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Today At A Glance:

Fanatics has acquired PointsBet’s US business for $150 million. So today’s newsletter breaks down the details of the deal, where Fanatics Betting & Gaming is currently, the industry’s future, and why Michael Rubin is confident in his plan. Enjoy!

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Friends,

It’s no secret that Fanatics wants to get into the sports betting business. They hired former FanDuel CEO Matt King in 2021 after raising $325 million from a group of investors, including Jay-Z, Major League Baseball, and SoftBank’s vision fund.

Fanatics Chairman Michael Rubin then sold his 10% stake in Harris Blitzer Sports & Entertainment (HBSE) — the owners of the NBA’s 76ers and NHL’s Devils — to avoid a conflict of interest. And they have spent the last 12 months quietly but aggressively implementing a plan to chase down market leaders like FanDuel and DraftKings.

And this week, that plan took another step with the acquisition of PointsBet.

Fanatics is paying $150 million in cash to buy the U.S. business of Australian sportsbook PointsBet. That comes out to about 73 cents per share and represents a 94% discount to PointsBet’s all-time high share price of $13.00 in February 2021.

PointsBet Holdings Stock Price

• February 2021: $13.00/share

• Acquisition price: $0.73/share (-94%)

“Pricing and valuations in the category have clearly gone down an incredible amount,” Fanatics Betting & Gaming CEO Matt King told CNBC. “If you look at PointsBet itself, it’s down about 90% from its peak. Obviously, DraftKings and a number of the other stocks are also down, along with the whole market. I would argue they’ve come much closer to reality, and what was happening a year ago reflected an irrational exuberance for the category overall.”

Still, this equity buyout provides Fanatics (and PointsBet) a unique opportunity.

The Fanatics sportsbook isn’t going to be fully operational until football season. But they have already hired 200+ employees, built a physical sportsbook at FedEx Field in Washington, D.C., and a beta version of the app is being tested in Tennessee and Ohio.

This is where PointsBet comes in. The Australian sportsbook has struggled to gain market share in the United States. They are routinely criticized for hitting users with low limits and tampering with successful gamblers. And the business was projected to lose $77 million to $82 million in the second half of this year alone.

So Fanatics swooped in and bought them for pennies on the dollar, which is more an indication of current market conditions versus Fanatics’ negotiation skills.

But regardless, this deal makes a lot of sense for both parties. PointsBet was losing a lot of money while not making much progress. And they needed to raise more capital, which would have come at a considerable discount. So they decided to exit the US market and focus on their businesses in Australia and Canada, which are close to profitability.

And Fanatics benefitted, too. They’ll save tens of millions of dollars by gobbling up PointsBet’s 14 state licenses — NY charged sportsbooks a $25 million licensing fee, and Pennsylvania charged a $10 million licensing fee. And when you add in the technology and human capital to the market access, it’s well worth $150 million.

Sports Betting Market Overview (2022)

• U.S. Sportsbook Revenue: $7.5 billion (+75% YoY)

• U.S. Sportsbook Total Bets: $93.2 billion

• States With Legalized Sports Betting: 36 States & Washington D.C.

• TV Ads Purchased By Sportsbooks: $314.6 million

• American Adults That Bet On Sports: 39.2 million

U.S. Sportsbook Market Share (2022)

1. FanDuel: 43%

2. DraftKings: 25%

3. BetMGM: 10%

4. Others: 9%

But this doesn’t make it easy for Fanatics. The company is five years late to the party, and its entire strategy is based on the successful combination of commerce and betting.

For example, while other sportsbooks spend billions of dollars on marketing to acquire customers, Fanatics has long boasted about its database of 95 million-plus users. They say this database will allow them to spend less than their competitors on customer acquisition — DraftKings pays $371 to acquire a customer with a lifetime value of $2,500 — and that, combined with commerce, will be unbeatable.

“[Fanatics] users will receive 1% back for every dollar wagered on straight bets, 3% for parlays, and 5% for same game parlays. That “Fan Cash” can then be used to buy gear on Fanatics,” Darren Rovell of Action Network wrote earlier this week.

Now, this is going to take some time to play out. Michael Rubin says he is playing the long game and expects Fanatics to be the world’s No. 1 sportsbook a decade from now.

“Online sports betting and iGaming is a business that we think, for us, will be a very significant business long-term,” Rubin told Yahoo Finance in February. “I’ll put it out there: We want to be the no. 1 player in the world long term. So a decade from now, I’d be disappointed if we weren’t the top player in the world, both in online sports betting, iGaming. We’re just getting started.”

“This business, like a lot of businesses, so many people got into it early because of how big it’s going to be, and it will be that big,” Rubin previously told Yahoo Finance. “And there’s been so much money invested, and in a lot of cases, lost. I think this business would become a good business long-term. It’s a very tough financial business today, people investing not hundreds of millions of dollars, but billions of dollars in losses this year, and will continue to do so.”

“From our perspective,” he continued, “we have probably the most digitally-oriented, transactional commerce brand, and we have the best database in all of sports. So that’s a real structural advantage to help Fanatics become the ultimate leader in this business, and at the same time, give a better experience to the fan.”

But while Fanatics still has a long way to go, only 57% of the US population currently has access to mobile sports betting, and Fanatics appears to have a unique advantage.

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I hope everyone has a great weekend. We’ll talk on Monday.

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Huddle Up is a 3x weekly newsletter that breaks down the business and money behind sports. If you are not already a subscriber, sign up and join 100,000+ others who receive it directly in their inbox each week.