As one of the nation’s largest sports betting conferences concluded in the wee hours of Friday morning, Fanatics moved closer to inking a transformative deal that could have lasting implications for the upstart sportsbook.
Fanatics Sportsbook has entered advanced negotiations with PointsBet, Sports Handle has learned, on a transaction that would include the Australian-based operator’s innovative “PointsBetting” apparatus. While it is unclear if the two sides will reach a deal by Sunday’s fifth anniversary of PASPA, a deal could be announced as early as next week, two high-level industry sources told Sports Handle late Thursday. A third source would be surprised if there isn’t “quite a bit of paper” around the deal by then.
If fully implemented by Labor Day, the deal may satisfy Fanatics’ goal of accepting sports wagers in the nation’s top legal sports betting markets by the opening week of the NFL season.
Anyone else feel like a major sports betting M&A announcement is imminent? Asking for a friend.
— Chris Grove (@OPReport) May 11, 2023
PointsBet, an Australian-headquartered company, has market access in 14 states, most notably New York, Illinois, New Jersey, Michigan, and Pennsylvania. Fanatics narrowly missed out on a bid in the Empire State when the New York State Gaming Commission recommended the issuance of mobile sports wagering operator licenses to nine other operators in November 2021.
Rumors began to surface Thursday that a major M&A transaction could be on the horizon. A day earlier, Fanatics Sportsbook CEO Matt King made an appearance at the SBC Summit North America, where he spoke before a packed conference room at the Meadowlands Expo Center in New Jersey. Hours later, PointsBet USA CEO Johnny Aitken abruptly canceled a scheduled appearance on a separate panel. Speculation of a deal intensified when several Fanatics staffers canceled meetings at the event, according to another source.
The event, which drew thousands of attendees from around the world, is one of the largest sports betting conferences in North America.
Representatives from Fanatics and PointsBet both declined comment on Friday morning.
Market access
While King did not address merger speculation, he did provide a road map for the sportsbook’s expansion plans for the remainder of the year.
This month, Fanatics moved into the “second phase” of testing in Ohio and Tennessee, after the sportsbook completed the initial phase of beta testing in those states. The company received strong feedback from customers in both jurisdictions, King indicated.
Fanatics CEO Michael Rubin initially sought to be live in 15 to 20 states by the 2023 football season, but he scaled back his ambitions in speaking at a sports business event last month in Los Angeles. There, Rubin placed the number at closer to 12 while emphasizing that the company plans to eventually be in every major state with legal sports wagering.
King noted Wednesday that Fanatics plans to launch next in Massachusetts and Maryland, most likely at some point in early to mid June. On Tuesday, the Massachusetts Gaming Commission (MGC) is scheduled to vote on the approval of Fanatics Betting and Gaming certificate of operation at a public meeting. The MGC announced in February that PointsBet withdrew its sports betting license. On the same day, the MGC set a launch date for seven online sportsbooks, including industry heavyweights DraftKings and FanDuel Sportsbook.
King, who formerly served as CEO of FanDuel, hinted that Fanatics had already secured market access in a handful of states.
“A lot of times, the number of states is an easy marker of progress,” King told reporters. “Because we already have access, I’m worried about activating the ecosystem. There is so much more we can do with the ecosystem. It’s more valuable for us to spend our time worrying about that than being in Wyoming — and I love Wyoming.”
King pointed to several states that offer both sports betting and iCasino. When asked Wednesday by Sports Handle whether Fanatics will soon be live in these jurisdictions, King responded that the likelihood is “incredibly high.”
Fanatics appears to have the cash to pull off a major acquisition. Last December, Fanatics completed a $700 million capital raise that valued the company at approximately $31 billion. Fanatics Holdings Inc. ended 2022 with about $2 billion of cash on its balance sheet and a capacity of around $900 million on the revolving credit facilities at its various subsidiaries as of Dec. 31, 2022, Fitch Ratings wrote in an April note.
Fanatics’ cash position provides “ample liquidity to finance the cost of building out” its betting and gaming division, according to Fitch.
The value-add from PointsBet
For the three-month period ending March 31, PointsBet reported a U.S. sports betting handle of $819.2 million, up slightly from handle of $818.6 million during the year-ago quarter. The company’s handle for the quarter fell 22% from the previous quarter, which falls at the height of football season in October-December. On an annualized basis, PointsBet’s net revenue from sports betting rose 34% in the U.S. segment to $38 million.
Over the quarter, PointsBet also conducted an efficiency review of its North American division, which resulted in a 12% head count reduction of the segment. PointsBet expects the reductions will result in annualized savings of $6 million, and it subsequently hired Moelis & Company to help facilitate a potential sale of its North American business.
The acquisition of PointsBet by Fanatics would represent the first major domino to fall in the consolidation of the U.S. sports betting market. While MaximBET and Fubo Sportsbook shuttered operations last year, neither had the stature nor the branding power of the Australian operator. During the first three months of 2023, PointsBet reported online sports betting handle of $180.8 million in Illinois, resulting in a 6% market share. The company has struggled elsewhere, though, with a market share of under 2.5% in seven other major states. PointsBet’s share in Michigan has hovered between 2-3%, far below the 6% it attained at peak levels in 2021.
PointsBet’s U.S. division has been viewed as an attractive asset in part due to the company’s in-house tech stack. Fanatics Sportsbook has purchased source code from Amelco, on which the operator has built its own tech platform. Reports of a potential deal between Fanatics and PointsBet previously surfaced in July 2021.
Although there is some ambiguity on whether Fanatics is focused only on PointsBet’s U.S. assets or the entire company (including the Australian division), there are indications, according to the sources, that discussions are centered on the former.
As of Friday morning, PointsBet Holdings Limited had a market capitalization of $566.2 million, far below levels two years ago, when it traded around A$13 a share. Last December, PointsBet entered into preliminary talks with Australian bookmaker Betr (not to be confused with the U.S. sportsbook of the same name co-founded by reality star Jake Paul) over the former’s Australian business. Such a deal may have been worth between A$200 million and A$250 million, the Australian Financial Review reported.
A potential sale of PointsBet’s North American assets for a 20% premium over the segment’s implied valuation could represent an attractive price for PointsBet shareholders, an Australian stock analyst told Sports Handle.
Rumor du jour: @Fanatics looking to gobble up @PointsBetUSA. Makes enough sense, I suppose.
Whether it’s this or something else, I have little doubt we’ll see at least one material + unexpected sports betting M&A before the year is up.
— Chris Grove (@OPReport) July 7, 2021
“Well, you go from third-party technology to proprietary technology, so there’s a big shift there,” Benjie Cherniak, principal at Avenue H Capital, told Sports Handle. “If you go out and acquire a PointsBet, you thrust yourself into the mainstream in a whole bunch of states with a boatload of market access. You go from gradually working your way into the market to thrusting yourself into the conversation in a major way.”
On the Australian Stock Exchange, shares of PointsBet jumped 6% on the news to A$1.92 a share. By Friday morning, some of those gains had been erased, with PointsBet trading at A$1.85 in the early session. PointsBet closed on Friday at A$1.84, down 3.9%.
Chris Altruda contributed to this story.
