Paddy Power Betfair in Talks to Buy Out FanDuel
LSX-listed bookmaker Paddy Power-Betfair is in talks to buy out US daily fantasy sports operator FanDuel. The Paddy Power-Betfair merger with FanDuel would allow the British online sportsbook a faster entrance into the US gaming market in the wake of PASPA repeal, while also giving it a database of 6,000,000 American sports gaming enthusiasts.
Shares of Paddy Power Betfair were up 6% after news of the deal emerged. Gaming analyst Gavin Kelleher said quick access to the US gaming market is a major attraction to investors.
Kelleher said, “Given the regulatory and taxation headwinds that European operators are facing in their home markets over the next few years, [the repeal of PASPA] is a very attractive long-term positive for the companies under our coverage and as such is supportive of their long-term growth prospects.”
“It also could see European operators speculated as potential M&A targets, given the unique sports betting skill set they possess.”
Paddy Power Betfair’s stock increase was not the only UK gaming company with a boost this week. After the repeal of PASPA was announced, shares of 888 Holdings were up 15% and shares of William Hill plc were up 11%. Both already have a US presence, so they should be well-positioned to take advantage of the new sports betting laws.
Paddy Power-Betfair Buys Out FanDuel
Financial details of Paddy Power-Betfair’s acquisition of FanDuel have not been released, but the New York City-based DFS company once was evaluated as a $1 billion company. That was before a wave of regulations and legal cases in the United States, but the buyout would give Paddy Power Betfair an early head-start over most other international operators in the daily fantasy sports niche and the burgeoning new US sports betting industry. Earlier this year, Paddy Power Betfair bought out a much smaller DFS site, Draft, for $48m (£35.6m).
While FanDuel is not involved in the US sports betting industry, it has a 6 million player database of U.S. daily fantasy sports competitors. Many of those players are likely to enjoy sports gambling, if given the chance to do so in a regulated gaming environment. Paddy Power Betfair would collect a valuable revenue generator in DFS it could leverage for a much bigger bookmaking market.
Rejected FanDuel-DraftKings Merger
FanDuel CEO Nigel Eccles has explored buyouts and mergers before. FanDuel and its major US rival, DraftKings, planned a merger which was rejected by the Federal Trade Commission in July 2017. The merger would have consolidated 95% of the US daily fantasy sports market in one company, so the FTC cited anti-trust concerns about the proposed merger.
That was a clear signal to many that FanDuel needed a partner. Of the two big competitors, FanDuel launched first. Formed in 2009 with a loan from the government of Scotland, FanDuel was an early leader in the DFS industry. DraftKings launched in 2011 by a group of Boston sports fans.
Daily Fantasy Sports Wars
Led by Jason Robins, DraftKings mounted an aggressive challenge to FanDuel. Throughout 2014 and 2015, it appeared that the competition was healthy, as each was receiving significant investment interest from Wall Street investment firms, as well as sports and broadcasting groups like Comcast, NBC Sports, and the Disney Company.
Much of the investment capital went into television, radio, and Internet advertisements. By the summer of 2015, the ad war between FanDuel and DraftKings overtook all sports broadcasts in the United States. Late night talk show hosts staged skits to make fun of the DFS ads, which may have been a bad sign. Lawmakers and office holders took notice, so the DFS sites soon were facing scrutiny by state attorney generals in New York, Illinois, Nevada, and Texas.
That led to high legal bills and lobbying costs, which hurt the bottom line. Eventually, FanDuel and DraftKings decided to combine in order to halve the legal bills. When the DrafKings-FanDuel merger fell through, it was only a matter of time when one or both was bought out. While FanDuel and DraftKings are considered roughly equal, FanDuel seems to be the DFS company with more need for capital.
About Paddy Power/Betfair
Paddy Power-Betfair itself is the result of a major merger. In September 2015, Irish bookmaker Paddy Power agreed to a merger with UK-based sports betting exchange Betfair. Shareholders of Paddy Power would own 52% of the new company, while shareholders of Betfair would own 48%. The merger was completed in February 2016. While the deal cost 650 jobs in the Irish and UK bookmaker industry, it made the combined company one of the largest sports betting companies in the world.