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Why 1 Investor Is Watching This Gambling SPAC Very Closely

By Jon Quast and Travis Hoium – Nov 11, 2021 at 7:30AM

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This company will be going head-to-head with much larger players.

Earlier this year, Wynn Resorts (WYNN 0.66%) announced that it was spinning off part of its business, naming it Wynn Interactive. As part of the spinoff, special purpose acquisition company (SPAC) Austerlitz Acquisition Corporation (AUS) is merging with Wynn Interactive to bring it the public markets, giving investors another gambling stock option.

Fool contributor Travis Hoium understands this space better than most. And in this video from Motley Fool Backstage Pass, recorded on Oct. 25, he outlines why Wynn Interactive has landed on his radar.

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Travis Hoium: Let's do this really quick. This is Wynn Interactive and they are going public via SPAC, so a public company Wynn Resorts is spinning off their iGaming and sports book business. $3.2 billion enterprise value, Wynn Resorts will own 58% of the company, so if you own shares of that stock like I do you'll still get exposure to this business trading for 4.5 estimated 2023 revenue. I will put that in a little bit of context. They're only expecting $96 million in revenue in 2021, so this is a very richly valued company but it's going to get $690 million dollars in the trust so a lot to invest in building out this digital gambling space.

That's why investors are really excited about this. They're operating it currently in 15 states with room to expand to, I believe it's 24 at least, and that keeps growing every once in a while in the U.S. as online gambling is legalized and then they are operating in the U.K. as well.

The interesting thing for this company is they're leveraging existing resorts in Las Vegas, Boston, and Macau. This is similar to MGM Resorts model versus a company like DraftKings because they've got those physical locations not exactly certain what that advantage is or disadvantage is going to be long-term, but they do have that tie.

A couple of highlights to note here, and this is one thing that I wanted to highlight. We talked about that $10 number for the stock. Cannae (CNNE 0.74%) --  if I'm saying that right -- has agreed to fully backstop their potential redemption. If a SPAC falls below the $10 stock price, the original holders can basically redeem their shares and get their money back effectively. That's the reason that we're not seeing this stock drop too far below that $10 number, but it doesn't worry me. But it is below $10 it gives me pause because it means that the market is not super bullish on this company. There may be a good reason why.

This is at best the number 4 online gambling company in the US behind MGM, DraftKings, and Flutter. I'll show you the market cap of a few of those companies here. DraftKings is really the biggest name here. They've got about a $20 billion valuation. Entain is the partner with MGM, they've got a very similar valuation, and Flutter you can see is $34 billion. They're competing against very big companies. It's a potentially very big market at about $45 billion long-term. But not being in one of those top two or three market positions is going to be a risk for Wynn Resorts. We may potentially see this eventually be a acquisition target. But a company that will hit the market, or at least worth keeping an eye on if you're gambling investor. Because I think this is going to tell us a lot about what is the future look like? Are we going to consolidate to a number of small players or is it going to be a really diverse group of companies and there's going to be 8, 10, 12 operators in the space that's why I'm keeping an eye on this stock as it hits the market.

Travis Hoium owns shares of MGM Resorts International and Wynn Resorts. The Motley Fool owns shares of and recommends Flutter Entertainment and Flutter Entertainment PLC. The Motley Fool has a disclosure policy.

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