The pace of mergers and acquisitions in the sports betting and online gaming world has certainly picked up steam in the last few months, most notably with Penn National Gaming buying Score Media and Gaming in a $2 billion deal and DraftKings swooping in to purchase Golden Nugget Online Casino for $1.5 billion in stock.
These are both eye-opening numbers, and there’s nary an analyst out there who thinks that the M&A activity will be ending with these two deals.
In fact, according to a tweet from Ryan Butler of The Action Network, former William Hill CEO Joe Asher — whose company was bought by Caesars for $3.7 billion — said it’s “inevitable” that the market will consolidate even further.
“The primary drivers of M&A activity in the U.S. sports betting industry continues to be access to technology, access to customers, and access to markets/licenses,” said Lloyd Danzig, the founder and managing partner of Sharp Alpha Advisor, a firm specializing in sports betting startups, technology, and M&A. “The recent acquisitions of GNOG and theScore offer different combinations of these benefits. Major stakeholders are buying rather than building due to the pace of market development and opportunity cost of time and resources.”
Another reason? Simply the fact the big tend to get bigger.
“We expect the majority of every small- to mid-sized player in the space to merge or be acquired,” said Chris Grove, who oversees the sports betting space for Eilers & Krejcik Gaming. “That’s been the trend in the U.S. retail gambling industry and the macro trend in the international online gambling industry.”
What’s next
Grove puts his views of the near-term future in no uncertain terms when it comes to the pace of mergers and acquisitions.
“Undoubtedly, M&A will be the defining trend of the U.S. online betting industry for the next few years,” he said.
Danzig expanded on the thought.
“The current product landscape is characterized by its high availability of substitute products and negative switching costs,” he said. “M&A is the most efficient mechanism by which industry stakeholders can achieve vertical integration and product differentiation. This is just the beginning of a period of robust acquisition activity in the sports betting, online casino, and broader competitive entertainment industry.”
And as far as Danzig is concerned, it’s best to assume every company is up for grabs.
“The U.S. sports betting and iGaming industry is on its way to being the largest in the world,” he said. “Every company with users, technology, or market access is currently a potential acquisition target.”
The sports-betting merger frenzy is about to transform the gambling market as much as the mob once did https://t.co/0YHx3WPHaJ
— Bloomberg Opinion (@bopinion) August 14, 2021
And as for who’s next? While no one has a crystal ball, Grove is willing to toss out a few notions.
“It’s important not to overlook the ‘m’ in M&A,” he said. “While there are a number of companies that are frequently mentioned as quality acquisition targets (e.g., Rush Street Interactive), there’s also the chance that smaller companies may decide to team up. M&A can happen at a variety of scales and via a variety of configurations.”
When pressed for an example of two smaller companies Grove could see pairing up, he offered PointsBet and Rush teaming up. (You heard it here first, if it happens.)
Danzig, however, thinks it’s more likely for the sharks to keep swallowing up the guppies.
“Most operators lack full control over their tech stacks and offer commoditized user experiences that fail to capture important user preferences,” he said. “With cash-rich balance sheets and stocks trading at premium multiples, market leaders will be aggressively acquiring smaller companies that fulfill strategic needs.”
Big, bigger, biggest
There is obviously plenty of buzz about bigger companies acquiring smaller ones, and smaller companies teaming up. But what about two behemoths coming together? Is that even remotely in the cards right now?
“I would be surprised if you saw consolidation among the top five operators at this stage,” Grove said. “But it’s not unthinkable that we could see some cross-border M&A at a similar scale, such as MGM buying Entain.”
Danzig is a little more bullish on the idea of bigger moves.
“There is a significant supply of multi-billion dollar acquisitions and SPAC deals on the immediate horizon,” he said. “Sports betting and iGaming expenditures in North America as a percentage of personal consumption still lag developed gaming markets by a sizable margin. Particularly as operators broaden their focus to profit centers outside of betting, M&A represents an effective tool for targeting a TAM that extends well beyond aggregate gross gaming revenues.”
So in the end, when the dust settles, what will we be looking at? And for that answer, Grove and Danzig couldn’t be more far apart. When asked if there’ll be a Big 2 or a Big 3 of operators, Grove went big.
“We’ll probably end up closer to a Big 10 vs a Big 2,” he said. “The U.S. is a large, diverse, and heavily fragmented market.”
Danzig, however, foresees mass consolidation.
“The mature market is likely to resemble the credit card industry, with just a handful of major operators, significant regulatory burden, product offerings that contain the same core features, and a heavy focus on loyalty programs,” he said. “Customer acquisition will be driven by brand trust, platform accessibility, and sign-up bonuses. Retention will be driven by reliability, ongoing benefits, and customer service.”
The only sure thing going forward for the burgeoning U.S. market appears to be uncertainty as to where it’s all headed. Buckle up.
