Fanatics Sportsbook is acquiring PointsBet’s US sports betting business largely to save on upfront licensing fees related to existing markets.
Matt King, CEO of Fanatics Betting & Gaming, explained the $150 million sports betting deal in an interview with CNBC Monday.
“The reality is we already have market access in most of the states where PointsBet had access,” King said. “What we’re really saving by doing the PointsBet deal is there were upfront license fees that PointsBet had already paid, that if we went into those markets as a second-over, we were going to have to pay them again.
“So we were really able to save tens of millions of dollars worth of upfront license fees by leveraging PointsBet’s footprint versus going at it with a new footprint.”
US sports betting licensing fees costly
PointsBet is currently in 14 states. Fanatics also has market access in Tennessee and Massachusetts.
The MA Gaming Commission said Tuesday that Fanatics plans to launch in the Commonwealth in late May. It will be a similar launch to Tennessee and Ohio with email-only invites sent to existing retail customers.
Fanatics will be able to access the New York market via PointsBet. All online sports betting operators in the Empire State were charged a one-time licensing fee of $25 million. In Pennsylvania, the one-time operator licensing fee is $10 million.
“Fanatics receives access to markets, technology, and human capital that easily justify the price for them at this stage in their sports betting journey,” Lloyd Danzig, founder and managing partner of Sharp Alpha Advisors, told LSR.
PointsBet stock plummets amid sale
PointsBet stock fell 21% in Australia after the US sports betting transaction, which still must be approved by shareholders, was announced.
“The PointsBet Board unanimously recommends that shareholders vote in favor of the Proposed Transaction at the Shareholder Meeting, in the absence of a Superior Proposal,” according to a statement from the entity.
“PointsBet shareholders appear underwhelmed by the deal that ascribes minimal value to the remaining Australian and Canadian business,” Danzig said.
PointsBet stepbacks preceded deal
In 2020, PointsBet agreed to a nearly $500 million, five-year sponsorship pact with NBC.
However, in September 2022, PointsBet surprisingly dropped out as the exclusive odds provider for the network’s Sunday Night Football pregame show. And, in February, the PointsBet-NBC deal was restructured.
It was part of a number of cutbacks for PointsBet prior to its US sale.
King explains valuation changes
King explained in the interview:
“Pricing and valuations in the category have clearly gone down an incredible amount. If you look at PointsBet itself, it’s down about 90% from its peak,” he said. “Obviously, DraftKings and a number of the other stocks are also down, along with the whole market.
“I would argue they’ve come much closer to reality, and what was happening a year ago reflected an irrational exuberance for the category overall.”
US sports betting investor weighs in
The price shows the “waned” appetite for smaller US operators, Danzig said:
“The planned acquisition of PointsBet US by Fanatics for $150 million is reflective of the mean reversion that capital markets have witnessed over the last 18 months. Investor appetite has waned significantly for loss-making subscale operators seeking a piece of the US pie.
“Share of wallet has consolidated among market leaders that leverage economies of scale and product synergies to increase revenues while expanding margins. Without a route to acquiring customers more efficiently than competitors, small operators will be faced with a (Herculean) and capital-intensive task that investors struggle to underwrite.”
Next for US sports betting M+A?
The deal could shape the future of mergers and acquisitions.
FanDuel and DraftKings have largely controlled the space. Therefore, smaller operators could have difficult decisions to make.
“The announcement also comes amidst a dramatic increase in M&A activity and rumors compared to six months ago,” Danzig said. “Buyers and sellers seem to have come to grips with the new valuation environment as investor enthusiasm receives a recharge from the perceived paths to profitability showcased by top US operators.”
King added: “I think anybody without a sustainable business model is going to be ripe for an acquisition target. … There really is no new capital kind of coming into this category, at least getting put behind business models that aren’t clearly profitable.”
Could RSI be next?
Rush Street Interactive CEO Richard Schwartz addressed the possibility of M&A at the SBC Summit North America.
“We have an obligation to shareholders and to get the best return we can. And so we’re always open to evaluate opportunities,” Schwartz said.
Macquarie analyst Chad Beynon told LSR that RSI could be the next valuable asset, given its online casino gaming share.
“That’s still the one in our view that would end up as another brand for a bigger company. With DraftKings stock now above $20 they could start to use it as currency for other deals,” Beynon said.