Dublin-based gaming company Paddy Power Betfair announced it had completed an acquisition of daily fantasy sports site FanDuel on Wednesday. The two parties await final regulatory approval and expect the transaction to close during Q3 this year.
That PPB was in talks with FanDuel was first reported by Legal Sports Report last week.
The news comes as the US Supreme Court struck down the federal ban on single-game wagering last week in the New Jersey sports betting case. It appears likely that decision triggered an escalation in talks that were already underway.
“We are excited to add FanDuel to the Group’s portfolio of leading sports brands,” Peter Jackson, CEO of Paddy Power Betfair, said. “This combination creates the industry’s largest online business in the US, with a large sports-focused customer base and an extensive nationwide footprint.
“The Group has leading sports betting operating capabilities globally and strong operations on the ground in the US. Together with our substantial financial firepower, we believe we are now well placed to target the prospective US sports betting opportunity.”
Details of the FanDuel deal
Here’s what we know:
Upon completion of the transaction, the Group will own 61% of the combined business, with existing FanDuel investors owning 39%. All material FanDuel investors are rolling their investment into the combined business. A mechanism has also been agreed to take the Group’s ownership of the business to 80% after three years and 100% after 5 years, consisting of call and put options at the prevailing market valuations.
Under the agreement, the Group will contribute its existing US assets along with $158m of cash. This cash contribution will be used to pay down existing FanDuel debt (net debt of $76m at 31 March 2018) and fund working capital of the combined business.
You can read the full presser from PPB here.
What’s the PPB-FanDuel deal mean?
The deal positions FanDuel to better compete with DraftKings in the US DFS market. It also makes PPB a potential force in the nascent US sports betting market, as it gives the company access to FanDuel’s user database.
From the press release, we can glean that the deal is primarily focused on the sports betting side of things:
The transaction strengthens the Group’s opportunity to target the prospective US sports betting market through the addition of a strong brand, large existing customer base and talented team. The scale of the combined business also means it is well positioned in discussions with providers of market access for sports betting.
And there’s this from a PPB investor presentation released Wednesday:
PPB already has a presence in the US. It has an NJ online casino via its Betfair Casino brand and is clearly getting ready for sports betting there. PPB also owns TVG, an online horse betting site.
Almost exactly a year ago, PPB acquired daily fantasy sports platform Draft for a deal that possibly approached $50 million.
FanDuel sports betting?
It’s not clear how PPB will deploy a sports betting product in the US, using its current brands or baking a sports betting product into the FanDuel platform, as DraftKings appears to be doing.
But it’s clear FanDuel will be a major part of the sports betting landscape moving forward, if only for its database of players.
FanDuel CEO Matt King offered this in an email to users: “We’re currently working on a sports betting product which we expect to be available by the 2018 NFL season. We can’t wait for you to see what we have in store!”
More on FanDuel’s current status
As part of the press release, PPB shined some light on FanDuel’s numbers:
- PPB believes FanDuel has 40 percent of the US DFS market.
- FanDuel has seven million registered users (1.3 million active).
- In 2017, FanDuel had revenue of $124 million.
- The company has spent $400 million on marketing.
- PPB estimates revenue at DraftKings in 2017 was $155 million.
King said this about the acquisition: “FanDuel and Betfair US share an enthusiasm for innovation and, as a result of today’s announcement, are prepared to lead the charge into the US sports betting market. The combination of our brands and team, along with a shared culture and vision for the future, will allow us to create the leading gaming destination for sports fans everywhere.”
King was brought in to replace former CEO Nigel Eccles late last year, likely with a deal like this in mind.
Notes from the analyst call
The CEOs of PPB and FanDuel held a conference call this afternoon to delve into the details.
The conversation naturally orbited around sports betting, the aspect with the most unknowns right now. Jackson said it was “very difficult to make any sort of sensible comment” until there’s more clarity at the state level. “We don’t know how the market is going to evolve.”
During the Q&A, a caller asked about the strength of the FanDuel brand in the states that are the closest to legal sports betting. Jackson passed the question to King, but not before offering this:
Clearly, one of the reasons we’ve undertaken the transaction is we think that the brand is going to play very well for us in the states which are opening up. It also will allow us to acquire customers in the states which will soon open up.
King added that his company is “incredibly well-positioned” in the most imminent states. FanDuel’s user base correlates with state population, with around 20,000 per million residents. As the group points out, “FanDuel customers have many attractive attributes when it comes to the potential for sports betting.”
Another question concerned the existing DFS partnerships that PPB is acquiring in the transaction. FanDuel has a league-level partnership with the NBA, along with franchise partnerships there and in the NFL. The group says it will look to evolve that strategy as sports betting becomes legal.
The leagues’ reactions will be worth monitoring, too. Last month, the NBA modified the terms of its FanDuel partnership, apparently to divest itself of direct interest.
What’s it mean for DraftKings?
DraftKings is now facing what is likely to be a resurgent FanDuel in the DFS market. FanDuel had ceded its dominant position in the DFS industry over recent years, dating back to 2015. But with the strength of PPB in its corner, that could change pretty quickly.
Interestingly, DraftKings came up in this afternoon’s conference call, too. Check out this question: “I’m just wondering why it is FanDuel that you have chosen to buy, rather than a business that looks more successful in DraftKings — or at least bigger.”
Jackson admonished that PPB is not simply buying a database. “We think we’ve got a very good cultural fit with the business,” he said. “If you go far enough back, Nigel — who actually founded FanDuel — was one of the early people who worked at Betfair. So if you go back far enough, we’re all related.”
DraftKings and FanDuel had planned to merge in 2017, but that was called off in the face of anti-trust concerns from the federal government.
DraftKings is also pushing its own sports betting product — which does not even exist yet — pretty hard. And while FanDuel had said it was looking at sports betting in the US, it was well behind DraftKings on this front, before the acquisition.
Eric Ramsey contributed to this report.