More Mergers & Acquisitions Coming in Online Gaming Industry?

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More Mergers & Acquisitions Coming in Online Gaming Industry?
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Over the past several days, two prominent sports gaming companies have bought competing companies.

First, Penn National bought Canada-based theScore for $2 billion in a cash and stock-option deal last week. Then on Monday, DraftKings acquired Golden Nugget Online for $1.56 billion in an all-stock acquisition.

There are different motives behind each of those moves, but also a common thread.

In an interview, Penn National CEO Jay Snowden had high praise for theScore’s technology expertise and said he looked forward to utilizing that expertise in driving his company’s Barstool online sports betting app — despite the fact that just two years ago, Penn National signed a long-term deal with Kambi to supply the technological “guts” for running a sportsbook.

“Importantly, the transaction (with theScore) provides us with a path to full control of our own tech stack,” Snowden said in a statement. “TheScore has developed a state-of-the-art player account management system and is finalizing the development of an in-house managed risk and trading service platform. This should lead to significant savings in third party platform costs and allow us to broaden our product offerings.”

Kambi was obviously not thrilled. Kristian Nylén, Kambi CEO, said in a statement: “I congratulate Penn National Gaming on (the) acquisition of theScore. While I respectfully disagree with Penn National Gaming’s long-term view on vertical integration, the entity they have acquired has yet to develop a proprietary sportsbook, and certainly not one to a similar high standard as what we offer.”

A Way Into Canada Market

But there’s more to Penn National’s acquisition of theScore, which is the leading sports wagering app in Canada. Single-event wagering has recently been approved in Canada, and Ontario is a sizable market. With nearly 14.8 million people, it would be the fifth-largest U.S. state by population.

A fundamental question about the $2 billion acquisition is that some financial analysts project theScore’s 2022 revenue at just $46 million. So clearly, this is a deal — from Penn National’s side — that is leaning on future expectations.

“We’re certainly not valuing theScore on 2022-anything,” Snowden told CNBC. “This is about the longer term, what we’re creating together. John Levy (theScore CEO) and I have known each other for years and actually talked together in Las Vegas at a lounge at (the Global Gaming Expo) about, ‘someday, these two companies are going to come together.’ And the timing was right.”

Also key to the acquisition is that the two companies are invested philosophically and operationally in the blending of media and sports betting. Score Media and Gaming shareholders will receive $17 in cash and 0.2398 shares of its common stock for each theScore share.

DraftKings Gains Golden Nugget Customers

The DraftKings acquisition of Golden Nugget Online appears to be more straightforward. DraftKings online casino is basically buying Golden Nugget’s online casino operation lock-stock-and-customers. Reportedly, Golden Nugget Online has 5 million customers.

DraftKings CEO Jason Robins has made the obvious point, that online casino gaming is much more lucrative than online sports gambling. However, the problem is that state legislatures will likely to be more reluctant to approve online slot machines than online sports gambling.

But this acquisition puts DraftKings right in the thick of the iGaming industry at a price that works out to be a little more than $300 per customer. And it’s in stock.

Interestingly, Golden Nugget Online is relatively new as a publicly traded company (GNOG on the NASDAQ). It went public as a SPAC with Landcadia Holdings II at the end of last year.

Golden Nugget shareholders will receive 0.365 DraftKings share per each Golden Nugget Online share owned, and the deal is expected to close sometime in the first quarter of 2022.

However, in both cases — the Penn National acquisition of theScore and DraftKings acquiring Golden Nugget Online — there is a trend coming into focus. The U.S. online gambling field might be far too crowded already and there is a recognition in C-Suites that the field has to be winnowed. That being the case, these recent acquisitions are among just the beginnings of a persistent ongoing storyline of M&As in the online gaming industry.