Rush Street Interactive entered into a definitive merger agreement with dMY Technology Group Inc. on Monday, becoming the latest prominent sports betting operator to forego a traditional path for going public by joining forces with a special-purpose acquisition company.
The deal values the Chicago-based sports-and-casino betting company at approximately $1.78 billion, according to the company, or a multiple of 5.6x of Rush Street’s projected 2021 revenue of $320 million. Founded in 2012, Rush Street Interactive (RSI) owns the distinction of becoming the first company to launch legal online sportsbooks both in Pennsylvania, through the PlaySugarHouse.com brand, and in Indiana, under BetRivers. Rush Street follows two others, DraftKings and Golden Nugget Online Gaming, as distinguished gaming companies that have aligned with so-called blank check companies to avoid some of the hurdles associated with entering the public market. A third, Sportradar, has reportedly mulled a potential IPO through a reverse merger in recent weeks.
“We started RSI in 2012 to create a fun and engaging online experience for the U.S. gaming customer and we now have a great opportunity to accelerate our growth in this dynamic market,” Rush Street Interactive CEO Greg Carlin said in a statement. “We are looking forward to investing further in market expansion, product innovation, and growing our talented team.”
Online sports-and-casino betting company Rush Street Interactive has agreed to go public via a merger with a blank-check company that will value the online sports-and-casino betting company at about $1.8 billion including debt https://t.co/LG1EvBhL87
— The Wall Street Journal (@WSJ) July 27, 2020
Deal specifics
Led by Niccolo de Masi as CEO and Harry You as chairman, dMY Technology announced the pricing of a $200 million IPO in February. De Masi, chairman of mobile game company Glu Mobile, is known most for creating Kim Kardashian’s mobile gaming app, Kim Kardashian: Hollywood. dMY Technology initially targeted consumer internet companies with enterprise valuations in the range of $500 million to $1.5 billion for the merger.
Cash proceeds from the transaction will consist of dMY’s $230 million of cash in trust, and an additional $160 million PIPE (Private Investment In Public Equity) funding round, led by Fidelity Management and Research Company at $10.00 per share in the common stock of dMY.
When asked about Fidelity Investments’ interest in Rush Street, a company spokesperson told Sports Handle that Fidelity does not comment on transactions involving individual companies.
Following the closing of the transaction, Neil Bluhm will continue to serve as chairman of the board of directors, Carlin will continue to serve as CEO, and Richard Schwartz will continue to serve as president of the combined company, Rush Street said in a statement. Both De Masi and You will serve on the combined company’s board.
“This transaction with dMY Technology will provide RSI access to growth capital to allow for the expansion of the business in this fast-growing market and we expect it will serve our customers and investors well,” Bluhm said in a statement.
Upon closing, the combined company will be organized as an “Up-C structure,” where the current equity holders of RSI will retain a portion of their equity interests in RSI, the company said. Bluhm and Carlin will retain approximately 93% of their existing equity holdings in the combined company, Rush Street said.
Future growth prospects
Given DraftKings’ sizzling start as a public company, Rush Street may face lofty expectations upon its IPO. When DraftKings announced a tri-merger with Double Eagle Acquisition Corp. (DEAC) and SBTech last December, the pro forma company was valued at $3.3 billion, nearly doubling the enterprise value of Rush Street. Within two months of its public debut, DraftKings skyrocketed from $20 a share to above $42 a share, giving the company a market capitalization in excess of $13 billion.
A more reasonable comparison can be made with Golden Nugget Online Gaming, which received a $745 million valuation last month when Landcadia Holdings II Inc. entered into a purchase agreement to acquire the iGaming company owned by Tilman Fertitta.
Rush Street currently maintains a strong iGaming market share in Pennsylvania through BetRivers and PlaySugarhouse, one that compares favorably with bigger names such as FanDuel. While the company is contending with a crowded iCasino marketplace in New Jersey, it demonstrated a modicum of success in the New York retail sportsbook space prior to the COVID-19 shutdown. Rush Street also appears positioned to become a strong player in Illinois, a portfolio manager for a pure iGaming and Gaming fund told Sports Handle on Monday, given Rivers Des Plaines Casino’s proximity to Chicago.
All told, when the factors are taken into account, Rush Street’s valuation of $1.8 billion does not appear that far-fetched in comparison with the Golden Nugget transaction, the fund manager added. The manager, who spoke to Sports Handle on the condition of anonymity, has more than 14,000 followers on his Twitter account, @dividendblower.
Lobbying heft
Rush Street also appears poised to capitalize on Illinois Gov. J.B. Pritzker’s abrupt decision to fail to renew a policy that allowed sports bettors to open accounts through remote registration. Pritzker’s Executive Order 2020-48 on Friday did not extend Executive Order 2020-44 of June 26, which re-issued 2020-41 in its entirety and extended it through July 26. The decision, in effect, ended a brief remote registration period, less than two months after his previous order enabled bettors to open accounts over the internet or through mobile applications.
ILLINOIS:
Here's an early autopsy on the recent, developments that will have a huge impact on how sports betting proceeds in IL this year.
What's happened, why, some speculation and a timeline. https://t.co/V401MTVtHN
— Sports Handle (@sports_handle) July 27, 2020
With Rivers Des Plaines located less than 30 miles from Downtown Chicago, Rush Street ostensibly figures to benefit from the policy change. As of July 2019, Chicago had more than 2.65 million residents, ranking third nationally among largest U.S. cities, according to estimates by the U.S. Census Bureau. As a result, Illinois is projected to be the nation’s second-largest sports betting market in 2030, behind California, according to research from Bank of America.
DraftKings, meanwhile, announced a partnership and rebranding plan with Casino Queen in East St. Louis in late July. The casino, located across the river from downtown St. Louis, is more than 275 miles south of Chicago.
Bluhm’s family has maintained a close relationship with several prominent Illinois politicians in recent years. Bluhm’s daughter Leslie, who attended law school at the University of Chicago with Mayor Lori Lightfoot, served as a major donor for Lightfoot’s mayoral campaign in 2019. Prior to the 2019 election, Leslie Bluhm and her sister Meredith Bluhm-Wolf gave a total of $212,500 to Lightfoot’s mayoral campaign fund, the Chicago Sun-Times reported, citing campaign finance records. Leslie Bluhm also contributed $100,000 to Pritzker’s campaign during the 2018 election cycle, according to a database maintained by campaign finance website VoteSmart.org.
Upon closing, dMY intends to change its name to Rush Street Interactive Inc. and its New York Stock Exchange trading symbol to “RSI,” Rush Street said in a statement. The transaction is expected to close at some point in 2020.
dMY Technology traded as high as $12.49 on Monday, before closing at $11.84 per share, up 4.87% on the session.
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