Advertisement

DraftKings Submits Proposal to Buy PointsBet’s U.S. Arm

bette canter and scott soshnick
·3 min read

DraftKings (NASDAQ: DKNG) has submitted a proposal to acquire PointsBet’s U.S. branch for $195 million in an all-cash transaction, putting it in competition with Fanatics, which announced a deal to purchase PointsBet last month.

“While we continue to focus on operating more efficiently and driving substantial organic revenue growth in the United States, we will also look to prudently capitalize on compelling opportunities at attractive valuations, as is the case with PointsBet’s U.S. business,” Jason Robins, DraftKings’ CEO and co-founder, said in a press release. “We believe DraftKings is uniquely positioned to submit this superior proposal due to our scale and corresponding ability to generate meaningful synergies from the acquisition.”

More from Sportico.com

This comes weeks after PointsBet previously reached an agreement to have Michael Rubin’s Fanatics purchase the U.S. arm of the PointsBet for $150 million in cash, as Fanatics looks to push into U.S. sports betting. The PointsBet shareholders were scheduled to vote on the deal on June 30.

PointsBet issued a note to update shareholders on the proposal. “The Directors of PointsBet are committed to acting in the best interest of all shareholders and are considering the DraftKings Proposal alongside its advisers,” PointsBet’s note said. “Subject to the outcome of the review being undertaken of the DraftKings proposal, the Board continues to recommend that shareholders vote in favor of the FBG Transaction.”

Rubin, the CEO of Fanatics, accused DraftKings of trying to stall his company’s deal. “We are skeptical of the DraftKings proposal, which seems like a desperate move to slow down Fanatics and PointsBet from completing the deal as the purchase price and other financial commitments will total more than $500 million,” Rubin said, “so they are using the majority of their projected year-end cash just to try to block us.”

DraftKings projects about $900 million in free cash flow. When you roll in PointBet’s $250 million marketing commitment to NBC over the next four years, the proposed transaction would commit about half of the company’s cash.

Still, the business has about $1.1 billion in cash on hand right now, and Wall Street projects DraftKings to turn cash flow positive in 2024, making the financial lift of an acquisition probably less of a concern to investors. The company also could raise money quickly by selling new shares in the stock market, since its shares has more than doubled this year. Any new share raising would depress the share price, however.

PointsBet, based in Australia, launched in the U.S. in 2019. It moved aggressively early on, inking a $500 million deal with NBC Sports and a partnership with the University of Colorado in 2020. Its business has slowed recently in the face of mounting competition and rising customer acquisition costs. The NBC deal was amended in February; the Colorado deal was terminated in March.

In April, PointsBet CEO Sam Swanell said in an earnings call the company was talking to “multiple parties” about acquiring its North American business, which had recently cut 12% of its workforce. The company was also previously in talks to sell its Australian business to News Corp.-backed NTD Limited, the owner of Australia’s Betr brand, but those talks ended without a deal being reached.

PointsBet stock (ASX: PBH) closed trading Thursday with a market cap of about $287 million (AUS $417 million).

Last June, finance giant Susquehanna purchased 12.76% of PointsBet, making it the gambling operator’s largest shareholder. The company’s net win (sports betting and iGaming) in the U.S. was $33.1 million (AUS $49.8 million) for its most recent quarter, more than double its total for the same quarter last year ($16.3 million). PointsBet’s U.S. market share was 3.7%, as of last September.

(This story has been updated in the seventh paragraph.)

With assistance from Brendan Coffey

Best of Sportico.com

Click here to read the full article.