DraftKings to go public with $3.3bn valuation through merger
DraftKings, the US fantasy sports betting group, is set to go public in a three-way merger that values the combined business at $3.3bn.
DraftKings has agreed to be sold to Nasdaq-listed Diamond Eagle Acquisition Corp, a special purpose acquisition company founded by the former chairman of Hollywood studio MGM, Harry Sloan, and film producer Jeff Sagansky, alongside gaming technology company SBTech.
The combination with Mr Sagansky’s Spac, a publicly traded vehicle through which money is raised from investors to fund acquisitions, means that DraftKings will have a market listing without launching an initial public offering.
The deal is the latest in a wave of consolidation across the gambling industry following the lifting of a federal ban on sports betting in the US in 2018. In order to cater to the demand for sports betting, US companies have been looking to partner with European betting groups with experience in regulated gambling markets.
DraftKings’ fantasy sports rival FanDuel was bought by Flutter Entertainment, the UK parent company of Paddy Power Betfair, the same month the bill banning sports was repealed. Flutter has since merged with Stars Group, the company behind Sky Betting & Gaming, in a £10bn tie-up.
MGM Resorts International has partnered with GVC, the owner of UK bookmaker Ladbrokes Coral, in a $200m joint venture.
The DraftKings deal is expected to complete in the first half of next year.
Paul Leyland, an analyst at Regulus Partners, said the merger meant DraftKings and SBTech would “gain a level of scale and control over their own destiny that changes them from relative upstarts to a credible leadership role”.
Institutional investors have committed to buy $304m common stock in the combined company, which will trade under the DraftKings name with Jason Robins, DraftKings’ co-founder and chief executive, staying on to lead it.
Diamond Eagle anticipates the combined group will have a market capitalisation of $3.3bn once the deal closes, with more than $500m of cash on its balance sheet.
Mr Robins said the merger would allow DraftKings to become “a vertically integrated powerhouse”.
“I look forward to building significantly upon our goals of continuing our state-by-state rollout and creating the most entertaining and engaging customer experiences for sports fans globally,” he said.
DraftKings abandoned a planned a merger with FanDuel in 2017 after regulators said that combined the pair would control roughly 90 per cent of the daily fantasy sports market. Thanks to the reach of daily fantasy sports — an online game in which participants choose fantasy teams across various sports but win points based on the real-life performance of the players — the two have become the market leaders in sports betting in states where the activity is legal.
According to analysts at Morgan Stanley, however, DraftKings still trails FanDuel in downloads of sports betting apps with FanDuel holding 34 per cent share of the market and DraftKings, 25 per cent.
The industry research firm Gambling Compliance estimates that the US sports betting market will be worth $5.9bn in revenue by 2024, assuming a base case scenario of 34 states legalising the activity.
Isle of Man-based SBTech provides back-end technology to gambling companies in about 20 regulated markets.