• About Us / Contact
  • Responsible Gambling
This site contains commercial content
SportsHandle
  • US Sports Betting
    • Arizona
    • Arkansas
    • Colorado
    • Connecticut
    • Delaware
    • Illinois
    • Indiana
    • Iowa
    • Kansas
    • Louisiana
    • Maine
    • Maryland
    • Massachusetts
    • Michigan
    • Mississippi
    • New Jersey
    • New Mexico
    • New York
    • Ohio
    • Oregon
    • Pennsylvania
    • Tennessee
    • Virginia
    • West Virginia
    • Wyoming
  • Pending States
    • California
    • Florida
    • Georgia
    • Missouri
    • North Carolina
  • Canada
    • Ontario
    • British Columbia
    • Alberta
  • Sportsbook Apps
    • FanDuel
    • BetMGM
    • Caesars
    • PointsBet
    • BetRivers
  • Tools
    • Sportsbook Bonuses Explained
    • Sports Betting Revenue Tracker
    • Sports Betting Podcasts
    • Partnership Tracker
    • Expected Value
    • Sports Scores And Odds Apps
    • Sports Betting Twitter
  • News
No Result
View All Result
SportsHandle
  • US Sports Betting
    • Arizona
    • Arkansas
    • Colorado
    • Connecticut
    • Delaware
    • Illinois
    • Indiana
    • Iowa
    • Kansas
    • Louisiana
    • Maine
    • Maryland
    • Massachusetts
    • Michigan
    • Mississippi
    • New Jersey
    • New Mexico
    • New York
    • Ohio
    • Oregon
    • Pennsylvania
    • Tennessee
    • Virginia
    • West Virginia
    • Wyoming
  • Pending States
    • California
    • Florida
    • Georgia
    • Missouri
    • North Carolina
  • Canada
    • Ontario
    • British Columbia
    • Alberta
  • Sportsbook Apps
    • FanDuel
    • BetMGM
    • Caesars
    • PointsBet
    • BetRivers
  • Tools
    • Sportsbook Bonuses Explained
    • Sports Betting Revenue Tracker
    • Sports Betting Podcasts
    • Partnership Tracker
    • Expected Value
    • Sports Scores And Odds Apps
    • Sports Betting Twitter
  • News
No Result
View All Result
SportsHandle
No Result
View All Result

SPACs In Sports & Gaming: Advantages, Disadvantages, And Bill Ackman

Among the key benefits are speed to market

Lloyd Danzig by Lloyd Danzig
September 22, 2020
in Industry
(Shutterstock)

(Shutterstock)

Share on FacebookShare on Twitter

With 2020 already shattering the record for SPAC IPOs in one year (103 at the time of writing), the investment vehicle has gained widespread interest. While SPACs are not new, their explosive growth can be seen as part of a larger trend toward supplying alternative mechanisms that facilitate capital flow. Companies are staying private for longer, pursuing direct listings, effectuating reverse mergers, and, of course, going public via SPAC.

The SPAC structure offers significant potential upside but has also been criticized for the disproportionate value accrued by sponsors at the expense of investors. The current state of the sports media and digital entertainment industries continues to be a hotbed for SPAC activity, with a litany of intriguing sponsors and potential deals fueling the rumor mill. 

DraftKings ($DKNG), Virgin Galactic ($SPCE), and Nikola ($NKLA) all went public via SPAC during 2020 to great acclaim, prompting an acceleration of interest. Investors and sports business magnates whose names carry gravitas have been particularly keen to participate in these deals and monetize some of their own personal brand equity. 

Billy Beane, of Moneyball fame, recently teamed up with RedBird Capital Partners (who just bought the XFL with Dwayne “The Rock” Johnson) to form a SPAC focused on the sports and media space. Billionaire restaurateur and Houston Rockets owner Tilman Fertitta spun off the digital portion of Golden Nugget’s casino business into a SPAC ($LCA -> $GNOG).

One of the most notable recent participants is hedge fund manager and activist investor Bill Ackman, whose SPAC, Pershing Square Tontine Holdings ($PSTHU), represents a departure from the status quo. A quick analysis provides a glimpse into the true nature of the conflicts SPACs give rise to as well as the potential modifications that could pave the way for a stepwise increase in issuance. 

SPAC basics

A Special Purpose Acquisition Company is one that raises capital by way of public offering (IPO) with the sole purpose of deploying proceeds to acquire one or more unspecified businesses. The sponsor is the company that coordinates the listing, executes the capital raise, arranges for the funds to be placed in a trust, and then selects a business or businesses to be acquired.

Before an acquisition or business combination is completed, investors in the SPAC will vote on whether to approve the transaction or redeem the shares for cash. There is also a specified period, typically 24 months, after which a failure to successfully acquire a target company will result in the SPAC shares being redeemable for cash.

SPACs have a general form that they typically, but don’t always follow:

  • Units sell for $10 each;
  • A unit comes with a share of common stock and a full or fractional, detachable warrant for additional shares;
  • The fact that the warrant is detachable means it can be traded while the investor retains ownership of the underlying security.;
  • The sponsor is compensated for their work in a few ways, but most notably through “Founders Shares” that amount to 20% ownership in the venture at a nominal cost not exceeding $25,000 (but subject to 1-year lock-up);
  • The IPO raise is typically about 1/4-1/3 of the expected Enterprise Value;
  • A minimum of 80% of the funds raised must be used in the transaction, per regulatory requirements;
  • The sponsor is prohibited from holding substantive discussions with any combination targets before the IPO closes. 

To illustrate the magnitude of the value created for holders of Founders Shares, in a recent SPAC sponsored by Goldman Sachs, they:

  • Raised $700 million at $10 per share;
  • Received Founders Shares entitling them to 20% of the company in return for a cash payment of $5,000; 
  • Saw the value of that $5,000 payment skyrocket to $140 million on the day of closing.

The upside and downside

SPACs offer a number of important advantages to all parties involved, as well as potential disadvantages. Proponents of the approach cite, among key benefits, the speed to market, downside protection afforded to investors, ability of new companies to access public markets, and opportunity for business owners to simultaneously cash out while continuing to participate in future upside. Critics point to what they see as a tilted incentive structure as well as a lack of transparency that, when coupled with irrational exuberance, could lead to valuation bubbles.

(Graphic by Sharp Alpha Advisors)

The most notable aspect of Bill Ackman’s SPAC is the removal of the Founders Shares allocation that has long been the subject of much criticism. The treatment of warrants is also of particular importance, so much so that it is the genesis of the name “Tontine Holdings.” 

Investors in traditional SPACs may redeem their shares prior to the closing of the acquisition but still retain the warrants. If a Pershing Square Tontine Holdings shareholder chooses to redeem early, their warrants are distributed pro rata to the shareholders who remain invested in the SPAC. A “tontine” is an investment vehicle dating back to the 17th century wherein each investor contributes a specified amount into the fund and then receives periodic payouts intended to increase over time as the monies due to deceased members are spread pro rata to the still-living investors. 

Why Sports & Gaming are good for SPACs

Digitally oriented, socially relevant industries in steep growth phases are ripe for acceleration by way of SPACs. Sports possess powerful social relevance at a time when retail order flow is being heavily driven by recognizable brands. At the same time, athlete venture is on the rise (see: Spencer Dinwiddie, PJ Washington) while anecdotal reports abound of U.S. celebrities seeking to purchase stakes in European soccer teams.

The explosion of sports betting alongside the interrelated rise in sports tech has opened the window for lucrative opportunities to deploy capital at a time when annualized equity returns are expected in the mid-single digits (~6%).

The sports market is also unique in that it contains immense assets which have historically been devoid of secondary market liquidity. Funds like Arctos Sports Partners and Dyal Capital Partners (subsidiary of Nueberger Berman) provide investors with access to minority ownership stakes in professional sports franchises while also offering ownership team members to liquidate otherwise-unredeemable shares.

Outlook

With sports back on TV and investment rushing into the ecosystem, SPACs will continue to be attractive options for raising capital over the short term. In the United States, gaming companies will utilize them to spin off digital assets. Overseas operators will consider them as paths to better capitalizing North American revenue streams. Athlete- and owner-led groups will increasingly populate SPAC management teams. 

However, the conflicts associated with traditional SPACs may sideline the momentum, especially in the case of sustained investor losses. New approaches and mechanisms for accessing capital markets will seek to improve incentive structures in order to drive deal flow and capital appreciation, with the sports and entertainment industry representing a primary beneficiary.

 

Also see from Lloyd Danzig:

The Business Implications of Sports Betting Social Functions & Smacktalk Culture

The Future of Sports Betting Part I: Challenges, Opportunities & Commercial Focus

The Future of Sports Betting Part II Product Innovation And Startup Verticals

ShareTweetShare
Lloyd Danzig

Lloyd Danzig

Lloyd is the Founder & CEO of Sharp Alpha Advisors, a sports gaming advisory firm with a focus on companies deploying cutting edge tech. He is also the Chairman & Founder of the International Consortium for the Ethical Development of Artificial Intelligence, a 501(c)(3) non-profit NGO dedicated to ensuring that rapid developments in the field of AI are made with a keen eye toward the long-term interests of humanity. Lloyd serves as the Co-Chairman of the CompTIA AI Advisory Council, a committee of preeminent thought leaders focused on establishing industry best practices that benefit businesses while protecting consumers. He previously managed institutional portfolios for BlackRock, data science initiatives for Samsung, and Machine Learning engines for sportsbook operators. He also functions as a mentor for Techstars and the leAD Sports Accelerator.

Related Posts

Credit to: Dylan Buell/Getty Images
Promotions

BetMGM Bonus Code: HANDLESTORY – Bet $10, Get $100 in Bonus Bets for Super Bowl MVP

February 7, 2023
(Photo by Mitchell Leff/Getty Images)
Promotions

FanDuel Promo Code: $3K No Sweat First Bet for Any Patrick Mahomes Super Bowl LVII Props

February 7, 2023
Load More

Top Stories

fanduel-retail-sportsbook-front

Requiem For The So-Called ‘Risk-Free Bet’

February 2, 2023
garnett mgm springfield

Sports Betting Launches In Massachusetts, Giving Three Retail Books A Head Start

January 31, 2023
springfield thunderbirds betmgm opening

What’s Next For BetMGM As Entain Nears End Of Commitment To U.S. Joint Venture?

February 3, 2023
anthony-grant-coaching

Regulators, Colleges Grapple With Impact Of Angry Online Gamblers

February 6, 2023

State Sports Betting Guides

Ohio (U.S. state) flag waving against clear blue sky, close up, isolated with clipping path mask alpha channel transparency, perfect for film, news, composition

Ohio Sports Betting – Where To Play, Bonus Offers And Promo Codes

by Brian Pempus
February 2, 2023

Downtown Detroit at twilight (Shutterstock)

Michigan Sports Betting – Where To Play, Online Sportsbooks, And FAQ

by Brett Smiley
February 7, 2023

VA captial

Virginia Sports Betting – Where To Play, Online Sportsbooks And Bonus Offers

by Brett Smiley
January 17, 2023

nj flag

New Jersey Sports Betting — Where To Play, Online Sportsbooks, And FAQ

by Brett Smiley
October 20, 2022

pa online sportsbooks

Pennsylvania Sports Betting – Where To Play, Online Sportsbooks And Bonuses

by Brett Smiley
October 6, 2022

Canada Sports Betting Guides

Canada Sports Betting – Best Sportsbook Apps & Bonus Offers

British Columbia Sports Betting – Legal Update, Available Sportsbooks, and FAQ

Ontario Sports Betting – Legal Status And Where To Play

gambling therapy
ncpg
igaming ontario
If you or someone you know has a gambling problem, crisis counseling and referral services can be accessed by calling 1-800-GAMBLER (1-800-426-2537) (IL). Gambling problem? Call 1-800-GAMBLER (MI/NJ/OH/PA/WV), 1-800-9-WITH-IT (IN), 1-800-522-4700 (CO), 1-800-BETS OFF (IA), 1-888-532-3500 (VA) or call/text TN REDLINE 1-800-889-9789 (TN).
19+. Please play responsibly. Terms and conditions apply. 
Individuals must be 19 years of age or older to participate in igaming in Ontario. Gambling can be addictive, please play responsibly. If you, or someone you know, has a gambling problem in Ontario and wants help, please visit ConnexOntario or call their helpline at 1-866-531-2600. Operators on this website operate pursuant to an Operating Agreement with iGaming Ontario.

Search Sports Handle

No Result
View All Result
  • About Us / Contact
  • Responsible Gambling

No Result
View All Result
  • US Sports Betting
    • Arizona
    • Arkansas
    • Colorado
    • Connecticut
    • Delaware
    • Illinois
    • Indiana
    • Iowa
    • Kansas
    • Louisiana
    • Maine
    • Maryland
    • Massachusetts
    • Michigan
    • Mississippi
    • New Jersey
    • New Mexico
    • New York
    • Ohio
    • Oregon
    • Pennsylvania
    • Tennessee
    • Virginia
    • West Virginia
    • Wyoming
  • Pending States
    • California
    • Florida
    • Georgia
    • Missouri
    • North Carolina
  • Canada
    • Ontario
    • British Columbia
    • Alberta
  • Sportsbook Apps
    • FanDuel
    • BetMGM
    • Caesars
    • PointsBet
    • BetRivers
  • Tools
    • Sportsbook Bonuses Explained
    • Sports Betting Revenue Tracker
    • Sports Betting Podcasts
    • Partnership Tracker
    • Expected Value
    • Sports Scores And Odds Apps
    • Sports Betting Twitter
  • News

loading

Please wait while you are redirected to the right page...

Please share your location to continue.

Check our help guide for more info.

share your location