DraftKings’ game-changing announcement last week regarding its public market debut and acquisition of SBTech hasn’t just thrown a rock into the pond. It has tipped an entire boulder into a puddle. The firm’s entry into what is effectively a three-way deal will give it an expected value of $3.3bn. And it’s a deal that is already grabbing the attention of stock market investors.
Of greater interest to stakeholders in the sports betting sector, though, is that the newly formed company now becomes the only US-based vertically integrated sports betting and online gaming firm, comprising operating, sports betting technology and some serious financial muscle via Diamond Eagle’s involvement.
SBTech’s risk management offer also negates the requirement for DraftKings to source externally on that front. Current provider Kambi says it will continue to deliver on its existing deal with Draftkings until notification of termination is given. But that’s a cost saving the firm will be looking to capitalize on before too long.
Industry observers will also note that DraftKings’ route to being a publicly traded company has not followed the traditional IPO format. Together with SBTech, it will be bought by Diamond Eagle, which will subsequently change its name to DraftKings. Jason Robins, Co-Founder and CEO, will remain in charge along with the existing management team.
Robins, in the firm’s investor call last week, described the new venture, saying: “It’s a powerful combination that creates a premier, pure play, US-based sports digital entertainment and gaming company. Together our companies will be able to realize DraftKings’ vision to build the best, most trusted and most customer-centric destination for ‘skin-in-the-game’ sports fans. To develop the most entertaining real money gaming products and offers and to forever transform the way people experience sports.”
Robins went on to highlight five key investment points, citing the massive growth of the global online and gaming market, DraftKings’ market leading position, the new combination with SBTech, its experience in New Jersey and the firm’s new status as a pure play, publicly traded online gaming company that is well capitalized for the future.
He commented: “We are positioned at the intersection of digital sports entertainment and gaming. The global gaming and entertainment industry is valued at approximately $2.5t. The global gaming market, including casino, sports betting, slots and lottery is approximately $450bn, of which just over 11% is currently online.”
Focusing on online opportunities in the US, Robins noted: “The estimated market maturity could be anywhere between $14bn to $23bn in gross revenue. We triangulated on these estimates in a variety of ways including existing third party research, an extrapolation of New Jersey results, and an extrapolation of more mature markets like the UK and Australia.”
The main draw for investors eyeing DraftKings’ move to public trading will be the big numbers that it will look to add to the bottom line. According to Robins, the online gaming revenue opportunity for DraftKings is between $2.9bn and $7.4bn in the US alone. With online sports betting, the firm could generate $2.3bn to $3.5bn in gross revenue. Within igaming, he predicted the firm could generate another $600m to $1.2bn in gross revenue.
Talking topline figures, he commented: “We expect to be able to grow our revenue by 30% to $540m in 2020, an additional 30% in 2021 to $700m. As we scale our combined businesses we believe we can achieve more than $1bn in EBITDA on a revenue base of $3.7bn in the US alone.”
Concluding, Robins addressed the call, saying: “We are excited about our future. Over the last few years we have built a dominant brand in daily fantasy sports that has positioned us well for the opportunity that is emerging as sports betting becomes legalized in more states across the US. With the proposed merger we will become the only pure play, US-focused, vertically integrated company to address this emerging market.”