The Stars Group merged with Flutter Entertainment to create a gaming powerhouse. This merger marked a significant shift in the gaming industry, bringing together two major players.
The combined company, now known as Flutter Entertainment, boasts a strong presence in the global gaming market. The merger was finalized in 2020, creating a new entity with a diverse portfolio of brands.
The Stars Group's expertise in online gaming and Flutter Entertainment's experience in sports betting made for a formidable combination. This merger has enabled the company to expand its offerings and reach a wider audience.
With a stronger presence in the market, Flutter Entertainment is well-positioned to continue growing and innovating in the gaming industry.
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The Deal
The combination of Flutter and The Stars Group was a strategic move that made sense for both companies. The transaction strengthened Flutter's position in its core markets, including the UK, Ireland, and Australia, by combining the offerings of Sky Bet, Paddy Power, and Betfair.
The deal also boosted Flutter's international presence, with The Stars Group's active customer base of around 4 million people in its international segment. This expansion is expected to drive revenue growth in international markets through cross-selling to The Stars Group's poker customer base.
The combined entity will offer a wide range of products, including sports betting, horse racing, and poker, which will drive down the cost of acquiring new customers and increase customer lifetime value. The companies expect to achieve material pre-tax cost synergies of around £140 million per year through the combination.
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The Stars Group
The Stars Group was a Canadian gaming and online gambling company that operated under various brands, including PokerStars, Full Tilt Poker, BetStars, and Fox Bet. It was headquartered in Toronto, Ontario, Canada.
The company was founded in 2001 and was previously known as Amaya Inc. and Amaya Gaming Group Inc. It was a public company traded on the Nasdaq and Toronto Stock Exchange.
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The Stars Group had a significant presence in the online gaming industry, with a global reach and operations in 17 jurisdictions. Its online gaming division, Stars Interactive, was headquartered in Onchan, Isle of Man.
The company's shares were valued at around $15.31, but investors received a 40% premium when Flutter Entertainment acquired The Stars Group in 2020. This deal created a new entity with a significant presence in the US sports betting market.
Here's a breakdown of the key figures involved in the deal:
The new company will be based in Dublin, Ireland, and will be listed on the London Stock Exchange. The deal marked a significant shift in the online gaming industry, with both companies eyeing the burgeoning US sports betting landscape.
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Deal Rationale
The combination of Flutter and TSG is perfectly aligned with Flutter's strategy, both in terms of presence in its core markets and of further international growth.
Flutter's positioning in the core markets of UK, Ireland, and Australia will be strengthened, thanks to the combined offering of Sky Bet, Paddy Power, and Betfair.
The transaction will also develop cost synergies from integrated technology and marketing investments.
TSG's active customer base of around 4 million people in its international segment will boost the international presence of the combined group.
The cross-selling strategy to TSG's poker customer base has the potential to bring sports betting to entirely new markets.
Flutter will gain a market-leading position in eight countries: UK, Ireland, Australia, US, Georgia, Spain, Italy, and Germany.
TSG's platform capabilities will aid the internationalization process with an increased offering of around 30 languages, 25 currencies, and more than 55 payment options.
The combined group will offer a wide product offering, including free-to-play games, sports betting, horse racing, and poker, driving down the cost of acquiring new customers.
Material pre-tax cost synergies of around £140m per annum are expected to be achieved by eliminating redundancies in corporate functions and programming interface integration across platforms.
The combined entity is expected to generate a strong cash flow, resulting in rapid deleveraging and maintaining a 1x-2x Net Debt to EBITDA.
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Company Structure
The Stars Group has a clear executive committee structure, led by Director of Finance and CFO Brian Kyle, who has been in the role since 2017.
Brian Kyle, the Director of Finance and CFO, has been with the company since 2017, bringing a wealth of financial expertise to the role.
The President of the company is Dave Gadhia, a seasoned executive with 63 years of experience.
Here's a quick rundown of the key members of the executive committee:
Note: The ages listed are current ages, and the "Since" column reflects the date of each executive's tenure in their current role, or the date they joined the company, if applicable.
Contributions from Each Party
Flutter has significant exposure to the British regulated gambling scene, which has become a more difficult area to operate within because of the continual tightening of the rules pertaining to betting activities.
The Stars Group collects its revenue from a broader portion of the globe, so it won't be as drastically affected by developments in a single country.
Flutter has a much stronger sports betting division, which will certainly help The Stars Group as it seeks to enhance its performance in this department.
The Stars Group's largest product division remains the somewhat lower-margin poker.
Executive Committee: Inc
The Executive Committee of Inc is responsible for overseeing the company's overall strategy and direction. This committee typically consists of high-level executives who have a deep understanding of the company's operations.
Brian Kyle serves as the Director of Finance/CFO, a position he has held since June 2017. He is 61 years old.
Dave Gadhia is the President of Inc, but we don't have a specific date for when he took on this role. He is 63 years old.
Conor Grant and Ian Proctor are Corporate Officers/Principals, but we don't have a specific date for when they started in these roles. They are 48 and 59 years old, respectively.
Here's a brief summary of the Executive Committee members:
About Two Organizations
The Stars Group and Flutter Entertainment are two large companies with diverse interests in online poker, sports betting, casino gaming, and more.
Both companies have a history of mergers and acquisitions, with The Stars Group descending from the Rational Group, which acquired Full Tilt Poker in 2011.
The Stars Group has also made significant purchases, including Sky Betting and Gaming in 2018, and partnered with FOX Sports to create Fox Bet in 2019.
Flutter Entertainment's biggest components are Paddy Power and Betfair, two bookmaking outfits that merged in 2016.
Flutter Entertainment has also expanded its portfolio by acquiring FanDuel, a daily fantasy sports leader, in 2018.
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Advisors
The people who help make big business decisions are often financial and legal advisors. These experts provide crucial guidance to companies like the Stars Group and Flutter Entertainment.
Barclays, BMO Capital Markets, and Moelis & Company LLC served as financial advisers to the Stars Group board. A&L Goodbody and Blake, Cassels & Graydon LLP served as Stars Group’s legal counsel.
Goldman Sachs and PJT Partners served as financial advisers to the Flutter Entertainment board.
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Market Impact
The stock market reacted positively to the deal between Flutter and The Stars Group, with Flutter's stock price jumping almost 7% in a day, and The Stars Group's stock price gaining about 30% on the day.
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The combination of Flutter and The Stars Group will likely lead to a reduction of the player count at the iPoker Network, as Flutter is unlikely to continue participating on the network once the transaction is finalized.
This reduction in player count could have a ripple effect, potentially leading to a decline in the network's overall traffic and player base, similar to what happened to the MPN network after Unibet abandoned it in 2014.
Market Reaction
The stock market reacted positively to the deal between Flutter and TSG, with Flutter's share price jumping above £92.00 on Wednesday morning before closing at £81.64 for a 7% gain day-over-day.
Flutter's share price closed at £81.64 on Wednesday, a 6.94% increase from the day before, with The Stars Group Inc's share price rising almost 30% at the opening in Toronto, reaching peaks of C$20.38 per share.
The Stars Group share price kept on rising, closing at C$20.92 per share on October 4, which seems reasonable considering the 36% implicit premium received by The Stars Group shareholders in the transaction.
However, Flutter's share price dropped to £80.90 on October 4, down from £81.64 on October 2, likely due to rising concerns about the size of the implicit premium recognized to TSG, which stands at about £200m more than the value of savings.
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What Does This Mean for Poker Players
The acquisition of The Stars Group by Flutter will likely have a significant impact on the online poker community. The combined corporation will inherit a substantial player base from Betfair and Paddy Power, which could give PokerStars a much-needed boost in terms of liquidity.
This is especially important for PokerStars, which has been experiencing a decline in cash game traffic over the past decade. Recent figures show that it has been surpassed by IDNPoker, an Asia-focused operation.
The acquisition may also lead to a reduction in player count at the iPoker Network, where Betfair and Paddy Power currently operate. This could have a ripple effect, potentially leading to a decline in the network's overall traffic.
However, it's worth noting that the combined corporation is expected to generate significant cost savings, estimated at $172 million per year. This could help to reduce its debt load and free up cash flow for future investments.
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Geographical Sales
The Stars Group has a significant presence in various geographical regions, with notable sales figures in the UK, Malta, and Australia.
The UK is a major market for the company, with sales reaching £462 million in 2018 and £995 million in 2019.
Malta also plays a crucial role, with sales of £497 million in 2018 and £557 million in 2019.
Other notable markets include Australia, with sales of £197 million in 2018 and £275 million in 2019, and the Isle of Man, with sales of £376 million in 2018 and £99.5 million in 2019.
Here's a breakdown of the company's geographical sales:
Poker Network
The Stars Group's acquisition of PokerStars will likely have a significant impact on the iPoker Network. This network, currently the 10th largest internet poker provider by ring game traffic, will probably lose a big chunk of players.
Betfair and Paddy Power, two prominent brands that will change ownership as a result of the acquisition, are likely to leave the network. Their departure would be equally important as their joining, as indicated by the timeline on the iPoker Network's webpage.
The reduction in player counts could feed upon itself in a spiral of doom, as seen in the past with MPN after Unibet abandoned the network in 2014.
Brands and Products
The combined company will retain the Flutter name, but it will be massive, with a customer base of 13 million and annual revenue of £3.777 billion.
The combined group will have a diverse range of brands, including Paddy Power, Betfair, and FanDuel, as well as Sky Bet, Sky Vegas, and PokerStars.
Here is a list of the brands from both Flutter and TSG:
The combined group will have a more diverse geographic split, with 49% of revenue coming from the UK & Ireland, 31% from Rest of World, 15% from Australia, and 5% from the USA.
The combined group will also have a more diverse product portfolio, with 45% of revenue coming from online sports betting, 22% from online gaming, 9% from retail, and 18% from poker.
Uncertainty and Next Steps
The agreement between The Stars Group and Flutter is far from a done deal. It still needs to be approved by the shareholders of the corporations, which is expected to happen sometime in the second quarter of 2020.
Regulatory scrutiny is another significant hurdle the companies will have to overcome. The deal could be nixed by officials from the United States, United Kingdom, Australia, and Canada, where both parties have a presence.
Anti-monopoly laws could be the primary mechanism for derailing the plans of The Stars Group and Flutter. The new, larger corporation will have a commanding presence in several markets, including online poker, sports betting, and daily fantasy sports.
In some jurisdictions, the level of market share held by Flutter or Stars might give officials cause for concern. This is particularly true for online poker, sports betting, and daily fantasy sports, where they may be among the leading providers.
Governments have shown a willingness to interfere in online gambling deals in the past. The UK's Competition and Markets Authority, for instance, put a halt to a bid by TSG to acquire Sky Betting & Gaming in July 2018.
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