Running online sports betting sites in the United States can be costly, and one of the bigger operators — albeit far from the biggest — is selling its stateside business to an emerging contender.
PointsBet Holdings Ltd. announced Sunday evening (or Monday night, in the company’s home country of Australia) that it had struck a deal to sell its U.S. business to Fanatics Betting and Gaming (the gambling arm of sports-merchandise seller Fanatics Inc.) for US$150 million, subject to shareholder and regulatory approvals.
The rationale for the deal, according to PointsBet, comes down to cost. While the company said it is the seventh-largest online operator in the U.S. sports betting and iGaming industry, "there are a number of risks and significant capital requirements" facing a business that is not expected to turn profitable anytime soon. PointsBet reported a net cash outflow of A$88.7 million for its most recent quarter.
“Despite the strategic success building a valuable asset in the US, the costs of operating in a state-by-state environment, together with the requirement to build significant scale to compete against well capitalised operators, led us to explore a number of options,” PointsBet CEO Sam Swanell said in a press release. “The sale of the US Business to Fanatics Betting and Gaming delivers the most attractive risk-adjusted value outcome for shareholders compared to the risks and benefits of other options including the status quo.”
There it is: PointsBet just officially announced it has agreed to sell its U.S. business to Fanatics Betting and Gaming for US$150 million, pending a number of conditions. PointsBet is keeping its Australian and Canadian businesses. pic.twitter.com/DkhIB6NVIl
— Geoff Zochodne (@GeoffZochodne) May 15, 2023
The first stage of the proposed deal is expected to close on or about August 31, according to documents published by PointsBet. At that point, Fanatics will acquire entities that own and operate PointsBet's business in at least three states, with the others to follow.
But the deal is a relatively significant shakeup for legal sports betting in the U.S.
Fanatics Sportsbook is an up-and-coming brand in the industry and is intent on putting its massive customer database from sales of hats, jerseys, trading cards, and other merchandise to use in acquiring sports bettors. PointsBet, meanwhile, has carved out a name for itself in the U.S. with some high-profile advertising and market access.
That access probably helped attract interest from Fanatics, which has only launched its online sportsbook in Ohio and Tennessee. With PointsBet’s licenses, Fanatics has access to additional states, including those it has not already lined up, such as New York, where Fanatics tried and failed to get a license in the past.
The next wave
In short, though, a medium-sized operator is bowing out of the U.S. and letting a now-small-but-perhaps-someday-mighty operator take its place. How the rest of the market responds to the deal remains to be seen, but PointsBet users in the U.S. may wake up one day soon and find themselves staring at Fanatics branding and earning “FanCash” with their wagering, which they can exchange for official team swag.
“I think the next wave of growth in this industry really comes from innovation and how do you think about doing it better,” Matt King, CEO of Fanatics Betting and Gaming, said during last week’s SBC Summit North America in New Jersey. “We as an industry have a satisfaction gap to close if we want to be viewed as kind of a category that's on par with the best consumer technology.”
King also said that market access is now 40% to 50% cheaper, partly because there are “fewer real” competitors.
“If you get down to like players four through 10, there's a lot of people that were writing big checks that... ultimately weren’t able to generate the share,” he told the audience. “So you've seen it with a number of competitors starting to like, just hand their market access back.”
Clearing up uncertainty
As it happens, PointsBet recently decided to hand back its access in Massachusetts, where it was found suitable for a license before the company decided to take a pass on the market altogether. Following that news, PointsBet said it was in talks with multiple parties about potential transactions involving its North American business as the bookmaker searched for more shareholder value.
PointsBet said Sunday it explored several ways to try to cut costs but said its current corporate cash holdings were not enough to fund the U.S. business until it started generating positive earnings. Additionally, current market conditions are "presently very challenging" for companies that have yet to produce positive cash flows, the firm said, meaning any further capital raised would be at discount prices.
"Moreover, there can be no guarantee that additional capital could be raised at all in the near term," the press release said. “The Proposed Transaction therefore addresses a key uncertainty currently facing the Company through removing the need to raise the capital required to fund the US Business through to the point at which it becomes cash flow positive."
Keeping Australia and Canada in the fold
Net proceeds from the sale to Fanatics will flow to PointsBet shareholders, with the company's board estimating the distribution to be around A$1.07 to $1.10 per share. The Australia-based bookmaker said its funding requirement for the U.S. business from the end of the shareholder meeting to the deal's close will be capped at around US$21 million.
Fanatics is buying PointsBet's U.S. sports wagering, advanced-deposit wagering, and iGaming operations, among other things. Fanatics will also take over PointsBet's commercial commitments to NBCUniversal, which PointsBet advertises with and which acquired a 4.9% equity stake in PointsBet in 2020.
PointsBet said it would keep its Australian and Canadian businesses, as well as its proprietary wagering platform. Fanatics is only purchasing "a copy of the software for, and a licence to use" that platform.
“Following the sale of the US Business, the remaining business is currently expected to be at or around EBITDA breakeven on a standalone basis, with the profitability of the Australian Trading Business expected to significantly offset the expected near-term losses of the Canadian Trading Business as the latter builds scale,” the release stated.
