[Updated 5/24/18, 3:16 pm. See below.] The dominoes are starting to fall in the wake of a U.S. Supreme Court decision this month that opened the door for states to legalize sports gambling.
FanDuel has agreed to be acquired by Ireland-based Paddy Power Betfair, a global sports betting and gaming company. New York-based FanDuel is one of the leading online daily fantasy sports companies in the U.S. and, like its chief rival DraftKings, has said it intends to launch sports gambling products in states that approve betting. That’s part of the attraction for Paddy.
“The transaction strengthens [Paddy’s] opportunity to target the prospective U.S. sports betting market through the addition of a strong brand, large existing customer base, and talented team,” Paddy said in a prepared statement announcing the deal Wednesday.
Paddy said it plans to combine FanDuel with its U.S. business, which had gross assets valued at $612 million as of the end of 2017. Paddy will also kick in $158 million in cash, which will be used to invest in the combined business and pay down FanDuel’s net debt of $76 million. The new entity would also include Draft, a New York-based fantasy sports startup that Paddy acquired last year for $48 million. Draft’s co-CEOs are Jeremy Levine and Jordan Fliegel, the co-founder of Boston startup CoachUp. [Added valuation of Paddy’s U.S. business.—Eds]
The FanDuel transaction is expected to close in the third quarter of this year if it clears regulatory and anti-trust reviews. The deal values Paddy’s combined U.S. business at more than $1 billion, according to a Bloomberg report that cited anonymous sources. Paddy, which is traded on the London stock exchange, is valued at more than $9.5 billion and reported more than $2.3 billion in revenue last year.
Paddy said its existing U.S. business generated $141 million in revenue last year, with a pre-tax loss of $18 million. FanDuel generated $124 million in revenue last year from 1.3 million “active customers,” and it had a pre-tax loss of $44 million. FanDuel has 7 million registered users in 40 states, with an estimated 40 percent share of the U.S. daily fantasy sports market, Paddy said.
But getting to those numbers wasn’t cheap: Paddy said FanDuel has spent $400 million on marketing since it was founded in 2009. The startup raised at least $363 million in equity funding, according to a 2015 FanDuel press release detailing its most recent publicly announced funding round. Axios pegs FanDuel’s total venture capital haul at $435 million. The company’s backers include KKR; CapitalG, the growth equity fund from Google parent company Alphabet; Time Warner Investments; Turner Sports; NBC Sports Ventures; Comcast Ventures; and an undisclosed number of NFL and NBA team owners.
After the merger closes, Paddy will own 61 percent of the combined business and existing FanDuel investors will own the rest. Under the agreement terms, Paddy’s stake would grow to 80 percent after three years and 100 percent after five years, according to the deal announcement.
There could be a shakeup at FanDuel: Paddy will have operational control of the combined business and the right to appoint the CEO and a majority of the board of directors. Current FanDuel investors will still have an undisclosed number of board seats with the new entity, Paddy said.
FanDuel tried to merge with DraftKings last year, but the companies killed the deal after it was challenged by U.S. regulators over monopoly concerns.
If the Paddy-FanDuel deal gets approved, it will shift the competitive landscape in U.S. fantasy sports and the prospective sports gambling sector. It could put more pressure on DraftKings to make a move, so start placing your wagers now on whether the company tries to raise more venture capital, get acquired by a deeper-pocketed company, or go public.
In an interview with CNBC after the Paddy-FanDuel announcement, DraftKings CEO Jason Robins said the plan is still to take the company public, but “we’re open to different outcomes.” He said the FanDuel acquisition doesn’t change the company’s timeline for a possible IPO.
“I think the Supreme Court decision, if anything, is going to have a much bigger effect on what we’re thinking about in terms of timing,” Robins told CNBC. “We like to really focus on our own path and what we can control.”
He declined to comment on whether DraftKings has held acquisition talks with Paddy or other companies.
“But there’s a lot of activity going on right now,” Robins told CNBC. “Everybody’s talking to everybody at this point.”