SportRadar Valued at $2.4 Billion, EQT Sells 35% Stake

SportRadar

Less than 2 months after SCOTUS struck down PASPA allowing for the legalization of single game sports betting on a state-by-state basis, EQT sold its stake (35%) in Sportradar to the Canada Pension Plan Investment Board (CPPIB) and TCV (a P.E. firm), at a $2.4 billion valuation (including debt). Sportradar provides statistics, results, odds suggestions, virtual gaming and risk management services for licensed betting operators around the world; the company also has a sports data component (work with 65 organizations, including NFL and NBA) and has established itself as the authority in the sports betting Integrity Services space (i.e. fraud detection). EQT intends on re-investing an undisclosed portion of the sales proceeds in a small SportRadar stake; SportRadar will not receive any new capital. CPPIB and TCV bought 37% of the company in total, acquiring the remaining 2% of shares from minority investors; the deal is expected to close in Q4.

Howie Long-Short: EQT is a Swedish P.E. group that trades on the NYSE under the symbol EQGP. It was reported that EQGP’s bid won out over rival buyout firms KKR & Co. and Blackstone Group. At $2.4 billion the sale price represents a return of 4+ times, on the $52 million investment EQT Partners made in SportRadar back in July ‘12. Shares rose +1% ($24.00) on Monday’s news.

For informational purposes, the company generated $145 million in ’17 EBITDA (before the cost of sports rights) on $336 million in sales. The NFL, Mark Cuban, Michael Jordan and Ted Leonsis are all invested in the company.

Fan Marino: Height Capital Markets has projected that 16 U.S. states (outside Nevada) will offer single game sports betting before the end of 2019, generating +/- $700 million in “new” gross gaming revenue. If that’s accurate, Penn National Gaming (PENN), Caesars Entertainment (CZR) and Pinnacle Entertainment (PNK) are the gaming companies that will have the largest land-based casino presence within states that offer sports betting next year; with 17, 15 and 11 properties, respectively. Eldorado Resorts (ERI, 10 casinos), Boyd Gaming (BYD, 9 casinos), Tropicana Entertainment (TPCA, 5 casinos) MGM Resorts (MGM, 4 casinos), Churchill Downs (CHDN, 3 casinos), Full House Reports (FLL, 2 casinos), Empire Resorts (NYNY, 2 casinos) and Dover Downs (DDE, 1 casino) all expect to be in business as well.

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SCOTUS Strikes Down PASPA in Historic Ruling, Legalized Sports Betting to Spread Nationwide

Scotus

In a historic announcement, the SCOTUS ruled (6-3) to strike down PASPA; the national law preventing individual states (save Nevada) from offering betting on the outcome of a single sporting event. Justice Samuel Alito wrote, “Congress can regulate sports directly, but if it elects not to do so, each state is free to act on its own. Our job is to interpret the law Congress has enacted and decide whether it is consistent with the Constitution. PASPA is not.” The ruling effectively places the decision to authorize sports betting in the hands of the individual states. Several have already passed legislation (NJ + PA, CT, WV & MS), with upwards of 27 others expected to offer wagering on sporting events within 5 years. It’s important to note that federal law prohibits wagering across state lines, so gamblers will have to be physically located in a state that has passed sports betting regulation to legally place a bet on a game; even with online and mobile betting available elsewhere in the country.

Howie Long-Short: A fall ’17 study by Eilers & Krejcik estimated that if sports betting were to be legalized on a nationwide basis, it would generate $7.1 billion annually in new revenue at casinos & racetracks. That figure grows to $16 billion per year, when you count the revenue generated from gaming websites and mobile apps; so, it’s easy to understand the enthusiasm surrounding the announcement. Interestingly, English bookmakers William Hill (WIMHY, +14.39% to $17.73) and Paddy Power Betfair (PDYPY, +12.56% to $55.20) were Monday’s biggest winners; though, Scientific Games Corp. (SGMS, +11.15%), Stars Group, Inc. (TSG, +8.97%), Caesars Entertainment Corporation (CZR, +5.46%), Churchill Downs, Inc. (CHDN, +4.87%), Penn National Gaming (PENN, +4.68%), Boyd Gaming (BYD, +3.06%), Pinnacle Entertainment (PNK, +1.88%) and MGM Resorts International (MGM, +1.64%) all finished up on the day as well.

We’re not surprised that William Hill (WIMHY) had the biggest pop among the companies listed above, as we told you on April 24th that no European gaming company was better positioned to capitalize on legalized sports betting, in the United States, than they are. Back in ’13, the company bought the rights to run the sportsbook (and split profits 50/50) at Monmouth Park (NJ), if ever permitted by law, for $1 million; a remarkably shrewd investment considering the minimal capital investment required and the potential payoff they’ll now realize (+/-$750 million/year in sports betting revenue). The company has since announced plans to add a 2nd $5 million sportsbook on the premises. WIMHY will be the first sports book in NJ to accept bets, with Monmouth Park expecting to open its doors within 2 weeks; though residents in Mississippi, Delaware and West Virginia can all expect to be able to place bets at their local casinos by the first Sunday of the NFL season.

Fan Marino: MLB put out a statement saying the decision would have “profound effects” on the sport, but no one is more bullish on legalized sports betting than Dallas Mavericks owner Mark Cuban. Cuban believes that “everybody who owns a top-four professional sports team just basically saw the value of their team double at least.”

I asked SportsHandle.com Editor-in-Chief Brett Smiley for his thoughts on Cuban’s remarks?

Brett: Cuban’s guesstimate strikes me as a bit of an exaggeration, but there’s wide recognition amongst the leagues and owners that legal sports betting will increase ratings, increase revenue and create more opportunities. Sports bettors are more engaged and for longer periods of time. There will be other opportunities to sell data, partnerships, sponsorships and so forth.

It sounds like an exaggeration to me too, but if $300 billion were to be wagered annually and the leagues got their 1% “integrity fee” on a nationwide level (highly unlikely); they would be splitting $3 billion annually. Divvy up that newfound revenue between +/- 120 pro sports franchises and you’re adding $25 million in profit to each team’s bottom line. The Mavericks only generated $21 million in operating income last season. Sure, that’s a bunch of “ifs”, but once you add in all the other revenue streams that Brett referenced, Cuban may not end up being too far off.

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FanDuel Confirms Plans to “Get into Sports Betting”, Verizon Flying Under Radar

FanDuel

FanDuel CEO Matt King confirmed in an interview with Fortune that should SCOTUS strike down PAPSA, the company would “get into sports betting.” The announcement comes just two weeks after the NBA said it would look to divest equity interest in the DFS operator and 2 months after news broke that the company was in “advanced talks” to partake a reverse merger. It was suspected at the time, that the company would use a capital infusion to position itself to capitalize on legalized sports betting. No updates have been released as it relates to negotiations.

Howie Long-Short: We told you on April 23rd, that the NBA divesting its interest in FanDuel was the latest sign of the company’s intention to pursue legalized sports betting. The NBA has been outspoken about its desire for an “integrity fee”; they can’t sell an increased role in regulation and serve as the book, with an interest in winners/losers.

While not too late (a decision may not occur until the end of June), FanDuel has some catching up to do. As we’ve noted over the last several months, rival DraftKings has been aggressively positioning itself (increased staff by 75%, hired Head of Sportsbook, seeking casino partners) for a similar pivot; and DRAFT, owned by Paddy Power Betfair (PDYPY), is also expected to chase a share of the U.S. sports gambling market. Those 3 new entrants will face strong competition from established gaming operators like William Hill (WIMHY), Caesars Entertainment (CZR), MGM Resorts International (MGM), Penn National (PENN), Boyd Gaming (BYD), etc.

Fan Marino: There’s another potential new entrant to the sports betting space, well positioned and flying quietly below the radar; Verizon Communications (VZ). The company owns Yahoo! (AABA) and its popular season-long fantasy sports business (they also have DFS, though less users than DraftKings and FanDuel) and like those companies (and Draft), could convert tens of millions of players into gamblers. VZ also owns both NFL and NBA streaming rights, giving them the ability to broadcast games and offer in-game betting within the same application; a significant advantage over the competition.

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Reverse Merger Could Take FanDuel Public

FanDuel

FanDuel, Inc. may be going public, but it won’t be through an IPO. The DFS company is in “advanced talks” with Platinum Eagle Acquisition Corp. (EAGLU) to partake in a reverse merger; an expedient and cost effective way for a private company to trade on a public exchange. No details have been released relating to the equity percentage EAGLU would acquire or the valuation FanDuel holds; though, the company calculated its fully diluted value to be $1.2 billion in 2017. One can speculate FanFuel will use the capital infusion to position itself to capitalize on legalized sports betting; the company owns an extensive database of DFS players that it could convert into mainstream sports gamblers.

Howie Long-Short: EAGLU is a special purpose acquisition company, formed by well-respected media execs Jeff Sagansky (Sony, CBS, Scripps Networks Board Member) and Harry Sloan (MGM, SBS Broadcasting, Lionsgate Board Member). The publicly traded company launched in January, having raised $325 million to acquire another business (or businesses). As for FanDuel, they’ve raised +/-$435 million to date; but, none since April ’16. A reverse merger is another way for the company to raise the capital it needs.

Fan Marino: FanDuel won’t be the only DFS company to enter the sports betting space. DraftKings announced last week that it had hired a “Head of Sportsbook”, and DRAFT, owned by Paddy Power Betfair (PDYPY), is also expected to chase a share of the U.S. sports gambling market. Of course, all 3 will have strong competition from established gaming operators like of William Hill (WIMHY), Caesars Entertainment (CZR), MGM Resorts International (MGM), Penn National (PENN), Boyd Gaming (BYD) etc.

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Consolidation Trending in Gaming Industry

Consolidation is trending in the global gaming industry. In the U.K., tighter regulations that could result in dramatic revenue declines for gaming and sportsbook operators are driving the movement. Both Paddy Power Betfair (PDYPY) and William Hill (WIMHY) are exploring potential mergers with CrownBet; though no deal is imminent. In North America, fierce competition between regional companies has crippled profitability growth; as a result, operators are considering potential mergers. Penn National Gaming (PENN) is in discussions with Pinnacle Entertainment (PNK), to form an entity that would control 45 gaming properties within 12 states and Canada; it would not own any real estate on the Las Vegas Strip.

Howie Long-Short: PENN and PNK and are ostensibly already partners; Gaming and Leisure Properties (GLPI), a REIT owned by PENN, owns most of the land where PNK operates its casinos. Creating a larger “network” of casinos would in theory keep regional players from competing properties, but that seems like wishful thinking to me. Legalized sports gambling is a potential $150 billion market. The big players (MGM, CZR) are coming to town armed with megaresorts; how can smaller operators without the resources compete? I should point out that the Australian entertainment group Crown Resorts, owns a 62% stake in CrownBet (OTC: CWLDY).

Fan Marino: After Michael Flynn agreed to cooperate in the Russia investigation, odds of President Trump’s impeachment soared. Betfair was quoted saying, “Trump has hit his shortest price yet to leave office before the end of his term”; the company has impeachment currently sitting at 4/6 (59% probability). Paddy has the odds at 4/7 (63% probability); the company’s Head of Trump Betting (yes, that’s a title) said that prior to news of Flynn’s cooperation, odds sat at 11/10 (47% probability).

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