Sportradar Group AG (SRAD) Q1 2022 Earnings Call Transcript

Sportradar Group AG (SRAD -0.36%)
Q1 2022 Earnings Call
May 18, 2022, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and thank you for standing by. Welcome to the Sportradar's first-quarter earnings conference call. [Operator instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Rima Hyder, senior vice president of investor relations.

Please go ahead.

Rima Hyder -- Senior Vice President, Investor Relations

Thank you, Catherine. Good morning and good afternoon, everyone, and thank you for joining us today for Sportradar's first quarter 2022 earnings call. Before we begin, I would like to point out that the slides we will reference during this presentation can be accessed via the webcast or on our website at investors.sportradar.com. A replay of today's call will be available via phone and on our website.

After our prepared remarks, we will open the call to questions from investors. To be fair to everyone, please limit yourself to one question plus one follow-up. Please note that some of the information you'll hear during our discussion today will consist of forward-looking statements, including, without limitation, those regarding revenue and future business outlook. These statements involve risks and uncertainties that may cause actual results or trends to differ materially from our forecast.

For more information, please refer to the risk factors access -- please refer to the risk factors discussed in our annual report on Form 20-F and the Form 6-K furnished with the SEC today along with the associated earnings release. We assume no obligation to update any forward-looking statements or information, which speak as of their respective dates. Also, during today's call, we will present both IFRS and non-IFRS financial measures. Additional disclosures regarding these non-IFRS measures, including a reconciliation of IFRS to non-IFRS measures, are included in the earnings release, supplemental slides and our filings with the SEC, each of which is posted to our Investor Relations website.

Joining me today are Carsten Koerl, chief executive officer; and Alex Gersh, chief financial officer. I'd now like to turn the discussion over to Carsten Koerl.

Carsten Koerl -- Chief Executive Officer

Thank you, Rima, and thank you all for joining today. I'm pleased to share that our fiscal 2022 is off to a very strong start. Turning now to Slide 4. Our revenue in the first quarter of 2022 increased 31% compared with the first quarter of 2021, driven by the U.S.

and our growth in core betting products across all businesses. Our strong customer retention continued at 121%, and we have achieved many other successes, such as multiple partnerships for our integrity business, completion of a new acquisition as well as increasing our licenses in the North American region. Slide No. 5.

Our U.S. business delivered a revenue increase of 124%, as we continue to increase revenues with our key bedding customers as well as media companies. We also saw growth in the U.S. ad business at a rate of almost three times higher than our rest of the world ads business.

Globally, our ad revenues have grown over 70% year over year in the first quarter of 2022. In the rest of the world, we once again saw an increase in sales from our higher-value product such as MBS or the Live Data and Odds services. Our MBS revenue, which is a combination of the MTS and the MPS products increased 51% year over year. Our Live Odds Live Data services increased 16% as a result of selling more content to our existing clients.

Our strategic priorities for 2022, I'd like to turn now into a brief discussion of the priorities for 2022. Before I get more specific, I want to stress that our overarching priorities continue to be accelerating our technology leadership and powerful data-driven networks with AI to process and analyze this data. For the first time in human history, we are living in a big data world. Every interaction any company, government, charity, or academic institute has with an individual or entity, can generate many recorded data points.

At Sportradar, we have an especially deep understanding of this new data opportunity. We are the source code of sport with the experience and expertise in transforming 790,000 sporting events every year into granular numerical data that serves our B2B client base with deeper insights than any eye can see. Today, accelerating change more than ever is artificial intelligence. It is the megatrend of our times.

It's crystal clear that one who has the most data delivered by powerful networks in sports, media, and betting has the most potential to generate alpha. Everything we are doing at Sportradar is aimed at maximizing this AI opportunity, ensuring that our clients can generate maximum alpha with our products. We have systems in place to analyze all the data and sports events all over the world, which we acquire across our verticals to expand our product offering. For Sportradar, this adaptive approach has led us to develop commercial reliable synthetic data to serve our simulated reality programs, proprietary computer visionalization technology or our sports tracking and audiovisual product processes, and data-driven, deep knowledge analytics of consumer behavior for targeted marketing purposes.

In a nutshell, continuing and accelerating our technology leadership, harnessing data, and maximizing insights is the objective that extends across all our priorities, which I group in four categories. First is to grow core betting products. As our results indicated, our high-value add offering products such, as MBS and Live Data and Odds, are driving significant growth. MBS provides existing bookmakers and operators wishing to start the sportsbook with highly sophisticated and effective services for just trading or the full turnkey solutions.

I will talk about our managed trading services in more detail in a few minutes. Our Live Odds service is one of the most popular in-play trading services in the world. We anticipate continuing growth for this service, especially in markets like the U.S., where in-play betting still accounts for a minority of the betting unlike in other parts of the world where sports betting is more mature. And if you ever bet during a match versus before it, you understand why.

It's so much more exciting and intense to bet on your favorite team or player while the match is in progress. Our second objective is to grow our U.S. business with targeted products and move up the value chain. I'll use our ads product as an example.

With ads, Sportradar has built an omnichannel digital marketing agency focused on sports fan engagement and health sportsbooks as well as leagues and teams to be more efficient and precise in their marketing spend and deliver ROI. At industry-specific, multichannel marketing performance platforms help sports book to more effectively and efficiently engage, acquire, retain and grow customers across paid social connected TV, digital out-of-the-home, and native publisher products. Another recent significant development is the opening up of the college landscape in the U.S. As many of you know, just last month, the NCAA gave guidance that their membership can provide competition data to support sports betting.

As we began talking to conferences, we encouraged to not only that they want to have the best technology, but also the best integrity services are paramount for them. Founded in 2005, our integrity offering is deep and broad with more than 150 anti-doping and law enforcement organizations, including stakeholders in the college landscapes, and our customers. Based on our years of experience, we want to ensure our sports betting partner athletes are educated about the issue around match-fixing and have information on healthy sports wagering behaviors. Now turning to our third priority.

It is the full integration of the sports solution vertical, ensuring that the technology broadens the product that we can offer to our betting media and league partners. As a reminder, this is the business that we formed through the acquisition of Synergy Sports and InteractSport and gives us incredible penetration in division one and two college basketball and baseball, as well as cricket, one of the most popular sports worldwide. Computer vision and camera technologies are at the core of the technology that Sport Solutions uses to provide performance analytics, such as helping a player or team looking for a competitive advantage. It goes without saying that the more information we have on teams and players fetal betting and media and league partners receive insights on everything for reasoning the team has won to fence or who can now experience what the coaches see.

This is especially relevant in U.S. college space. Spot solutions also enhance our AV solution which is the visual content products to interest sports fans in sports betting events and give them a batting opportunity. We combine audiovisual content, which is, to a great extent, non-televised and comprehensive content from our highly attractive media rights portfolio.

We already have a diversified portfolio to close of 400,000 life events per year and the addition of more content from Sports Solutions further enhances the attractiveness of our AV solutions, as seen in our first quarter AV segment results. It is an important content set for our top 20 betting operator customers. AV betting revenues make up to more than 50% of the revenues from these top 20 customers. Last, but certainly not least, fourth priority is to invest in our people, values, and technology.

As we scale rapidly, we are hiring in key areas of content and technology and investing in current talent, prioritizing our people and giving them the tools they need to compete will always be one of our strategic priorities. We have also begun identifying environmental, social governance topics that have a significant impact to our business. Our approach is underpinned by our conviction that ethics and good governance matter to our future success. This is not a new approach.

It's one that is integral to how Sportradar operates our business and as a central player in the sports ecosystem guiding it. Through our integrity business, we monitor over 800,000 matches across more than 70 sports annually. Since 2008, our UFDS, the Universal Fraud Detection System, has been instrumental in reporting over 7,000 matches as suspicious and in helping authorities securing 514 sports sanctions and criminal convictions. We believe so strongly in sport, and we want to win in whatever we do.

But we know that in order to have good competition, it must be fair competition and a level playing field. Our commitment to Interact and supporting the sustainability and sport around the globe is something that we will never change. Moving to 7 in our next section. I'd like to spend some time doing a deep dive into an area of our business that is a key growth driver for us.

Today, I want to talk about MTS, the Managed Trading Service product, which is sold as part of our managed betting services. MTS is a sophisticated turnkey trading risk bot and liability management solution. Our rich set of tools allows our customer to manage betting activity, risk liability trading margin performance across both end markets. This is all executed in real time according to rules and thresholds that in collaboration with our customers, underpinned by our machine learning technology.

It's no surprise to us that over 200 organizations globally use FPS. As of the first quarter of 2022, we have processed close to EUR 4 billion in turnover, which is a revenue over year growth rate of 55%. At this current run rate, we expect MPS turnover to be in the range of EUR 17 billion to EUR 20 billion in 2022. This is making us larger than any betting operator in the United States and is in the top five of the largest globally bookmakers compared by the handle.

The MTS service is highly modular, enabling operators to access a range of specialized trading services to suit their business needs. For example, they can ask us to trade all sports on their behalf or they can elect to trade certain sports themselves while we trade the remainder, or they can trade everything themselves, but access our AI-driven customer managed services to give them a better understanding and insights of their consumer betting activities. For us, this modularity is critical in order to cater to all betting operators as they continue on their respective journey to modernize, rightsize, improve their trading by integrating MTS superior trading capabilities and services. ensuring that we are able to support them every step on the way to a full turnkey offering.

MTS partners also have the option to access the entire Sportradar product portfolio, which includes products such engagement tools, AV, and the turnkey sportsbook service. In addition to recruitment and retention marketing services through our ads product, our AI-driven behavior, and marketing services through our recent acquisition of Wages, we are essentially able to use MPS as upsell and cross-sell vehicle for the entire Sportradar product portfolio. Commercially, overall service provisions is underpinned by a revenue share model. This is based upon the share of the gross gaming revenue, or GGR, generated through the MTS service, typical with a monthly minimum fee.

Our current take rate on MTS is between 5% to 7% versus the pure data products, which have a 2% take rate, making MTS a highly valuable product for us and 1 that is fueling our growth. MTS can be deployed quickly, allowing new market entrants to increase speed to market and drive turnover. We reduced operational risk for customers by leveraging our scalability, expertise, and trading liquidity, and financial risk by generating superior trading margins or even offering a margin guarantee, perhaps most importantly, our content and technology help operators engage end users and sports fans. Next, I'd like to turn to the discussion about the capital allocation and priorities.

Last month, Sportradar acquired Vaix, the pioneer in developing solutions for the iGaming industry. Vaix's innovative AI engine allows us to understand the likely profitability of players post conversion in fear to their behavior over the last three days versus traditional business intelligence, which might give us the same data over two to three weeks. In turn, this helps us optimizing acquisition strategies with our advertising platform and much more quickly, an accurate measure the efficiency of campaigns. The key with Vaix's personalization service is that the fans receive a more targeted player-friendly experience, which in turn gives us the foundation data to build a player personalized offer and front end for our future products.

The Vaix acquisition shows the type of acquisition we might look in the future to accelerate our technology transformation. We already had a strong existing partnership with the team and they have a highly entrepreneurial culture and our technology innovators with products that fold into our existing product set and met to our strategic priorities. For the past two years, Sportradar has incorporated Vaix's technology into its managed training services offering with all the Vaix products that makes artificial intelligence and algorithms, enhance the data analytics, promotion systems, and player personalization in our Sportradar Sportsbook platform. I'm coming to the closing, where I want to remind everyone that Sportradar is well-positioned to continue its proven record of consistent, long-term growth, strong cash generation as well as very strong customer retention.

We have the experience and the insight and the technology leadership on sports betting and entertainment industry. And we are investing in our business with an eye toward technology transformation and continued growth. The strong first quarter sets us well for our fiscal year 2022. I'd like to end by reiterating our guidance that we gave in our fourth quarter call for both revenue growth of 18% to 25% and adjusted EBITDA growth of 21% to 30%.

With that, I'll turn it over to Alex to discuss our numbers in more depth. Alex?

Alex Gersh -- Chief Financial Officer

Thanks, Carsten. Hi, everybody. I'm going to repeat a few things that Carsten just told you, but I'm a great believer that great news deserves to be repeated. So you'll hear some of the great news one more time.

As Carsten already stated, we had a very strong first quarter with growth across all segments of our business. Revenue in the first quarter of 2022 increased 31% to EUR 168 million versus the first quarter of 2021. This was driven by strong growth across all of our segments with once again the highest growth coming from the U.S., where we grew 124%. We reported adjusted EBITDA of EUR 27 million for the first quarter and while it's down 5% year over year but in line with our expectations, this decrease was primarily due to higher costs associated with being a public company, which were approximately EUR 3 million for the quarter of 2022 and onetime temporary savings in Q1 of 2021 related to the COVID pandemic.

As a reminder, we're still forecasting adjusted EBITDA growth for the full year in a range of 20% to 30%. Importantly, our liquidity remains strong with cash and cash equivalents of EUR 716 million at the end of the first quarter. Let me now give you some details on our Q1 performance. Our Rest of the World Betting revenue is our largest segment.

It represents 52% of our total revenue. The segment grew 25% in the quarter to EUR 87 million. Growth was primarily driven by an uptick in our higher value-added offerings, as Carsten just mentioned, included managed betting services, again as Carsten said, including both our managed trading services and our managed platform services and Live Data and Live Odds services. More specifically, managed betting services revenue grew 51% year over year to EUR 26 million due to increased turnover, while Live Data and Odds grew 16% to EUR 47 million due to higher sales to our existing clients.

In addition, we have successfully begun cross-selling newly acquired synergy content to our customers. Rest of the World betting adjusted EBITDA increased 13% to EUR 45 million. The associated adjusted EBITDA margin declined to 51% versus 57%, again, exactly as we expected in the prior period. And as I have mentioned previously, in the first quarter of we experienced some temporary savings on sports rights and scouting costs, which drove adjusted -- the adjusted EBITDA margin higher to 57%.

In the first quarter of 2022, the sporting calendar has normalized. Rest of the World audiovisual segment grew 17% year over year to EUR 46 million. This growth was primarily due to increased content from Tennis Australia and the National Hockey League, as well as upselling content from our synergy acquisition. This segment was impacted by a loss of revenue associated with the war in Ukraine, which was offset by higher sales to customers in other countries.

Rest of the World audiovisual adjusted EBITDA was essentially flat at EUR 9 million and its adjusted EBITDA margin declined to 19% from 23%, primarily due to higher sports cost right as sports schedule will return to normal levels with the corporate pandemic easing. Turning to the United States, our highest growth segment. Revenue grew 124% year over year to EUR 26 million. This growth was primarily driven by three factors: first, increased sales of bedding services as more states legalized betting; second, increased sales to media clients; and third, a positive impact from Synergy.

We increased revenue with all our major customers in the U.S. and continue to see strong growth in our ads and our audiovisual products, which grew over 300% and over 100%, respectively. First-quarter U.S. adjusted EBITDA was a negative EUR 6 million a larger loss versus prior quarter due to our continued investment in the segment to drive growth.

In line with past trends, however, we did see continued improvement in the adjusted EBITDA margin as a result of increased operating leverage. A few things on cost. Personnel costs for the quarter increased by EUR 14 million to EUR 52 million. New employees were added both organically and through our acquisitions, primarily in technology and product area.

Other expenses were EUR 20 million, an increase of EUR 5 million over the prior year, mainly driven by higher costs associated with being a public company, and I mentioned it before, and temporary COVID-related savings in the prior year. Total sports rights costs increased EUR 13 million to EUR 54 million in the first quarter of 2022. Growth was driven by new 2022 rights for ICC, which is cricket, UEFA and ATP, and a return to normalized schedule for the NBA, NHL, and MLB. It's important to note that 11 major sports rights comprise approximately 70% of our sports rights expense.

While we expect sports rights cost to continue increasing over the next few years, we are very confident in Sportradar's ability to achieve growth in EBITDA and cash flow conversion over that same period. Our liquidity remained strong at the end of the first quarter. Cash and cash equivalents, plus our undrawn credit facility was EUR 826 million, a decrease from December 31, 2021, balance of EUR 853 million. This decrease in our cash balance was due to nonrecurring payments of EUR 35 million related to a purchase of a noncontrolling interest in the Sportradar U.S.

LLC subsidiary, as well as the final earn-out payment for an acquisition made in fiscal 2019 versus the prior quarter, adjusted free cash flow approximately doubled to EUR 13 million. Our cash flow conversion increased to 48% from 23% last year. We believe that our free cash flow conversion will continue to improve. Over the next few years, we expect our unlevered free cash flow conversion to be in the range of 55% to 60%.

A key change in our cash conversion is a move from a subscription model to a revenue share model. The fastest-growing areas for Sportradar namely managed betting services and a significant portion of our U.S. business are based on the revenue share model. While this offers us fantastic opportunity for growth.

It also has a timing effect on our working capital and cash collection. Back to annual guidance. And finally, let me reiterate our annual guidance for fiscal 2022, as Carsten already did. For the full year of 2022, we are maintaining our previously issued guidance, we expect the revenue to be in the range of EUR 665 million to EUR 700 million, reflecting annual growth of between 18% to 25%.

For adjusted EBITDA, we expect to be in the range of EUR 123 million to EUR 133 million, representing a year-on-year increase between 21% and 30%. As we told you last quarter, we believe our revenue guidance range can withstand the impact from potential revenue losses as a result of the Russia-Ukraine conflict, as we do not rely on any one region for our growth. We also told you that we were not expecting a meaningful adverse impact on our business for the first quarter of 2022. This is certainly the case this quarter.

However, in Q2, we are seeing increased impact of this crisis. We continue to monitor these developments very, very closely. With that, we are now happy to open the call to questions. Operator, would you please open up the line for questions?

Questions & Answers:

Operator

[Operator instructions] Our first question comes from Bernie McTernan with Needham & Company. Your line is open.

Bernie McTernan -- Needham and Company -- Analyst

Great. Thank you for taking the question. And, Carsten, thank you for all the detail and going in deep on MTS. Follow-up question, though.

I'm assuming there are large operators who outsource a low percentage of their MTS services while smaller operators outsource a much larger percentage. Is that the right way to think about it? And if so, which one is contributing more to revenue now and which one is the larger opportunity to contribute to revenue growth over the next 12 to 24 months?

Carsten Koerl -- Chief Executive Officer

Bernie, thanks for the question. At the moment, it's very clear Tier 3 operators, which are powering the growth of the MTS service, Tier 1 operators to a small degree because this is for the relatively small sports from a liquidity perspective, which they trade with us might be table tennis or cricket or something in this way. We are, as you know, heavy in the development here for liquidity trading. We see three different categories in the future, and we are working on this future saying for the Tier 1 operators, it's high liquidity trading with ultra-low margins, which needs innovation in the product, which we have now.

And we are, as we speak, putting all our process in to innovate here. And then you might see a mix into Tier 2 and Tier 3 trading systems. For Tier 3, I think we are perfect. We can very well trade also smaller sports with big bookmakers.

But for trading, the full liquidity of a big bookmaker, a big operator, it needs improvement in the liquidity trading algorithms, a very fascinating area, high-speed trading. If you control on one side, the latency, which we do, and deep data. And on the other side, aggregates the highest liquidity that will lead then into trading alpha, and that is the future for the big liquidity trading.

Bernie McTernan -- Needham and Company -- Analyst

Understood. And then I was hoping if you could just talk about the VIX acquisition a little bit. How differentiated that technology is and what the cross-sell opportunities with your Sportsbook customers? And if there is a -- if this is kind of like the first step in the larger iGaming opportunity?

Carsten Koerl -- Chief Executive Officer

Yes. It's a step into it. Look, as you know, a traditional BI system helps you probably to understand the impact of a marketing campaign in two to three weeks, depending on how much data and how big the campaign is. The iPhone banks can do this within two to three days.

I don't need to tell you that shortening this for more than two weeks, that's a massive, massive impact because you can optimize your cost significantly. That is one of the things where we see directly impact now. Looking to the sports book, of course, understanding the player and the player performance on what campaign he reacts is key here. Vaix has all the products here and the cross-selling them into the gaming space is very natural.

So once you know the behavior of sports better, cross-sell him into the gaming is in our plan and Vaix is an enabler for this. So easy, you have a live bet. And if there is no live betting activity, you're going to find quickly a stimulation that you shift the channel into the gaming and brakes has a perfect toolset for this and perfect knowledge.

Bernie McTernan -- Needham and Company -- Analyst

Great. Thank you for taking the questions.

Operator

Our next question comes from Michael Graham with Canaccord Genuity. Your line is open.

Unknown speaker -- Canaccord Genuity -- Analyst

Thanks. This is Jason on for Mike. On the Rest of World betting segment, you talked about higher turnover and upselling, driving the really strong growth there. I'm just wondering, are there any specific regions of the world or countries or operators that are notably strong and driving that performance.

Anything to call out there?

Carsten Koerl -- Chief Executive Officer

Well, the strong growth comes from the managed betting services and here, mainly the MPS services. The regions for this is in EMEA, but that's quite big. So there are a couple of European countries, which -- where we see some stronger growth in here than Africa, there is Latin America, which we see with a very strong growth. For the ops and data services, which is growing 16%, as you see, in the quarterly, that is all over the place.

That is a growth which we achieved was mainly upselling, but also serving some of the new clients in those markets.

Unknown speaker -- Canaccord Genuity -- Analyst

Great. That's helpful. And then just you mentioned the impact from Ukraine on Q2 being a little more notable. Can you just drill down on that a bit and share a little more detail there?

Carsten Koerl -- Chief Executive Officer

Yes. We gave you in the last quarter the worst-case scenario with EUR 110 million EBITDA. If I'm looking now in the back mirror of the car, this number gets smaller. So we get a distance from the worst case.

But we definitely see that a couple of bookmakers stop to order some of the services or some of them have payment problems. That is why Alexander, we will see some impact in Quarter 2. We keep the guidance and we are working very actively on mitigation. We see good opportunities popping up in Asia.

And as we speak and as we guided, we are looking to mitigate this as best we can.

Unknown speaker -- Canaccord Genuity -- Analyst

Great. Thanks a lot.

Operator

Our next question comes from David Karnovsky with J.P. Morgan. Your line is open.

David Karnovsky -- J.P. Morgan -- Analyst

Hi. Thank you. Carsten, you noted the percentage of live betting in the U.S. being still much lower than Rest of World.

Do you see anything within this that's structural and related to the way people consume the four major U.S. sports relative to soccer, which obviously drives a lot more betting internationally? And then what underlines your confidence the U.S. market will continue to shift toward live wagering? And where do you think that push needs to come from in terms of the leagues or the media companies you partner with?

Carsten Koerl -- Chief Executive Officer

So as you know, I'm doing this already since a couple of years, and I saw many markets, there are many countries and regions having this kind of shift from a betting behavior from pre-match into live. Without ending up the United States was a pre-match betting market, very much driven by Vegas and Atlantic City and the way how people betting. So I think with a younger population, with more digital channels here, that's very natural that you bet during the match. And it's simply so much more exciting.

And we see these trends. We are coming from a zero live betting now into a range over 20% to 30%. And no doubt, from all analysts, everybody is saying there will be a predominant piece in live. I think the question is only the timing.

And what we can do to accelerate this is, of course, we are giving the stimulation tools for those things. Whatever we do with audiovisual is targeting into making live betting more appealing. So the more penetration, which we can achieve with the AV products the better are the results in live setting. And of course, we are trying to push this with all our match centers and the scores, we are trying to accelerate and stimulate this best we can.

And of course, if we can, we would love to offer more and more audiovisual live streaming content to the U.S. marketplace. That is definitely an accelerator to shift this growth. And the last word from a sports perspective, the fast-moving sports and soccer is the most interesting for live betting.

We see a trend that soccer picks up more and more in the U.S., which hopefully also accelerates here.

David Karnovsky -- J.P. Morgan -- Analyst

OK. And then maybe related, I know there's some negotiation right now in terms of the data that you could source from wearables. Assuming you're able to get buy-in from the player associations, what are the sort of key commercial applications? What can you -- what data can you share with the teams versus the betting operators and media?

Carsten Koerl -- Chief Executive Officer

Look, for us, we are in this perspective, a technology company, and we are aggregating whatever data points we can get. And that can be from computer vision and low latency video stream from an arena with fiber optics, for example, or that can be from RFD chips. For the chips, there is a commitment necessary from the players and from the unions, and there must be agreements between the league and the unions to make that possible. And then the teams need to decide what kind of data do they really want to have in the public domain, what do they want to use for bedding, and that's a constant area of discussion.

So without any doubt, we will see RFD sensoric chip data also going into the betting market, probably always in a way that it is less intrusive for the player, not to personalize the information coming into the public from those systems, but there must be an agreement between the leagues and the unions how such data can be used. And I see in some leagues, there is a huge progress there. One commissioner told me, look, we always share with the unions, and there is no difference in this case. In some other leagues around the globe, there are still discussions ongoing.

But without any doubt, RFD chips is a valuable source for the data which we can put into our media and betting products.

David Karnovsky -- J.P. Morgan -- Analyst

Yeah. Thank you.

Operator

Our next question comes from Robin Farley with UBS. Your line is open.

Robin Farley -- UBS -- Analyst

Great. Thanks. I just wanted to get clarification on -- you reiterated the adjusted EBITDA range of the EUR 123 million to EUR 133 million. But a quarter ago, you had mentioned that potential a EUR 13 million impact in the worst-case scenario.

You don't mention that in the slides are released today. So should we understand from that the downside case is now back to being the EUR 123 million of that range and that, that sort of other EUR 13 million is not the worst-case scenario anymore?

Carsten Koerl -- Chief Executive Officer

Robin, we expected this question from you. And it is in a way, like I said before. So if I'm looking into the back mirror of my car, I see that number of 110, which is the worst-case scenario, getting smaller. That means, hopefully, you agree we are having a distance to this number.

The guidance is EUR 123 million to EUR 133 million, and we keep that guidance. But we see in Quarter 2, we are already in the Quarter 2 impact from this fall, and we are actively mitigating it with new markets. And we are working, as we speak, high speed on those kind of things. So the guidance stays with the EUR 123 million to EUR 133 million.

The distance to the worst case is getting bigger. Now it's up to the mitigation because unfortunately, this terrible war situation might continue for a longer time. And that's the indication which I can give you.

Alex Gersh -- Chief Financial Officer

And, Robin, just a quick one. We will continue to look at this. And every quarter, when we discuss it with you, if we have something new to say, we will.

Robin Farley -- UBS -- Analyst

OK. I thought that since it wasn't mentioned in the release that that meant that it was kind of off the table. That sounds like it's the odds are getting lower, but maybe still potentially the situation. OK.

Great. And then just in terms of a follow-up. I'm curious, some of the sports books in the U.S. have talked about that they spent too much in Q1 for customer acquisition that they have cut back on some promotional activity.

Have you seen that in your ads business here so far in Q2 that there's been a change in what they're spending in the ads business, given that they feel like they may have overspent, not specifically on ads in Q1, but just on commercial and customer acquisition cost overall?

Carsten Koerl -- Chief Executive Officer

Yes. So, of course, we see that there is, I would not call it overspend, Robin, it is a significantly higher spend for customer acquisition in the United States than we observed in any other market in the rest of the world. And there is the -- this is a continuing trend. I think it is lengthy and broadly discussed in the industry.

And all the statements, which I see here and read, are pointing in the direction that the industry is well aware that this is not a sustainable trend. And we will see that some of those spendings are going down. It's mainly the bonuses, the TV campaigns, and that will lead, of course, into a better penetration and acceptance of programmatic advertising. And we see that with -- in our ads.

Alex mentioned we had a growth quarter to quarter by 300%. I think that speaks for itself that those channels will be used for customer acquisition in a preferred way by the industry to reduce the costs in the U.S.

Robin Farley -- UBS -- Analyst

So you're actually seeing so far in Q2 an increase in the programmatic that is actually benefiting from that shift?

Carsten Koerl -- Chief Executive Officer

Of course. Yes.

Robin Farley -- UBS -- Analyst

OK. Great. Thank you.

Operator

Our next question comes from Ryan Sigdahl with Craig-Hallum Capital. Your line is open.

Ryan Sigdahl -- Craig-Hallum Capital Group -- Analyst

Thanks for taking my questions. I just want to turn Robin's statement, I guess, into a question. But given Ukraine and Russia, is it now safe to say the odds are lower, given guidance reaffirmation and the Q1 you just reported, but the magnitude is potentially bigger? Do you agree with that, yes or no?

Carsten Koerl -- Chief Executive Officer

Alex, that is a typical question for the CFO, and I hand over to you.

Alex Gersh -- Chief Financial Officer

OK. And so the answer is no. The magnitude is -- and the magnitude of -- what Carsten just said is that the magnitude of the impact on us is now smaller. So we don't think we're going to get to EUR 110 million.

We think we do better than EUR 110 million, without a doubt. Our guidance tells you that we are trying to stay with our guidance, and we are going to mitigate and we're working on mitigations in Q3 and Q4 as quickly as possible. However, I wanted to make sure that people understood that Q2, which is almost half through, will be impacted. However, we are working on the mitigation going forward.

Ryan Sigdahl -- Craig-Hallum Capital Group -- Analyst

Maybe just a follow-up, just to be crystal clear, and maybe I misunderstood it earlier. I thought you said the gap between the base case and the worst case has widened, that potentially the magnitude is worse. And now, Alex, I think you just said the gap has shrunk and that 110 is actually probably a higher worst case.

Alex Gersh -- Chief Financial Officer

Correct. That is correct. The second statement is correct. Onetime gap has shrunk.

We didn't see a lot of impact in Q1. We are working on mitigating impact in Q2, Q3 and Q4, but there is going to be an impact in Q2.

Ryan Sigdahl -- Craig-Hallum Capital Group -- Analyst

Got it. Helpful. One more for me. Just with the big four U.S.

sports leagues and the two largest soccer leagues locked up in the multiyear exclusive contracts. Notably, you do -- you guys have four of those. How much opportunity do you see in the pipeline for new sports rights business going forward versus optimizing the existing portfolio?

Carsten Koerl -- Chief Executive Officer

You know that our business growth does not only depend on sports right deals. Our growth in the U.S., there is a huge opportunity with the shift from pre-match into live. I hope I highlighted this. For us, it means we can optimize order take rate from 2% in average to 5% to 7%, if it is the MPS product.

If it is the odds product, it also goes significantly higher. So with the existing rights which we have, we see already a huge growth potential. We see many, many states are opening up. We see some movements in California here.

Growth will be also fueled from this, not only from a sport rights perspective. Sport rights are split into two pieces. It's audiovisual, which is very important for our top 20 clients, as you see in the report and the data piece. If I'm looking now to opportunities in the U.S., that will be college.

The best guess from my side here is that you will see a very mixed environment, and college is very much focused in the talks, which we have around the integrity and a more holistic approach in tools for the players and for the coaches to optimize this. In all of these directions, we feel ourselves being perfectly placed, but we will not do any deals which are going away from our general strategy of saying this is a high-growth company, but very profitable and high cash converting. So this are the deals which you will see from us in this space, but there is a college opportunity.

Ryan Sigdahl -- Craig-Hallum Capital Group -- Analyst

Thanks, guys. Good luck.

Operator

Our next question comes from Steve Pizzella with Deutsche Bank. Your line is open.

Steve Pizzella -- Deutsche Bank -- Analyst

Just wanted to follow up on the college. Can you talk about your existing NCAA product you have currently and the benefits you could potentially foresee from having the data rights from the conferences?

Carsten Koerl -- Chief Executive Officer

Look, we think that college is significantly different from a rights perspective than the big four sports, which we have in the U.S. What is established there with the official data is the part of the strategy from those big players, which have an enormous media power, which can limit the excess of bookmakers in that acquisition channel. We don't think that college has not that kind of power, which we see from the big leagues and here, namely two of them, which are popping out. So we think for college, it's more important to have a partner who can satisfy all needs, status, and integrity.

College doesn't want to have any problems with the young players. They need guidance here. They need the monitoring on this. It is very essential with every college, which we have talks now that is key to center in their opinion.

Then the training of the athletes is very important. So the tools for this is not only the data collection, it's the tools, it's the video coaching, it's the sport analytics systems, which are important, then OTT transmission, how to do this, how to enable that the moms and the dads can see performance or their friends can see is a part of it. The experience in the entertainment and then, of course, the revenues from sports betting. It's more a holistic picture, which we see on college if we compare to the big leagues.

Steve Pizzella -- Deutsche Bank -- Analyst

OK. And then you mentioned you're now cross and upselling the Synergy sports product to customers. Can you talk about how much that is contributing now in your outlook for the business?

Carsten Koerl -- Chief Executive Officer

Alex, can you give us the numbers on it?

Alex Gersh -- Chief Financial Officer

Yes. In Q3 between the two segments, and I'm not going to break it out between audiovisual betting and sports betting outside of the U.S. for the worldwide, it's contributed about EUR 3 million of revenue. And we are expecting that to continue to grow, obviously, over this year and over the following years.

Steve Pizzella -- Deutsche Bank -- Analyst

OK. Great. Thank you.

Operator

Our next question comes from Jason Bazinet with Citi. Your line is open.

Jason Bazinet -- Citi -- Analyst

Thanks. I just had a question for Alex. Thank you for giving us the long-term targets for EBITDA to free cash conversion. My question is, what do you think a reasonable range is this year? And the reason I ask is your headline free cash conversion looked good at 48%.

But if I back out the FX impact, it was closer to 12% or 13%, if I'm doing the math right this quarter. And maybe that points to the working capital dynamics that you talked about as you move to a rev share model that could sort of delay or tamper.

Alex Gersh -- Chief Financial Officer

That's exactly the case. It's definitely pointing and that's why I wanted to highlight the model because those are our fastest growing revenues, and they are -- they do -- there is a delay in working capital and conversion to cash. We will continue to improve. I don't want to give targets for the year -- for this year.

But certainly, over the next two to three years, this is the target, and we're going to start marching toward that target this year.

Jason Bazinet -- Citi -- Analyst

And can you, just in rough terms, the sort of timing of the working capital impact? Is that like a quarter or two? Or is it longer than that? Like --

Alex Gersh -- Chief Financial Officer

I mean if you think about our subscription model, if you think about our subscription model, it worked on a prepayment basis, right? We got the money first effectively, right? This is us getting the revenue share. So first, the customers have to figure out the revenue, then they tell us, then we bill them, then they pay. So you've got a couple of months delayed.

Jason Bazinet -- Citi -- Analyst

Understood. OK. Thank you.

Operator

And our last question comes from Mike Hickey with The Benchmark Company. Your line is open.

Mike Hickey -- The Benchmark Company -- Analyst

Carsten, Alex, nice quarter. Congratulations. Just two questions from me. Carsten, obviously, you are a global business here, and you've run it for decades.

So you're sort of a beacon of knowledge. I'm just sort of curious your view on sort of the economic slowdown globally. I think we're sort of experiencing and we're obviously seeing some pressure on consumer spend, which maybe eventually trickles through operators and to you, but sort of just how your business has behaved historically in periods of stress within particular regions where you operate? And if that's a consideration that you originally baked into your guidance? And I have a follow-up.

Carsten Koerl -- Chief Executive Officer

Thank you for that question, Mike. It's refreshing that you see it's a strong first quarter, that is indeed the case. And only to make it clear, we intend to perform exactly in what we forecasted. And we always manage to keep our guidance and lay within the guidance only as a small side remark.

Yes. I'm working since 25 years in that industry. I'm just on a conference where I had the pleasure to listen to the 34th president of the United States also on this topic. We see no impact from the current downturn and recession and we expect no impact.

In other 25 years, we are operated, I see 1 thing, sports betting and sports is resilient on this crisis and recession. We see exactly the same thing now. We think we might even see some acceleration in some markets. But from our business perspective, it has no impact.

It probably unfortunately for the consolidation has probably more a positive impact for us because if the crisis is getting bigger, people have the mentality to spend small money into winning big prices. That's what you see in lotteries. You see the same in sports betting. Sport consumption generally in that period goes higher.

So that is what we see in the future and how we think we are able to hit our forecast and numbers. We see no impact from this downturn.

Mike Hickey -- The Benchmark Company -- Analyst

Nice. Second question for me. You highlighted the strength of your balance sheet and obviously, you're driving profit here. Just sort of curious in this environment, if you are sort of wanting to lean forward here, Carsten, and be opportunistic leveraging that capital for your growth and acquisitions or a buyback? But sort of, I guess, what do you do with that cash? And how do you leverage it to drive growth?

Carsten Koerl -- Chief Executive Officer

First of all, we are super happy to have cash on our balance sheet, and we are super happy to generate cash. In such a situation, I think that's key to central. So being cash and generating is very, very important in such a situation. Looking to opportunities, we are constantly monitoring the market around the technology space for our key sports, makes it such an acquisition which we monitored since a long time and came then to a conclusion that is improving our technology stack and can be implemented directly into our revenue-driving products.

So this is something which we continue to monitor and discuss very actively as we speak. And the trouble here is that the private and the public market valuations are currently, let's say, a little bit detached. And there is very soon, I guess, coming an opportunity for doing acquisitions on a different valuation level, and we will use these opportunities if this fits into our core technology stack and into the sports where we want to accelerate and we monitor this actively. But at the moment, it's a valuation question.

Mike Hickey -- The Benchmark Company -- Analyst

Nice. Thanks for the color. Good luck.

Operator

[Operator signoff]

Duration: 58 minutes

Call participants:

Rima Hyder -- Senior Vice President, Investor Relations

Carsten Koerl -- Chief Executive Officer

Alex Gersh -- Chief Financial Officer

Bernie McTernan -- Needham and Company -- Analyst

Unknown speaker -- Canaccord Genuity -- Analyst

David Karnovsky -- J.P. Morgan -- Analyst

Robin Farley -- UBS -- Analyst

Ryan Sigdahl -- Craig-Hallum Capital Group -- Analyst

Steve Pizzella -- Deutsche Bank -- Analyst

Jason Bazinet -- Citi -- Analyst

Mike Hickey -- The Benchmark Company -- Analyst

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