Paddy Power Betfair Agrees To Buy FanDuel

Hot on the heels of the US Supreme Court’s decision to strike down the country’s sports betting ban, UK bookmaking firm Paddy Power Betfair has now agreed to purchase daily fantasy sports site FanDuel in a move designed to grant it access to the huge legalized sports gambling market in the US.

Under the agreement, Paddy Power Betfair will acquire a 61% share in FanDuel for $158 million, with the option to up its holding to 80% after three years, and 100% by the year 2023. Fanduel presently commands a 40% slice of the American daily fantasy sports industry, with around 7 million registered users across 40 states, and commenting upon the merger, Paddy Power Betfair CEO Peter Jackson explained in a statement:

“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 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.”

First of Many Mergers

Last year, Paddy Power Betfair generated £1.74 billion in revenue and is currently listed on the London Stock Exchange (LSE) as having a market capitalization of £7.68 billion ($10.2bn). Meanwhile, FanDuel is a Scottish tech startup company founded in 2009 that in 2017 produced $124 million in revenue and was valued at $1.2 billion. In addition to fantasy sports, FanDuel has also been developing its own line of sports betting products that it intends to launch once the first states begin legalizing sports wagering in the coming months. As FanDuel CEO Matt King explains:

“FanDuel and Betfair US share an enthusiasm for innovation and, as a result of today’s announcement, are prepared to lead the charge into the U.S. sports betting market. The combination of our brands and team, along with a shared culture and vision for the future, will allow us to create the leading gaming destination for sports fans everywhere.”

The deal subsequently agreed between the two companies represents one of the first major takeovers to arise following the legalization of sports betting in the US. Nevertheless, the gambling industry is expecting to see a flurry of such mergers in the coming years as established European betting houses seek to take advantage of the sports betting opportunities now presented in the United States.

Size of US Market

According to estimates, Americans spend around $150 billion each year on sports wagers, of which 97% is placed via illegal channels. In 2017, Nevada, the only state up until now able to offer the full range of sports betting products, subsequently collected around $4.8 billion in sports bets, resulting in a record revenue of $248.8 million for the Silver State.

The size of the US sports betting market, however, remains a question for debate, with its potentiality determined by how many and how quickly other states decide to join the bandwagon. A GamblingCompliance report, for instance, speculates that five states are likely to offer legalized sports betting this year, resulting in $1 billion in revenue by the end of 2018, rising to somewhere between $2-$6 billion per annum by Year 5.

Needless to say, an accurate assessment as to the size of the market is difficult to make as the industry is currently in its infancy, and there are many moving parts to consider. A major factor in determining future revenues, however, will depend upon the legislation introduced by individual states, as some states may permit sports betting only at casinos or race tracks, while others may allow wagers to be placed online, which would result in significantly greater revenues.

In addition, Congress may decide that a federal regulatory framework is needed in order to govern the country’s sports betting industry. Currently leading this particular charge is Senator Orrin Hatch, who has expressed his concern that the rise of the internet could lead to a proliferation of sports betting across state borders. On his Congressional website, Hatch says that his intention is to preserve the integrity of sports, and that he would be introducing appropriate legislation on the issue in the near future.