Rush Street Interactive Probably Not Near-Term Takeover Target, Says Analyst

Posted on: March 4, 2024, 12:48h. 

Last updated on: March 4, 2024, 06:27h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

High-flying Rush Street Interactive (NYSE: RSI) probably won’t command $1.5 billion in a takeover offer over the near term.

Rush Street Interactive
A Rush Street Interactive advertisement. The company probably won’t fetch $1.5 billion in a takeover, says an analyst. (Image: X)

That’s the take of Susquehanna analyst Joseph Stauff who, in a new report to clients on Monday, downgraded shares of the online sportsbook operator to “neutral” from “positive” while raising is price target on the shares to $6 from $5. That new forecast is slightly above the stock’s closing price of $5.84 on March 1.

Stauff pointed out that Rush Street Interactive’s recent stock surge — it’s up almost 48% over the past year — could make the name less appealing to prospective suitors, and that a $1.5 billion price tag would be unattractive to BetMGM and Caesars Entertainment (NASDAQ: CZR).

RSI has long been rumored to be a buyout target, but $1.5 billion isn’t that much of a premium to the operator’s current market value of about $1.30 billion, indicating the former figure might actually be light should the gaming company’s management team decide to listen to offers.

Rush Street Interactive Could Be Open to Takeover

Last May, RSI CEO Richard Schwartz told analysts and investors he’d be open to having mergers and acquisitions discussions, but since then, the stock has nearly doubled. That could be a sign the operator doesn’t need to run into the arms of a suitor.

Additionally, neither BetMGM nor Caesars have publicly indicated RSI is a target of theirs. It’s plausible, on the basis of those two operators trailing rivals DraftKings (NASDAQ: DKNG) and FanDuel by wide margins, that the potential purchase of RSI could help them add market share.

Depending on price, Rush Street Interactive could be an alluring target for any number of prospective buyers owing to the operator’s robust iGaming footprint and its exposure to fast-growing sports wagering markets in Latin America. That could give the company a leg up as Brazil — the largest economy in the region — moves toward awarding sports betting permits.

In the US, Chicago-based RSI operates under the BetRivers and PlaySugarHouse brands, and is currently available with mobile or retail businesses in Colorado, Illinois, Indiana, Iowa, Michigan, New Jersey, New York, Pennsylvania, Virginia, and West Virginia. The firm also offers sports wagering in Ontario, Canada.

Illinois Could Be Problematic for Rush Street Interactive

Beyond lack of takeover interest at the aforementioned $1.5 billion price point, Stauff said shares of RSI could be hampered over the near term due to issues in its home state.

Not only does Illinois Gov. J.B. Pritzker (D) want to plug shortfalls in part by raising the state’s sports betting tax to 35% from 15%, but despite the state’s fiscal needs, iGaming appears unlikely to pass there this year.

Some gaming companies are pitching iGaming as an alternative to the higher sports betting tax, noting the former could generate as much as $775 million in annual revenue for the state, but it remains to be seen if Pritzker is open to that compromise.