Scientific Games offloads OpenBet as Endeavor swoops for division in $1.2bn deal

Scientific Games has agreed to sell its OpenBet sports betting business to Endeavor in a cash and stock deal worth $1.2bn. Nasdaq-listed Endeavor is a content-led sports and entertainment company that owns events and media giant WME, martial arts organisation UFC and sports streaming and data provider IMG Arena. Endeavor said the acquisition would strengthen its position in the US sports betting market by combining OpenBet with IMG, which already works with more than 470 global sportsbook brands to provide live streaming video and data feeds across more than 45,000 sports events annually. “OpenBet marks a strategic addition to our sports betting portfolio as we look to round out our technology and product offering for sportsbook operators and sports brands worldwide,” said Endeavor CEO Ariel Emanuel. “The combination of OpenBet and our IMG ARENA business will enable us to expand our footprint across the entire sports betting value chain and further capitalise on the tremendous upside we see coming from this fast-growing global industry,” he added.

Scientific Games will receive $1bn in cash and $200m in Endeavor Class A common stock based on the volume-weighted average price for the 20 trading days up to on 24 September 2021. The transaction is expected to close in Q2 2022 and is subject to regulatory approvals and customary closing conditions. The announcement of the deal triggered an 11% jump in Endeavor shares during after-hours trading while Scientific Games’ stock rose around 6% to hit an all-time high. OpenBet, which processed around three billion bets in 2020, is one of the most popular sports betting technology platforms in the global gambling industry with more than 75 sportsbook customers, 24 of which are currently live in the US. Top-tier clients include DraftKings, FanDuel, Sky Bet, Ladbrokes and William Hill. Regulus Partners estimates that OpenBet produces underlying annual revenue of £80m and that Endeavour has paid just over 10x revenue and 40x cash flow for the division. Scientific Games has been seeking to sell OpenBet since June when it announced plans to divest its sports betting and lottery segments to fully focus on its streamlined content-led gaming strategy. “This transaction represents the culmination of a thorough process to divest OpenBet in order to maximise value for our shareholders and rapidly advance our vision to become the leading cross-platform global gaming company,” said Scientific Games president and CEO Barry Cottle. “The transaction is a significant milestone towards optimising our portfolio and de-levering the balance sheet to enhance our financial flexibility. “It will position us to invest both organically and inorganically in key growth areas, particularly in content and digital markets. “We are delivering on our promises and executing on our strategy to transform our company and unlock significant value for employees, customers and shareholders,” he added. Regulus Partners analyst Paul Leyland said the structure of the deal will bolster the balance sheet at Scientific Games. “Anyone wondering why Scientific Games would sell its key platform for accessing the white hot US sports betting market and its main point of high-quality SaaS contact with leading digital gambling clients has been given the answer: US$1.2bn,” said Leyland. “Given that the sale represents 15% of SG’s net debt and can save circa $60m in interest payments, SG’s financial logic is extremely compelling. “However, if a company with the reach and resources of Scientific Games, however constrained by debt and bureaucracy, cannot make OpenBet too strategically important to sell post-PASPA, then Endeavour’s voyage of discovery might be a painful one,” he added. Formed in 1996 and owned by NYX Gaming prior to being acquired by Scientific Games in 2017, OpenBet employs more than 1000 staff worldwide. Details outlining the structure of the newly merged management team were not disclosed, although SG Digital CEO Jordan Levin looks set for a major role considering his comments on the transaction. He said the combined company was now “uniquely positioned” to define the future of sports betting entertainment. “This transformational announcement combines OpenBet’s market-leading sports betting ecosystem with unparalleled access to sports rights, content and data across the Endeavor portfolio,” said Levin. “The team at OpenBet is second to none and we’re laser focused on the rapid expansion of the global sports betting market. “Ari’s [Emanuel] leadership and vision for the entertainment industry is exceptional and this is supported by Scientific Games’ commitment to Endeavor through the stock component of this deal.” Reassuring existing OpenBet clients, Levin said customers would remain “at the heart” of the company’s future product and technology innovation and that they still “held the key” to the group’s future successes. Commenting on the supplier’s existing contracts, Leyland said clients should feel relieved that there are no immediate conflicts after being bought by Endeavor, which is only just branching into sports betting – although that could still change. He said: “However, if Endeavor’s plan is to use the platform to drive more and higher value sports content sales then a conflict might emerge, especially if this is at the expense of ensuring OpenBet’s technology capabilities remain competitive, which is potentially a tough ask for the only gambling subsidiary of a media business. “This may remind OpenBet clients of the looming threat of content cost pressure, which, combined with a growing tendency to seek technology control, is likely to create several flight risks among OpenBet clients, in our view,” he added. (Photo by Amy Sussman/Getty Images)