The fantasy sports company, FanDuel is expanding its reach into the U.S. sports betting market. Paddy Power Betfair, the European gaming company, struck a deal to buy a controlling stake in the DFS company.
The Supreme Court‘s decision last week opened the door for legal single-game sports betting in the U.S. On the heels of that the decision, the two companies announced they were merging. It is obvious they are preparing to capitalize on the infancy sports betting market from the onset.
“Fanduel and Betfair … are prepared to lead the charge into the US sports betting market,” Fanduel CEO Matt King said in a statement.
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The Paddy Power Betfair and FanDuel merger
The merger is limited to PaddyPower’s U.S. operations, which reported $141 million in revenue last year. FanDuel made $124 million. Both were unprofitable and are banking that sports betting will change that.
FanDuel has 7 million registered users accounting for 40 percent of the fantasy-sports activity in the U.S.
Once the deal is approved, Paddy Power Betfair will own 61 percent of the newly combined business. It will also be the operational decision maker.
After three years, Paddy Power Betfair has the option to acquire 80 percent of the company. In five years, it has the opportunity to purchase the remaining 20 percent of the company outright.
FanDuel currently has $76 million in existing debt. As part of the agreement, Betfair US will contribute $150 million in cash to pay down the debt and contribute its existing U.S. assets.
Both companies expect to finalize the deal in Q3.
Why FanDuel and not Draft Kings?
There was a question from the conference call announcing the merger as to why Paddy Power Betfair chose FanDuel.
“I’m just wondering why it is FanDuel that you have chosen to buy, rather than a business that looks more successful in DraftKings — or at least bigger.”
Peter Jackson, CEO of Paddy Power Betfair alluded that the sale is more than buying a customer base. The company is looking to build a business that brings the successes of their European operation to the U.S:
“We think we’ve got a very good cultural fit with the business. If you go far enough back, Nigel — who actually founded FanDuel — was one of the early people who worked at Betfair. So if you go back far enough, we’re all related.”
FanDuel’s player database and Paddy Power Betfair’s investment will not only position FanDuel in the sports betting market, but it will also help to grow its DFS product.
It’s unknown what sports betting with FanDuel will look like. In an email to users, King wrote:
“We’re currently working on a sports betting product which we expect to be available by the 2018 NFL season. We can’t wait for you to see what we have in store!”
The merger will give FanDuel much-needed capital and the expertise to catch up to DraftKings, which until now was leading the charge.
Looking ahead to the legalized sports market
“We are excited to add FanDuel to the Group’s portfolio of leading sports brands,” Jackson said. “This combination creates the industry’s largest online business in the US, with a large sports-focused customer base and an extensive nationwide footprint.”
The estimates for the potential size of the legal sports betting market in the U.S. are all over the place. Some have come in as high as $13 billion.
GamblingCompliance, an independent gaming intelligence company believes five states will legalize sports betting in 2018. It estimates sports betting revenue of $1 billion this year. In five years, the estimate falls between $2 billion and $6 billion per year.
States that are on track to implement sports betting this year are:
- New Jersey
- Delaware
- Mississippi
- West Virginia
- Pennsylvania
Being first to market as states put sports betting regulations in play will be crucial. With the assets, capital and knowledge of Paddy Power Betfair behind them, FanDuel will be ready to take advantage and secure more than its fair share.
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