Wynn Resorts is looking to sell its online sports betting business at a deep discount, according to a source.

According to The Washington Post, Wynn Resorts is looking to sell its online sports betting business at a steep discount as the fledgling industry suffers from steep taxes and costly promotions required to attract customers.

According to a source close to the situation, the Las Vegas-based casino giant is quietly selling its Wynn Interactive unit — operator of the WynnBet online gaming app — for $500 million after floating a $3 billion valuation less than a year ago.

The fire sale comes less than six months after Wynn publicly announced plans for a splashy WynnBet spring launch, including the signing of NBA legend Shaquille O’Neal as a brand ambassador. O’Neal even sold a minority stake in the Sacramento Kings in order to collaborate with Wynn without violating the league’s gambling rules.

Matt Maddox, WynnBet’s outgoing CEO, has expressed concerns about the company’s customer acquisition costs.

In an August press release, O’Neal stated, “I am so excited to take WynnBet to new heights.” “Mobile sports betting is experiencing a boom, and I believe WynnBet will be a dominant force in the industry.”

However, Wynn announced in November that it was abandoning plans announced in May to merge Wynn Interactive with Austerlitz Acquisition Corp., a blank-check company owned by Bill Foley, the billionaire owner of the Las Vegas Knights.

The deal would have provided WynnBet with $640 million in cash for marketing in addition to creating a public company with a $3.2 billion valuation. After revealing that the app was on track to lose $100 million in both the third and fourth quarters, outgoing CEO Matt Maddox indicated that he was not interested in throwing good money after bad.

“The market is really not sustainable right now,” Maddox said during an earnings call on November 10. “Competitors are overspending to acquire customers.” And economics isn’t something we’re going to get involved in.”

DraftKings app displayed on a smartphone against the a logo in the background
WynnBet will face stiff competition from more established betting platforms such as DraftKings.

Shortly after, Morgan Stanley analysts stated that WynnBet was valued at $700 million, but that the app was only expected to capture a 2.5 percent share of the North American market.

Meanwhile, FanDuel and DraftKings, which control the majority of the online sports-betting market, have recently dangled $1,000 credits to entice new members. Similarly, Caesars has staged aggressive promotions in New York, despite a crushing state tax rate of 51% on online gaming revenues.

The New York Gaming Commission announced on Friday that mobile sports betting had a strong first week, with more than $600 million wagered by Caesar’s, FanDuel, DraftKings, and BetRivers. According to gaming analysts, the massive haul was partly due to “heavy promotion from the operators.”

Wynn has an online betting license in New York but has yet to launch its service.

“I personally am surprised at the level of promotions we are seeing given the 51 percent tax rates,” said Truist analyst Barry Jonas. “I believe it needs to be toned down in the long run if the state is to be profitable.”

An ad for WynnBet featuring Shaquille O'Neal
To avoid any conflicts of interest as a WynnBet pitchman, Shaquille O’Neal sold his stake in an NBA team.

It’s a long way from last spring, when online sports betting companies were trading at up to 25 times projected revenue as tech investors like Cathie Wood’s Ark Invest pumped up their stocks, claiming that the pandemic would spark an explosion in mobile gaming.

Even the most valuable of them are now trading at close to six times their original value. DraftKings, the largest publicly traded pure-play sports betting company, dropped from the mid-$50s in May to the low $40s in November. Its shares closed at $19.46 on Friday.

According to Jonas, a tipping point was when DraftKings made an unsuccessful $20 billion offer for British bookmaker Entain in September, indicating that it wanted to gain more exposure outside of the newer US market.

Slot machines at a Wynn Resorts casino
Talk about a risk: According to one source, acquiring an online gaming customer can cost up to $500.

A Wynn spokesman declined to comment on what he called market speculation and rumor. “We were clear on our last earnings call about the current highly competitive nature of the online sports betting market and our desire to operate that business in a way that actually creates long-term shareholder value,” he said in a statement to The Washington Post.

Meanwhile, banking sources say Fanatics and Penn Interactive are the most likely suitors for Wynn Interactive, which owns Wynn Slots and BetBull in addition to WynnBet. However, neither has shown a clear interest, according to sources.

That doesn’t rule out the possibility of a deal. According to David Katz, a gaming analyst at Jefferies, most players claim that the taxes and promotions, no matter how harsh, have not surprised them.

A lighted DraftKings logo
The industry should take note of DraftKings’ plummeting share price.

“The operators are constantly telling us that they have mathematical models that provide them with intelligence that they are spending money wisely — and the Street doesn’t believe them,” Katz said. “The Street’s view of the future has shifted in the last three to six months — there was certainly a lot of enthusiasm, but the winds have shifted quickly.”

Analysts say a key question is whether the steep promotions will begin to pay off soon. Katz estimates that the average cost of acquiring an online gaming customer is $300 to $500.

“I don’t think anyone realizes how tenacious customers are,” Katz said. “Time will tell who is correct.”

About the author

Akanksha Jain

Akanksha Jain love to learn new stuff every day. With a background in computer science and a passion for writing, she loves writing for Startup, Business sections of Editorials99.

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