DraftKings ignites PointsBet bidding battle

Fanatics bid faces competition, New York data, Entain shareholder revolt, Gambling Files ep 100, startup focus is ClearStake +More

Earnings+More

Jun 19, 2023

Good morning. On today’s agenda:

DraftKings submits a rival $195m offer for PointsBet US.
Meanwhile, in New York DraftKings steals a march.
Entain shareholder goes public with STS buyout concerns.
The Gambling Files talks to Gavin Isaacs for ep. 100.
Startup focus is affordability solutions provider ClearStake.

What makes you think you’re the one?

Oneupmanship

DraftKings’ $195m offer sets up a bidding battle for PointsBet with Fanatics.

Kings gambit: DraftKings made a $195m indicative all-cash and debt-free offer for PointsBet’s US assets on Friday, which it hopes will trump the $150m bid from Fanatics made in mid-May.

CEO Jason Robins said it represented a “compelling offer” that provided the potential for “meaningful synergies”.
The company indicated that the transaction would add to the adj. EBITDA potential for 2025 and beyond, but would not impact the expectation of achieving profitability at an adj. EBITDA level in 2024.
DraftKings said it would pay for any deal out of its current cash resources.
JMP analysts said that by its estimates DraftKings would still have cash on the balance sheet of $700m at year-end 2024.

A better offer: DraftKings said the offer was not just financially superior to the Fanatics bid but could also provide a speedier resolution in terms of jurisdictional approvals and came with the “full support at the highest levels” within the company.

It added that much due diligence had been already performed from publicly available sources and that DraftKings would be “prepared to move forward quickly and efficiently with a targeted due diligence process”.
DraftKings also said a purchase would provide enhanced product and in-house tech capabilities.
Crucial to this is the Ireland-based Banach Technology odds provision business that PointsBet bought in April 2021.
What it wouldn’t do is bring a market share uplift, with analysts at Truist noting there would be a “sizable overlap” in terms of customer base.

Cock block: The news drew an unfavourable response from Fanatics CEO Michael Rubin, who said DraftKings was simply attempting to “block” his company’s plans. “We are skeptical of the DraftKings proposal, which seems like a desperate move to slow down Fanatics and PointsBet from completing a deal.”

He said the purchase price and other commitments of $500m means DraftKings would be “using the majority” of its projected year-end cash.
In part, the commitments refers to PointsBet’s $250m four-year ad-spend deal with NBC, which any buyer would be committed to post-purchase.

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Deal Talk instant reaction

The words on the page: Crucial to what happens next is the PointsBet response. As it stands, the company has to put the Fanatics offer to a shareholder vote on June 30. PointsBet noted in its statement on Friday that the offer from Fanatics came after a “lengthy process” including terms and price discovery.

This incorporated discussions with “significant industry participants”, including “all leading US-based sportsbooks”.
The board will now determine whether the DraftKings offer could “be expected to lead to a superior proposal”.
Top of mind is whether the DraftKings proposal can be completed in a “timely and certain manner” and whether it is “more favorable” than Fanatics’ offer.

War games: It leaves open the potential for Fanatics to put forward an increased bid, though informed sources told E+M suggested that it might not have to go as high as DraftKings given the non-binding nature of that offer.

“Fanatics can terminate if the vote doesn’t happen on June 30,” said one corporate advisor who asked not to be named.
“DraftKings hasn’t lodged a binding offer and that could take a while, and PointsBet is shipping cash,” the source added.
They added that the DraftKings counter likely “wasn’t high enough” for PointsBet to risk losing the Fanatics offer. “My guess is that fanatics might pay a bit more – but less than $195m – and gets it.”

New York data

DraftKings has taken the top spot in New York by handle for the first time.

I’m walking here: More good news for DraftKings comes from the weekly New York data, which shows that in the week ending June 11 it overtook rival FanDuel in handle for the first time.

The figures show DraftKings pulled in $131m for the week versus $105m for FanDuel.
But FanDuel remained the leader by GGR, generating $12.3m vs. $9.1m.

🗽 Cross here: DraftKings overtakes FanDuel in handle for the first time

Entain shareholder “outraged”

Entain shareholder Eminence Capital accuses the company over the STS deal.

Not happy: In an open letter to the board at Entain, the CEO of New York-based asset management firm Eminence Capital Ricky Sandler said the company was “outraged” at Entain funding the deal announced last week to buy STS via a rights issue.

“This approach is perplexing on many levels,” the letter said.
Last week Entain announced the £750m bid for STS via its Entain CEE JV with EMMA Capital.
To help pay for its portion of the buyout it raised £600m through a share sale.

The Eminence letter went on to point out that issuing stock at 7x EBITDA (excluding the value of the BetMGM JV) to buy an asset at ~12x EBITDA was “value destructive, even with incredible synergies”.

It added that since the deal was announced, the stock has fallen 8% representing ~£650m of “lost value” or nearly the value of the price being paid for STS”.
“The market reaction to this equity offering should be a wake-up call to Entain’s tone-deaf board and management team.”
“We can assure you that this particular shareholder is outraged and in light of the movement in the company’s share price we are clearly not alone in that sentiment.”
Dire warning: “As shareholders lose confidence in Entain’s ability to allocate capital and create long-term value, it is quite likely they will support a sale of the company to MGM at a materially lower price than previously assumed.”

You just haven't earned it yet baby: Eminence said in the letter it has been a 2% shareholder in Entain since 2020. It noted the company’s previous track record meant it had “earned the right” to pursue its strategic aims, but only if funded at the “lowest cost of capital”.

Parting shot: “We believe that multiple attractive and value creating paths exist for Entain to raise capital to fund its M&A initiatives, including the potential divestiture of some or all of its stake in the BetMGM JV.”

Isaacs on shareholder pressure

The Gambling Files spoke to Gavin Isaacs for its 100th episode.

Speaking to Jon Bruford about the news on IGT’s strategic review, Isaacs, the former SciGames CEO, now Games Global chair, said the move reflected the pressure from shareholders to create value.

IGT announced a strategic review on Jun 9, with the sale of its gaming and digital businesses on the table.
Isaacs referenced Light & Wonder’s (Scientific Games as was) own process of selling its lottery and sports-betting arms in order to pay down a sizable portion of its debt.
“Obviously there is some pressure from shareholders to do what Light & Wonder did by selling assets for high valuations and paying down the debt,” he said.

The last word: Until September last year Isaacs was chair of the Altitude Acquisition Corp. SPAC. Talking of the concept of SPACs, he told Bruford they were “very useful for the right situation, with a company that was ready to go public”.

“Unfortunately, what happened was it attracted those trying to make a quick buck and a lot of the companies that de-SPACed weren’t ready to go public and they were cashing in and it ruined the whole market.”

green and yellow vegetable on brown woven basket

Esprouts

Eat yer greens: +More Media is delighted to announce that it is now the publisher of the Esprouts newsletter, which is written by Ollie Ring. The next edition is set to be published this morning and we heartily recommend our subscribers sign up for what is arguably the most acerbic commentary to be found on esports.

Analyst takes

NGR: In assessing OSB figures on an NGR basis, Deutsche Bank said SGPs have played a key role in helping operators record higher hold levels, with the team saying parlays are “nothing more than a cost of entertainment”.

“As hold rates go up, the cost of entertainment for the consumer increases and, like anything else, eventually there is a tipping point, even if we don't anticipate it will be reached anytime soon.”

Online preview: Wells Fargo suggested the Q2 beats will be less significant than in Q1 due to investors doing a “better job capturing higher structural hold and lower promos in estimates”.

JMP’s initiation note on Bragg Gaming says the gaming content provider is trading at a “meaningful discount” to peers at ~3x 2024E consensus EBITDA but the report highlights a looming issue over the migration of Bragg client BetCity to Entain.

Bragg supplies its PAM to the Netherlands operator but, following its acquisition by Entain, it will be moving to an in-house solution at some point next year.
JMP pointed out that Bragg generates 15-20% of revenue from the PAM provision.

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Startup focus – ClearStake

Crystal: Established in 2021 by Martin Burt, Robert Lindsay, Tom Eaves and Tom Farrell, the London-based firm provides operators with an understanding of a customer’s true financial situation via transparent affordability and AML checks.

The great and the good: ClearStake is backed by industry stalwarts and fintech angels including insurtech unicorn Marshmallow; Cormac Barry, former CEO of SportsBet; Adam Perrin, ex Paddy Power; and Oliver Slipper, a founder of Stats Perform. Another funding round is in the works.

Survival instincts: Burt says the ultimate aim of ClearStake is to provide operators with “no more than what they need” about a customer’s finances and spending habits. “The innovation part is being able to understand customer risk accurately and in real-time,” he says. “This hasn’t been possible before.”

“Inaccurate passive data” such as soft credit checks don’t provide a true reflection of a player’s affordability and, as a result, “force operators to put global caps on player spend that cost hundreds of millions of pounds.”

The end of the beginning: The time is ripe for more affordability solutions. “There will soon be more checks more often and earlier in the customer lifecycle as regulatory frameworks and responsible gambling narratives evolve,” says Burt.

Frictionless transactions are the goal. “Asking the customer to do anything that isn’t essential will kill opt-in stone dead,” he says.

Means to an end: With one customer about to go-live and another six signed up for trials, Burt says operators who see the product “love it and say it is exactly what they need”. What has been lacking, of course, is direction from the government. “But that’s starting to change,” he adds.

Growth company news

BetDEX Labs has launched tennis markets on its blockchain-based exchange. The initial offering of tennis markets coincided with the start of the French Open on 28 May. The company is also preparing to launch in-game wagering in the coming weeks.

iGaming tech company ThrillTech, founded by former Happyhour.io co-founder Benjamin Bradtke, has launched a software-as-a-service jackpot server called ThrillPots.

Career paths

Romanian bookmaker Superbet has made a number of senior appointments: Stephen Parry is its new COO, he joins from William Hill International where he was CEO. Andrei Dușu joins the group as its new chief business development officer and Glyn Hughes is the new CFO.

Esports Entertainment has appointed ex-Mohegan Sun CEO Robert Soper to the board.

Martin Martirosyan is the new deputy CEO at Digitain.

Better Collective has appointed Terence Gargantini as its country director for Brazil. He recently held the same position for DAZN’s ElevenSports.com.

Mark McGinley is the new chief gaming officer at Yggdrasil. McGinley most recently served as CEO of FunFair Games.

Daniel O’Donoghue and Katie Byers have been promoted to COO and SVP of people capability of Light & Wonder respectively.

Kiron Interactive has appointed former Codere and Microgaming executive Leticia Palacios as director of sales for Latin America.

Newslines

The UK Tote and Hong Kong Jockey Club have announced a five-year agreement extension, which will run until at least the end of 2028. Under the terms of the new agreement the UK Tote becomes the exclusive pool partner for World Pool in the UK and Ireland.

1/ST Content has launched a US-racing in-running betting product in partnership with Total Performance Data, which is already being delivered to Sky Bet.

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What we’re reading

Driven to destruction: AI poses a threat to computer-driven trading.

Calendar

Jun 20-21: Jefferies Consumer Conference, Nantucket
Jun 21-22: iGaming Next, Malta

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