Back to SPAC: Jason Ader on why gaming is such a fertile area for investment

The Special Purpose Acquisition Company, or SPAC, is an investment vehicle that is increasingly entering the minds and business plans of operators. Beginning with DraftKings’ acquisition of SBTech in April 2020, a process which was achieved via SPAC, gambling operators have seen the benefits of using this minimal method of investment management to achieve the maximum aim of going public, a privilege previously reserved for a few select companies. Jason Ader is a man synonymous with investing in gambling, having been involved in turning around the fortunes of gaming and hospitality companies for many years. In investment-led roles with Las Vegas Sands, IGT, Playtech and The Stars Group (including its prior Amaya years), Ader has built up an extensive portfolio of industry contacts and knows what it takes to generate value for investors. Last month, Ader, who currently serves as CEO of independent sponsor and buyout firm SpringOwl Asset Management, revealed he would return to the SPAC market through his own vehicle, 26 Capital. As he explains to EGR Intel, this move was driven by extensive demand from an increasingly SPAC-savvy industry. EGR Intel: Why choose now to launch a new SPAC? Jason Ader (JA): We’ve seen a lot of opportunities that I feel would be very attractive in the SPAC structure. In fact, I received several calls over the summer, from target companies, that said things like ‘we just got a call, we just spent the day with or we just got a proposal from another SPAC’ or ‘we liked the idea and we’d like to go public with your SPAC’. There’s a few SPACs out there that are being run by former CEOs in the gaming industry who are currently unemployed, and they’re using their SPAC to get a job to some extent. I just started laughing because at the time I didn’t have a SPAC, and then it happened again, and then a third time. After that I reached out to my long-time bankers Cantor who have been with me since IGT, Amaya, TSG and as far back as Playtech, and I said to them, ‘can you get me very educated on the current SPAC market quickly?’ It seemed a very logical way to go public, when compared to the alternatives of a direct list or an IPO, as a SPAC is faster and more efficient. A company going public with my vehicle is going to trade to an immediate premium. It’s going to be worth more because of my involvement and I’m convinced of that. It’d be an easy enough exercise for me to walk a company through why that’s the case. We didn’t develop this SPAC because I’m an unemployed CEO looking for employment, we’re doing it because we want to build very long-term shareholder value for the investors in the business. EGR Intel: Which operators out there do you think would benefit from taking up a SPAC to go public? JA: I’d prefer not to talk about specific firms. I’m very happy to talk general and characteristics, but I can’t use a public forum as a way to identify targets. You should assume that since we priced our deal last month that we have had many discussions going on. There were more than half a dozen companies that knew we were doing this deal and within hours of pricing, they got in touch and are engaging in discussions with us. They were waiting because they knew our deal was coming, but it wouldn’t be appropriate for me to name those firms at the current time. EGR Intel: Do you plan to focus on a specific vertical or specific jurisdictional area? JA: There have been quite a few IPOs via SPAC, Golden Nugget being one, Rush Street being another and of course, DraftKings which has enjoyed immense success through a SPAC. So, I think it’s fair to say gaming is a fertile area, and I think I’m very uniquely positioned to mine it. I’ve got great partners with Joe Campo and Rafi Ashkenazi but it’s a very big world when it comes to investments with a lot of competition. The key for me was to get a deal presented to my investors in a positive way so they know the types of companies that I’m immediately engaged with fit the profile.  All the companies that we’re talking to have relationships with something that I’ve done in the past, whether it’s been my time as a director with Las Vegas Sands or IGT, Amaya before it became TSG or as an investor with Playtech. There’s a lot of C-level relationships I have with individuals who are doing other things that were at other companies that I just got to know really well. One of the business areas I’m focused on is gaming technology, that’s obvious. Another I would describe as fintech, which touches the gaming industry but may not be directly related to the gaming industry. Another area is internet commerce, which I know is very broad but I mean it in the context of gaming. And when I say internet and commerce in the context of gaming, I’m not necessarily speaking about real-money gaming, but it could be social gaming or the economy that exists around various forms of gaming. And lastly, I would say entertainment. Entertainment again, is very broad but to the extent there’s an entertainment company that has DNA via its founders or management going back to the gaming industry, I consider it to be fair game too. So, that’s kind of the immediate focus right now. What creates success in the SPAC industry historically isn’t what’s going to do so in the future. My approach is going to be evolutionary, nothing should be revolutionary but it will be evolutionary. EGR Intel: In your opinion, why are operators likely to be more receptive to SPACs than going through the traditional method of going public? JA: Direct listings are very tough, you need to be a gigantic company like Google, Airbnb or Slack, there’s no gaming company that could do a direct listing. The only real option is an IPO but an IPO is a longer process. Amazingly, you can go public more quickly with a SPAC but, more importantly, the documentation that you’re allowed to produce to investors is much better for the company. You can talk about your projections, you can talk about your expectations, you can really paint an accurate picture as to where you think your business can go, whereas you can’t really do that with a traditional IPO as you have extraordinary constraints. It’s a faster, better way, in my opinion. There are a lot of SPACs out there, some of them I would say are not the right team. If it’s the right team and the right fit, that team can really help the capital markets process. Most companies are usually good at the business of what they do but most companies are not good at speaking the language of the investment community and that’s a critical part to a successful company. A SPAC sponsor who has that discipline can be very helpful in educating a company so that they eventually can be a standalone business and do it on their own over time. EGR Intel: What do you mean by wrong sort of team? JA: There are SPACs out there staffed with people who have no experience, none whatsoever, or people with low quality experience or who have been previously involved with controversial businesses. So, we’ve got over 300 SPACs, some are great, some have successful multi-billionaire founders and others are barely able to run a division of a small investment bank but were able to get a small amount of capital from a firm you’ve never heard of. Think of it like a car, there’s Rolls Royce, Ferrari, Lamborghini, Mercedes and BMW, but there’s also Ford and Chevrolet. The SPAC industry has all levels, you got the Rolls Royces, you’ve got the broken-down old cars, and everywhere in between. EGR Intel: Why is it important for you to have gambling industry veterans, like Rafi Ashkenazi, among your directors and what does that bring to the table? JA: I got to know Rafi when he was at Playtech in the COO role, but then I got to really know him when he became CEO of The Stars Group. He’s got an extraordinary mind around technology. I like collaborating with him and he has a lot to collaborate about in terms of gaming and outside of gaming. I like to surround myself with great people, I think board members are good at what they do when they act, to some extent, like coaches. I’m a high-performing player but I like to surround myself with great coaches and Rafi ran the biggest publicly traded online gaming company in the US so he’s very [well] versed in many other tech businesses around the gaming ecosystem and he lives in the Israeli tech community. EGR Intel: What is your ultimate goal with the SPAC, beyond creating value for shareholders? JA: My goal is a successful business combination with 26 Capital. Once that’s achieved, then it’s on to “26 Capital 2”, then once that’s been achieved, “26 Capital 3”. I just want to keep on going. This is not my first SPAC, actually it is my third, I’ve done two in the past a long time ago but the structure was a bit different. Comparing them, I like the structure now better and obviously, the market does, too.