Genius Shares Fall As $1bn M&A Deal Draws Investor Backlash

Genius Sports has seen its share price plunge after unveiling its planned $1.2bn acquisition of sports media group Legend. The company’s stock fell almost 28% on Thursday, marking one of the sector’s worst market responses to a major merger or acquisition in recent years.

Market concerns centre around Genius purchasing a large affiliate business at a time when the model faces heavy scrutiny, plus the level of leverage the company took on the deal. Notably, Genius’ initial announcement avoided using the word affiliate, showing that the leadership anticipated pushback from investors.

‘Sell first and ask questions later’ reaction from market

Analysts at Truist suggested that part of the sell-off reflects concerns about artificial intelligence disrupting traditional affiliate economics. However, they said management believes Legend is closer to a retail media network than a conventional affiliate operation.

The analysts wrote: “We’re seeing a lot of ‘sell first and ask questions later’ reactions from investors and believe management will push better investor education on the deal ahead of/post Q4 earnings (date TBD). We remain Buy rated, seeing the potential merits of Legend advancing GENI’s media business, with revenues likely stickier than feared.”

They argued that Legend brings “sticky premium content, superior ad targeting tech, consistent cashflow and sizeable synergy potential”. Truist noted that Legend generates more than $2 per new visitor and was not impacted by Google algorithm changes that hit many affiliate operators in Q3. Also, the analysts advised that Genius should focus on educating investors about the deal. 

Citizens analysts echoed a similar perspective, stating: “The negative reaction we are seeing in the price of the stock is a misunderstanding of the Legend business model, in our view, which is not a pure-play affiliate model. This is a type of acquisition that will require investor education around the unique dynamics of the business.”

They further added these comments. “The 8.5x EBITDA all-in multiple, or 6.4x before the earnout, would represent a premium multiple to affiliate businesses, yet only 36% is paid, which would imply the business is not apples-to-apples with affiliates, trading at depressed EBITDA multiples, and higher quality media platforms and marketplaces.”

Management defends strategy and long-term vision

During an analyst call following the announcement, Genius executives strongly defended the deal’s financial logic and their long-term strategy. Chief financial officer Bryan Castellani emphasised that leverage is expected to reduce “by more than half by 2028”, owing to the deal’s potential benefits. 

Chief executive Mark Locke also reiterated his belief that Genius’ media division could eventually outgrow its betting technology arm. He said: “We’re delivering a business that is faster growing, higher margin, and eventually will be materially larger than our sports betting business.”

The company’s executives highlighted Legend’s AI-driven technology stack and performance-based model as distinctive features.

Scale, AI capabilities and prediction market synergies

Genius management pointed to Legend’s scale as another major attraction, noting the business reaches around 380 million unique users annually. Executives claim this distribution network could help league partners expand into new regions, particularly in Europe, while maximising advertising opportunities from prediction market operators.

The company believes combining its official sports data operations with Legend’s AI-powered media platform will unlock new revenue streams. Despite the immediate market reaction, stronger communication about the rationale behind the deal should shift investor sentiments over time.