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Merger Deal Holds TSX Listing for FantasyAces

Aliso Viejo-based startup FantasyAces LLC plans to merge with a company that’s listed on the Toronto Stock Exchange as it seeks capital for its goal of competing at the top level of one of the hottest areas in the entertainment industry.

The daily fantasy sports site will combine assets with Vancouver-based DraftTeam Daily Fantasy Sports Corp. in a reverse merger to create Fantasy Aces Daily Fantasy Sports Corp.

The combined operation will trade on the TSX Venture exchange—a junior market that’s home to some 2,300 emerging companies, a majority tied to the mining and exploration sectors.

The TSX Venture has received criticism for hosting several hundred companies considered “zombies” with negative working capital and little investor interest.

FantasyAces sees it as a way to inject new life into its growth plans.

“The long and the short of us reaching out to the Canadian markets is they had a financial vehicle for Aces while at the same time enabling our company to remain intact as the sole operators,” said cofounder and Operations Director Bryan Frisina, who launched the company in 2013 with his brother Trent and father, Tom, a former executive at Electronic Arts International. 

FantasyAces management will hold about 57.5% of outstanding shares of the new entity at the deal’s closing, which is expected in coming weeks. The stake will be worth about $9.2 million, according to regulatory filings.

FantasyAces will be one of the few publicly traded companies in the booming daily fantasy sports sector, which generates about $3.6 billion in annual revenue from transactions, Web hosting, prize fees, challenges and subscription services, according to the Chicago-based Fantasy Sports Trade Association.

FantasyAces posted revenue of about $220,000 last year and a net loss of $576,000, according to regulatory filings.

The combined company will be based in Aliso Viejo, and its new board will consist of the Frisinas; FantasyAces Chief Financial Officer Mike Olsen; Dave Carbon, chairman of Redwood City-based Electronic Arts; Richard Haddrill, executive vice chairman of Scientific Games Inc. and chairman of Corrective Education Co.; DraftTeam Chief Executive David Antony; and Canadian investment banking and venture capital expert John Rak.

Funds

FantasyAces, which wants to solidify its hold on the third spot in the industry behind giants FanDuel Inc. and DraftKings Inc., is seeking to raise about $5 million in Canadian dollars—a little less than $4 million in U.S. currency, as part of the move.

“The bulk is going into marketing and user acquisitions, getting our products in front of as many eyeballs as possible,” said Trent Frisina. “We’re positioned right now to scale.”

The company is working on a mobile app for Apple’s iOS operating system that it hopes to debut for the upcoming football season.

FantasyAces has more than 24,000 members who pay as little as a dollar a day to participate in some fantasy leagues in baseball, basketball and football to more than $100 to get into tournaments.

Teams are often represented by a single competitor who is owner, coach and general manager. Each team drafts players and starts them in a lineup that generates scores based on actual game statistics.

It’s common for players to enroll in several daily events run by different companies. Players set up an online account with a credit or debit card that is adjusted per game play.

FantasyAces aims to give away $30 million in prize money this year after taking an industry-standard 10% cut from total wagers.

Market leader FanDual averages $10 million in weekly payouts. The New York-based site, which had a 63% market share last year according to Eilers Research LLC in Anaheim Hills, wowed industry watchers this month when it raised $275 million in a Series E round led by Kohlberg Kravis Roberts & Co. Other backers included Google Capital, Time Warner Investments and Turner Sports, and a prior investor base of several NFL and NBA team owners, as well as Shamrock Capital, NBC Sports Ventures, Comcast Ventures, Bullpen Capital, Pentech Ventures and Piton Capital.

The company, which has an exclusive deal with the NBA, has raised $363 million to date and has been valued at more than $1 billion.

No. 2, DraftKings Inc., which had a 33% market share last year, has raised about $76 million. It is looking to raise a few hundred million more in its next round, according to media reports, after Disney pulled out of a $250 million round a few months ago.

DraftKings has an exclusive deal with ESPN, MLB and the NHL, as well as several professional sports franchises—ties that FantasyAces has yet to secure.

FantasyAces’ marketing campaign is anchored by exclusive partnerships with sports radio station KLAA, which operates out of Angel Stadium, and Huntington Beach-based FantasyAlarm, which has 2.5 million monthly online visitors seeking inside fantasy tips and advice.

The KLAA deal includes a weekly spot that features Trent Frisina talking fantasy sports with host Roger Lodge, as well as broadcast promotions.

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