Fanatics Betting and Gaming was close to more than doubling its presence as a mobile sportsbook in the U.S. The company had negotiated a $150 million binding agreement with PointsBet for its U.S. assets.
The company was sitting pretty as it positioned itself to utilize its retail business to cross-promote sports betting.
But on June 16, DraftKings threw down a $195 million competing bid. Although non- binding, it was 30 percent more than Fanatics’ offering, although Fanatics’ offer also included advance-deposit wagering (ADW) and iGaming operations. The timing came two weeks before the PointsBet’s company shareholders were set to vote.
Besides blocking a major move by an up and coming competitor, grabbing PointsBet expects to make it easier for DraftKings to achieve a positive EBITDA in 2024 and grow even more in 2025.
“While we continue to focus on operating more efficiently and driving substantial organic revenue growth in the U.S., we will also look to prudently capitalize on compelling opportunities at attractive valuations, as is the case with PointsBet’s U.S. business,” DraftKings CEO Jason Robins said in a statement. “We believe DraftKings is uniquely positioned to submit this superior proposal due to our scale and corresponding ability to generate meaningful synergies from the acquisition.”
If DraftKings’ proposal is accepted by PointsBet, the operator may also cross-sell product offers, increased technological capabilities, JMP Securities analyst Jordan Bender wrote in a research note.
In a written response provided to Sports Handle, Fanatics CEO Michael Rubin called DraftKings’ bid a result of desperation.
“We are skeptical of the DraftKings proposal, which seems like a desperate move to slow down Fanatics and PointsBet from completing a deal,” Rubin stated. “The purchase price and other financial commitments will total more than $500 million—so they are using the majority of their projected year-end cash just to try to block us.”
Fanatics’ acquisition bid includes a four-year, $250 million advertising commitment to NBCUniversal as part of a prior deal. But Fanatics’ purchase grants access to at least 14 states, including New York, New Jersey, and Pennsylvania.
PointsBet’s shareholders will vote on Fanatics’ proposal at a meeting on June 30. The proposal requires 50 percent approval from shareholders that take part in the vote.
Despite the higher bid from DraftKings, PointsBet leadership will continue to recommend its shareholders accept the Fanatics offer, even if it is uncertain if the latter will up the ante. The company has the support of key figures such as Jay-Z, Meek Mill, Maverick Carter, the NFL and SoftBank, if celebs mean anything, according to Yogonet Gaming News.
In a letter from PointsBet Chairman Brett Paton to Robins, Paton outlined the terms of engagement and requested written confirmation that DraftKings would fund PointsBet’s U.S. operations during the regulatory approval process.
PointsBet, the seventh-largest operator in the U.S., has struggled reaching profit status, with projected losses between $115 million and $123 million in the first half of the year.
A formal offer from DraftKings would need to be submitted by June 27, according to sources.
Conjecture is floating around that Fanatics or DraftKings could also seek to bid for the entire company, a move that would reportedly please shareholders.
PointsBet CEO Sam Swanell has previously stated that after the sale of the U.S. business, the Australian and Canadian operations would break even within a year.
Even though the offer by DraftKings is non-binding, it’s serious. The offer also has the “full support of the highest levels of our organization.”
The PointsBet board will study three factors before deciding:
- Shareholder value, including the amount and timing of capital return;
- Whether the agreement will be finished in a timely manner; and
- Whether DraftKings’ terms are more favorable than Fanatics.
DraftKings’ due diligence and definitive agreements could be done in three weeks.
DraftKings could also finish the deal sooner than Fanatics, which needs regulatory approvals. DraftKings owns licenses in most of these jurisdictions already.
For now, Fanatics has no access to New York, where the synergies with its fan gear business could make the company profitable despite the 51 percent tax rate.
If the agreement closes, Fanatics enters the Michigan and New Jersey iGaming markets.
DraftKings also acquires the use of the technology PointsBet built or acquired including Banach, which has helped improve PointsBet’s live betting product.
PointsBet struggled in the U.S. sports betting market after debuting in 2018. The company viewed its Australian business as proof of concept that it could succeed in the U.S. with better-capitalized operators.
Flush with cash from its apparel business, Fanatics began staffing its operation the last couple of years. In 2022, Fanatics purchased Amelco source code to build its platform, but CEO Matt King said engineers changed that code to where it is “hardly recognizable.”
With that base in place, Fanatics views a PointsBet purchase as primarily about market-access costs, King said.
All things considered, it is not a surprise to see the bid from DraftKings, Lloyd Danzig, founder and managing partner of Sharp Alpha Advisors, told LSR:
“It’s unsurprising that DraftKings made a competing offer considering the price point of the previously contemplated acquisition, the relative value of consolidating market share given DraftKings’ current market cap, and the prospect of blocking a competitor from expanding.”
