(Bloomberg) -- Tilman Fertitta, the Houston billionaire and basketball-team owner, has created a way for the public to invest in his online-betting business.
Fertitta is merging his Golden Nugget Online Gaming Inc. with Landcadia Holdings II, a publicly traded “blank check” company he created last year with Jefferies Financial Group Inc. The deal announced Monday values the business at $745 million, or roughly six times next year’s anticipated revenue.
Fertitta, who will control the new company via a 52% stake, intends to expand beyond the company’s current base in New Jersey, with an emphasis on web-based casino-type betting, in addition to sports wagering.
“We want to be around for a long time and continue to grow,” he said in an interview
Fertitta, who owns the the Golden Nugget casino chain and Landry’s Inc. restaurant empire, created the online gambling arm in 2013. Last year, it generated $16.7 million in earnings before interest, taxes, depreciation and amortization on revenue of $55 million. In 2021, it anticipates $121 million in sales, according to a filing Monday.
Online wagering on games like poker, blackjack and slot machines has been legal in New Jersey for seven years, but the business really took off after the U.S. Supreme Court lifted a ban on sports betting in 2018. Some 18 states now have sports books, often with other online games.
While sports betting has been limited by the Covid-19 shutdown of live matches, many investors believe cash-strapped states will look to increase tax revenue by legalizing online gambling. DraftKings Inc., the leader in fantasy-sports wagering, went public in April through a reverse merger with a blank-check company. It now has a market value of $12 billion.
Online betting is a “hot market,” Macquarie Research analyst Chad Beynon said in a research note Monday. Two states, New Jersey and Pennsylvania, are showing annualized revenue for this year of $1 billion and $670 million, respectively, he said.
All of Golden Nugget Online Gaming’s revenue comes from New Jersey presently, and 99% is from online casino games. A new sports product from Scientific Games Corp. is being introduced shortly, Thomas Winter, the president of Golden Nugget Online, said in an interview.
Fertitta faces some challenges in rolling out his business nationally. States have almost always favored incumbent casino owners when handing out online gambling licenses, giving national chains like Caesars Entertainment Corp. and MGM Resorts International a leg up. Golden Nugget has five casinos, in Nevada, New Jersey, Mississippi and Louisiana. The company plans to expand into online betting in Pennsylvania and Michigan.
Because Fertitta owns the Houston Rockets, the NBA initially barred his company from taking bets on professional basketball. It can now accept bets on all but Rockets games.
“We will mostly like be never be able to wager on Houston Rockets games,” Fertitta said. “It is what it is.”
In any case, the big money online is in traditional casino games, not sports. Only about 5% of the betting in traditional casinos is in sports, and those customers and sports gamblers are less lucrative than regular players, he said. Also, more women play regular casino games like slots.
“We’re always going to be more i-gaming,” Fertitta said. “The universe is bigger.”
Fertitta created Landcadia last year as a way to raise money and then look for businesses to buy. On a conference call Monday with investors, Jefferies Chief Executive Officer Richard Handler said the company looked at dozens of opportunities over the past year, all while Fertitta was telling him how great his online business was.
“What’s best about this is you get to play from home,” Fertitta said on the call. “This is a pandemic-proof business model.”
As part of the deal, Fertitta will pay down half of a $300 million loan Golden Nugget took on in April to sustain his casino and restaurant empire through the shutdowns. At the time, he had to offer investors a yield of 14%.
Golden Nugget is expected to buy back that portion of the loan for 116 cents on the dollar, according to people with knowledge of the matter. It was originally sold to investors at 96 cents.
While the Landry’s empire has been hard hit by the coronavirus, with restaurants closed and consumers skittish about eating out, Fertitta said the business is in good shape financially.
“Landry’s balance sheet is fine,” Fertitta said. “Landry’s generates $300 million in free cash flow a year. This is a separate company.”
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