Flutter Entertainment, plc (LON: FLTR) has reached an agreement to purchase The Stars Group (NASDAQ: TSG) for $6 billion – a 40% premium on Tuesday’s closing price – in an all-share deal. The ‘Combined Group’ would become the world’s largest online betting and gaming operator (worth +/- $12 billion). On a proforma basis, the two companies combined to generate $4.67 billion in revenue in 2018. For perspective, no other gaming outfit pulled in more than $3.6 billion last year (GVC Holdings).
The ‘Combined Group’ will be well diversified from both a geographical and product offering standpoint. While FLTR maintains a significant international presence – particularly in the U.K., Ireland and Australia – TSG’s ownership of Sky Betting and Gaming ensures that the new entity will hold a podium position in Spain, Italy and Germany. The FoxBet brand positions the ‘Combined Group’ to pursue the burgeoning U.S. market. On the product front, the ‘Combined Group’ will be able to offer sports betting, online poker, online casino, daily fantasy and free-to-play games.
Pre-tax cost synergies worth upwards of $175 million, the ability to streamline backend technology – which is extremely costly on a state-by-state basis – and the chance to offset bets between the FanDuel and FoxBet brands are viewed as additional benefits of the merger.
Howie Long-Short: Flutter Entertainment is the entity that was formed out of the Paddy Power and Betfair merger. The conglomerate also includes the FanDuel, TVG and SportsBet brands. Company shares rose +5% on Monday’s news.
In addition to Sky Betting and Gaming, TSG owns PokerStars, BetStars and Full Tilt Poker. The company’s share price has skyrocketed +30% since word of the acquisition leaked.
Upon closing, Flutter shareholders will control 54.64% of the new entity. TSG shareholders own the remaining 45.36%.
The U.S. market is where the growth opportunity lies for gaming operators, but Sara Slane, founder of Slane Advisory, believes FLTR’s interest in TSG is driven by their desire to stabilize their existing business. “Stringent regulatory changes in the U.K. have forced gaming operators like William Hill and PaddyPower to close down thousands of storefront shops. In addition, recent advertising restrictions and higher gaming tax rates in numerous European countries have compelled global operators to diversify and double down in growth markets.”
A TSG takeover is an efficient way for FLTR to grow their domestic footprint. Remember, FanDuel has market access deals in place through Boyd Gaming. Slane explained that “in states with multiple skins, the [Combined Group] will now be able to market two brands to two distinctly different audiences. That should theoretically help capture a bigger piece of the total available revenue pie.”
It remains TBD if the ‘Combined Group’ retains both the FoxBet and FanDuel brands in the U.S., but I’ve struggled to come up with a logical reason why they would shutter one. Slane agreed saying that “FoxBet has a big media presence and a free-to-play product on a national scale and FanDuel has tremendous market access. They make for a compelling pair.”
Further consolidation seems likely to occur between international gaming operators and U.S. based companies like FanDuel, that have always been a mobile-first operation. One well-respected gaming industry authority explained that domestic gaming companies “are unique in that they have significant brick and mortar portfolios and are operating with double-digit debt loads. It’s simply harder to do mergers and acquisitions with companies at that scale.” DraftKings is positioned similarly to FanDuel, but with a much higher debt load. It’s reasonable to suspect they too are a candidate to be bought by a major international player. William Hill and Bet365 would be the ones to watch.
Fan Marino: U.S. based gamblers will find that FLTR has a “quality product”, but Matt McEwan, executive editor of SportsBettingDime.com (a free sports betting news and information service), believes that is the only positive in the deal for punters. “When two really big players come together they gain a lot control within the industry. The [‘Combined Group’] now has pricing power and that is not good for bettors shopping early lines.”
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