By Geoff Percival
Paddy Power-Betfair shares jumped more than 7% on the back of the betting group confirming merger talks with US ‘fantasy sports’ company FanDuel.
Confirmation came days after the US Supreme Court struck down the so-called Bradley Act, which has outlawed sports betting in the US, save for a few states, since 1992.
That decision, which had been widely expected, paves the way for multiple US states to legalise sports betting.
Paddy Power-Betfair is already active in the US via its TVG online horseracing outlet, a New Jersey-based online casino offering, and fantasy sports betting company Draft.
It has long expressed interest in growing its presence in a deregulated US market.
Paddy Power confirmed talks are “ongoing” with FanDuel, aimed at creating a combined business “to target the prospective US sports betting market”, but added there is no certainty whether a deal will be reached.
Paddy Power had looked at investing in FanDuel before its merger with Betfair.
“From Paddy Power-Betfair’s perspective, a deal would bring three key things: An extremely well-recognised US brand; an award-winning technology platform that can now be converted to offer real money sports betting; and, perhaps most importantly of all, a database of over 6m sports-loving US customers,” said Davy analyst David Jennings.
“In our view, these customers would be very likely to sports bet once individual state markets open up.”
Mr Jennings said FanDuel would avail of Paddy Power-Betfair’s pricing models, distribution reach, and trading experience.
FanDuel is currently not a betting company.
“For both sides a deal would make a huge amount of sense, strategically. What the implied valuation will look like remains to be seen, but, on the face of it, an amalgamated business would represent a powerful combination in the US sports betting market,” said Mr Jennings.
A successful deal is also being viewed as a way for Paddy Power-Betfair to shield itself against UK market pressures. Analysts see an expected imposition of maximum betting restrictions on gaming machines in UK shops having a 3%-6% hit on Paddy Power’s earnings.
“The impact of [UK] government restrictions on fixed-odds betting terminals is, no doubt, going to be hugely significant, with warnings of a potential 20,000 jobs being lost as the maximum stake is slashed from £100 to £2,” said Josh Mahony, IG market analyst.
“However, the [share price] rise for Paddy Power comes as investors hope that the firm can realign its interests towards the US and away from a shrinking UK market.”
Paddy Power-Betfair is due to hold its AGM in Dublin tomorrow. At last year’s shareholders’ meeting, former chief executive Breon Corcoran said the company would be keen on growing further, through acquisition, in the US depending on how much further the market opens up and what opportunities are presented.
Mr Corcoran said late last year that a European-style sports betting market is still a long way off in the US.
Paddy Power shares have jumped by around 20% this week, on the back of developments in the US. However, analysts warned earlier this month that meaningful recovery in the stock could take time.