Internet gaming giant Amaya has reached an agreement to acquire the daily fantasy sports site Victiv, which will be rebranded as StarsDraft.
The deal was announced in advance of Thursday’s Q2 earnings call for Amaya. The possibility of Victiv being acquired by Amaya had been rumored for months.
Eilers Research’s Adam Krejcik, told LSR that “Amaya’s entrance into DFS sector is more or less what we expected.”
“Specifically, the company went the acquisition route versus building a product out organically — the latter would have been nearly impossible with the ‘deadline’ they set for themselves — and they will not be engaging in any type of sales and marketing war with the likes of FanDuel and DraftKings.”
RotoGrinders CEO Cal Spears called the deal “a good fit,” noting Victiv’s “strong development team, leadership with an online poker background, and a presumably clean cap table.”
In-depth information and analysis, along with answers to common questions about the deal, follows.
What we know about StarsDraft
When will it be available?
It’s technically available now, as Victiv is a live, active site. But the StarsDraft re-branding is expected to take place prior to the start of the NFL season.
How much will Victiv change?
In the short-term, not much. According to the presser announcing the acquisition, the current Victiv team will continue to operate the site following rebranding.
Long-term, the plan is for Victiv to be “integrated onto the PokerStars platform,” per a slide from Amaya’s 2Q15 presentation.
How big is Victiv?
The majority of the DFS market is controlled by FanDuel and DraftKings. Following those two sites are a pack of second-tier sites (including Victiv, DraftDay, Yahoo, and Fantasy Feud) with similar traffic levels.
Here is a graph showing where Victiv stands (minus FanDuel and DraftKings), in terms of total contest entries generated in recent weeks:
More DFS site traffic data here.
Where will StarsDraft be available?
It’s unclear from the press release how much of the United States will be able to play at the new DFS platform. Currently, Victiv operates in 45 states, and is not operational in Arizona, Iowa, Louisiana, Montana, and Washington, jurisdictions where DFS is generally considered illegal.
The press release notes that StarsDraft will be available in “select U.S. markets.”
Amaya will theoretically be leveraging its gaming licenses in jurisdictions around the world to offer fantasy sports, both through the new website and the PokerStars client (eventually). To what extent those licenses will be used immediately is unknown. Victiv currently operates only in Canada and the U.S.
What sports will StarsDraft offer?
Victiv offers:
- Golf
- Baseball
- Hockey
- Football (NFL)
- Basketball
The DFS industry is split on the question of golf, raising the issue of whether or not StarsDraft will offer the sport post-acquisition. Otherwise, we would expect the lineup to remain intact.
Given the strong international presence of PokerStars, the addition of soccer seems like an inevitability, although that development may come closer to 2016 than 2015.
Why isn’t it called DraftStars?
PokerStars’ entry as StarsDraft might seem a bit strange, as “DraftStars” sounds like a more natural fit.
There might have been concerns in brand recognition overlap with other DFS sites that start with “Draft” — most obviously DraftKings.
Also, the DraftStars.com domain is owned by another DFS operator, Draft Ops.
What was StarsDraft before this?
A fantasy sports site focused on soccer. Screenshot circa Jan 2013:
Inside the Amaya acquisition of Victiv
How much did Amaya pay for Victiv?
The purchase price was not disclosed. Baazov described it as “immaterial.” Based on the recent DraftDay comp and scuttlebut, I’d guess the price was north of $20mm but south of $40mm.
When did the deal close?
Per Baazov, following the end of 2Q15, so sometime in the past few weeks.
What are Amaya’s plans for the site?
It appears as if Victiv will continue to operate as-is (save the rebranding) for the short-term. Deeper integration with PokerStars and additional sports are expected as part of the longer-term evolution.
How long has the deal been in the works?
We have been reporting rumors regarding Victiv as an acquisition target for several months.
Why Victiv, and why now?
The move made sense as Victiv is a second-tier site behind the DFS duopoly of FanDuel and DraftKings, making the cost of acquiring Victiv much more reasonable than taking over either of the top two sites, which now have billion-dollar valuations. Victiv’s CEO, Matthew Primeaux, has a background in online poker, as the former CRO of PokerStrategy.com.
Many other possible acquisition targets, such as DraftDay, Fantasy Aces and Fantasy Feud had recently gone through financial transactions, making the idea that they would be acquired less likely. There had also been rumors that PokerStars was building its own DFS platform, although other than integration with the PokerStars client, that is off the table now.
PokerStars had sent out a player survey just last month about DFS, which had made it seem like a launch before NFL season might not be forthcoming. In March, Amaya had announced that it would roll out a product in time for football, but Baazov had hedged that timeline in later communications.
Why does PokerStars want to be involved in DFS?
As we have noted in the past, PokerStars has a number of motivations for entering the DFS industry:
- There is quite a bit of cross-over between DFS and poker; DraftKings has consistently targeted online poker players.
- Online poker, like DFS, is a liquidity-driven business, which Amaya/PokerStars excels at.
- Amaya holds gaming licenses around the world, which is not true of almost all DFS operators.
PokerStars also has designs on reentering the U.S. market as a regulated online poker, casino and sportsbook operator down the road. The move to offer DFS keeps the company’s brand awareness alive in America.
Impacts of the Amaya Victiv acquisition on the DFS industry
Will increased competition benefit players?
It seems likely. Adam Small, co-founder of the poker site PocketFives.com, thinks the move will be good for the DFS industry:
“It’s huge news for poker players and DFS enthusiasts alike that Amaya has acquired Victiv,” Small told Legal Sports Report.
“More competition — legitimate competition — in the DFS sector is going to be the best possible thing for bringing value to players in terms of both prize money available and quality of games. We’re looking forward to seeing what StarsDraft can do.”
How will U.S. regulators respond?
The addition of a company whose focus is gaming could have repercussions for the daily fantasy sports industry as a whole in the U.S.
Currently, the U.S. DFS operators are pretty much just that — DFS operators — or are larger companies, like CBS and Yahoo. None of the operators, before Amaya, had an overt relationship to a casino or online gaming platform.
The presence of the PokerStars brand will impact the way that policymakers perceive daily fantasy sports, most significantly on the matter of how close the activity is – or isn’t – to a state’s definition of gambling.
More directly, Amaya’s entrance would mark a first in the North American DFS market: a DFS operator that is also licensed by a U.S. gaming regulator.
Amaya is licensed by the New Jersey Division of Gaming Enforcement as a platform and content supplier in that state’s regulated online gambling market. The company also holds licenses from various other U.S. jurisdictions as a result of its land-based business, although that business is quickly being wound down in the wake of the PokerStars acquisition.
And Amaya holds a broad portfolio of international licenses, including a recently-granted license from the UK Gambling Commission.
PokerStars currently does not operate anywhere in the U.S. with its real-money online poker, casino and sportsbook products. The company offers play-money games (Zynga-style, with available play chip purchases) to American customers.
It is actively trying to enter the regulated online poker and casino market in New Jersey and is pushing for regulation in California, as well. Amaya is licensed as a platform and content supplier in New Jersey.
PokerStars left the U.S. market in 2011, as its domain and that of several others was seized by the U.S. Department of Justice under violation of the Unlawful Internet Gambling Enforcement Act. PokerStars settled its case without admitting any guilt.
Does this signal big things for DFS for soccer and other international sports?
Victiv recently sent out a player survey inquiring about interest in a variety of European-centric sports, including soccer, rugby, and others. Victiv currently offers contests based on baseball, football, basketball, hockey and golf. Here is the relevant survey question:
Seeing as PokerStars is big in European markets, it would make sense to leverage its platform for daily fantasy soccer, a vertical that has yet to find a truly dominant player.
Mondogoal has been the leader in the space, holds a United Kingdom gaming license, and recently signed a partnership deal with Yahoo. DraftKings also offers DFS for soccer, and recently applied for a U.K. license.
Some have argued that the European DFS space is primed for huge growth, although growth has mostly been slow, so far. PokerStars would have a chance to change that. It already has two huge soccer stars — Cristiano Ronaldo and Neymar — as brand ambassadors.
How successful will StarsDraft be?
Likely performance for rest of 2015
StarsDraft likely quickly vie for the No. 3 position along with Yahoo and SportsLine, along with other operators such as Fantasy Aces and Fantasy Feud. With brand awareness and PokerStars’ penetration with Canadian users, Victiv/StarsDraft should see a relatively immediate, if not huge, uptick in traffic for DFS.
Earlier in the year, Primeaux said the goal for Victiv will be to pay out $2.5 million in prizes per week by the end of the upcoming NFL season.
Baazov setting low expectations
Baazov sounded a number of notes on the call meant to lower expectations for the immediate performance of StarsDraft:
- “I’d also emphasize that this is not a category in which we will be doing any significant investment in, as they first start cross-selling and leveraging the 1 in 10 U.S. adults we have in the database. And I think the market still has to mature more, it has to appreciate to a size where we would be willing to make a significant investment.”
- “When you take a look at some of the marketing spend [in DFS], I think there are some companies that are spending four to five times revenue. That’s not something we’re looking at right now. We feel we can capture the market share over time, and it’s not something that is necessary today. I think the market needs to mature and become a little bit bigger. It’s nowhere the material size yet today to make a difference.
- “To just put up overlay to try and attract customers in the short term and don’t have any return right now, is not going to be a focus for us. I think the focus is going to be leveraging our cross-sell of our database, our brand and our trust, with the fact that people’s money is secure at anytime, segregated, etc. … And we’re going to capture some market share that is going to be meaningful anyway. But I think the time isn’t right now in order to go in and spend on CPA [cost per acquisition]. The market needs to have more players in totality.”
Eilers’ Krejcik notes that trying to compete at the top levels of DFS, right off the bat, would have been a poor strategy.
“As we’d previously noted, trying to match the customer acquisition spend would have completely eroded Amaya’s profit margins and was not something that management could ever realistically consider (i.e. the public company conundrum),” Krejcik told LSR.
“The end result is what we believe will be a very conservative approach to DFS, and subsequently we don’t expect them to take any material market share over the next 12 to 18 months.”
PokerStars enjoys a number of advantages
The inherent similarities between DFS and poker makes DFS an uniquely attractive product for PokerStars. Like online poker, DFS:
- Is liquidity-driven.
- Involves the management of a sensitive, skill-divided player ecosystem.
- Requires the development and maintenance of systems capable of performing under intense short-term loads involving simultaneous, parallel connections.
Victiv provides a solid foundation for Amaya to build upon. The global scale and deposit base of PokerStars – not to mention the lingering strength of its brand in the U.S. – gives Amaya a potentially explosive launchpad for daily fantasy sports.
Given the size of the DFS industry at this stage – roughly 4m total paid actives estimated for 2015 – and Amaya’s total registered player base of 97m (over 5m active in the last quarter) it wouldn’t take much of the existing customer base crossing over for Amaya to leapfrog to the DFS lead.
Isn’t the DFS market getting crowded?
Amaya/PokerStars marks the third major operator to enter the DFS space in about the past month:
- Yahoo launched its DFS platform early in July.
- CBS launched a DFS product via SportsLine.com earlier this month.
That’s in addition, of course, to the “big two” of FanDuel and DraftKings, and a large number of smaller operators.
Additional information
Transcript of comments from CEO David Baazov
Here are the Baazov comments from the Q&A:
- “The idea right now is that daily fantasy sports is still a very small market. You’re talking about DFS in North America generating less than $100 million as a category last year, in 2014.”
- “What we did, and why we chose Victiv, we did a technology assessment, looking at approximately 12 different companies. And this was more of a technology “acqui-hire” initiative. We feel we have the user base, etc.”
- “I’d also emphasize that this is not a category in which we will be doing any significant investment in, as they first start cross-selling and leveraging the 1 in 10 U.S. adults we have in the database. And I think the market still has to mature more, it has to appreciate to a size where we would be willing to make a significant investment.”
- “When you take a look at some of the marketing spend [in DFS], I think there are some companies that are spending four to five times revenue. That’s not something we’re looking at right now. We feel we can capture the market share over time, and it’s not something that is necessary today. I think the market needs to mature and become a little bit bigger. It’s nowhere the material size yet today to make a difference.
- “To just put up overlay to try and attract customers in the short term and don’t have any return right now, is not going to be a focus for us. I think the focus is going to be leveraging our cross-sell of our database, our brand and our trust, with the fact that people’s money is secure at anytime, segregated, etc. … And we’re going to capture some market share that is going to be meaningful anyway. But I think the time isn’t right now in order to go in and spend on CPA [cost per acquisition]. The market needs to have more players in totality.”
Slide from 2Q15 presentation
Full press release
Here is the full press release:
Amaya Inc. (TSX: AYA, NASDAQ: AYA) (“Amaya” or the “Corporation”) today announced that it has acquired Victiv (http://www.victiv.com), an Austin, Texas based daily fantasy sports (“DFS”) site that offers players the opportunity to build a roster of their favorite sports stars and compete for the chance to win real money.
The current Victiv team will manage the DFS business, which will be rebranded StarsDraft and will be initially launched at StarsDraft.com in select U.S. markets and later through the PokerStars platform. Victiv has received considerable attention among daily fantasy players for its user-friendly and innovative software for fantasy sports enthusiasts.
“StarsDraft will combine Victiv’s innovative platform and experienced DFS team with Amaya’s expansive consumer base and operational excellence as the world’s preeminent online gaming brand,” said Matthew Primeaux, CEO of Victiv. “We intend to capitalize on what we believe is strong crossover between online poker players and daily fantasy sports. PokerStars is the most-trusted brand in online gaming and brings unmatched security, customer support and technical infrastructure that we believe all players can rely on.”
StarsDraft.com will feature the innovative Victiv software that Amaya believes has made the site increasingly popular since its launch last September, particularly among players who are new to the game. In particular, the Bankroll Builder feature allows new players the chance to learn the game in a risk-free environment. Joining free-to-enter contests new players have a chance to display their sports knowledge and win cash without having to deposit.
