Endeavor Group’s (NYSE:EDR) $1.2 billion purchase of Scientific Games’ (NASDAQ:SGMS) OpenBet sports wagering business has long-term perks for the buyer, according to a research firm.
In a new report, Moody’s Investors Service, which previously lauded the sale as a plus for Scientific Games, said the deal was a long-term positive. It said that although the amount of incremental debt the buyer is using to fund the transaction is currently unclear, the deal furthers its presence in the fast-growing sports betting industry. Los Angeles-based Endeavor is paying $1 billion in cash and $200 million of its shares to purchase OpenBet.
We expect that OpenBet will be combined with IMG Arena and included in WME IMG’s credit group,” said Moody’s. “The $1 billion cash portion of the acquisition will likely be funded with cash on the balance sheet ($870 million) and additional borrowings on existing credit facilities.”
WME IMG is the talent agency portion of Endeavor’s portfolio. Due to a legal settlement with the Writer’s Guild of America, WME IMG must sell 80 percent of its content operation. Moody’s notes that proceeds from that transaction could be used to partially fund the OpenBet purchase. Endeavor is also the the parent company of the Ultimate Fighting Championship (UFC), Professional Bull Riders (PBR), and Euroleague.
Endeavor Paying Up for OpenBet
Wall Street likes the OpenBet sale due, in part, to Scientific Games fetching more for the business than previously expected. Analysts expected the sports wagering asset would command approximately $1 billion in a sale. But Endeavor is paying 20 percent more than that.
As Moody’s notes, the buyer is paying “a very high acquisition multiple,” equivalent to 10x OpenBet’s estimated 2021 sales and 8x expected 2022 revenue. That rich multiple reflects Endeavor’s expectations that sports betting will continue growing in the US, and that more states will join the live and legal fray going forward, according to Moody’s.
Endeavor’s IMG Arena unit provides streaming video and data services to sportsbooks, indicating there are potential efficiencies by adding OpenBet to the mix.
OpenBet is a business-to-business platform, meaning it doesn’t accept wagers directly from bettors. Rather, its clients are gaming companies such as DraftKings, FanDuel, William Hill, and WynnBet, among others. Endeavor’s client roster for data feeds includes the PGA Tour, Major League Soccer (MLS), the United States Tennis Association (USTA), and UFC.
Still Good Deal for Endeavor
While Endeavor is paying up for OpenBet, the acquisition could ultimately prove to be favorable for the buyer. With estimates swelling regarding the potential size of the North American sports wagering market, gaming companies are increasingly thirsty for data, and the data industry is seen as ripe for consolidation.
For its part, Endeavor has a history of shrewd dealmaking – a trait reflected in the fact that the stock is higher by 6.61 percent since the OpenBet purchase was announced.
“Endeavor has a long history of making acquisitions that benefit from being incorporated into the company’s broad portfolio of assets and cross-sold to existing clients. OpenBet will expand WME IMG’s scale, growth prospects and diversification,” adds Moody’s.
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