Five questions from The Stars Group’s CrownBet deal

The Stars Group entered the M&A fray with both hands this week, picking up a 62% stake in Australian online bookmaker Crownbet for approximately £84m.

The deal was something of a curveball for most in the industry, with William Hill long thought to be Stars’ desired sportsbook target.

With that in mind, here are five questions thrown up by the acquisition:

Has Stars overpaid?

CrownBet’s 2017 revenues were US$160m with EBITDA of $6.2m, suggesting a multiple on the deal of 30.6x EBITDA. “This looks rich,” noted Simon Davies of Canaccord Genuity, especially in light of the state of the Australian market with a nationwide POC tax potentially on the way.

There are also no cross-sell opportunities into poker or casino – an area where Stars is an industry leader. Could Stars use its stake in CrownBet to push for the legalisation of online poker?

Of course CrownBet is one of the success stories of the Australian market – the second largest regulated betting market in the world, according to Stars – having grown revenues from A$76.5m in 2015 to approximately A$204m in 2017 at a CAGR of 63.3%.

However, as analyst firm Davy noted : “Growth or no growth, it could be argued that the only way this transaction stacks up from a returns perspective is if Stars can enhance the scale of the business through further acquisition and the achievement of substantial synergies thereafter.”

Does Stars already have that next acquisition lined up?

It was reported earlier this week that CrownBet was one of four finalists to have submitted a bid for William Hill’s beleaguered Australian business. Could we a see a chain reaction of acquisitions, with Stars ending up in charge of Hills Australia as well as CrownBet?

Davy noted: “The strategic value of that asset [Hills Aus] has arguably now risen with the other operators presumably keen to block Stars from further increasing its scale in the market.”

The Irish analyst also said it understood Stars would not be allowed to use the Crown brand by the end of the year due to a pre-existing agreement with Crown Resorts.

Davy added: “An acquisition of William Hill would potentially solve that problem, although it remains to be seen whether Stars will emerge as the ultimate winner in that bidding war. Given the multiples it has paid this morning and the strategic need it has for the asset, it may well have become the front-runner.”

Is this also a US play?

One of the key assets The Stars Group is acquiring is the CrownBet proprietary platform. However at first glance, it’s an odd choice, with the platform geared for Austraian sports betting which is “highly ‘bespoke”, according to Regulus Partners, with the predominance of domestic horseracing, and local sports, as well as the absence of in-play wagering.

However, the deal could make more sense when seen as a US sports betting play, with Stars potentially offering up the platform to the land-based casinos who would likely hold the licences should betting be regulated in the US.

US analysts Eilers & Krejcik noted: “CrownBet has three years’ experience of working with a land-based casino brand and has integrated its land-based rewards system into the site. The business also operates on a separate, proprietary platform from Stars’ other operations and as such should be a simpler process to roll-out for operators in the US.

Stars is already live with poker and casino in New Jersey through a partnership with Resorts Casino, while it is also planning to launch in Pennsylvania later this year. Could this be part of a B2B play in the market as well?

How valuable is Matthew Tripp?

Several analysts speculated that the addition of current CrownBet CEO Matthew Tripp to the Stars executive team was a major coup for the firm.

Canaccord’s Davies described him as a “highly experienced and incentivised entrepreneur/founder, whose skillset could be useful as Stars attempts to develop its own sports offering.”

Meanwhile, Eilers and Krejick noted Tripp was considered “something of a rockstar in his native Australia, having previously founded, scaled up and sold the Sportsbet business owned by Paddy Power Betfair.”

The analyst added: “His knowledge of the sports betting business will likely be an asset to TSG as they look to expand into other regulated markets, although we’d be wary of overstating the benefit of acquiring expertise that sits in a time zone some 11h ahead of management.”

Is this the end of Stars’ sportsbook M&A?

As noted in the introduction, Stars’ ambitions to add regulated sportsbook revenues have been well-flagged in the past, with CEO Rafi Ashkenazi saying the goal is simply to find more revenues and customers to put through the BetStars platform.

The CrownBet deal doesn’t seem to help too much there – unless BetStars was to ditch Amelco for CrownBet – suggesting another deal in Europe could still be on the way. Goodbody noted Stars’ debt was at lower levels than the recent past, suggesting a “bolt-on deal like this [Crownbet deal] will not be seen as something that may stop its M&A ambitions”.

Eilers and Krejcik added: “CrownBet does not appear to solve any of TSG’s existing issues around sports betting, namely scale, product and brand, although it does undoubtedly add a new layer of operational expertise. The rationale for pursuing a large-scale target in the European sports betting sector remains intact in our view.”