Bet On It: Fanatics buys U.S. operations from PointsBet

DraftKings hacker prosecuted, New York handle decreases, but gross gaming revenue jumps, and other notable stories in the sports betting and iGaming space.

Welcome to the latest edition of "Bet On It," where The Fly looks at news and activity in the sports betting and iGaming space. 

SECTOR NEWS: Federal prosecutors on Thursday announced criminal charges against an 18-year-old Wisconsin man for a scheme to hack user accounts of the sports betting site DraftKings (DKNG), CNBC’s Dan Mangan reported.  Joseph Garrison, is accused of working with others to steal about $600,000 from approximately 1,600 victim accounts during the November 2022 attack, according to the U.S. Attorney’s Office in Manhattan.

Tillman Digital Cities announced a partnership with Penn Entertainment (PENN) to improve in-building LTE and 5G cellular coverage and capacity within Penn Entertainment casinos, hotels, and gaming properties. The partnership extends nationally with Penn Entertainment. TDC’s solution leverages the SOLiD ALLIANCE 5G Distributed Antenna System platform to provide advanced cellular voice and data services for patrons. The initial deployments are now live at Hollywood Casino at Kansas Speedway in Kansas City, Kansas and Argosy Riverside Casino in Riverside, Missouri.

On Wednesday, Super Group (SGHC) filed a $450M mixed securities shelf. Separately, Gambling.com (GAMB) filed to sell 10.1M ordinary shares for holders yesterday.

PointsBet (PBTHF) announced that it has entered into a stock and equity sale agreement for the sale of its United States sports wagering, advanced-deposit wagering, or ADW, and iGaming operations, Banach technology, and a copy of the software for, and a license to use , the company’s proprietary technology platform, to FBG Enterprises Opco, LLC d/b/a Fanatics Betting and Gaming, or FBG, for headline cash consideration of $150M on a "cash free, debt free" basis, subject to shareholder approval and certain regulatory and other conditions. The company will retain its Australian business and operations and its Canadian business and operations. The company will also retain its proprietary sports wagering, racing and iGaming platform and be granted a perpetual, royalty-free license to exploit the Banach technology assets. On completion the company will be able to continue to exploit both platforms in all geographic regions, except in the U.S. for an 18-month period. The company will retain its outstanding teams in Australia, Canada and India. PointsBet’s funding requirement for the US Business will be capped at approximately $21M from the conclusion of the shareholder meeting to final completion of the proposed transaction. As part of the arrangements agreed, PointsBet will provide services to FBG prior to the final closing of the deal and be reimbursed for the cost of these services by FBG. For the avoidance of doubt, PointsBet’s commercial commitments to NBCUniversal are to be transferred in full to FBG as part of the proposed transaction. PointsBet’s final payment to NBCUniversal is included as part of its capped funding requirement. NBCUniversal has also released PointsBet Holdings Limited from its guarantee obligations under its Media Services Agreement from final Completion, and has irrevocably waived its right to exercise the equity options previously issued. These options have been terminated. If the proposed transaction completes, the company intends to distribute to shareholders the net sale proceeds together with the majority of the company’s corporate cash reserves that will be surplus to the needs of the remaining business. The board currently estimates this distribution of capital to be approximately A$1.07 to A$1.10 per share, in total. The distribution of capital is expected to be made over two tranches in-line with the two-stage completion process. PointsBet shareholders will vote on the proposed transaction at a shareholder meeting expected to be held in late June. The PointsBet board unanimously recommends that shareholders vote in favor of the proposed transaction at the shareholder meeting, in the absence of a superior proposal.

Legalized sports wagering is coming to Kentucky and Caesars Sportsbook (CZR) announced agreements with Keeneland and Red Mile Gaming & Racing in Lexington. The agreements grant the operator market access to offer legalized mobile sports wagering in Kentucky and include plans to open Central Kentucky’s only brick-and-mortar retail sportsbook locations, subject to regulatory approvals from the Kentucky Horse Racing Commission.

Bally’s (BALY), in conjunction with Gaming & Leisure Properties (GLPI), or GLPI, have reached a binding agreement with the Oakland Athletics of Major League Baseball to site their new ballpark on a portion of the current Tropicana Las Vegas property. The ballpark is expected to welcome more than 2.5 million fans and visitors annually. GLPI has agreed to fund up to $175M towards certain shared improvements within the future development in exchange for a commensurate rent increase. Bally’s and GLPI will assign approximately nine acres of the 35-acre site located on Las Vegas Boulevard and Tropicana Avenue to the Oakland Athletics or a related stadium authority. The new ballpark will accommodate approximately 30,000 fans. This agreement is subject to the passing of legislation for public financing and related agreements, and approval of relocation by Major League Baseball. As part of the agreement, Bally’s retains the ability to assign the rights to all aspects of this development and has received material interest from development partners. Bally’s acquired the building and operations of the Tropicana Las Vegas from GLPI in September 2022 as part of a $148M transaction. Bally’s entered into a 50-year ground lease with GLPI, with the ability to extend to 99-years upon achieving key investment milestones.

NEW YORK MINUTE:  New York online sports betting skins posted total handle of $342.3M in week 18, a 9% sequential decrease but up 3% from week 18 of 2022, Benchmark told investors in a research note. Gross gaming revenue, or GGR was $47.9M for the week, showing sequential growth of 27% and year-over-year growth of 30%. The firm noted that $47.9M in online GGR equates to a weekly hold of 14%, up 4% sequentially and 3% year-over-year.  The Firm said FY22 saw over $16B in handle and $1.4B in GGR, equating to over $700M in taxes collected from operators for the year.  Lastly, New York operators are currently on pace to break the records set last year, with year-to-date handle through week 18 up 4% year-over-year and GGR up 32% year=over-year. DraftKings, FanDuel (PDYPY), Caesars and BetMGM (MGM) currently combine for 94% of handle and 97% of handle.

EARNINGS RECAP: Gambling.com (GAMB) beat expectations in it first quarter earnings report. Charles Gillespie, CEO and co-founder of Gambling.com commented, "Our record first quarter 2023 results exceeded internal forecasts and reflect industry-leading organic revenue growth as well as strong profitability and cash generation. Our performance in the first quarter demonstrates both Gambling.com Group’s successful execution on our North American growth initiatives and our success in generating ongoing attractive growth in more established markets. New depositing customers increased 31% from the prior-year period, helping drive 36% year-over-year revenue growth, a 49% increase in Adjusted EBITDA to $10.7 million and an Adjusted EBITDA Margin of 40%. "We continue to deliver strong growth in both our newer and more established markets, with particular strength in iCasino performance marketing revenue in many of our global markets. North American revenue increased 33% year-over-year to $14.1 million, despite the year-ago period including the blockbuster launch of sports betting in New York. First quarter growth in U.K. and Ireland, markets where we have a longer operating history, was also impressive as we generated all-time quarterly record revenue for the fifth consecutive quarter in those markets, with revenue rising 36% to $8.5 million. In addition, revenue from other Europe and the rest of the world increased 51%." The company raised its FY23 guidance for revenue of $95M to $99M, and for adjusted EBITDA of $33M to $37M. Jefferies raised the firm’s price target on Gambling.com to $15 from $14 and maintained a Buy rating on the shares. The firm said the company’s in-line results and slightly increased guidance are modestly positive for the shares. While the filing to sell stock presents a modest near-term overhang, it positions the shares with improved liquidity longer term, which is a positive, the analyst tells investors in a research note.

ADDITIONAL ANALYST COMMENTARY: Barclays upgraded Wynn Resorts (WYNN) to Overweight from Equal Weight with a price target of $135, up from $120. Macau fundamentals "have moved well ahead of shares," while Las Vegas is likely more resilient than appreciated, the analyst tells investors in a research note. The firm is yet to give Wynn Resorts credit for Wynn Al Marjan, but is "bullish there too."

BofA raised the firm’s price target on Sportradar (SRAD) to $11.50 from $10 and keeps an Underperform rating on the shares after the company reported in line Q1 results and reiterated FY23 guidance. The firm believes Sportradar’s initial downward stock reaction was due to a lack of a "beat and raise" as in quarter’s past along with Q1 margins of 17.7% that imply limited to no margin expansion for the remainder of FY23. News that NeoGames (NGMS) has entered into a deal to be acquired by Aristocrat could bolster sentiment within the broader online and/or international business to business space, says BofA, which cites a lack of near-term operating leverage and margin expansion for keeping an Underperform rating on Sportradar.

Roth MKM views Fanatics’ acquisition of PointsBet U.S. as a negative for DraftKings. If Fanatics can assert meaningful online sports betting market share in the U.S., it would drive meaningful share losses for FanDuel and DraftKings, which maintain over 80% share combined, the firm told investors in a research note. Prior to this announcement, Fanatics believed it had the branding, player database and balance sheet to become a meaningful player, the firm added. Roth says the PointsBet U.S. acquisition offers Fanatics leading market assess, as well as one of the best regarded live-betting operations globally. The firm views the multiple paid by Fanatics as a positive for Rush Street Interactive (RSI) and Penn Entertainment. Meanwhile, Aristocrat’s acquisition of Neogames (NGMS) highlights the value for business-to-business internet gaming suppliers, which is positive for Inspired Entertainment (INSE) and Bragg Gaming (BRAG), according to Roth.

Citi analyst Monique Pollard upgraded Flutter Entertainment to Buy from Neutral with a price target of 19,000 GBp, up from 15,600 GBp. The analyst sees further upside in the shares given the company’s U.S. gambling dominance. Flutter offers market-leading products and effective promotions to customers, the analyst tells investors in a research note.

Citi raised the firm’s price target on DraftKings to $30 from $25 to reflect Q1 results and latest outlook, while keeping a Buy rating on the shares. The firm noted the change in its target price reflects a higher target EV per account driven by its lower CAC estimate, which accounts for DraftKings’ improved marketing efficiency over the last year.

PUBLICLY TRADED COMPANIES IN THE SPACE INCLUDE: Accel Entertainment (ACEL), Bally’s (BALY), Boyd Gaming (BYD), Caesars (CZR), Churchill Downs (CHDN), DraftKings (DKNG), Flutter Entertainment (PDYPY), Gan Limited (GAN), Genius Sports (GENI), Las Vegas Sands (LVS), MGM Resorts (MGM), Penn Entertainment (PENN), Rush Street Interactive (RSI), Super Group (SGHC) and Wynn Resorts (WYNN).

Keywords: Fanatics Betting and Gaming, Kentucky, New York, GGR, online sports betting, gambling