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The $500 Million Consolidation In Sports Betting

January 25, 2022

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Hey Friends,

Wynn Resorts entered the online sports betting market last year with a bang.

They announced a spin-off of their online division, Wynn Interactive, through a reverse merger with a blank-check company founded by Bill Foley, the billionaire owner of the NHL’s Vegas Golden Knights.

That deal gave them $640 million in cash for marketing expenses, enabling them to compete on a national level, and they immediately rolled out a $100 million marketing campaign that included celebrity brand ambassadors Ben Affleck & Shaquille O’Neal.

WynnBET was already live in six states for mobile sports betting and quickly secured market access in another 10+ states. They were running at $110 million in annualized gross revenue in November, up 300% year-over-year, and they secured their spot as an official sportsbook partner of the NFL, alongside Caesars, DraftKings, and FanDuel.

All of a sudden, their long-term goal of 10-15% market share looked attainable, but times change, and it looks like the inevitable consolidation in sports betting is about to get started.

Earlier this week, the NY Post reported that Wynn Resorts is looking to sell its online sports betting business, Wynn Interactive, for around $500 million, representing a significant discount to the $3 billion valuation they floated last year.

Here are the details:

Wynn Resorts is looking to unload its online sports-betting business at a steep discount as the fledgling niche faces painful losses from stiff taxes and costly promotions needed to lure customers, The Post has learned.

The Las Vegas-based casino giant is quietly shopping its Wynn Interactive unit — operator of the WynnBet online gaming app — and has slashed the asking price to $500 million after floating a $3 billion valuation less than a year ago, a source close to the situation told The Post.

The fire sale comes less than six months after Wynn was publicly readying a splashy spring launch for WynnBet, signing up NBA legend Shaquille O’Neal as a brand ambassador. O’Neal even sold his minority stake in the Sacramento Kings NBA team so he could work closely with Wynn without breaking the league’s gambling rules.

“I am so excited to take WynnBet to new heights,” O’Neal said in an August press release. “Mobile sports betting is having a major moment, and I believe that WynnBet will be a powerful force in the industry.”

A few months later in November, however, Wynn said it was scrapping plans it disclosed in May to merge Wynn Interactive with Austerlitz Acquisition Corp. — a blank-check company owned by Bill Foley, the billionaire owner of the Las Vegas Knights.

In addition to creating a public company with a $3.2 billion valuation, the deal would have armed WynnBet with $640 million in cash for marketing. After revealing that the app was on track to burn $100 million in both the third and fourth quarters, outgoing CEO Matt Maddox signaled he wasn’t interested in throwing good money after bad.

“The market is really not sustainable right now,” Maddox said on a Nov. 10 earnings call. “Competitors are spending too much to get customers. And the economics are just not something that we’re going to participate in.”

Shortly thereafter, Morgan Stanley analysts said they valued WynnBet at $700 million, adding that they only expected the app to win a 2.5% share of the North American market.

Most people expected consolidation within the online sports betting space.

Companies like FanDuel and DraftKings have a substantial market share lead and are willing to spend billions of dollars to acquire customers at an extremely high rate.

We know that the average customer downloads less than two sports betting apps, so the rush to spend aggressively upon the opening of a new market makes sense. Still, the real question comes down to the lifetime value of these customers — most states haven’t been open long enough to get an industry consensus on that number.

So that puts companies like Wynn in a tough spot. Do you aggressively spend money and try to compete with the big guys at the potential cost of profitability? Or do you hang back and give up market share while slowly trying to build a profitable business?

And that dilemma is why people believe there will be consolidation in the market.

Now it’ll be interesting to see what happens with Wynn Interactive. Sure, maybe you get to use the name in some capacity and pick up a sizable database of potential customers, but it’s an entirely different business from Wynn Resorts, so you aren’t buying any real estate or substantial cash flow.

But my guess is that their license in New York ends up being pretty valuable here.

Of course, New York has famously decided to charge a 51% tax rate on sports betting revenue, and the license fee alone is $25 million per sportsbook, but they only handed out a few licenses, and one of the sportsbooks that missed out might see this as a backdoor way to gain entry.

But ultimately, Wynn is deciding to focus on their bread and butter, hospitality & casino gaming, rather than spending a decade and hundreds of millions of dollars in an attempt to steal market share away from industry giants like FanDuel & DraftKings.

Considering Wynn’s stock is down over 55% from its all-time high, I’m sure that’s something their long-term shareholders will eventually appreciate.

Have a great day, and we’ll talk tomorrow.

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