A special purpose acquisition company (SPAC) is a publicly-traded shell company used to take another company public. SPACs raise money in initial public offerings (IPOs) and use the cash to acquire another business. It has been a record-breaking year for companies using SPACs as vehicles to go public, and it is full steam ahead for the asset class.
Rush Street Interactive (RSI) is riding the gravy train of SPACs with dMY Technology Group (DMYT +0.00%) as the engine.
Rush Street Interactive's SPAC IPO
You no longer need to go to Las Vegas to gamble now that sports betting is legal in several U.S. states. Rush Street Interactive has a rich history as a pioneer in opening online casinos in Pennsylvania, Indiana, Colorado, and Illinois. It is also the first U.S.-based gaming company to operate a legal online sportsbook in Latin America. As a result of its early entrance into the industry, the company is now one of the largest online casinos by revenue.
Online casino and sports betting companies are hot commodities right now, and dMY Technology wants in on a slice of the action. The SPAC deal values Rush Street Interactive at $1.78 billion, which implies a valuation multiple of about 5.6 times its projected revenue for 2021.
Rush Street Interactive will use the capital from the fundraising to expand its online operations and sports betting business, capitalizing on the the industry's rapid growth.
Image Source: Getty Images.
A leading online casino
Sports betting and online casinos may seem like one and the same. However, sports betting requires bookmakers to take a stand on the outcome of a game. The casino can lose money if it does not set the odds right.
Online casinos, on the other hand, involve playing traditional Las Vegas-style card games and slots online. The odds for online casino games are fixed based on mathematical formulas that make the payouts more predictable for the casino and allow it to be more profitable. For the player, the appeal of the online casino is the bigger jackpot that may be offered upon a win, but the house almost always comes out ahead.
Rush Street compares favorably to its publicly-traded peers. Rush has more revenue than GAN and Golden Nugget, and it's also growing faster with positive cash flows. Yet the IPO values the company at a lower multiple of revenue.
| Financial Metrics | DraftKings | GAN | Golden Nugget | Rush Street Interactive |
|---|---|---|---|---|
| Enterprise value-to-revenue multiple* | 17.5x | 14.6x | 8.9x | 5.4x |
| 2021 estimated revenue | $714 million | $49 million | $122 million | $320 million |
| Cash flow | Negative | Positive | Positive | Positive |
| Enterprise value | $12.48 billion | $715 million | $1.08 billion | $1.73 billion |
Data Source: Rush Street Interactive public filings. *2021 estimated revenue.
Given the growth expected from friendly gambling legislation spreading across the U.S. and Rush Street's attractive position in comparison to its peers, the stock will likely be a popular one among investors post-IPO.
A rush of online gambling debuts
The surge of new companies looking to corner the online gambling industry is reminiscent of the California Gold Rush. Several companies have raised capital this year in order to build out operations to meet the surging demand.
Investors interested in betting on the rapid growth of the online gambling industry have many variables to consider. The deal is expected to close later this year, pending shareholder approval.
