Once Considered Inevitable, Sports Betting Industry Consolidation Now Seems Optimistic

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Fubo Sportbook and Fubo Gaming, a division of FuboTV, shuttered in October after the company conducted a strategic review of the gaming division’s operations. Fubo Gaming leaves on the table partnerships with sports entities like NASCAR, Cleveland Cavaliers, Houston Dynamo, and the New York Jets. This announcement came after Fubo released preliminary third-quarter results that showed an adjusted EBITDA loss of about $100 million. 

“Following our strategic review, we have concluded that continuing with Fubo Gaming and Fubo Sportsbook in this challenging macroeconomic environment would impact our ability to reach our longer-term profitability goals,” David Gandler, CEO of FuboTV saidm regarding the decision to shut down the sportsbook. “Therefore, we have made the difficult decision to exit the online sports wagering business.”

The move came at the peak of the football season, the US sports betting industry’s most lucrative time. The decision to shut down Fubo Sportsbook begs the question many have asked about the online sports betting industry — how many other companies will stay in the race? And for how long?

Fubo Sportsbook Mobile App

The online sports betting industry has long felt overstocked with similar products competing for the same core demographic. Companies with capital to deploy have quickly seized the opportunity to expand to as many regulated markets as possible, driving up rates for new customer acquisition. The concept of M&A in online sports betting is not a taboo topic — many industry professionals and investors have signaled they see it as an inevitability. 

“Until we see fewer promotional deals and more M&A deals, these online sports gambling stocks … are very difficult to own,” said Jim Cramer in January 2022. “… But as we see what the reality looks like, there’s tons of competition for market share and little in the way of profits. Too bad, because profits are what this market wants right now. That’s why every single one of these stocks has been obliterated.

“Before you can think about buying the sports gambling stocks, I think we do need to see consolidation. We need to see some companies taken out,” he said.

FanDuel CEO: Sports Betting Market is Not Working

If Jim Cramer isn’t the source you trust on this (and I couldn’t blame you), how about FanDuel CEO Amy Howe?

In July 2022 at SBC Summit North America, Howe shared some thoughts on consolidation in the US sports betting industry.

There’s no doubt that the market is not working right now,” said Howe, whose company is the leader in national market share of this industry. “The way we look at it, even if the market was working, there was going to be some form of consolidation.” 

Howe shared concerns that inflation could result in a reduction of the sportsbooks currently competing for market share.

“I think the question is when you look at some of the operators right now, to what degree are they going to need financial backing or capital to get them through this period of time,” she said. “I can say for us right now, we’re in a very good position.”

Related: FanDuel becomes first US sportsbook operator to achieve profitable quarter

Lack of Acquisition Interest in Fubo an Ominous Sign

If consolidation has been prophesied by those paying the closest attention, is it reasonable to see Fubo Gaming’s failure as a sign that consolidation could be on hold?

According to gamingamerica.com, FuboTV had weighed additional funding and had interest from investors to deploy to Fubo Gaming, but the investment goals were not in line with FuboTV’s long-term strategy.  Fubo Gaming was live in three states — New Jersey, Arizona, and Iowa — significantly fewer than other mid-size operators like PointsBet and Barstool Sportsbook.

Fubo’s departure from the market is not a seismic wave that will be felt across the industry. However, what is most notable about this move is that despite an established user base in three markets, a fully regulated and licensed product, and an impressive roster of partnerships, it appears that no major operator felt compelled to make an offer. 

Even when scrapped for parts, what Fubo Gaming had built was considered significant and could be valuable for major operators looking to buy assets for cents on the dollar.  The lack of M&A interest here signals a much gloomier outlook for another sportsbook business whose parent company is looking to sell.

Whither WynnBet?

Wynn Resorts has reportedly been seeking to sell its sports betting business, WynnBET, since the start of 2022. The company lost over $160M in the first six months of 2022.

Reports had the target acquisition price for the WynnBET property at $500 million. This price reflects a stark downfall in the valuation of WynnBET, which just a year before had sought a $3 billion valuation.

So far, no major operator has taken the opportunity to acquire WynnBET. The WynnBET brand, while not competitive with DraftKings and FanDuel in market share, holds a significant amount of gaming licenses. The sportsbook operates in 16 states and was announced as an official partner sportsbook of the NFL in August 2021.

“The market is really not sustainable right now,” Matt Maddox, former CEO of WynnBET Matt Maddox, said in January 2022. “… Competitors are spending too much to get customers. And the economics are just not something that we’re going to participate in.”

While WynnBET may not seek to continue to participate in the outsized economics of the sports betting space, it announced in August that it intends to bring WynnBET to market in Massachusetts, where it is expected to secure one of up to 15 licenses in the newly regulated market.

Fubo Gaming’s potential value on the open market wouldn’t touch WynnBET’s, which is either intentionally or unintentionally not selling its more mature gaming business. 

Is There Value in Acquisition?

This begs the question of whether consolidation is truly where the online sports betting industry is headed. In a space of extremely high customer acquisition costs and high barriers to entry, it would be rational to expect the industry giants to swallow up smaller shops. However, due to the immense crossover between users of different sportsbook platforms in legal states, the value for a potential buyer is diluted. 

If WynnBET has 100,000 users in Arizona, but 75-85% of those users have already signed up and played on competitors’ platforms, what value is there for DraftKings or Caesars to buy a user twice?

On a smaller scale, it’s even harder to see the value for M&A. With Fubo Sportsbook live in just three states, it’s unlikely it holds a particular unique audience from their sportsbook competitors with which they share the market. 

On November 16, MaximBet joined Fubo in shutting down sportsbook operations. MaximBet was a smaller operator than Fubo, only entering its second state (Indiana) this past September. The brand raised $50 million from investors to bring a sports betting operation to life but never made strides in capturing user attention. Its value on the market was apparently unimpressive.

“You need hundreds of millions, if not a billion dollars, to aggressively compete to be a major player with more than a few percent of market share in sports betting,” David Van Egmond, a former executive at FanDuel and Barstool Sports and current Managing Partner at Bettor Capital, told Yahoo! Finance. “With the capital markets tightening, smaller companies and startups aren’t able to raise the necessary capital to compete, and I’d expect to see more exits or sales amongst smaller operators who don’t have access to capital to keep investing in the U.S. market opportunity.”

Consolidation Looking Less Viable

Consolidation appears to be the rational evolution of the sports betting industry, but there are some troubling signs of that being wishful thinking.

The more likely scenario with the current macroeconomic situation is that sportsbooks that are already pouring tens of millions of dollars into their products and user acquisition may prefer to let smaller competitors die over buying troubled assets. 

M&A in the sports betting industry will primarily focus on massive operators targeting innovative startups that bring new technologies and products to the space. We have seen the extreme success of PrizePicks and Underdog Fantasy as DFS platforms competing for market share with sportsbooks. 

With the regulatory environment remaining stale in California and Texas for online sports betting, DFS and other less-regulated products will drive more engagement and more sign-ups of users that previously may not have interest in sports wagering. 

Expect to see a rejuvenated approach from operators to add more Free-2-Play, Fantasy, and Peer-2-Peer products through acquisitions in an attempt to diversify what is a highly repetitive sports betting industry and start to tap into new, unregulated markets of potential future users. 

Wide-scale consolidation is certainly still possible in the sports betting industry, but this trend does not bode well for it. In many operators’ cases, an acquisition of their company by a bigger fish might end up being too risky of a bet to make.

About the Author
Dan Zimmerman

Dan Zimmerman

Dan is the CEO and founder of Verse Gaming and a contributor to Gaming Today. Dan launched Verse Gaming out of his college dorm room at Syracuse University in 2020. Verse is a peer-2-peer social fantasy gaming platform where users compete in custom Daily Fantasy Sports contests against each other. Outside of Verse, Dan is an advisor to Out 2 Win Sports, an NIL agency representing college students across the east coast. Dan writes primarily on the topic of emerging gaming markets, fantasy and betting legislation, and innovation in gaming. Before Verse, Dan worked with Barstool Sports as a content creator.

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