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In a significant move within the sports wagering industry, PointsBet, a prominent Australian-based operator, has agreed to sell its operations in 15 US states to global sports betting corporation Fanatics for a staggering $225 million (approximately $150 million US). The deal, subject to shareholder and regulatory approval, comes as a result of PointsBet’s failure to secure a significant market share in the US despite comprehensive promotional campaigns and activities.
PointsBet, a company listed on the ASX, acknowledged that it could no longer compete effectively in the American market. CEO Sam Swanell explained, “In 2018, pretty much every online betting company in the world targeted that market. It is expensive to do business there because it’s a state-by-state market. You need scale.”
This decision follows a series of terminated partnerships in the North American market, including those with odds provider NBC Sports and the University of Colorado, highlighting the challenges PointsBet has faced during its expansion in North America. Despite being ranked as the seventh-largest sportsbook in the US, the wagering company struggled to achieve its desired growth and market penetration.
Fanatics, a Florida-based commercial, trading, and sports betting giant with a valuation of $46.5 billion, emerged as the preferred buyer due to its favorable transaction structure. Swanell revealed that PointsBet was projected to incur losses of up to $123 million by the end of this year. However, with the completion of the transaction, advised by Moelis & Co and Flagstaff Partners, the losses will be reduced to $21 million.
Swanell elaborated on the deal, stating, “When you think about the deal, you’ve got to think about it in terms of the headline price, but also the fact that we’re preserving the capital that we have on the balance sheet. Pretty much, Fanatics takes over the investment into the US business, bar $21 million, which we’ve agreed to sort of cover as part of the swings and roundabouts.”
The sales deal includes some profitable arrangements that resulted from PointsBet’s substantial investments of approximately $240 million in promotion and marketing. With this expensive foray now coming to an end, Swanell emphasized the company’s intention to distribute the excess surplus corporate cash, as well as the proceeds from the transaction, to shareholders.
Moving forward, PointsBet will refocus its efforts on its Australian and Canadian businesses, merging them into a new entity called PointsBet’s RemainCo. Swanell expects this merged business to break even on an EBIDTA (Earnings Before Interest, Taxes, Depreciation, and Amortization) basis within 12 months after the termination of its US operations. Swanell expressed optimism about the growth potential in Australia, stating, “The market has somewhat stagnated in Australia because there have been some headwinds, but we’re clearly growing our market share. We think we can put the foot down and keep going.”
According to reports, PointsBet’s Australian operations have been up for sale for over a year. The company rejected a $220 million offer from Betr last June, hoping for a more favorable opportunity. Swanell stressed that the priority is to create maximum value for shareholders, stating, “I think the bottom line is always what creates the most value for our shareholders.”
In conclusion, PointsBet’s decision to sell its operations in 15 US states to Fanatics marks a strategic shift as the company faces challenges in the American market. With this move, PointsBet aims to focus on its Australian and Canadian businesses, leveraging its market share and pursuing new opportunities. The deal with Fanatics, subject to approval, offers a lifeline to PointsBet while providing a platform for growth and stability in the ever evolving sports betting industry.