Published on: January 5, 2023, 03:25 am.
Last updated: January 5, 2023, 03:25.
Less than three years after a wave of initial public offerings (IPOs) by companies with ties to the sports betting industry, at least one of those firms is likely to go private this year.
This is the sentiment of research firm Eilers & Krejcik Gaming (EKG). In his latest edition EKG linethe company has revealed several predictions for the sports betting industry in 2023, including “a major US OSB company goes private” without identifying a potential candidate.
It’s expensive to be a public company. Not to mention the time spent on quarterly reporting and the forced focus on short-term financial performance over long-term goals,” according to EKG. “With valuations continuing to be depressed and capital hard to come by, the benefits of going public are likely to outweigh the costs, especially for smaller firms.”
The California-based gaming research firm did not name potential takeover candidates, nor did it say whether the companies that could make such a move are more likely to be sports betting operators or technology providers.
The sports betting industry is competitive, expensive
Since the Supreme Court’s 2018 ruling on the Professional and Amateur Sports Protection Act (PASPA), several aspects of the national sports betting industry have become abundantly clear.
First, this is an ultra-competitive space. Second, due to marketing and promotional costs, it is expensive to attract and retain visitors. Finally, by the second point, it is difficult for operators to become profitable.
While online sports betting companies have been profitable for part of 2022, and the end of losses is expected to be a prominent trend in the industry in 2023, being a private company is an effective way to reduce expenses. As EKG notes, being a listed firm does not come cheap. There are costs involved with everything from SEC filings to holding investor days to maintaining investor relations staff and more.
Furthermore, as pure-play names like DraftKings ( NASDAQ:DKNG ) and Rush Street Interactive ( NYSE:RSI ) confirm, there are no guarantees that market participants will properly value the future prospects of sports betting. Public companies in the space are also being punished amid fears that inflation and a recession will reduce consumer spending.
We are still hoping for the expansion of public sports betting companies
Investors who want more options among publicly traded sportsbooks needn’t worry. There are no guarantees that EKG’s prediction will be accurate, and so far no operators have signaled plans to go private.
In addition, 2023 could be the year of some of the most anticipated IPOs in the history of the emerging industry. For example, one of FanDuel and Fanatics could become listed entities this year.
FanDuel, the largest online sports betting operator in the US, would be spun off from parent company Flutter Entertainment (OTC: PDYPY ), while Fanatics would be a more traditional IPO. There is no firm date as to when any of these moves will happen, but rumor has it that Fanatics has recently been in talks with investment banks about a potential IPO.