Fanatics Acquires PointsBet: Here’s Everything You Need To Know
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Fanatics has agreed to buy PointsBet U.S. in sports betting business in a $150 million deal, as first reported by CNBC (details of the agreement can be found here), proving the longstanding rumor accurate.
The company has been overtly signaling an entry into the market for quite some time. Fanatics could be the first disruptor in the U.S. sports betting space with a proven platform underpinning a well-known sports-associated brand.
A Bargain Price
The deal still needs to be approved by shareholders, and based on the market reaction, that isn’t a slam dunk.
That is a nasty drop off of the announcement. https://t.co/TbfH5MS8vt pic.twitter.com/fX7cjDDft2
— Chris Grove (@OPReport) May 15, 2023
The price tag is well below what many would have expected.
“The first and most obvious callout is the price: $150mm cash, per reporting. That is a staggering drop from the peak, but still very much in line with the implied valuation of the business if you take the pubco and back out cash and the AUS business,” Chris Grove tweeted last night. “But it’s still caps a remarkable decline in valuations for US online gambling businesses. This sale price is more the kind of ticket you’d see for a larger affiliate or mid scale supplier (it’s just a few x what PB paid for Banach a couple years back).”
But Grove notes that Fanatics is only receiving parts of the PointsBet business.
- Buying PointsBet gives Fanatics access to 15 states and ownership of the Ireland-based live odds provider Banach, which PointsBet bought in April 2021 for $43 million.
- PointsBet retains its proprietary platform and trading operations as well as a perpetual license for the Banach assets outside of the U.S.
Can Fanatics Make It Work?
The big question is can Fanatics do what PointsBet could not?
The key differences between the two companies are:
- A recognizable and sports-related brand
- A massive database of sports fans
I’ll leave the branding talk for later and focus on the Fanatics database. Logic says sports fans are more likely to be sports bettors. And the more passionate a fan is, the more likely they will bet. If that is true, Fanatics will be a monster in the U.S. sports betting market.
But some strings should be pulled to see if that logic holds up:
- What percentage of Fanatics customers are, or will become, sports bettors?
- How much overlap is there between the Fanatics database and the databases of existing sports betting operators?
The second point could be the most important. If the Fanatics database is chock full of sports bettors, most are already betting. That means Fanatics will have to woo them away from competitors with enticing deposit bonuses. That will likely work, but how long those customers will stick around after collecting their bonus money is unclear.
These bettors are as loyal as the bonus money they receive. Their loyalties are to the best product, odds, or UX. Fanatics must excel in multiple areas to keep the customers drawn in by bonus dollars.
Skipping back to the first point, Fanatics will be in much better shape if its database has a lot of potential bettors. These are customers (that have no problem spending $100+ on sports jerseys) they can activate who are likely to have more loyalty to the Fanatics brand. The question is, how many of these yet-to-be-activated sports bettors exist?
PointsBet Gave it the Old College Try
PointsBet did everything it could to position itself to make a splash in the U.S. sports betting market.
PointsBet was an early mover and one of the first outside companies to land on U.S. shores following its January 2019 launch in New Jersey. From there, it was among the first-mover group in many states.
The PointsBet platform was well-received by bettors, routinely ranking very high in Eilers & Krejcik App rankings, including No. 2 in 4Q2021.
Biggest surprise? PointsBet. Its app has performed consistently well in our testing, but during our 4Q21 window, PointsBet, propelled by some major improvements to its features set, vaulted into the no. 2 ranking. The result bodes well for PointsBet and, of course, its many rumored acquirers.
PointsBet followed that up with a #3 ranking in 1Q2022.
The company had a unique angle with Points Boosts and made some early headlines with its good karma refunds.
And then there were its high-profile partnerships. First and foremost, the Australian company needed market access because of how access and licensing were structured in early sports betting states. As such, PointsBet signed several partnership deals with gambling firms and entities likely to have market access in different states (examples here, here, and here).
Then there were the marketing deals. First with NBC and then the University of Colorado.
PointsBet looked like a serious player in the burgeoning U.S. sports betting market.
What Went Wrong With PointsBet?
Since those deals were signed, a lot has changed in the U.S. sports betting space. Hindsight being 20/20, PointsBet zigged when it should have zagged.
Most market access deals aren’t worth the paper they’re printed on as states have moved away from that model, turning the previously signed agreements into zombie deals. PointsBet’s partnership with NBC was about as successful as Clint Eastwood’s pig farm in Unforgiven. And the Colorado University deal’s most significant impact was to rile up the responsible gambling crowd (rightly), leading to prohibitions on such agreements.
That said, the time and money wasted on deals was more of a symptom than the underlying condition. The company’s real problem was branding.
PointsBet, like many other companies, had near-zero brand recognition in the U.S. market and was pitted against companies with strong brands, like DraftKings, FanDuel, MGM, and Caesars. You can open a McDonald’s-like restaurant across the street from a McDonald’s. Still, unless your burgers are better tasting, cheaper, and more convenient, you’re probably just wasting your time and money. And, even if you are vastly superior, it will take quite a while for the word to get around, and in that time, your deep-pocketed competition can undercut your prices, run a marketing campaign that drowns you out, or some other strategy.
The bottom line is this, PointsBet and many other brands are in a difficult spot. Several brands have already climbed the hill and are running down the other side, while PointsBet and others are trying to catch up, running uphill into a stiff headwind.
On the other hand, Fanatics hopes its brand recognition allows it to start at the top of the hill as it tries to chase the leaders.
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