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May 24, 2018
BIG BET

Big news out of the daily fantasy sports world.

Just a week after the Supreme Court cleared the way for states to legalize sports betting, Ireland-based gaming company Paddy Power Betfair agreed to acquire daily fantasy company FanDuel.

 
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Under the agreement, Paddy Power will merge its U.S. assets with FanDuel and provide a further $158 million in cash. The capital will allow FanDuel to pay down its existing debt of $76 million.

In terms of the ownership structure, Paddy Power will own 61% of the combined entity, and it has options to increase its ownership to 80% after three years and 100% after five. The deal reportedly values the combined business at more than $1 billion.

"The talks have been ongoing well before the Supreme Court decision," FanDuel CEO Matt King told Term Sheet. "We've had a relationship with the company for a long time."

(FanDuel co-founder Nigel Eccles was an early employee at the company that would eventually become Paddy Power Betfair. Here's a quick explainer on that relationship.)

The goal here, King said, is to create the largest gaming operator in the U.S. FanDuel has 7 million registered users and more than a 40% share of the U.S. daily fantasy sports market. In 2017, it had revenue of $124 million and 1.3 million active users. The combined Paddy Power and FanDuel businesses will have online revenue in the U.S. of $265 million, making it larger than rivals such as DraftKings.

One interesting thing to note is that Draft, the fantasy sports platform acquired by Paddy Powers Betfair for $48 million last year, may be caught in the crosshairs of this merger. It appears the Draft team will be part of the combined entity.

"Draft has carved out an attractive segment of the marketplace," King said. "We both compete for same users, but it's a different product offering. We'll continue to offer both FanDuel and Draft game formats for the time being, but what form it takes and how we link the businesses — that's the part where we have some work to do."

There are still quite a few unknowns. It's unclear who will serve as the chief of the combined entity, what the management team looks like, and how the assets will be fused together. According to sources familiar with the situation, there is "excitement but also anxiety" about the transition.

The merger is the first in a new wave of possible U.S. deals involving gambling companies. FanDuel already has plans to capitalize on this new opportunity by launching its sports betting offering as soon as this NFL season.

Could we expect to see this combined entity make more acquisitions in the coming months? "No comment," King said.

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Polina Marinova produces Term Sheet, and Lucinda Shen compiles the IPO news. Send deal announcements to Polina here and IPO news to Lucinda here.

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