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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Paddy Power Betfair Close to Acquiring FanDuel, Seeks U.S. Sports Betting Market Share

PaddyPowerBetfair BANNER

Legal Sports Report has reported that Irish bookmaker Paddy Power Betfair (PPB) is close to acquiring FanDuel. Little is known about the deal’s terms, but “it (the price point) appears likely to be below the $1 billion valuation” that the company held in July 2015. PPB acquired FanDuel competitor DRAFT for +/- $50 million in May 2017, so should the deal go through PDYPY would own the 2nd and 3rd most popular DFS apps. The news comes just one day after the SCOTUS struck down PASPA, the federal ban preventing individual states (save Nevada) from offering betting on the outcome of a single sporting event; FanDuel CEO Matt King indicated earlier this month, that his company would “get into sports betting” if the courts voted in New Jersey’s favor (as they did).

Howie Long-Short: Paddy Power Betfair isn’t collecting DFS companies for sport, they’re using M&A to take market share in a sports betting arms race. FanDuel has a database that contains 6 million DFS users (not all active) and PPB believes they’ll be able to convert many of those individuals into true sports bettors. The FanDuel brand also brings PPB some value, as the popular gaming operator (in Ireland and U.K.) lacks U.S. name recognition; though it does own California based horseracing betting business and digital broadcaster TVG and the NJ online gaming site Betfair Casino.

FanDuel raised $430 million in venture funding, but has struggled to raise additional capital since Q3 ‘15; so, investors were pushing to either pursue a sale or public offering. In March, we reported FanDuel was considering a reverse merger as a means of capitalization. Those talks would appear to be on hold. While that means you won’t be able to purchase shares of FanDuel on the NASDAQ (as Platinum Eagle had planned), you can buy stake in Paddy Power Betfair. The company trades OTC under the symbol PDYPY. Shares are up 7% since the SCOTUS decision, but declined 4.5% on Tuesday following the Legal Sports Report’s report.

Fan Marino: DraftKings maintains the No. 1 position among DFS companies, claiming more than 10 million users. Interestingly, their fastest growing game (+59%) isn’t tied to the NFL, NBA or MLB, but to League of Legends; where users construct rosters (with a salary cap) of professional gamers. It’s not just DFS players getting into esports though, global wagering (includes legal and illegal) on esports is expected to top $6.7 billion in 2018 and hit $13 billion by 2020. Looking to get in on the action? Pinnacle Entertainment (PNK) and William Hill (WIMHY) both take bets and offer odds on esports, as does Unikrn; a website that allows for legal esports betting using their own virtual token (Unikoin Gold, UKG) or cash. Unikrn has raised $41.4 million to date, including $31.5 million in a H2 ‘17 ICO; Mark Cuban participated and has a seat on the company’s advisory board.

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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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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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