PointsBet Shareholders Approve Fanatics Purchase Of US Assets

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Shareholders of publicly listed PointsBet approved the $225 million sale of its US business to Fanatics at a special meeting Friday morning in Australia.

Now, after 99.16% of voting shareholders approved the sale, the process moves to US sports betting regulators, where PointsBet is operating. The transaction, which does not include the Australian and Ontario sports betting businesses, is expected to close next year.

The shareholder vote came after a busy two weeks for PointsBet and its board, which received a non-binding offer from DraftKings for $195 million, a 30% increase from Fanatics’ original offer. DraftKings failed to submit a binding offer by the deadline, though, and Fanatics sealed the purchase this week with an offer 50% better than its original.

Fanatics to share plans in ‘coming weeks’

The acquisition of the PointsBet US assets is a “pivotal” moment for Fanatics, the company said in a statement.

“We are thrilled that the shareholders of PointsBet Holdings Inc. voted to approve our acquisition of the U.S. businesses of PointsBet. We moved decisively to close the deal and we look forward to working with our friends at PointsBet Holdings Inc. to finalize the remaining acquisition details. 

“This is a pivotal moment for Fanatics Betting and Gaming that will accelerate our growth in the legal online sports betting, advance deposit wagering and iGaming markets in the United States. Pending regulatory approvals in the various states in which PointsBet operates, we will have more details to share in the coming weeks on how the acquisition of PointsBet US businesses will bring to life our unique vision for Fanatics Betting and Gaming.”

Chair: Fanatics noticed ‘attributes’ for success

PointsBet Chairman Brett Paton said the US staff has a “strong future” under Fanatics in his address.

“Fanatics identified in PointsBet many of the attributes needed to be successful in entering the online market,” Paton said. “In turn, Fanatics have a strong brand and an extensive sports customer base with a fanatical interest in sports.”

Paton noted the company’s success despite the “duopoly” of DraftKings and FanDuel.

“We doubt anyone expected FanDuel and DraftKings to become effectively a sports betting duopoly. It points to the huge incumbency benefits these companies have in the US market.

“However, we are one of the only international operators to have gained a worthwhile market share. There are over 60 online sports betting operators in the market. Only seven brands, including PointsBet have a market share of more than 1%, with the remaining 53 companies competing for the rest.”

Biggest issue was money

Competing in the US was too expensive at the end of the day, Paton said:

“The short answer is that despite having some strategic success, the costs of competing against the largest companies of their type in the world meant the business would not be cash flow-positive in the near term. Continuing to operate the US business would require significant capital and further capital raises.

“… our ability to get to scale and operate at sustainable scale was challenged. We have been competing in a very high-cost operating market with the overlay of capital pressures to continue funding the business through to profitability.”

Paton apologizes for stock price

Included in Paton’s prepared remarks was an apology about the company’s stock price, which opened at A$1.73 Friday. The stock began to rise when the vote was closed and the meeting ended around 11:45 am local time.

“Before we move to questions, let me say on behalf of your board, that we understand your disappointment about the share price performance of our company,” he said. “As shareholders ourselves, both [CEO] Sam [Swanell} and I understand the deep concern and frustration that this has caused you.”

PointsBet went public in Australia in June 2019. The stock hit its all-time high of A$17.62 in February 2021.

PointsBet selling to Fanatics at a loss

Neither Paton nor Swanell could get into specifics about how much the parent company lost on the US endeavor, with full-year earnings scheduled for August.

Paton did, however, confirm that the segment was sold at a loss. That would lead to some tax relief if PointsBet decided to sell the Australian business, though that is not up for consideration at this time, he added.

Swanell: NBC deal right at the time

PointsBet tried to help itself financially by renegotiating its marketing deal with NBC Universal earlier this year.

Originally signed in August 2020, the deal ultimately did not lead to a meaningful increase in customers to add to PointsBet’s essentially nonexistent database. That does not mean it was a mistake, though, Swanell said in response to a shareholder question:

“Most operators in that market saw NBC assets as a real gem, a real opportunity to put strength into any operator’s prospects in that market. For NBC to choose us at that time and to obviously take equity in our company at that time really talks to the fact that they believed in the partnership and what we could achieve together. Obviously the market’s reaction at the time was affirmative of that move.”

Calling the reaction “affirmative” might be underselling the reaction: PBH jumped 86.5% to A$13.02 on the news.