Catena Media feels bite of poor US affiliate scene in H1

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State launches, or the relative lack thereof, in the first half of 2023 has impacted Catena Media’s revenues, as the affiliate reported a 16% decline in North American revenues for the period. 

Publishing its H1 accounts, Catena noted that its revenue in constant states, those that were also live in H1 of 2022, declined by 7%, reflecting the smaller marketing budgets that operators are allocating. 

The affiliate business explained that this was also due to a typically quiet period of the year in Q2 when major sports leagues are at a lull, but that Ohio and Massachusetts should provide significant revenue upticks as they experience their first NFL seasons beginning next month. 

For the six months ended June 30th, Catena recorded group revenue from continuing operations of $55.3m, down 9% on an annual basis. North American revenue reached $45.3m for the half year, down 7% YoY.

Reflecting Catena’s ever-increasing reliance on the North American business – highlighted by the sale of a series of European and Australian assets – the region accounted for 82% of group revenue in H1’23, up 3ppts from the 79% recorded in H1’22. 

CEO Michael Daly explained that, while revenues are declining owing to weak market conditions throughout the year, Catena is using this period to become a more streamlined organization in a bid to become a net cash-positive business. 

He said: “Q2 was a quarter of further evolution for Catena Media as we continued to transition towards a net cash positive business focused on regulated markets in North America. 

“The group capitalized on the annual interlude in the North American sports calendar to undertake significant operational and financial streamlining measures ahead of the NFL resumption in early September.

“The implementation of further share buybacks and a bond repurchase accelerated the ongoing program to increase shareholder value and optimize the capital structure. The steps taken align with our target to become net cash positive during the second half of this year as we reduce financial risk and promote long-term flexibility in our financial planning.”

For Q2, a slower period for affiliates due to the lull in sporting activity, Catena’s revenues were $18.5m, down 16% YoY, whilst North America only accounted for 74% of group income. 

The impact was only heightened by the lack of new state launches in the US sports betting and online casino markets, and this resulted in NDCs falling 31% YoY to just under 50,000. 

Meanwhile, the firm recorded no organic growth, as continuing operations dropped by 16% in Q2. 

Undoubtedly a tough period navigating choppy waters, Daly asserted that Catena is focused on becoming a major player in the US space in Q3, when revenue and profits are expected to be much stronger, and beyond. 

“In casino, I was encouraged to see an appetite for higher marketing activity among some online casino partners,” he stated. 

“Revenue in sports is historically slow in Q2 due to seasonal factors. This year, the cyclical impact was amplified by the absence of a market launch similar to Ontario in 2022 or a large summer sports tournament like the Euros in 2021. I expect our EBITDA margins to be far stronger in Q3, and especially in Q4, when sports betting activity will be higher.

Daly continued: “In North America, stiffer competition from non-traditional affiliates and the entry of established media organizations into the online sports betting and casino gaming space pushed revenue lower. 

“We bucked this trend in the large New Jersey market thanks to revenue generated by our successful media partnership with the news website. Media partnerships on the lines of the deal offer considerable growth potential alongside our organic search-based affiliation business. 

“They diversify our market footprint by allowing us to reach farther and deeper into the online sports bettor and casino gamer audience and will form an important part of our toolbox going forward. 

“The shared revenue component means these collaborations come with a lower operating margin than traditional affiliation, which makes it important that we pursue appropriate deals that offer favorable terms and conditions for both parties.”

From an earnings perspective, Q2 proved a tough period, as AEBITDA dropped 60% to $2.7m, though the business did sell several assets through the period that would no longer be accounted for. 

Reflecting resilience within its operations through this period, Catena’s North American EBITDA margin stood at 41% for H1 despite declining revenues. 

Moving forward, the affiliate seeks to accelerate its US plans, which include leveraging new media partnerships, such as its deal with Lee Enterprises to gain exposure in news outlets across the US.

Moreover, it will look to Kentucky, which is expected to provide a “small” revenue boost in Q3, and Latin America for further growth opportunities in the near future. 

But cost control is still the aim of the game as Catena eyes stronger margins in a bid to fulfill its medium and long-term financial goals. 

Daly concluded: “As we move forward, my priority is to ensure we maintain momentum towards delivering on our financial targets: achieving a net cash positive position by the end of this year, and increasing annual North American revenue to $125m in 2025 along with an adjusted EBITDA margin exceeding 50%.”