The sports betting industry is becoming an increasingly slim hierarchy.
Fanatics Betting and Gaming agreed to buy PointsBet’s US sports gambling business for $150 million on Sunday night. For Fanatics, a privately-held company valued at $31 billion, the move will provide access to more than 15 states as the company initially known for sports merchandise plans to roll out online sportsbook offerings ahead of the 2023 football season.
For PointsBet, an Australian-based sportsbook, the potential acquisition marks the end of a four-year run in the US at a valuation Joel Simkins, a managing director at Houlihan Lokey called “obviously low.”
The deal shows how the sports betting industry — which some believe could more than double to be worth $167 billion by the end of decade —has been a tough one for smaller players to survive in.
In all, four operators: FanDuel (PDYPY) DraftKings (DKNG),Caesars (CZR) and BetMGM (MGM) now own more than 95% of the gross gaming revenue market share in New York, the nation’s largest mobile wagering market. FanDuel and DraftKings alone account for more than 80%.
Those businesses have all benefited from heavy investment to back extending spending, something Fanatics CEO Michael Rubin plans to do with the company’s new sportsbook. Boasting a database of more than more than 95 million customers, the company plans to inject roughly $1 billion into its new spots betting division, per the Wall Street Journal.
So for companies like PointsBet, which names itself in the release as the seventh largest online operator out of more than 60 online operators in the US, options have become limited as competition among the top players has only intensified. It’s either find more capital to keep up with the Joneses, or leave the neighborhood like fuboTV (FUBO) did when it wound down its sportsbook operations in October.
“We’re seeing a rationalization of the industry,” said Simkins. “Everybody is starting to realize we need to go at this in a responsible manner. We need to dial back some of the aggressive marketing and customer acquisition spend.”
“We’re moving from the infancy in the sector to maybe like the toddler phrase, a little more rationality, maturity and discipline. So the industry seems to be growing up a bit.”
‘Costs of operating’ add up
For its part, PointsBet still has operational businesses in Australia and Canada, where mobile sports betting has been legal for longer. Those businesses will “be at or around EBITDA breakeven on a stand-alone basis,” according to the release announcing the deal.
In the US, things played out differently, though, as some of the top operators appeared harder to chase. Mobile sports wagering launched in New York in January 2022 and with it came a prime example of what overspending can do for sportsbook operators.
Caesars promoted heavily leading up to last year’s Super Bowl, offering system credit matches up to a deposit of $3,000. The operator also added a $300 bonus, meaning if a user deposited $3,000 into their account, they would have $3,300 of free play money courtesy of the sportsbook.
This helped Caesars gain early market share, but it didn’t translate to sustained success. The company started the year ahead in monthly gross gaming revenue, per the New York State commission, but finished 2022 handily in third place behind industry leaders Fanduel and DraftKings.
In the first four months of 2023, PointsBet owned just more than 1% of gross gaming revenue market share in New York.
“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 capitalized operators, led us to explore a number of options,” PointsBet Managing Director and Group CEO Sam Swanell said in a statement. “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.”
