MultiChoice’s investment in KingMakers analysed


MultiChoice, Africa’s leading pay-TV company, entered the Nigerian sports betting market through its investment in KingMakers.

In 2020, Multichoice acquired a 20% stake in Blue Lake Ventures, which traded as BetKing. It recently changed its name to KingMakers.

Multichoice agreed to pay $81 million upfront for the 20% stake, with a further $31 million payable if Kingmakers reached targets.

The targets were reached, meaning MultiChoice forked out $112 million for its 20% shareholding.

In June 2021, Multichoice announced that it was increasing its stake in Kingmakers to 49% at a total consideration of $281 million.

The pay-TV operator ultimately paid $393 million – around R6.8 billion – for its stake in the sports betting platform.

To assess whether it is a good or bad deal, Daily Investor looked at KingMakers revenue and profit.

KingMakers generated $77.9 million in revenue and a $1.6 million profit in its financial year ended December 2020, 2-months after the date of purchase.

Therefore, the 20% stake was bought at a price-to-sales ratio of 10.3 and a price-to-earnings (P/E) ratio of 350.

In simple terms, it means that Multichoice paid $10.3 for every one-dollar revenue and $350 for every dollar net profit of KingMakers.

The assumption is that MultiChoice expected exceptional growth from KingMakers to justify these high valuations.

Fast forward two years and Kingmakers reported revenue of $131 million and a net loss of $19 million.

It represents 62% year-on-year revenue growth, supported by an 84% increase in active KingMakers users.

However, it is unlikely to be what MultiChoice expected. In its results presentation, it said the “J-curve remains shallow”.

Comparative analysis

MultiChoice CEO Calvo Mawela

One way to assess the price MultiChoice paid for KingMakers is to compare it to the average P/E ratio of the Roundhill Sports Betting and iGaming ETF.

This ETF focuses on giving investors exposure to a variety of sports betting and gaming stocks and has an average P/E ratio of 17.25 times earnings.

For KingMakers’ valuation to match the ETF, it would need to generate a profit of $56 million. It is a $75 million swing from its current loss of $19 million.

To compare MultiChoice’s investment in KingMakers to a single acquisition, one can look at Caesar entertainment’s acquisition of UK-based sports betting company William Hill.

In April 2021, Caesar’s bought William Hill for about $4 billion. At the end of its 2020 financial year, William Hill reported an annual revenue of $1.7 billion and a net income of $77 million.

It translates to an average price-to-sales ratio of 2.4 and a price-to-earnings ratio of 52.

Although William Hill is a more mature company, it provides a good way to see what the market is willing to pay for sports betting companies.

For KingMakers to produce similar P/S and P/E ratios of William Hill in terms of valuation, it needs to generate revenue of $404 million and a net profit of $18.6 million.

It is still a long way off from these figures, but MultiChoice is upbeat about the betting platform’s prospects.

MultiChoice CEO Calvo Mawela highlighted that KingMakers is profitable in Nigeria and sits on $177 million in cash.

The money will be used in its expansion plans as it rolls out sports betting and entertainment services across the continent and grow its product offerings.

The KingMakers leadership team was also strengthened. Takealot founder and former CEO Kim Reid was appointed as the chief executive of Blue Lake Ventures Group, which owns KingMakers.

MultiChoice shareholders will closely watch KingMakers’ 2023 results to see whether it lives up to the high price MultiChoice paid for the company.