As Online Gaming Enters Era Of Consolidation, Could Tech Giants Become Players?

Written By Mike Mazzeo on January 27, 2022
Mobile Apps Sports Betting New York

What is the future of online gaming?

And will it eventually include tech titans like Meta/Facebook, Amazon, Microsoft, Google and Apple?

As we enter the age of consolidation — and with more mergers and acquisitions (M&A) seemingly imminent — it’s not out of the realm of possibility.

Granted, there could be at least one specific obstacle — securing a license.

“I think it makes perfect sense, except for the licensing,” Jason Ader (CEO of SpringOwl), a long-time gaming investor who formerly sat on the board of Las Vegas Sands, told PlayNY.

“If Meta/Facebook, Google or Microsoft or Apple or Amazon really wanted to get into online gaming they would kill everybody because the whole success of online gaming is customer acquisition, customer retention and lifetime value.

“And those five companies have a huge advantage in all those areas. And it just really comes down to, ‘Do those companies want to go through the scrutiny of licensing for all the shareholders and the board?’ Historically, the answer to that has been no, but it’s possible. I wouldn’t say it’s zero, but it’s possible.”

Long-term sustainability of online sports betting still question mark

In New York, the online sports betting boom is very much underway.

Over the first nine days of business since going live on Jan. 8, the state’s operators took in a staggering $603.1 million in bets. So the potential exists for NY to quickly establish itself as the No. 1 sports betting market in America.

Established operators Caesars, FanDuel and DraftKings dominated the market share, with BetRivers barely making a dent. Yet even Caesars — which delivered a massive promo that is no longer on the table — struggled with backlash over a litany of issues. And with a 51% tax rate, many wonder about long-term profitability.

DraftKings, which finished a surprising third in NY, is going for $21.62 a share. Bally’s is looking at a takeover at $38 a share. WynnBet is reportedly looking to spin off its online sports betting enterprise at a $500 million valuation.

As Bally’s chairman Soo Kim told CNBC: “We think that the current version of sports betting is not a great business. It’s a fine business but not a great business.”

Ader, who is trying with Universal to put a futuristic $3 billion casino in Manhattan, echoed similar sentiments.

“Sports betting is not even a good business in a casino, so online it’s just very commoditized, and these companies can’t continue to lose money in perpetuity,” Ader said. “I don’t think DraftKings has ever made money ever, one day. I think every day they lose money. And that’s not gonna last forever. They’re not Airbnb or Uber. I mean, there’s a lot of competition in their business model.”

Fanatics or Penn National/Barstool Sports getting back in NY?

Fanatics and Penn National/Barstool Sports were both left out of NY. But M&A with one of the smaller operators could get them back in. WynnBet acquisition could be a possibility. Fanatics had also been in talks with PointsBet which ultimately didn’t advance. Fanatics hired former FanDuel CEO Matt King to head up its sportsbook operation.

“I think (Fanatics CEO) Michael Rubin is a very smart guy. He’s figured out two difficult businesses in apparel and trading cards. I would bet on him to be successful in whatever he does,” Ader said. “And with respect to Barstool and Penn, Barstool came with a lot of upside but obvious downside too, so that’s a bit trickier given current controversy.”

Summing up the industry as a whole

Views on gambling as a whole have changed — especially in sports as formerly anti-betting leagues have partnered with operators. Advertising has soared.

But many smaller operators have figured out they can’t compete in an over-saturated marketplace, and are looking to move on.

“The prospects for online gaming are still very good,” Ader said. “I do think there’s some very significant short-term issues with sports betting and the amount of promotional activity and the losses that are being incurred. Gaming is really providing a lot of tax revenue, and all states need taxes. So I think there’s a long-term opportunity with online gaming. It’ll be volatile, it’s not going to be straight up.

“Sports betting has already been accepted pretty much nationally, and the valuations got way ahead of themselves but now they’re more reasonable, for some companies. So I do think there’s too many operators and there will be consolidation and the pull-back has got everybody looking, is my sense.

“The land-based companies are looking at the online companies, the online companies are looking at each other, so it’s hard to imagine we’re not going to see M&A this year.”

Photo by Shutterstock
Mike Mazzeo Avatar
Written by
Mike Mazzeo

Mike Mazzeo is a contributing writer for PlayNY, reporting on legal sports betting in New York while covering the potential legalization of NY online casinos and poker. He previously wrote for ESPN, the New York Daily News and The Ringer, among others.

View all posts by Mike Mazzeo
Privacy Policy