Think of a Special Purpose Acquisition Company (SPAC) as a rich grandpa handing you a blank check. Given the boom in sports betting, such blank-check firms could have a long shelf life.
“In terms of business formation and new strategies, we’re still in the early stages of this,” said Robert Heller, president and CEO of Spectrum Gaming Capital, an investment bank specializing in gaming, casinos and sports betting.
Still, the fact that 460 SPAC businesses emerged in 2021 alone may indicate too many flooding the market, according to Sportico.
“The SPAC market, like with all markets after they’ve had a significant run, will likely see a correction soon,” Wharton senior fellow in finance David Erickson wrote in December.
Today, more than 3,100 businesses deal with some element of gambling, according to data from the NAICS Association.
“Gaming, gambling, sports are massively underrepresented in the public market,” said Paul Martino, co-founder and general partner at Bullpen Capital, a venture capital firm that backed FanDuel and has other sports-betting-related businesses. “It seems like SPACs are going to be here to stay, because so many assets in this category aren’t public.”
Starting with the 2012 JOBS Act, the SEC pushed to accommodate smaller IPOs, including SPACs, by letting such businesses to call themselves emerging growth businesses. Such labels permitted fewer burdens in the quest to go public.
“That’s probably a good thing for everybody,” Martino said.
In the past two years, three sports-betting businesses went to SPACs in their IPO: DraftKings; Rush Street Interactive, and Golden Nugget Online Gaming. Sportradar and Genius Sports expect to follow suit.
Some 24 sports-related SPACs specify gaming or sports betting in their business plans, according to Sportico Sports SPAC Tracker. If all of them go the IPO route, the SPACs have $8.3 billion in capital to help the process along.
That doesn’t mean every SPAC deal will work out. Sports betting doesn’t come with a built-in house edge. As outcomes are unpredictable, the industry can experience large, unexpected losses. It’s also more complex and costlier to operate than a slot machine but with the same margins of 7 percent, Heller said.
