The inevitable consolidation of U.S.-focused online gaming operators hasn’t waited for an overcrowded field to create takeover candidates.
It began even before all the players jumped in, and before all the jurisdictions legalized and opened.
It began with Penn National buying Score Media and Gaming, the expected darling of Canadian bettors when that country launches online sports betting. That announcement was followed by DraftKings buying Golden Nugget Online.
Both purchases came after prices for online operators came down from unsustainable highs. Golden Nugget is being bought for an implied $18-plus a share. Its 52-week high was $27.18. Score went for $34 a share. Its high was $45.
Another way to look at valuations is that Golden Nugget sold for around 7.5 times next year’s forecasted revenues, a far cry from the 20 and 30 times future revenues that was commonly awarded to iGaming operators a few months ago.
The appeal of these purchases is obvious. PENN will get a prime position in Canada from the get-go, and its own technology platform.
Macquarie analyst Chad Beynon thinks PENN having its own platform is worth 5 percentage points in profit margin. On the opposite side, PENN’s current platform provider, Kambi, tanked 38 percent on the news.
DraftKings, meanwhile, gets to cross-market with Golden Nugget’s network of casinos as well as to the 5.5 million people in the database of primary Nugget owner Tillman Fertitta’s casinos and restaurants.
Access to players in brick-and-mortar casinos fills a hole in DraftKings competition with casino companies like PENN, MGM Resorts and Caesars.
Buying Golden Nugget also fills another hole in providing the more profitable and broader market of online casino players largely absent from sports betting-focused DraftKings.
The question now is: Who goes next?
One name worth a mention is Rush Street Interactive.
Rush Street is almost a twin of Golden Nugget. Shared attributes are a modest network of regional casinos for cross-marketing, focus on iCasino customers, efficient customer acquisition strategy and possession of its own technology platform. The companies are even similar in personality in that both are headed by multi-billionaire entrepreneurs—Fertitta at the Nugget and Neil Bluhm at Rush Street.
Like Golden Nugget and Score, Rush Street is now more affordable than a few months ago. The stock has risen since the DraftKings-Nugget deal was announced, but at around $13, it’s just half of its $26.55 high.
Rush Street might also be a good buy in a takeover given that a sales price around 7.5 times next year’s revenues would be approximately $30 a share.
Who might be interested in Rush Street? It would be a good fit for Churchill Downs, giving it a technology platform, more brick-and-mortar properties for cross-marketing and iCasino customers for a company whose customers weight towards race bettors. Further, the companies already are partners, as sister company Rush Street Gaming and Churchill Downs co-own Rivers Casino in suburban Chicago.
Yet another possible buyer could be Wynn Resorts for the platform and geographic diversity.
Another interesting company is GAN, the platform provider to numerous operators including Churchill Downs and Wynn.
On one hand, GAN might appear vulnerable to a major client taking its technology inhouse, such as if Churchill Downs or Wynn would buy Rush Street.
But GAN serves numerous small customers and with tribal casinos and other operators soon to join the online gaming in significant numbers, it has plenty of prospective clients. Moreover, GAN has gone into the B2C business with the purchase of Coolbet, which also has a sports betting platform.
Indeed, given its various platforms, GAN itself could be a takeover target if a technology provider like Aristocrat decided it needs to get into the online space as a supplier.
