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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Casino Consolidation Continues, Penn National Gaming and Boyd Gaming Scale Up

U.S. casino operator Penn National Gaming, Inc. (PENN) has agreed to acquire Pinnacle Entertainment, Inc. (PNK) for $2.8 billion, with the deal expected to close by the end of 2018. PENN will own 78% of the combined entity (41 properties, 53,500 slots, 1,300 tables and 8,300 hotel rooms), with PNK owning the balance. PENN and PNK were ostensibly already partners; in 2013, PENN spun off Gaming and Leisure Properties (GLPI), a REIT that owns much of the land PNK operates its casinos on. As an adjunct to the PENN/PNK deal, Boyd Gaming (BYD) agreed to buy 4 PNK properties, from PENN, for $575 million. In a separate transaction, Boyd Gaming announced it has acquired Valley Forge Casino Resort for $280.5 million; the company’s first asset in PA; the 2nd largest commercial gaming state in the nation.

Howie Long-ShortPNK shareholders will receive cash and PENN stock worth $32.47/share; or 48.5% premium to PNK shares at the close on October 4, the day prior to the first reports of merger talks. PENN shares hit a 52-week high on Wednesday, closing at $30.90. It’s been a busy year for local casino operator mergers. Earlier this year, Eldorado Resorts (ERI) bought Isles of Capri Casinos Inc. for $1.7 billion and GLPI bought the Bally’s Casino Tunica and Resorts Casino Tunica (properties in Mississippi) for $82.6 million.

Fan Marino: High rollers, like the guy who bet (and won) $880K on Mayweather to beat McGregor, will be pleased to learn that the revised tax code “largely preserves the ability for our customers who itemize to net their gambling income” – The American Gambling Association. Here’s a fun gambling story, some guy won $37,600 on a $47 10-team NFL parlay last Sunday.

Penn National Gaming strikes $2.8B deal to buy competitor

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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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