Although DraftKings isn’t a public company yet, its stature could make the company a convincing acquisition target for traditional gaming operators trying to enter into a fast-growing market.
The first nine months of 2019, the period for which figures are most readily obtainable, show that Boston-based DraftKings’ revenue soared to nearly $200 million from $133 million in the year prior period.
Such exponential revenue growth, together with the company’s largely online footprint, are possibly attractive qualities for old guard operators which are searching for ways to better connect with millenials and Generation Z, technology-savvy demographics which aren’t adjusting to brick-and-mortar casinos like previous generations.
Barron’s reports, “The currently unprofitable DraftKings will emerge as the only pure play in online US sports gambling and a potential takeover candidate for industry leaders like MGM Resorts International (NYSE:MGM), Eldorado Resorts (NASDAQ:ERI), Wynn Resorts (NASDAQ:WYNN) and Las Vegas Sands (NYSE:LVS).”
As reported by casino.org, DraftKings announced plans Last month, to go public this year via a deal which will see the company join with Diamond Eagle Acquisition Corp. (NASDAQ:DEACU) and SBTech, a provider of sports betting technology and services.
Reasonable Price Tag
Say, a suitor appears for DraftKings from the above-mentioned group of gaming companies, most should find the cost of the daily fantasy sports (DFS) and sportsbook company acceptable. The deal with Diamond Eagle, a special purpose acquisition company (SPAC), values the DFS company at $3.3 billion.
However, the SPAC’s stock has jumped 34.22 percent since Dec. 23, the day the DraftKings transaction was announced, vaulting its market capitalization to $4.8 billion.
The issue for any operator mulling a purchase of DraftKings is how long it will take the company to become profitable. For the first nine months of 2019, the firm’s net loss swelled to $114 million, a 52 percent increase from its $75.14 loss in the first nine months of 2918.
Based on growth projections for US sports betting, a case can be made that a buyer would be eager to pay up for DraftKings. Morgan Stanley forecast last year, by 2025, the domestic sports betting market could be worth $7 billion or more. That estimate is based on the supposition that 36 states will have approved sports wagering by that year, up from 20 today.
Assessing the Suitors
Eldorado makes the least sense as a possible buyer for DraftKings, of the group of Eldorado Resorts, Las Vegas Sands, MGM and Wynn, over the near- to medium-term at least.
The company is about to complete a $17.3 billion takeover of Caesars Entertainment (NASDAQ:CZR), and even if CEO Tom Reeg has openly mentioned an appreciation for Caesars’s huge online casinos and sportsbook operations, he has also said those units could ultimately be spun off to squeeze more value out of them for investors.
There would be collaborations for MGM, a company which has been building its own sports betting domain via partnerships with restaurant chains, leagues, stadiums and teams, one which expands to sports beyond the usual fare.
As for LVS and Wynn, either company could afford to buy DraftKings. Sands had $3.83 billion in cash on hand at the end of the third quarter while Wynn had $1.67 billion.
In recent months the Encore operator has been more active on the sports betting front of the two, signing a partnership deal with Full House Resorts, Inc. (NASDAQ:FLL) for sports betting in Colorado and Indiana while reiterating its longing to see Massachusetts, home to Encore Boston Harbor, accept sports gambling.
