Recently, a friend of mine brought up a stock he was trading. I started looking into it, the more I did, the more I liked it. Actually, I started thinking the stock might be more than just a trade, maybe one I could buy with a super cheap valuation, and get in early enough that as it firmed up I could trade around a position as it trends higher. Looking for spots to sell when the stock spikes and buy on the dips while holding a core position and build on it. That is a pretty tall request, but I think I’ve found one.
The company is a tech startup, Fantasy Aces Daily Fantasy Sports Corp., trading on the TSX Venture market, symbol (FAS.V)(OTC PINK:FASDF), this is usually a place where I look for small to mid-sized mining stocks. They are trading at $0.055, with around 80 million shares out, they have a market value just under CAD $5 million.
Fantasy Aces is a company that hosts daily fantasy sports contests online at fantasyaces.com. Most sports fans are aware of Fantasy Sports contests, many play in them. I know I do. We’ve all heard of the big players in the industry DraftKings and FanDuel. Against those giants, tiny little Fantasy Aces is a distant competitor in the battle for market share. But, they are the only publicly traded company involved in daily fantasy sports.
They are a result of a Reverse Takeover (RTO), Fantasy Aces taking over DraftTeams which at one time was a lithium company. They also did a fund raising for close to $4 million at $0.10 per share with warrants that give investors an option to buy another share at $0.15 for 2 years.
This is all pretty standard procedure when it comes to an RTO. I bring it up because it plays a role in why I feel the timing is pretty safe for current investors that can get in for less than the price of the investors that went into the funding, including insiders.
So far, I have to admit, it doesn’t sound all that exciting. Oh, and there are more clouds. There is an Attorney General in New York with political aspirations, go figure, he wants to get into the limelight and has gone after DraftKings and FanDuel with the intent to have them banned from offering daily fantasy sports contests to players living in New York. The current ruling before a judge is to allow DraftKings and FanDuel to keep operating in New York until the case goes through court. This entire legal battle in New York is catching tons of media and sports fan attention.
Knowing all this, I still recently purchased shares a couple times, with an average purchase price of 5 pennies. Despite all the moving parts of a tiny company nipping at the heels of huge competitors, in an industry going through a significant legal battle, this scrappy little competitor could have substantial growth ahead of them.
I purchased a third of my shares when I looked over the company and thought, even if there was a bad ruling for the industry I was getting in cheap enough that there wasn’t much downside. In reality, I thought and still do, that a bad ruling is priced into the stock. I also felt comfortable enough to take a flyer on the stock as I thought they would be alright even if New York ruled against daily fantasy sports. There are big markets out there, nobody says other states will follow suit. I would even argue the political backlash in New York would dissuade other politicians. They should be careful about angering sports fans, they are vocal and vote.
The reason I bought the other two-thirds of my position and feel comfortable enough to now bring it to my readers is there is a pretty good shot there will be a good ruling in the current skirmish in the legal battle. Plus, I see plenty of other catalysts for growth for Fantasy Aces. Don’t worry, there is enough stock coming out so nobody should have to chase it, not in the real short term anyway.
What started to give me confidence about the court case, is the lawyer for DraftKings, David Boies, I’ve watched his career for a couple decades, so I’m a geek for high-profile court cases.
I’ve seen him make arguments in court and his brilliance is readily apparent. It takes more than just a great lawyer, you also need a case, and his main arguments are strong. But then last week I heard a report, from somebody reporting from in the court room, that in the questions the judge is asking, he is trying to determine the difference between a season long fantasy sports league and a daily contest.
The short answer is, the only difference is the timeframe of the games in the contest, they are both a game of skill. I’ve been betting on the horses since I was a teenager, and I’m also a decent chess player, I get the difference between gambling on games of chance and playing a skill based game. Being successful at fantasy sports takes the same kind of time it takes to be good at chess. Someone in New York can spend as much as they want at the lottery, there is no reason they shouldn’t be allowed to enter a contest they could win cash playing based on their skill at a very complex contest. I think David Boies is getting to the judge, DraftKings and FanDuel should be allowed to keep operating until the case is heard in court as they have a strong legal case and a good chance to win in the end.
Beyond the court case, I like what I see with the potential for growth of Fantasy Aces, I’ve done my homework to where I’m comfortable becoming a shareholder. The next step is I will invite Tom Frisina, CEO of Fantasy Aces, to come on one of my individual company interview shows. These shows are designed as due diligence type calls I make to companies when I’m considering covering them. I’ve spoken with Tom Frisina over the phone, and I want you to hear the past and future story from him.
Subscribers to our reports will get an update when the interview show will happen, if you would like to sign up there is no charge, just look in the top right corner of the website, I would hope it shouldn’t take more than a few days to arrange. If for some reason we can’t coordinate an interview, then I will present a follow-up post in the next few days with my further research and views on where they have been and where I see them going. But I do have a couple more points, before wrapping things up.
Earlier, I mentioned the prices stock was issued in the past, there was the private placement to raise around $4 million, done at $0.10, which means it is highly unlikely any of those shareholders are sellers of the stock at under 10 cents. But FAS.V sure has traded a lot of stock under 10 cents. Where is it coming from, the stock just started trading in early October, less than two months ago?
This brings us back to the RTO, basically what happened is Fantasy Aces a private company, took over a publicly listed company. The shareholders in the public company received shares in Fantasy Aces. These legacy shareholders are the most likely suspects of the sellers, especially those that owned a lot of stock in RTO company. Some of the big legacy shareholders must have got stock pretty cheap in the past, but I have a feeling a new audience of investors can eat through their selling fairly easily.
There is no way all the legacy shareholders are going to want to blow out their stock, the previous company had moved from a Lithium exploration company to a company in the fantasy sports business. Some of the legacy shareholders have to like the prospects of Fantasy Aces and will hold on. The point I’m making is the stock under a dime should dry up pretty quickly, whichever way the current legal skirmish goes. Their current valuation has no upside potential priced into it, yet they have a strong story.
In this post, I wanted to present the main points of the story as I see it for Fantasy Aces and their stock. There are plenty of risks, obviously, they are a tiny little public company, I like their chances to get a lot better valuation in the near term, with a longer term potential of an out of the park home run.
As always, my commentary on the markets or individual companies is for information purposes only, before making any investment decisions, it is important to do your homework and speak with your financial advisors.
I expect to have a lot to write about this company, so stay tuned for future coverage.
All the best.