DraftKings Reportedly Cranked Up Rivalry With Fanatics By Trying To Buy PointsBet After Failed Merger Talks

DraftKings and Fanatics, two prominent players on different sides of the sports industry, have recently expressed their interest in acquiring PointsBet, a rapidly-growing sports betting company. Not only does the potential acquisition showcase the increasing convergence between sports, technology, and gambling, it sets up a spicy rivalry.

PointsBet, founded in 2017, has quickly established itself as a major player in the sports betting industry, particularly in the United States and Australia. PointsBet offers a unique betting experience, including a distinctive "PointsBetting" feature that allows users to win or lose more based on the accuracy of their wagers. That is the differentiator for PointsBet to gain a loyal customer base and achieve significant revenue growth.

DraftKings, led by CEO Jason Robins, has been at the forefront of the sports betting revolution in the United States. By acquiring PointsBet, DraftKings would further solidify its position as a dominant player in the industry. The acquisition would provide DraftKings access to PointsBet's technology and customer base, which would allow it to expand its offerings and enhance its competitive advantage.

Jason Robins (Photo by: Lauren Justice/Bloomberg via Getty Images)

On the other side, Fanatics, led by billionaire CEO Michael Rubin, is a global leader in licensed sports merchandise. It has been exploring opportunities to diversify its business beyond traditional retail. Acquiring PointsBet would enable Fanatics to enter the sports betting market and tap into a new revenue stream.

Michael Rubin (Photo by Amy Sussman/Getty Images)

DraftKings and Fanatics have history.

According to the New York Post, DraftKings and Fanatics held secret merger talks in early 2021. The deal would have been a 50-50 merger with each company valued at about $24 billion.

Rubin ultimately walked away from the table near the end of the process. Robins has reportedly held a grudge ever since.

This is where PointsBet comes into play.

Fanatics reached a deal to acquire PointsBet for $150 million in May. Before the ink had dried on the Fanatics agreement, DraftKings came in at the buzzer and bid $195 million.

Rubin has said before that DraftKings' bid is "a move to delay our ability to enter the market." A sports betting executive told the New York Post that DraftKings' bid came because Robins "was stopped and now he is returning the favor."

DraftKings denies that the bid had anything to do with Rubin and Robins' ongoing rivalry. It said that it is centered around the "synergies and financial rationale, along with the interesting product and technology capabilities we would acquire through the proposed transaction."

The DraftKings spokesperson added that "to suggest that there is an ulterior motive that is personal and not business related is irresponsible and not grounded in reality." Fanatics declined to comment.

New York state also plays a role.

PointsBet has one of just nine licenses to book online bets in New York. The state does not plan to issue more licenses.

Whichever company is to acquire PointsBet would get its license in New York. DraftKings already has a license. Fanatics does not.

The New York Post's source believes that DraftKings' bid for PointsBet is also an attempt to block Fanatics from getting the coveted New York license. DraftKings would deny that train of thought.

So what's next?

If Rubin and Fanatics are to acquire PointsBet, it would allow the company to cross-market the service alongside the merchandising side of the business. It would bring Fanatics into the betting space.

If Robins and DraftKings are to acquire PointsBet, there is a lot more risk. Especially considering that the company has seen its shares plummet by more than half since the failed agreement with Fanatics. It lost $390 million in the three months that ended on March 30 alone.

In addition, PointsBet plans to ask DraftKings for a "hell or high water" merger agreement. That would require DraftKings to buy PointsBet's United States operations even if it cannot get regulatory clearance. New York Post sources say that regulators may not allow for a sports betting giant to cut off a promising competitor.

PointsBet shareholders will vote on the Fanatics bid on June 30. Robins has to decide quickly whether DraftKings will agree to PointsBet's terms and steal the bid from Fanatics or move on.