The enthusiasm for gaming-related SPACs is a signal of the extent of the ground being gained by sports-betting and online gaming.
The sudden rise of gaming-related Special Purpose Acquisition Companies – or SPACs as they have come to be called – is a sign of how gaming friendly some states in the US are becoming.
The rise of SPACs has an impact on the Wedge Index in two ways.
- Operators that seek listings often raise more money for marketing in more states. The more states a brand enters, the more points are added to each state’s tally,
- The enthusiasm for more sports-betting and online gaming IPOs encourages further regulation in more states. Greater prominence of gaming stocks arguably generates a halo effect.
Following in DraftKings’ footsteps
Since DraftKings used the Diamond Eagle structure as a route to a float on Nasdaq at the very start of this year there has been a steady stream of stories related to further SPAC money raises in the gambling sector.
Prominent among them is Landcadia deal to take the Tilman Fertitta-owned Golden Nugget online gaming business and turn that into a listed vehicle.
Following that came the news that Rush Street Gaming is also lining up public floatation via a SPAC.
To get a handle of the trend evident from these deals, Wedge News spoke with Keith McDonnell, a partner in new gaming consultancy ic3 Group to take us through the ins and out of the SPAC craze.
We started by asking what was it that has sparked the excitement in gaming SPACs. Unsurprisingly, it comes down to the success of the DraftKings move.
Keith McDonnell: Following the successful listing of the SPAC vehicle Diamond Eagle, absorbing the substantial assets of both Draft Kings and SBTech into a consolidated organization.
DraftKings Inc has trebled in value without returning a profit.
The insatiable appetite to capitalize on the opportunity that newly regulated sports betting and iGaming brings to the US has delivered a giant investment pot to speculate on just where this industry can go.
The opportunity is huge with encouraging numbers in the short term and enormous opportunity in the medium to long term.
Wedge News: What do you think are the dangers behind the rush of interest in gaming-related SPACs?
KM: The dangers are mainly around the motivations.
If motivations are a fear of missing out, or making a fast buck, this sector may not be right (although there are some exceptions).
The medium to long-term future for the market in the US is very positive. In the early stages volatility should always be a concern for any embryonic industry.
Sports betting and iGaming are no different. With the right guidance and on developing a full understanding of the industry there is no reason why many can’t still get in on the early stages of this high rising wave.
Wedge News: Is there a degree of naivety about some of the interest in gaming-related stocks generally at present? Much as the US is exciting, is there a degree of over-exuberance in the enthusiasm for US gaming and sports-betting related stocks?
KM: A little, perhaps magnified by COVID and the struggles other industries have been presented with.
Investors look for other avenues to focus their attention and resources on. With any newly regulated industry it is inevitable there will be investor naivety about the product or service.
But by taking the time to understand industry dynamics there is no reason Investors can’t take decisions that will surely benefit them in the long run.
We have seen over the last 24 months since PSAPA was repealed, in effect opening the gates to the activity we are referring to, many deals have been done but many have not been good deals.
Over time as understanding, experience and knowledge grows the right questions will be asked before transacting. Many just wanted to ‘get in the game’.
Wedge News: What advice would you give to any SPAC looking at a gaming-related transaction?
KM: Take time to research the assets that are available, understand how you can add value to the collection of assets you settle on, enlist the help of experienced successful operators and develop a forensic plan to execute.
But this is sports betting and iGaming so have a plan B-Z ready just in case.