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When the U.S. Supreme Court repealed the Professional and Amateur Sports Protection Act (PASPA) five years ago, gaming industry analysts were quick to try and estimate how the new U.S. sports-betting market was going to play out in terms of size and profitability.

“Everyone thought it was going to be a $60bn, $80bn or $100bn market here in the U.S. We are significantly under that,” said Jordan Bender, senior equity analyst with JMP Securities, a Citizens Company. “According to our estimates, by 2030 we will be up to about $40bn.”

After legalization, Bender said, everyone thought that we could get 100 percent of states with sports betting, 100 percent of the states with iGaming, even all these gaming companies would have market share of 20 percent to 25 percent.

“As we know that has not happened quite yet,” Bender told attendees on July 15 at the National Council of Legislators from Gaming States (NCLGS) summer meeting. The four-day conference was held from July 12-15 in Denver.

“In terms of the macro picture, interest rates were at historic lows, which gave these companies the opportunity to really grow into this evolving market,” he said. “So, with the growth … it gave these companies the opportunity to come to the public market.”

Bender said there were two rails to take a company to the public market, with one being a traditional initial public offering (IPO), and the other was using a special purpose acquisition company (SPAC) to raise capital through a public offering.

“From my perspective, there are several reasons why [SPACs] are popular,” he said. “You can get to the public market quicker. It’s cheaper and people are able to trade these a lot quicker from an investors point of view.”

The route to public offering using a SPAC may take two to three months, while a conventional IPO process can take anywhere from six months to more than a year. SPACs have two years to acquire a company or return funds to investors.

With an IPO, a date is set, and an underwriter ensures a certain price is met on the market.

Companies going public since 2020 using a SPAC include DraftKings, Genius Sports, Golden Nugget Online, Rush Street, and Super Group, the parent company of Betway. Gambling.com, GAN, NeoGames, Sportradar and theScore went public using an IPO.

“The key point,” Bender said, “is in a traditional IPO you can’t talk about your forecast projections but with a SPAC it gives you the opportunity to say this is my business and this is what we think the business is going to look like from a revenue, earnings perspective.”

The ability with a SPAC to be more candid about revenue expectations is a benefit to analysts and investors, he added.

Bender, who participated in a panel discussion on mergers and acquisitions, noted that part of the euphoria coming out at the beginning was the valuation of these companies.

“We look at some of the deals done in 2018, 2019 and 2020 [and] the average deal price was 6.5 times sales. Now with all this euphoria and the industry reset, we look at a more recent deal, Fanatics and PointsBet. Fanatics was able to buy this at 2.3 times sales.”

When asked if there was a clear-cut preference for gaming companies between a SPAC and an IPO, Bender said there was no right solution for these companies. He advised them to look at their capital needs and the cost of that funding.

Bender reiterated his position that the gaming industry has pushed the “big reset button.”

“We now understand where we are kind of going and what it takes to be successful in this industry,” he said. “A question we get a lot is what is going to happen in the next [few] years? Will these companies exist or not?”

Bender said we are hitting this point in the industry where a lot of money has been spent, and there are five companies that dominate the market.

“If you are operator 45 in the state of Pennsylvania, how much revenue are you really generating and how much profitability are you actually making, when we’re at this point of profitability,” he said. “So, for these smaller companies, it’s just weather out the storm, or we sell, or we go away.”

Bender returned to PointsBet's U.S. business as an example of an under-capitalized company that was unable to grow within the industry, and Fubo TV was an example of a company that just shut down.

“That’s one side of it,” Bender said. “The other is what happens with the top companies that are capitalized with large enterprises. Do they start to become aggressive on the M&A front?”

“The markets want profitability and if it makes sense from a profitability standpoint, within the next one, two or three years we’ll go for that.”