Paddy Power Betfair (PPB) has acquired FanDuel (pending final regulatory approval) with the intention of competing in the legalized U.S. sports betting market. The Dublin-based betting operator will bring its modest U.S. assets (worth $612 million) to the table, as well as $158 million in cash; money that will be used to pay down existing FanDuel debt ($76 million) and to fund operations of the new joint business. PPB will merge its U.S. operations with FanDuel’s immediately and will own of 61% of the combined entity; that percentage will increase to 80% after three years and PPB will assume complete control of the company after five years (via call/put options at market price). The newly combined entity now represents “the industry’s largest online business in the U.S.”
Howie Long-Short: This deal came together quickly once legalized sports betting became reality, with news of the deal first reported just a week ago. It’s a good thing that it did, with competitor DraftKings having launched its sports betting marketing campaign (see Fan below). Paddy Power Betfair isn’t collecting DFS companies for sport (they bought DRAFT in ‘17), they’re using M&A to take market share in a sports betting arms race. FanDuel controls 40% of the U.S. DFS market (1.3 million active users) 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; despite owning the California based horseracing betting business and digital broadcaster TVG and the New Jersey online gaming site Betfair Casino.
It should be noted that PPB’s U.S. operations and FanDuel both lost money in 2017. Together (including expected synergies) it’s expected that they’ll operate at broadly EBITDA breakeven, before investment in sports betting. Paddy Power Betfair trades OTC under the symbol PDYPY. Shares rose 5% (to $61.75) following Wednesday’s announcement and they’re up 17.5% since word of the deal first broke on 5.16.
Fan Marino: As Howie mentioned, DraftKings introduced its sports betting marketing campaign (billboards etc.) to New Jersey residents this week; noteworthy, if only because they’re yet to announce a land based casino operator as partner (as required by state) and don’t have a proprietary sports betting application ready for use (though, they could operate 3rd party software). We’ve known for a while now that DraftKings intends on pivoting from DFS to sports betting. The company hired a Head of Sportsbook, added +/-300 new employees and opened a new office in Hoboken, N.J. (anticipating they’ll be the first state to legalize) all within the last couple months.
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