Being a private company, it's very difficult for us to value the DRF based on discounted cash flow. What we do know about their cash flow, however, is that it relies primarily on PP sales, advertising and a margin on each dollar bet. All three of those things are not high growth. In fact, a probable argument can be made that at least two of three are in or approaching a negative growth phase.
What appears to interest this new group are a couple of characteristics that could be blue sky:
- “The big opportunity for us is to digitize the print side of the business, which the former owners started to do—it's expensive and there is still a way to go to make it fully function, and then the online gaming offering,” said Z Capital Group CEO James Zenni
Secondarily - and more long term as well as blue sky - is 'online gaming'. They seem to feel that owning a brand like the DRF can give it first mover advantage in sports betting, or other gaming offerings, should laws be relaxed.
Again, without knowing the DRF's total revenue, historical growth (or negative growth) rates, we can't make an assumption on what percentage of the purchase price is a blue sky premium, but in my view it's probably pretty formidable.
Data companies are being created and gobbled up as a matter of course - in DFS and sports. They clearly feel there is some upside here. And, as we all know, the skill game gambling market - esports, sports, DFS, exchanges, etc - is growing, unlike old-school hit and hope gambling markets. What happens in this space over the next few decades is anyone's guess, but it seems this private equity group is positioning itself for it, and thinks it's worth the risk.
For horse racing itself I believe this is not a deal that will send too many shockwaves through how we consume and enjoy the sport. However, Stronach and CDI are probably not fans of these new kids on the block.
Have a nice Wednesday everyone.