believe, plan, and other similar terminology. These statements reflect management's current expectations regarding future events and operating performance and speak only as of the date of this presentation. These statements involve known and unknown risks, uncertainties, and other factors, including those risk factors identified in the company's prospectus dated September 17th, 2021, under the heading risk factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. The company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, other than as required under securities legislation. I will now turn over the call to Stephen Seltz. Stephen? Thank you, Jeff.

Thank everyone for joining. It's been five months since our last quarterly investor call due to the timing of year-end reporting. We've made great progress since then and continue to see momentum across the business. Cato will get into the details of the financial results we announced today, but first I'd like to provide some headline numbers and dig into broader thematics. In 2021, we delivered record results. Our betting handle grew 202% year-over-year to $78.2 million. Revenue increased 617% over the same period to $11.1 million, and total registration to $610,000. As a testament to the momentum we saw into year-end, we have provided preliminary Q1 2022 numbers, which demonstrate that. We reported a betting handle of $40.2 million, a record high, up 62% sequentially from Q4 2021, which was our record before this, and a 273% increase year-over-year. Back to 2021, we secured additional capital to accelerate our growth in the year, strengthened our originally developed product, and added significant talent depth to our bench, all furthering Rivalry's efforts to redefine the category. Our vision is to create the leading betting and entertainment experience for the next generation. We made considerable progress in 2021, and in 2022, we will raise the bar. Underpinning our vision is a paradigm shift we are observing across a number of consumer categories. Betting on esports, fractionalized art, meme stocks, the resurgence of collectibles, and communal digital spaces are just the beginning. The common theme is online communities wrapping entertainment around consumer experiences. We believe a deep understanding of this will define the next generation of great consumer products. It is with that understanding we innovate on product and build brand love at Rivalry. This is the foundation upon which Rivalry is built. Since launch in late 2018, we have built our business around the following core beliefs. One, bonusing is not scalable and creates a transient user base. Two, betting is no longer just a transactional experience. And three, brand love and innovative product is profitable. For years, growth of any cost has been the default state for sports betting in many consumer industries. Under that model, capital is the competitive advantage. This typically leads to unhealthy industry dynamics where capital can't inspire one another in a race to the top of customer acquisition costs. Caught in the middle, the customer often loses this race. Industry participants become myopic as the sensibility of management teams is to play the game or not compete at all. Product and true brand equity takes a backseat, even if unintentionally. and the customer gets product clones that offer no delight other than slightly better promotions. Public markets will reward this behavior so long as the sector remains in favor. As of this call, the market has now taken that crutch away, not just for sports betting, but tech growth generally. This contraction, although painful, is healthy. It daylights businesses that subsidize customers to acquire them and refocuses investors on what we believe matters most. One, product leadership and innovation. Two, true brand equity. Three, healthy unit economics. And four, a path to profitability. Our beliefs, which perhaps seem misguided in a bull market, now look prudent. Critically, it allows us to pay for a balance sheet in a market where runway is vital while still giving the business oxygen to deliver results. On that basis, Rivalry's strategy looks different from our peers. In new markets, we start slow, take feedback, conduct user testing, iterate against it, and build brand awareness in parallel. As underlying key performance indicators hit our target range, we increase spend accordingly. Our recent launch in Ontario and impending launch in Australia will be no different. The most critical piece of the strategy is cost-effective customer acquisition, which requires long-term brand building that turns into brand love with success. With a collective following of 55 million, our partner network and own properties are the jumping-off point for brand discovery. With increasing success, we expect customer acquisition costs will decline as beloved brands self-perpetuate product discovery. At that point, operating leverage becomes immense as reliance on new spend for every incremental dollar of revenue decline. The result of the strategy is clear. In a core market, we delivered a 90% decline in customer acquisition cost over the first 12 months of operating there and a 100x increase in betting handle, leading to positive muted economics. At this point, I'll turn the call over to our CFO, Keita Corey, to review today's result in greater detail.

Thank you, Stephen. I will discuss the key line items from the results we announced this morning. Betting handle was $78.2 million in 2021, up from $25.9 million in 2020, a 202% increase. Betting handle is a key metric for rivalry and the best measure of overall betting activity, which in turn drives revenue. Growth in handle is directly tied to the number of rivalry customers around the world and the number of bets they place. Due to our younger demographic, rivalry customers tend to place smaller average bets than you would typically see at other sportsbooks. We believe there is significant upside potential over the lifetime of these customers, which is part of the reason we place so much emphasis on retention and brand engagement. Betting handle for the fourth quarter was $24.9 million compared to $5.1 million in Q4 2020, a 389% increase. Sequentially, handle was up 7% from $23.2 million in Q3 2021. As we have described previously, there is seasonality in our business due to the timing of the major esports events that still generate the vast majority of our betting activity. The first and third quarters tend to be our busiest, while the second and fourth quarters are typically slower. There was some disruption of the esports calendar at the height of the COVID-19 pandemic, but the timing of events appears to be largely back to normal. With that said, the growth we saw in Q4 was therefore highly encouraging and a signal of strength in what is typically the most seasonally quiet quarter of the year. As our traditional sports betting product has continued to improve, we are seeing a more diverse product mix, which is helping to blunt the seasonality of esports, something that we expect to continue in the future. Despite a modest sequential increase in handle, we did see a decline in revenue to $2.2 million in Q4 2021 compared to $3.7 million in the third quarter. October saw two of the biggest esports events of the year, one of which was moved from August due to COVID. These are Super Bowl-equivalent events in two of the most popular esports titles in the world, League of Legends and Dota 2. These events, like the Super Bowl, bring in a significant number of new customers, and our objective is to ensure they have a positive experience in order to maximize retention afterwards. To do so, we increase limits on the sportsbook for these major events to ensure first-time customer bets do not face risk of rejection by our risk management parameters. This often causes these months to deliver a still positive sportsbook margin, but below average to trend, resulting in a reduction in revenue for the quarter. Internally, we view this as part of the cost of onboarding and ideally retaining a new wave of rivalry customers. It's important to note that year-over-year fourth quarter revenue was up significantly from the $300,000 we delivered in Q4 2020. Similarly, revenue was $11.1 million for the year, representing significant growth versus $1.5 million in 2020. We believe the year-over-year figures are more relevant measures of our progress. At this point, speaking in the final week of April, we have seen strong momentum at the start of 2022. This morning, we announced the Q1 2022 preliminary result of $40.2 million of betting handle. Far and away our best quarter ever, up 62% from the record betting handle we just disclosed for Q4 2021 and 273% year-over-year. We expect to announce full Q1 2022 results by the end of May. We reported gross profit of $2.2 million for 2021, an increase of $1.5 million, or 217% from $690,000 in 2022. Gross margin represented 20% of the revenue for the year. At this stage, we are focused on growth. We are pursuing significant opportunities in multiple markets around the world, and as long as we are achieving favorable unit economics, our strategy is to invest the resources to grow our customer base. Over the longer term, as we scale the business, we expect to realize operating leverage in the form of increased margins. I'd like to spend some time on certain other income statement items. Our 2021 results included a share-based compensation expense of $10.5 million related to issuances from the equity incentive plan. As part of the company's direct listing, it issued equity incentive awards to directors, officers, and staff in recognition for years of service, with no additional awards issued to many of these parties in the preceding four years. The equity incentive plan allows the board of directors to issue up to 20% of the company's outstanding subordinate voting shares as equity incentive awards. As of December 31st, 2021, a total of 6,315,451 awards have been issued. This is a non-cash expense, and its size made a significant impact on our reported net loss for the year. That said, this is part of efforts tied to our public listing, and we do not expect this item to recur. You will see that other core operating expense items, such as general and administration, marketing, advertising, and promotion expense, began to ramp up in the fourth quarter. The increase is consistent with our strategy to accelerate our growth through investment and operations. To this end, we have continued to add headcount and invest in brand building in 2022. Turning to our liquidity, we had $35.5 million of cash as of December 31, 2021. Our strong cash position as a result of financing is completed during the year, including 22 million U.S. proceeds from the subscription receipt offering held in escrow until they're released in September. Working capital was at 38.5 million at year end, and we have no debt. We remain very confident in our financial position and believe it provides resources to fund our growth strategy. At this point, I will turn the call back to Stephen to discuss our outlook.

Thanks, Keita. I just wanted to add a bit more color on headcount. This past year, we added a number of talented new people to the team, which has continued into 2022. This was critical for achieving our growth plans, and in general, we had to backfill our very scrappy beginnings with the ambition we have, and now the balance sheet we have to support that as well. As the company's profile has risen, so has our ability to attract some of the best talent in the world. Our bar is high as remarkable teams attract remarkable people. Operating asynchronously in more than 20 countries means exceptional talent acting with extreme ownership is the only way we can succeed. This makes people Rivalry's most important competitive advantage. I want to personally thank the team at Rivalry for their effort in 2021, and in 2022, we will continue to exceed our limits. As for our 2022 goals, our focus this year is growth across product, new geographies, and an expansion of Rivalry's creative universe. Through financially disciplined management and targeted operational goals, we believe our positive unit economics will continue to improve and a path to profitability will become clear. We believe this can be accomplished through the following goals. Meaningful expansion of our traditional sports offering to support the continued interest and growth we are seeing. New originally developed games to complement Rushlane and add depth to our massively multiplayer online gambling games category. Launching a mobile app consistent with the surprise and delight we believe the next generation of customers is looking for. Introducing a casino offering that is authentic to our core demographic. Launching new geographies under our existing Isle of Man license and new regulated licenses to provide continuous growth in users and brand reach across the globe. Building upon our dynamic media strategy to continue positioning Rivalry as an industry-leading creative house operating at the forefront of internet culture. We are relentlessly focused on delivering long-term value for our shareholders. Thank you all for your continued support. We will now be happy to take any questions or comments from participants on this call. Operator?

Thank you, sir. Ladies and gentlemen, we will now conduct the question and answer session. If you'd like to ask a question, press start on the number one on your telephone keypad. If you'd like to answer your question, press start two. If you're using a speakerphone, please leave the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Adhir Kadvi with eight capital. Please go ahead.

Thanks, guys, and congrats on the quarter here. So strong handle generated in Q4 as well as continuing into Q1. But, you know, you guys mentioned that Q4 is seasonally slow for esports, so the traditional sports offering kind of offset that. Can you really tell us the demographic of these bettors and the traditional sports offering? Are they kind of net new to the platform, or are they more from, like, cross-sell from the esports space, just kind of looking for the color on the traditional sports bettors that you're seeing now?

Yeah. I'm going to take my conference called script voice off and we can just talk normally. So we, the demo is the same. So that's been kind of consistent with what we've experienced since we introduced traditional sports is it's really just like a mid twenties. What's better that we described and the reason why we use kind of internet generation, internet culture so much is that rivalry strategy always from the beginning was just to use gaming and esports as like the top of funnel, you know, for brand positioning and marketing perspectives. to acquire a specific demographic of customers, not just to acquire eSports bettors and for the end all be all to be eSports bettors. So the types of people that are coming in on the sports product, one is obviously just eSports people betting on sports, but there are some people just coming in just to bet on sports. It's the same complexion of user. There's really, we were looking at this the other day. I mean, there's almost no, noticeable difference at all in the demographics and age is nothing. It's almost the exact same person. So, yeah, it's just consistent with our target demos.

Okay, gotcha. And then, you know, some commentary that you guys had on the marketing spend. Obviously, there was an expected uptick there. Can you really speak to the efficiency of that spend? I know that you guys have your thesis and your model is less reliant on bonusing. But, you know, is the spend that you're seeing, is that kind of in line with your expectations? Is this what you, you know, your intended goal with the spend is? Are you kind of seeing that play out now that you've got, like, you know, a pretty bolstered balance sheet that you can go out with?

Yeah, I think... like our our spend so i described it kind of in my opening statements and we've got the annual letter that talks a little bit more about this because i think in markets like this that's that's the thesis that we've always held that now makes a little more sense to people but we tend to kind of like crawl then walk in markets then run and then marketing spend increases alongside that so in any new market and actually like you're not talking this offline a lot like our playbook is always spend the first couple of months making sure the product is as good as possible for that specific market. So taking in feedback, we do a lot of user testing. We do brand building obviously alongside that. We do a little bit of marketing, but we don't ramp marketing spend in any meaningful way until multiple KPIs hit like a target, I'd say like profitability band where we know it's going to make sense for us to increase it. So we don't go into markets and just like dump free money on everybody and then hope that we can retain it afterwards. One, we didn't have the balance sheet for that historically. maybe we have that balance sheet now, but I don't think the market's going to reward that. And I also think that ensuring that you're being more prudent with runaway is super critical now. So we just wouldn't do it either way, but it also just doesn't work well for us. So yeah, like marketing spend is tracking to our projections, but it's always this playbook of, ensuring we're delivering the best possible product to the market, ensuring we're seeing healthy underlying trends in the customers, and then increasing spend alongside that. That's always what the model is going to be for us.

Yeah, no, totally. That makes sense. And a good strategy for sure. And then just on the back of that, obviously the big, big, big news this quarter was the launch of Ontario. And I know it's early days and we're kind of only three weeks in, but maybe can you give us some color on your rollout and how is that kind of going versus your expectations? What are you seeing and how do you kind of expect to ramp in terms of your strategy?

Yeah, we expect it to ramp the same as all of our other markets. So definitely consistent with probably the things that I just said to you, which is we take a crawling approach and then we walk and we run. The initial approach was we did a little bit of branded marketing, a little bit of acquisition marketing, brought a bunch of people in and doing user testing, making a bunch of fixes and things that we feel we need to deliver the best possible product for the market. And then we'll increase spend alongside that. So I talk about like very modest marketing spend will be launching markets. You know, our first month spent in Ontario can't give like an exact figure on this call, but we're talking like five digits, not six digits, like under a hundred thousand dollars. So. I can tell you that we had competitors that were dropping that in bonuses probably every couple hours on the very first day of launch. And that's going to be our strength for the entire first month. So that's just how we always do things. So we've got to make sure that the product is great and that we're seeing underlying trends in the users that give us confidence to continue increasing spend. And then things compound from there. So every single market that we're currently active in, that has been a pretty profitable strategy. We see CAC start at hundreds of dollars, sometimes more, and then it goes to some 50, which is what we last reported closer to our IPO, which was the last deck that we talked about cost of customer acquisition. So kind of the example I gave on the transcript was in one of our core markets, we, um, We saw marketing spend, we saw cost of customer acquisition decline just over 90%, I think 93, 94% in the first 12 months, and we saw betting handle increase 100x, and it wasn't proportional. It sounded as if we increased market spend 100x. Market spend increased maybe three times or four times. So the leverage was significant, and we were profitable all of our customers. So that will be the same thing in Ontario. That will be our focus.

That's great. And then maybe just one last one for me, just in terms of Australia. How do you see that market? When do you plan on being live in that market, and how is that coming along? Hopefully imminent.

I've been saying that for a while, but we got the license early Feb, and then the final thing you have to do for any of these regulated markets is payment providers. So the payment providers need to see the license before they're willing to have any kind of oversight full conversation integration with you and the payment providers are just moving slow so just the integration is moving slow so not really from a technical perspective it's just sluggish kind of back and forth I guess you could say so it's stuff where unfortunately it's completely out of our hands so you know the biggest third party reliance that every sportsbook in the world has is payment providers so we are stuck and beholden to the pacing what is happening with the payment provider so We do think it is imminent, like legitimately imminent. So hopefully very, very soon we can announce that we're live and taking bets there, but that's it. I mean, we've just been kind of going back and forth with third parties.

Gotcha. Well, I'll look for that. I'll look for that announcement. And actually just one more.

This is a, like, this is a, this is a highly regulated industry, so it has some of the features of a highly regulated, this is triple shipping where, you know, not everything is in your control.

No, totally. And then just one interesting thing I did see, and you kind of talked about it just briefly in your 2022 plans, is the release of a mobile app. Can you maybe give us some additional color on that, maybe in terms of a timeline or when you plan on releasing that?

Yeah, we haven't really given like talk about guidance. I could say like we're targeting Q3, so that's our expectation. We want to make sure it's great and honestly consistent with our overall product, but Um, the reason why we've historically not had a mobile app is it is not legal in gray markets. So all of our current markets are, it's a degree of markets up until Ontario, Australia. You can't really list a mobile app. I mean, sometimes people do, they do what's called like sideloading where you're opening the mobile app. You just don't realize you're actually, you're really just opening a browser and you're just getting like a browser version in what looks like a mobile app. Um, so we've historically not had one. And then as we were getting ready to launch in Ontario, We just prioritize all resources from an engineering perspective on getting live April 4th. So that was the focus. So we got live April 4th, and then we kind of go from there. So, yeah, so now that we're in regulated markets, we'll build and have a great mobile app, and we're going to look to get that on ASAP. It'll be good for Ontario, good for Australia, and good for other future regulated markets we're looking at.

That's incredible. Listen, guys, thank you very much. Congrats on the quarter again. I'll pass on.

Thank you. Your next question comes from Sutan Sukumar with Stifel. Please go ahead.

And congrats on the strong set of results here. I just had a couple of questions here. Firstly, up on the business model, I mean, obviously, you guys posted some impressive handle growth this quarter and the outlook for growth for the next few periods look quite robust as well, given the seasonal trends. Can you touch on the win rate strength this quarter? What were some of the drivers for that? And what do you think is sustainable in the course ahead as these seasonal trends pick up?

Yeah, I mean, I direct you also to look at like the gross profit, which is kind of closer to an NGR proxy, which is probably more accurate of what maybe a true win rate is. Like I think our gross win rate with our better sometimes can be a little higher than average because frankly, they're just less experienced and sometimes can be more square. people would say. So it does shift around with that a little bit. There is still a lot of volatility or a little bit of, I guess, less volatility now in our handle than there was previously. But the way that sportsbooks work is you need a certain amount of critical mass before the margin finds stability. And then you're just reporting consistent with market. So, you know, market margin for gross is seven and a half percent or so. And then NGR is, you know, something like three to five percent, depending on the business. So I think over time, we're going to find stability in that range. Right now, there's just going to be inherent volatility because of the nature of the total liquidity that we're seeing on the sports book. So it's nothing really other than that. It's just volatility at the stage of the business combined with, frankly, slightly more square, less sharp, better as that happened to be on Rivalry. But to your kind of initial comment, it wasn't exactly a question, but I think something we try to talk to the market about a little bit is that right now these results are just our sports book, right? So the sports book is the core business. As I mentioned in my opening remarks, we are introducing more casino product, not just kind of rush lane stuff, but third-party casino product later this year. And if you look at most public companies, they rely almost entirely on casino to drive growth, retention, and revenue. It's usually more than 50% of their, I guess, stakes and turnover, and definitely more than 50% of revenue. For us right now, we're 100% sportsbook. It's just not the case for us, right? So what's going to happen, I think, when we introduce casino is it's just going to be that much more additive when it comes in, and it will also help to find more consistency and stability in margin. And the other thing as well is it will just add, it will be additive to wallet sizes. So that's another just critical feature to finding a little more stability in margin as well, is when wallet sizes increase because retention increases, then those sportsbooks actually can find a little bit more balance. So yeah, that's kind of what we see for margin at this point.

That's a good color, thank you. And, uh, just on Ontario, um, you know, I know it's obviously early days and it's been kind of sports, traditional sports betting focused. Um, but could you provide a sense of what, um, you know, player engagement, the player behavior has kind of looked like to date? How is that compared to what you see with your global user base? Just kind of curious how that, how that's kind of stacked up to your thesis. Yeah.

The biggest thing that we've noticed so far, which we kind of expected is average bet sizes and average deposit sizes are much higher. So among the same demographic, which is what we expected in Ontario and what we expect to see in Australia, because most of the great markets we're in right now where we found success, you're talking South America, parts of Southeast Asia, and that general region, the relative GDP per capita is just not the same. So even though the cultural proclivity for betting among younger people, I'd say, is higher because it's just a little more normalized there, the average bet sizes are smaller. a 24, 25 year old in South America is not depositing and betting on average as much as an Ontarian or what we expect to see in Australia. So that's probably the only thing I can really say at this point is that that's been consistent with what we expected and we were kind of hoping to see it. So yeah, I mean, we're, it's in some cases multiples, you know, I think every Ontarian can be equal to two to three of our existing average customer right now. So it will, as we continue to scale marketing spend there, it will allow kind of more leverage to, growth. It will take, I guess, a little less customers and a little less bets to drive handle. Because right now, if you were to compare our average bet size to a mature traditional sports bettor, for example, in North America, it's like one-fourth or one-fifth in some cases, just given the relative age and geography. So for every million dollars of sports, for every million dollars of handle we're doing, we're seeing multiple X more bets than somebody reporting in North America. So our 40 million in handle in Q1 is you actually look at the total number of bets that made that up on a, if you were to take that number of bets and then apply an average bet size for a North American, both at our target age, or that if you were to scale it up to a mature sports better, which we expect them to get to at some point, it's, it would be, you know, 250 to 500 million, potentially depending on the sports book. So the volume of bets you see is enormous. So it's nice to see average bet sizes go higher just as I guess the quality or the relative GDP per capita, the jurisdiction increase in our portfolio.

That's impressive. Great. And then just to follow up on Ontario, could you maybe kind of touch on, you know, what the current level of competitive intensity that you're seeing in the market today? I mean, obviously some major names I mentioned, Fold, and really kind of touch on, you know, how do you focus on differentiating your go-to-market with respect to brand awareness and customer acquisition here?

What we're seeing right now, and I think we're probably going to see still for a couple of months because you have a lot of other operators still getting licenses that are going to turn on, for example, DraftKings, which they haven't seemed to get it yet, but I'm sure they will be there in a month or so, is the same thing that happened in the US, which is just an extreme amount of bonusing and promotions. The level of promotions and free money that's being given out the first couple of weeks that will probably continue for the next couple of months is significant. We were pretty vocal even in the press and different Twitter spaces and stuff like this leading into a different publication. But A, we don't ever play that game in any of our markets. And B, it's the highest risk or the most dangerous period to participate in that is in the initial launch of a market. So if you look at how the market has turned on what's happened in the US, a lot of it has to do with the negative commentary coming out around bonusing and promotions to drive growth and In New York, people are getting $1,000, $1,500 of free money. They're figuring out how to kind of R bonuses across each other. Ontario is pretty similar right now. I mean, there was a great line that I think describes the whole thing. I'm going to try to find it. It was the biggest Discord. So for people that don't know, Discord is like a chat room. It was the biggest Discord. It's the biggest Discord group for Ontario, I'd say, betters right now, or maybe more sharps, I'd say. And this was the day before launch with the guy that runs it. who said, this is where the money is made. There will be no shortage of opportunities to take advantage of sportsbooks overpaying for customer acquisition. That's how they talk about it. So we don't want to be there and we don't ever want to be there. So that's what's happening right now is all the competitions are promotions and bonusing that will eventually dissipate. And then that's when product leadership and brand equity and everything will start to shine and more of the game that we play. So our approach is what I said earlier, which is start slow, make sure the product's great, develop brand equity, let everyone else kind of drain themselves of the bonus and promotion, which they inevitably always reel in over time. And then that's it. And then the competitive dynamics become a little bit more natural.

Great. Thank you for that. Thanks for the call, Steve. Appreciate it.

Thank you. Your next question comes from David McFadden with Cormac Securities. Please go ahead.

Oh, yeah. Hi. I'll just, uh, yeah, just on Ontario. I mean, some people will ask the questions, but I'll just try another way. Um, do you expect your customer acquisition costs to be different in Ontario versus the other markets? Just given the expectation of heightened revenue in Ontario?

Yeah, it will be. So like I look back, I mean, all of our current main markets started definitely in the hundreds of dollars and there is a deck on our, on our site, which we used to disclose CAC and we'll kind of reevaluate this going forward. But, um, it shows how initial markets would be in the first quarter or so, hundreds of dollars that's cost of customer acquisition. And then after about three to four months, it goes down to usually some $100. And then after a couple months, it goes down to some 50. And that was kind of our consistent thing that we saw in most of our markets. We also would talk a lot then, and I can say now, because of the relative wallet sizes and the relative GDP per capita, we do not expect... or don't believe, at least in the initial year or so, that cost of customer acquisition in Ontario or Australia will settle below 100. We think that even for our demo, it'll be more than 100 to 200 range, just being realistic. The difference is, though, is that the relative customer ARPU or LTV is also comparatively higher. So in the lower GDP per capital markets, that cost of customer acquisition we're putting up, which is extraordinarily low, it gets us a couple multiples on customer return, so on like an ARPU to CAC basis, call it, But in Ontario, we still think at somewhere between 100 to 200. In Australia, we would still be able to get the same return. So the best way to look at it from an apples-to-apples perspective is going to be looking at like an LTV to CAC or ARPA to CAC. But definitely, we think the settlement kind of number for cost-to-customer acquisition in these markets will be higher than what we've seen historically, just given the relative wealth, I guess, or economics of the market.

Okay, now that's helpful. And then, Just, um, I know it's early, but, um, is your competition of revenue still the same frontier, like 90% Esports, 10% traditional, or do you expect that to change?

No, I don't see that in the latest numbers in front of me. No, I think it's, it's, we've definitely seen more of a mix of sports and Esports already at the beginning for sure. It's, it's not the 90-10 it's skewed. Esports is still, I think the majority, but it definitely is finding more balance. And I think our commentary leading into Ontario and now is the same, which is among our target demo. there is slightly less development of, I'd say, esports fandom and interest in these markets than we find in our current markets. So our expectation is that we might even see like a 50-50 balance between esports and sports in both Australia and Ontario. And I'd say that like the trend right now, what we're seeing is indicative that I think as we scale, it will probably look something like that. I don't know for sure, but it's definitely a more healthy mix of sports and esports already.

Okay, thanks. And then just on Australia, I mean, I saw that you have a license now to go roll out across the entire country. So does that change your rollout plans from before?

No, no. We're just waiting for monetization of one of our vendors on the payment side and then making sure it's all good to go and then we'll go. I mean, everything's the same. We're just waiting. We're waiting on that third party and then we'll kick off on Australia. So yeah, I mean, hopefully a minute. That's kind of PTSD audit, but hopefully it's ASAP.

Okay. All right. Thanks.

Thank you. Your next question comes from Brian Kinslinger with Alliance Global. Please go ahead.

Hey, great. Thanks for taking my questions. With your crawl before you walk approach, just to help manage expectations, how do you think about Ontario in terms of its contribution to handle in the second half of the year? Is it going to be a major contributor or is this more of a 2023 catalyst in terms of maybe a massive acceleration in growth?

No, no, I think like we've said this kind of analogy for probably one to two years, definitely we were primed that like we find the first quarter is usually relatively quiet. We don't spend a lot of money. We make sure things work very well. As I said earlier on the call, like we're talking in the five digits for the first month of Ontario. I think second month might even be similar. Like we're not even over a hundred thousand in market spend, I don't think. So we've got competitors putting that out in a couple hours. We're definitely, you know, in less than half a day, probably just in bonus alone, let alone marketing spend. So we don't think it's going to be a massive part of our mix, I'd say, for Q2, given we just launched. Australia isn't launched yet, but I think Q3 will start to show more traction, for sure. I think Q4, definitely more of a mix. So, no, it's not, you know, wait a year, but it's not going to massively change our mix in the first couple months.

Definitely not. And then... after Ontario and soon to be Australia, what are the next target markets for you to enter? Is it, and as it relates to some of those, do you see acquiring your way in? Do you see applying for a license to build it organically? Those are all my questions. Thank you.

Yeah, we have one other gray market that we're interested in, but we're also just waiting for a paint provider to get locked and we'll probably be able to talk about it more next quarter, but we, we've kind of staffed up a little bit. We're just waiting for that. And, um, The other ones we're looking at are from a regulated market license perspective, just because we want to add more licenses to the portfolio. So one is in South America. It's, you know, called by gray license market where getting a license will massively kind of amplify our ability to market, make payments easier, all this kind of stuff. And then there is one or two opportunities in Europe we're looking at for blue chip license markets that are more likely to be by way of M&A to pick up the license because there are A number of markets in Europe, which are kind of the highest density of regulated markets, live where you just can't walk in the front door and apply for a license. It's always by way of, or typically by way of acquisition. So the market doesn't issue new licenses, so you either go in and pick up a defunct license, which does exist, people are just selling licenses, or you go pick up a small operating business. I mean, for us, we have to make sure it's small because we don't want to do anything to kind of impair the cap table, but you pick up a small operating business, And you can sub-license your brand into it. So those are kind of the two different ways to go in. So yeah, so definitely I'd say right now there's a potential opportunity in South America and then one or two opportunities in Europe. Both, all three of those being regulated market licenses.

Great. Thanks so much. Yeah.

Thank you. There are no further questions at this time. Mr. Sals, you may proceed.

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