Paddy Power and FanDuel Deal Targets US Sport Betting Market

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Friday, June 1st, 2018 | Written by Shane Larson

Following the US Supreme Court’s decision to lift the sports betting ban in the country, some of Europe’s biggest bookmakers have been positioning themselves in order to take advantage of America’s huge potential market.

One of them is Paddy Power Betfair, an Irish bookmaking firm who a week ago announced that it was in the process of acquiring daily fantasy sports site FanDuel. The deal is expected to be completed by the third quarter of this year, and commenting upon the development, Peter Jackson, CEO of Paddy Power Betfair, stated:

“We are excited to add FanDuel to the Group’s portfolio of leading sports brands. 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 Deal

According to details mentioned in a Paddy Power Betfair announcement, the acquisition will cost the firm $158 million in cash for 61 percent stake in the company. From that tally, $76 million will be used to pay off FanDuel’s current debt load, with the additional cash used to “fund working capital of the combined business.”

In three years time, Paddy Power Betfair will subsequently have the opportunity to increase its holding to 80%, rising to 100% two years later, by which time FanDuel will become a wholly owned subsidiary of Paddy Power Betfair. Consequently, Paddy Power Betfair will also be able to appoint a CEO and the majority of Directors to the Board.

Mega Merger

In 2017, Paddy Power Betfair reported £1.74 billion in revenue, with the company currently listed as having a £7.68 billion ($10.2bn) valuation, while Scottish tech startup firm FanDuel had $124 million in revenue last year, and is estimated to be worth around $1.2 billion. A merger of the two entities will therefore create the gambling industry’s biggest online operator in the USA.

There are many extra synergies associated with the deal, too, as Paddy Power already has business interests in the country, including running TVG, the USA’s number one horse betting and television network, as well as an internet gambling site in New Jersey. It should therefore be a relatively straightforward matter for Paddy Power Betfair to acquire an American sports betting license.

Meanwhile, FanDuel boasts a 40% share of the USA’s daily fantasy sports industry, and has more than 7 million users spread out across 40 states. Nevertheless, Paddy Power is likely less interested in moving into the daily fantasy sports space than it is in acquiring Fanduel’s player database and taking advantage of the overlap in interests between DFS and sports wagering players.

Furthermore, Fanduel has been busy creating a sports betting product range in order to take advantage of legalized sports wagering post-legislation, and as FanDuel CEO Matt King explains:

“The group has leading sports betting operating capabilities globally and strong operations on the ground in the U.S. Together with our substantial financial firepower, we believe we are now exceptionally well placed to target the prospective U.S. sport betting opportunity.”

US Sports Betting Opportunity

The USA’s sports betting industry is worth around $150 billion per annum, although just 3% of wagers are placed via legitimate bookmakers in Nevada. In 2017, for instance, the Silver State, accepted $4.8 billion in sports wagers, of which 5% or $248.8 million was collected by way of revenue. Needless to say, sports betting is only a small-margin business, and made up just 2.5% of the $11.6 billion the state’s gambling industry generated that year.

How large the country’s legitimate sports betting market may grow subsequently depends upon how many individual states decide to take advantage of PASPA’s repeal to approve regulated sports betting industries of their own. According to a GamblingCompliance report, for example, five states are likely to set up legalized sports betting by the year’s end, creating $1 billion in revenue for these states, increasing to $2-$6 billion within five years. Helping to determine its potential will be a range of factors, though, including whether sports betting will be allowed at just casinos or race tracks, or online wagering will also be permitted.

Sports betting Legality

The US Supreme Court’s decision to strike down PASPA does not automatically make sports betting legal throughout the country, but merely gives individual states the right to choose whether to legalize the pastime within their own borders. There are some members of Congress who would like to see a federal framework applied to sports betting, though. Senator Orrin Hatch, for instance, said that he will make it his mission to preserve the integrity of sports by introducing federal legislation soon to govern the industry.