Analysis: Is The Sports Betting SPAC Already Dead In The US?

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GeoComply closed a private investment round this month at a rumored $1 billion valuation.

The geolocation company said an IPO is now at least two years away, following the round. It is the type of decision that has happened less frequently in recent months, as private companies increasingly turned to the public markets for capital. 

Companies like Genius Sports and BetRivers went public via a Special Purpose Acquisition Company (SPAC,) taking advantage of lofty valuations and a streamlined transaction.

However, the GeoComply decision is the latest indicator the market might be changing yet again. Is the SPAC already out of style?

SPAC out of favor with investors?

Yes, if their share prices are anything to go by. Every SPACs that went on offer last week immediately traded at a discount to their cash on hand. The median SPAC is now trading at a 1.5% discount to its cash, according to Julian Klymochko, who runs a SPAC arbitrage fund.

In the betting space, SPACs from Jason Ader, and former Fox Bet CEO Robin Chhabra both trade below $10 a share.

So why did GeoComply eschew the SPAC route?

“I have been through enough iGaming bubbles in my time,” GeoComply CEO David Briggs said. “I know all too well how it feels when the music stops and you are left holding the baby.”

“SPACs are just too frothy for us. We recognize they have been great for others and do serve a valid function, but just not for us.”

Times are a-changing

It’s all a far cry from February when the average SPAC was trading at a 27% premium to its cash. But the change might be no bad thing for the online gambling sector.

For starters, it means only legitimate companies will find their way to market.

As investor sponsor Jason Ader put it:

“A lot of very risky, early-stage companies came public via SPAC. We saw flying car companies with with no revenues or even orders. That’s over. I think the next wave of companies using SPACs will generally be more mature and have revenues, profits, cash flow, and a longer business history.”

That could be a good thing in an industry that has to be careful with its public image.

Is it different in sports betting?

Even with the recent downturn in the market, there is plenty of optimism in sports betting specifically. 

Existing states keep putting out record US sports betting numbers. And states like New York and Texas have seen legalization buzz.

“Sentiment around the sports betting and iGaming sector in the US remains very positive,” said Robin Chhabra, president of the Tekkorp SPAC. “New states are regulating at a faster rate and the size of the market is bigger than originally forecast. If SPACs in this sector present high-quality transactions to investors, there should be no reason why deals can’t go through.”

Christian Goode, the CEO of IG Acquisition Corp, said gaming-focused SPACs were primed to benefit from COVID-19 vaccine rollouts.

End of the SPAC attack?

In short, this part of the market feels a lot healthier than just one month ago.

Investors are no longer incentivized to rush a deal through to make some quick cash. And strong private companies have a little extra bargaining power over their future.

Investment opportunities remain. Sentiment is shifting to include this caveat: just choose wisely.