Catena Media’s Michael Daly on why start-up valuations are “out of control”

“It was a challenge, but I relished the challenge,” Catena Media CEO Michael Daly tells EGR Intel 14 months on from his appointment to the top job at the affiliate giant. Daly, who joined Catena in April 2018 as US general manager, was promoted to CEO in March 2021 following the departure of Per Hellberg. He describes his sharp ascension as a “learning curve”. “It’s a different animal. I knew our North American business but getting into Europe, I didn’t have a full appreciation for the challenges posed by more mature markets,” he reveals. While it may seem that all eyes with a gambling hue are focused on the beast that is the US, Catena’s roots are firmly planted in Europe, and it was something Daly had to tackle head on. Taking a polymathic approach as a CEO, each foot straddled across the Atlantic, is no mean feat and despite success, including positive full-year 2021 results, Daly is happy to concede that things could have run smoother. “I still haven’t met our CFO and he’s been with us for two years,” he chuckles. Now the most serious of travel restrictions implemented in light of Covid-19 are all but gone, Daly has the chance to finally build on the power of the “trust factor” that he speaks of when forming a successful team. But Covid-19, while a harbinger of disaster, did allow Daly to take the leap into the CEO role, with the trust placed in him after overseeing US operations combined with Catena’s insistence on promoting internal talent rather than conducting laborious external searches. “Covid probably made it possible for me to be CEO because I don’t think they would have ever considered a guy living in Las Vegas to be the CEO of a company based in Malta and that is traded on the Swedish Nasdaq,” he muses. And, despite it perhaps being an unexpected promotion, it is one that has paid dividends for Catena with Daly overseeing impressive revenue and EBITDA growth for full-year 2021, up 28% and 32% to €136.1m and €68.8m respectively, as well as two significant M&A deals completed under his watch.

Shopping spree

For a significant period of time, Catena and M&A went hand in hand as the company grew at a rapid pace, but Daly has pulled back on this outlook, reflecting on how bolting on companies can actually lead to a fractious atmosphere rather than a harmonious one. Too many cooks spoil the broth and at times there is a need to streamline. Some assets have been put on new reduced capitalisation schedules to write them down over time and Daly concedes the previous M&A process had been “painful” with a lot of unrealistic valuations on acquisitions in Europe. He says: “We were a company that probably made too many acquisitions in the past, so there were a lot of things bolted together. We didn’t really have a common roadmap on how things should have been integrated. We tried to make everybody happy, which left us with no long-term plan. “With M&A, you can end up with too many people at the helm of the ship. You want those inputs, but at some point somebody has to step up and be the captain and decide what is going to be done. We found that difficult with the small transactions over time because we’d never become a cohesive unit.” And in-line with the market explosion in the US, Daly is faced with the prospect of any potential M&A target being touted at a value that far exceeds what he feels it should be. “Prices have gotten out of control. That overspend is driving up prices for start-ups that in my valuation are worth $5m and they are asking for $50m. There is no common sense. “It is very hard for us to say is this outrageous sum going to change us that much? And the answer is pretty much always no,” he states. Daly does say that outside of the US, namely Latam and Africa, the M&A route is more appealing because of the nascent state of the markets on those continents, while in the US M&A is set to be replaced by media or data partnerships as Daly looks to maintain Catena’s place in the market. However, Catena’s two acquisitions in 2021, i15 Media and Lineups.com, buck this trend and Daly points to an increasingly mature M&A strategy that is both more sustainable and more productive. “We can prove we are an adult company and no longer doing due diligence on the back of a napkin. We looked at the assets, we looked at the integration, we looked at the five-year plan,” he says ruminating on past strategies. Daly also praised the management and staff of both the newly acquired firms, saying that the long-term approach of each in terms of looking towards eventual igaming regulation and further states opening up was key in his decision to push the button on the purchases.

The American dream

From his Las Vegas base, Daly doesn’t hold back when he details what the future holds for Catena. Like many in the space, his focus is on the US and all the treasures and glory that comes with it. From previously soaring share prices to massive marketing budgets, the US sports betting industry has exploded and Daly says that getting in on the action is the logical forward thrust of any affiliate worth its salt. As it stands, Catena positions itself as the number one affiliate in the US. Brands such as Legal Sports Report, PlayUSA and state-specific sites deploying the ‘Play’ prefix have helped push the firm to the top of the pile ahead of other competitors. The affiliate is live in 16 states across casino and sports betting, with Maryland and Ohio set to go live later this year. The US accounted for 51% of the group’s total revenue in 2021, with this expected to trend upwards. In 2020, the US represented 30% of total revenue and in 2019 just 18%. With further states set to legalise sports betting, and with the potential rise of igaming, the states are a fruitful battleground for Catena. A boon in igaming could leave Catena licking its lips in anticipation, with 63% of total revenue derived from the segment compared to 34% for sports betting. However, it faces competition from a growing pack of other firms looking to get in on the action. Better Collective spent a whopping $240m to acquire Action Network in May 2021 and has shelled out more since to strengthen its presence. However, for Daly, a steadier, long-term approach as opposed to an instant gold rush is the way forward. He says: “We love to brag that we’re number one in North America, that’s great today, but that is not the most important target. To me, being number one at all costs is not good business. We’re setting a pace that we can run a marathon at, because this is going to be a marathon and not a 50-yard sprint. “North America has to be our focus. We’ve made indications at possibly listing there because the investor market is also different and growing. The ROI is better in North America right now than anywhere else. We’d be doing a disservice to our shareholders and our teams everywhere, even if we’re not putting as many dollars into Europe as we are in North America. North American growth helps the overall organisation because that’s the biggest margin business you can do right now,” he continues. Elsewhere, Daly decides to use the evocative term “turmoil” to describe the current state of Europe for Catena. A swathe of regulatory headwinds, most appositely in Germany and the Netherlands, have had major impacts for industry players, from affiliates through to operators, and a return to previous levels will take time. And with these newly regulated/regulating markets, there is always the chance of some last-minute additions to rules that can catch firms off guard. The Dutch government proposed a fresh set of advertising restrictions for operators just six months after the market launch, which still has to be approved by a formal act of parliament, leaving affiliates like Catena in potential limbo. “We’re on a recovery plan in Europe to fix things. I think Germany, the Netherlands and some other European markets are going to be in that turmoil for a little while longer, so it doesn’t make as much sense for us to do heavy investment as we are doing in the US,” Daly says. Europe is on a “slow boil” to return to its former powers, he adds, but notes that there will be a constant assessment of where funding is most appropriate, with Europe not excluded from forward-thinking by any stretch. There are also shining lights in Japan, with the unregulated market returning an all-time revenue high in 2021, and Daly also pin points regulating Brazil and further expansion in Asia and the Pacific as potential revenue drivers. “We’re turning our attention [to Brazil],” he says. “It’s a massive market. We’ve also been doing very well in Japan, another grey market, which I think is a long time away from regulating. We need to look at other legal or grey spaces such as India. We will obviously never touch places like China or the Koreas because those are black in our eyes. But it is time for us to start looking outside of Europe for the next few years in terms of growth.”

Culture club

With the focus on the US, Europe on the backburner and exciting markets in Japan and Latam, Catena’s global footprint appears to be firmly in place. Likewise, Daly’s no rush policy, which he positions as “the right move but never flashy”, looks to be bearing fruit. The company’s Destination 2025 roadmap highlights its aims over the next three years and includes some high- performing targets which Daly reveals he would have made higher in some cases, to cement the affiliate as one of the largest players in the space. He is bullish on delivering consecutive years of double-digit organic revenue, as well as developing new market presence and successfully managing its rebirth in Europe, but it is a point on the improvement of employee satisfaction that piques his attention, eyes lighting up at the thought of improving the wellbeing of his 455-odd staff. Catena aims to reduce employee turnover to less than 20% while also filling more than 50% of vacant managerial positions with internal promotions. This admirable approach, designed to foster a sense of ownership among the workforce, has seen reduction in turnover from 2020 (29%) to 2021 (25%) already, with Daly the initiator of the successful internal promotion programme. “I want everyone to feel that this is their company, not my company that they work for. I think that number shouldn’t be 20%, it should hopefully be 10%. There is a long way to go because the world is very different suddenly. There is a lot of opportunity out there and we have to get the balancing act right,” he says. On internal promotion, Daly notes that not hiring from outside the company does have its downsides in terms of PR and reach – an esteemed name with a glitzy CV can cause ripples in the industry – but the CEO says the satisfaction of providing a successful launch pad for existing employees and helping them develop far outweighs any fleeting press coverage. “Announcing you’ve hired someone because they’ve got a long CV is probably more exciting than announcing you’ve promoted someone who has been with Catena for five years. It doesn’t sound as exciting to the markets but it might actually be the better move. The target [50%] is important to me, it’s absolutely achievable and too many companies look externally for talent,” he explains. “I think I’ll give myself a B,” quips Daly on his performance so far as CEO. Others may argue his report card should be top marks but the modest attitude, with a focus on constant improvement which has seeped into Catena’s strategy, is one that is currently driving the affiliate to success.