Sportradar Group Ag (SRAD) Q2 2024 Earnings Call Transcript

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Sportradar Group Ag (NASDAQ: SRAD)
Q2 2024 Earnings Call
Aug 13, 2024 , 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and thank you for standing by. Welcome to the Sportradar second quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session.

[Operator instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to Jim Bombassei, senior vice president, investor relations. Please go ahead.

Jim Bombassei -- Senior Vice President, Investor Relations

Thank you, operator. Hello, everyone, and thank you for joining us for Sportradar's earnings call for the second quarter of 2024. Please note that the slides we will reference during this presentation will be accessed via the webcast on our website at investors.sportradar.com and will be posted on our website at the conclusion of this call. A replay of today's call will also be available on our website.

After our prepared remarks, we'll open the call to questions from analysts and investors. In the interest of time, please limit yourself to one question and one follow-up. Please note that some of the information you will 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 discussed in our annual report on Form 20-F and Form 6-K filed today with the SEC, along with the associated earnings release. We assume no obligation to update any forward-looking statements or information. We 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 and non-IFRS measures, are included in the earnings release, supplemental slides, and our findings with the SEC, each of which is posted to our investor relations website. Joining me today are Carsten Koerl, our CEO; and Craig Felenstein, our CFO. And now, I'll turn the call over to Carsten.

Carsten Koerl -- Chief Executive Officer

Hello, everyone, and thank you for being here today. We are thrilled to share the incredible momentum we are experiencing across our businesses. We feel an energy and an excitement in our growth and success, and I look forward to discussing the remarkable progress we've made. I'm very excited, pleased with our third consecutive quarter of record revenue.

Our revenue increased 29% year on year, driven by an uptick of 59% in the U.S. and 22% across Europe, APEC, and Latin America. This dynamic year in sports marked by several major international competition, propelled fan engagement to unprecedented levels, further demonstrating the value of our products. I'm proud that we continue to reinforce our leading position as an essential partner to the sports industry.

It's particularly encouraging to see that we achieved this top-line revenue while strengthening our business throughout operational efficiencies and a focus on enhancing cash generation. Our focus on maximizing efficiency led to excellent cash flow this quarter. We will maintain this focus to drive further improvement in this key metric. Our new CFO, Craig Felenstein, will be a key partner in our efforts to continue optimizing our performance.

I'm pleased to welcome him to his first earnings call today. He joined us in the beginning of June and has hit the ground running. Craig will provide more color on our financial highlights from this quarter in his remarks. We also welcome Behshad Behzadi from Google, who will lead the advancement in our technology.

Hiring a top international AI leader is a clear statement of our ambition in this important area. Under Behshad's guidance, we will enhance our AI capabilities to drive efficiency and cost savings and develop products that transform the way sports are consumed in our sports platform. Our technology and history of innovation is one of our core competitive advantages, together with our market-leading content portfolio and distinctive client-centric approach. We will drive deeper into these three areas during today's call, but first I'd like to highlight two key milestones, of which I'm particularly proud of.

First, we expanded and expanded our exclusive multiyear partnership with UEFA, the governing body of European football. Starting with the 2024-2025 season, we are the only provider eligible to distribute official data for betting purposes. This deals, for instance, our competitive global soccer rights portfolio. We view this as a strategic asset, given that soccer accounts were over 50% of global betting turnover and is surging in popularity in the U.S., ahead of the 2026 World Cup.

The agreement, which features a 33% increase in soccer match coverage to 900 annually, includes a first-of-its-kind agreement to distribute data for nonbetting media, opening up new revenue streams for us. We will also, for the first time, have the ability to leverage advanced player tracking data to refine and enhance our leading AI enabling betting and streaming products and services. With this deal, we have the exclusive right to use tracking data for the Champions League and the Europa League competition for our products and services. Second, I'm increasingly pleased with the continued art performance of our managed trading services or MTS business, a core solution designed to help operators manage and optimize their betting offering.

So far, this year, we have signed up 46 additional sportsbooks across some of the fastest-growing betting markets globally, including Brazil and Africa. Our success with MTS not only underscores its vital role in optimizing an operator's performance, but also reflects what we see as our three core strengths, which I highlighted earlier. I'd now like to spend some time talking about these in more detail. Sportradar stands unmatched in both the depth and scale of our coverage and client network.

We bring together over 800 betting operators, 400 sports leagues, and 900 media companies who cover close to 1 million matches annually. This means we have access to the richest data set in the market. The breadth and the depth of our content, combined with the advanced technology enables us to provide clients unique insights into nearly all sports, as well as betters preferences throughout the year. It creates a virtual circle of innovation that constantly sets new industry standards.

Our growth is driven not only by our ability to deepen relationships with existing clients through effective upselling and cross-selling, but also by our success in attracting new clients. New market entrants turn to us because of our deep understanding and our ability to address the evolving and sophisticated needs. Our relationship with clients go beyond the transactional. It's a collaborative partnership where we work to help clients enhance their value proposition and diversify their revenue streams.

Our unwavering focus on meeting our clients' needs is the reason we continue to strengthen existing relationships and frog new ones. In fact, our net retention rate stood at 117% for the quarter, demonstrating that our clients choose and stay with us and do more with us year after year. We work with all the major U.S. market leaders, including FanDuel and DraftKings.

Our client-centric approach has helped drive many of our U.S. clients' rapid growth and innovation since launching in the U.S. market. Our partnerships often started with applying live data to power their fantasy sports offering.

When the U.S. sports betting market legalized in 2018, Sportradar supported building up their online betting product. As their business expanded, we continually adopted to meet our customers' involving needs, covering additional sports, and developing tailored product features, including audiovisual streaming services and their consumer acquisition efforts through our ads products. This client-centric focus and innovation in product development highlights why we are strategic partners to many of the leading operators.

For example, our partnership with FanDuel is a core long-term partnership. We have supplied data to FanDuel for multiple sports since 2015 when it was a fantasy sports business and data and streaming since its launch of sports betting in 2018, as well as other services since then. We recently extended our relationship with them through 2031. Innovation is central to our culture.

We continue to lead charge in the industry and through our application of AI across the product suites. For over a decade, we have been at the forefront of integrating AI into sports, such as tennis, table tennis, basketball, through machine learning and computer vision. As I mentioned, Behshad's leadership at CTO and CAIO will help to propel our efforts even further to enhance our product portfolio and to drive innovation. Our mission is clear: harness the full potential of AI to transform the sports economy.

Our data advantage is crucial, but it's not just the data. It is also what we do with it on our sports platform that makes a difference. Our extensive and historical content portfolio, combined with advanced AI, positions us uniquely to tackle this challenge and seize new opportunities. And we are doing just that.

We are transforming how fans interact with their favorite sports through products such as sports live streaming, our AI-enriched streaming technology, and emBET, which integrates batting directly into OTT platforms. We expect to use gen AI to build new experiences which can answer all types of questions about ongoing and historic games to new multimodal experiences for sports consumption that are hyper-personalized to fans. We see this as the next phase in the evolution of sports consumption. We are also using AI to reduce friction in client workflows, for example, by building AI power chatbots that can handle a significant amount of the hundreds of thousands of support requests we receive annually.

We will reduce manual processing, speed up processing time, and increasing customer satisfaction. This means we will be able to address more queries and do it faster. These innovations are setting new standards for our client engagement and creating new opportunities and revenue streams for our company. We believe we have significant growth potential and see an opportunity to become an even more essential and integrated partner for our clients and partners as technology opens up new ways to engage the next generation of sport betters and fans.

I look forward to share our exciting plans in the future, including our long-term growth story or exciting roadmap for driving innovation and our opportunity to drive operating leverage and tremendous shareholder value at our upcoming investor day, which we are planning in New York City in early 2025. With that, I will turn it over to Craig.

Craig Felenstein -- Chief Financial Officer

Thanks, Carsten, and thank you, everyone, for joining us this morning. I've spent much of my career interacting with the investment community and look forward to connecting with each of you over the next few months to further discuss our business and its multifaceted prospects. I am extremely excited to have joined Sportradar and to have the opportunity to work with Carsten, our board, and the entire Sportradar team to capitalize on the variety of growth avenues ahead in both the short and long term. In my brief time here, I've had the chance to meet with many of our passionate and knowledgeable employees worldwide, as well as some of our lead partners and customers.

And it has reinforced how integral we are to the overall marketplace. Sportradar's unique position at the intersection of the sports, media, and betting industries will allow the company to drive significant value creation for our shareholders as we generate sustained double-digit top-line growth while expanding margins and delivering high levels of free cash flow. The strength and durability of Sportradar's position is evidenced by the operating momentum and financial results the company generated during the second quarter, with another quarter of record revenue, combined with strong growth in adjusted EBITDA and cash flow. Revenues of 278 million increased 62 million, or 29%, as compared with the second quarter of 2023, led by higher spending from customers, including incremental contributions related to our new ATP and NBA partnership deals.

We continue to have success growing our client relationships by increasing uptake of our leading products and solutions which are helping to drive their business performance. Looking at the individual product groupings, we delivered broad-based growth across both our betting, technology, and solutions products, as well as our sports content, technology, and services. Betting, technology, and solutions revenues of 229 million delivered 30% growth versus the second quarter a year ago. The increase was driven primarily by 33% growth at our betting and gaming content, including 41% growth at our streaming and betting engagement products, most notably due to a strong growth in audio visual revenues.

Odds and live data also performed well, up 27% year over year. Both AV and odds in live data benefited from existing and new customer uptake of our products, premium pricing, and strong U.S. market growth. Additionally, our managed betting services grew 21%, led by continued strong managed trading services performance, due to higher trading margins and more betting activity from existing and new customers of our sportsbook clients.

Sports content, technology, and services product also deliver strong results this past quarter with revenues of 49 million, increasing 22% year on year, led by marketing and media services growth of 28% due to strong growth in our ads business as we saw several sportsbooks launch marketing campaigns in 2Q. The growth across all product groups was significant worldwide, especially in the U.S., as we continued to outpace the market, growing 59% year on year and representing 22% of our revenues in the quarter. The revenue growth across our product portfolio translated to significant adjusted EBITDA growth, with adjusted EBITDA of 49 million, increasing 9 million or 22% year on year. The sports rights impact in the quarter was mostly offset by the operating leverage we delivered across the rest of our call space.

We have been disciplined and strategic in building up our premium rights portfolio and have significant visibility moving forward, having secured many of our most significant rights under long-term deals. There is inherent scale and operating leverage in our business, and we expect to meaningfully expand total company margins as we drive further revenue opportunities, closely manage our cost infrastructure, and realize the benefit of sports rights being amortized on a straight-line basis over the life of each contract. Looking at the individual cost buckets this past quarter, sports rights increased 83% to 96 million in the quarter, due primarily to the new ATP and NBA rights. Each of these properties is driving significant revenue growth as we leverage the power of these two franchises to upsell solutions to existing customers, as well as add new customers given the premium nature of this content.

And we see continued opportunity going forward to drive incremental value through these rights. Personnel expenses were 89 million in the quarter, up only 6% year on year and down approximately 700 basis points as a percentage of our revenue. We will continue to closely manage headcount to ensure we are focusing our talent and resources on the most profitable growth opportunities and unlocking operating leverage. In addition to the leverage we delivered across our personnel costs, other operating expenses of 23 million increased 8% versus last year, a decline of approximately 160 basis points as a percentage of revenue, as we further leverage our existing infrastructure.

We generated a loss for the quarter of 1.5 million versus approximately break even last year as the 9 million improvement in adjusted EBITDA was more than offset by higher sports finance costs and foreign exchange losses resulting from unrealized currency losses due primarily to U.S. dollar-denominated sports rights. Turning to the balance sheet, we continue to be in a strong liquidity position, closing the quarter with 322 million in cash and cash equivalents, an increase of 48 million from the first quarter with no debt outstanding. During the quarter, we delivered strong cash flow from operating activities.

While there will be some quarterly fluctuations related to the timing of sports rights payments, specifically in the third quarter, we anticipate strong free cash flow growth and conversion for the full year. During the quarter, we also began to buy shares under our 200 million share repurchase program. As of August 9th, we have repurchased 8 million worth of our stock at an average price of 10.67. We continue to believe that our shares are undervalued, given the strong growth we are delivering and the expectations for significant further margin expansion and cash flow conversion in the future.

It is important to note that our capital allocation priority is investing in expanding the long-term growth potential of the company. And we will weigh returning capital to shareholders versus additional organic and M&A investment opportunities in both the short and long term. Turning to our full expectations for 2024. Given the continued operating momentum and strong results during the quarter, we are again raising our full year guidance.

We now anticipate revenues of at least 1.07 billion and adjusted EBITDA of at least 204 million, or growth of at least 22% versus 2023 on both the top and bottom line. The strong adjusted EBITDA growth will result in full year adjusted EBITDA margins of approximately 19% despite the one-time significant ramp in sports costs this year. Please note that while we continue to focus on margin expansion, we do anticipate that Q3 margins will be below prior year due to sports rights and product development costs. Conversely, we anticipate that Q4 will deliver significant margin expansion as we lap the initial impact of our new NBA deal and continue to focus on driving operating efficiencies.

Overall, the continued strong results during the second quarter reinforce Sportradar's significant growth opportunity in 2024 and beyond. As we further drive revenues from additional innovation and product development, increased pricing, and the expansion of our addressable market both in the U.S. and across the world, we expect to drive long-term shareholder value by delivering real operating leverage and strong cash flow in the months and years ahead. Thank you for your time this morning.

And now, Carsten and I will be happy to answer any questions you may have.

Questions & Answers:

Operator

[Operator instructions] Our first question will come from the line of Ryan Sigdahl with Craig-Hallum.

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

Good day, Carsten, Craig, Jim. Nice job, solid performance here. First question, I want to start on operating leverage cost control. Everything looked really nice in the quarter kind of first half.

And then looking at the assumptions you have on Slide 17 for the remainder of the year. But two parts to my first question here, but I guess, how do you feel about the current cost structure to build on that operating end margin momentum into 2025. And then, secondly to that, I guess on guidance, I might be nitpicking a little bit, good to see it increased, but a little lower incremental flow through on the EBITDA relative to kind of the underlying performance of the business seems to support. So, any comment there? Hello, guys, am I still live?

Operator

One moment.

Jim Bombassei -- Senior Vice President, Investor Relations

Operator, can you hear us?

Operator

Yes, we can hear you now.

Craig Felenstein -- Chief Financial Officer

OK. Can we --

Jim Bombassei -- Senior Vice President, Investor Relations

Is Ryan still on the line?

Operator

Ryan is on the line.

Jim Bombassei -- Senior Vice President, Investor Relations

Sorry about that, Ryan.

Craig Felenstein -- Chief Financial Officer

Yeah, Ryan, can --

Jim Bombassei -- Senior Vice President, Investor Relations

Can you hear us?

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

I can hear you guys. Did you hear my question?

Craig Felenstein -- Chief Financial Officer

No, we didn't. Could you, yeah, repeat it, if you don't --

Carsten Koerl -- Chief Executive Officer

We just cut it off when we got the question. Sorry, Ryan.

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

All good. I'll do my best to ask it in the same way. Asking on operating leverage and cost control, a really nice job in the first half of the year, Q2, especially given the well-known step-up in rights, but everything else. So, two parts to my question.

But one, how do you feel about the current cost structure to build on that margin momentum into 2025? And then, kind of second part to that, I guess, great to see the guidance increase and maybe nitpicking a little bit, but the incremental flow-through to EBITDA implied in guidance is a little lower than what I think the underlying performance of the business seems to support. So, any comment kind of on the incremental margins and the update to guidance?

Carsten Koerl -- Chief Executive Officer

So, let me take the first part, and the second part I leave to Craig. So, looking to the operating leverage, yes, that will continue. We see a margin, a target margin mid to long term of 25% to 30%. You will see now year over year that there is some leverage in there.

So, as you said, we are very happy with the acceleration on the revenue side. We don't see major costs in the next years from rights. There are some rights which we will add to the portfolio. That is not major.

We have a very solid portfolio. We will manage our personal costs in the way like we demonstrated, and you will see a flow-through on the EBITDA for this.

Craig Felenstein -- Chief Financial Officer

Great. Thanks, Carsten. And, Ryan, thanks for the question. So, certainly, we look at long-term margins.

We expect there to be high incremental margins in business. And the margins for the company, as Carsten said, will increase pretty significantly here in the out years. We look currently at the current year, the revenue, obviously, is going strongly, not only for the first half, but it'll be mixed growth in the second half as well. When we think about the full year flow-through, as of now we decided to keep margins pretty much the same where they were on prior year, about 19%.

But when we look at the back half of the year, the margins will accelerate versus where they were in the first half of the year. There certainly is some additional upside with regards to the margins in the back half of the year, and we'll revisit that on our third quarter call. But for now, we're comfortable leaving the margins where they are for the full year.

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

Very good. For my second question and follow-up, just curious on MTS and specifically Euro 2024 soccer tournament, seemed like really favorable betting volume results. But can you comment kind of how that played into your results and then if there's any incremental upside vis-a-vis traditional MTS customers and then ones using Alpha Odds?

Carsten Koerl -- Chief Executive Officer

Well, we saw significant uptick with the clients using Alpha Odds for the euro. That was roughly around about 15% better from a trading result than the clients without it. And as you know, the euro was a very, very good event for bookmaker sports betting. Not comparable at all with the Olympics, so the volume significantly higher there.

Profit margin, over average, comparing it to the last euros. So, we had a lot of favorites which struggled there, which is naturally very good. But what made us really happy is the 15% uptick from Alpha Odds, which demonstrates that this is the future of trading.

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

Great job, guys. Good luck. Thanks.

Carsten Koerl -- Chief Executive Officer

Thank you, Ryan.

Operator

Our next question will come from the line of Michael Graham with Canaccord.

Michael Graham -- Analyst

Hi. Thanks for taking my question, and congrats on the strong results. I wanted to just ask about sports rights. Maybe just comment on, you know, how you're seeing that situation developing more broadly.

And I know you've made some moves to get more visibility with some longer-term deals. So, we'd just love to hear a little bit about how you were able to make that happen and just touch on how you're managing sports rights costs going forward.

Carsten Koerl -- Chief Executive Officer

Well, we don't see major upticks from the sport rights in the next couple of years. We will add some rights, we will lose and replace some rights. We have the main pillars of our portfolio. This year, NBA and ATP was a major step-up for us.

I think we demonstrated that we handled this with excellence. And you see that in the revenue growth and also in the cut or the slow growth of our personal costs. That will simply continue. We don't see something in the next years which is material on this.

And what we will try to do is we will manage our portfolio like we did it in the past. But we don't see here major step-ups. So, the things are -- you can calculate very well where that leads to. It will be a leverage extension on the EBITDA margin, and that's what I predicted before.

We think we end up in a ballpark 25% to 30% on the mid to long term.

Michael Graham -- Analyst

OK, fantastic. Thank you, Carsten.

Carsten Koerl -- Chief Executive Officer

Thank you.

Operator

Our next question will come from the line of Bernie McTernan from Needham.

Bernard McTernan -- Analyst

Great. Thanks for taking the question. One, to ask on revenue, the guidance implies a deceleration revenue growth in the second half of the year. I'm assuming that's the NBA, just comping the NBA.

But, really, the question is how to think about '25 is that maybe the second half rate and then maybe take off a couple of points for the ATP. Craig, you mentioned, you know, expecting strong or sustained double-digit top-line growth here. So, just if there's any kind of early color, if that's the right way to think about '25 for revenue growth.

Craig Felenstein -- Chief Financial Officer

Sure. Thanks, Bernie. Thanks for the question. You know, obviously, we'll guide our '25 revenue as we get toward the end of the year and get closer to '25.

That said, we certainly expect strong double-digit growth on the revenue side moving forward. The rest of this year, which you'll have is obviously stronger growth in the third quarter on the revenue side before you start lapping the NBA in the fourth quarter when the growth will slow a little bit. That said, the growth in 2025 will not just be driven by sports rights, but it will also be driven by lower take-up of our existing products by attracting new customers, by higher pricing. So, we fully expect there to be some strong growth in 2025.

The specifics behind that, we'll give more color on as we get toward the end of the year.

Bernard McTernan -- Analyst

Understood. Thanks, Craig. And then, just one follow-up. Thinking about the potential cadence of share buybacks, you know, nice to see the program getting started, any restrictions that we should be aware of? Just trying to think about if there's anything preventing you from being more aggressive on the buyback.

Carsten Koerl -- Chief Executive Officer

That's a question of capital allocation. And like we said it in the script, first, we are looking to organic growth and supporting our product with organic growth we are investing here. Second, we are looking into opportunities which are raising in the market. You might have followed some of the statements.

There is a consultation ongoing and some properties are coming to the market. We are looking into all opportunities here. And third, we want to support our growth units with investments probably for apps where we see a strong pickup and strong growth. And then, we revisit all the time our buyback.

There's a pricing grid behind it, and it's a 10b5 trading plan which has the usual restrictions, nothing special.

Bernard McTernan -- Analyst

Understood. Thank you both.

Carsten Koerl -- Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Robin Farley with UBS.

Robin M. Farley -- Analyst

Great, thank you. Talk a little bit about your MLB, sort of the timing of that. And you mentioned in general terms that you don't expect anything significant in terms of an increase in sports rights, but were you including MLB in that? Or would that be something that would change in terms of the rate increase? Thanks.

Carsten Koerl -- Chief Executive Officer

Hi, Robin. Significant is always a definition of numbers. At this stage, I can't give you detailed numbers. When I'm speaking about significance, looking forward, it will have not a major influence on our cost positions and sport rights when we are closing with MLB.

So, far, today, we have nothing to announce here. We are very happy about our partnership with MLB. We have very constructive calls. That's the same message I gave to you in the last quarter.

Craig Felenstein -- Chief Financial Officer

And, Robin, what I'll add on top of that, if you look at 2025, regardless of the impact of a new Major League Baseball deal, we do expect there to be a margin expansion in 2025 once that deal is hopefully completed.

Robin M. Farley -- Analyst

Great. Very helpful. Thank you. Just for a follow-up question, you mentioned that you recently signed a contract with one of your major sportsbook clients going through 2031.

Is it fair to assume that you, you know, have price increases built into that over -- you know, as part of that contract, that you've contracted price increases? Thanks.

Carsten Koerl -- Chief Executive Officer

Robin, the majority of our betting contract here in the U.S. is revenue share. So, we are growing with our customers. And this is the major mechanism here for the sportsbook and the operators.

But what we do and hopefully demonstrated is, for example, with FanDuel, how we lift them up on the value chain, how we can hook up additional products behind the existing offering. And that is a continuous effort, which you will see over time. And, of course, we expect increases here.

Robin M. Farley -- Analyst

Great. Thank you.

Operator

Our next question will come from the line of David Katz with Jefferies.

David Katz -- Analyst

Hi. Good morning, everyone. Thanks for taking my question. I wanted to see if we couldn't -- you know, take all the well-received detail on this morning's disclosure and just talk about how you view the company's algorithm, particularly as it relates to the U.S., right? And if we were to put a growth rate on the U.S., you know, market growing, call it 30%, how does that translate into Sportradar's U.S.

business? And, you know, sort of walk us through what that means for your revenue and earnings, etc. And I recognize that there is some time to this long-term EBITDA margin level, and we're not there yet. But, you know, any insight around that would just help us get organized. Thanks.

Carsten Koerl -- Chief Executive Officer

David, what we saw in the U.S. is we see now, more and more from our business perspective, a strong growth in the betting sector. And we have a media sector in here, and we have the business technology in the league. What we see, I think it's fair to say that 50% of our revenues roughly are now in the betting space.

It was a third last year. It meant that it's growing strong with 59% comparing it to the last year's quarter. We expect that the market is growing roughly 25% in the next years. And we expect that we outperform this market.

That's what we demonstrated in the last years. We have the broadest offering. We have three of the top four leagues. We have deep partnership relations on product level with all the main players here.

So, we have a solid starting base to outperform the underlying market growth. Looking from a profitability perspective, of course, we see leverage here. Our costs more or less, stay, well, not gladly, but they're growing very slow. We have to lock in right deals for multiple years.

So, we will see a strong growth in the betting space. There are two major things which nobody can say at the moment, California and Texas, what will happen here. We know the size of this market is significant. So, we can't calculate at the moment for the market opening here.

We don't have it in our projections. That will play in our favor if that happens.

David Katz -- Analyst

That's really helpful. And just to follow up, right, your commentary is around your positioning in the U.S. market, right? And so --

Carsten Koerl -- Chief Executive Officer

U.S. market. That was the U.S. market.

You asked specifically, I hope, about the U.S. space.

David Katz -- Analyst

I absolutely did. But as my follow-up, you know, just taking the larger rest of the world, which obviously isn't growing as fast, you know, could we ask the same question about how the rest of the world works, if we were to make an assumption, a revenue growth or a market growth assumption for the rest? Yeah, thanks.

Carsten Koerl -- Chief Executive Officer

Of course, you should ask, David. So, what we see here is we see a growth between 10% and 12%. We see more growth opportunities around the live product. Specifically here, we see the market in Brazil, where we believe it's going from a 2 billion GGR to a 5 billion in the next three to four years.

That is a significant size. We see continuous, very strong growth in Africa. And there are a few joker cards in Asia, I would say. Looking now to India, that might be something where we see a market opening or a slow market opening.

We have it not in that 10% to 12% overall market growth. Might be something in Japan, on the horizon of three to five years, which gives us here even more acceleration. In Europe, I think we have a pretty solid picture that is an average between 10% to 12%. We see some markets performing better, some markets performing worse.

That is the overall picture. For us, the main important thing is with this growth in TAM, we need to place our products that we are replacing services, which our clients are doing at the moment in-house, with our service. MTS is a perfect example for this, so we are growing our TAM. In a growing TAM, we start with 10%, meaning we put a market leverage in here that we can achieve our growth rate.

And let me remind you, historically, we have a CAGR of 25% from quarter '21 -- Quarter 2 '21 to the Quarter 2 '24. The average growth is at 25% quarter by quarter. And I think that demonstrates our ability to outperform the market growth.

David Katz -- Analyst

Got it. Thank you very much. Appreciate it.

Carsten Koerl -- Chief Executive Officer

Thank you.

Operator

Our next question will come from the line of Jason Bazinet with Citi.

Jason Bazinet -- Analyst

I just had a quick question. You guys have such a long track record outside the United States. I'd just be curious if you could just name two or three things that have surprised you about how the U.S. market has evolved relative to your history outside the United States, either in terms of the betting behavior of the individuals or the way the OSBs are sort of responding to the products and services that you offer.

Thanks.

Carsten Koerl -- Chief Executive Officer

I think the U.S. market is still on the very early innings. What has surprised me is that we saw not more operators coming into the market and investing significantly. I think we have a couple of big operators -- or I know we have a couple of big operators outside of the U.S.

which really looking very careful when is the right time to invest. We saw a couple of operators which went out of the market because of the very high customer acquisition costs. So, there is a dynamic here and size matters. I believe that we will see more operators coming into the market once the customer acquisition costs are more settled down.

That is one of the surprises. Another one is that if I'm looking now to the big digitals here in the country, I think, you can make significantly more out of sport and data and create a product which is very appealing for clients. I think we will see this and we will see here much more investment in rights which is very supporting for our overall platform approach. So, the adaptation of technology goes quicker than I have thought.

The development of new betting product goes a bit quicker which is a positive surprise, and it's all about the player-related things. So, the more information you have here, the better you can use technology to create an appealing betting product but also an appealing sports information media product. These are the three things if you ask me about it.

Jason Bazinet -- Analyst

That's great. Thank you.

Operator

Our next question will come from the line of Michael Hickey with The Benchmark Company.

Mike Hickey -- Analyst

Hey, Carsten, Craig, Jim. Congrats on the quarter guys. Thanks for taking my questions. Just two.

It looks like in the quarter your net retention rate 117% was down 120% prior years. Just curious any trends in customer churn there or how effective you've been in cross-selling? And then the second question on capital allocation, Carsten, you touched on it. Obviously, you've got your buyback, you cleared your debt here, and you alluded to some assets coming on sale. Obviously, Endeavor is in the process of selling their sports betting assets, OpenBet and IMG Arena.

I think they sold that -- or bought it from Scientific Games for 1.2 billion. So, just curious if you could talk about the synergistic value you see of that asset in terms of tech and maybe data rights and then maybe how you think about competitive scenarios as a competitor was to pick it up. Thanks, guys.

Craig Felenstein -- Chief Financial Officer

Yeah, Michael, I'll start with the NRR question. Obviously, if you look at the numbers quarter to quarter, we improved sequentially versus where we were in the first quarter. On the NRR, if you compare to where we were a year ago the primary difference is just the timing of some ad campaigns on some of our larger clients, it has nothing to do with any slowdown in those clients. It's just the timing of the campaigns related to them.

And when you look at the 117%, obviously, it implies that there was much broader take-up of products by our existing customers. And they were also willing to pay higher prices when the products were appropriate. So, we're seeing nice growth across our existing customer base.

Carsten Koerl -- Chief Executive Officer

Good. And the capital allocation is, like I said before, maybe I go a bit deeper on this, we have the client-centricity approach, meaning, we kind of need to listen to our clients what makes their life easier how can we leverage and how can we sell more. The first thing that every client is telling us make it easy for us to integrate you, make it easy for us to integrate all your services, make it not that complex that you have 20 different integration procedures streamline this kind of thing. That is what you do in a sports platform.

We are investing into this like you see in the purchase services and in the race here. So, we believe that is a very good investment for our future. So, that's a piece of the capital allocation. You mentioned Endeavor.

I didn't do that. And I can't speak about specific opportunities in that space. But I can tell you that we actively monitor also the market, not only with the major consolidation. We are looking into the market how can, we support our growth products.

Ads is a sample here, and that is a very interesting space specifically in the U.S., where we see the high growth. And then, we are adjusting the pricing groups step-by-step. We are looking to this. We think that we are undervalued.

That's the reason why we have to share buyback. And we visit this step by step and then on quarterly basis. That's the strategy here.

Mike Hickey -- Analyst

Thanks, guys. Good luck.

Carsten Koerl -- Chief Executive Officer

Thank you.

Craig Felenstein -- Chief Financial Officer

Thank you.

Operator

Our next question will come from the line of Jordan Bender with Citizens JMP.

Jordan Bender -- JMP Securities -- Analyst

Good morning, everyone. I want to discuss a broader question and maybe similar to a previous question, and that's around the regulatory and tax changes that we're starting to see bubble up here in the U.S. You know, Carsten, you've been in the industry for quite some time, and you've seen these changes globally over the course of your career. So, the question is, can you help us maybe frame what you've seen outside of the U.S.

to help us understand how your clients might ultimately react here in the U.S.? And how -- you know, ultimately, what I'm trying to get out here is, how do you position your company to adapt to some of these changes and do you ever see maybe opportunities emerge as the environment starts to get tighter around you? Thank you.

Carsten Koerl -- Chief Executive Officer

Yeah. We are investing in that space since quite a while. As you all know, our integrity services are the gold standard worldwide. We feel obliged that we are providing that service to protect the sport.

That's the most important. If sport has not the trust that it's played neutral and that everybody has the same chances, there will be no sports betting. And by the way, there will be not a progress in sport without this. We think responsible gaming is absolutely important.

So, with the data and the information which we have now with the betting ticket in a normalized way, we can build algorithms to show if there are developing gaming addiction what to do with it how to measure it. We call that responsible gaming services. Of course, there is a -- it is completed with geolocation. It's completed from a government perspective with how are taxes paid? At the moment, this is still a batch profiling as some of you might know.

We believe that from a calculation perspective, you should do this real time online that you're calculating the taxes. I think that leaves much less space for mistakes, manipulations, whatsoever. All in all, we summarize this through our responsible gaming services. So, we think there is a very nice opportunity.

And there is not one standard around the globe. We believe that the U.S. can pave the way for this. We think it's by far the most attractive market at the moment from a gross potential and from a size.

We see in Brazil, all the same size. So, the regulator is looking what is the best standard, but it always goes in the same way. How to protect the sport? How to protect the people? And then, how to generate taxes for the state? So, these are the three things. And we see with the positioning of Sportradar as a global player with the listing and the transparency and excellent basis that we can scale here and establish beside our market-leading integrity services more.

Jordan Bender -- JMP Securities -- Analyst

Awesome. And then, just on the follow-up, I don't think you mentioned it, but from the first quarter to today your rates for the total year are projected to increase by about 8% or so. Can you just kind of help us bridge, you know, where you were a couple of months ago and why that went up about 25 million for the year?

Craig Felenstein -- Chief Financial Officer

Yeah, sure. So, thanks, Jordan. So, the bulk of the increase relates to the ATP deal and where the revenues are being generated. There are some nuances to the accounting related to the ATP deal.

But for the most part, the deals are working pretty much as we anticipated. The margins on the deals from EBITDA, and the cash perspective have been better than we anticipated. So, even though the sports rights are a little bit higher, the return on those rights has actually been greater than we anticipated thus far in the year.

Jordan Bender -- JMP Securities -- Analyst

Thank you very much.

Operator

Our next question will come from the line of Samuel Nielsen with JPMorgan.

Samuel Nielsen -- JPMorgan Chase and Company -- Analyst

Good morning, everyone, and thank you for taking my questions. Looking at the updated guidance, I guess when we go back a few quarters, I think you mentioned the initial 2024 revenue guidance was assuming roughly 60% of growth coming from business as usual and 40% of growth from a step-up from a revenue perspective around the NBA and ATP partnerships. So, just wondering where the incremental contributions have come from here since your initial guide. Is it more across the board or are you seeing a more meaningful benefit from your contracts than kind of that initial 40% split that you laid out?

Craig Felenstein -- Chief Financial Officer

So, from what I've seen -- and, of course, I've only been here for two months, but from the expectations that I've seen, the increase has actually been across the board. That said, we are doing a nice job of leveraging the sports contract more than was anticipated. So, it's not just the sports, but we are seeing a nice return on the sports. But the sports also help in other areas.

It helps us to drive more products. It helps us to drive more price. So, all in all, there's the direct benefit from the sports and there's the indirect benefit. But if I was going to look at the increase versus original expectations it really is broad-based and not just related to one item.

Samuel Nielsen -- JPMorgan Chase and Company -- Analyst

That makes sense. Thank you. And then, I was wondering if you could touch on what you're kind of seeing in the ads business a little bit into the back half of the year. We've heard many larger North American operators talking about leaning into customer acquisition given a favorable environment.

Obviously, you had nice growth in the 2Q, but just wondering how your conversations and maybe commitments are going with operators for future periods, maybe how long the lead time is there and how much upside is maybe not baked into the guidance for the back half of the year from the ads segment.

Carsten Koerl -- Chief Executive Officer

We see quite an interesting pickup in Quarter 2 here. We see a lot of demand specifically in the U.S. Our ad service here looks like the product of choice for doing acquisition and reducing costs for our clients. Uptick was 28% like you will see in the script is I think a clear statement for this.

And I also mentioned that we are looking to expand in that space. It's all about how can we get the sports fan together with our partners in the sports betting space to convert them and how can we stimulate this. And we have the market-leading product here. We are optimistic in the second half of the year that this will further expand.

Samuel Nielsen -- JPMorgan Chase and Company -- Analyst

Got it. Thank you very much.

Jim Bombassei -- Senior Vice President, Investor Relations

Operator, we have time for one more question. We have time for one more question, operator.

Operator

Our last question will come from the line of Stephen Grambling with Morgan Stanley.

Stephen Grambling -- Analyst

Hi. Thanks. One more follow-up on this on the U.S. market.

When you think about the 25% growth going forward even with fewer states legalizing, what are recent data points or your experience in Europe tell you about, you know, how much of that's going to be from customer growth versus spend per customer? And how we should be thinking about who the incremental sports betting customer is and/or how their betting behavior may evolve versus the existing base?

Carsten Koerl -- Chief Executive Officer

It's a broad mix. So, what we see is there are different demographical groups. That's probably the most interesting play here in the U.S. So, it goes away from this Las Vegas type of punter into something which is the younger generation, which needs another entertainment product, and specifically to mention here is live betting.

So, we see an uptick. We are now on a 35% to 40%. As you know, every percentage point which goes into live renders for us roughly 1.6 million more in revenues. That comes more or less without cost.

Yes, there are some minor cloud costs associated to this, but that's more or less pure profit. That's what we see all over the place. So, it's a mix of product adaptation education of the punters going into new customer groups. And that goes quite rapidly here in the U.S.

Stephen Grambling -- Analyst

Great. That's it for me. Thank you.

Jim Bombassei -- Senior Vice President, Investor Relations

We want to thank everyone --

Stephen Grambling -- Analyst

OK.

Jim Bombassei -- Senior Vice President, Investor Relations

We want to thank everyone for joining us for our earnings call. And now, we'll turn it back over to the operator.

Operator

This concludes today's conference call. Thank you for participating. [Operator signoff]

Duration: 0 minutes

Call participants:

Jim Bombassei -- Senior Vice President, Investor Relations

Carsten Koerl -- Chief Executive Officer

Craig Felenstein -- Chief Financial Officer

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

Michael Graham -- Analyst

Bernard McTernan -- Analyst

Bernie McTernan -- Analyst

Robin M. Farley -- Analyst

Robin Farley -- Analyst

David Katz -- Analyst

Jason Bazinet -- Analyst

Mike Hickey -- Analyst

Jordan Bender -- JMP Securities -- Analyst

Samuel Nielsen -- JPMorgan Chase and Company -- Analyst

Stephen Grambling -- Analyst

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