PointsBet’s $150 million fanatics deal reflects the ‘growth’ of the industry

The sports betting industry is in an increasingly thin hierarchy.

Fanatics Betting and Gaming agreed to buy sports gambling company PointsBet for $150 million Sunday night. For Fanatics, a $31 billion private company, the move will provide access to more than 15 states as the company initially known for sporting goods plans to roll out its sportsbook offerings online ahead of the 2023 football season.

For PointsBet, an Australian-based sportsbook, the potential acquisition marks the end of four years in the US in a valuation that Joel Simkins, managing director at Houlihan Lokey, described as “clearly low”.

The deal shows how the sports betting industry – which some believe could more than double in value to $167 billion by the end of the decade – has been tough for smaller players to survive.

In all, four operators: FanDuel (PDYPY), DraftKings (DKNG), Caesars (CZR), and BetMGM (MGM) now hold over 95% of the total gaming revenue market share in New York, the largest mobile betting market in the country. FanDuel and DraftKings alone account for more than 80%.

All of these companies have benefited from massive investment to support extension spending, something Fanatics CEO Michael Rubin plans to do with the company’s new sportsbook. Boasting a database of more than 95 million customers, the company plans to pour nearly $1 billion into its new site betting division, according to the Wall Street Journal.

So for companies like PointsBet, which named itself in the release as the 7th largest online player out of more than 60 online operators in the US, the options are becoming limited as the competition has only intensified among the big players. Either find more capital to keep up with Jones, or leave the neighborhood as fuboTV (FUBO) did when it ended its sportsbook operations in October.

“We’re seeing rationing in this industry,” Simkins said. “Everyone is starting to realize we need to move forward with this in a responsible way. We need to get back some solid marketing spend and customer acquisition.”

“We’re moving from childhood in this sector to perhaps liking the phrase kids, a little bit of rationality and maturity and discipline. So it looks like the industry is growing a little bit.”

September 11, 2022; Glendale, Arizona, USA; BetMGM Sportsbook is up for business during the season opener between the Kansas City Chiefs and Arizona Cardinals at the Great Lawn outside of State Farm Stadium. Mandatory Credit: Rob Schumacher – Arizona Republic

Add “operating costs”

PointsBet, for its part, still has operational business in Australia and Canada, where mobile sports betting has been legal for longer. According to the statement announcing the deal, these companies “will be at or close to break-even on a stand-alone basis.”

In the US, things went differently, as some of the big operators seemed hard to chase. Mobile sports betting launched in New York in January 2022, and with it came a prime example of what overspending can do to sports betting operators.

Caesars even heavily upgraded their Super Bowl last year, offering a matching credit system up to a $3,000 deposit. The operator has also added a $300 bonus, which means if a user deposits $3,000 into their account, they will receive $3,300 in free play money from the sportsbook.

This helped Caesars gain early market share, but it didn’t translate into sustainable success. The company started the next year with total monthly gaming revenue, according to 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 held just over 1% of the total gaming revenue market share in New York.

“Despite the strategic success of building a valuable asset in the US, operating costs in a country-by-country environment, combined with the requirements to build a large scale to compete against well-capitalized operators, led us to explore a number of options,” Sam said. Swanell, Managing Director and Group Chief Executive Officer of PointsBet in a statement.“The sale of the US business to betting and gaming fanatics provides the more attractive outcome of risk-adjusted value for shareholders compared to the risks and benefits of other options including the status quo.”

Josh is Yahoo Finance Correspondent.

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