As SPACs Explode, Which Gaming Company is Next to Go Public?
The SPAC wave among online gaming companies has followed an overall uptick in the increasingly popular strategy throughout Wall Street for taking private companies to the public market.
However, along with an increase in private companies being taken public via the SPAC route, questions emerge. In a specific case, does the occasion of one company in a particular niche of online gaming being taken public —Genius Sports Group — create pressure on another company in that same niche — Sportradar — to somehow muscle up financially as well? And is there a possibility that investor appetite for SPACs may wane?
The answer to both questions is probably “Yes,” but with the caveat that every situation is different.
SPAC is short for special purchase acquisition company. An SPAC is itself an IPO, without products or services, that raises a chest of money for a friendly merger with a privately held company. In doing so, the private company becomes public with access to much more capital for operations and expansion.
The most glitzy of the online gaming SPACs so far has been DraftKings. The daily fantasy-sports wagering online company was privately held until it became the cooperating partner of a SPAC called Diamond Eagle earlier this year. With Diamond Eagle renamed as DraftKings Inc., the new public company hit the NASDAQ and immediately took off.
Starting life as a publicly traded company in late April, DraftKings Inc. initially traded at about $20. On Thursday, the stock was trading at about double that price. The recent market capitalization of DraftKings was about $14.4 billion.
More recently, Genius Sports Group, another company in the extended sports wagering/online gaming world, has gone the SPAC route. Based in London, Genius Sports announced Tuesday it has made a deal to go public through a merger with dMY Technology Group Inc. II. The SPAC is another of the so-called “blank-check” companies and includes among its executives Harry You and Niccolo De Masi. Another You-De Masi SPAC merged with Rush Street Interactive in July.
In a news release, Genius Sports said, “In addition to the approximately $276 million held in dMY II's trust account (assuming no redemptions by dMY's public stockholders), a group of institutional and experienced industry investors has committed to participate in the transaction through a common stock (investment) of approximately $330 million at $10 per share.” The new combined company is valued at $1.5 billion.
Genius Sports Moving Forward in US
Genius Sports is a diversified player in the sports betting world. It supplies sports data and integrity assurance to both sports organizations (for instance, NBA, NCAA, PGA and the English Premier League) and sports betting operators. Recently, it announced plans to furnish live streaming of events to betting operator PointsBet with the result that the broadcast accompanies real-time wagering.
As Genius Sports CEO Mark Locke pointed out in a Bloomberg interview on YouTube, “We’re a supplier to virtually all of the sports betting operators you’ve heard of.”
As a result, Locke said, “an investment in Genius is an investment in the (entire online game) sector.”
Locke explained his company’s rationale for becoming publicly traded on the New York Stock Exchange saying, “The United States really gives us the opportunity to take the foundation we’ve built, the product that we’ve built, the fact that we’ve reached critical mass in our product set and take that business forward.”
What’s Next for Sportradar?
Another player in the sports data-analytics-integrity assurance-bookmaker space is Switzerland-based Sportradar. It remains to be seen what response Sportradar will have to a Genius Sports now infused with cash and access to the public markets. There have been reports that Sportradar could go the SPAC route or acquire another company to go public.
“If Genius Sports is expanding aggressively, any competitor it has is going to see a shrinking market share unless it responds,” said Jay Ritter, finance professor at the University of Florida and expert in SPACs and IPOs. “If Genius Sports has a good business model and if gamblers prefer to use whatever company has the better website, the more liquid market, the more players, if there’s a winner-take-all aspect to it, that’s going to put the competition on the defense where they then have the choice of, ‘Well, we better respond or go out of business.’ Now, not every market is winner-take-all.”
Also, there is a reasonable question of whether the SPAC approach is being overdone. Its advantage is in time efficiency and cost savings but there’s also the complication that it requires investors in the SPAC to be convinced that the acquiring company will find a willing merger partner with a clock running (the time limit is two years for SPACs to complete deals).
“Success begets success. DraftKings is one of the most successful SPACs of all-time in any industry,” said Spring Owl Asset Management CEO Jason Ader, an investor in the gaming sector. He also referred to Golden Nugget Online Gaming and Rush Street Interactive as effective mergers.
“But I think the market is getting a bit difficult so unless there’s a very clear path to added value … we’ll have to see what happens,” Ader said.
Record Number of SPACs
Whether it’s the online gaming sector or other businesses, the concept of SPACs has captured the attention of Wall Street.
“This year, there’s been a record number of SPAC IPOs,” Ritter said. “As of last Friday, I counted 158 SPAC IPOs in the U.S. this year, which is approximately twice the previous record number. They’ve been raising an average of over $360 million. So there’s $50 billion that’s been raised by SPACs looking for merger partners. Just because there’s a lot of dry powder there, I would expect that there will be a lot of deals in the next six months or a year even if there are no more SPACs formed -- and there will be.”
Popularity, however, doesn’t always translate to success.
“DraftKings has been doing well for the public market investors after the merger,” Ritter said. “Partly, that’s just due to luck with COVID having made online wagering a good business this year. There have been other SPAC deals, like with energy companies, that have been pretty disastrous for investors for reasons outside the companies’ control.”
Expect More SPAC Deals
Even with the current frothy investor infatuation with online game and the argument that the industry’s future is bright with more states legalizing a variety of online gaming, the going still can get bumpy, Ader noted.
Ader referred to recently formed SPACs that have announced each is targeting the gaming sector, Tekkorp and Acies Acquisition Corp., the latter led by former MGM Resorts International CEO Jim Murren. Both SPACs have had to revise their initial ambitions, Ader pointed out.
Acies Acquisition Corp. lowered its upcoming initial public offering (IPO) to $200 million from $300 million and Tekkorp lowered the amount of money it expects to raise to $250 million from $300 million.
“There will be more deals,” Ader said. “I do believe the SPAC structure is a very, very attractive way for companies to go public. Stay tuned, there will be more deals.”
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