Players who enjoyed Capcom’s 1991 release “Street Fighter II” will remember the game’s iconic segue into the next simulated combat; “a challenger appears.” DraftKings became that challenger on Thursday with the announcement that it has made an offer to PointsBet for its operations in the United States.
The news from DraftKings comes about a month after PointsBet jointly announced it agreed to sell those operations to Fanatics Betting and Gaming. While Fanatics still has an opportunity to adjust, the value for DraftKings could be in blocking this acquisition on Fanatics’ behalf.
DraftKings ups the ante for PointsBet US
According to a late Thursday press release from DraftKings, the price for PointsBet’s US operations may have just gone up. DraftKings says it is offering $195 million, all in cash, for the entirety of PointsBet’s US online gambling business.
PointsBet also offers online casino and sports betting play in Australia and Canada. Those parts of the business will not be part of any transaction. As the release points out, DraftKings’ offer is 30% higher than the $150 million that Fanatics and PointsBet announced on May 15.
Jason Park, DraftKings’ chief financial officer, gave the sales pitch for the acquisition in the release.
“We expect this transaction to increase our Adjusted EBITDA potential in 2025 and beyond and not impact our expectations of achieving positive Adjusted EBITDA in 2024. We are excited about the potential synergies available by acquiring PointsBet’s US business, including offering our customers interesting new bet types and accelerating our roadmap of bringing in-house more of our mobile sports betting technology.”
DraftKings also says that it will largely agree to the same terms that Fanatics and PointsBet negotiated, other than the higher bid. A sale of PointsBet’s US operations, to any buyer, still requires approval from the company’s shareholders.
For DraftKings, the addition may happen by subtraction.
If you can beat them, buy them anyway
For DraftKings, this potential acquisition has a very different feel than it does for Fanatics. For starters, DraftKings Casino is already live in all four states that PointsBet Casino operates in. What’s more, DraftKings-owned Golden Nugget Casino is also operational in Michigan and New Jersey with plans for Pennsylvania on the horizon.
In those states, DraftKings and Golden Nugget online casinos have PointsBet Casino beat in terms of market share. Acquiring PointsBet could, as Park alluded to, grow those shares even further. That could indeed push DraftKings closer to profitability.
How much closer is debatable, though. The low market share and likely struggle to reach profitability are the very reasons why PointsBet is looking to offload its US operations. DraftKings could gain the same amount of additional market share by other means, some of which may cost less than $195 million.
The real value for DraftKings is in limiting the potential of Fanatics as a competitor. Any company with reservoirs of capital and a serious interest in the online gambling industry like Fanatics poses a potential threat to DraftKings’ interests.
While Fanatics has time to counter and an advantage, the stakes seem higher for Fanatics than they do for DraftKings in this competition.
How losing the PointsBet US deal could impact Fanatics
For Fanatics, acquiring PointsBet US seemed an easy and quick path to massive expansion. Fanatics currently operates a sportsbook, either on a brick-and-mortar or online basis, in four states. PointsBet could get potentially get Fanatics into 12 more for sports betting, including the coveted markets of Illinois, Michigan, New Jersey, New York, and Pennsylvania.
Furthermore, PointsBet would, in theory, allow Fanatics to offer an online casino product in Michigan, New Jersey, Pennsylvania, and West Virginia. Should any other states legalize real-money online casino play, Fanatics would have a foothold there via its takeover of PointsBet’s sports betting licenses.
If PointsBet sells to DraftKings instead, Fanatics is back to square one in trying to grow its footprint. While there are other potential acquisition targets like Rush Street Interactive, the price could escalate. In terms of what Fanatics might spend on a different acquisition or trying to grow its business organically, matching DraftKings’ offer might represent savings.
Additionally, Fanatics has the advantage of already having reached terms with PointsBet. If Fanatics simply agrees to raise its price, the deal might proceed. Should a bidding war break out, though, the obvious winner in this situation would be PointsBet.
The more challengers that appear for its US business, the better for PointsBet stockholders.