Empire building By Hannah Gannagé-Stewart, CDC Gaming Reports October 10, 2019 at 2:45 am Seventeen months ago, on 14 May 2018, the US Supreme Court struck down The Professional and Amateur Sports Protection Act (PASPA), opening up the US sports betting market. Back then, all eyes were on which of the major European players would swoop in and create the first transatlantic behemoth. Both William Hill and Ladbrokes Coral were occupied with stabilising their domestic UK businesses, while Bet365’s notoriously shady Asian businesses were expected to put US regulators off. That left it to London-listed Flutter Entertainment, the parent company of the UK’s popular Paddy Power Betfair brand, to deftly execute first mover tactics. It had started negotiating with US daily fantasy sports operator FanDual prior to the court decision; nine days after that decision, the two companies announced that FanDuel would be acquired by Paddy Power Betfair. It was, to employ a well-worn industry pun, a gamble that paid off. FanDual quickly became a leading sports betting brand in New Jersey and Pennsylvania, the two biggest markets outside of Nevada. By contrast, Toronto-listed Stars Group, which acquired Sky Betting & Gaming around the same time as PASPA was repealed, laboured under its own weight. The company is reported to have debt of around seven times its earnings, and its share price took a knock after a recent profit warning. Last week’s proposed merger of Flutter Entertainment and The Stars Group should help offset those negatives by distributing Stars’ debt burden across a larger company, streamlining headcount, and sharing technology platforms. In fact, the two parties are forecasting annual synergies of £140m, a figure that some analysts are sceptical about. Moreover, the integration required to achieve those savings is a risk in itself. The two companies are currently estimating that integration will cost £180m across the two years post completion of the deal. They hope that by sticking to an API-based technology integration strategy they will both avoid the cost of running numerous platforms and enable the brands to continue offering the interfaces that their customers are used to. The impact on the US market may be more immediately obvious than that on the European market. The acquisition will undoubtedly create the largest online gambling entity in the US and give established sports betting rivals a serious run for their money. Still, the newly formed UK company will also take a major bite out of the European market. The combined income of the two groups in 2018 would have been £3.8bn. That outstrips leading UK-brand Bet365 and creates the largest online and betting brand globally. Quite simply, this merger is huge. Among the brands included in the deal from the Flutter side are Australia’s biggest sports betting brand Sportbet, racing network TVG, and recently acquired Georgia-based Adjarabet. Meanwhile, The Stars Group includes PokerStars, SkyBet, Full Tilt, BetEasy, and Bet Stars. On completion of the deal, which is expected in Q3 of 2020, Flutter shareholders will own approximately 55% of the combined group and Stars shareholders will own the remaining 45%. Unsurprisingly, the management team will be led from the Flutter side. Flutter’s chair Gary McGann will become chair of the combined group, with Stars’ chair Divyesh (Dave) Gadhia becoming his deputy. Flutter CEO Peter Jackson and CFO Jonathan Hill will retain the same roles in the combined group, with Stars’ CEO Rafi Ashkenazi assuming the role of COO, while Richard Flint, the former CEO of Sky Betting & Gaming, will be one of nine non-executive directors of the combined business. It’s a win for securing the top names in the business, though not for legacy Paddy Power Betfair’s one-time ambitions to improve gender diversity at the top of its leadership team. So, what could go wrong? Well, during the trading presentation in which the announcement was made on 2 October, Jackson repeatedly emphasised his ‘respect’ for the competition authorities who will have to greenlight the deal, assuming that shareholders agree to the merger early next year. He is all too aware that for this deal to come to fruition, Flutter needs to get it past the relevant merger control, foreign investment, and gaming regulators in the UK, Ireland, Australia, the US, and Canada. In the UK alone the deal would hand Flutter around 40% of the gambling market. The UK’s Competition and Markets Authority is likely to investigate the ramifications of any deal that would create an entity with more than a quarter of market share. Nonetheless, Jackson has said he is “confident that we will receive the relevant approvals.” It is yet to be seen whether to do so he will be forced to divest any of the brands currently listed in the proposals. What does seem certain is that if this merger goes ahead it will be a watershed moment in the consolidation of the global gambling market. Just following the acquisition trail of Flutter over the past four years shows the pace at which major players have come to dominate, but with this deal we can expect a new push for a handful of players to secure their place at the top of a now truly global industry. Eighteen months ago, commentators were at a loss to predict exactly how legalisation of sports betting in the US would shape up. Now this latest merger looks like a definitive turning point, with global consquences.