Executive Summary / Key Takeaways

• SharpLink Gaming, Inc. is undergoing a significant strategic transformation, pivoting from its historical roots in sports gaming services and fantasy sports towards a core focus on affiliate marketing complemented by a bold new treasury strategy centered on Ethereum.
• First quarter 2025 results for continuing operations showed a revenue decline of 24% year-over-year to $741,731, coupled with a sharper 54.1% drop in gross profit to $131,795, primarily attributed to market conditions, pricing changes, and higher casino payouts.
• Despite revenue pressures, the net loss from continuing operations decreased by 47.9% to $916,732 in Q1 2025, reflecting concerted efforts to reduce operating expenses, including payroll and discretionary costs.
• The company faces immediate liquidity challenges and risks related to maintaining compliance with Nasdaq's minimum bid price and stockholders' equity requirements, necessitating ongoing fundraising efforts, including a potential $5 million public offering.
• A major strategic shift involves the acquisition of a stake in CryptoCasino.com and a substantial $425 million private placement to fund an Ethereum treasury strategy, positioning SharpLink as a significant holder of ETH and introducing a new, potentially high-growth dimension to the investment thesis alongside its core affiliate business.

Setting The Scene: From Gaming Services To Affiliate Focus

SharpLink Gaming, Inc. operates within the dynamic and increasingly competitive online sports betting and iGaming industry. Founded in 2019, the company initially built a platform encompassing sports gaming client services, developing free-to-play games for major sports leagues and operators, and later expanded through strategic acquisitions into affiliate marketing and fantasy sports. This history laid the groundwork for its current strategic direction, though significant divestitures have reshaped its operational footprint.

The company's core continuing business is now centered on online performance marketing. Through its global affiliate network, PAS.net, and U.S. state-specific web domains, SharpLink aims to drive qualified traffic and player conversions to licensed sportsbook and casino partners. This model generates revenue through commissions based on player acquisitions or a share of net gaming revenues. This positions SharpLink as a key intermediary in the customer acquisition funnel for operators, a space occupied by larger, more established players like DraftKings , Flutter Entertainment (parent of FanDuel), Penn National Gaming , and MGM Resorts International (MGM) (via BetMGM). While these larger competitors often rely on massive direct marketing spend and brand recognition, SharpLink's affiliate model seeks to offer a more cost-effective, performance-based alternative for partners.

The strategic evolution saw the divestiture of the legacy MTS business in late 2022, followed by the significant sale of the Sports Gaming Client Services and SportsHub Gaming Network units in January 2024 for $22.5 million. These moves streamlined the business, focusing resources on the Affiliate Marketing segment, which became the sole reportable segment in 2024. The company also completed its redomestication from Israel to Delaware in February 2024, a step intended to improve transparency and align with its U.S. market focus.

Technological Underpinnings: The Promise of C4

Central to SharpLink's historical strategy, particularly in its now-divested segments and intended to be leveraged across its platform, is its proprietary C4 conversion technology. While specific quantitative performance metrics for C4's impact on the current affiliate business are not detailed in recent filings, management previously articulated its purpose: to achieve materially higher conversion rates of sports fans to sports bettors at a significantly lower cost compared to conventional marketing methods.

The technology is described as data-driven, utilizing analytics and insights to connect fans with relevant sports betting and iGaming content. This approach aims to understand individual player preferences and behaviors to deliver personalized experiences and targeted calls to action. R&D efforts, previously led by a dedicated CTO, focused on defining and expanding the C4 roadmap. The strategic intent was for C4 to provide a competitive edge by optimizing the conversion funnel, thereby enhancing value for both SharpLink and its operator partners. The success of this technology in the current affiliate-focused structure remains a key factor in evaluating SharpLink's long-term operational efficiency and competitive positioning against rivals who also invest heavily in data analytics and user personalization.

Recent Performance And Financial Realities

SharpLink's financial performance in the first quarter of 2025 reflects a business in transition, grappling with market headwinds while attempting to stabilize its core operations post-divestiture. Revenues from continuing operations (Affiliate Marketing) decreased by 24.0% to $741,731 for the three months ended March 31, 2025, compared to $975,946 in the prior-year period. This decline was attributed by management primarily to softening market conditions, changes in customer pricing structures, and customer losses in certain foreign markets due to evolving regulations.

The impact on profitability was more pronounced, with gross profit falling 54.1% to $131,795, resulting in a reduced gross profit margin of 17.8% compared to 29.4% in Q1 2024. This margin contraction was linked to higher casino payouts from large player winnings and the aforementioned pricing structure changes.

Despite the top-line and gross profit pressures, the company demonstrated progress in controlling costs. Total operating expenses decreased significantly by 46.4% to $1.06 million, down from $1.97 million in Q1 2024. This reduction was driven by lower payroll, audit, legal, insurance, marketing, and travel costs, as well as the absence of expenses from the divested operations present in the prior year.

The cost reduction efforts contributed to a narrower net loss from continuing operations, which decreased by 47.9% to $916,732 in Q1 2025, compared to a loss of $1.76 million in Q1 2024. The overall net loss for Q1 2025 was $974,901, a substantial decrease from the net income of $12.35 million reported in Q1 2024. This year-over-year change in total net income/loss was primarily due to the significant gain recognized from the sale of the SHGN and Sports Gaming Client Services businesses in the first quarter of 2024, which were reported as discontinued operations.

As of March 31, 2025, SharpLink's liquidity position shows cash of $1.37 million and working capital of $1.57 million.

Cash flow from operating activities for continuing operations used $452,827 during the quarter, an improvement from the $2.85 million used in the prior year, again reflecting reduced operating expenses and the impact of discontinued operations. Investing activities used $500,000, primarily due to the investment in Armchair Enterprises. Financing activities provided $907,188, largely from the sale of common stock through the company's ATM facility. These figures underscore the company's reliance on external financing to fund its operations and strategic initiatives.

Strategic Transformation: Crypto And Ethereum

While stabilizing the core affiliate business, SharpLink has embarked on a dramatic strategic transformation, signaling a pivot towards new, high-growth areas. On February 24, 2025, the company acquired a 10% equity stake in Armchair Enterprises, the owner and operator of CryptoCasino.com, for $500,000 in cash, securing a right of first refusal to acquire a controlling interest. This move represents SharpLink's strategic expansion into the global crypto gaming market, which management views as a promising opportunity due to market expansion, cost efficiency, security, and player demand. CryptoCasino.com, launched in October 2024, leverages blockchain technology, accepts various cryptocurrencies, and offers Web3 connectivity and Telegram integration.

A more profound strategic shift was announced in June 2025 with the closing of a $425 million private placement. The stated purpose of these significant proceeds is to launch a treasury strategy focused on Ethereum (ETH), aiming to position SharpLink as a major publicly-traded holder of ETH. This initiative is supported by Consensys Software Inc., whose founder, Joseph Lubin, has become SharpLink's Chairman of the Board. This strategy introduces a new dimension to SharpLink, potentially generating returns through ETH price appreciation and staking rewards, which one analyst estimates could yield $16 million annually. This bold move creates a dual growth narrative for the company, combining its performance marketing efforts with exposure to the cryptocurrency market.

Competitive Landscape And Positioning

SharpLink operates in a highly competitive digital gaming and marketing landscape. Its core affiliate marketing business competes with numerous other affiliate networks and the internal marketing efforts of major operators like DraftKings , FanDuel, BetMGM, and ESPN Bet (PENN). These larger players possess significant scale, brand recognition, and marketing budgets that dwarf SharpLink's current resources. For instance, DraftKings (DKNG) and Flutter Entertainment (FLUT) command substantial market share in the U.S. sports betting and iGaming markets, backed by robust revenue growth and more favorable profitability metrics (e.g., positive gross margins and, in some cases, positive operating or net margins, unlike SharpLink's current negative EBITDA and net margin profile).

SharpLink's competitive positioning in the affiliate space relies on its targeted approach, potentially enhanced by its C4 technology (though its current impact is unclear), and its established PAS.net network. However, its smaller scale and limited financial resources compared to industry giants pose significant challenges in customer acquisition costs and market penetration speed. While SharpLink's niche focus on state-specific sites and potentially more efficient conversion technology could offer advantages in specific segments, the overall market power and financial health of its larger competitors present a formidable barrier to rapid market share gains.

The recent strategic pivot introduces new competitive dynamics. In the crypto gaming space, SharpLink is entering an emerging market with different competitors, including other crypto-native platforms. Its investment in Armchair and the potential to acquire a controlling interest aim to establish an early foothold. The Ethereum treasury strategy places SharpLink in a unique position among publicly-traded gaming companies, aligning it with the broader cryptocurrency market and attracting investors interested in digital assets, distinct from traditional gaming competitors. This strategy, while potentially lucrative, also introduces volatility and risks associated with cryptocurrency markets, which are different from the operational risks of its core business.

Key Risks And Outlook

SharpLink faces several critical risks that could impact its ability to execute its strategy and continue as a going concern. Foremost among these are the challenges related to maintaining its Nasdaq listing. The company is currently non-compliant with both the minimum bid price ($1.00) and minimum stockholders' equity ($2.5 million) requirements. While an extension has been granted until May 23, 2025, failure to regain compliance could result in delisting, severely impacting stock liquidity and the ability to raise capital.

The company's liquidity position and ongoing operating losses necessitate raising additional capital. Although recent financing activities and a potential public offering are underway, there is no guarantee that sufficient funding will be secured on acceptable terms, or at all. The company explicitly states that even after the potential offering, it may not comply with the Nasdaq Equity Rule due to cash burn and obligations, potentially requiring further fundraising. These factors raise substantial doubt about the company's ability to continue as a going concern.

Operational risks in the core affiliate business include market volatility, changes in customer pricing structures, regulatory shifts in domestic and international markets impacting customer relationships, and intense competition. The new strategic focus on crypto gaming and the Ethereum treasury introduces additional risks related to cryptocurrency price volatility, regulatory uncertainty in the crypto space, and the successful execution of these new, distinct business lines.

SharpLink's outlook is heavily dependent on the successful execution of its new strategic direction and its ability to secure necessary funding and maintain Nasdaq compliance. While the core affiliate business faces challenges, the bold move into crypto gaming and the substantial investment in Ethereum represent potential high-reward opportunities. The stated goal of the ETH treasury strategy is to generate significant value, potentially transforming the company's financial profile, although this comes with inherent market risks. Management has not provided specific forward-looking financial guidance for the core affiliate business or the new ventures beyond the context of fundraising needs and strategic objectives, making the future trajectory uncertain but potentially transformative.

Conclusion

SharpLink Gaming is at a pivotal juncture, having streamlined its operations to focus on affiliate marketing while simultaneously launching ambitious new initiatives in crypto gaming and cryptocurrency treasury management. The first quarter of 2025 highlighted the challenges in the core affiliate segment, with declining revenues and gross margins, albeit coupled with improved cost control. The company's financial health and Nasdaq listing remain significant concerns, underscoring the critical need for successful fundraising.

However, the investment narrative for SBET has been dramatically reshaped by the strategic pivot towards crypto and Ethereum. The investment in CryptoCasino.com signals intent in a high-growth market, while the substantial ETH treasury strategy, backed by significant investment and new leadership, positions the company uniquely among its peers. This dual focus creates a complex but potentially compelling investment thesis, balancing the operational realities of the affiliate business with the speculative upside and volatility inherent in the crypto space. Investors must weigh the execution risks and financial pressures against the potential for significant value creation from these new strategic directions.