Analyzing The Flutter-TSG Merger Part 1: Looking At The Big Picture

The merger of The Stars Group and Flutter, two of the largest online gambling operators in the world, sent shockwaves throughout the industry last week. The following is the first in a three-part series exploring different aspects of the deal.

The size and scope of the merger are hard to ignore and not surprisingly, making headlines inside and outside the gambling industry. But what does the deal mean for the two companies and the industry writ large? That’s harder to quantify.

Here is our big-picture analysis of the TSG-Flutter deal.

Consolidation on Steroids

The mega-merger (provided it’s approved) creates the largest online gaming company in the world. But that’s been said several times over the past few years. The TSG-Flutter merger is just the latest trump card played in the game of consolidation the industry is currently playing.

In fact, neither company has finished crossing the t’s and dotting the i’s of their last blockbuster merger, and here they are, about to merge.

In 2015, it was a $5 billion deal that brought Paddy Power and Betfair together to form what would later become known as Flutter, after the company picked up FanDuel in May 2018.

In April 2018, The Stars Group and Sky Gaming merged in what was at the time, a similarly sized blockbuster $4.7 billion deal.

What’s driving the consolidation trend? A big factor is the continued regulation of online gambling across the globe. The regional legalization and regulation trend is increasing the cost of doing business, which plays into the hands of larger, multinational companies.

Bottom line: expect the consolidation train to keep rolling down the tracks, and don’t be surprised if these deals keep getting bigger in scale, including the merging of retail and online gambling companies.

Is the Sum Greater Than the Parts?

The big question for TSG and Flutter is whether the companies are better positioned as individual entities, a consolidated business, or a mixture of the two?

The case for redundant product options

In some markets, the Flutter and TSG brands are strong in one or more online gambling verticals (poker, sports betting, and casino).

Even though it amounts to competing against yourself, it needs to give serious consideration to operating redundant products in markets where strengths overlap. If not, the new company runs the risk of duplicate customers shifting to a competitor as a second or third option.

By maintaining multiple brands, TSG-Flutter could focus brands on specific market segments. One brand could advertise to recreational customers while another brand focuses on the more serious gambler.

The case for complete integration

Full integration will be a long, expensive process. However, it will eliminate redundancies (read as, save money), and streamline the overall corporate strategy.

However, that would greatly reduce cross-sell opportunities in multiple markets where one of the companies possess a strong poker brand but lags in other areas like casino or sports betting.

The case for a bit of both

The solution seems obvious, full integration in some markets and duplicate offerings in others.

Of course, that’s easier said than done.

Not only would the new company have to identify which markets require which approach, but it would also have to execute multiple, likely conflicting strategies.

As Eilers & Krejcik noted in its Flash Report on the merger, “Platform, technology and management integration will be a key risk factor for the combined entity… There is also the question of dual platforms in the US, with FanDuel believed to be working on its own solution alongside TSG.”

All Eyes on the US Market

The companies pointed to the US as a key market for future growth.

“The opening up of the US sports betting market is perhaps the most exciting development in the industry since the advent of online betting,” Flutter CEO Peter Jackson said on a conference call with analysts following the deal’s announcement.

And TSG-Flutter is well-positioned to be a major force in the US.

From FOX Bet to FanDuel, and from PokerStars to ADW horseracing at TVG, the new company will bring together some of the strongest online gambling brands in the nascent US market.

Perhaps more importantly, the merger provides unparalleled market access due to the myriad of deals the two companies have signed. That should be the key to unlocking the US market, at least over the next few years.

TSG Fills the One Hole in Flutter’s Resume

Speaking of PokerStars, online poker is the one chink in Flutter’s armor. The merger solves that problem in a major way, opening up cross-selling opportunities in markets across the globe.

As 888 Head of Commercial Development, Yaniv Sherman recently told Betting USA, poker and sports betting create proven cross-sell opportunities.

The combination of PokerStars and one of the dominant sports betting brands the company possesses (Sky Bet, Betfair, Paddy Power, and FanDuel) will give it a leg up on many competitors.

In Part 2 of this series Betting USA will drill down on the US sports betting implications of the merger. In Part 3 the subject will shift to online casino and poker in the US.

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