DraftKings offer to buy PointsBet an effort to ‘block’ Fanatics from sports betting expansion, Michael Rubin says
DraftKings sent a non-binding offer to acquire PointsBet Friday at a 30% higher value than Fanatics and PointsBet agreed to last month.
The ability for Fanatics to be up and running in a more meaningful share of U.S. sports betting markets by the start of football season has hit a bit of a speed bump, the impact of which is unknown.
Fanatics, the sports apparel and merchandising giant run by Lafayette Hill native and former 76ers minority owner Michael Rubin, appeared on its way to a rapid increase in the U.S. market share of its sports betting operation when it jointly announced with PointsBet an agreement to buy the U.S. business of the Australian-based company for $150 million.
Friday, DraftKings swooped in and announced a $195 million, all-cash offer to buy PointsBet’s U.S. business in a move Rubin said was an effort to “block” Fanatics’ entry into a broader market.
The offer by DraftKings is a non-binding proposal with “no guarantee” that it results in a binding definitive agreement, PointsBet said in a release.
PointsBet said Monday in a separate release that it planned to “engage” in talks with DraftKings, but it also gave DraftKings a deadline to send draft transaction documentation: no later than 6 p.m. Melbourne time on June 27.
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PointsBet, the seventh-largest operator in the U.S., said it was continuing to recommend to shareholders that they vote in a June 30 meeting in favor of the Fanatics deal.
“We are skeptical of the DraftKings proposal, which seems like a desperate move to slow down Fanatics and PointsBet from completing the deal as the purchase price and other financial commitments will total more than $500 million,” Rubin said in a statement. “So they are using the majority of their projected year-end cash just to try to block us.”
“I guess they are more concerned about us than I would have thought,” Rubin later told CNBC.
Rubin’s inference that DraftKings — which, with FanDuel, owns a massive chunk of the market share in the U.S. — would be trying to block Fanatics’ entry to the market isn’t without merit. It also might have had some analysts thinking back to 2021, when DraftKings announced a $22 billion plan to buy U.K.-based Entain, which had partnered with BetMGM, and later pulled out without making a firm offer.
DraftKings CEO Jason Robins said in a statement: “We believe DraftKings is uniquely positioned to submit this superior proposal due to our scale and corresponding ability to generate meaningful synergies from the acquisition.”
The DraftKings deal — if a binding agreement were reached — could also potentially face regulatory hurdles.
In a letter to Robins on Monday, PointsBet said: “In light of the anticipated heightened scrutiny of an acquisition of PointsBet by DraftKings, as compared to the (Fanatics) transaction, please provide written confirmation that DraftKings will assume the risk of delay and/or denial of antitrust approvals, as we intend to hold DraftKings to a ‘hell or high water’ standard with respect to antitrust clearances.”
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According to CNBC, analyst Joseph Stauff said the DraftKings bid “underscores the cheap valuation implied by Fanatics’ $150 million bid and seems to suggest there’s likely to be some bidding competition.”
Fanatics has launched its beta product in four states, and the PointsBet deal would give the company access to a dozen new markets, including Pennsylvania and New Jersey. DraftKings would not be gaining a new footprint in that regard, but it could want the deal for other operational reasons.
DraftKings, despite being a mammoth in the market, hasn’t yet turned a profit and is hopeful it can be profitable in 2024.
Jason Park, DraftKings’ chief financial officer, said acquiring PointsBet would increase the company’s earnings potential in 2025 and beyond but not impact expectations for 2024.
Blocking or delaying Fanatics’ expansion in the U.S. market would obviously have benefits for DraftKings. Fanatics is a private company valued at $31 billion with a lot of cash on hand, and has big plans for its expansion.
It’s unclear when, or if, DraftKings plans to send the more formal, official draft transaction documentation to PointsBet. DraftKings did not immediately respond Monday to a request for comment beyond its Friday statement.