Sports apparel company Fanatics has agreed to purchase the US assets of Australian gaming operator PointsBet. The deal is worth $150 million in cash, pending investor and regulatory approval. Currently, Fanatics is beta-testing an online sportsbook in Ohio and Tennessee. Additionally, it operates a retail sportsbook in Maryland and has a license in Massachusetts, where it expects to launch soon. The acquisition will give it immediate access to 14 additional markets, as well as PointsBet’s technology and customer databases.
The company says it hopes to be live in up to 15 states by the start of the NFL season in September for sports betting. The brand also plans to launch Fanatics Casino Online in select states.
Small Market Share But Appealing Financial Prospects
By its own reckoning, PointsBet is the seventh-largest sportsbook in the US.
However, it holds a very small market share, about 2-3% in most states. In New York, the largest market, the number is close to 1%. Only in Illinois does PointsBet have a larger footprint, with about 6-7% market share. Outside the US, the company operates in Australia and Ontario, Canada.
However, while it failed to gain market share, the company was improving financially. The H1 2023 report from Feb 2023 showed that PointsBet’s US handle totaled AUD 1.57 billion (US $1.05 billion), up by 66% YoY. Meanwhile, the PointsBet Online Casino revenue was up 157%.
The company expects its total Adjusted EBITDA loss to be between AUD 77 to 82 million (US $52 to $55 million) in H2 2023. That represents a massive drop from the AUD 149 million (US $100 million) loss a year ago. Pointsbet said it had cut expenses, such as marketing, and announced no further US expansion in 2023.
But even as PointsBet looked to be improving financially, the decision to sell its US assets was because the company did not expect to be cash flow positive in the near future. PointsBet said it expects to run out of cash in a year. A significant contributing factor is a partnership with NBC Universal, which costs PointsBet $50 million annually. Fanatics will continue the partnership after the takeover.
With the sale of its US assets, PointsBet announced it expects to reach breakeven Adjusted EBITDA for the remaining divisions.
Fanatics Has Big Plans for Its Betting and Gaming Division
While Fanatics is known for sports apparel, it has built other divisions, such as baseball trading and NFTs. The company raised about $700 million from investors last year and is valued at $31 billion. Also, it says it has a database of 95 million customers.
The customer database is something Fanatics plans to implement to kickstart its Fanatics Betting and Gaming division (FBG). CEO Matt King, who served as FanDuel CEO until 2021, said the 95 million users is 12 times higher than what FanDuel had in 2018. FanDuel Sportsbook is now the largest sportsbook in the US, with over 40% market share.
Another unique way the company plans to integrate FBG with its current business is a rewards program. Fanatics intends to offer online bettors a unique rewards card based on betting activity. Bettors can use rewards for merchandise or even win signed jerseys from players involved in a winning bet.
King estimates that FBG can be part of a side business with $8 billion in profits over the next decade. But, at a recent SBC Conference, the CEO said Fanatics would move carefully in what he called a 10-year journey. Earlier in the year, King said his ambitions were for operations in 15 to 20 states to be live by the start of the NFL season. Now, he’s scaled that range back to 12 to 15. Even so, the ultimate goal is for Fanatics Sportsbook to be live in as many states as possible.
Aside from sports betting, Fanatics will also acquire PointsBet’s online casino business in Michigan, New Jersey and West Virginia. The online casino was something on the agenda for Fanatics but at a later stage. The deal gives the company a head start. While PointsBet is a small player, the online casino business is highly desirable, with online casinos’ all-time handle double the sportsbooks handle.
The PointsBet Sale Could Be One Of Many To Come
King believes more consolidation of the market is coming. About 90% of the 50+ sportsbooks in the US hold less than 2% market share each. The big players like FanDuel and DraftKings are gaining more market share, while others are looking for an acquisition or ceasing operations, such as Fubo TV and MaximBet.
One name being mentioned as potentially being acquired is Rush Street Interactive (RSI). RSI is the parent of BetRivers Online Casino and Sportsbook. RSI’s stock is down 50% in the past year and recently asked about a potential sale, CEO Richard Schwartz did not deny the rumor.
Fanatics CEO also believes the cost of entry is much smaller through acquisition than by starting from scratch. Meanwhile, expansion to new markets is easier, with costs down 40-50% since 2018. That could lead to more companies with large capital and cash reserves jumping on the online betting and gaming train.