Wynn Resorts Ends Sports Bet SPAC Deal, Notes High Customer Acquisition Costs

Posted on: November 12, 2021, 09:26h. 

Last updated on: November 12, 2021, 10:14h.

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

Wynn Resorts (NASDAQ:WYNN) and special purpose acquisition company (SPAC) Austerlitz Acquisition Corp. I (NYSE:AUS) are ending a plan to merge the shell company with Wynn Interactive. That would have paved the way for that business to go public.

Wynn SPAC
Wynn is terminating a blank-check deal for Wynn Interactive. Weak sports betting economics are one reason the transaction is scrapped. (Image: Las Vegas Review Journal)

The casino operator said the decision was “mutually agreed” to. Unappealing economics in the online sports wagering industry played a role in the transaction’s demise.

In light of elevated marketing and promotional spend in the sports betting industry, we are pivoting our user acquisition efforts to a more targeted ROI-focused strategy,” said Wynn Interactive CEO Craig Billings in a statement. “In so doing, we expect the capital intensity of the business to decline meaningfully beginning in the first quarter of 2022. WynnBET’s best days lie ahead of us.”

In May, Wynn announced plans to merge the Wynn Interactive unit with Austerlitz, a shell company controlled by Las Vegas Golden Nights owner Bill Foley. It was expected Wynn Interactive would sport an enterprise value of $3.2 billion after the deal and trade on the Nasdaq under the symbol “WBET.” Wynn Resorts was expected to control 58 percent of the new company.

Sports Betting Economics Weighing on Operators, Investors

While the domestic sports wagering industry is in its early innings and features rapid growth rates, operator profitability is another matter. Investors are getting wise to that fact.

Plenty of companies in this space spend large amounts of capital on prime time advertising and other expensive marketing ventures. Additionally, they offer large upfront bonuses to get clients in the door. But many casual bettors are merely shopping for the best introductory offers, while sharp players are hunting for the best lines. In other words, sports betting is an example of an industry where significant marketing expenditures don’t always foster customer loyalty, let alone profitability.

Wynn doesn’t want a part of what it views as unsustainable economics, and is looking to position its interactive arm as something more than a money-losing venture.

“The market is really not sustainable right now. Competitors are spending too much to get customers. The economics are just not something that we’re going to participate in in the short term,” said soon-to-be-former CEO Matt Maddox on Wynn’s third-quarter earnings conference call earlier this week.

Wynn Interactive is live in 15 states, covering 51 percent of the US population, and was aiming to get to 77 percent of the population. But analysts believe the operator is at a disadvantage relative to rivals that have extensive databases of either daily fantasy sports (DFS) players that can be converted to sports bettors, or domestic casino customers that might be interested in internet wagering.

End of SPAC Deal Caps Wild Week for Wynn

News of the blank-check merger being terminated caps an unusually brisk week of news flow for the Encore operator.

On Tuesday, the company released its third-quarter financials, which were accompanied by news that Maddox is stepping down as chief executive officer at the end of January. He’ll be replaced by Billings.

The next day, a research firm overtly speculated that Maddox leaving the gaming company could open the door to a takeover, potentially by a private equity firm. Wynn hasn’t publicly commented on that rumor.