Welcome to the April 2020 newsletter for the Waterhouse VC Fund.
The Fund specialises in gambling assets and businesses that are related to the gambling industry. We aim to leverage our unique expertise and existing assets to generate yield and capital growth for investors over the long-term.
Since inception, the unit price of the Waterhouse VC Fund has risen from $1.00 to $2.01, as at 31 March 2020.
The Fund has held over 50% of the portfolio in cash since the beginning of February, as we patiently waited for the right opportunities to deploy capital. This has held us in good stead for the ongoing volatility in global markets.
In March, we highlighted online gambling and online video gaming as two sectors that would be somewhat resilient to a global recession and may even benefit from an economy-wide lockdown. As these two sectors are a core focus for the Gambling Fund, this month we'll dig deeper into the effects of the coronavirus pandemic and associated lockdown of both on these industries.
A catalyst for accelerating growth
A core reason for our gambling focus is that the industry has historically been robust during recessions. However, this particular downturn has not been kind to certain aspects of the industry, namely those categorised as ‘land-based entertainment’. The shutdown of casinos, pubs, clubs, TAB outlets and stadiums has completely gelded casino gaming, poker machine and sports wagering revenues.
We’re fortunate that our particular gambling industry focus aligns with what you would categorise as ‘stay-at-home entertainment’. Further, we think this pandemic will cause an acceleration of some structural trends we were already seeing.
Evolution Gaming, a company that live streams casino games into betting apps is experiencing “a continued strong demand for the company’s products and notes that many players opt to play [online] casino in the absence of betting games".[1] Similarly, The Stars Group “saw record revenues in the first quarter with 27% year-over-year growth and are continuing to see strong momentum into April, with strong growth in poker and gaming revenues helping to mitigate the cancellation of sporting events”.[2]
These products were already seeing impressive growth, which is why we’ve covered them in the past. But now, punters who want to bet online have less to choose from due to the cancellation of all the major sports leagues, meaning online casino content gets much more attention.
Portfolio company BetMakers has been a beneficiary of Australian thoroughbred and greyhound races still running in all states other than Tasmania. BetMakers is moving quickly to pipe this content (race fields, speed maps, commentary, official prices and live vision) to betting apps around the world where punters are starved of content. According to the company, “BetMakers has successfully delivered numerous new solutions to wagering operators by sourcing new racing content from those jurisdictions where racing continues to function.”[3]
Esports is booming for similar reasons to online gambling. In fact, esports may be experiencing an even bigger step change in its growth due to a confluence of events that will push it into the mainstream for good. Sports leagues like the NBA, NASCAR and F1 have relied on esports to salvage revenue and maintain fan engagement. NASCAR got 35 real-life drivers to race virtually from their homes, which was broadcast on live TV and averaged almost a million viewers throughout the race.[4]
We're fortunate that our core strategy will benefit from this 'catalyst' for accelerating the trends we always stood to benefit from.
The Waterhouse VC Fund is currently closed to new applications. If you'd like to be placed on the waiting list, please enter your email here.
[1] https://www.evolutiongaming.com/sites/default/files/1211813.pdf
[2] https://s1.rationalcdn.com/vendors/stars-group/documents/financial-information/financial-results/Q1-2020/TSG-1Q20-Press-Release.pdf
[3] https://www.asx.com.au/asx/statistics/displayAnnouncement.do?display=pdf&idsId=02218769
[4] https://esportsobserver.com/nascar-pro-invitational-tv-ratings/