The frantic pace of negotiations in the nascent U.S. legal sports betting market has predictedly slowed during the spread of COVID-19, dampening the mergers and acquisitions environment in the industry as several proposed mega-mergers near completion.
As many professional sports leagues consider resuming their respective seasons, the topic sparked a heated discussion on April 30 at the SBC Digital Summit, one of the biggest online gaming conferences of the year. Despite the unprecedented challenges posed by the coronavirus concerns, Flutter Entertainment plc finalized a $ 12.2 billion merger with The Stars Group on May 5, creating the world’s largest online games company. The business combination brings together many sports betting companies under one roof, including FanDuel and FOX Bet on the US side.
Hosted by Lloyd Danzig, Founder and CEO of Sharp Alpha Advisors, a panel on mergers and acquisitions and investing in sports betting companies brought together some of the most influential executives in the sports betting ecosystem. During the pre-COVID period, Danzig identified three main drivers of M&A transactions in the industry: market access agreements that help companies obtain licenses; transactions focused on customer acquisition; and partnerships focused on innovations involving cutting edge technology for risk management, odds creation, player tracking and shot tracking, among others. When college and professional sports finally return, it remains unclear whether the long hiatus will lead to widespread consolidation in the sports betting industry.
Battle between start-ups and incumbent operators
Two panelists, Wayne Kimmel of SeventySix Capital and Adam Greenblatt of Roar Digital, engaged in a heated but friendly discussion about whether emerging start-ups have the capacity to topple a contingent of established market leaders in the industry. space. Kimmel, managing partner of his Pennsylvania-based sports technology venture capital firm, drew comparisons to the late 1990s, when a host of new kids knocked out several historic players in the tech industry. Kimmel hopes to uncover entrepreneurs who have the ability to transform sports betting just like Amazon, Facebook, and Google changed Silicon Valley more than a decade ago.
“There will be the next Steve Jobs, the next Mark Zuckerberg, and I hope my partners can invest in them,” Kimmel said during the panel.
SeventySix Capital’s diverse portfolio includes sports betting media Vegas Stats & Information Network (VSiN), data provider Swish Analytics and ShotTracker, a Kansas-based company whose sensor-based system tracks player performance data by real time. Former Philadelphia Phillies first baseman Ryan Howard and Eagles goaltender Brian Westbrook are both partners in the sports technology venture capital fund.
Kimmel’s comments were greeted with skepticism by Greenblatt, CEO of Roar Digital, a joint venture between MGM Resorts International and GVC Holdings. Greenblatt believes that start-ups underestimate the considerable barriers to entry created by regulatory and compliance challenges at the state-by-state level. Additionally, Greenblatt argued that toppling the top players in the sports betting industry will require a huge amount of capital, which is not feasible at the moment.
“It’s not like there aren’t Amazons, we have Amazons,” Greenblatt said.
Undeterred by the comments, Kimmel fired back.
“Adam’s words are the words that turn me on,” Kimmel replied. “It’s that kind of thinking that really allows the entrepreneur to think outside the box. We’re coming, keep an eye on us.
Other panel members weighed in on the debate. Tom DiEnno, managing director of KPMG Philadelphia, said there is room for start-ups to enter the sports betting space if given the right opportunity. In many ways, a start-up with the right technical know-how could fill a void for a more established company, DiEnno explained. The advisor highlighted peer-to-peer exchange betting, a concept that is popular in Europe, but has yet to gain traction in the United States. With states like Tennessee set to launch online-only sports betting, peer companies could be absorbed by companies with a larger platform and lacking technical experience, he added.
Earlier this year, DiEnno oversaw Penn National Gaming’s acquisition of a 36% stake in Barstool Sports. Penn National subsequently announced the sale of the Tropicana Las Vegas real estate assets and a ground lease for a future Category 4 casino in Morgantown, Pa., To Gaming & Leisure Properties for $ 337.5 million in rent. . The deal allows Penn National to ease cash flow pressures while taking further steps to cut operating expenses as the company prepares to reopen its casino properties, CEO Jay Snowden said in a statement. March 27 press release.
As the world of sports betting has grown into a copy industry where new innovations are quickly adopted by a wide range of competitors, companies must develop value-added products with a compelling method of differentiation, explained Greenblatt. He pointed out that geolocation companies such as GeoComply, which have advanced proprietary technology that addresses critical customer compliance needs, are niche companies that have carved out a valuable position for themselves in the market.
“There is a place for innovation in various parts of the supply chain,” Greenblatt said.
Today, Flutter Group is officially gigantic and includes Betfair, Paddy Power, Skybet, Adjarabet, Poker Stars, FanDuel, Foxbet, Sportsbet, Full Tilt, BetEasy and Oddschecker. Considering that the merger of BF and PP sent shockwaves, this is pretty amazing.
– Eoin Ryan (@BetonRyaner) May 5, 2020
There have been other deals that have unfolded in the M&A pipeline in recent weeks despite nationwide stay-at-home orders. Twin River Worldwide Holdings announced last month the purchase of three casinos: Bally’s Atlantic City Hotel & Casino from Caesars Entertainment, as well as El Dorado Shreveport Resort and Casino in Louisiana and Mont Bleu Resort Casino and Spa in Lake Tahoe from ‘Eldorado Resorts. The three deals could remove some hurdles preventing the approval of Eldorado’s $ 17.3 billion proposed merger with Caesars Entertainment.
M&A in a post-COVID-19 world
Panelists broadly agreed that new M&A deals may be slow to materialize once there are signs that the spread of COVID-19 can be reasonably mitigated. As Nevada retail casinos remain closed as Governor Steve Sisolak gradually reopens the state in phases, the Nevada Gaming Control Board (GCB) issued a set of health and safety guidelines on May 1 for that holders of unrestricted gaming licenses resume their operations. Sisolak’s order of March 18 resulted in the suspension of all retail gaming operations for 30 days, and it has since been extended, even though operators are allowed to accept bets on mobile betting platforms.
A major bookie, the South Point Hotel and Casino, located about five miles south of the Las Vegas Strip, plans to resume mobile sports betting on Wednesday. The South Point will offer drive-through check-in and account deposits to mark the occasion. Circa Sports, another Las Vegas bookmaker, last month rolled out a digital payment solution to facilitate customer transfers as the company’s outlets remained closed.
Las Vegas Sportsbook at South Point will reopen the sportsbook mobile app on Wednesday. Driving deposits and registration. https://t.co/bWaUaXdTuQ
– David Payne Purdum (@DavidPurdum) May 4, 2020
With customers reluctant to return to retail sports betting, at least for the next few weeks, companies with a solid mobile betting interface should benefit. Greenblatt cites a recent Michigan proposal to speed up digital regulation as an example. State governments will also look to new tax channels to find ways to generate revenue, DiEnno said. As a result, more online lotteries could emerge.
The panel also heard from Julian Fialkow, senior investment partner at Drive by DraftKings. Fialkow concluded the panel with an anecdote about DraftKings CEO Jason Robins’ leadership in navigating the company through a rough patch in 2015 when a data breach led to the eventual collapse of his project. merger with FanDuel.
As of May 5, DraftKings was trading above $ 21 per share, resulting in a market cap of over $ 15 billion. DraftKings made its highly anticipated public debut on April 24.
“If he gave up in 2015, he wouldn’t be where he is today,” Fialkow said.
The sentiments were echoed by Danzig, which advises sports betting companies on the deployment of cutting edge technology. DraftKings’ ability to release a “one-time deal, in a one-time period,” Danzig noted, demonstrates another example of the industry’s resilience in the face of uncertainty.