The Information recently reported DraftKings (Nasdaq: DKNG) and FanDuel were among the companies that submitted bids to buy The Athletic. The report made sense, since the two sports betting operators have been willing to kick the tires on virtually any relevant asset that has scale and perceived relevance. But industry insiders say talk of their involvement was greatly overblown—neither has been formally involved in the sales process.
Peter Jackson, the CEO of FanDuel-parent Flutter Entertainment (LSE: FLTR), seemed to confirm that was the case, saying in a statement, The Athletic “is not something that we are bidding for.” DraftKings did not openly deny a bid was submitted (though we heard the report caught them by surprise, too). In a statement the company said, “DraftKings speaks to a variety of companies regarding various matters in the normal course of business, and it is our general policy not to comment on the specifics of any of those discussions.”
JWS’ Take: Eilers & Krejcik Gaming partner Chris Grove doesn’t doubt DraftKings and FanDuel took a look at The Athletic. But the “gap between being involved in the bidding process and actually making a purchase is massive,” he said. And remember, if DraftKings or FanDuel wanted to buy the digital media entity, they could have done so months ago. The Athletic has been on the market for some time.
There is little reason to believe FanDuel or DraftKings have suddenly developed a taste for The Athletic in recent months. Both maintain “plenty of opportunities to reach The Athletic’s target audience via other channels, and it is not clear that either company has a genuine interest in taking on the logistical burden and burn associated with a large digital media company,” Grove said.
FanDuel and DraftKings could likely grow their respective user bases by converting The Athletic’s 1.2 million subscribers into sports bettors. But remember, The Athletic subscriber is a sports super fan, familiar with the DFS-turned-sports-betting brands, and that many—at least those with an interest in gambling—have already participated in their daily fantasy contests at one point or another. If that is the case, DraftKings and FanDuel already know who those users are and how to reach them.
While The Athletic may be able to help the two operators attract a small number of hardcore gamblers (particularly if it were to develop unique sports betting content for the site), the current competition among sportsbooks is not really over that demographic. They are battling for the casual bettor. And The Athletic does not really reach that audience.
There is also little evidence to suggest media tie-ups are an effective means of growing sports betting market share. SkyBet has achieved success in the U.K. (at least since CVC took over, revamped its technology and acquired the bulk of EPL rights). But the most comparable arrangement in the U.S.—FoxBet, a partnership between Fox and The Stars Group—has managed to capture just .67% of national market share over the last three months (according to Eilers & Krejcik data). Of course, FoxBet is live in just four states (Colorado, Michigan, New Jersey and Pennsylvania).
It is worth pointing out that The Athletic has an exclusive sports betting partnership in place with BetMGM, and yet no one is reporting BetMGM as a potential acquirer of the media company. Some are viewing BetMGM’s apparent lack of interest in owning the asset, or preventing a competitor from owning it, as an indication the company doesn’t see the partnership as all that valuable.
But even if The Athletic were able to grow user base, the greatest need right now for DraftKings and FanDuel is identifying a path to profitability. Spending three quarters of a billion dollars on a non-core asset, which will lose $35 million this year, doesn’t help either company get there.
That doesn’t mean the two companies would rule out the purchase of a company that loses money. But with a limit to how much loss public market investors are willing to accept, it makes an acquisition of The Athletic less likely than if the company were profitable.
The Athletic would bolster the two companies’ media ambitions. And admittedly, there aren’t a ton of media companies with its scale. But The Athletic is an aggregation of written stories. It is not the integrated video experience sports betting operators envision as the Holy Grail (because of the data they will be able to collect on viewers, helpful in selling those individuals additional products). Individuals consuming written content are also more likely to be older than the target sports betting demo.
Industry insiders view $750 million (the reported asking price for The Athletic) as steep. While DraftKings and Flutter trade at lofty multiples of their own, that does not make either more likely to overpay for the digital sports media company. As Grove explained, their “ability to create an arbitrage between their valuation and the valuation of things they acquire with equity is a big part of their competitive advantage. There is no reason to believe they would squander it recklessly.” For what it’s worth, we heard the $750 million figure is not accurate.
If you are wondering who might be a logical buyer for The Athletic with DraftKings and FanDuel unlikely purchasers, consider Fox Corporation. The company likes local (see: broadcast stations) and does not really have an existing digital strategy. The deal would also be small enough in size that Fox could get it done without issue.
Of course, if it happens, it won’t be at $750 million. Fox’s interest has been at a much lower valuation.
It should be noted that M&A is not the only route for The Athletic. LionTree was hired to identify the best path forward for the company taking control, value and future into account. While that might mean a sale, it could also mean raising capital or a strategic investment.