LSR Q+A: Jason Ader On Finding The Tesla Of Online Gambling 

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Jason Ader

Renowned investor Jason Ader joined the online gambling special purpose acquisition company (SPAC) bonanza in January with the float of his 26 Capital vehicle. 

The SPAC quickly soared past its initial $200 million capital raise target, reaching $275 million. And according to Ader, there were “multiples more” capital that wanted to invest.

Now the focus turns to the target. Ader has narrowed it down to four options, each with some link to gaming and, by extension, sports betting.

LSR caught up with Ader to discuss those targets, along with the wider world of online gambling and M&A.

LSR: Are there still plenty of targets available given the growing numbers of SPACs now looking?

Ader: As you would guess given the success of DraftKings, Golden Nugget and Rush Street, this is a very exciting space. There’s a lot of money trying to find the next DraftKings

We have four deals we are looking at closely. One is gaming technology. One is fintech but the founders/principals have some gaming DNA. Another is internet commerce and you’ll see, if we do a deal, how this business model is connected to the gaming industry. 

The last company is in the entertainment industry, but has some commonality to [previous Ader companies] IGT, Las Vegas Sands, Bwin and Stars Group. Of course there’s no guarantee we’ll get these deals done.

LSR: Why go down the SPAC route in the first place?

Ader: I did two SPACs in the past, a long time ago. One in 2007, one in 2008. But the model now is much better.

Anyway, around August, I started to get calls. I heard from a gaming company who said, ‘We’ve got an offer from a SPAC but the founder is an unemployed CEO and he wants to run our company. We don’t really want that, but we like the SPAC idea. Can we do something with you?’

I said I didn’t have a SPAC, but was happy to learn more. Then I got another call, and it was the same thing. So we got smart on the SPAC market and concluded we could do this better than anyone else.

I have a job, so I don’t need to run the company. These targets want to keep running their business as they’ve done successfully. The four that reached out over the summer, we’re talking already.

LSR: Part of the reason the DraftKings listing was such a success was its scarcity … is there any concern about oversaturation with all these SPACs looking at gaming now?

Ader: I think the SPAC market has around $150 billion of capital expiring in two years or less. So a lot of SPACs won’t find a deal and will be returning capital in my view.

There is in general more SPACs chasing opportunities than there are opportunities. Not necessarily in gaming, but in general. Gaming is a bit different as its so specialized. 

I would also say the quality of some SPAC management teams is quite poor. Not every SPAC is a Ferrari or Rolls Royce. I’m seeing a lot of old Fords that are not going to do well.

LSR: On that note, I’ve heard some investors criticize the quality of gaming industry execs in the past. Where do you stand on that?

Ader: Jason Robins at DraftKings has created tremendous value. Peter Jackson at Flutter is a rockstar. People often ask me, can anyone build Tesla for the gaming industry? To me, that’s Flutter. 

If they weren’t losing money to compete with DK in the US, they would be making almost $2 billion EBITDA a year. It is a powerhouse. It’s an amazing collection of brands, from PokerStars to FanDuel to Sky Bet to Betfair. Flutter is very unique. 

After that, Itai Pazner at 888 is an unbelievable tech CEO. Israeli tech leaders are very good at building companies and Itai knows what he’s doing. Jetta at Entain, I don’t know her yet. I look forward to meeting her.

So I think you’ve got a lot of great technology leaders in online gaming. Think of the challenges these operators face: regulatory, compliance, cyber-security. These sites are attacked all day long and don’t go down. So I disagree with that point.

LSR: You’re still bullish on MGM acquiring Entain despite the recent setback?

Ader: Look at it this way. MGM is sitting in their offices looking out at an empty Strip. They are looking at their daily drop, looking at their empty restaurants, empty convention centers and wondering what to do.

This is every casino company right now. But MGM also has a window into how Entain is doing. [MGM CEO] Bill Hornbuckle is very smart. He knows how well online gaming companies are doing.

My view is unwavering. Land-based companies will merge with online. US land-based firms will buy European operators. If you don’t, you risk going out of business.

If you’re a retailer that didn’t move online, you don’t exist anymore. Who’s thriving against Amazon? Wal-Mart. They built an amazing online business to complement their stores. MGM, Caesars, Wynn. They have a choice to be like Wal-Mart or disappear. The gold rush is on.

If I were to bet, I think these two companies will be together at some point in the future. It will be good for MGM. 

LSR: So you think Hornbuckle is calling Entain’s bluff currently? 

Ader: He is a great poker player

LSR: What’s in it for Entain?

Ader: Look at the Entain brands. How can you best serve the top 20% of customers that drive most of the business?

Market to them in casino and gaming environments. Host your customers at events in Vegas and Macau. Give them VIP experiences at the MGM Grand and the Bellagio.

Being fully integrated with a portfolio like MGM’s brings down cost of retention, and acquisition. It extends lifetime value too.

LSR: How do you evaluate Penn/Barstool?

Ader: I’m a big fan of Dave Portnoy. He’s created a lot of value for Penn.

People want to play with them. They want to play with that brand.

The small business charity stuff is great. It was smart to send out that lifeline.