DraftKings has struck a deal that will see it acquired by a special purpose acquisition company alongside betting and gaming technology provider SBTech, with the combined entity to be listed on the Nasdaq Stock Exchange.
Diamond Eagle Acquisition Corp will acquire the businesses to create what is described as “the only vertically-integrated pure-play sports betting and online gaming company” based in the US.
The business was established by film producer Jeff Sagansky and Harry Sloan, previously chief executive of US media giant Metro-Goldwyn-Mayer to invest in new media businesses in May this year. That month it raised $400m through an initial public offering, and currently trades on the Nasdaq.
Diamond Eagle will be renamed DraftKings Inc once the transaction is closed – something expected to take place in the first half of 2020 – with the business to reincorporate in Nevada. Institutional investors, including funds managed by Capital Research and Management, Wellington Management and Franklin Templeton, have committed to acquiring $304m in Class A common stock, in addition to the $400m raised through the initial public offering.
“We are pleased to bring DraftKings and SBTech together as one public company,” Sloan said. “DraftKings is already a premier online fantasy sports and betting platform. With the full integration of SBTech’s technology and innovative product expertise coupled with the right capitalization, DraftKings will be in a great position to continue its ambitious expansion plans in the United States.
“I have known Jason Robins for four years, and consider him a true entrepreneur. I believe our investors share my utmost respect for his vision and leadership.”
It is expected that the DraftKings Inc business will have an equity market capitalization of around $3.3bn at closing, with more than $500m of unrestricted cash on its balance sheet.
Having begun as a daily fantasy operator, in which it currently has market share of around 60% worldwide, DraftKings has successfully pivoted into real-money wagering following the repeal of the Professional and Amateur Sports Protection Act in May 2018.
It was the first mobile operator to launch in New Jersey, in August 2018, and has since maintained an online market share of over 30%, across the nine months to September 30, 2019. It has also extended its mobile offering into Indiana, New Jersey, Pennsylvania and West Virginia, and has retail operations in Iowa, Mississippi, New Jersey and New York. This will be bolstered by an exclusive roll-out in New Hampshire, which is expected to begin in January 2020.
To date its sports betting offering has been powered by Stockholm-listed Kambi, which has seen its share price fall 30.65% to SEK119.70 per share at the time of writing (on December 23).
Co-founder and CEO Jason Robins, alongside DraftKings’ existing management team including co-founders Paul Liberman (chief operating officer) and Matt Kalish (chief revenue officer) will remain with the business.
“The combination of DraftKings’ leading and trusted brand, deep focus on customer experience and data science expertise and SBTech’s highly innovative and proven technology platform creates a vertically-integrated powerhouse,” Robins commented.
“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.”
SBTech’s management team, which is described as bringing “a wealth of international markets, trading and risk management experience” will also be retained and given roles within the combined business.
“The combination of DraftKings and SBTech brings together two tech-native companies with the customer at their cores,” SBTech chairman Gavin Isaacs said.
“SBTech will maintain its core business and continue its B2B focus,” Isaacs explained. “We are excited about the opportunity to join a company with a similar innovation DNA and create a unique and differentiated player in global sports betting and online gaming.”
The supplier has also carved out a position in the US, and is currently live in Arkansas, Indiana, Mississippi, New Jersey, Oregon and Pennsylvania, as well as exclusively in Oregon, where it powers the state lottery’s Scoreboard-branded sportsbook.
However the US only accounts for around 5% of its revenue currently, with Asia accounting for 54% of the total, followed by 42% coming from European markets.
Goldman Sachs is acting as Diamond Eagle’s exclusive financial advisor for the transaction, as well as serving as a private placement agent alongside Credit Suisse, with Winston & Strawn advising on legal elements.
DraftKings, meanwhile, has retained Raine Group as its exclusive financial advisor, with Sullivan & Cromwell providing legal counsel. Stifel is acting as financial advisor to SBTech, with Herzog, Fox & Neeman and Skadden, Arps, Slate, Meagher & Flom acting as legal advisors.
Analysts at Regulus Partners said that through the deal, both 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”.
“For DraftKings, this means it has closed a critical area of supply-chain risk and dependence (Kambi) and also gained a product set which is relevant ex US (where DFS penetration has been patchy at best),” Regulus explained. “For SBTech, this means a podium entry position into every US state that regulates as well as a transformative level of development firepower, which will be key to maintaining growth as B2B competitors catch up or emerge.”