Welcome to this month’s edition of E+M’s monthly newsletter Deal Talk, discussing what’s being spoken about away from the earnings announcements and analyst calls of the betting and gaming sector.

In this issue:

• Is it time for operators to start discussing US exit strategies?

• What was being spoken about on the sidelines at G2E?

• A rundown of the biggest transactions from the third quarter.

Road to nowhere.

The way out

The news that Fubo has shuttered its sports-betting operations highlights how difficult it is to crack the US market. 

Middle of nowhere: While operators worry about the path to profitability, for those further down the market share ladder the questions being asked are more existential. Having undertaken a strategic review earlier this year, Fubo said overnight that continuing with its sports-betting operations in the “challenging macroeconomic environment” would impact its ability to reach its longer-term profitability goals”.

• This begs the question for many others in the space: will this also be their last NFL season for taking bets in the US as the costs of trying to compete with the market giants begin to look unsustainable?

The big squeeze: Recent data from Eilers & Krejcik suggests market concentration among the big four of FanDuel, DraftKings, BetMGM and Caesars has increased in the past year to 86%, posing questions for operators below the top tier.

• “In a market where there are leading brands with 25% or 35% and others with 15%, then you are fighting for single-digit percentages and that’s not sustainable,” said one corporate advisor.

• As another source suggested, there is likely to be a “meaningful culling of the herd” post-the NFL season.

• “Operators have been pumping this thing for two years and many of them aren’t anywhere near where they wanted to be,” they added.

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So who might throw in the towel?

Trailing behind: Each operator has its own set of circumstances that will determine whether or not the management decides to soldier on. But, broadly, if you add Barstool and Rush Street to that top four, then anyone else could effectively be in trouble. That equates to more than 30 current also-rans.

• We have already witnessed some firms deciding that the cost of competing was not worth the expense. WynnBet, Churchill Downs (first with BetAmerica and then with the renamed TwinSpires) and FuboTV have all called a halt on cost/benefit terms.

• But they won’t be the last. Names such as Unibet/Kindred, Tipico, 888/SI Sportsbook, MaximBet, PlayUp (despite the somewhat surprising SPAC merger plans) and BlueBet have all been mentioned by sources as potentially deciding to call it a day stateside.

• The comment from one source of “why are they even bothering?” about one of these brands could apply to many.

Why call a halt now?

Wave of mutilation: The initial wave of enthusiasm has already passed and profitability is now uppermost on the minds of investors, both in the listed realm and with private companies.

• The pace of new market openings has also slowed, allowing for something of a stock take ahead of the current NFL season – the peak period for customer acquisition. But while marketing costs have come off a bit, sports betting remains an expensive game to play.

• Moreover, with no new iCasino states having been added – and none in prospect right now – it means that waiting for that particular cavalry is, at this time, an expression of hope over experience.

• The macro climate might play a part when it comes to raising more cash but the heart of the issue, as one source put it, is companies have “spent $10m and they have got 500 players to show for it”.

• However, “no one likes to lose face,” cautioned one source. “People don’t want to give up; they are fighting for their careers, their jobs.”

What are we going to do now?

Now is the season of our discount tents: Many will be hoping that persistence will pay off. PointsBet, for instance, is struggling in many of the states where it operates to achieve much more than low single-digit market shares. It recently joined WynnBet in opting not to pay (a lot) for the privilege of being an official sponsor of the NFL.

• “It feels like PointsBet has a path to being a number five in certain markets, so it would be foolish to give up,” said one source.

• “It won’t run out of money,” they added.

Saving face: For others, though, the issue appears more acute. Kindred, for instance, is barely at 1% in any of its markets. But sources argued it might stick to its guns, partly in the hope of iCasino, but also to avoid having to say it is no longer involved in the biggest new market in a generation.

• Kindred “needs to have a US story to achieve a premium valuation,” said one financer.

• “It is part-owned by Corvex, which is seeking some kind of corporate event. It is clearly a business for sale and can’t give up on its US ambitions.”

• According to this analysis, a toehold – no matter how small – and market access across a number of states could be attractive to a potential buyer.

Worth the wait

Waiting for my man: As noted with Kindred, the big unknown is how many of the brands that are struggling to gain even a foothold in sports betting are simply waiting on iCasino to gain more traction. Rush Street management has been vocal about just this strategy.

• But as one source suggested, the market might be half-a-decade away from any real momentum in that space.

• “It could be the quickest way to the poor house if you just hang out and wait for iCasino,” the source said.

• “But you could keep your powder dry and buy one of these entities closer to the time,” they added.

You’re not alone

New kids on the block: None of this is stopping new entrants from hoping to crack the code. Startups Sporttrade, Prophet Exchange and Mojo have all recently launched in New Jersey and the micro-betting specialist betr is set to open its doors in Ohio as and when the market launches.

• While it now seems Disney/ESPN has settled on going into a partnership deal in sports betting rather than go it alone, Fanatics has announced it will be launching in January (see G2E chatter below).

• Meanwhile, bet365 remains the dog that didn’t bark. “Even with 365, it’s tough to go truly national,” commented one clued-in advisor.

Why it can be such a struggle: “It’s still a huge battle on the talent front,” said one source. “The general lack of talent and the cost of hiring that. The industry-specific knowledge pool is not that deep and it is combined with the most ferocious operating demands.”

G2E chatter

AGS/Inspired: Despite the industrial logic of the proposed $370m merger, the failure to consummate the tie-up was perhaps not surprising given the current economic backdrop. But sources suggested the deal didn’t fall apart over financing.

• “There were concerns over the synergies. Bluntly, there wasn’t enough one plus one,” said one corporate advisor.

• The transaction was built on cross-selling rather than cost synergies,” they added.

• Then there is the position of Apollo, which still holds a stake in AGS. One source suggested it was possible the companies reached a deal but Apollo baulked.

• “Apollo may have wanted cash rather than equity in the new entity,” they said.

• It leaves AGS “clearly in play” but without any other natural buyer. “Who wants to buy class II gaming. There’s not enough glitz.”

Fanatics: How will Fanatics manage to comply with the regulations in 13 states by January? Answers on a ‘name of acquired company with market access in the requisite number of states’-sized postcard.

By general consensus, the deal that is just waiting to happen: MGM Resorts and Entain.

Q3 transaction review

Of the transactions announced in the past three months, deals to shore up balance sheets were prominent.

Shoring up: It is quite appropriate, perhaps, that the biggest deal in the third quarter should have been a shareholder corporate loan from Las Vegas Sands to Sands China. Macau’s future remains as unclear as it was at the turn of the year and doubts within the market are now as much about if the market returns as when.

• But the loan is also emblematic of the defensiveness of corporate activity in the last three months.

• Of the top 10 transactions, five were financings of one sort or another, as companies attempted to shore up their liquidity ahead of a likely poor economic backdrop for the rest of this year and next.

Emma, forever ago: Of the acquisitions within the quarter, the headline-grabber was Entain’s deal to form a new Entain CEE JV with Emma Capital via, initially, a deal to buy a 75% stake in the Croatian bookie SuperSport.

• Aside from Entain’s purchase of SuperSport and Century’s deal to buy the Rocky Gap casino from Golden Entertainment, the rest of the M&A activity was markedly low key, with deal amounts not disclosed (i.e. likely very low).

The ones that got away: As discussed in our G2E chatter above, the mood among the corporate lawyers was likely not helped by, first, the failure of the Inspired bid for AGS, and, second, by Allwyn deciding to pull its planned merger with the Cohn Robbins SPAC.

• Both confirm how tricky it remains to raise capital in the current macro environment.

The month in transactions

• LiveScore secures £50m strategic investment from Ringier Group.

• Kambi splashes on €38.5m for front-end developer Shape Games.

• Bragg Gaming raised $8.7m of new funding from New York-based fund manager Lind Global Fund.

• Esports Entertainment shares tumble after announcing the pricing of a $7.5m public offering. 

• FansUnite tapped up Centurion Financial Trust for a term loan worth up to C$12.3m to go towards restructuring the earn-out obligations from its American Affiliate acquisition.

• The Australian-based PlayUp is seeking a Nasdaq listing via a deal with the IG Acquisition Corp SPAC.

• The Noel Hayden-led UK-based games developer Roxor Gaming was bought for an undisclosed sum by Aristocrat.

• Acroud completes €5.1m acquisition of a ‘mystery buy’ that turns out to be Catena Media’s paid media unit.

• Jumbo Interactive buys lottery-to-payment firm StarVale.

• Seven Star Digital has acquired sports-betting content provider Moneta Communications for an undisclosed sum.

• Scott Longley scott@clearconcisemedia.com

• Jake Pollard jake@openmediaservices.com