Amaya Gaming Possibly Interested in DraftDay Acquisition
A month ago, Amaya Gaming CEO David Baazov told analysts in an earnings call that his company intended to enter the growing daily fantasy sports (DFS) space by the time the NFL season starts in September. He said Amaya was looking at “parallel tracks of internal development and strategic acquisition,” but revealed little else. It is now looking like the acquisition route is a distinct possibility.
On Thursday, eGR North America reported (article behind paywall) that Amaya is considering purchasing DraftDay.com, the third largest daily fantasy sports site. Though “third largest” sounds impressive (and it is certainly not UNimpressive), it is a distant third, as the top two DFS sites, DraftKings and FanDuel, hold 95 percent of the market. DraftDay is regarded as a quality site, though (I can personally attest to this as someone who has played on the site), and has done a solid job of competing despite its small market share.
Philosophically, DraftDay and Amaya could be a good match, as DraftDay was created to by two former professional poker players and co-founders of CardRunners, Taylor “GreenPlastic” Caby and Andrew “muddywater” Wiggins.
DraftDay is owned by MGT Capital, publicly traded on the NYSE MKT under the ticket “MGT.” It has struggled recently, with its stock price sitting at only 50 cents after a 52-week high of $1.98. According to SeekingAlpha.com, MGT may be motivated to sell DraftDay simply because MGT is running out of cash. “The company has SG&A of between $6 and $7 million per year and only $1.5 million in cash left, Bram de Haas writes. “Growth is amazing, margins are excellent, and there is a ton of operating leverage, but somewhere in the next few quarters, the company will be facing empty coffers.”
According to eGR North America, MGT said, “In recent weeks, MGT has communicated with several parties expressing interest in a potential investment or purchase of DraftDay. The company is reviewing multiple indications of interest in an effort to create maximum value from DraftDay’s position as the third largest daily fantasy site.”
MGT is reportedly seeking a price of about $10 million for DraftDay and also wants to retain a 20 percent ownership stake in the daily fantasy sports site. MGT is clearly bullish on DraftDay, so while the company needs to the money, it also wants to stay in the daily fantasy sports race if possible.
As the online poker market has declined in the United States since Black Friday, daily fantasy sports sites have filled some of the void for those in the U.S. eager to gamble online. Fantasy sports have been popular for decades now, but daily fantasy sports is a relatively new phenomenon. In a nutshell, DFS is sort of like a hybrid of traditional, season-long fantasy sports and poker tournaments. In a typical DFS contest, competitors will select players in a sport (football or baseball, for instance) to fill out a roster. Usually, salary is assigned to each player by the site and team “owners” must complete their roster while staying under a prescribed salary cap. The competitions can last anywhere from a day to a week. Players on each team earn points based on their performance in real-life sporting events; the team that ends up with the most points wins.
Like in a poker tournament, DFS contestants pay a buy-in and entry fee to play. Before the contest begins, the prize breakdown is delineated – sometimes it is winner-take-all, sometimes the games pay out several places. As in a poker tournament, it generally depends on how many people register.
For participants, a big part of the enjoyment of daily fantasy sports comes from the short-term aspect. In traditional fantasy sports, it is not at all uncommon for leagues to break down by the time the season ends. It often becomes too much of a hassle for participants to monitor their teams every day over the course of several months, players can lose interest, and sometimes those that are way behind in the standings just up and quit. In DFS, this doesn’t happen. Plus, if a player ends up with a bad team, there is always the next day or week to try again.
Though daily fantasy sports contests are gambling, they are considered legal in the United States because of a carve-out in the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA). As long as DFS competitions meet the following criteria, they are legal:
1. All prizes are made known in advance of the contest and their value is not determined by the number of entrants or the entry fee.
2. Results “reflect the relative knowledge and skill of the participants” and must be determined “predominantly” by the stats produced by athletes in multiple games.
3. The winning outcome of the DFS match is not based on point spreads, a single real-world team, or a single real-world athlete.
The only real question is the first criterion, as it does seem that the prizes in a DFS contest are determined by the number of entrants and entry fee. DFS sites might satisfy this requirement, though, by simply making sure the prize pool and payouts are set in advance, like a Sit-and-Go. Scheduled contests usually have guaranteed prize pools and thus risk an overlay.
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