Expect More Sports Betting Consolidation, Says Morgan Stanley

Posted on: May 3, 2023, 11:50h. 

Last updated on: May 3, 2023, 02:04h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Speculation regarding sports wagering industry mergers and acquisitions activity, particularly on the operator side, remains intense, and some analysts believe deal-making could perk up as 2023 progresses.

Sports Betting Consolidation
The famous charging bull on Wall Street. Sports betting consolidation is expected to increase this year. (Image: Reuters)

In a Monday note to clients, Morgan Stanley analysts observed that over the past seven years, revenue for the world’s five largest sportsbook operators more than quadrupled with a big assist from acquisitions. They added that Flutter Entertainment (OTC: PDYPY) will post more revenue this year than the five biggest operators combined in 2015.

This change has been driven partly by market growth, but has come from M&A, as operators seek to diversify their revenues and achieve scale benefits in the face of rising tax and regulatory headwinds,” observed the analysts. “We expect regulatory drivers for consolidation to endure.”

It’s likely that the biggest sportsbook operators, such as Flutter and Entain Plc (OTC: GMVHY), will grow via acquisitions. Flutter, the parent company of FanDuel, arrived at its current composition via at least a dozen acquisitions over the past decade. Entain has been one of the most acquisitive firms in the industry over the past several years.

“The M&A opportunity set for the largest operators appears to be broadening as diversification, scale, technological capability, cash flow generation, and balance sheet capacity is increasingly in contrast to smaller scale competitors, “ added Morgan Stanley.

US Could Be Epicenter of Sports Betting Consolidation

Not surprisingly, the US could be a hub of sports betting industry consolidation activity. At the very least, this country will be a hotbed of related rumors.

For example, PointsBet (OTC: PBTHF) recently confirmed it’s in advanced discussions to sell its US operations. Its Australia arm has also been the subject of takeover speculation. Rush Street Interactive (NYSE: RSI), another smaller domestic sportsbook company, has long been viewed as a potential target, too.

“The potential of the US market has driven a significant initial phase of consolidation, focused on ownership/control of US entities, insourcing technology, and gain an edge in customer acquisition through media and database deals,” noted Morgan Stanley. “As the market transitions into its next (profitability) stage, we expect some of these to endure with additional impetus from new/late entrants.”

With just three operators, FanDuel, DraftKings, and BetMGM, controlling more than three-quarters of the US online sports wagering market, smaller rivals may have no choice but to merge with each other in a bid to cobble together market share.

Sports Betting Consolidation Negative for Data Providers

If there are potential losers by way of more sports wagering industry mergers and acquisitions activity, it could be data providers such as Genius Sports (NYSE: GENI) and Sportradar (NASDAQ: SRAD),  according to Morgan Stanley.

The analysts say that if the number of gaming operators declines, the existing firms will gain leverage in negotiations with data providers.

That doesn’t imply the relevance of Genius ad Sportradar is vulnerable, but those firms could experience diminished pricing power if the number of potential clients declines.