There is rampant speculation surrounding the late DraftKings bid for PointsBet after Fanatics already had a binding agreement with the Australian company.
Some see DraftKings‘ bid, which came in 30% higher than the $150 million offered by PointsBet, as a way to block a new market entrant. Fanatics Betting & Gaming has a database full of sports fans and a parent company with a solid business to float the gambling arm’s losses for years to come.
Then there is the angle reported by the New York Post that DraftKings’ bid for PointsBet is “revenge” to Fanatics to slow the process down. DraftKings and Fanatics reportedly considered a merger that valued each company at $24 billion, only for it to fall apart later.
There are a few good reasons why one of the industry’s largest sportsbooks would have interest in a smaller operator like PointsBet. DraftKings is short on time to prove its case to PointsBet, though: a shareholder vote scheduled for Friday will approve or deny the offer from Fanatics.
Buying PBH good for DraftKings stock
DraftKings’ stock is on a slow positive climb, but its 52-week closing high of $26.14 earlier this month is a long way from its $71.98 all-time high in March 2021.
Companies are always considering how to improve their stock and draw positive shareholder feedback, with CEOs regularly commenting on their ‘dry powder’ (available cash) and having ‘levers to pull’ to stoke those gains.
That is what this offer looks like in a nutshell. DraftKings reported nearly $1.1 billion in available cash as of March 31, so the purchase will not stop the company from hitting a positive adjusted EBITDA next year. It also increases DraftKings’ adjusted EBITDA potential for 2025.
Too good to pass up?
In other words (and basically in those of DraftKings management) buying PointsBet at $195 million is too good of a deal to pass up given the company’s’ scale.
“While we continue to focus on operating more efficiently and driving substantial organic revenue growth in the United States, we will also look to prudently capitalize on compelling opportunities at attractive valuations, as is the case with PointsBet’s U.S. business. We believe DraftKings is uniquely positioned to submit this superior proposal due to our scale and corresponding ability to generate meaningful synergies from the acquisition.”– CEO Jason Robins
“We are excited about the potential synergies available by acquiring PointsBet’s U.S. business, including offering our customers interesting new bet types and accelerating our roadmap of bringing in-house more of our mobile sports betting technology.”– CFO Jason Park
NBC deal incentive for SNF push?
Fanatics responded to the late disruption by trying to make PointsBet’s five-year, $245 million marketing deal with NBC Universal look like an albatross around DraftKings’ neck:
“We are skeptical of the DraftKings proposal which seems like a desperate move to slow down Fanatics and PointsBet from completing the deal as the purchase price and other financial commitments will total more than $500 million – so they are using the majority of their projected year-end cash just to try to block us.”– Fanatics CEO michael Rubin
That is not the impression DraftKings is giving, though, with its letter to PointsBet pointing out “considerable synergies” including on the marketing side. Since DraftKings is an authorized sportsbook partner of the NFL, it could use that ~$49 million in annual NBC spend to take a bigger presence around Sunday Night Football.
DraftKings could even try to slide into the spot of NFL odds provider for Football Night in America, a sponsorship once held by PointsBet but foregone after giving up its NFL partnership. BetMGM jumped in during Week 2 of the 2022 NFL season to take over as the new provider.
Upgrade for DraftKings in-play betting?
DraftKings has the potential to boost an already solid in-play product that is supported by markets from Simplebet.
DraftKings had one of the best 2023 Super Bowl performances, according to a report from Usability Digital. Its markets were available about 99% of the game, with the operator showing the fewest suspension minutes by far out of five operators (PointsBet was not included in the report.)
PointsBet bought Banach Technology for $43 million in March 2021. The company held models for the four major US sports and international soccer that include in-play bets, player props and bet builders.
The thought process behind the purchase was right. In just a year, PointsBet grew its percentage of total handle from in-play betting to 63% in the fourth quarter of fiscal 2022 compared to 46% the prior year.