Good morning, welcome to this month’s edition of Deal Talk. In this issue:

London’s heyday as a hub for online gambling listings has long since passed but that doesn’t mean that Flutter’s decision to seek a dual listing – and likely eventually a full listing – in New York isn’t a hammer blow. Can the City recover lost ground from one of the biggest names in betting and gaming fleeing the nest? 

Rival Entain, meanwhile, is left high and dry as the biggest gaming entity remaining on the London Stock Exchange. Could it also look to cash in its own US chips or does the joint-venture nature of BetMGM complicate matters and make a New York move a step too far?

And finally, this issue peers much further down the market-size scale to take a look at the recent fundraising news from FansUnite and speaks to new investors Tekkorp about how they view the opportunity.

22 grand job, in the city it’s alright.

Breaking deal news

Playtech has announced a strategic partnership with Hard Rock Digital that will see it provide technology and take an unspecified low single-digit percentage of the business in return for $85m of investment.

• The new funds will be used to help build Hard Rock’s presence in North America and selected international markets.

• More on this story in tomorrow afternoon’s edition.

Lost London

Flutter likely seeking a dual listing in New York is the latest blow to the City of London’s reputation as a willing home for gambling operators and suppliers.

Departure lounge: The news that Flutter is consulting with shareholders over a dual listing in the US is being viewed by analysts as only a precursor to the betting and gaming giant, over time, seeking a full listing, given the company said the shareholder reaction had been “positive”.

• The timing was awkward for the London Stock Exchange, coming as it did after the SoftBank-owned Arm announced it had opted for New York over London for its imminent listing.

• Alongside news of Irish construction firm CRH making the transatlantic switch, following in the footsteps of Ferguson, it made it appear London was getting left behind in the global financial center race.

Slip sliding away: The gaming sector-specific shift to North America pre-dates London’s current existential angst, with the online gambling center of gravity moving west in the wake of the opening of the sports-betting and iCasino opportunity in the US.

• It is this shift that has had the most influence on Flutter, as it views the greater interest in the betting and gaming sector in the US.

• Flutter will be looking at a wider and deeper pool of investment and ultimately the higher valuation multiples enjoyed by US betting and gaming entities.

Atlantic crossing: There is a reason Flutter is making the move. As is evident from the 2022 full-year earnings published at the start of March, the US is already the biggest revenue generator by geography, contributing 38% of total revenues of £7.69bn, or £2.6bn.

💪 The US is already worth 38% of Flutter’s total revenues

• Flutter was reportedly originally looking at a separate listing for FanDuel, with the parent company retaining a sizable holding.

• The pathway to such a move appeared to be cleared late last year when an arbitration panel ruled in its favor with regard to a dispute with Fox Corp. over FanDuel’s valuation.

• That decision put a price tag on FanDuel alone of $20bn, compared with Flutter’s current dollar-equivalent valuation of $28.5bn (£23.7bn).

• A Flutter dual listing is seen as an alternative route to the same goal of achieving a fuller valuation for the company’s US prospects.

• No one thinks a dual listing will be the end of the matter. In recent analyst notes, both Peel Hunt and Jefferies have suggested a dual listing is merely the precursor to a full listing down the line.

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Swinging London

Terry meets Julie: The prospect of London losing its biggest listed gaming entity to the US would have been unthinkable in what might be called London’s gambling heyday in the opening decade of the Millennium.

The trailblazer was Mark Blandford's Sportingbet, which floated on London’s then junior, junior market OFEX at the turn of the century. It graduated to the slightly less junior Alternative Investment Market (AIM) in early 2001.

Irish bookmaker Paddy Power floated on the LSE main market in 2000 and William Hill came out of private equity ownership to float in 2002.

Pre-UIGEA, US-facing BetonSports floated on AIM in the summer of 2004.

Off the back of the poker boom of the early 2000s, PartyGaming floated in the summer of 2005 as did Empire Online, followed by 888 in September that year.

In December 2005, Ladbrokes split from Hilton, the first time it had enjoyed a standalone listing, while Playtech listed on AIM in February 2006 and the somewhat-late-to-the-party Betfair finally listed in October 2010.

Jumping through hoops

Orange is the new black: It was the arrest in the US of BetonSports CEO David Carruthers just ahead of the passing of UIGEA in late 2005 that marked the turning point.

• Through a long drawn-out process of M&A activity – some of which were distressed buyouts – what was 20-plus listed entities were whittled down to the current handful.

• Alongside Flutter, that list consists of Entain (see below), Playtech, Rank, 888 and the minnows Gaming Realms and Webis.

Where have all the flowers gone? London enjoyed the benefits from the gray nature of online gaming for much of the first 15-20 years of its existence – and ultimately suffered the consequences as arrests and market shutdowns caused investors to lose faith.

• “I don’t remember the last time I heard about a new gambling company listing in London,” says one advisor.

• Observers suggest the UK market is beset by other challenges, which make listings elsewhere, particularly the US, look more attractive.

• “The Brits are a pessimistic bunch,” says an advisor. “The Americans are just more optimistic.”

Woke: Then there are the constrictions on the corporate side. One is the rise of ESG. While this is also a factor in the US, it is viewed as being much further up the agenda on this side of the Atlantic and, with gambling, it means some funds look more closely at whether they should be invested at all. 

• “London and European fund managers are now held more accountable than their counterparts in the US,” says one capital markets commentator.

• “ESG comes at the world from an ethical point of view and, when it comes to this hurdle, gambling falls flat on its face”.

Broke: Then there is the issue of executive pay. Sources note the disparity, for instance, between the total compensation received by Bill Hornbuckle at MGM Resorts ($12m including stock options in 2022) and his equivalent at Entain, Jette Nygaard Andersen (£2.5m). 

• Recent analysis in the FT showed that, as measured enterprise value, executives at Flutter’s rival in the US were paid 3.5x what they themselves earned. 

London can take it

Resurgam: But for all the pessimism surrounding London right now, it does retain some of its previous appeal as a listings hub for gambling-related entities. For companies with more of an international aspect in terms of earnings, it remains perhaps the most liquid global exchange, suggests one analyst source.

• “Importantly, not a lot of questions are asked beyond the profit profile,” another advisor adds.

• Besides, unless you are a truly big company, the US can be a graveyard for micro caps. 

• “Unless you are going to be valued at $1bn you shouldn’t bother,” says another corporate advisor.

• “A small-cap business is much better off in Europe,” they add. “If you move onto AIM the compliance level is significantly lower and, because of that, it is a whole lot easier.”

Ones to watch: Lottomatica aside, which will soon be listing in Milan, potential floats are few and far between. They include Cirsa (currently owned by Blackstone) and Tipico (owned by CVC), but these are likely to opt for their home markets of Spain and Germany respectively.

• The only company on the horizon with listing ambitions that might be London-bound within the sector is the largely Romanian-based Superbet.

• Sources suggest its choices likely come down to either London or the Euronext exchange in Amsterdam.

• Advisors believe it will opt for London where “investors have an understanding of retail betting”.

• It is thought to be working with PJT Partners on lining up a panel of banks to support the IPO.

Follow the leader?

Eyeing events at Flutter is its major London-listed rival Entain.

Backstory: Entain has enjoyed its own singular and relatively labyrinthine corporate journey. It started as the then little-known listed minnow Gaming VC, led by former Sportingbet executive (and kebab-loving) Kenny Alexander, which listed on AIM in October 2005.

• Via a series of corporate maneuverings, including buyouts of Sportingbet, bwin and eventually Ladbrokes (which by that time had itself merged with Coral) what was then known as GVC changed its name to Entain.

Joint custody: Superficially, there are strong resemblances between Entain and Flutter, particularly when it comes to their exposure to the US and, as has been pointed out, it also recently made an investor relations appointment in the US to liaise with its own US investors.

• But the analogies between it and its major, for now, UK-listed rival fall down when it comes to the details of their US exposure. The joint venture nature of BetMGM means its US profile isn’t as clean as Flutter’s.

• As one advisor put it, while Flutter “controls the narrative around FanDuel” that is not the case with Entain and BetMGM.

• “Entain would have to worry about what another US company is saying about the underlying US business.”

It’s a no… for now: When asked, a spokesperson said Entain was not planning any move with regard to a US listing and they were not aware of any discussions taking place within the company.

• High and dry: Being left as by far the largest listed gambling entity in the UK would, according to one analyst, have its benefits.

• “It makes them the only game in town for investors looking at getting exposure. For many fund managers owning just one stock in any given sector is enough to give them exposure to certain themes. 

• “Entain could benefit from that,” they added.

Inside the raise – FansUnite

FansUnite’s recent $3m raise included a significant investment from Tekkorp Capital.

Oops upsize your head: Tekkorp took a $1m stake in the sports-betting operator/supplier and affiliate provider in what FansUnite said was an upsized raise. The cash will go towards general working capital.

• Talking to Deal Talk, a spokesperson for Tekkorp suggested it was the financial profile of FansUnite and its position in the US gaming affiliate space that was most attractive about the company.

• “We are strong believers in the long-term role affiliates have to play in the customer acquisition ecosystem, particularly in regard to the expanding US market,” they added.

Pivot: FansUnite’s main exposure to the affiliate space comes via Betting Hero, which it acquired at the time of the American Affiliate acquisition. It has recently sold the BetPrep domain name to Stram Entertainment, owner of BestOdds.com. 

• “We believe there is a strong opportunity for the company to simplify its lines of business and its narrative to both customers and investors,” said the Tekkorp spokesperson.

• They added that they believed FansUnite had “already taken actions to rationalize the scope of its focus” and “start[ed] to prioritize core areas of competence and competitive advantage”.

Recall, in FansUnite’s recent earnings statement, the company said total revenue was $26m, quadruple 2021, and that its plans for 2023 included securing more B2B clients and growing its affiliate operations across North America.

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The month’s transactions

Deal of the month: The biggest transaction for this month came in the world of distributed games with Golden Entertainment, the owner of the Strat in Las Vegas, selling its ‘slot routes’ operations in Nevada and Montana to Illinois-based J&J Ventures Gaming for $322.5m plus an estimated $39m of purchased cash. Distributed gaming involves the installation and operation of slot machines in bars, restaurants and convenience stores.

• Better Collective said in its recent Q4 earnings statement that it had bought an unnamed US-facing affiliate for $4.3m with a $3m earnout.

• Esports Entertainment announced it had sold its B2C Bethard business to an unknown buyer for €9.5m.

• Elys Game Technology acquired IT development business Engage IT for $1m.

Calendar

• Mar 14: Super Group  

• Mar 15: Sportradar  

• Mar 16: FL Entertainment 

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