Ruling clears FanDuel IPO path
FanDuel IPO implications from arbitration ruling, DraftKings mauled, Mattress Mack cleans up +More
Good morning. On today’s agenda:
Flutter/FOX arbitration tribunal ruling ‘clears path’ for IPO.
DraftKings loses a quarter of its value on investor fears over cash runway.
The ’books count the cost as Mattress Mack’s $75m Astros bet comes in.
FuboTV says the rising cost of capital accounted for its sportsbook closure decision.
Our startup focus for this week is Data+Sports.
An arbitration tribunal ruling in early 2023 is seen as being likely to clear the path for a FanDuel IPO.
After the fox: Having set a value for FOX’s 18.6% stake in FanDuel – currently worth $4.1bn – the arbitration tribunal decision last Friday is seen as clearing the path towards a FanDuel IPO. The tribunal found in favor of Flutter’s valuation of FanDuel at $20bn as of December 2020 vs. FOX’s $11bn valuation.
Analysts at Jefferies said a FanDuel float is “again up for discussion”.
“We see strategic merit in an IPO and view a US listing as a potentially material catalyst,” they added.
In its statement on Friday, FOX said Flutter “cannot pursue an IPO for FanDuel without FOX’s consent or approval from the arbitrator”.
But that consent is highly likely to come in the early 2023 tribunal decision.
Meanwhile, the licensing requirement for anything above a 5% stake means FOX is unlikely to want to own as much as 18.6% of FanDuel.
Clearing the path: Sources suggested this clears the way for Flutter to seek a US listing for FanDuel. “This was the last obstacle,” said one corporate advisor. “Flutter now has its corporate destiny in its own hands; that wasn't the case with the FOX arbitration overhang.”
But timings from here remain cloudy. “Market conditions just aren’t favorable,” said another source.
“You wouldn’t want to IPO right now anyway because the market is dead,” the source added.
Deal Talk: For more on the way forward for Flutter, FanDuel and FOX, see tomorrow’s edition of Deal Talk, which also discusses the prospects for MGM and Entain and rumors around Kindred.
A dead fox: Jefferies added that the supplemental decision that Flutter had not failed to “provide commercially reasonable resources” would likely lead to FOX Bet being closed. FOX retains the right to buy out its partner in FOX Bet parent TSG US, but only if it gets licensed, a move that sources indicated was highly unlikely to happen.
Sources suggested “this likely ends in divorce”.
Jefferies said an agreement could be created in which FOX Bet is closed, stemming ~$70m EBITDA losses a year.
The Super Six free-to-play, which the tribunal found that Flutter owns rather than FOX, could be pointed at FanDuel.
FOX Sports retains a media partnership with FanDuel.
Brave face: FOX’s own statement suggested it was “pleased with the fair and favorable” outcome. “This optionality over a meaningful equity stake in the market-leading US online sports-betting operation confirms the tremendous value FOX has created as a first mover media partner in the US sports-betting landscape,” the statement added.
Diary dates: Flutter will issue its Q3 trading update on Wednesday, while on November 16 it will be conducting a FanDuel investor afternoon.
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DraftKings saw its share price slump by over 28% as investors opted to ignore the headline upping of estimates and focused on the negatives.
Hospital pass: Analysts at Deutsche Bank suggested the negativity was due in part to short-term investors having expected more from a “well telegraphed beat”. Notably in the two weeks up to Friday the stock rose 31.8% to $16.45 on the day before the earnings release.
They also indicated there was disappointment in the magnitude of the losses in the 2023 adj. EBITDA guidance.
A realization that even high hold has its drawbacks with operators having to re-stimulate customers with incremental promotions.
An overall skittish equity market that can create outsized volatility.
Analysts at JMP suggested DraftKings provided “sub-optimal guidance” with higher-than-expected losses for 2023 ($475m-$575m vs. consensus of $430m).
🚨DraftKings shipped over a quarter of its value on Friday
Wake-up call: However, one source suggested a simpler explanation for the Friday massacre. “Investors are dumb,” they said. “Previously, they saw that DraftKings had $2bn of liquidity; now they see that is down to $1.4bn and falling.”
Addressing the liquidity position on the call, CFO Jason Park said DraftKings is “poised” to exit the year with between $1.1bn-$1.2bn of liquidity.
This would fall to “more than $500m” by the close of 2023, before DraftKings is “roughly breakeven on a full-year basis” in 2024.
Mack smacks the ‘books
The Astros 4-1 World Series victory was the cause of a $75m loss for the sportsbooks.
Small mercies: Caesars, Penn and Betfred US have taken to social media to say they have already paid out on Jim ‘Mattress Mack’ McIngvale’s record-breaking $75m wager win. According to reports, he placed bets with Caesars ($3m), WynnBet ($1m), BetMGM ($2m), Barstool ($2m), Unibet ($1m) and Betfred ($1m).
Biff: Analysts at Regulus noted the $5m being paid out by Betfred was likely more than the business has made in the US in the entirety of its existence.
Bang: The payout at Unibet was hardly less damaging; it said this morning the payout will be $6.3m or 80% of Q3 gross win.
Pow: Regulus said Caesars’ likely $30m payout represented 14% of Q3 digital revenues.
Regulus said there are lessons to be learnt from McIngvale’s exploits, including his VIP status, which has implications for marketwide growth expectations. “Saturation marketing of states is very unlikely to create any more of them or encourage their total expenditure to increase,” they added.
Meanwhile, as a Texan, McIngvale represents an out-of-state bettor in legal states, pointing out that such revenues could be worth over 20% of the market-wide figure.
Fubo’s parting words
CEO says the escalating cost of capital lay behind the closure of its betting and gaming operation, but he still believes in the thesis of sports-betting and streaming.
Not easy: CEO David Gandler said shutting down the sportsbook “was not an easy decision and was made after much careful deliberation”. “We felt the decision was prudent in support of our profitability goals,” he added. The group also incurred a non-cash impairment of $35.5m linked to its sports-betting assets.
Recall, Fubo acquired the Vigtory sportsbook in Jan21 for what is believed to be around $35m.
Gandler said Fubo remained open to “the possibility of exploring ways to optimize our assets in the gaming space without investing our own capital”.
Discussions around potential partnerships with OSB third parties “are pretty healthy”, he added.
Reality check: Gandler acknowledged there would be some negative feedback about the closure, “but the reality is, when we announced that we wanted to do this, the 30-year fixed rate was somewhere around two and three quarters, right? And today, I think, as of yesterday, the 30-year was 7.2%, or something like that.”
The week ahead
Flutter aside on Wednesday, the suppliers take the spotlight this week with IGT on Tuesday and Light & Wonder on Wednesday.
Light and shade: When LNW last reported in August, it said net debt had fallen to $4bn following the sale of the lottery unit. It has since appointed Matt Wilson as CEO and completed the offloading of OpenBet to Endeavor.
IGT’s most recent news came in August when it announced it had settled the class action suit related to former subsidiary DoubleDown’s activities in Washington state.
On Wednesday, Wynn Resorts is sure to be fielding questions on strategy after it emerged last week that Tilman Feritita had bought a 6% stake.
The supporting cast this week is as follows: Full House Resorts (Mon), Everi, AGS, Playtika (Tues) GiG, NeoGames, Inspired Entertainment (Weds), Acroud, Genius Sports, Zeal Network and Endeavor (Thurs).
Earnings in brief
BlueBet: The Australian-listed betting minnow achieved net win of A$13.5m, down 8.8% YoY. The company is also operational in Iowa under the ClutchBet brand and said it is working towards launch in Colorado while “securing partners” for its B2B offering.
Regional gaming: The team at Macquarie noted there has been “little slowdown” in US gaming consumer spend, with September GGR up 4% YoY at $3.4bn and Las Vegas up 19% on September 2019. They also noted that nine of the 11 operators to report so far have beaten expectations.
Golden Entertainment: CBRE suggested Golden’s (oft-overlooked) distributed gaming operations has yet to see any softness among its lower-end player base. The team suspected the callouts from Golden’s competitors on cohort is due more to the lack of reinvestment in that customer than a weakness in the customer.
Bally’s Corporation: Macquarie said it remained bullish on Bally’s iCasino growth prospects in North America, while JMP added that, with several growth projects open in the next 12 months, focus will turn to financing and the ramp of the temporary facility in Chicago.
Startup Focus – Data+Sports
Who, what, where and when: Data+Sports was founded in 2021 by president Mike Caprio, COO Mark Paci and advisor Neil Nguyen, and aims to put digital sports collectibles and communities side by side with personalized sports news, wagering content, free-to-play contests and user-generated content.
Funding backgrounder: The group raised initial Seed funding from individual investors across the media, advertising and cryptocurrency industries, and is now speaking to investors about a Seed-plus round.
The pitch: The massive commercial success of the most popular Web3 sports projects to date has been achieved by onboarding less than 2 million users worldwide, Caprio says. “Data+Sports is creating GameDay+ to introduce Web3 to the next 100 million-plus next-gen sports fans.”
He says there is significant crossover at the intersection of crypto and sports wagering.
Currently the target market is North America, with an emphasis on NFL, NBA and MLB.
What will success look like? The company’s focus so far has been on building its tech infrastructure, securing partnerships and regulatory approval for affiliate status in the US.
“Next year, GameDay+ will be working with these and new strategic partners to scale our multi-prong revenue model that includes advertising, sponsorships, community subscriptions, affiliate revenue and NFT sales.”
New York: GGR was back up following a 10% drop at +1.1% to $33.9m, but handle was down 5.5% to $345.3m in the week ending Oct30.
Leaders by GGR: FanDuel (53%), DraftKings (25.6%), Caesars Sportsbook (13.2%), BetMGM (4.7%).
Penn’s Hollywood Casino at Charles Town in West Virginia has launched a trial phase for its MyWallet cashless system.
A backlash from fans means the Ladbrokes and Neds brands (both Entain) will no longer appear on shirts of athletes in Australia, according to reports.
Macau is returning to normal after a round of mass testing came up with no further Covid cases.
What we’re reading
Pay the ferryman: The private market is coming to collect.
Nov 7: Full House Resorts
Nov 8: IGT, Everi, AGS, Playtika
Nov 9: Flutter Entertainment, GiG, Light & Wonder, NeoGames
Nov 10: Genius Sports, Acroud, Endeavor
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