TVG Owner to Combine With Daily Fantasy Site FanDuel

Transaction aims to improve company's position for emerging sports wagering in U.S.

Paddy Power Betfair, which owns advance deposit wagering company and racing channel TVG through its Betfair U.S., announced May 23 that its United States operation has combined with popular daily fantasy sports site FanDuel.

Paddy Power Betfair confirmed last week it was pursuing a deal with FanDuel to position itself in the expanding sports gambling market in the U.S. On Wednesday, Paddy Power Betfair said the transaction strengthens the group's opportunity to target that prospective market through the addition of a strong brand, large existing customer base, and talented team. 

The scale of the combined business also means it is well-positioned in discussions with providers of market access for sports betting as FanDuel accounts for more than 40% of the U.S. daily fantasy sports market share, with 7 million registered customers across 40 states. In 2017 the company had revenue of $124 million and 1.3 million active customers.

Headquartered in New York, the business has built a leading U.S. sports brand with approximately $400 million in cumulative marketing spent to date supported by innovative proprietary technology.

Under the agreement, Paddy Power Betfair will contribute existing U.S. assets along with $158 million. This cash contribution will be used to pay down existing FanDuel debt (net debt of $76 million as of March 31) and fund working capital of the combined business. Upon completion of the transaction, the group will own 61% of the combined business, with existing FanDuel investors owning 39%. 

All material FanDuel investors are rolling their investment into the combined business. A mechanism has also been agreed to take the group's ownership of the business to 80% after three years and 100% after 5 years, consisting of call and put options at the prevailing market valuations. The group will have operational control of the business, which will become a fully consolidated subsidiary and will have the right to appoint the CEO and a majority of the board of directors. 

Existing FanDuel investors will continue to have board representation. The transaction is subject to customary regulatory and anti-trust reviews for transactions of this nature and is expected to be complete in the third quarter of this year. 

On a proforma basis, including expected synergies but before investment in sports betting, the combined business is currently operating at broadly break-even in terms of adjusted earnings. The transaction is not expected to have a material impact on the group's 2018 underlying adjusted earnings.

"We are excited to add FanDuel to the group's portfolio of leading sports brands," said Paddy Power Betfair CEO Peter Jackson. "This combination creates the industry's largest online business in the U.S., with a large sports-focused customer base and an extensive nationwide footprint. The group has leading sports betting operating capabilities globally and strong operations on the ground in the U.S. Together with our substantial financial firepower, we believe we are now well-placed to target the prospective U.S. sports betting opportunity."

FanDuel CEO Matt King said the two companies have a similar approach.

"We are excited to bring these two great businesses together," King said. "The combination of brands and team, along with a shared culture and vision for the future, creates the leading gaming destination for U.S. sports fans."