Fanatics Could Be Suitor for TwinSpires, According to Analyst

Posted on: December 6, 2021, 10:27h. 

Last updated on: December 6, 2021, 10:59h.

Speculation surfaced last week that Churchill Downs (NASDAQ:CHDN) is shopping its TwinSpires Racing unit. At least one market observer sees a familiar name potentially making a bid.

Churchill Downs is rumored to be shopping its TwinSpires unit. A analyst says Fanatics could be a suitor. (Image: The Business Journals)

Roundhill Investments analyst Brian Lichtor says it’s likely Fanatics will be mentioned as a possible suitor for TwinSpires, citing Fanatics’ well-known sports wagering aspirations.

The privately held sports merchandise giant has been tied to takeover rumors involving Rush Street Interactive (NYSE:RSI) and Sweden’s Betsson. But that chatter is about three months old. At least in public circles, it hasn’t evolved past the rumor stage. Recently valued at $30 billion, including its non-fungible tokens (NFT) and trading card units, Fanatics could easily digest the rumored asking price for TwinSpires.

Though it remains unclear at this point whether a potential sale would be of TwinSpires in its entirety or just TwinSpires Racing (the horse racing division), a deal potentially worth $1.5 billion for a company with a market cap just over $8.5 billion ($8.8 billion today) would be significant in either case,” says Roundhill’s Licthtor.

Sources with knowledge of the matter told Bloomberg it’s possible Churchill could sell all or part of TwinSpires or opt to keep the entire business in-house.

TwinSpires an Attractive Target

At a time of deal-making and related rumors reaching fevered pitches in the iGaming and sports wagering industries, TwinSpires is an undeniably compelling target for any suitor.

In the third quarter, earnings before interest, taxes, depreciation and amortization (EBITDA) derived from online horse racing surged 56 percent from the comparable period in 2019, said Churchill CEO Bill Carstanjen on the company’s recent earnings conference call. He noted online horse racing handle jumped 31 percent in the September quarter.

Pari-mutuel strength is an advantage for TwinSpires, because, as is the case with competitors, the online casino and sports wagering part of the business isn’t yet profitable.

“Our TwinSpires sports and casino business delivered topline growth as well. However given the additional marketing spend to support the growth, we had a net loss in adjusted EBITDA of nearly $11 million in the quarter for this business,” said Carstanjen on the call.

He said TwinSpires offers sports betting in eight states and that the operator should be live in Louisiana and Maryland early next year.

“TwinSpires’ horse racing business has been operational since 2007, and is one of the largest online pari-mutuel platforms for horse racing in the US,” adds Roundhill’s Lichtor.

Cash for Churchill, Where Fanatics Fits In

Regarding Fanatics, the company filed patents for various sports betting-related brands, confirming intent to be a player on that stage. As Licthor notes, the company is making clear its desire to gain market access to New York — something TwinSpires doesn’t have.

Still, there are likely to be other suitors for the enterprise, and if Churchill is successful in commanding the aforementioned $1.5 billion price, it’d have one of the more impressive balance sheets in the gaming industry.

Last month, the operator reached an agreement to sell more than 115 acres of land it owns at its Calder Casino in South Florida for $291 million. Throw in $1.5 billion from a possible sale of TwinSpires, and Churchill would gross proceeds of nearly $1.8 billion from those two transactions, indicating it’d have nearly a quarter of its market value sitting around in cash.