Speculation around a potential PointsBet sale is swirling after reports the Australian-based gaming operator is working with an investment bank to explore selling its US business.
According to the Australian Financial Review, PointsBet has hired New York-based Moelis & Co, which helped execute billion-dollar mergers for companies like Heineken and Hilton.
“We believe further industry consolidation is inevitable, and we’ll position PointsBet to take advantage of movement in the sector,” a PointsBet spokesman reportedly told AFR, though PointsBet spokespeople declined to comment further to LSR.
On the heels of the second half of 2022 where it saw sizable year-over-year growth in revenue and handle, PointsBet has continued cutting costs in 2023, renegotiating a large-scale marketing deal with NBC Universal and exiting a partnership with the University of Colorado. The US sale exploration could signal a pivot from stalled negotiations to sell PointsBet Australia.
PointsBet stock is trading at A$1.35, up more than 14% in Australia since the report.
Why would PointsBet sell?
Stalled progress on iGaming legislation has delayed online US sportsbooks from using sports betting as an acquisition tool to convert users over to the more lucrative business. Meanwhile, customer acquisition has been made more difficult by the huge variances in what operators have been willing to spend.
This played out recently in PointsBet’s decision to not enter Massachusetts, which is expected to be a costly market compared to the 14 states where it is active.
“We haven’t seen a large-scale acquisition since DraftKings purchased Golden Nugget, so this will be a good litmus test for where we sit, as the industry, hyper-focused on profitability, resets,” said Jordan Bender, Senior Equity Research Analyst at JMP Securities.
The late MaximBet and Fubo Sportsbook were the last US sports betting companies to look for buyers. Each failed, though neither had anything close to PointsBet’s assets
Parts and positioning
In a recent earnings call, the company said it expects to trim losses in 2023 as it continues to cut costs. It recently slashed obligated spending in a marketing deal with NBC and exited several unprofitable partnerships, which are moves analysts believe could make it more attractive for a buyer.
“Certainly changing or adjusting that partnership, or that commitment makes them more attractive,” said Chad Beynon, Managing Director at Macquarie Securities. “But I wouldn’t say PointsBet’s recent moves have been signaling this moment. Companies are always looking to become more cost-efficient.”
PointsBet was seventh in sports betting market share across nine states that report handle by operator in 2022, holding 3.3% of market share across those states, according to LSR data.
| Brand | Handle | Market Share |
|---|---|---|
| FanDuel | $21,761,272,638 | 38% |
| DraftKings | $15,098,468,561 | 26% |
| BetMGM | $5,663,359,306 | 9.8% |
| Caesars | $5,426,973,836 | 9.4% |
| Barstool | $2,401,616,220 | 4.2% |
| BetRivers | $2,357,878,850 | 4.1% |
| PointsBet | $1,926,973,812 | 3.3% |
| Borgata* | $294,220,229 | 0.5% |
| PlaySugarHouse* | $292,676,005 | 0.5% |
| SuperBook | $276,512,993 | 0.5% |
*LSR estimates
Who Could Buy PointsBet US?
Potential suitors for PointsBet may come from a range of competitors with different focuses.
“PointsBet is a well-known brand with decent market share and market access and has strong parlay-focused tech capabilities that a handful of competitors are still working on,” Beynon said.
“Thinking about potential acquisition is tricky because some companies already have the technology and really all they want is kind of the brand and the players, other companies don’t have the technology and they kind of want that brand and the tech stack.”
Bally’s could make sense
Bally’s has been floated around industry circles as a possible fit. The company is in the midst of a major overhaul after abandoning Bet.Works, which it purchased for $125 million. New management has been vocal about searching for new technology.
“This kind of fits into what Bally’s has said about looking for a solution to integrate the tech stack, but it would be a big cost for a company with no market share so it would need to be the right price,” Bender said. “If you’re a shareholder you want to see them make the right decision because you have a lot of stuff getting written off at this point.”
Bender added that local television market access from the NBC deal could make sense with Bally’s’ regional sports network partner declaring bankruptcy in March.
The right time for private equity?
Private equity firms have, for the most part, stayed away from US sportsbooks, but this could be an opportunity to turn around an asset at a depressed price and look for a buyer in the space a few years down the road.
“I get asked a lot about when a private equity firm would get involved in this space,” Bender said. “PointsBet has all the features for a third party to come in and want to run it, then turn around and sell it. It will be interesting to see what happens based on the price point.”
Top tier operators less likely
A tier-one operator like DraftKings could be more inclined to spend the money it would take to buy PointsBet elsewhere. PointsBet’s tech would be of little value to DraftKings after how much the company has invested in its in-house technology.
Penn Entertainment‘s 2021 acquisition of theScore would seem to eliminate its interest in PointsBet’s tech, as well. Fanatics, which is expected to make its long-awaited entrance into online gaming this summer, has already secured source code from Amelco.
“If this was a year and a half ago, I would say this makes 100% sense for Fanatics, but they clearly are not going that route,” Bender said. “These larger companies do not feel as likely, but again, it all depends on the price.”
